<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 7, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FIDELITY NATIONAL FINANCIAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 6361 86-0498599
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
17911 VON KARMAN AVENUE, SUITE 300
IRVINE, CALIFORNIA 92614
(714) 622-5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
M'LISS JONES KANE
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
FIDELITY NATIONAL FINANCIAL, INC.
17911 VON KARMAN AVENUE, SUITE 300
IRVINE, CALIFORNIA 92614
(714) 622-5000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
C. CRAIG CARLSON, ESQ. JAMES B. SMITH, JR., ESQ.
J. MICHAEL VAUGHN, ESQ. STEVEN A. ELDER, ESQ.
STRADLING YOCCA CARLSON & RAUTH COX & SMITH INCORPORATED
660 NEWPORT CENTER DRIVE 112 E. PECAN STREET, SUITE 1800
NEWPORT BEACH, CALIFORNIA 92660 SAN ANTONIO, TEXAS 78205
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As promptly
as practicable after this Registration Statement becomes effective and the
effective time of the proposed merger of a wholly-owned subsidiary of the
Registrant with and into Alamo Title Holding Company, as described in the
Agreement and Plan of Merger, dated as of May 6, 1998, attached as Appendix A to
the Proxy Statement/Prospectus forming a part of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
- ------------------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED(1) UNIT(2) PRICE(2) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------------
Common Stock, $.0001 par
value.................. 2,086,562 $35.06 $46,204,607 $13,630.36
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based upon the maximum number of shares that may be issued upon consummation
of the Merger described herein, assuming exercise of all options to purchase
shares of common stock of Alamo Title Holding Company.
(2) Pursuant to Rule 457(f), and solely for the purpose of calculating the
registration fee, the proposed maximum offering price per share and maximum
aggregate offering price are based upon the book value of the shares of
common stock of Alamo Title Holding Company on May 31, 1998, which was
$35.06, and the maximum number of shares of Alamo common stock expected to
be exchanged in connection with the Merger.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
ALAMO TITLE HOLDING COMPANY
10010 SAN PEDRO, SUITE 800
SAN ANTONIO, TEXAS 78216-3895
July , 1998
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Alamo Title Holding Company ("Alamo"), which will be held on ,
, 1998, at , local time, at , ,
Texas .
At this important meeting, you will be asked to consider and vote upon a
proposal to approve the Agreement and Plan of Merger, dated as of May 6, 1998
(the "Merger Agreement"), by and among Alamo, Fidelity National Financial, Inc.
("Fidelity"), and AT Merger, Inc., a newly-formed, wholly-owned subsidiary of
Fidelity ("Merger Sub"), and the merger (the "Merger") of Merger Sub with and
into Alamo. As a result of the Merger, Alamo would become a wholly-owned
subsidiary of Fidelity and each outstanding share of Alamo Common Stock would be
converted into 1.491 shares of Fidelity Common Stock, subject to adjustment as
provided in the Merger Agreement.
Your Board of Directors has carefully considered the terms and conditions
of the proposed Merger and has determined that the Merger is fair to and in the
best interests of Alamo and its shareholders. THE BOARD HAS UNANIMOUSLY APPROVED
THE MERGER AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS OF
ALAMO APPROVE THE MERGER AGREEMENT AND THE MERGER.
In the material accompanying this letter, you will find a Notice of Special
Meeting of Shareholders, a Proxy Statement/Prospectus relating to the matters to
be considered by Alamo shareholders at the Special Meeting and a proxy card. The
Proxy Statement/Prospectus more fully describes the proposed Merger and includes
information about Alamo and Fidelity.
Whether or not you plan to attend the Special Meeting, please complete,
sign, date and return your proxy card in the enclosed envelope. If you attend
the Special Meeting, you may vote in person if you wish, even though you have
previously returned your proxy card. It is important that your shares be
represented and voted at the Special Meeting.
Thank you for your prompt and careful attention to these matters and for
your continuing support of Alamo, its directors, officers and employees.
Sincerely,
--------------------------------------
Alex H. Halff
Senior Chairman of the Board
<PAGE> 3
ALAMO TITLE HOLDING COMPANY
10010 SAN PEDRO, SUITE 800
SAN ANTONIO, TEXAS 78216-3895
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 1998
TO THE SHAREHOLDERS OF
ALAMO TITLE HOLDING COMPANY:
A Special Meeting of Shareholders of Alamo Title Holding Company, a Texas
corporation ("Alamo"), will be held on , , 1998,
at , local time, at , ,
(the "Special Meeting"), for the following purposes:
1. To consider and vote upon a proposal to approve the Agreement and
Plan of Merger, dated as of May 6, 1998 (the "Merger Agreement"), by and
among Alamo, Fidelity National Financial, Inc., a Delaware corporation
("Fidelity"), and AT Merger, Inc., a newly-formed, wholly-owned subsidiary
of Fidelity ("Merger Sub"), and the merger (the "Merger") of Merger Sub
with and into Alamo, as a result of which Alamo will become a wholly-owned
subsidiary of Fidelity and each outstanding share of Common Stock, par
value $2.50 per share ("Alamo Common Stock"), of Alamo (other than treasury
shares and shares owned by Fidelity or its subsidiaries), will be converted
into 1.491 shares of Common Stock, par value $.0001, of Fidelity (subject
to adjustment as provided in the Merger Agreement); and
2. To transact such other business as may properly come before the
Special Meeting or any adjournment or postponement thereof.
Only shareholders of record of Alamo Common Stock at the close of business
on , 1998 are entitled to notice of, and will be entitled to vote
at, the Special Meeting or any adjournment or postponement thereof. Approval of
the Merger Agreement and the Merger will require the affirmative vote of the
holders of at least 66 2/3% of the shares of Alamo Common Stock present in
person or represented by proxy at the Special Meeting and entitled to vote
thereon.
BY ORDER OF THE BOARD OF DIRECTORS
--------------------------------------
,
Secretary
San Antonio, Texas
July , 1998
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE MARK, SIGN, DATE
AND RETURN YOUR PROXY CARD IN THE ENVELOPE PROVIDED IN ORDER TO ASSURE THAT YOUR
SHARES ARE REPRESENTED AT THE SPECIAL MEETING. YOU CAN REVOKE YOUR PROXY AT ANY
TIME BEFORE IT IS VOTED.
<PAGE> 4
FIDELITY NATIONAL FINANCIAL, INC. ALAMO TITLE HOLDING COMPANY
------------------------
PROXY STATEMENT/PROSPECTUS
This Proxy Statement/Prospectus is being furnished to the shareholders of
Alamo Title Holding Company, a Texas corporation ("Alamo"), in connection with
the solicitation of proxies by the Board of Directors of Alamo for use at the
special meeting of Alamo shareholders to be held on , 1998 (the
"Special Meeting"). Only holders of Common Stock, par value $2.50 per share (the
"Alamo Common Stock"), of Alamo at the close of business on , 1998
(the "Alamo Record Date") are entitled to notice of and to vote at the Special
Meeting and any adjournment or postponements thereof. On the Alamo Record Date,
there were 1,356,638 shares of Alamo Common Stock outstanding.
The Special Meeting is being held to approve the merger (the "Merger") of
AT Merger, Inc. ("Merger Sub"), a newly formed, wholly-owned subsidiary of
Fidelity National Financial, Inc., a Delaware corporation ("Fidelity"), with and
into Alamo, with Alamo being the surviving corporation in the Merger, pursuant
to an Agreement and Plan of Merger, dated as of May 6, 1998 (the "Merger
Agreement"), by and among Fidelity, Alamo and Merger Sub. A copy of the Merger
Agreement is attached to this Proxy Statement/Prospectus as Appendix A and is
incorporated herein by reference.
This Proxy Statement/Prospectus also relates to up to 2,086,562 shares of
Common Stock, par value $.0001 per share, of Fidelity (the "Fidelity Common
Stock") offered hereby to the shareholders of Alamo upon consummation of the
Merger. Upon the effectiveness of the Merger, each share of Alamo Common Stock
will be converted into 1.491 shares of Fidelity Common Stock (subject to
adjustment pursuant to the Merger Agreement in certain circumstances, the
"Exchange Ratio"), without interest, and cash in lieu of fractional shares. For
a more complete description of the Merger Agreement and the Merger, see "THE
MERGER."
On July , 1998, the closing sale price of Fidelity Common Stock on the
New York Stock Exchange ("NYSE") was $ . Because the market price of
Fidelity Common Stock is subject to fluctuation, the value of the shares of
Fidelity Common Stock that holders of Alamo Common Stock will receive in the
Merger may increase or decrease prior to and after the Merger. See "PRICE RANGE
OF COMMON STOCK AND DIVIDENDS."
This Proxy Statement/Prospectus and the accompanying form of proxy are
first being mailed to shareholders of Alamo on or about July , 1998.
SHAREHOLDERS OF ALAMO ARE STRONGLY URGED TO READ AND CONSIDER CAREFULLY
THIS PROXY STATEMENT/PROSPECTUS IN ITS ENTIRETY, PARTICULARLY THE MATTERS
REFERRED TO ON PAGE 12 UNDER "RISK FACTORS."
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS JULY , 1998
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
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PAGE
----
<S> <C>
AVAILABLE INFORMATION....................................... iii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. iv
SUMMARY..................................................... 1
The Companies............................................. 1
Special Meeting of Shareholders........................... 2
Opinion of Financial Advisors............................. 2
Recommendation of the Board of Directors.................. 3
The Merger................................................ 3
Recent Market Price Data.................................. 7
Recent Developments....................................... 7
SELECTED HISTORICAL FINANCIAL DATA OF FIDELITY.............. 8
SELECTED HISTORICAL FINANCIAL DATA OF ALAMO................. 9
SELECTED PRO FORMA FINANCIAL DATA OF FIDELITY AND ALAMO
COMBINED.................................................. 10
COMPARATIVE PER SHARE DATA.................................. 11
RISK FACTORS................................................ 12
Integration of Operations; Management of Growth........... 12
Title Insurance Industry and Related Risks................ 13
Interest Rate and Economic Risks.......................... 13
Regulation................................................ 14
Competition............................................... 14
THE SPECIAL MEETING......................................... 15
Record Date and Outstanding Shares........................ 15
Voting of Proxies......................................... 15
Vote Required............................................. 15
Solicitation of Proxies and Expenses...................... 15
THE MERGER.................................................. 16
The Merger................................................ 16
Background of the Merger.................................. 17
Reasons for the Merger.................................... 18
Board Recommendation...................................... 19
Opinion of Alamo's Financial Advisor...................... 19
Interests of Certain Persons in the Merger................ 22
Representations and Warranties; Covenants................. 23
Conditions to the Merger.................................. 25
Treatment of Options to Purchase Alamo Common Stock; Stock
Awards and Stock Appreciation Rights................... 25
Amendment or Termination of the Merger Agreement.......... 25
Related Agreements........................................ 26
Regulatory Approvals...................................... 26
Management and Operations After the Merger................ 27
Certain Federal Income Tax Consequences................... 27
Restrictions on Resales by Affiliates..................... 28
Accounting Treatment...................................... 29
Dissenters' Rights........................................ 30
Exchange of Certificates.................................. 32
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS.......... 33
</TABLE>
i
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
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<S> <C>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 39
Overview.................................................. 39
Results of Operations..................................... 41
Expenses.................................................. 42
Liquidity and Capital Resources........................... 43
Seasonality and Trends.................................... 44
PRICE RANGE OF COMMON STOCK AND DIVIDENDS................... 45
INFORMATION ABOUT FIDELITY.................................. 46
INFORMATION ABOUT ALAMO..................................... 47
General................................................... 47
Principal Holders of Alamo Common Stock................... 47
COMPARISON OF RIGHTS OF STOCKHOLDERS OF FIDELITY AND RIGHTS
OF SHAREHOLDERS OF ALAMO.................................. 50
Right of Shareholders to Vote on Certain Mergers.......... 50
Disposition of Assets..................................... 51
Dissenters' Rights........................................ 51
Shareholder Consent to Action without a Meeting........... 51
Procedures for Filling Vacant Directorships............... 52
Right to Call Meetings.................................... 52
Charter Amendments........................................ 52
Bylaw Amendments.......................................... 53
Cumulative Voting......................................... 53
Inspection of Books and Records........................... 53
Class Voting.............................................. 53
Removal of Directors...................................... 54
Distributions and Dividends............................... 54
Stock Redemption and Repurchase........................... 54
Preemptive Rights......................................... 55
Indemnification of Directors and Officers................. 55
Limitation of Liability of Directors...................... 56
Business Combinations..................................... 56
STOCKHOLDER PROPOSALS....................................... 57
EXPERTS..................................................... 57
LEGAL MATTERS............................................... 57
OTHER MATTERS............................................... 57
INDEX TO FINANCIAL STATEMENTS............................... F-1
APPENDICES:
APPENDIX A -- Agreement and Plan of Merger
APPENDIX B -- Opinion of McDonald & Company Securities,
Inc.
APPENDIX C -- Sections 5.11 to 5.13 of The Texas Business
Corporation Act
</TABLE>
ii
<PAGE> 7
NO PERSON HAS BEEN AUTHORIZED BY FIDELITY OR ALAMO TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROXY STATEMENT/PROSPECTUS IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE
OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY FIDELITY OR
ALAMO. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE SECURITIES OFFERED BY THIS PROXY
STATEMENT/PROSPECTUS OR A SOLICITATION OF A PROXY IN ANY JURISDICTION WHERE, OR
TO ANY PERSON TO WHOM, IT WOULD BE UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION.
NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF THE SECURITIES TO WHICH THIS PROXY STATEMENT/PROSPECTUS RELATES
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION CONTAINED HEREIN SINCE THE DATE HEREOF.
AVAILABLE INFORMATION
Fidelity is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices at
7 World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Information on the
operation of the public reference facilities can be obtained by calling the
Commission at 1-800-SEC-0330. Copies of these materials can also be obtained
from the Commission at prescribed rates by writing to the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. The
Commission maintains an Internet web site that contains certain reports, proxy
statements and other information regarding issuers, like Fidelity, who file
electronically with the Commission. The address of that site is
http://www.sec.gov. The reports, proxy statements and other information filed by
Fidelity with the Commission may also be inspected at the offices of the NYSE,
20 Broad Street, New York, New York 10005.
Fidelity has filed with the Commission a Registration Statement on Form S-4
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to securities to be issued in connection with the Merger (the
"Registration Statement"). This Proxy Statement/Prospectus constitutes the
prospectus of Fidelity that is filed as part of the Registration Statement.
Other parts of the Registration Statement are omitted from this Proxy
Statement/Prospectus in accordance with the rules and regulations of the
Commission. Copies of the Registration Statement, including the exhibits to the
Registration Statement and other material that is not included herein, may be
inspected, without charge, at the offices of the Commission referred to above,
or obtained at prescribed rates from the Public Reference Section of the
Commission at the address set forth above.
Statements made in this Proxy Statement/Prospectus concerning the contents
of any contract or other documents are not necessarily complete. With respect to
each contract or other document filed as an exhibit to the Registration
Statement, reference is hereby made to that exhibit for a more complete
description of the matter involved, and each such statement is hereby qualified
in its entirety by such reference.
ALL INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS RELATING TO
FIDELITY HAS BEEN FURNISHED BY FIDELITY, AND ALL INFORMATION HEREIN RELATING TO
ALAMO HAS BEEN FURNISHED BY ALAMO.
iii
<PAGE> 8
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by Fidelity with the Commission
are hereby incorporated by reference in this Proxy Statement/Prospectus: (i) the
Fidelity Annual Report on Form 10-K, as amended, for the year ended December 31,
1997; (ii) the Fidelity Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1998; (iii) the Fidelity Current Reports on Form 8-K dated
February 26, 1998, as amended, March 19, 1998, March 25, 1998, April 23, 1998,
May 6, 1998 and June 24, 1998; and (iv) the description of the Fidelity Common
Stock which is contained in the registration statement filed by Fidelity under
the Exchange Act, including any amendment or reports filed for the purpose of
updating such description.
In addition, all documents filed by Fidelity with the Commission pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
of this Proxy Statement/Prospectus and prior to the date of the Special Meeting
shall be deemed incorporated by reference into this Proxy Statement/Prospectus
from the date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated herein shall be deemed to be modified
or superseded for purposes of this Proxy Statement/ Prospectus to the extent
that a statement contained herein or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Proxy Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE HEREIN) ARE AVAILABLE WITHOUT CHARGE UPON WRITTEN OR ORAL REQUEST.
REQUESTS FOR DOCUMENTS RELATING TO FIDELITY SHOULD BE DIRECTED TO FIDELITY
NATIONAL FINANCIAL, INC., ATTN: M'LISS JONES KANE, SENIOR VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY, 17911 VON KARMAN AVENUE, SUITE 300, IRVINE,
CALIFORNIA 92614 (TELEPHONE (949) 622-5000). IN ORDER TO ENSURE TIMELY DELIVERY
OF THE DOCUMENTS IN ADVANCE OF THE SPECIAL MEETING, ANY SUCH REQUEST SHOULD BE
MADE BY , 1998.
iv
<PAGE> 9
SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Proxy Statement/ Prospectus and is not intended to be complete. The
summary is qualified in its entirety by reference to the more detailed
information contained elsewhere in this Proxy Statement/Prospectus, the
accompanying Appendices and the documents incorporated herein by reference.
This Proxy Statement/Prospectus contains or incorporates by reference
certain forward-looking statements with respect to the financial conditions,
results of operations and businesses of Fidelity and Alamo and, assuming the
consummation of the Merger, the combined company, including statements relating
to the cost savings and accretion to reported earnings that will be realized
from the Merger. These forward-looking statements involve certain risks and
uncertainties, and any such statement is qualified in its entirety by reference
to the following cautionary statements.
In connection with the Merger, factors that may cause actual results to
differ materially from those contemplated by such forward-looking statements
include the following: (i) expected costs savings from the Merger cannot be
fully realized or realized within the expected time frame; (ii) costs or
difficulties related to the integration of the businesses of Fidelity and Alamo
are greater than expected; (iii) revenues following the Merger are lower than
expected; (iv) competitive pressure in the financial services, real estate
services, title insurance and related industries increases significantly; (v)
changes in the interest rate environment; (vi) general economic conditions,
either nationally or in the regions in which the combined company will conduct
business, are less favorable than expected; or (vii) legislation or regulatory
changes adversely affect the businesses conducted by the combined company.
Further information on other factors which could affect the financial results of
Fidelity after the Merger is included in filings with the Commission
incorporated by reference herein.
THE COMPANIES
Fidelity. Fidelity is a specialty finance company engaged in doing business
in 49 states, the District of Columbia, Puerto Rico, the Bahamas and the Virgin
Islands. Through its subsidiaries, Fidelity 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 software product development and technology services,
trustee sale guarantees, foreclosure publishing and posting services, exchange
intermediary services in connection with real estate transactions, real estate
tax services, credit reporting services, flood compliance products, and
attorneys' services. Title insurance services are provided through Fidelity'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. Fidelity's principal
subsidiaries consist of Fidelity National Title Insurance Company, which, in
turn, is the parent company of Fidelity National Title Insurance Company of
Tennessee; Fidelity National Title Insurance Company of New York, which, in
turn, is the parent company of Nations Title Insurance of New York Inc. and
National Title Insurance of New York Inc.; and its wholly-owned underwritten
title companies Fidelity National Title Company and Fidelity National Title
Company of California.
Fidelity, through its wholly-owned subsidiary, Granite Financial, Inc.
("Granite"), performs specialty finance functions such as originating, funding,
purchasing, selling, securitizing and servicing equipment leases for a broad
range of businesses. Granite was acquired by Fidelity on February 26, 1998 in a
business combination accounted for as a pooling-of-interests. Certain
information concerning Granite, Fidelity's acquisition of Granite, historical
consolidated financial statements of Granite and pro forma financial statements
are incorporated by reference herein. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE."
1
<PAGE> 10
Unless otherwise indicated, "Fidelity" refers to Fidelity National
Financial, Inc. and its wholly-owned subsidiaries. Fidelity's principal
executive offices are located at 17911 Von Karman Avenue, Suite 300, Irvine,
California 92614. Its telephone number is (949) 622-5000.
Merger Sub. AT Merger, Inc., a Texas corporation, is a wholly-owned
subsidiary of Fidelity formed solely for the purposes of the Merger, and is not
presently engaged in any significant business activities.
Alamo. Alamo is a holding company organized under the laws of the State of
Texas in 1993 to serve as the holding company for Alamo Title Insurance ("ATI")
and other subsidiaries engaged in the title agency business. Alamo, through ATI,
is a regional underwriter of title insurance in Texas and New Mexico. ATI was
incorporated under the laws of Texas in 1922 and is subject to regulation by the
Texas Department of Insurance. In addition to underwriting title insurance
policies, Alamo, through its subsidiaries, performs other title-related services
for both residential and commercial real estate transactions such as escrow
operations, title searches and property reports. Title insurance services are
provided through Alamo's operating subsidiaries and otherwise through
independent title insurance agents who issue title policies on behalf of ATI.
See "INFORMATION ABOUT ALAMO."
Unless otherwise indicated, "Alamo" refers to Alamo Title Holding Company
and its wholly-owned subsidiaries. Alamo's principal executive offices are
located at 10010 San Pedro, Suite 800, San Antonio, Texas 78216-3895. Its
telephone number is (210) 377-0881.
SPECIAL MEETING OF SHAREHOLDERS
Date, Time and Place
The Special Meeting will be held on , 1998, at ,
local time, at , , .
Record Date; Shares Outstanding and Entitled to Vote
Holders of record of Alamo Common Stock at the close of business on the
Alamo Record Date are entitled to notice of and to vote at the Special Meeting.
As of the close of business on , 1998, there were 1,356,638 shares
of Alamo Common Stock outstanding, each of which will be entitled to one vote on
each matter to be acted upon.
Purpose of the Special Meeting
At the Special Meeting, holders of record of Alamo Common Stock as of the
close of business on the Alamo Record Date will be asked to consider and vote
upon a proposal to approve and adopt the Merger Agreement and the Merger.
Vote Required
Approval of the Merger Agreement and the Merger requires the affirmative
vote of the holders of at least 66 2/3% of the outstanding shares of Alamo
Common Stock. As of the close of business on , 1998, the directors
and executive officers of Alamo and their affiliates had the right to vote an
aggregate of 558,983 shares (excluding shares underlying currently exercisable
options) of Alamo Common Stock, representing approximately 41.2% of Alamo Common
Stock entitled to vote at the Special Meeting.
OPINION OF FINANCIAL ADVISORS
On May 6, 1998, McDonald & Company Securities, Inc. ("McDonald") delivered
to the Board of Directors of Alamo its oral opinion (subsequently confirmed in
writing by an opinion dated as of the same date), to the effect that, as of the
date of the opinion and based on and subject to the assumptions, factors and
limitations set forth therein, the Exchange Ratio as defined in the Merger
Agreement was fair, from a financial point of view, to the shareholders of
Alamo. Such opinion was subsequently reaffirmed by the issuance to the Alamo
Board of a McDonald opinion dated the date of this Proxy Statement/Prospectus.
McDonald's opinion is directed only to the consideration to be received by
holders of Alamo Common Stock and does not constitute a recommendation to the
holders of Alamo Common Stock as to how they should vote at the Special Meeting.
The full text of the opinion of McDonald, which sets forth the assumptions made,
matters considered and limitations on the review undertaken by McDonald, is
attached hereto as Appendix B. The holders of Alamo Common Stock are urged to
read, and should read, this opinion in its entirety.
2
<PAGE> 11
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors of Alamo (the "Alamo Board") has unanimously
approved the Merger Agreement and the Merger. The Alamo Board believes that the
Merger is fair to and in the best interest of Alamo and its shareholders, and
unanimously recommends that its shareholders vote "FOR" the matters to be voted
upon by its shareholders in connection with the Merger. For a discussion of the
primary factors considered and relied upon by the Alamo Board in reaching its
conclusions, see "THE MERGER -- Reasons for the Merger."
THE MERGER
Pursuant to the Merger, subject to the terms and conditions of the Merger
Agreement, Merger Sub will merge with and into Alamo, which will be the
surviving entity, and each outstanding share of Alamo Common Stock will be
converted into 1.491 shares (the "Exchange Ratio") of Fidelity Common Stock
(subject to adjustment in certain circumstances described below) without
interest, plus cash in lieu of any resulting fractional shares of Fidelity
Common Stock. The Exchange Ratio is subject to adjustment, as provided in the
Merger Agreement, if the Average Fidelity Stock Price (as defined below) is less
than $35.714 or more than $40.476. The "Average Fidelity Stock Price" means the
average of the daily closing sales prices of the Fidelity Common Stock as
reported on the NYSE Composite Transactions reporting system (as reported by the
Wall Street Journal) for the 20 consecutive full trading days ending on the
third business day immediately prior to the date of the Special Meeting. See
"THE MERGER -- The Merger."
Interests of Certain Persons in the Merger
The executive officers and directors of Alamo hold an aggregate of
approximately 558,983 shares of Alamo Common Stock. In addition, certain of the
executive officers of Alamo hold stock options to purchase an aggregate of
17,200 shares of Alamo Common Stock (all of which stock options are currently
unvested but would become fully vested upon consummation of the Merger). Upon
consummation of the Merger, all of such stock options will be assumed by
Fidelity and become stock options to purchase the number of shares of Fidelity
Common Stock into which the number of shares of Alamo Common Stock subject to
such stock option would be converted pursuant to the Merger Agreement, and the
exercise price would be recalculated to equal the exercise price immediately
prior to the Merger divided by the Exchange Ratio. Alan L. Stinson also has
Stock Appreciation Rights (the "SARs") with respect to 6,000 of Alamo Common
Stock shares at an initial value of $23.76 per share (of which SARs with respect
to 1,200 shares are currently unvested but will become fully vested upon
consummation of the Merger) which, upon consummation of the Merger, will be
converted into an option to purchase a number of shares of Fidelity Common Stock
equal to the number of shares of Alamo Common Stock relating to the SARs
multiplied by the Exchange Ratio at an exercise price equal to the amount
necessary to preserve the value inherent in the SARs. In addition, Fidelity or
Alamo has entered into or expects to enter into customary employment agreements
with certain of Alamo's key employees.
Robert T. Rork, the President of Alamo ("Rork"), Alan L. Stinson, Executive
Vice President and Chief Financial Officer of Alamo ("Stinson") and Don H.
Still, Chairman of the Board of Alamo ("Still"), are entitled to receive certain
cash payments in the event of a change of control of Alamo, pursuant to
Retention Agreements previously entered into with Alamo. The Merger will
constitute a change of control of Alamo under such Retention Agreements.
Accordingly, Rork and Stinson will each be entitled to receive $640,000 upon
consummation of the Merger and Still will be entitled to receive an aggregate of
$750,000 in cash, $150,000 of which is to be paid upon termination of his
employment (for any reason), with $150,000 to be paid on each of the first four
anniversaries of the date of such termination. Such payments are subject to
reduction if the Retention Agreements and such payments are not approved by
Alamo's shareholders. See "THE MERGER -- Interests of Certain Persons in the
Merger."
Representations and Warranties; Covenants
Under the Merger Agreement, Fidelity and Alamo made a number of
representations and warranties to each other, including representations and
warranties regarding their valid existence and good standing,
3
<PAGE> 12
authority to enter into the Merger Agreement and to consummate the Merger, and
the accuracy of their respective filings with the Commission. Furthermore, Alamo
made certain additional representations and warranties to Fidelity concerning,
among other things, contracts, compliance with applicable laws, the absence of
certain changes, taxes and issuance of its securities. The representations and
warranties shall not survive the effective time of the Merger. Alamo also agreed
not to initiate, continue, solicit or encourage any inquiries or the making of
any proposal or offer with respect to a merger or similar transaction involving,
or any purchase of all or any significant portion of the assets or equity
securities of, Alamo or any of its subsidiaries (an "Acquisition Proposal") by,
or engage in any discussions or negotiations with, any third person or
facilitate the efforts of any person other than Fidelity relating to an
Acquisition Proposal.
From and after the effective time of the Merger, Fidelity shall have the
right to continue, amend or terminate any Alamo benefit plan or arrangement, in
accordance with the terms thereof and subject to any limitations arising under
applicable law. Fidelity has agreed, if the Merger is consummated, to indemnify
the officers and directors, employees or agents of Alamo (and advance any fees
and expenses) for a period of at least three years with respect to any claim or
liability based on or arising out of the fact that such person was a director,
officer, employee, or agent of Alamo, subject to certain limitations. See "THE
MERGER -- Representations and Warranties; Covenants."
Conditions to the Merger
In addition to the shareholder approvals sought hereby, the obligations of
Alamo, Fidelity and Merger Sub to consummate the Merger are subject to a number
of other conditions which, if not satisfied or waived, could cause the Merger
not to be consummated and the Merger Agreement to be terminated. Each party's
obligation to consummate the Merger is conditioned upon, among other things:
certain regulatory approvals; the absence of material adverse changes, subject
to certain exceptions, in the value, condition, prospects, business or results
of operations of Fidelity or Alamo; the accuracy, in all material respects, of
the representations and warranties made by the other party; the performance, in
all material respects, of the covenants of the other party; the obtaining of all
necessary consents, approvals or waivers from third parties; the absence of any
provisions of any applicable law or regulation or any judgment, injunction,
order, decree or other legal restraint which would prohibit the consummation of
the Merger; the absence of any event which, in the reasonable opinion of
Fidelity or Alamo, would prevent the Merger from being accounted for as a
pooling-of-interests; and the receipt of tax opinions by Fidelity and Alamo to
the effect that the Merger will qualify as a "reorganization" under Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). See "THE
MERGER -- Conditions to the Merger."
Options and Warrants to Purchase Alamo Common Stock; Stock Appreciation
Rights; Stock Awards
As of the Alamo Record Date, there were options to purchase an aggregate of
42,800 shares of Alamo Common Stock (the "Alamo Options") outstanding. At the
effective time of the Merger, each Alamo Option will be assumed by Fidelity and
will thereafter be deemed to constitute an option to purchase, on the same terms
and conditions as were applicable under such Alamo Option, the number of shares
of Fidelity Common Stock as the holder would have received if such Alamo Option
was exercised in full immediately prior to the Merger and been the holder of
Alamo Common Stock issuable upon exercise of such Alamo Option. As of the Alamo
Record Date, there was an outstanding stock award (the "Stock Award") granted by
Alamo to W. Paul Holladay, Jr. to receive 3,253 shares of Alamo Common Stock on
February 1, 1999. At the effective time of the Merger, the Stock Award will be
assumed by Fidelity and represent the right to receive the number of shares of
Fidelity Common Stock equal to 3,253 shares multiplied by the Exchange Ratio.
Also as of the Alamo Record Date, there were outstanding SARs granted by Alamo
to Alan L. Stinson relating to 6,000 shares of Alamo Common Stock at an initial
price of $23.76 per share. At the effective time of the Merger, the SARs will be
converted into an option to purchase a number of shares of Fidelity Common Stock
equal to the number of shares of Alamo Common Stock relating to the SARs
multiplied by the Exchange Ratio at an exercise price equal to the amount
necessary to preserve the value inherent in the SARs. See "THE
MERGER -- Treatment of Options to Purchase Alamo Common Stock, Stock Awards and
Stock Appreciation Rights."
4
<PAGE> 13
Amendment or Termination of the Merger Agreement
The Merger Agreement may be amended by the parties at any time before or
after approval of the shareholders of Alamo sought hereby, except that, after
such shareholder approval, no amendment may be made without the further approval
of such shareholders which would alter or change the amount or kind of
consideration to be received in exchange for any shares of capital stock of
Alamo, or any of the principal terms of the Merger.
The Merger Agreement may be terminated by mutual agreement of both parties
or by either party if (i) the required approval of the shareholders of Alamo is
not obtained, (ii) the Merger has not been consummated by December 31, 1998 (or
March 31, 1999 if the sole reason for the delay is the need for regulatory
approvals), or (iii) the other party breaches any of its representations,
warranties, covenants or agreements in the Merger Agreement, or if any
representation or warranty becomes untrue, in either case in a manner which has
or could reasonably be expected to have a material adverse effect.
The Merger Agreement may be terminated by Fidelity or Alamo if the Average
Fidelity Stock Price is less than $33.333 per share, or by Fidelity if the Alamo
Board shall have withdrawn or modified, in a manner adverse to Fidelity or
Merger Sub, its approval or recommendation of the Merger, or resolved to do any
of the foregoing (a "Withdrawal Termination"). See "THE MERGER -- Amendment or
Termination of the Merger Agreement."
Related Agreements
Each of the directors and executive officers of Alamo and certain holders
of Alamo Common Stock have entered into agreements with Fidelity which provide
that, until the consummation of the Merger or the termination of the Merger
Agreement in accordance with its terms, they will, among other things, vote
their shares in favor of the Merger Agreement and the Merger. See "THE
MERGER -- Related Agreements -- Shareholder Agreement."
To help ensure that the Merger will be accounted for as a
pooling-of-interests and to help ensure compliance with Rule 145 under the
Securities Act, the affiliates of Fidelity and Alamo have executed agreements
that prohibit such persons from disposing of their Fidelity Common Stock or
Alamo Common Stock, as the case may be, until Fidelity publicly releases its
first report of combined financial results of Fidelity and Alamo for a period of
at least 30 days of combined operations of the two companies. See "THE
MERGER -- Related Agreements -- Affiliate Agreements."
Conditions to the Merger; Regulatory Approvals
The obligations of Fidelity and Alamo to consummate the Merger are subject
to various conditions, including, among others, obtaining requisite shareholder
approval from the Alamo shareholders (and the holders of no more than 5% of the
Alamo Common Stock have exercised their dissenters' rights); obtaining the
requisite regulatory approvals, as described below; the effectiveness of the
Registration Statement of which this Proxy Statement/Prospectus is a part;
approval for listing on the NYSE of the shares of Fidelity Common Stock to be
issued in the Merger, subject to official notice of issuance; and receipt of
opinions of counsel at the closing of the Merger in respect of certain federal
income tax consequences of the Merger.
The Merger is also conditioned on obtaining all required regulatory
approvals (the "Requisite Regulatory Approvals"). The Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and regulations
promulgated thereunder (the "HSR Act"), provide that certain acquisition
transactions may not be consummated until certain information has been furnished
to the Federal Trade Commission and the Antitrust Division of the Department of
Justice and certain waiting period requirements have been satisfied. Fidelity
and Alamo filed the requisite notification and report forms under the HSR Act on
May 29, 1998 and the required waiting period was terminated by the Federal Trade
Commission on June 15, 1998. The Merger is also subject to the receipt of
necessary approvals from the Texas state insurance department. Fidelity and
5
<PAGE> 14
Alamo completed all necessary filings with the Texas state insurance department
on May 18, 1998. There can be no assurance that all of the requisite approvals
will be obtained or as to the timing or conditions of such approvals. See "THE
MERGER -- Regulatory Approvals," and "-- Conditions to the Merger."
Certain Federal Income Tax Matters
The Merger is intended to qualify as a tax-free reorganization for federal
income tax purposes, so that no gain or loss will generally be recognized by the
shareholders of Alamo on the exchange of their shares of Alamo Common Stock for
shares of Fidelity Common Stock. Gain will be recognized to the extent that
Alamo shareholders receive cash in the exchange (i.e., cash in lieu of
fractional shares or cash for dissenting shares). The obligations of Alamo,
Fidelity and Merger Sub to consummate the Merger are conditioned upon the
receipt by each of Fidelity and Alamo of an opinion that the Merger qualifies as
a tax-free reorganization. Alamo shareholders are urged to consult their own tax
advisors as to the tax consequences of the Merger. See "THE MERGER -- Certain
Federal Income Tax Consequences" and "-- Conditions to the Merger."
Accounting Treatment
The Merger is intended to be treated as a "pooling-of-interests" for
accounting purposes. Under the pooling-of-interests method of accounting, the
historical basis of the assets and liabilities of Fidelity and Alamo will be
combined at the effective time of the Merger and carried forward at their
previously recorded amounts. The stockholders' and shareholders' equity accounts
of Fidelity and Alamo will be combined on Fidelity's consolidated balance sheet,
and no goodwill or other intangible assets will be created. Financial statements
of Fidelity issued after the Merger will be restated retroactively to reflect
the consolidated operations of Fidelity and Alamo as if the Merger had taken
place prior to the periods covered by such financial statements. See "THE
MERGER -- Accounting Treatment."
Dissenters' Rights
Shareholders of Alamo who vote against the Merger have the right under
certain circumstances, if the Merger is nonetheless consummated, to require
Alamo to purchase their shares at their fair value. To exercise such right,
shareholders must comply with all procedural requirements, including the filing
of a notice of dissent with Alamo before the date of the Special Meeting. In the
event that the holders of more than 5% of the shares of Alamo Common Stock
entitled to vote at the Special Meeting exercise their dissenters' rights,
Fidelity may terminate the Merger Agreement. See "THE MERGER -- Dissenters'
Rights."
Exchange of Certificates
As soon as practicable after the effective time of the Merger, Fidelity
will cause Continental Stock Transfer & Trust Company (the "Exchange Agent") to
mail to each shareholder of record of Alamo a letter of transmittal with
instructions to be used by such shareholder in surrendering his, her or its
Alamo Common Stock certificates in exchange for certificates representing shares
of Fidelity Common Stock. Letters of transmittal will also be available as soon
as practicable after the effective time of the Merger at the offices of the
Exchange Agent.
HOLDERS OF ALAMO COMMON STOCK SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR
PROXY CARDS. IF THE MERGER IS APPROVED AND CONSUMMATED, ALAMO SHAREHOLDERS WILL
RECEIVE INSTRUCTIONS REGARDING PROCEDURES FOR THE EXCHANGE OF THEIR STOCK
CERTIFICATES. SEE "THE MERGER -- EXCHANGE OF CERTIFICATES."
Comparison of Rights of Stockholders
Upon consummation of the Merger, holders of Alamo Common Stock will become
holders of Fidelity Common Stock. As a result, their rights as shareholders,
which are now governed by the laws of the State of Texas and Alamo's Articles of
Incorporation and Bylaws, will be governed by the laws of the State of Delaware
and Fidelity's Certificate of Incorporation and Bylaws. Because of certain
differences between the
6
<PAGE> 15
laws of the State of Texas and Delaware and between the provisions of Alamo's
Articles of Incorporation and Bylaws and the Certificate of Incorporation and
Bylaws of Fidelity, the rights of Alamo shareholders after the Merger will be
different from the rights of Alamo shareholders before the Merger. For a
discussion of various differences between the rights of shareholders of Alamo
and the rights of stockholders of Fidelity, see "COMPARISON OF RIGHTS OF
STOCKHOLDERS OF FIDELITY AND RIGHTS OF SHAREHOLDERS OF ALAMO."
RECENT MARKET PRICE DATA
The following table sets forth the closing sales prices per share of
Fidelity Common Stock on the NYSE on May 6, 1998, the last trading day before
the announcement of the proposed Merger, and on July 1, 1998, the latest
practicable trading day before the printing of this Proxy Statement/Prospectus.
There is no public trading market for the shares of Alamo Common Stock. The
Alamo equivalent represents the closing sale price of a share of Fidelity Common
Stock on such date multiplied by the Exchange Ratio.
<TABLE>
<CAPTION>
FIDELITY ALAMO
COMMON STOCK EQUIVALENT
------------ ----------
<S> <C> <C>
May 6, 1998........................................ $ 37.81 $ 56.37
July , 1998...................................... $ $
</TABLE>
Stockholders of Alamo are advised to obtain current market quotations for
Fidelity Common Stock and Alamo Common Stock. It is expected that the market
price of Fidelity Common Stock will fluctuate between the date of this Proxy
Statement/Prospectus and the date on which the Merger is consummated and
thereafter. Because the number of shares of Fidelity Common Stock to be received
by Alamo shareholders in the Merger is fixed (subject to possible adjustments in
certain circumstances) and because the market value of Fidelity Common Stock is
subject to fluctuation, the value of the shares of Fidelity Common Stock that
Alamo shareholders will receive in the Merger may increase or decrease prior to
the Merger. No assurance can be given concerning the market price of the
Fidelity Common Stock before or after consummation of the Merger. See "PRICE
RANGE OF COMMON STOCK AND DIVIDENDS."
RECENT DEVELOPMENTS
On March 24, 1998, Fidelity entered into an Agreement and Plan of Merger
(the "Matrix Merger Agreement") with Matrix Capital Corporation ("Matrix").
Matrix is a unitary thrift holding company that, through its subsidiaries,
focuses on mortgage banking (purchasing and selling residential mortgage loans
and servicing rights, offering brokerage, consulting and analytical services to
financial services companies and financial institutions, servicing residential
mortgage portfolios for investors, originating residential mortgages and
providing real estate management and disposition services), as well as
traditional banking and the administration of self-directed trust accounts. The
proposed acquisition of Matrix is part of Fidelity's strategy to become a
specialty finance company. Fidelity believes that such acquisition will result
in potential for revenue enhancements and synergies from the cross-selling of
Fidelity's title, escrow and real-estate products and services as well as from
operational cost savings and enhancement of deposit-based spread income.
Pursuant to the Matrix Merger Agreement, an acquisition subsidiary of
Fidelity would merge with and into Matrix, and each of the issued and
outstanding shares of Matrix common stock would be exchanged for 0.8 shares of
Fidelity Common Stock (subject to adjustment as provided in the Matrix Merger
Agreement). As of May 8, 1998, there were 6,705,130 shares of Matrix common
stock issued and outstanding. The Matrix common stock is traded on the Nasdaq
National Market under the symbol "MTXC."
The acquisition of Matrix is intended to be accounted for as a
pooling-of-interests and is subject to the satisfaction of certain conditions,
including regulatory approvals, approval of the merger by Matrix shareholders
and approval by Fidelity's stockholders of the issuance of Fidelity Common Stock
in connection with such merger.
7
<PAGE> 16
SELECTED HISTORICAL FINANCIAL DATA OF FIDELITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table sets forth selected financial data of Fidelity as of
and for each of the years in the three-year period ended December 31, 1997 and
as of and for the three months ended March 31, 1997 and 1998. The financial
information presented herein has been restated for Fidelity's merger with
Granite Financial, Inc. in February 1998 as if the companies had been combined
as of and for the two-year period ended December 31, 1997. The following
selected consolidated financial data of Fidelity should be read in conjunction
with Fidelity's consolidated financial statements and the notes thereto
incorporated by reference herein. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ -------------------
1995 1996 1997 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Total revenue.......................... $409,845 $642,377 $763,181 $155,673 $236,682
Total expenses......................... 400,385 600,004 684,329 149,643 209,887
-------- -------- -------- -------- --------
Earnings before income taxes and
extraordinary item.................. 9,460 42,373 78,852 6,030 26,795
Income tax expense..................... 1,828 16,846 34,055 2,453 11,388
-------- -------- -------- -------- --------
Earnings before extraordinary item..... 7,632 25,527 44,797 3,577 15,407
Extraordinary item..................... (813) -- (1,700) -- --
-------- -------- -------- -------- --------
Net earnings........................... $ 6,819 $ 25,527 $ 43,097 $ 3,577 $ 15,407
======== ======== ======== ======== ========
PER SHARE AND OTHER DATA:
Basic net earnings..................... $ 6,819 $ 25,527 $ 43,097 $ 3,577 $ 15,407
======== ======== ======== ======== ========
Basic earnings per share before
extraordinary item.................. $ 0.50 $ 1.53 $ 2.32 $ 0.20 $ 0.69
Extraordinary item..................... (0.05) -- (0.09) -- --
-------- -------- -------- -------- --------
Basic net earnings per share........... $ 0.45 $ 1.53 $ 2.23 $ 0.20 $ 0.69
======== ======== ======== ======== ========
Weighted average shares outstanding,
basic basis......................... 15,131 16,647 19,272 17,928 22,485
Diluted net earnings................... $ 6,819 $ 28,723 $ 46,239 $ 4,385 $ 16,031
======== ======== ======== ======== ========
Diluted earnings per share before
extraordinary item.................. $ 0.49 $ 1.30 $ 1.92 $ 0.19 $ 0.58
Extraordinary item..................... (0.05) -- (0.07) -- --
-------- -------- -------- -------- --------
Diluted net earnings per share......... $ 0.44 $ 1.30 $ 1.85 $ 0.19 $ 0.58
======== ======== ======== ======== ========
Weighted average shares outstanding,
diluted basis....................... 15,694 22,106 24,948 23,412 27,655
Dividends per share.................... $ 0.22 $ 0.24 $ 0.26 $ 0.06 $ 0.07
Earnings before income taxes and
extraordinary item as a percent of
total revenue....................... 2.31% 6.60% 10.33% 3.87% 11.32%
BALANCE SHEET DATA:
Investments............................ $180,082 $227,674 $326,877 $224,027 $332,809
Cash and cash equivalents.............. 47,431 72,364 59,855 54,486 44,407
Leases and lease securitization
residual interests.................. -- 29,034 53,782 34,642 74,252
Total assets........................... 405,063 549,013 679,592 542,050 702,301
Notes payable.......................... 136,047 171,525 155,795 175,159 158,688
Reserve for claim losses............... 146,094 187,245 190,747 188,456 190,744
Stockholders' equity................... 77,947 124,435 231,830 124,024 248,707
</TABLE>
8
<PAGE> 17
SELECTED HISTORICAL FINANCIAL DATA OF ALAMO
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table sets forth selected financial data of Alamo as of and
for each of the years in the five-year period ended December 31, 1997 and as of
and for the three months ended March 31, 1997 and 1998. The following selected
consolidated financial data of Alamo should be read in conjunction with Alamo's
consolidated financial statements, and the notes thereto, which appear elsewhere
herein.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue.......................... $88,398 $88,594 $81,048 $92,418 $99,878 $19,639 $25,531
Total expense.......................... 73,381 82,968 79,026 86,565 93,127 20,568 23,527
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes...... 15,017 5,626 2,022 5,853 6,751 (929) 2,004
Income tax expense..................... 4,710 2,195 888 2,139 2,540 (349) 731
------- ------- ------- ------- ------- ------- -------
Net income (loss)...................... $10,307 $ 3,431 $ 1,134 $ 3,714 $ 4,211 $ (580) $ 1,273
======= ======= ======= ======= ======= ======= =======
PER SHARE AND OTHER DATA:
Basic net income (loss) per share
(1).................................. $ 8.40 $ 2.76 $ 0.89 $ 2.88 $ 3.20 $ (0.44) $ 0.97
Weighted average shares outstanding.... 1,227 1,244 1,273 1,289 1,314 1,313 1,317
Dividends per share.................... $ 0.77 $ 0.64 $ 0.20 $ 0.55 $ 0.70 $ 0.05 $ 0.05
Net income (loss) before income taxes
as a percentage of total revenue..... 16.99% 6.35% 2.50% 6.33% 6.76% (4.73%) 7.85%
BALANCE SHEET DATA:
Investments............................ $15,905 $17,513 $21,805 $26,903 $31,496 $26,577 $33,728
Cash and cash equivalents.............. 11,288 10,600 10,543 8,744 13,032 7,151 10,665
Total assets........................... 45,070 52,047 57,402 60,958 68,548 59,709 68,723
Notes payable.......................... 5,132 8,736 10,048 7,983 7,220 8,629 7,063
Reserve for claim losses............... 3,969 5,570 7,113 9,282 10,927 9,685 11,109
Stockholders' equity................... 30,358 32,873 34,973 38,210 42,220 37,418 44,192
</TABLE>
- ---------------
(1) The potential dilution from the assumed exercise of stock options granted is
not material; therefore diluted net income (loss) per share is not
presented.
9
<PAGE> 18
SELECTED PRO FORMA FINANCIAL DATA OF FIDELITY AND ALAMO COMBINED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
The following table presents selected unaudited pro forma combined
financial data reflecting consummation by Fidelity of the Merger, which has been
prepared giving effect to the Merger as a pooling-of-interests. The unaudited
summary selected pro forma financial data should be read in connection with the
unaudited pro forma condensed financial information and notes thereto appearing
elsewhere herein under "UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS."
<TABLE>
<CAPTION>
COMBINED THREE
COMBINED FISCAL YEAR MONTHS
ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------ -------------------
1995 1996 1997 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Total revenue......................................... $490,893 $734,795 $863,059 $175,312 $262,213
Total expenses........................................ 479,411 686,569 777,456 170,211 233,414
-------- -------- -------- -------- --------
Earnings before income taxes and extraordinary item... 11,482 48,226 85,603 5,101 28,799
Income tax expense.................................... 2,716 18,985 36,595 2,104 12,119
-------- -------- -------- -------- --------
Earnings before extraordinary item.................... 8,766 29,241 49,008 2,997 16,680
Extraordinary item.................................... (813) -- (1,700) -- --
-------- -------- -------- -------- --------
Net earnings.......................................... $ 7,953 $ 29,241 $ 47,308 $ 2,997 $ 16,680
======== ======== ======== ======== ========
PER SHARE AND OTHER DATA:
Basic net earnings.................................... $ 7,953 $ 29,241 $ 47,308 $ 2,997 $ 16,680
======== ======== ======== ======== ========
Basic earnings per share before extraordinary item.... $ 0.51 $ 1.57 $ 2.31 $ 0.15 $ 0.68
Extraordinary item.................................... (0.05) -- (0.08) -- --
-------- -------- -------- -------- --------
Basic net earnings per share.......................... $ 0.46 $ 1.57 $ 2.23 $ 0.15 $ 0.68
======== ======== ======== ======== ========
Weighted average shares outstanding, basic basis(1)... 17,029 18,569 21,231 19,886 24,449
Diluted net earnings.................................. $ 7,953 $ 32,437 $ 50,450 $ 3,805 $ 17,304
======== ======== ======== ======== ========
Diluted earnings per share before extraordinary
item................................................ $ 0.50 $ 1.35 $ 1.94 $ 0.15 $ 0.58
Extraordinary item.................................... (0.05) -- (0.06) -- --
-------- -------- -------- -------- --------
Diluted net earnings per share........................ $ 0.45 $ 1.35 $ 1.88 $ 0.15 $ 0.58
======== ======== ======== ======== ========
Weighted average shares outstanding, diluted
basis(1)............................................ 17,592 24,028 26,907 25,370 29,619
Dividends per share................................... $ 0.22 $ 0.24 $ 0.26 $ 0.06 $ 0.07
Earnings before income taxes and extraordinary item as
a percent of total revenue.......................... 2.34% 6.56% 9.92% 2.91% 10.98%
BALANCE SHEET DATA:
Investments........................................... $201,887 $254,577 $358,373 $250,604 $366,537
Cash and cash equivalents(2).......................... 57,528 80,176 71,428 60,583 53,471
Leases and lease securitization residual interests.... -- 29,034 53,782 34,642 74,252
Total assets.......................................... 462,019 609,039 746,681 600,705 769,423
Notes payable......................................... 146,095 179,508 163,015 183,788 165,751
Reserve for claim losses.............................. 153,207 196,527 201,674 198,141 201,853
Stockholders' equity(2)............................... 112,474 161,697 268,581 160,388 291,298
</TABLE>
- ---------------
(1) Pro forma combined weighted average basic basis and weighted average diluted
basis shares outstanding consist of the historical Fidelity shares
outstanding plus the historical Alamo shares outstanding converted at the
exchange rate of 1.491 Fidelity shares for each Alamo share.
(2) Cash, total assets and stockholders' equity are net of adjustments for
dividends paid on an additional 2,026,000 shares outstanding.
10
<PAGE> 19
COMPARATIVE PER SHARE DATA
The following table presents selected comparative per share data for each
of Fidelity and Alamo on a historical basis, and selected unaudited pro forma
comparative per share data reflecting the consummation by Fidelity of the
Merger. The Alamo pro forma equivalent amounts have been calculated by
multiplying the corresponding pro forma combined amounts per share of Fidelity
Common Stock by the estimated Exchange Ratio of 1.491.
The comparative per share data presented herein is based on and derived
from, and should be read in conjunction with, the historical consolidated
financial statements and related notes thereto of each of Fidelity and Alamo,
incorporated by reference or included elsewhere herein, and unaudited pro forma
financial information included elsewhere herein. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE" and "UNAUDITED PRO FORMA CONDENSED FINANCIAL
STATEMENTS." Results of each of Fidelity and Alamo for prior interim periods are
not necessarily indicative of results expected for the entire year, nor are pro
forma amounts necessarily indicative of results of operations or the financial
position of the combined companies that would have resulted had the Merger been
consummated at the beginning of the periods presented.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED
-------------------------- MARCH 31,
1995 1996 1997 1998
------ ------ ------ ------------
<S> <C> <C> <C> <C>
FIDELITY COMMON STOCK:
Net income per share (basic basis):
Historical..................................... $ 0.45 $ 1.53 $ 2.23 $ 0.69
Pro forma combined............................. 0.46 1.57 2.23 0.68
Cash dividends paid per share:
Historical..................................... $ 0.22 $ 0.24 $ 0.26 $ 0.07
Pro forma combined............................. 0.22 0.24 0.26 0.07
Book value per share at period end:
Historical..................................... $ 5.25 $ 6.94 $10.38 $10.90
Pro forma combined............................. 6.67 8.10 11.03 11.72
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED
-------------------------- MARCH 31,
1995 1996 1997 1998
------ ------ ------ ------------
<S> <C> <C> <C> <C>
ALAMO COMMON STOCK:
Net income per share (basic basis):
Historical..................................... $ 0.89 $ 2.88 $ 3.20 $ 0.97
Pro forma equivalent........................... 0.69 2.34 3.32 1.01
Cash dividends paid per share:
Historical..................................... $ 0.20 $ 0.55 $ 0.70 $ 0.05
Pro forma equivalent........................... 0.33 0.36 0.39 0.10
Book value per share at period end:
Historical..................................... $32.08 $33.55
Pro forma equivalent........................... 16.45 17.47
</TABLE>
11
<PAGE> 20
RISK FACTORS
Each Alamo shareholder should carefully consider and evaluate the following
factors, among others, before voting.
This Proxy Statement/Prospectus contains or incorporates by reference
certain forward-looking statements with respect to the financial conditions,
results of operations and businesses of Fidelity and Alamo and, assuming the
consummation of the Merger, the combined company, including statements relating
to the cost savings and accretion to reported earnings that will be realized
from the Merger. These forward-looking statements involve certain risks and
uncertainties and other factors that may cause the actual results to be
materially different from any results expressed or implied by such statements,
and any such statement is qualified in its entirety by the following cautionary
statements.
In connection with the Merger, factors that may cause actual results to
differ materially from those contemplated by such forward-looking statements
include the following: (i) expected costs savings from the Merger cannot be
fully realized or realized within the expected time frame; (ii) costs or
difficulties related to the integration of the businesses of Fidelity and Alamo
are greater than expected; (iii) revenues following the Merger are lower than
expected; (iv) competitive pressure in the financial services and title
insurance industries increase significantly; (v) changes in the interest rate
environment; (vi) general economic conditions, either nationally or in the
regions in which the combined company will conduct business, are less favorable
than expected; or (vii) legislation or regulatory changes adversely affect the
businesses conducted by the combined company. Further information on other
factors which could affect the financial results of Fidelity after the Merger is
included in filings with the Commission incorporated by reference herein.
In connection with the title insurance industry in general, factors that
may cause actual results to differ materially from those contemplated by such
forward-looking statements include the following: (i) the title insurance
business is characterized by low profit margins due to the high cost of
producing title evidence, whereas premium revenues are subject to regulatory and
competitive restraints; (ii) the amount of title insurance business available is
influenced by housing starts, housing resales and commercial real estate
transactions; (iii) real estate activity levels have historically been cyclical
and are influenced by such factors as interest rates and the condition of the
overall economy; (iv) the value of Fidelity's investment portfolio is subject to
fluctuation based on similar factors; (v) the title insurance industry may be
exposed to substantial claims; and (vi) the industry is regulated by state laws
that require the maintenance of minimum levels of capital and surplus and that
restrict the amount of dividends that may be paid by insurance subsidiaries
without prior regulatory approval.
In connection with the equipment leasing industry, factors which may cause
actual results to differ materially from those contemplated by such
forward-looking statements include the following: (i) the equipment leasing
industry is highly fragmented, and characterized by numerous competitors on a
national, regional and local level, the consolidation of which could affect
Granite's industry consolidation strategy or competitive position; (ii) business
investment in capital and other equipment, which is influenced by interest
rates, availability of capital and prevailing general economic conditions; (iii)
the industry is regulated by federal and state laws concerning licensing,
financing practices, extension of credit, and collection and repossession
practices; and (iv) potential cyclical fluctuations in the third and fourth
quarters of the calendar year due to budgeting and tax considerations of lessees
and other seasonal practices which affect the businesses of the lessees.
Fidelity and Alamo caution that the foregoing lists of important factors
are not exclusive and do not undertake to update any forward-looking statement
that may be made from time to time by or on behalf of Fidelity or Alamo.
INTEGRATION OF OPERATIONS; MANAGEMENT OF GROWTH
The integration of the operations of Fidelity and Alamo following the
Merger will require the dedication of management resources, which will
temporarily detract from attention to the day-to-day business of the combined
company. The combination of the two companies will also require the coordination
of geographi-
12
<PAGE> 21
cally separated organizations, integrating personnel with disparate business
backgrounds and combining two different corporate cultures. The process of
combining the two organizations may cause an interruption of, or a loss of
momentum in, the activities of either or both of the companies' businesses,
which could have an adverse effect on the revenues and operating results of the
combined company, at least in the near term. There can be no assurance that the
combined company will be able to retain its key operational and management
personnel or that the combined company will realize any of the other anticipated
benefits of the Merger. The combined company's ability to manage its growth
effectively will require it to continue to improve its operational, financial
and information management systems and controls, and to attract, retain,
motivate and manage employees effectively.
TITLE INSURANCE INDUSTRY AND RELATED RISKS
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. It is impossible to predict in what future direction interest rates and
the real estate market may move or fluctuate.
Fidelity 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. Fidelity's reserve for claim losses includes known claims, as well as
losses Fidelity expects to incur, net of recoupments. Each known claim is
reserved for on the basis of a review by Fidelity 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. 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 Fidelity's financial condition and results of
operations for such period and future periods.
In the ordinary course of business, Fidelity 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. Fidelity 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.
INTEREST RATE AND ECONOMIC RISKS
Granite's business is directly related to business investment in capital
and other equipment, which is influenced by a variety of factors, including the
implicit return on capital invested, prevailing interest rates, availability of
capital and other general economic conditions. Although Fidelity and Granite
believe that current economic conditions favor continued growth in the markets
Granite serves, a future economic slowdown or recession could adversely affect
Granite's ability to fund or securitize leases. In addition, delinquencies and
charge-offs could be expected to rise in an adverse economic environment, which
could also
13
<PAGE> 22
adversely impact Granite's ability to sell or securitize leases which it funds
or its ability to recognize its basis in the securitization residual interest or
in leases held in its portfolio.
Granite's profitability is determined by, among other things, the
difference between the implicit lease rate charged to lessees and Granite's cost
of funds. The implicit lease rates charged by Granite are based on interest
rates prevailing in the market at the time of lease approval. Until Granite
sells or securitizes leases, Granite generally funds the cost of the lease
investment under its variable rate bank credit facilities and from working
capital. Granite's operating margins could be adversely affected if interest
rates increase prior to Granite selling or securitizing leases or if Granite is
unable to securitize leases. Future increases in Granite's cost of funds could
result in Granite raising the implicit lease rate charged to its customers,
which could cause originators or customers to seek funding elsewhere. Granite
has sought to mitigate the risk of interest rate increases by attempting to
match funds required for lease financings with funds available through bank and
other credit facilities, securitization transactions and lease sales. Although
Granite may be able to dispose of leases through other securitization
transactions in the event interest rates decline, existing securitization
arrangements require Granite to securitize a minimum dollar amount of leases on
a periodic basis. Granite does not hedge against interest rate increases using
derivative securities or otherwise.
REGULATION
Insurance companies are subject to insurance laws and regulations
established by the states in which they transact business. The agencies
established pursuant to these state laws have broad administrative and
supervisory powers relating to the granting and revocation of licenses to
transact business, regulation of trade practices, establishment of guaranty
associations, licensing of agents, approval of policy forms, premium rate filing
requirements, reserve requirements, the form and content of required regulatory
financial statements, capital and surplus requirements and the maximum
concentrations of certain classes of investments. Most states also have enacted
legislation regulating insurance holding company systems, including
acquisitions, extraordinary dividends, the terms of affiliate transactions and
other related matters. Fidelity and its insurance subsidiaries have registered
as holding company systems pursuant to such legislation and routinely report to
other jurisdictions. The National Association of Insurance Commissioners has
formed committees and appointed advisory groups to study and formulate
regulatory proposals on such diverse issues as the use of surplus debentures,
accounting for reinsurance transactions and the adoption of risk-based capital
requirements. It is not possible to predict the impact of future state and
federal regulation on the operations of Fidelity or its insurance subsidiaries.
Granite also is subject to a variety of federal and state regulations. Such
regulations require Granite to obtain and maintain certain licenses and
qualifications in various states. Granite is also subject to certain state
regulations concerning collection practices and the right to repossess and sell
the leased equipment. Statutes and regulations governing financing operations
are subject to interpretation and change. Any adverse change in existing laws or
regulations, promulgation of new laws or regulations or changes in the
interpretation thereof, or failure to comply with new or existing laws or
regulations, could result in Granite being subject to fines or other penalties,
any of which could have a material adverse impact on Granite's operations.
COMPETITION
The title insurance industry is highly competitive. The number and size of
competing companies varies in the different geographic areas in which Fidelity
conducts its business. In Fidelity's principal markets, competitors include
other major title underwriters such as Chicago Title Insurance Company,
LandAmerica Financial Group, Inc., First American Title Insurance Company, Old
Republic Title Insurance Company and Stewart Title Guaranty Company, as well as
numerous independent agency operations at the 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. Fidelity believes that its competitive
position is enhanced by its quality customer service and pricing.
14
<PAGE> 23
THE SPECIAL MEETING
The Special Meeting will be held on , 1998 at ,
local time, at , . At the Special Meeting, holders
of Alamo Common Stock will be asked to consider and vote upon a proposal to
approve the Merger Agreement and the Merger.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of Alamo Common Stock at the close of business on
the Alamo Record Date are entitled to notice of and to vote at the Alamo
Meeting. As of the close of business on , 1998, there were 1,356,638
shares of Alamo Common Stock outstanding and entitled to vote, held of record by
82 shareholders. Each holder of Alamo Common Stock is entitled to one vote for
each share of Alamo Common Stock held as of the Alamo Record Date.
The required quorum for the transaction of business at the Special Meeting
is a majority of the shares of Common Stock issued and outstanding on the Alamo
Record Date, present in person or represented by proxy. Abstentions and broker
non-votes each will be included in determining the number of shares present for
purposes of determining the presence of a quorum. Abstentions and broker
non-votes will have the same effect as votes against the Merger Agreement and
the Merger.
VOTING OF PROXIES
The proxy accompanying this Proxy Statement/Prospectus is solicited on
behalf of the Alamo Board for use at the Special Meeting. Shareholders are
requested to complete, date and sign the accompanying proxy card and promptly
return it in the accompanying envelope or otherwise mail it to Alamo. All
proxies that are properly executed and returned, and that are not revoked, will
be voted at the Special Meeting in accordance with the instructions indicated on
the proxies or, if no direction is indicated, "FOR" approval of the Merger
Agreement and the Merger. The Alamo Board does not presently intend to bring any
other business before the Special Meeting and, so far as is known to the Alamo
Board, no other matters are to be brought before the Special Meeting. As to any
business that may properly come before the Special Meeting, however, it is
intended that shares represented by proxies will be voted in respect thereof in
accordance with the judgment of the persons voting such shares, except that the
shares represented by proxies which have been voted "AGAINST" the proposal to
approve the Merger Agreement and the Merger will not be voted in respect of any
motion made for adjournment of the Special Meeting for purposes of soliciting
additional proxies to approve the Merger Agreement and the Merger. A shareholder
of Alamo who has given a proxy may revoke it at any time before it is exercised
at the Special Meeting, by (i) delivering to the Secretary of Alamo (by any
means, including facsimile) a written notice, bearing a date later than the
proxy, stating that the proxy is revoked, (ii) signing and so delivering a proxy
relating to the same shares and bearing a later date prior to the vote at the
Special Meeting or (iii) attending the Special Meeting and voting in person
(although attendance at the Special Meeting will not, by itself, revoke a
proxy).
VOTE REQUIRED
Pursuant to Texas law and Alamo's Articles of Incorporation, approval and
adoption of the Merger Agreement and the Merger requires the affirmative vote of
the holders of at least 66 2/3% of the outstanding shares of Alamo Common Stock.
Abstentions and broker non-votes will have the same effect as votes against the
Merger Agreement and the Merger.
SOLICITATION OF PROXIES AND EXPENSES
Alamo will bear the cost of the solicitation of proxies in the enclosed
form from its shareholders. In addition to the solicitation of proxies by mail,
the directors, officers and employees of Alamo may solicit proxies from
shareholders by telephone, telegram, letter, facsimile or in person. Following
the original mailing of the proxies and other soliciting materials, Alamo will
request brokers, custodians, nominees and other record holders to forward copies
of the proxy and other soliciting materials to persons for whom they hold shares
of Alamo Common Stock and to request authority for the exercise of proxies. In
such cases, Alamo, upon the request of the record holders, will reimburse such
holders for their reasonable expenses.
15
<PAGE> 24
THE MERGER
The following summary of certain terms and provisions of the Merger
Agreement is subject to and qualified in its entirety by reference to the Merger
Agreement, a copy of which is attached to this Proxy Statement/Prospectus and
incorporated herein by reference.
THE MERGER
The Merger Agreement provides that, subject to the approval of the Merger
Agreement by the shareholders of Alamo and the satisfaction or waiver of the
other conditions, Merger Sub will be merged with and into Alamo, whereupon the
separate corporate existence of Merger Sub will cease and Alamo will be the
surviving corporation of the Merger (the "Surviving Corporation"). As a result
of the Merger, Alamo will become a wholly-owned subsidiary of Fidelity. The
Merger will become effective upon the filing of a Certificate of Merger in the
Office of the Secretary of State of the State of Texas, or at such later date
and time as may be set forth in the Certificate of Merger (the "Effective Time")
in accordance with Texas law. The Merger will have the effects described under
Texas law, and the Articles of Incorporation and Bylaws of the Surviving
Corporation will be those of Alamo, as in effect immediately prior to the
Effective Time. At the Effective Time, the conversion of Alamo Common Stock into
shares of Fidelity Common Stock will be effected as described below.
At the Effective Time, automatically by virtue of the Merger and without
any action on the part of the holder thereof, each share of Alamo Common Stock
(excluding shares held by Alamo or any of its subsidiaries or by Fidelity or any
of its subsidiaries ("Treasury Shares")) issued and outstanding immediately
prior to the Effective Time will be converted into 1.491 shares of Fidelity
Common Stock, plus cash in lieu of fractional shares, subject to further
adjustment pursuant to the terms of the Merger Agreement.
It is expected that the market price of Fidelity Common Stock will
fluctuate between the date of this Proxy Statement/Prospectus and the date on
which the Merger is consummated and thereafter. Because the number of shares of
Fidelity Common Stock to be received by Alamo shareholders in the Merger is
fixed (subject to adjustment in the circumstances described below) and because
the market price of Fidelity Common Stock is subject to fluctuation, the value
of the shares of Fidelity Common Stock that holders of Alamo Common Stock would
receive in the Merger may increase or decrease prior to the Merger. For further
information concerning the historical market prices of Fidelity Common Stock,
see "PRICE RANGE OF COMMON STOCK AND DIVIDENDS." No assurance can be given
concerning the market price of Fidelity Common Stock before or after the
Effective Time.
The Exchange Ratio was determined by Fidelity and Alamo on the basis of a
fraction, the numerator of which is 2,100,000 shares of Fidelity Common Stock,
subject to adjustment as hereinafter described (as adjusted, the "Numerator"),
and the denominator of which is the number of issued and outstanding shares of
Alamo Common Stock immediately prior to the Effective Time, on a fully-diluted
basis assuming the issuance of any and all shares of Alamo Common Stock issuable
upon the exercise of any options, warrants or other rights to purchase shares
and shares issuable pursuant to the Stock Award and the conversion or exchange
of any and all instruments convertible into or exchangeable for shares of Alamo
Common Stock and including the number of shares with respect to which Alamo has
granted stock appreciation rights. The unadjusted Exchange Ratio of 1.491 is
based upon an aggregate of 1,408,691 shares of Alamo Common Stock on a
fully-diluted basis (which includes 1,356,638 shares of outstanding Alamo Common
Stock plus options to purchase 42,800 shares of Alamo Common Stock, 3,253 shares
of Alamo Common Stock subject to the Stock Award and 6,000 shares of Alamo
Common Stock with respect to the SARs). The Exchange Ratio is subject to
adjustment pursuant to the terms of the Merger Agreement, so that the aggregate
value of the merger consideration as finally determined (i.e., the Average
Fidelity Stock Price multiplied by the number of shares of Fidelity Common Stock
to be issued in connection with the Merger) will be not less than $75,000,000 or
more than $85,000,000 (unless the Merger does not take place before November 15,
1998, as discussed below). If the Average Fidelity Stock Price is less than
$35.714, the adjustment mechanism would provide Alamo shareholders additional
shares of Fidelity Common Stock so that the number of shares of Fidelity Common
stock to be issued in connection with the Merger multiplied by the Average
Fidelity Stock Price would equal $75,000,000. If the Average Fidelity Stock
Price is more than $40.476, the adjustment
16
<PAGE> 25
mechanism would reduce the number of shares of Fidelity Common Stock to be
issued to the Alamo shareholders so that the number of shares of Fidelity Common
Stock to be issued multiplied by the Average Fidelity Stock Price would equal
$85,000,000.
If the Merger has not been consummated before November 15, 1998 and the
Average Fidelity Stock Price is greater than $42.857, the adjustment mechanism
would provide Alamo shareholders additional value equal to 50% of the excess
value of the Average Fidelity Stock Price over $42.857 per share. In other
words, the Exchange Ratio would increase because the aggregate number of shares
of Fidelity Common Stock used as the Numerator in calculating the Exchange Ratio
would be equal to: (i) the sum of (A) $85,000,000 plus (B) 50% of the amount by
which the Average Fidelity Stock Price multiplied by 2,100,000 shares of
Fidelity Common Stock exceeds $90,000,000 divided by (ii) the Average Fidelity
Stock Price.
If the Average Fidelity Stock Price is less than $33.33 per share, both
Alamo and Fidelity have the right to terminate the Agreement. Whether or not
Fidelity or Alamo will have a right to terminate the Merger Agreement pursuant
to the foregoing sentence will not be known until the date that the Average
Fidelity Stock Price is determined. If such date were the date of this Proxy
Statement/Prospectus, no such right of termination would exist, based on the
prevailing market price of Fidelity Common Stock. Neither the Alamo Board nor
the Fidelity Board has made any decision as to whether it would exercise its
termination right if such a right did arise. In the event such a situation
occurs, the Fidelity Board and the Alamo Board will, consistent with their
respective fiduciary duties, take into account all relevant facts and
circumstances as they exist at such time and will consult with their respective
financial advisors and legal counsel. Approval of the Merger Agreement by the
Alamo shareholders at the Special Meeting will confer on the Alamo Board the
power to elect to consummate the Merger if such an event occurs after
shareholder approval is obtained without any further action by, or solicitation
of the votes of, the shareholders of Alamo. The fairness opinion received by
Alamo is dated as of the date of this Proxy Statement/Prospectus and is based on
conditions in effect on the date thereof. Accordingly, such opinion does not
address the circumstances that might arise if the matters contemplated in this
paragraph were to occur. In such an event, Alamo intends that it would obtain
the reconfirmation of its investment bankers with respect to the fairness of the
revised transaction prior to proceeding with the consummation of the Merger.
BACKGROUND OF THE MERGER
During the summer of 1997, Lawyers Title Corp. announced the proposed
acquisition of Commonwealth Land Title, which stimulated discussion in the title
insurance industry about acquisition activity in the industry. This discussion,
as well as trends in the title industry generally and those specifically
applicable to regional title insurance companies, caused Alex H. Halff, Senior
Chairman of the Board of Alamo, to ask a committee of outside directors (the
"Committee") consisting of Messrs. Jack Biegler, W. W. McAllister, III and Ms.
Marilou Moursund Long to undertake an analysis of strategic options available to
Alamo. The Committee, assisted by Robert T. Rork, President of Alamo, and Alan
L. Stinson, Alamo's Chief Financial Officer, undertook an analysis of Alamo's
strategic position in the market and the alternatives available to Alamo to
maximize value for the Alamo shareholders. The Committee concluded that while
Alamo continued to have good earnings prospects, growth in Alamo's title premium
revenues was being generated at the expense of margins, that there was a
continuing concentration of business sources, that some lenders were dropping
requirements for title insurance, that there were technology challenges
confronting regional underwriters and that there were continuing risks of rate
reductions and possible deregulation of the industry that might
disproportionately affect regional title insurers. The Committee studied
comparable companies and alternative strategies, ultimately concluding that to
continue Alamo's historical growth trends would require acquisition of a
national underwriter or other non-traditional strategic alternatives that would
result in significant change in the configuration of Alamo. After several
meetings and ongoing deliberations, the Committee concluded that a combination
of external factors and internal factors suggested it was an appropriate time to
consider a sale of Alamo and that financial and operational risks existed for a
regional title insurance company that did not exist for nationwide companies
with access to more significant financial resources.
Thereafter, a determination was made to select a financial advisor to
assist the Alamo Board, and after considering alternative advisors and
conducting interviews, the Committee's conclusion that a sale of Alamo
17
<PAGE> 26
might be appropriate was reinforced. Alamo entered into an engagement letter
with McDonald & Company on February 24, 1998. McDonald & Company was chosen as
Alamo's primary financial advisor in part because it had significant contacts
and experience in the financial services and related industries and had
relationships that were deemed to be beneficial to Alamo in exploring its
alternatives.
McDonald undertook an analysis of potential acquirors, focusing on
companies that for strategic reasons appeared to be the most logical potential
merger partners. They also reviewed and discussed various possible financial
buyers. At Alamo's request, and after preparation of certain materials
pertaining to Alamo and its business, McDonald supplied certain information
concerning Alamo to a limited number of prospective acquirors, including
Fidelity.
On April 6, 1998, Messrs. Frank P. Willey, President of Fidelity, and
Daryll J. Tyson, Executive Vice President of Fidelity National Title Insurance,
traveled to San Antonio, Texas to meet with Alex H. Halff, Senior Chairman of
the Board of Alamo, Don H. Still, Chairman and Chief Executive Officer, Robert
T. Rork, President and Chief Operating Officer, and Alan L. Stinson, Executive
Vice President and Chief Financial Officer, to initially discuss a possible
acquisition by Fidelity of Alamo and to review the companies' respective
strategic positions in the market. Mr. Willey outlined the strategic vision of
Fidelity and the advantages to each company of a prospective combination and
discussed operating strategies and objectives, although no specific proposals
were made at the time as to the terms of any proposed acquisition. After these
discussions, the representatives of Fidelity invited Alamo to conduct onsite due
diligence of Fidelity, and Alamo invited Fidelity representatives to conduct due
diligence pertaining to Alamo.
On April 13 and 14, 1998, a representative of McDonald and Alan L. Stinson
conducted onsite due diligence of Fidelity in California. This due diligence
investigation lasted for two days, after which a senior management group from
Fidelity traveled to San Antonio, Texas to conduct due diligence on Alamo. The
onsite due diligence investigation of Alamo by Fidelity lasted for four days.
On Friday, April 17, 1998, Fidelity's legal advisors delivered a
preliminary form of Merger Agreement to Alamo, its legal advisors and McDonald.
Discussions among the parties continued during the week of April 20, 1998
regarding the possible terms of a proposed Merger and various issues relating to
any proposed transaction. On Friday, April 24, 1998, the Alamo Board met to
review and discuss the process that had been undertaken by Alamo, the
alternatives available to Alamo, and the discussions that had been held with
possible acquirors, including Fidelity. At that meeting, the Alamo Board
authorized management to continue discussions with Fidelity. Discussions among
Fidelity, Alamo, Alamo's financial advisors and counsel and Fidelity's counsel
continued during the week of April 27, 1998, and an extended telephonic
conference call meeting was convened on April 30, 1998 to discuss in detail
various remaining issues pertaining to the proposed merger. On May 2, 1998,
Fidelity's legal advisors delivered a revised draft of a proposed Merger
Agreement to Alamo, Alamo's legal advisors and McDonald. Commencing May 5, 1998
and continuing on May 6, 1998, the Alamo Board reviewed, with the assistance of
Alamo's management and its legal and financial advisors, among other things, a
summary of management's due diligence findings concerning Fidelity,
presentations by management and McDonald concerning the Fidelity proposal, the
terms of the definitive Merger Agreement and the McDonald fairness opinion
regarding the Merger. Based on the review and satisfactory reports regarding due
diligence discussions and the financial terms of the proposed transaction and
after due consideration of other factors, the Alamo Board unanimously approved
and authorized the execution of the Merger Agreement on May 6, 1998.
The Merger Agreement was executed May 6, 1998 and a public announcement of
the Merger was made on May 7, 1998.
REASONS FOR THE MERGER
Fidelity. In determining to approve the Merger Agreement and the Merger,
Fidelity's Board of Directors considered a number of factors, including, without
limitation: (i) the financial condition, results of operations, cash flow,
business and prospects of Alamo; (ii) the assessment by Fidelity's Board of
Directors that the combined company will become the second largest underwriter
in the State of Texas, based upon combined company premiums written in 1997,
thereby solidifying Fidelity's position and market share in Texas, the second
largest title insurance market in the United States and one of the four largest
markets which comprise
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almost 50% of the United States title insurance market; and (iii) the enhanced
growth opportunities Fidelity's expanded presence in Texas will afford its core
title insurance business by leveraging its position as a leading national
provider of equity-related title products and services in the Texas market.
Alamo. In reaching its determination to approve and adopt the Merger
Agreement, the Alamo Board considered a number of factors and the potential
synergies that would result from a Merger with Fidelity. Specifically, the Alamo
Board considered: (i) Alamo's growth prospects on a stand alone basis as well as
in combination with Fidelity, (ii) Alamo's ability to compete for national
sources of business on a stand alone basis as well as in combination with
Fidelity, (iii) the high capital cost of technology on a stand alone basis as
well as in combination with Fidelity, (iv) the risk to Alamo on a stand alone
basis of revenues associated with home equity lending in Texas, (v) and the
greater market liquidity of Fidelity Common Stock.
The foregoing discussion of the information and factors considered by the
Alamo Board is not intended to be exhaustive. In reaching its determination to
approve and recommend the Merger, the Alamo Board did not assign any relative or
specific weights to the foregoing factors, and individual directors may have
given differing weights to different factors. Throughout its deliberations, the
Alamo Board received the advice of its financial and legal advisors.
The benefits described above are forward-looking statements and actual
results may vary materially from such statements. See "RISK FACTORS" for factors
that may cause such variation.
BOARD RECOMMENDATION
THE ALAMO BOARD BELIEVES THAT THE MERGER IS FAIR TO AND IN THE BEST
INTERESTS OF ALAMO AND ITS SHAREHOLDERS AND THEREFORE UNANIMOUSLY RECOMMENDS
THAT ALAMO SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND THE
MERGER.
OPINION OF ALAMO'S FINANCIAL ADVISOR
McDonald & Company ("McDonald") was retained by Alamo pursuant to an
engagement letter dated February 24, 1998 to act as its financial advisor in
connection with providing general financial advisory services and assisting
Alamo in an evaluation of strategic alternatives, including, but not limited to,
a possible sale or merger transaction. McDonald was selected based on its
experience and expertise in the financial services sector and in transactions
similar to the Merger. McDonald agreed to familiarize itself with the business,
operations, properties, financial condition and prospects of Alamo, to prepare
an analysis of recent merger transactions in which the acquired company might be
considered comparable to Alamo, and with the prior knowledge, input and approval
of the Alamo Board, to seek proposals for a merger from prospective acquirors.
McDonald also agreed to assist Alamo in evaluating any proposed transactions and
to render an oral and written opinion to the Alamo Board in connection with its
consideration of any definitive merger proposal as to whether or not the
exchange ratio, in the case of an exchange of common stock, or the financial
consideration, in the case of cash and other securities, to be received in the
proposed merger was fair, from a financial point of view, to the Alamo
shareholders.
McDonald acted as Alamo's financial advisor in connection with, and
participated in certain negotiations leading to, the execution of the Merger
Agreement. McDonald delivered to the Alamo Board on May 6, 1998 its oral opinion
(subsequently confirmed by written opinion dated as of such date) that, as of
the date of the opinion the Exchange Ratio set forth in the Merger Agreement was
fair to the holders of Alamo Common Stock from a financial point of view. Such
opinion was subsequently reaffirmed by issuance to the Alamo Board of a McDonald
opinion dated the date of this Proxy Statement/Prospectus. That opinion and the
McDonald opinion dated May 6, 1998 are collectively referred to herein as the
"McDonald Opinion." The McDonald Opinion, which was delivered for use and
considered by the Alamo Board, is directed only to the fairness to Alamo
shareholders, from a financial point of view, of the Exchange Ratio as set forth
in Article Two, Section 2.1 of the Merger Agreement and does not address the
underlying business decision by Alamo to effect the Merger or any other terms of
the Merger, does not compare or discuss the relative merits of any competing
proposal or any other terms of the Merger, and does not constitute a
recommendation to any Alamo shareholder as to how such shareholder should vote
with respect to the Merger. The McDonald
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Opinion expressly does not represent an opinion as to what the value of Fidelity
Common Stock may be at the effective date of the Merger or as to the prospects
of Fidelity's business or Alamo's business. However, McDonald has consented,
which consent is included as an exhibit to the Registration Statement of which
this Proxy Statement/Prospectus is a part, to the inclusion of the McDonald
Opinion included herein and to the references to its firm.
The full text of the McDonald Opinion, updated as of the date of this Proxy
Statement/Prospectus, is attached hereto as Appendix B. The summary of the
opinion of McDonald & Company set forth in this Proxy Statement/Prospectus is
qualified in its entirety by reference to Appendix B. The full text of the
updated McDonald Opinion sets forth certain assumptions made, matters considered
and limitations on the reviews undertaken, and Alamo shareholders are urged to
read Appendix B.
In arriving at its opinion, McDonald reviewed, among other things, the
Merger Agreement together with its schedules and exhibits and certain related
documents and disclosure schedules; certain publicly available information
relating to the business, financial condition and operations of Fidelity and
Alamo as well as certain other nonpublic information, primarily financial in
nature, furnished to it by Alamo and Fidelity relating to their respective
businesses, earnings, assets, financial forecasts and prospects. McDonald also
reviewed certain publicly available information concerning the trading of, and
the trading market for, Fidelity Common Stock and certain publicly available
information concerning comparable companies and transactions, all as more fully
set forth in the McDonald Opinion.
For purposes of the McDonald Opinion, McDonald relied upon and assumed the
accuracy and completeness of all of the financial and other information reviewed
by McDonald and did not attempt to independently verify such information.
McDonald also relied upon the accuracy and completeness of the representations,
warranties and covenants of Fidelity and Alamo contained in the Merger
Agreement. McDonald was not engaged to and did not conduct a physical inspection
of any of the assets, properties or facilities of either Fidelity or Alamo, nor
did McDonald undertake, obtain or become aware of any independent evaluation or
appraisal of any such assets, properties or facilities or any of the liabilities
of either Fidelity or Alamo. McDonald assumed that the financial forecasts
supplied by Alamo and Fidelity were reasonably prepared on a basis reflecting
the best currently available estimates and judgments of management as to the
future performance of the respective companies. However, McDonald expressed no
view as to such financial forecasts or the assumptions on which they were based.
McDonald also assumed that the all the conditions to the consummation of the
Merger, as set forth in the Merger Agreement, would be satisfied and that the
Merger would be consummated on a timely basis in a manner contemplated by the
Merger Agreement. The McDonald Opinion is based upon economic and market
considerations and other circumstances existing on, and information made
available as of the date of, the McDonald Opinion.
In connection with rendering the McDonald Opinion, McDonald considered a
variety of financial analyses, which are summarized below. McDonald believes
that its analyses must be considered as a whole and that selecting portions of
such analyses and of the factors considered by McDonald without considering all
such analyses and factors may create an incomplete view of the analytical
process underlying the McDonald Opinion. In its analyses, McDonald made numerous
assumptions with respect to industry performance, business and economic
conditions and other matters. Any estimates contained in McDonald's analyses are
not necessarily indicative of future results or values, which may be
significantly more or less favorable than such estimates.
The following is a summary of selected analyses considered by McDonald and
discussed with the Alamo Board in connection with the McDonald Opinion dated May
6, 1998.
Contribution Analysis. McDonald analyzed the hypothetical pro forma
contribution of each of Fidelity and Alamo to the combined company for the years
ending December 31, 1997, 1998 and 1999. For these periods, McDonald analyzed
Alamo's and Fidelity's actual or projected contribution to the aggregate title
insurance premiums, net income and book value of the combined entity. This
analysis showed that based upon the historical and projected financial
information available to McDonald, Alamo would have contributed 13.5%, 9.6% and
17.7% of aggregate title insurance premiums, net income and book value,
respectively, of the combined entity for fiscal 1997; 12.9%, 9.3% and 14.1% of
the projected aggregate title insurance premiums, net income and book value,
respectively, of the combined entity for fiscal 1998; and 12.2%, 8.5% and 13.0%
of
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projected aggregate title insurance premiums, net income and book value,
respectively, of the combined entity for fiscal 1999. Based on McDonald's
analysis, Alamo shareholders would receive approximately 7.1% of the combined
company's outstanding shares on a fully diluted basis.
Analysis of Selected Merger & Acquisition Transactions. McDonald reviewed
selected transactions involving acquired companies deemed comparable to Alamo
that were completed since 1990. The analysis included specific information on
the acquisition by Lawyers Title Corp. of Commonwealth Title announced in
January 1998 as well as information on seven additional transactions in the
title insurance industry announced since 1990 and prior to the
Lawyers/Commonwealth transaction. The analysis was based on publicly available
information obtained from Securities and Exchange Commission filings, public
company disclosures, press releases, industry and press reports and other
sources. McDonald analyzed the consideration to be paid to Alamo shareholders in
the Merger relative to revenue, net income and book value. The mean ratio of the
transaction price to revenue of the transactions reviewed was 6x at closing; the
mean ratio of transaction price to GAAP net income was 16.4x; and the mean ratio
of transaction price to GAAP book value was 2.0x. At the Fidelity stock price as
of the date of the McDonald Opinion, the price to be paid for Alamo would have
represented .8x revenue, 18.3x net income, and 1.8x book value. The price to be
paid for Alamo thus represented a higher multiple of revenue and net income than
the comparable transactions, but a slightly lower multiple of book value.
Comparison with Selected Companies. McDonald compared the financial
performance of Alamo with corresponding data for the following selected
companies: Investors Title Company; LandAmerica Financial Group, Inc. (formerly
Lawyers Title Company); Stewart Information Services Corporation; First American
Financial Corporation; and Fidelity (collectively the "Selected Companies"). The
information for Fidelity excluded the pro forma effects of the Merger. At the
date of the McDonald Opinion, Fidelity had announced the proposed acquisition of
Matrix but the transaction had not yet closed. McDonald included in its analysis
data for Fidelity both with and without the pro forma effects of the proposed
acquisition of Matrix by Fidelity. Including Fidelity with the pro forma effects
of the acquisition of Matrix, the analysis indicated, among other things, that
the median price to last twelve months earnings per share for the Selected
Companies was 18.4x, the median price to estimated 1998 earnings for these
Selected Companies was 14.5x, and the median price to GAAP book value for the
Selected Companies was 2.38x. At the Fidelity stock price as of the date of the
McDonald Opinion, the price to be paid for Alamo would have represented 18.3x
Alamo's 1997 net income, 12.3x Alamo's estimated 1998 net income and 1.8x
Alamo's book value at December 31, 1997. Although the median for the comparable
group multiples was slightly higher than the comparable multiples for Alamo,
McDonald & Company noted that all but one of the Selected Companies were
substantially larger than Alamo and all had more geographically diversified
operations. McDonald & Company also noted that the median return on average
equity for the Selected Companies was 15.9% compared to Alamo's return on
average equity of 10.5%.
Pro Forma Merger Analysis. McDonald analyzed certain pro forma effects
resulting from the Merger on the combined company for the fiscal years ending
December 31, 1998 and 1999. This analysis was based on internal projections for
Alamo and Fidelity provided by the respective managements of Alamo and Fidelity,
as adjusted for cost savings estimated by the management of Alamo. This analysis
indicated approximately 2.1% accretion in Fidelity's pro forma earnings per
share for fiscal 1998 and approximately 1.8% accretion in pro forma earnings per
share for fiscal 1999.
At the time of the McDonald Opinion, none of the Selected Companies other
than LandAmerica Financial Group, Inc. and Fidelity had announced a merger
transaction or disclosed a possible interest in pursuing a possible merger
transaction which could have significantly affected the stock market valuation
of such companies.
No company or transaction used in the above analyses as a comparison is
identical to Alamo, Fidelity or the Merger. Accordingly, an analysis of the
results of the foregoing necessarily involves complex considerations and
judgments concerning the differences in financial and operating characteristics
of the companies and other factors that could affect the public trading values
or acquisition values of the companies to which they are being compared.
Mathematical analyses (such as determining the mean or median) is not, in
itself, a meaningful method of using comparable company or comparable
transaction data.
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In performing its analyses, McDonald made numerous assumptions with respect
to industry performance, general business and economic conditions and other
matters. The analyses performed by McDonald are not necessarily indicative of
actual values, which may be significantly more or less favorable than the values
suggested by such analyses. The term "fair from a financial point of view" is a
standard phrase contained in investment bankers' fairness opinions and refers to
the fact that McDonald's opinion as to the fairness of the financial
consideration to be paid by Fidelity to Alamo shareholders in respect of their
common stock is addressed solely to the financial attributes of such
consideration. The analyses do not purport to be appraisals or to reflect the
prices at which a company might actually be sold. In addition, as described
above, the McDonald opinion was only one of the factors taken into consideration
by the Alamo Board in making its determination to approve the Merger Agreement.
The Alamo Board did not assign any relative or specific weights to such factors,
and individual directors may have given differing weights to different factors.
Consequently, the McDonald analyses described above, in and of themselves,
should not be viewed as determinative of the Alamo Board's conclusions with
respect to the value of Alamo or of the decision of the Alamo Board to agree to
the Merger or the amount of financial consideration to be paid by Fidelity to
the Alamo shareholders.
McDonald, as part of its investment banking business, is customarily
engaged in the valuation of businesses and their securities in connection with
the mergers and acquisitions, negotiated underwriting, secondary distributions
of listed and unlisted securities, private placements and valuations for estate,
corporate, and other purposes. McDonald is not affiliated with and had not
previously acted as financial advisor or otherwise on behalf of Alamo or
Fidelity.
In the ordinary course of its business, McDonald may trade the securities
of Fidelity for its own accounts and for the accounts of its customers.
Accordingly, at any time, McDonald may hold a long or short position in such
securities.
For its services as financial advisor, Alamo has paid McDonald a
nonrefundable payment of $25,000 upon execution of the engagement letter and a
nonrefundable payment of $150,000 payable upon the delivery of the McDonald
opinion at the Alamo Board meeting called to consider the Merger. In the event
the Merger is consummated, a fee shall be paid to McDonald at closing equal to
one percent of the transaction value, crediting the fees previously paid against
the fee. The transaction value is determined by the shares of Fidelity Common
Stock to be issued to the Alamo shareholders multiplied by the average of the
closing prices, as reported on the NYSE for the ten trading days ending on the
fifth trading day prior the consummation of the transaction. Alamo has also
agreed to reimburse McDonald for reasonable out-of-pocket expenses and to
indemnify McDonald against certain liabilities, including certain liabilities
under federal securities laws.
In connection with its evaluation of strategic alternatives, Alamo also
engaged Sterling Capital Ventures, LLC ("Sterling") to provide financial
advisory services, including, but not limited to, to make recommendations and
assist in the formulation of strategic plans designed to enhanced shareholder
value. Alamo entered into an engagement letter with Sterling which provides that
Sterling would be paid a fee of $150,000, payable $10,000 per month quarterly in
advance commencing March 1, 1998, with the unpaid balance of the fee payable
upon consummation of any sale or merger of Alamo. Sterling has provided
financial and strategic advice to Alamo in connection with the engagement of
McDonald and the negotiations with Fidelity. In connection with the engagement
of Sterling, Alamo also agreed to indemnify and hold Sterling harmless for any
claims or liabilities relating to or arising out of the engagement, excepting
any such claims or liabilities arising from the gross negligence of Sterling.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The executive officers and directors of Alamo hold an aggregate of
approximately 558,983 shares of Alamo Common Stock. In addition, certain of the
executive officers of Alamo hold stock options to purchase an aggregate of
17,200 shares of Alamo Common Stock (all of which stock options are currently
unvested but will become fully vested upon consummation of the Merger). Upon
consummation of the Merger, all of such stock options will be assumed by
Fidelity and become stock options to purchase the number of shares of Fidelity
Common Stock into which the number of shares of Alamo Common Stock subject to
such stock option would be converted pursuant to the Merger Agreement, and the
exercise price would be recalculated to
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equal the exercise price immediately prior to the Merger divided by the Exchange
Ratio. Alan L. Stinson, Executive Vice President and Chief Financial Officer of
Alamo, also has SARs with respect to 6,000 shares of Alamo Common Stock at an
initial value of $23.76 per share (of which SARs covering 1,200 shares are
currently unvested but will become fully vested upon consummation of the Merger)
which, upon consummation of the Merger, will be converted into an option to
purchase a number of shares of Fidelity Common Stock equal to the number of
shares of Alamo Common Stock relating to the SARs multiplied by the Exchange
Ratio at an exercise price equal to the amount necessary to preserve the value
inherent in the SARs.
Robert T. Rork, the President of Alamo ("Rork"), Mr. Stinson and Don H.
Still, Chairman of the Board and Chief Executive Officer of Alamo ("Still" and,
collectively with Rork and Stinson, the "Executives"), are entitled to receive
cash payments in the event of a change of control of Alamo pursuant to Retention
Agreements previously entered into with Alamo. The Rork Retention Agreement and
Stinson Retention Agreement each provide that a payment of $640,000 (subject to
reduction as described below) will be paid to Rork or Stinson, as the case may
be, upon a change of control of Alamo. The Still Retention Agreement provides
that upon a change of control of Alamo, he will be entitled to aggregate
payments of $750,000 (subject to reduction as described below), $150,000 of
which is to be paid upon termination of his employment (for any reason), with
$150,000 to be paid on each of the first four anniversaries of the date of such
termination. The Merger will constitute a change of control of Alamo under the
Retention Agreements. The Still Retention Agreement provides that Still will not
engage in the title insurance business during the period commencing on the date
of his termination and ending on the fifth anniversary thereof. The Merger would
constitute a change of control for purposes of all of the Retention Agreements.
The Retention Agreements terminate on December 31, 1998 unless (i) a change of
control has occurred or an agreement has been entered into which would result in
a change of control, in which event the Retention Agreements will terminate upon
fulfillment of the obligations of Alamo thereunder or (ii) the Executive's
employment with Alamo is terminated for cause (as defined therein) or the
Executive resigns without Good Reason (as defined therein), in which event such
Retention Agreement will terminate upon the termination of Executive's
employment with Alamo.
In the fall of 1997, Alex H. Halff, Senior Chairman of the Board of Alamo,
charged a committee of independent directors (the "Board Committee") with
undertaking an analysis of strategic options available to the Company. Messrs.
Rork and Stinson assisted the Board Committee and Mr. Still provided counsel and
input to the Board Committee in its analysis. The Board Committee urged Mr.
Halff to consider and enter into appropriate agreements with the Executives to
ensure their commitment to assisting the Board in evaluating strategic
alternatives, including a possible sale of Alamo, without undue concern for
their personal financial and employment situations and to provide an incentive
to the Executives to remain employed by Alamo at least until consummation of any
proposed acquisition. In this regard, Mr. Halff held conversations with members
of the Board and principal shareholders of the Company to discuss the
prospective terms of such agreements. Based upon these discussions, in February,
1998 Mr. Halff communicated to the Executives Alamo's conclusions in this regard
and the terms of the proposed Retention Agreements. The forms of the Retention
Agreements were ratified and approved by the Company's Board of Directors at a
meeting on April 24, 1998. For the purpose of preventing certain change of
control payments from resulting in nondeductible excess parachute payments under
Section 280G of the Code, each of the Retention Agreements provides that, unless
such Retention Agreement and the payments to be made by Alamo thereunder are
approved by the affirmative vote of the holders of more than 75% of the
outstanding shares of Alamo Common Stock, the amount to be paid to Rork, Stinson
or Still, as the case may be, will be reduced such that such person will be
entitled to receive only the portion thereof that represents the maximum amount
that, when aggregated with any other change of control payments received by such
person, would not cause him to be in receipt of any parachute payment as defined
in Section 280G of the Code. At a special meeting of Alamo's shareholders to be
held on July , 1998, Alamo's shareholders will consider and act upon proposals
to approve each of the Retention Agreements and the payments to be made by Alamo
thereunder.
REPRESENTATIONS AND WARRANTIES; COVENANTS
Under the Merger Agreement, Alamo, Fidelity and Merger Sub made a number of
representations regarding such matters as their valid existence and good
standing, their authority to enter into the Merger
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Agreement and to consummate the Merger, the accuracy of their public filings and
disclosure documents, their licenses and government approvals, the absence of
undisclosed broker's or similar fees owed in connection with the transaction,
their insurance, and the interests of their officers and directors.
Alamo has made further representations regarding its subsidiaries, its
capital structure, environmental compliance, the absence of certain changes or
events, litigation involving Alamo, regulatory matters and compliance with laws,
certain benefit plans, taxes, contracts and debt instruments, and the approval
of the Merger and the Merger Agreement by the Alamo Board. The representations
and warranties of Alamo and Fidelity in the Merger Agreement will not survive
the Effective Time of the Merger.
Alamo agreed that, until the consummation of the Merger or the termination
of the Merger Agreement, it will, and will cause its subsidiaries to, carry on
their businesses in substantially the same manner as previously conducted and to
use all reasonable efforts to preserve intact their current business
organizations, and to not take certain actions without Fidelity's prior written
consent. Alamo has also agreed not to pay any dividends or make any
distributions on the Alamo Common Stock prior to the Effective Time; provided,
however, if the Effective Time has not occurred on or prior to November 15,
1998, Alamo shall be permitted to declare and pay dividends not exceeding $.05
per share of Alamo Common Stock in any three consecutive month period
(commencing November 16, 1998). Alamo agreed to take certain actions necessary
to effect the Merger, such as cooperating with Fidelity in the preparation of
the Registration Statement, delivering a signed representation letter from each
executive officer, director and shareholder of Alamo who is an affiliate within
the meaning of Rule 145 of the Securities Act, and using its best efforts to
obtain shareholder approval of the Merger Agreement and the Merger. Alamo also
agreed not to take any action which would disqualify the Merger as a
pooling-of-interests for accounting purposes or as a "reorganization" for
federal income tax purposes, and to provide Fidelity with full access to
information about Alamo upon Fidelity's reasonable request. Alamo also agreed
not to initiate, continue, solicit or encourage any Acquisition Proposal. Alamo
also agreed that prior to the Effective Time and after termination of the Merger
Agreement, it will hold and will use its reasonable best efforts to cause its
officers, directors, employees, accountants, counsel, consultants, advisors and
agents to hold, in confidence, subject to certain exceptions and unless
compelled to disclose by judicial or administrative process or by other
requirements of law, all confidential documents and information concerning
Fidelity and its subsidiaries furnished in connection with the Merger. Alamo
also agreed to use its best efforts to cause such individuals to deliver to
Fidelity or destroy all such confidential documents.
From and after the Effective Time, Fidelity shall have the right to
continue, amend or terminate any Alamo benefit plan or arrangement, in
accordance with the terms thereof and subject to any limitations arising under
applicable law. Fidelity has also agreed, if the Merger is consummated, to
indemnify the officers, directors, employees, or agents of Alamo, subject to any
limitations imposed by applicable law, for a period of not less than three years
after the Effective Time with respect to any claim or liability which is based
in whole or in part on or arising in whole or in part out of the fact that such
person is or was a director, officer, employee, or agent of Alamo if such claim
pertains to any matter or fact arising, existing or occurring on or prior to the
Effective Time, to the fullest extent permitted by Fidelity's Certificate of
Incorporation and Bylaws and applicable Delaware law. The foregoing
indemnification shall not apply to any actions, suits, proceedings, orders or
investigations which at the date of the Merger Agreement are pending or, to the
knowledge of Alamo or its directors, threatened unless disclosed to Fidelity in
the disclosure schedule delivered in connection with the Merger Agreement.
Fidelity has further agreed, from and after the Effective Time, to indemnify the
directors, officers and employees of Alamo who become directors, officers or
employees of Fidelity, the Surviving Corporation or any other of the
subsidiaries, subject to certain limitations.
Fidelity has further agreed as follows: (i) to use its best efforts to list
on the NYSE the shares of Fidelity Common Stock to be issued in the Merger, (ii)
to register under the Securities Act the shares of Fidelity Common Stock
issuable upon exercise of the Alamo Options (including the option into which the
SARs are to be converted) and pursuant to the Stock Awards, (iii) to provide
Alamo access to information about Fidelity upon Alamo's reasonable request, and
(iv) to not take any action which would disqualify the Merger as a
pooling-of-interests for accounting purposes or as a "reorganization" for
federal income tax purposes.
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CONDITIONS TO THE MERGER
In addition to the shareholder approval sought hereby, the obligations of
Alamo, Fidelity and Merger Sub to consummate the Merger are subject to (i) any
consents, waivers, clearances, approvals and authorizations of regulatory
authorities or other governmental agencies, including any terminations or
expirations of statutory waiting periods thereof, in all instances without the
imposition of any condition or restriction which could be expected to have a
material adverse effect, (ii) the absence of any provision of any applicable law
or regulation or any judgment, injunction, order, decree or other legal
restraint which would prohibit or make illegal consummation of the Merger, (iii)
the receipt of a tax opinion by each of Fidelity and Alamo to the effect that,
for federal income tax purposes, the Merger will qualify as a tax-free
"reorganization" under Section 368(a) of the Code, (iv) the approval for listing
on the NYSE of the Fidelity Common Stock to be issued to holders of Alamo Common
Stock in the Merger, and (v) the obtaining of all necessary consents, approvals
or waivers from third parties. Each party's obligations under the Merger
Agreement are also conditioned upon the absence of material adverse changes in
the value, condition, prospects, business or results of operations of Fidelity
or Alamo (other than changes resulting from changes in interest rates with
respect to Fidelity or certain changes to title insurance premium rates), that,
in the reasonable judgment of the other party, has or is likely to have a
material adverse effect, and the accuracy in all material respects of the
representations and warranties made by the other party and the performance in
all material respects of the covenants of the other party.
The obligations of Fidelity and Alamo under the Merger Agreement are also
subject to the absence of any action by any governmental entity, whether
actually instituted or pending, an effect of which is to delay, restrain,
prohibit or limit (or to impose material damages or to impose material
restrictions relating to) the Merger, the Merger Agreement, the transactions
contemplated thereby, the ownership or operation of the business of Alamo,
Fidelity, Merger Sub, or any of their respective subsidiaries, or an effect of
which is to require divestiture of or interfere with the full rights of
ownership of any shares of Fidelity Common Stock or its subsidiaries, or that
would otherwise be likely to materially adversely affect any such rights.
TREATMENT OF OPTIONS TO PURCHASE ALAMO COMMON STOCK; STOCK AWARDS AND STOCK
APPRECIATION RIGHTS
At the Effective Time, each Alamo Option will be assumed by Fidelity and
will thereafter be deemed to constitute an option to purchase, on the same terms
and conditions as were applicable to such Alamo Option taking into account any
accelerated vesting as a result of the Merger, the number of shares of Fidelity
Common Stock which the holder thereof would have been entitled to receive
pursuant to the Merger had such holder exercised such Alamo Option in full
immediately prior to the Merger and been the holder of Alamo Common Stock
issuable upon exercise of such Alamo Option, at an exercise price per share
calculated by dividing the aggregate exercise price for the shares of Alamo
Common Stock otherwise purchasable pursuant to such Alamo Option by the number
of full shares of Fidelity Common Stock deemed purchasable pursuant to such
option. If the Alamo Option qualifies as an "incentive stock option" under
Section 421 of the Code, the exercise price, number of shares purchasable and
the terms and conditions of exercise of such option will be determined in order
to comply with Section 424(a) of the Code.
At the Effective Time, the Stock Award will be assumed by Fidelity and will
represent the right to receive the number of shares of Fidelity Common Stock
equal to 3,253 shares multiplied by the Exchange Ratio and the SARs will be
converted into an option to purchase the number of shares of Fidelity Common
Stock equal to the number of shares of Alamo Common Stock relating to the SARs
multiplied by the Exchange Ratio at an exercise price equal to the amount
necessary to preserve the value inherent in the SARs.
AMENDMENT OR TERMINATION OF THE MERGER AGREEMENT
Amendments and Waivers
Any provision of the Merger Agreement may be amended or waived prior to the
Effective Time; provided, that, after the approval of the Merger Agreement by
the shareholders of Alamo, no such amendment or waiver may be made without the
further approval of such shareholders which would alter or change the amount or
kind of consideration to be received in exchange for any shares of Alamo Common
Stock, or any of the principal terms of the Merger.
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Termination of Merger Agreement
The Merger Agreement may be terminated (i) by mutual written consent of
Fidelity and Alamo or, (ii) by either Fidelity or Alamo if (A) the required
approval of the shareholders of Alamo is not obtained at the Special Meeting,
(B) the Merger has not been consummated by December 31, 1998 or, if the sole
reason for the delay is the need for governmental consents and such consents are
reasonably likely to be obtained, March 31, 1999 (provided that the party
seeking termination shall not have breached its obligations under the Merger
Agreement in any material respect), or (C) the other party breaches any of its
representations, warranties, covenants or agreements in the Merger Agreement, or
if any representation or warranty of the other becomes untrue, in either case
which has or could reasonably be expected to have a material adverse effect.
The Merger Agreement may also be terminated by Fidelity or Alamo if the
Average Fidelity Stock Price is less than $33.333 per share or by Fidelity if
the Alamo Board shall have withdrawn or modified, in a manner adverse to
Fidelity or Merger Sub, its approval or recommendation of the Merger Agreement
or the Merger, or shall have resolved to do so.
RELATED AGREEMENTS
Shareholder Agreement
All of the directors of Alamo and Howard A. Halff, who beneficially own an
aggregate of 793,693 shares of Alamo Common Stock (representing 58.5% of the
outstanding shares of Alamo Common Stock), have executed agreements with
Fidelity restricting their ability to transfer or encumber their respective
shares of Alamo Common Stock and agreeing to vote their respective shares of
Alamo Common Stock in favor of the Merger Agreement and the Merger. Such persons
have also agreed not to solicit or encourage any offer concerning a possible
disposition of all or any substantial portion of the business, assets or capital
stock of Alamo, subject to such person's duties as a director of Alamo.
Affiliate Agreements
To help ensure that the Merger will be accounted for as a
pooling-of-interests and to help ensure compliance with Rule 145 under the
Securities Act, the affiliates of Fidelity and Alamo have executed agreements
that prohibit such persons from disposing of their Fidelity Common Stock or
Alamo Common Stock, as the case may be, until Fidelity publicly releases its
first report of combined financial results of Fidelity and Alamo for a specified
period of at least 30 days of combined operations of the two companies.
REGULATORY APPROVALS
Under the Merger Agreement, the obligations of both Fidelity and Alamo to
consummate the Merger are conditioned upon the receipt of all Requisite
Regulatory Approvals. See "THE MERGER -- Conditions to the Merger." Each of
Fidelity and Alamo has agreed to use all reasonable efforts to obtain the
Requisite Regulatory Approvals.
Antitrust
Under the HSR Act, the Merger may not be consummated until notifications
have been given and certain information has been furnished to the Federal Trade
Commission ("FTC") and the Antitrust Division of the Department of Justice and
specified waiting period requirements have been satisfied. Fidelity and Alamo
filed notification and report forms under the HSR Act with the FTC and the
Department of Justice on May 29, 1998. On June 15, 1998, the FTC terminated the
waiting period. At any time before or after the consummation of the Merger, the
FTC or the Department of Justice could take such action under the antitrust laws
as it deems necessary or desirable in the public interest, including seeking to
enjoin the consummation of the Merger or seeking divestiture of certain assets
of Fidelity or Alamo. At any time before or after the consummation of the
Merger, and, notwithstanding that the HSR Act waiting period has expired,
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any state could take such action under the antitrust laws as it deems necessary
or desirable in the public interest. Such action could include seeking to enjoin
the consummation of the Merger or seeking divestiture of certain assets of
Fidelity or Alamo. Private parties may also seek to take legal action under the
antitrust laws under certain circumstances.
Based upon available information, Fidelity and Alamo believe that the
Merger can be effected in compliance with federal and state antitrust laws.
However, there can be no assurance that a challenge to the consummation of the
Merger on antitrust grounds will not be made or that, if such a challenge is
made, Fidelity and Alamo would prevail or would not be required to accept
certain conditions in order to consummate the Merger.
Insurance
The Merger is also subject to the receipt of necessary approvals from the
Texas state insurance department. On May 18, 1998, Fidelity and Alamo filed an
Application for Approval of Acquisition of Control of or Merger with a Domestic
Insurer (Form A) with the state insurance department of the State of Texas.
Fidelity and Alamo have no reason to believe that such approval will not be
obtained.
Fidelity and Alamo are not aware of any other significant governmental
approvals that are required for consummation of the Merger except as described
above. Should any other approval or action be required, it is presently
contemplated that such approval would be sought. There can be no assurance
whether or when any such approval, if required, could be obtained.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
Information concerning the existing Fidelity Board is set forth in the 1997
Fidelity Form 10-K, as amended which is incorporated herein by reference. For
additional information regarding operations of Fidelity, see "INFORMATION ABOUT
FIDELITY."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material anticipated U.S. federal
income tax considerations relevant to the exchange of shares of Alamo Common
Stock for Fidelity Common Stock pursuant to the Merger. This summary is based
upon the opinion of counsel delivered by Stradling Yocca Carlson & Rauth,
counsel for Fidelity, and Cox & Smith Incorporated, counsel for Alamo, delivered
in connection with the filing of the Registration Statement, and the opinions to
be delivered at the Effective Time of the Merger to Fidelity and Alamo (the "Tax
Opinions"), that the Merger will constitute a tax-free "reorganization" within
the meaning of Section 368 of the Code (a "Reorganization").
Holders of Alamo Common Stock should be aware that this discussion does not
deal with all federal income tax considerations that may be relevant to
particular shareholders of Alamo in light of their particular circumstances.
Shareholders with unique circumstances, such as dealers in securities, banks,
insurance companies, tax exempt organizations, foreign persons, persons who
acquired their shares in connection with stock options or stock purchase plans
or in other compensatory transactions, and persons who do not hold their Alamo
Common Stock as capital assets, are specifically not addressed herein. In
addition, the following discussion is based on current legal authorities as of
the date hereof, and no assurance can be given that further legislation,
regulations, administrative pronouncements or court decisions will not
significantly change the law and materially affect the discussion contained
herein. Further, the following discussion does not address the tax consequences
of the Merger under foreign, state or local tax laws. Finally, the following
discussion also does not address the tax consequences of transactions
effectuated prior or subsequent to or concurrently with the Merger (whether or
not such transactions are in connection with the Merger), including without
limitation, transactions in which Alamo Common Stock is acquired or sold,
Fidelity shares are disposed of, or transactions in which Alamo Common Stock is
sold after the date of the Merger Agreement and prior to the Effective Time of
the Merger.
ACCORDINGLY, SHAREHOLDERS OF ALAMO ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUD-
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ING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF
THE MERGER IN THEIR PARTICULAR CIRCUMSTANCES.
Subject to the limitations and qualifications referred to herein,
qualification of the Merger as a Reorganization will result in the following
federal income tax consequences:
(a) No gain or loss will be recognized by shareholders of Alamo solely
upon their receipt of Fidelity Common Stock solely in exchange for Alamo
Common Stock pursuant to the Merger (gain or loss will be recognized as a
result of cash received in lieu of a fractional share of Fidelity Common
Stock and for cash received in exchange for Alamo Common Stock for which
dissenter's rights are exercised).
(b) The aggregate tax basis of the Fidelity Common Stock received by
each Alamo shareholder in the Merger will be the same as the aggregate tax
basis of Alamo Common Stock surrendered in exchange therefor (without
regard to the tax basis, if any, allocated to fractional share interests).
(c) The holding period of the Fidelity Common Stock received in the
Merger will include the period for which the Alamo Common Stock surrendered
in exchange therefor was held, provided that the Alamo Common Stock is held
as a capital asset at the time of the Merger.
(d) If an Alamo shareholder receives cash in lieu of a fractional
share of Fidelity Common Stock, such Alamo shareholder will be treated as
if such fractional share of Fidelity Common Stock had been issued in the
Merger and then redeemed by Fidelity. An Alamo shareholder receiving such
cash will generally recognize gain or loss upon such payment, equal to the
difference (if any) between the amount of cash received and such
shareholder's basis in the fractional share.
(e) Alamo shareholders who receive cash in exchange for shares for
which dissenters' rights are exercised ("Dissenting Shareholders") will
recognize income equal to the lesser of the cash received or the gain
realized in the Merger (the difference between (i) the amount of cash plus
the fair market value of the Fidelity Common Stock, if any, received and
(ii) the Dissenting Shareholder's basis in the Alamo Common Stock
exchanged). The character of such income will generally be capital gain or
dividend depending on the Dissenting Shareholder's particular situation.
Dissenting Shareholders should consult with their own tax advisors as to
the character of such income to them.
(f) Neither Fidelity, Merger Sub nor Alamo will recognize material
amounts of gain solely as a result of the Merger.
No ruling has been or will be obtained from the Internal Revenue Service
(the "IRS") in connection with the Merger. The Tax Opinions do not and will not
bind the IRS and the IRS is, therefore, not precluded from successfully
asserting a contrary opinion. The Tax Opinions are and will also be subject to
certain assumptions and certain representations made by Fidelity and Alamo
regarding, among other things, the conduct of the business of Alamo following
the Merger.
The obligations of Alamo, Fidelity and Merger Sub to consummate the Merger
are conditioned upon the receipt of the Tax Opinions. If either Fidelity or
Alamo fails to receive its Tax Opinion and determines to waive the related
condition to its obligation to consummate the Merger, and the material federal
income tax consequences to Alamo's shareholders are different from those
described above, Alamo will resolicit the Alamo shareholders prior to proceeding
with consummation of the Merger.
A successful IRS challenge to the reorganization status of the Merger would
result in the shareholders of Alamo recognizing taxable gain or loss, as of the
Effective Time, with respect to each share of Alamo Common Stock surrendered
equal to the difference between the shareholder's basis in such share and the
fair market value, as of the Effective Time, of the Fidelity Common Stock
received in exchange therefor. In such event, a shareholder's aggregate basis in
the Fidelity Common Stock so received would equal its fair market value and the
holding period for such stock would begin the day after the Effective Time.
RESTRICTIONS ON RESALES BY AFFILIATES
All shares of Fidelity Common Stock issued in the Merger will be freely
transferable, except that shares received by persons who are deemed to be
"affiliates" (as such term is defined under the Securities Act) of Alamo or
Fidelity as of the time that the Merger Agreement and the Merger are submitted
to the Alamo
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shareholders for approval may be sold by them only in transactions permitted by
the resale provisions of Rule 145 under the Securities Act with respect to
affiliates of Alamo, and/or Rule 144 under the Securities Act with respect to
persons who are or become affiliates of Fidelity, or as otherwise permitted
under the Securities Act. Persons who may be deemed to be affiliates of Alamo or
Fidelity generally include individuals or entities that control, are controlled
by, or are under common control with, such party and may include certain
officers and directors of such party as well as principal shareholders of such
party.
Affiliates may not sell their shares of Fidelity Common Stock acquired in
the Merger, except pursuant to an effective registration statement under the
Securities Act covering such shares or in compliance with Rule 145 (and/or Rule
144 under the Securities Act in the case of persons who are or become affiliates
of Fidelity) or another applicable exemption from the registration requirements
of the Securities Act. In general, under Rule 145, for one year following the
Effective Time, any person who is an affiliate of Alamo as of the time that the
Merger Agreement and the Merger are submitted to the Alamo shareholders for
approval (together with certain related persons) will be entitled to sell shares
of Fidelity Common Stock acquired in the Merger only through unsolicited "broker
transactions" or in transactions directly with a "market maker," as such terms
are defined in Rule 144. Additionally, the number of shares to be sold by such
an affiliate (together with certain related persons and certain persons acting
in concert) within any three-month period for purposes of Rule 145 may not
exceed the greater of 1% of the outstanding shares of Fidelity Common Stock or
the average weekly trading volume of the shares of Fidelity Common Stock during
the four calendar weeks preceding such sale. Rule 145 will only remain
available, however, to persons who were affiliates of Alamo prior to the Merger
if Fidelity remains current with its information filings with the Commission
under the Exchange Act. One year after the Effective Time, a person who was an
affiliate of Alamo prior to the Merger will be able to sell shares of Fidelity
Common Stock received in the Merger without regard to such manner of sale or
volume limitations, provided that Fidelity is current with its Exchange Act
informational filings and such person is not then an affiliate of Fidelity. Two
years after the Effective Time, a person who was an affiliate of Alamo prior to
the Merger will be able to sell such shares of Fidelity Common Stock without any
restrictions, so long as such person had not been an affiliate of Fidelity for
at least three months prior to the sale.
Commission guidelines regarding qualifying for the pooling-of-interests
method of accounting also limit sales of shares of the acquiring and acquired
company by affiliates of either company in a business combination. Commission
guidelines also indicate that the pooling-of-interests method of accounting
generally will not be challenged on the basis of sales by affiliates of the
acquiring or acquired company if such affiliates do not dispose of any of the
shares of the corporation they own, or shares of a corporation they receive in
connection with a merger, during the period beginning 30 days before the merger
is consummated and ending when financial results covering at least 30 days of
post-merger operations of the combined companies have been published.
Fidelity has also agreed in the Merger Agreement to use its reasonable best
efforts to publish, as soon as practicable after the end of its first fiscal
quarter which includes at least 30 days of post-Merger combined operations,
combined sales and net income figures and any other financial information
necessary, as contemplated by and in accordance with the terms of SEC Accounting
Series Release No. 135 and any related accounting rules.
ACCOUNTING TREATMENT
For financial reporting purposes, the Merger is intended to be accounted
for as a pooling-of-interests under Accounting Principles Board Opinion No. 16.
Accordingly, the recorded assets and liabilities of Fidelity and Alamo will be
combined and carried forward at their historical recorded amounts. The results
of operations of the combined companies will include the results of operations
of Fidelity and Alamo for the entire fiscal year in which the Merger occurs. In
addition, the reported financial positions and results of operations of Fidelity
for prior periods will be restated to include the assets, liabilities,
shareholders' equity and operating results of Alamo.
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DISSENTERS' RIGHTS
The rights of Alamo shareholders who dissent from the Merger are governed
by Sections 5.11 - 5.13 ("Sections 5.11 - 5.13") of the Texas Business
Corporation Act (the "TBCA"). The following summary of applicable provisions of
Sections 5.11 - 5.13 is not intended to be a complete statement of such
provisions and is qualified in its entirety by reference to the full text of the
dissenters' rights provisions of the TBCA, which are included herein as Appendix
C.
A holder of Alamo Common Stock as of the Alamo Record Date who files a
written objection to the Merger, who has not voted in favor of the Merger and
who has made a demand for compensation as provided under Sections 5.11 - 5.13,
is entitled under such provisions, as an alternative to receiving the
consideration offered in the Merger for his Alamo Common Stock, the fair value
of his Alamo Common Stock. The following is a summary of the procedural steps
that must be taken if dissenters' rights are to be validly exercised.
Any shareholder of Alamo may elect to exercise his right to dissent from
the Merger by filing with Alamo, at the address set forth below, prior to the
Special Meeting, a written objection to the Merger, setting out that such
shareholder's right to dissent will be exercised if the Merger is effective and
giving such shareholder's address for any notice.
If the Merger is effected and such shareholder has not voted in favor of
the Merger, Alamo will, within ten days after the Merger is effected, deliver or
mail to such shareholder written notice that the Merger has been effected, and
such shareholder may, within ten days from the delivery or mailing of such
notice, make written demand on Alamo for payment of the fair value of such
holder's shares of Alamo Common Stock.
The fair value of any dissenting shares will be the value thereof as of the
day immediately preceding the Special Meeting, excluding any appreciation or
depreciation in anticipation of the Merger. Such shareholder demand will state
the number of shares of Alamo Common Stock owned by the dissenting shareholder
and the fair value of such shares as estimated by such shareholder. Any
shareholder failing to make demand within the ten-day period will be bound by
the Merger.
A dissenting shareholder's written objection to the Merger and demand for
payment must be in addition to and separate from any proxy or vote against the
Merger. Neither voting against, abstaining from voting, nor the failure to vote
for the Merger will constitute the written notice required to be filed by a
dissenting Alamo shareholder. Failure to vote against the Merger, however, will
not constitute a waiver of rights under Sections 5.11 - 5.13 provided that a
written notice has been properly delivered. A shareholder voting for the Merger
will be deemed a waiver of dissenters' rights. Any proxy may be revoked before
it is voted by filing with the Secretary of Alamo a written notice of revocation
or a duly executed proxy bearing a later date or by attending the Special
Meeting and voting in person.
Any shareholder who has demanded payment for his shares of Alamo Common
Stock is not thereafter entitled to vote or exercise any other rights of an
Alamo shareholder except the right to receive payment for his shares pursuant to
Sections 5.11 - 5.13 and the right to maintain an appropriate action to obtain
relief on the ground that the Merger would be or was fraudulent, and the shares
of Alamo Common Stock for which payment has been demanded shall not thereafter
be considered outstanding for the purposes of any subsequent vote of Alamo
shareholders.
Under Sections 5.11 - 5.13, holders of record of Alamo Common Stock are
entitled to dissenters' rights as described above, and the procedures to perfect
such rights must be carried out by and in the name of holders of record. Persons
who are beneficial but not record owners of Alamo Common Stock and who wish to
exercise dissenters' rights with respect to the Merger should consult promptly
with the record holders of their Alamo Common Stock as to the exercise of such
rights. All written objections and demands for payment should be addressed to
Alamo Title Holding Company, 10010 San Pedro, Suite 800, San Antonio, Texas
78216, Attention: Alan L. Stinson, and must be received before the Special
Meeting or be delivered at such meeting prior to the vote.
Within 20 days after receipt by Alamo of a demand for payment made by a
dissenting shareholder, Alamo must deliver or mail to such dissenting
shareholder a written notice that will (i) state that Alamo accepts the amount
claimed in the demand and agrees to pay that amount within 90 days after the
Effective
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Time, and upon the surrender of the share certificates representing such
shareholder's shares of Alamo Common Stock duly endorsed, or (ii) will contain
an estimate by Alamo of the fair value of such shares, together with an offer to
pay the amount of that estimate within 90 days after the Effective Time, upon
receipt of notice within 60 days after that date from the dissenting shareholder
that such shareholder agrees to accept that amount and upon the surrender of the
share certificates duly endorsed. In addition, within such 20-day period
described above, each holder of certificates representing shares of Alamo Common
Stock so demanding payment shall submit such certificates to Alamo for notation
thereon that such demand has been made. The failure of shareholders to do so
will, at the opinion of Alamo, terminate such shareholder's rights under
Sections 5.11 - 5.13 unless a court of competent jurisdiction for good and
sufficient cause shown shall otherwise direct.
If, within 60 days after the Effective Time, the value of such shares is
agreed upon between the dissenting shareholder and Alamo, payment therefor will
be made within 90 days after the Effective Time and upon surrender of the
certificates duly endorsed. Upon payment of the agreed value, the dissenting
shareholder will cease to have any interest in the shares of Alamo Common Stock
or in Alamo.
If, within 60 days after the Effective Time, the dissenting shareholder and
Alamo do not so agree, then the dissenting shareholder or Alamo may, within 60
days after the expiration of the 60-day period, file a petition in any court of
competent jurisdiction in the county in which the principal office of Alamo is
located, asking for a finding and determination of the fair value of such
dissenting shareholder's shares of Alamo Common Stock.
After the hearing of the petition, the court will determine the dissenting
shareholders who have complied with the provisions of the TBCA relating to
dissenters' rights and have become entitled to the valuation of and payment for
their shares of Alamo Common Stock, and will appoint one or more qualified
appraisers to determine that value.
The appraisers will determine the fair value of the shares of Alamo Common
Stock held by the Alamo dissenting shareholders adjudged by the court to be
entitled to payment and will file their report of that value in the office of
the clerk of the court. The court will determine the fair value of the shares of
Alamo Common Stock held by the Alamo dissenting shareholders entitled to payment
therefor and will direct the payment of that value of Alamo, as the surviving
corporation in the Merger, together with interest thereon beginning 91 days
after the Effective Time to the date of such judgment, to the Alamo dissenting
shareholders entitled thereto. Upon payment of the judgment by Alamo to such
Alamo dissenting shareholders, such shareholders will cease to have any interest
in those shares of Alamo Common Stock or in Alamo.
In the absence of fraud in the transaction, the remedy provided by Sections
5.11 - 5.13 is the exclusive remedy for the recovery by the Alamo dissenting
shareholders of the value of such shareholders' shares of Alamo Common Stock or
money damages to such shareholder with respect to the Merger. If Alamo complies
with the requirements of Sections 5.11 - 5.13, any dissenting shareholder who
fails to comply with the requirements of the provisions of the TBCA relating to
dissenters' rights will not be entitled to bring suit for the recovery of the
value of his shares of Alamo Common Stock or money damages to such shareholder
with respect to the Merger.
Any shareholder who has demanded payment for his shares as described above
may withdraw such demand at any time before payment for his shares or before any
petition has been filed asking for a finding and determination of the fair value
of such shares, but no such demand may be withdrawn after such payment has been
made or, unless Alamo shall consent thereto, after any such petition has been
filed. If, however, such demand shall be withdrawn as herein before provided, or
if Alamo shall terminate the shareholder's rights as provided above, or if no
petition asking for a finding and determination of fair value of such shares by
a court shall have been filed within the time period described above, or if
after the hearing of a petition filed as described above, the court shall
determine that such shareholder is not entitled to the relief as described
above, then, in any such case, such shareholder and all persons claiming under
him shall be conclusively presumed to have approved and ratified the Merger and
shall be bound thereby, the right of such shareholder to be paid the fair value
of his shares shall cease and his status as a shareholder shall be restored,
without prejudice, to any corporate proceedings which may have been taken during
the interim and such shareholder
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shall be entitled to receive any dividends or other distributions made to
holders of shares of Alamo Common Stock in the interim.
Any Alamo shareholder contemplating the exercise of dissenters' rights is
urged to review carefully the provisions of the TBCA relating to dissenters'
rights, a copy of which is attached hereto as Appendix C. Failure by a Alamo
shareholder to follow precisely all steps required by such provisions for
perfecting dissenters' right will result in the loss of those rights.
Dissenters' rights are the exclusive remedy of a dissenting shareholder in the
absence of unlawful or fraudulent action by Alamo with respect to its
shareholders.
THE ABOVE DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW PERTAINING TO
DISSENTERS' RIGHTS UNDER THE TBCA AND IS QUALIFIED IN ITS ENTIRETY BY THE FULL
TEXT OF SECTIONS 5.11 - 5.13 OF THE TBCA, WHICH IS REPRINTED IN ITS ENTIRETY AS
APPENDIX C TO THIS PROXY STATEMENT/PROSPECTUS.
EXCHANGE OF CERTIFICATES
As soon as practicable after the Effective Time of the Merger, Fidelity
will cause the Exchange Agent to mail to each shareholder of record of Alamo a
letter of transmittal with instructions to be used by such shareholder in
surrendering certificates which, prior to the Merger, represented shares of
Alamo Common Stock in exchange for certificates representing shares of Fidelity
Common Stock. Letters of transmittal will also be available as soon as
practicable after the Effective Time of the Merger at the offices of the
Exchange Agent. After the Effective Time of the Merger, there will be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of shares of Alamo Common Stock which were outstanding immediately
prior to the Effective Time of the Merger.
HOLDERS OF ALAMO COMMON STOCK SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR
PROXY CARDS. IF THE MERGER IS APPROVED AND CONSUMMATED, ALAMO SHAREHOLDERS WILL
RECEIVE INSTRUCTIONS REGARDING PROCEDURES FOR THE EXCHANGE OF THEIR STOCK
CERTIFICATES.
Upon the surrender of a Alamo Common Stock certificate to the Exchange
Agent, or to such other agent as may be appointed by Fidelity, together with a
duly executed letter of transmittal, the holder of such certificate will be
entitled to receive, in exchange therefor, a certificate representing the number
of shares of Fidelity Common Stock to which the holder of Alamo Common Stock is
entitled pursuant to the provisions of the Merger Agreement. In the event of a
transfer of ownership of Alamo Common Stock which is not registered in the
transfer records of Alamo, a certificate representing the appropriate number of
shares of Fidelity Common Stock may be issued to a transferee if the certificate
representing such Alamo Common Stock is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer and
to evidence that any applicable stock transfer taxes have been paid, along with
a duly executed letter of transmittal.
Until a certificate representing Alamo Common Stock has been surrendered to
the Exchange Agent, each such certificate will be deemed at any time after the
Effective Time to represent the right to receive upon such surrender a
certificate representing the number of shares of Fidelity Common Stock to which
the Alamo shareholder is entitled under the Merger Agreement.
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UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed balance sheet as of
March 31, 1998 combines the historical consolidated balance sheets of Fidelity
and Alamo as if the Merger had been effective on March 31, 1998, after giving
effect to certain adjustments described in the attached Footnotes to the Pro
Forma Condensed Financial Statements. The following unaudited pro forma combined
condensed statements of earnings for the three months ended March 31, 1998 and
1997 and the years ended December 31, 1997, 1996 and 1995 present the combined
results of operations of Fidelity and Alamo as if the Merger had been effective
at the beginning of the earliest period presented. The unaudited pro forma
combined condensed financial information includes the effects of Fidelity's
acquisition of Granite Financial, Inc. which was completed on February 26, 1998
and was accounted for using the pooling-of-interests method of accounting.
The unaudited pro forma combined condensed financial information excludes
adjustments to give pro forma effect to Fidelity's pending acquisition of
Matrix, which is intended to be accounted for using the pooling-of-interests
method of accounting. See "SUMMARY -- Recent Developments."
The unaudited pro forma combined condensed financial information is
provided for comparative purposes only and is not indicative of the results of
operations or financial position of the combined companies that would have
occurred had the Merger occurred at the beginning of the periods presented or on
the date indicated, nor is it indicative of future operating results or
financial position. The unaudited pro forma adjustments are based upon currently
available information and upon certain assumptions that management of Fidelity
and Alamo believe are reasonable under the circumstances. The unaudited pro
forma combined condensed financial information and the related notes thereto
should be read in conjunction with the historical consolidated financial
statements, and the related notes thereto of each of Fidelity and Alamo,
incorporated by reference and included elsewhere herein. In addition, the
unaudited pro forma combined condensed financial information does not reflect
certain cost savings that management believes may be realized following the
Merger.
The unaudited pro forma combined condensed financial information reflects
the application of the pooling-of-interests method of accounting for the Merger.
Under this method of accounting, the recorded assets, liabilities, shareholders'
equity, revenue and expenses of Fidelity and Alamo are combined and reflected at
their historical amounts.
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<PAGE> 42
PRO FORMA COMBINED CONDENSED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
AT MARCH 31, 1998
------------------------------------------------
ALAMO
PRO FORMA FIDELITY
ALAMO FIDELITY ADJUSTMENTS COMBINED
------- -------- ----------- --------
<S> <C> <C> <C> <C>
Investments:
Fixed maturities available for sale, at fair
value..................................... $22,637 $217,026 $ $239,663
Equity securities, at fair value............. 8,433 72,722 81,155
Other long-term investments, at cost, which
approximates fair values.................. 2,658 16,964 19,622
Short-term investments, at cost, which
approximates fair value................... -- 20,925 20,925
Investments in real estates and partnerships,
net....................................... -- 5,172 5,172
------- -------- ------- --------
Total investments.................... 33,728 332,809 366,537
Cash and cash equivalents...................... 10,665 44,407 (1,601)(1) 53,471
Leases and lease residual interests............ -- 74,252 74,252
Trade receivables.............................. 1,263 63,802 65,065
Notes receivable............................... 2,175 8,270 10,445
Prepaid and other assets....................... 8,769 87,738 96,507
Title plants................................... 6,329 51,723 58,052
Property and equipment, net.................... 5,794 39,300 45,094
------- -------- ------- --------
$68,723 $702,301 $(1,601)(1) $769,423
======= ======== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities....... $ 3,490 $ 68,710 $ $ 72,200
Notes payable.................................. 7,063 158,688 165,751
Reserve for claim losses....................... 11,109 190,744 201,853
Deferred income taxes.......................... 2,277 14,676 16,953
Income taxes payable........................... 592 17,207 17,799
------- -------- ------- --------
24,531 450,025 474,556
------- -------- ------- --------
Minority interests............................. -- 3,569 3,569
Stockholders' equity:
Common stock................................. 3,318 3 (3,318)(2) 3
Additional paid-in capital................... 1,764 136,724 3,318(2) 141,806
Retained earnings............................ 37,377 144,108 (1,601)(1) 179,884
------- -------- ------- --------
42,459 280,835 (1,601) 321,693
Accumulated other comprehensive income......... 1,890 22,247 24,137
Less treasury stock............................ 157 54,375 54,532
------- -------- ------- --------
44,192 248,707 (1,601) 291,298
------- -------- ------- --------
$68,723 $702,301 $(1,601) $769,423
======= ======== ======= ========
</TABLE>
- ---------------
(1) Cash, total assets and stockholders' equity have been adjusted to reflect
the cumulative impact of dividends that would have been paid on an
additional 2,026,000 shares issued and outstanding.
(2) Adjustment represents the conversion of the Alamo Common Stock to Fidelity
Common Stock, $.0001 par value.
34
<PAGE> 43
PRO FORMA COMBINED CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE THREE MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1998
----------------------------- -----------------------------
ALAMO ALAMO
FIDELITY FIDELITY
ALAMO FIDELITY COMBINED ALAMO FIDELITY COMBINED
------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Title insurance premiums...... $16,549 $110,914 $127,463 $21,382 $160,914 $182,296
Escrow fees................... 987 16,550 17,537 1,351 24,960 26,311
Other fees and revenue........ 1,736 22,114 23,850 2,425 44,190 46,615
Interest and investment
income, including realized
gains (losses)............. 367 6,095 6,462 373 6,618 6,991
------- -------- -------- ------- -------- --------
19,639 155,673 175,312 25,531 236,682 262,213
------- -------- -------- ------- -------- --------
EXPENSES:
Personnel costs............... 6,844 55,406 62,250 7,843 76,668 84,511
Other operating expenses...... 5,509 40,158 45,667 6,237 50,789 57,026
Agent commissions............. 7,336 44,061 51,397 8,576 66,837 75,413
Provision for claim losses.... 729 7,066 7,795 760 12,579 13,339
Interest expense.............. 150 2,952 3,102 111 3,014 3,125
------- -------- -------- ------- -------- --------
20,568 149,643 170,211 23,527 209,887 233,414
------- -------- -------- ------- -------- --------
Earnings before income
taxes...................... (929) 6,030 5,101 2,004 26,795 28,799
Income tax expense............ (349) 2,453 2,104 731 11,388 12,119
------- -------- -------- ------- -------- --------
Earnings (loss)............... $ (580) $ 3,577 $ 2,997 $ 1,273 $ 15,407 $ 16,680
======= ======== ======== ======= ======== ========
Basic net earnings............ $ (580) $ 3,577 $ 2,997 $ 1,273 $ 15,407 $ 16,680
======= ======== ======== ======= ======== ========
Basic earnings per share...... $ (0.44) $ 0.20 $ 0.15 $ 0.97 $ 0.69 $ 0.68
======= ======== ======== ======= ======== ========
Weighted average shares
outstanding, basic
basis(1)................... 1,313 17,928 19,886 1,317 22,485 24,449
Diluted net earnings.......... $ (580) $ 4,385 $ 3,805 $ 1,273 $ 16,031 $ 17,304
======= ======== ======== ======= ======== ========
Diluted earnings per share.... $ (0.44) $ 0.19 $ 0.15 $ 0.97 $ 0.58 $ 0.58
======= ======== ======== ======= ======== ========
Weighted average shares
outstanding, diluted
basis(1)................... 1,313 23,412 25,370 1,317 27,655 29,619
</TABLE>
- ---------------
(1) Pro forma combined weighted average basic basis and weighted average diluted
basis shares outstanding consist of the historical Fidelity shares
outstanding plus the historical Alamo shares outstanding converted at the
exchange rate of 1.491 Fidelity shares for each Alamo share.
35
<PAGE> 44
PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
-------------------------------------
ALAMO
FIDELITY
ALAMO FIDELITY COMBINED
--------- ---------- ----------
<S> <C> <C> <C>
REVENUE:
Title insurance premiums.................................. $82,854 $533,220 $616,074
Escrow fees............................................... 4,792 81,241 86,033
Other fees and revenue.................................... 9,982 115,164 125,146
Interest and investment income, including realized gains
(losses)............................................... 2,250 33,556 35,806
------- -------- --------
99,878 763,181 863,059
------- -------- --------
EXPENSES:
Personnel costs........................................... 29,902 243,319 273,221
Other operating expenses.................................. 24,694 166,898 191,592
Agent commissions......................................... 35,019 223,797 258,816
Provision for claim losses................................ 2,897 38,661 41,558
Interest expense.......................................... 615 11,654 12,269
------- -------- --------
93,127 684,329 777,456
------- -------- --------
Earnings before income taxes and extraordinary item....... 6,751 78,852 85,603
Income tax expense........................................ 2,540 34,055 36,595
------- -------- --------
Earnings before extraordinary item........................ 4,211 44,797 49,008
Extraordinary item........................................ -- (1,700) (1,700)
------- -------- --------
Net earnings.............................................. $ 4,211 $ 43,097 $ 47,308
======= ======== ========
Basic net earnings........................................ $ 4,211 $ 43,097 $ 47,308
======= ======== ========
Basic earnings per share before extraordinary item........ $ 3.20 $ 2.32 $ 2.31
Extraordinary item........................................ -- (0.09) (0.08)
------- -------- --------
Basic earnings per share.................................. $ 3.20 $ 2.23 $ 2.23
======= ======== ========
Weighted average shares outstanding, basic basis(1)....... 1,314 19,272 21,231
Diluted net earnings...................................... $ 4,211 $ 46,239 $ 50,450
======= ======== ========
Diluted earnings per share before extraordinary item...... $ 3.20 $ 1.92 $ 1.94
Extraordinary item, gain on early retirement of debt,
net.................................................... -- (0.07) (0.06)
------- -------- --------
Diluted earnings per share................................ $ 3.20 $ 1.85 $ 1.88
======= ======== ========
Weighted average shares outstanding, diluted basis(1)..... 1,314 24,948 26,907
</TABLE>
- ---------------
(1) Pro forma combined weighted average basic basis and weighted average diluted
basis shares outstanding consist of the historical Fidelity shares
outstanding plus the historical Alamo shares outstanding converted at the
exchange rate of 1.491 Fidelity shares for each Alamo share.
36
<PAGE> 45
PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
-------------------------------------
ALAMO
FIDELITY
ALAMO FIDELITY COMBINED
--------- ---------- ----------
<S> <C> <C> <C>
REVENUE:
Title insurance premiums.................................. $76,838 $475,961 $552,799
Escrow fees............................................... 4,195 66,927 71,122
Other fees and revenue.................................... 9,850 81,797 91,647
Interest and investment income, including realized gains
(losses)............................................... 1,535 17,692 19,227
------- -------- --------
92,418 642,377 734,795
------- -------- --------
EXPENSES:
Personnel costs........................................... 27,585 212,647 240,232
Other operating expenses.................................. 21,306 155,218 176,524
Agent commissions......................................... 34,047 187,901 221,948
Provision for claim losses................................ 2,973 33,302 36,275
Interest expense.......................................... 654 10,936 11,590
------- -------- --------
86,565 600,004 686,569
------- -------- --------
Earnings before income taxes.............................. 5,853 42,373 48,226
Income tax expense........................................ 2,139 16,846 18,985
------- -------- --------
Net earnings.............................................. $ 3,714 $ 25,527 $ 29,241
======= ======== ========
Basic net earnings........................................ $ 3,714 $ 25,527 $ 29,241
======= ======== ========
Basic earnings per share.................................. $ 2.88 $ 1.53 $ 1.57
======= ======== ========
Weighted average shares outstanding, basic basis(1)....... 1,289 16,647 18,569
Diluted net earnings...................................... $ 3,714 $ 28,723 $ 32,437
======= ======== ========
Diluted earnings per share................................ $ 2.88 $ 1.30 $ 1.35
======= ======== ========
Weighted average shares outstanding, diluted basis(1)..... 1,289 22,106 24,028
</TABLE>
- ---------------
(1) Pro forma combined weighted average basic basis and weighted average diluted
basis shares outstanding consist of the historical Fidelity shares
outstanding plus the historical Alamo shares outstanding converted at the
exchange rate of 1.491 Fidelity shares for each Alamo share.
37
<PAGE> 46
PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
-------------------------------------
ALAMO
FIDELITY
ALAMO FIDELITY COMBINED
--------- ---------- ----------
<S> <C> <C> <C>
REVENUE:
Title insurance premiums.................................. $65,958 $285,552 $351,510
Escrow fees............................................... 3,409 49,723 53,132
Other fees and revenue.................................... 9,865 56,954 66,819
Interest and investment income, including realized gains
(losses)............................................... 1,816 17,616 19,432
------- -------- --------
81,048 409,845 490,893
------- -------- --------
EXPENSES:
Personnel costs........................................... 24,905 165,514 190,419
Other operating expenses.................................. 19,606 123,888 143,494
Agent commissions......................................... 30,645 82,713 113,358
Provision for claim losses................................ 2,972 19,031 22,003
Interest expense.......................................... 898 9,239 10,137
------- -------- --------
79,026 400,385 479,411
------- -------- --------
Earnings before income taxes and extraordinary item....... 2,022 9,460 11,482
Income tax expense........................................ 888 1,828 2,716
------- -------- --------
Earnings before extraordinary item........................ 1,134 7,632 8,766
Extraordinary item........................................ -- (813) (813)
------- -------- --------
Net earnings.............................................. $ 1,134 $ 6,819 $ 7,953
======= ======== ========
Basic net earnings........................................ $ 1,134 $ 6,819 $ 7,953
======= ======== ========
Basic earnings per share before extraordinary item........ $ 0.89 $ 0.50 $ 0.51
Extraordinary item........................................ -- (0.05) (0.05)
------- -------- --------
Basic earnings per share.................................. $ 0.89 $ 0.45 $ 0.46
======= ======== ========
Weighted average shares outstanding, basic basis(1)....... 1,273 15,131 17,029
Diluted net earnings...................................... $ 1,134 $ 6,819 $ 7,953
======= ======== ========
Diluted earnings per share before extraordinary item...... $ 0.89 $ 0.49 $ 0.50
Extraordinary item, gain on early retirement of debt,
net.................................................... -- (0.05) (0.05)
------- -------- --------
Diluted earnings per share................................ $ 0.89 $ 0.44 $ 0.45
======= ======== ========
Weighted average shares outstanding, diluted basis(1)..... 1,273 15,694 17,592
</TABLE>
- ---------------
(1) Pro forma combined weighted average basic basis and weighted average diluted
basis shares outstanding consist of the historical Fidelity shares
outstanding plus the historical Alamo shares outstanding converted at the
exchange rate of 1.491 Fidelity shares for each Alamo share.
38
<PAGE> 47
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 Alamo. This discussion and
analysis should be read in conjunction with Alamo'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 and interim periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------- ------------------
1997 1996 1995 1998 1997
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total revenue............................ $99,878 $92,418 $81,048 $25,531 $19,639
======= ======= ======= ======= =======
Total expenses........................... $93,127 $86,565 $79,026 $23,527 $20,568
======= ======= ======= ======= =======
Net earnings (loss)...................... $ 4,211 $ 3,714 $ 1,134 $ 1,273 $ (580)
======= ======= ======= ======= =======
Net claims paid ratio(1)................. 1.51% 1.05% 2.17% 2.70% 1.96%
Return on average equity(2).............. 10.47% 10.15% 3.34% 2.95% (1.53)%
</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 period presented.
Alamo is a title insurance holding company domiciled in Texas. Through its
principal subsidiaries, Alamo is one of the largest regional providers of title
insurance and title-related services. Alamo's title insurance underwriter, ATI,
operates through a network of approximately 197 independent title insurance
agents in Texas and 26 agents in New Mexico.
In addition to the independent agent network, Alamo's subsidiaries include
the following wholly-owned title insurance agents in Texas: Alamo Title Company
operating in Bexar, Comal and Kendall Counties; the SWT Holdings, Inc. (SWT)
group of title companies (Alamo Title Company of Harris County in Fort Bend,
Galveston, Harris and Montgomery Counties, and Alamo Title Company of Brazoria,
Inc. in Brazoria County, which was acquired in January 1997), Alamo Title
Company of Tarrant County in Collin, Denton, Johnson, Parker and Tarrant
Counties; Alamo Title Company of Travis, Inc. in Bastrop, Hays, Travis and
Williamson Counties (formerly known as Title Agency of Austin, acquired in June
of 1995 and which includes the operations of the agency formerly known as 1st
Security Title Company); and Alamo Title Company of Guadalupe County, Inc. in
Guadalupe County (formerly known as Guadalupe County Abstract Company, acquired
in May of 1995). In November, 1995, Alamo acquired a 50% interest in Hexter-Fair
Title Company in Dallas, Denton, and Collin Counties, and in January, 1998
acquired 20% of Rio Grande Title Company, which operates in Bernalillo,
Sandoval, Torrence and Valencia Counties, New Mexico.
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. Since 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 contributed to very positive conditions for the industry throughout 1996
and 1997 and into the first quarter of 1998. In addition, the passage of the
home equity lending amendment to the Texas constitution effective January 1,
1998 has resulted in an increase in activity in refinancing as well as
39
<PAGE> 48
home equity lending. It is impossible to predict in what future direction
interest rates and the real estate market may move or fluctuate.
The following table sets forth information regarding title-related revenue
derived from wholly-owned operations and title-related revenue derived from
agency operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
% OF % OF % OF
1997 TOTAL 1996 TOTAL 1995 TOTAL
------- ----- ------- ----- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenue from wholly-owned operations:
Title insurance premiums........... $40,127 41.3% $34,888 38.8% $27,780 35.5%
Escrow fees........................ 4,792 4.9 4,195 4.7 3,409 4.3
Commissions earned................. 5,586 5.8 5,386 6.0 4,888 6.2
Other title-related fees and
revenue......................... 3,896 4.0 3,459 3.8 4,026 5.2
------- ----- ------- ----- ------- -----
Total...................... 54,401 56.0 47,928 53.3 40,103 51.2
Revenue from agency operations:
Title insurance premiums........... 42,727 44.0 41,950 46.7 38,178 48.8
------- ----- ------- ----- ------- -----
Total title-related revenue.......... $97,128 100.0% $89,878 100.0% $78,281 100.0%
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------------
% OF % OF
1998 TOTAL 1997 TOTAL
------- ----- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue from wholly-owned operations:
Title insurance premiums.............................. $10,943 43.5% $ 7,545 39.6%
Escrow fees........................................... 1,351 5.4 987 5.2
Commissions earned.................................... 1,591 6.3 960 5.1
Other title-related fees and revenue.................. 834 3.3 539 2.8
------- ----- ------- -----
Total......................................... 14,719 58.5 10,031 52.7
Revenue from agency operations:
Title insurance premiums.............................. 10,439 41.5 9,004 47.3
------- ----- ------- -----
Total title-related revenue............................. $25,158 100.0% $19,035 100.0%
</TABLE>
The increases in title-related revenue during the periods presented has
been the result of two key operating strategies, the acquisition and development
of owned operations in the major metropolitan areas of Texas and the expansion
of the agency operations network in Texas and New Mexico. In 1995, Alamo
acquired operations in the Austin and Seguin, Texas areas. Additionally in late
1995, Alamo acquired a 50% interest in an operation located in the Dallas area.
Total title revenues from wholly-owned agents in 1995 was 51.2%. Direct
ownership in these and other existing markets in Texas allowed Alamo to benefit
from the favorable real estate market during 1996 and 1997. Title revenues from
wholly-owned agents increased 19.5%, to 53.3% of total title revenue in 1996,
while total title revenues increased 14.8%. In 1997, revenues from wholly-owned
agents increased 13.5%, to 56.0% of total title revenue, while total title
revenue rose 8.1%.
40
<PAGE> 49
RESULTS OF OPERATIONS
Revenue. The following table presents information regarding the components
of Alamo's revenue:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- -------------------
1997 1996 1995 1998 1997
------- ------- ------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Title insurance premiums......................... $82,854 $76,838 $65,958 $21,382 $16,549
Commissions earned............................... 5,586 5,386 4,888 1,591 960
Escrow fees...................................... 4,792 4,195 3,409 1,351 987
Title search fees................................ 1,483 1,046 1,303 203 327
Other fees and revenues.......................... 2,913 3,418 3,674 631 449
Interest and investment income, including
realized gains (losses)........................ 2,250 1,535 1,816 373 367
------- ------- ------- ------- -------
Total revenue.......................... $99,878 $92,418 $81,048 $25,531 $19,639
Orders closed by wholly owned agents............. 37,253 36,268 28,096 10,963 7,621
Average premium per file......................... $ 1,260 $ 1,142 $ 1,216 $ 1,175 $ 1,146
</TABLE>
Premium revenues
Alamo's primary market for title insurance has been in Texas. In 1997,
98.0% of its premiums were written in Texas, compared with 97.1% in 1996, and
96.9% in 1995. For the three month period ending March 31, 1998, 98.1% of its
premiums were from Texas, versus 98.2% for the same period a year ago.
Consequently, Alamo's revenue is greatly influenced by the Texas real estate
market.
A positive economic climate, coupled with stable and relatively low
mortgage interest rates, has fostered continued growth in most areas of the
Texas real estate market. Alamo's title premiums increased 16.5% in 1996 over
the prior year, and increased by 7.8% in 1997.
The first quarter of 1997 was impacted by a temporary decrease in real
estate activity over the prior year, particularly in the Travis and Bexar County
areas, as housing starts were delayed due to poor weather, and commercial
activity stalled. However, by mid-1997, this trend had reversed. First quarter
1998 title premiums were 29.2% higher than the same period in 1997, reflecting
the continuation of this improvement into 1998.
Commissions earned
All of Alamo's wholly-owned title agents are licensed to write title
insurance policies on other underwriters as well as ATI. While maximum profits
are realized when the policy is issued on ATI, Alamo realizes that competitive
forces, particularly in higher-dollar commercial transactions, sometimes require
issuing on other underwriters to retain the customer base. The agents retain a
commission on the gross premium for these transactions. The commission rate,
which is promulgated by the Texas Department of Insurance, was 81% in 1995 and
1996, and effective January, 1997, increased to 82.25%.
Commissions earned increased 10.2% from 1995 to 1996, and increased 3.7% in
1997 over 1996 levels. While generally following the same trend line,
commissions earned have not increased at the same rate as title insurance
premiums, due to Alamo's efforts to minimize the practice of issuing on other
underwriters through increased marketing of ATI policies and customer education.
During the first three months of 1998, commissions earned were 65.6% higher than
the same period of 1997 due to these practices. The first quarter of 1998
included several large commercial transactions, issued on other underwriters,
compared with the same quarter of 1997.
Escrow fees, title search fees, and other title fees and revenue
Alamo's wholly-owned title agents generate escrow fees from holding funds
and documents in connection with the closing of real estate transactions, as
well as other revenue from title searches, the sale of abstract information, and
related ancillary services. Fluctuations in escrow fees are generally reflective
of changes in
41
<PAGE> 50
real estate activity and the number of real estate closings. Escrow fees
increased 23.1% from 1995 to 1996, and 14.2% from 1996 to 1997. Escrow fees for
the first 3 months of 1998 were 36.9% higher than the same period of 1997.
Title search fees are the result of sales of title evidence to other title
agents in connection with a transaction not handled by Alamo, or sales of
abstracts of title to other interested parties. This revenue component does not
directly follow the pattern of title insurance premiums or escrow fees, but is
generally impacted by the mix of business generated by wholly-owned agents.
Title search fees in 1996 decreased 19.7% over 1995 levels. In 1997, title
search fees increased 41.8% over 1996. Title search fees for the first three
months of 1998 decreased 37.9%. Other title-related fees and revenue include
closing fees on non-policy transactions, coordination fees, courier fees, and
net revenue from certain pass-through charges to customers. These fees are
generated by Alamo's agency subsidiaries, and fluctuate as the agents' sources
of business change. In addition, Alamo has attempted to reduce the amount of net
revenue on pass-through charges, beginning in 1997, and offset this with an
increase in escrow fees. Other fees and revenue decreased 6.9% from 1995 to
1996, and decreased 14.8% from 1996 to 1997. For the first 3 months of 1998,
other fees and revenues increased 40.5%.
Interest and investment income
Interest and investment income comprises income from investment grade
securities and notes receivable as well as rental income from title plants and
office leases, and realized gains and losses on these and other assets.
Investment income for 1995 includes realized gains of approximately $337,000
from the sale of real property. In 1996, Alamo recognized a $169,000 realized
loss on disposal of depreciable assets. In 1997, investment income includes a
$293,000 gain from sale of real property formerly occupied by Alamo. Excluding
these infrequent transactions, investment income has generally increased as the
investment portfolio has grown, benefiting from positive cash flows from
operations as well as improvements in the investment markets.
EXPENSES
The following table presents the components of Alamo's expenses:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------- ------------------
1997 1996 1995 1998 1997
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Agent commissions........................ $35,019 $34,047 $30,645 $ 8,576 $ 7,336
Personnel costs.......................... 29,902 27,585 24,905 7,843 6,844
Other selling, general, and
Administrative expenses................ 24,694 21,306 19,606 6,237 5,509
Provision for claims..................... 2,897 2,973 2,972 760 729
Interest expense......................... 615 654 898 111 150
------- ------- ------- ------- -------
Total expenses................. $93,127 $86,565 $79,026 $23,527 $20,568
Agent commissions as percent of premiums
from agency operations................. 82.0% 81.2% 80.3% 82.1% 81.5%
</TABLE>
Agent commissions
Agent commissions represents that portion of the title premiums retained by
title agents pursuant to rates set by the Departments of Insurance in both Texas
and New Mexico. In Texas, the commission rate was 81% in 1995 and 1996, and
82.25% beginning January, 1997. In New Mexico the rate has been 80% for nearly
all policies Alamo has issued. Commissions expense generally increases as agency
premiums increase, and is impacted by the mix of business from each state and
the rate in effect at a given time.
Personnel costs
Alamo's personnel costs and other operating expenses related to
wholly-owned agency operations are incurred as title insurance orders are
received and processed. Title insurance premiums and other title-related
42
<PAGE> 51
revenue from wholly-owned operations are recognized as income at the time the
underlying real estate transaction closes. Insurance premiums from agency
operations is recognized when the policy is received. As a result, revenue lags
approximately 60 - 90 days behind expenses, and therefore gross margins may
fluctuate.
Personnel costs include both base salaries and incentive compensation paid
to employees, as well as related taxes and benefit costs. Within Alamo's
subsidiary title agencies, personnel costs are the single largest expenditure
incurred in processing a title insurance transaction. As the number of title
insurance orders increases, employees are hired to handle the volume. Alamo's
compensation program includes incentive plans for major producers of title
insurance business and operation managers based on production or operating
results, as appropriate in the circumstances. As revenue and net income increase
or decrease, compensation costs will tend to trend similarly. Personnel costs
increased 10.8% in 1996 over 1995 levels, and increased 8.4% in 1997 compared to
1996 costs. For the first three months of 1998, personnel costs were 14.5%
higher than in the first three months of 1997. This is reflective of the large
increase in volume of title insurance transactions in the first quarter of 1998,
compared to 1997.
Other selling, general, and administrative expenses
Other selling, general, and administrative expenses include facilities
costs, costs of purchasing title evidence and title plant maintenance,
depreciation and amortization, advertising and promotional expenses, and gross
premium taxes. Alamo has implemented cost-monitoring measures to maintain a
level of selling, general, and administrative expenses consistent with total
revenues. These expenses as a percentage of total revenues were 24.7%, 23.1% and
24.2% in 1997, 1996, and 1995, respectively. For the first quarter of 1998,
other selling, general, and administrative expenses were 24.4% of total revenue,
compared to 28.1% in the first quarter of 1997.
Provision for claims
The provision for claims is composed primarily of an estimate of
anticipated title claims not yet reported. The estimate is accrued as a
percentage of title premium revenues, based on Alamo's historical loss
experience as well as other factors. Alamo monitors its claims experience and
adjusts the provision as needed. Provision for claims, as a percent of title
premiums, was 4.51%, 3.87%, and 3.50% for the years ending December 31, 1995,
December 31, 1996, and December 31, 1997 respectively, and was 4.41% and 3.56%
for the three months ending March 31, 1997 and March 31, 1998 respectively.
Interest Expense
Interest expense is incurred by Alamo in financing its acquisitions, and
consists of interest on bank debt and seller-financed debt. The interest rate on
bank debt is set quarterly based on London International Borrowing Rate
("LIBOR") and prime rates, and fluctuates with market conditions, while the
seller-financed debt is generally fixed rate, at rates ranging from 6.0% to
9.5%. Interest expense has decreased as debt has been repaid.
LIQUIDITY AND CAPITAL RESOURCES
Alamo has historically realized positive cash flows from operations on an
annual basis. Net cash provided from operations was $4.8 million in 1995, $7.1
million in 1996 and $10.3 million in 1997. Net cash used in operating activities
for the first quarter of 1997 was $.1 million, and net cash provided from
operations was $1.2 million for the first three months of 1998. As of March 31,
1998, Alamo had no material commitments for the purchase of capital assets.
Alamo believes that all anticipated cash requirements for current operations
will be met from internally generated funds and bank borrowings, if necessary.
Substantially all of Alamo's investments are in investment grade securities
and other investment instruments which are admitted assets as defined by the
National Association of Insurance Commissioners and the Texas Department of
Insurance. In addition to purchasing and selling marketable securities, Alamo's
investment activities also include purchasing title plants for future lease
revenue and providing funds in the form of collateralized loans to assist
agents, which often provides higher yields than investments in marketable
securities.
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<PAGE> 52
Alamo relies on dividends from its subsidiary companies as its primary
source of cash to fund debt repayment and dividends to shareholders. Its
insurance subsidiary, ATI, provides the majority of those funds. ATI's dividend
capacity is restricted to some extent by statute, which requires prior
notification to and permission from the Texas Department of Insurance for
dividends in excess of the greater of 20% of statutory surplus or 100% of
statutory net income, based on filed reports for the preceding year. Based upon
audited statutory reports filed with the Department, as of December 31, 1997,
the maximum amount that ATI could dividend without permission from the
Department of Insurance was $5,601,169. Alamo's other directly held subsidiaries
are not subject to these restrictions.
Alamo's acquisitions have been funded primarily through credit facilities
with NationsBank, in addition to seller financing. In May 1995, Alamo obtained a
$2.0 million loan from NationsBank to fund the acquisition of the assets of 1st
Security Title of Austin, Title Agency of Austin, and Guadalupe County Abstract
Company. The loan required principal repayments quarterly over 5 years, plus
interest at a rate adjusted quarterly to LIBOR plus 1% or prime rate minus
1.25%. In addition, Alamo financed $880,000 from sellers, at prime rate plus 1%,
with quarterly principal and interest repayments over a 5 year term. In January,
1997, Alamo borrowed $700,000 from NationsBank to fund the acquisition of assets
of Southwest Land Title Company in Brazoria County. The loan is a five year
term, requiring quarterly principal and interest payments, at an interest rate
adjusted quarterly to LIBOR plus 1% or prime minus 1.25%. Additionally, the
sellers financed $450,000 at prime rate, adjusted annually. In September, 1997,
Alamo consolidated the $2.0 million NationsBank note with notes existing prior
to the 1995 acquisitions, into a $4.5 million note, payable in semi annual
principal installments of $750,000 each, and maturing in June, 2000. The note
bears interest at a rate of LIBOR plus 1% or prime rate plus 1.25%, adjusted and
payable quarterly.
In addition to providing collateralized loans to agents, in 1997, Alamo
entered into certain loan guaranty agreements, whereby Alamo is contingently
liable for the indebtedness of third parties. This indebtedness has various
maturity dates through 2007. The total amount guaranteed as of December 31, 1997
and March 31, 1998 was $832,636 and $823,584, respectively.
For purposes of satisfying insurance regulatory requirements, Alamo is
required to maintain certain levels of readily marketable securities and cash
equivalents. At March 31, 1998, the market value of Alamo's total investment
securities, including cash equivalents, was $44.4 million, of which $14.6
million is to satisfy the insurance regulatory requirement. These investments
consist of securities which Alamo believes are readily marketable and could be
liquidated, if necessary.
SEASONALITY AND TRENDS
Historically, the greatest volume of residential resale activity has
occurred in the spring and summer months of the year. Additionally, the real
estate industry is cyclical in nature on a long term basis. Although Alamo has
not typically experienced significant departures from such historical patterns
and long term trends, it cannot predict whether the historical pattern of
residential resale and refinance activity will continue. Alamo attempts to
position itself to alternatively take advantage of positive trends and insulate
itself as much as possible from negative business trends.
The passage of the Home Equity Amendment to the Texas Constitution in late
1997 coupled with continued low mortgage rates has caused an increase in home
equity lending and refinancing in early 1998. However, it is uncertain at this
time what long term impact these factors will have on Alamo.
On May 27, 1998, the Texas Commissioner of Insurance issued an official
order calling for a three percent decrease in Texas title insurance rates, to be
effective on August 1, 1998. Due to the effective date, the rate decrease is not
expected to have a material impact on operating results until 1999, however,
Alamo intends to review its cost containment programs and make adjustments where
appropriate.
As disclosed in the footnotes to the Alamo Financial Statements, on April
2, 1996, a putative class action was filed in State District Court in Dallas,
Texas against all title insurance underwriters licensed to do business in Texas.
In 1997, the Defendants in this case filed a motion to dismiss, which is still
pending. The effects, if any, of an adverse judgment on Alamo are not presently
estimable.
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<PAGE> 53
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Fidelity Common Stock is listed on the NYSE under the trading symbol
"FNF." As of , 1998, the Fidelity Common Stock was held of record by
approximately [900] persons. The following table sets forth the range of high
and low closing sale prices reported on the NYSE for Fidelity Common Stock, and
the cash dividends declared per share of Fidelity Common Stock, for the periods
indicated:
<TABLE>
<CAPTION>
HIGH LOW DIVIDENDS
------ ------ ---------
<S> <C> <C> <C>
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
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 .070
1998
First Quarter.............................................
------ ------ ------
</TABLE>
There is no established public trading market for the Alamo Common Stock.
Holders of the Alamo Common Stock are urged to obtain current market quotations
for the Fidelity Common Stock prior to making any decision with respect to the
Merger.
Fidelity's current dividend policy anticipates the payment of quarterly
dividends in the future. The declaration and payment of dividends to holders of
Fidelity Common Stock will be in the discretion of Fidelity's Board of
Directors, will be subject to contractual restrictions contained in certain of
Fidelity's credit facilities and will be dependent upon the future earnings,
financial condition and capital requirements of Fidelity and other factors.
Because Fidelity is a holding company, its ability to pay dividends will
depend largely on the earnings of, and cash flow available from, its
subsidiaries. In a number of states, certain of Fidelity's subsidiaries are
subject to regulations that require minimum amounts of statutory surplus.
Certain of Fidelity's subsidiaries are subject also to regulations that require
that the payment of any extraordinary dividends receive prior approval of the
insurance regulators of these states.
Alamo has declared a $.05 per share dividend in each quarter during 1996
and 1997 and the first quarter of 1998, except with respect to the fourth
quarter of 1996 in which it declared a $.40 per share dividend and the fourth
quarter of 1997 in which it declared a $.55 per share dividend. Each dividend
was paid during the quarter in which such dividend was declared, except for the
dividends which were declared in the fourth quarter of 1996 and 1997, each of
which was paid during the first week immediately following such quarter.
Pursuant to the Merger Agreement, Alamo has agreed not to pay any dividends
prior to the Effective Time; provided, however, if the Effective Time has not
occurred on or prior to November 15, 1998, Alamo shall be permitted to declare
and pay dividends not exceeding $.05 per share in any three consecutive month
period (commencing November 16, 1998).
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<PAGE> 54
INFORMATION ABOUT FIDELITY
Fidelity is a specialty finance company engaged in doing business in 49
states, the District of Columbia, Puerto Rico, the Bahamas and the Virgin
Islands. Through its subsidiaries, Fidelity 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 software product development and technology services,
trustee sale guarantees, foreclosure publishing and posting services, exchange
intermediary services in connection with real estate transactions, real estate
tax services, credit reporting services, flood compliance products, and
attorneys' services. Title insurance services are provided through Fidelity'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. Fidelity's principal
subsidiaries consist of Fidelity National Title Insurance Company, which, in
turn, is the parent company of Fidelity National Title Insurance Company of
Tennessee; Fidelity National Title Insurance Company of New York, which, in
turn, is the parent company of Nations Title Insurance of New York Inc. and
National Title Insurance of New York Inc.; and its wholly-owned underwritten
title companies Fidelity National Title Company and Fidelity National Title
Company of California.
Fidelity, through its wholly-owned subsidiary, Granite, performs specialty
finance functions such as originating, funding, purchasing, selling,
securitizing and servicing equipment leases for a broad range of businesses.
Granite was acquired by Fidelity on February 26, 1998 in a business combination
accounted for as a pooling-of-interests. Certain information concerning Granite,
Fidelity's acquisition of Granite, historical consolidated financial statements
of Granite and pro forma financial statements are incorporated by reference
herein. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
Certain information relating to the executive compensation, various benefit
plans (including stock option plans), voting securities and the principal
holders thereof, certain relationships and related transactions and other
related matters as to Fidelity is incorporated by reference or set forth in
Fidelity's Annual Report on Form 10-K, as amended, for the year ended December
31, 1997, incorporated herein by reference. Those persons, to whom a copy of
this Proxy Statement/Prospectus is delivered, desiring copies of such documents
may contact Fidelity at its address or telephone number indicated under
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
Fidelity's principal executive offices are located at 17911 Von Karman
Avenue, Suite 300, Irvine, California 92614 and its telephone number is (949)
622-5000.
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<PAGE> 55
INFORMATION ABOUT ALAMO
GENERAL
Alamo is a holding company organized under the laws of the State of Texas
in 1993 to serve as the holding company for ATI and other subsidiaries engaged
in the title agency business. Alamo, through ATI, is a regional underwriter of
title insurance in Texas and New Mexico. ATI was incorporated under the laws of
Texas in 1922 and is subject to regulation by the Texas Department of Insurance.
In addition to underwriting title insurance policies, Alamo, through its
subsidiaries, performs other title-related services for both residential and
commercial real estate transactions such as escrow operations, title searches
and property reports. Title insurance services are provided through Alamo's
operating subsidiaries and otherwise through independent title insurance agents
who issue title policies on behalf of ATI.
Alamo's principal subsidiaries consist of ATI, the insurance company which
underwrites title insurance in Texas and New Mexico; Alamo Title Company, a
title agency which operates in the San Antonio, Texas area; Alamo Title Company
of Harris County, Inc., a title agency which operates in the Houston, Texas
area; Alamo Title Company of Tarrant County, Inc., a title agency which operates
in the Fort Worth, Texas area; and Alamo Title of Travis County, Inc., a title
agency which operates in the Austin, Texas area. Alamo also has a 50% ownership
interest in Hexter-Fair Title Company, a title agency which operates in the
Dallas, Texas area and a 20% ownership interest in Rio Grande Title Company, a
title agency operating in the Albuquerque, New Mexico area.
ATI is the fourth largest underwriter of title insurance in Texas and the
ninth largest in the United States. ATI gross premiums from underwriting title
insurance in Texas in 1996 were approximately $74.6 million, representing
approximately 11.8% of the state's total underwriting premiums. ATI's Texas
gross premiums in 1997 were approximately $81.2 million representing
approximately 11.8% of the state's total underwriting premiums. ATI currently
serves approximately 197 independent agents in Texas and 26 independent agents
in New Mexico, including all of the major metropolitan areas, which accounted
for approximately 52% of ATI's gross premiums in 1997. In 1997, approximately
48% of ATI's gross premiums were derived from Alamo's wholly-owned title agency
subsidiaries.
Alamo's executive offices are located at 10010 San Pedro, Suite 800, San
Antonio, Texas 78216-3895, and its telephone number is (210) 377-0881.
PRINCIPAL HOLDERS OF ALAMO COMMON STOCK
The Alamo Common Stock is not listed on an exchange or market system and
there is currently no established public trading market for Alamo Common Stock.
As of , 1998, there were 82 holders of Alamo Common Stock. The
following table sets forth, as of , 1998, the amount and percentage
of present holdings of Alamo Common Stock owned beneficially by beneficial
owners of more than 5% of Alamo Common Stock, each director and all directors
and officers as a group, and the beneficial ownership of
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<PAGE> 56
Fidelity Common Stock that will be beneficially owned by such persons or groups
upon consummation of the Merger:
<TABLE>
<CAPTION>
ALAMO COMMON STOCK FIDELITY COMMON STOCK
----------------------- -------------------------------
SHARES SHARES BENEFICIALLY
NAME OF BENEFICIAL OWNER OR BENEFICIALLY OWNED AFTER
IDENTITY OF GROUP(1) OWNED PERCENT THE MERGER(9) PERCENT
--------------------------- ------------ ------- -------------------- -------
<S> <C> <C> <C> <C>
Alex H. Halff................................. 383,967(2) 28.30% 572,494(10) 2.29%
Howard A. Halff............................... 217,710 16.05% 324,605 1.30%
Mortgage Loan & Agency Co..................... 181,971.4 13.41% 271,319 1.09%
Jack M. Biegler............................... 200 * 298 *
W. W. McAllister III.......................... 14,640 1.08% 21,828 *
Ruth McCracken................................ 1,200 * 1,789 *
Don H. Still.................................. 58,780(3) 4.33% 87,640(11) *
Robert T. Rork................................ 41,000(4) 2.99% 61,131(12) *
Sid W. Terry.................................. 60,096(5) 4.43% 89,603(13) *
E. Don Walker, Jr............................. 100(6) * 149(14) *
James M. Wilson............................... 10,000 * 14,910 *
Alan L. Stinson............................... 6,000(7) * 17,892(15) *
All directors and executive officers as a
group (12 persons).......................... 576,183(8) 41.94% 878,032(16) 3.51%
</TABLE>
- ---------------
* Shares of capital stock beneficially owned are less than one percent of
class.
(1) Unless otherwise indicated, the persons named in the table have sole voting
and investment power with respect to the shares of Alamo Common Stock shown
as beneficially owned by them. Shares beneficially owned include options
exercisable prior to , 1998.
(2) Includes 15,000 shares held by the Glenn A. Halff & Mindi Alterman
Children's Trust of 1993, over which Mr. Halff has sole voting and sole
investment power. Mr. Halff disclaims beneficial ownership of the shares
owned by such trust.
(3) Includes 30,000 shares held by Prudential Securities, Custodian for Don H.
Still IRA Rollover dated 8/1/96. Also includes 28,780 shares held by HNS
Interests, Ltd., a family limited partnership of which Mr. Still is the
sole general partner. Mr. Still has sole voting and investment power with
respect to shares held by such partnership. Mr. Still disclaims beneficial
ownership of the shares held by such IRA and such partnership.
(4) Includes options to purchase 16,000 shares of Alamo Common Stock which will
become exercisable due to acceleration of vesting upon consummation of the
Merger.
(5) All of the shares of Alamo Common Stock beneficially owned by Mr. Terry are
held by Terry, S.W. Investments, Ltd., of which Mr. Terry is a 1% general
partner. Mr. Terry has shared voting and investment power with respect to
such shares. Mr. Terry disclaims beneficial ownership of the shares held by
such partnership.
(6) Shares held jointly by Mr. Walker and his wife, Denise D. Walker.
(7) Includes options to purchase 1,200 shares of Alamo Common Stock which will
become exercisable due to acceleration of vesting upon consummation of the
Merger. Does not include SARs with respect to 6,000 shares of Alamo Common
Stock which will be converted into an option to purchase shares of Fidelity
Common Stock upon consummation of the Merger.
(8) Includes options to purchase 17,200 shares which will become exercisable
due to acceleration of vesting upon consummation of the Merger.
(9) Assumes an Exchange Ratio of 1.491 shares of Fidelity Common Stock for each
share of Alamo Common Stock. The Exchange Ratio is subject to adjustment
depending upon the Average Fidelity Stock Price. See "THE MERGER -- The
Merger".
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<PAGE> 57
(10) Includes 22,365 shares to be held by the Glenn A. Halff & Mindi Alterman
Children's Trust of 1993, over which Mr. Halff will have sole voting and
sole investment power. Mr. Halff disclaims beneficial ownership of the
shares owned by such trust.
(11) Includes 44,730 shares to be held by Prudential Securities, Custodian for
Don H. Still IRA Rollover dated 8/1/96 and 42,910 shares to be held by HNS
Interests, Ltd., a family limited partnership of which Mr. Still is the
sole general partner. Mr. Still will have sole voting and investment power
with respect to such shares held by such limited partnership. Mr. Still
disclaims beneficial ownership of the shares to be held by such IRA and
such partnership.
(12) Includes 23,856 shares of Fidelity Common Stock which Mr. Rork will have
the right to acquire under stock options upon the consummation of the
Merger.
(13) All of the shares of Fidelity Common Stock to be beneficially owned by Mr.
Terry will be held by Terry, S.W. Investments, Ltd., of which Mr. Terry is
a general partner. Mr. Terry will have shared voting and investment power
with respect to such shares. Mr. Terry disclaims beneficial ownership of
the shares to be held by such partnership.
(14) Shares will be held jointly by Mr. Walker and his wife, Denise D. Walker.
(15) Upon consummation of the Merger, Mr. Stinson will have the right to acquire
such 10,735 shares of Fidelity Common Stock under stock options. The amount
shown includes 8,946 shares of Fidelity Common Stock which Mr. Stinson will
have the right to acquire upon conversion of the SARs into such stock
options.
(16) Includes 34,591 shares of Fidelity Common Stock which, upon consummation of
the Merger, they will have the right to acquire under stock options, all of
which will then be exercisable, assuming accelerated vesting of stock
options and conversion of SARs. Also includes an option to purchase 10,000
shares of Fidelity Common Stock granted to Russell D. Sugg to be effective
upon consummation of the Merger.
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<PAGE> 58
COMPARISON OF RIGHTS OF STOCKHOLDERS OF
FIDELITY AND RIGHTS OF SHAREHOLDERS OF ALAMO
Upon consummation of the Merger, shareholders of Alamo will become
stockholders of Fidelity whose rights will (i) be defined and governed by the
Delaware General Corporation Law (the "DGCL") and cease to be defined and
governed by the TBCA and (ii) cease to be defined and governed by the Articles
of Incorporation of Alamo (the "Alamo Articles") and the Bylaws of Alamo (the
"Alamo Bylaws") and will be defined and governed by the Certificate of
Incorporation of Fidelity (the "Fidelity Certificate") and the Bylaws of
Fidelity (the "Fidelity Bylaws"). Certain provisions of the DGCL, the Fidelity
Certificate and the Fidelity Bylaws alter the rights of stockholders from those
that shareholders of Alamo presently have and also alter certain powers of
management. These provisions are summarized below. This summary is qualified in
its entirety by reference to the Fidelity Certificate, the Fidelity Bylaws, the
Alamo Articles, the Alamo Bylaws and applicable law.
RIGHT OF SHAREHOLDERS TO VOTE ON CERTAIN MERGERS
Under the TBCA, shareholders generally have the right to vote on all
mergers to which the corporation is a party, subject to certain exceptions as
provided below. In certain circumstances, different classes of securities may be
entitled to vote separately as classes with respect to such transactions. Unless
the articles of incorporation provide otherwise, approval of the holders of at
least two-thirds of all outstanding shares entitled to vote is required by the
TBCA to approve a merger. Unless the articles of incorporation provide
otherwise, the approval of the shareholders of the corporation in a merger is
not required under Texas law if: (i) the corporation is the sole surviving
corporation in the merger; (ii) there is no amendment to the corporation's
articles of incorporation; (iii) each shareholder holds the same number of
shares after the merger as before, with identical designations, preferences,
limitations and relative rights; (iv) the voting power of the shares outstanding
after the merger plus the voting power of the shares issuable as a result of the
merger (either by the conversion of securities issued pursuant to the merger or
the exercise of rights to purchase securities issued pursuant to the merger)
does not exceed the voting power of the shares outstanding prior to the merger
by more than 20%; (v) the number of participating shares (that is, shares whose
holders are entitled to participate without limitation in distributions)
outstanding after the merger plus the number of participating shares issuable as
a result of the merger (either by the conversion of securities issued pursuant
to the merger or the exercise of rights to purchase securities issued pursuant
to the merger) does not exceed the number of participating shares outstanding
prior to the merger by more than 20%; and (vi) the board of directors of the
corporation adopts a resolution approving the plan of merger. Additionally,
under Texas law, certain mergers involving a corporation and its wholly-owned
subsidiary do not require the approval of the shareholders of one or both
corporations. The Alamo Articles do not alter the statutory rules described
above.
Under Delaware law, a merger or consolidation must be approved by the board
of directors and by the holders of a majority of outstanding stock of the
corporation entitled to vote thereon, provided that no vote of shareholders of a
constituent corporation surviving a merger is required (unless the corporation's
certificate of incorporation provides otherwise) if (a) the agreement of merger
does not amend in any respect the certificate of incorporation of such
corporation; (b) each share of stock of such corporation outstanding immediately
prior to the effective date of the merger is to be an identical outstanding or
treasury share of the corporation after the effective date of the merger; and
(c) either no shares of common stock of the surviving corporation, and no
shares, securities or obligations convertible into such stock are to be issued
or delivered under the plan of merger, or the authorized unissued shares or the
treasury shares of common stock of the surviving corporation to be issued or
delivered under the plan of merger plus those initially issuable upon conversion
of any other shares, securities or obligations to be issued or delivered under
such plan do not exceed 20% of the shares of common stock of such corporation
outstanding immediately prior to the effective date of the merger. Certain
provisions of the Fidelity Certificate and the Fidelity Bylaws alter the
statutory rules described above. See "COMPARISON OF RIGHTS OF STOCKHOLDERS OF
FIDELITY AND RIGHTS OF SHAREHOLDERS OF ALAMO -- Business Combinations".
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<PAGE> 59
DISPOSITION OF ASSETS
Under the TBCA, the sale, lease, exchange or other disposition (not
including any pledge, mortgage, deed of trust or trust indenture, unless
otherwise provided in the articles of incorporation) of all, or substantially
all, of the property and assets of a Texas corporation, with or without the
goodwill of the corporation, if not made in the usual and regular course of its
business, requires the approval of the holders of at least two-thirds of the
outstanding shares of the corporation, unless the articles of incorporation
provide otherwise. The Alamo Articles do not so provide. Under the TBCA, a
transaction is deemed to be in the usual and regular course of business if the
corporation shall, directly or indirectly, either continue to engage in one or
more businesses or apply a portion of the consideration received in connection
with the transaction to the conduct of a business in which it engages following
the transaction.
Under the DGCL, a Delaware corporation may sell, lease or exchange all or
substantially all of its property and assets when and as authorized by a
majority of the outstanding stock of the corporation entitled to vote thereon,
unless the certificate of incorporation provides to the contrary. Certain
provisions of the Fidelity Certificate and the Fidelity Bylaws alter the
statutory rules described above. See "COMPARISON OF RIGHTS OF STOCKHOLDERS OF
FIDELITY AND RIGHTS OF SHAREHOLDERS OF ALAMO -- Business Combinations".
DISSENTERS' RIGHTS
Under the TBCA, a shareholder is entitled, with certain exceptions, to
dissent from and, upon perfection of the shareholder's appraisal rights, to
obtain the fair value of his or her shares in the event of certain corporate
actions, including certain mergers, share exchanges and sales of substantially
all assets of the corporation. Shareholders of Alamo who dissent from the Merger
and perfect their appraisal rights may obtain the fair value of their shares of
Alamo Common Stock. See "THE MERGER -- Dissenters Rights."
Under the DGCL, a stockholder of a constituent corporation in certain
mergers or consolidations may, under varying circumstances, be entitled to
appraisal rights pursuant to which such stockholder may receive cash in the
amount of the fair market value of his or her shares in lieu of the
consideration he or she would otherwise receive in the transaction. Appraisal
rights are not available (a) with respect to the shares or depository receipts
which are either listed on a national securities exchange, designated as a
national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. (the "NASD") or are held of
record by more than 2,000 holders if such shareholders receive only shares or
depository receipts of the surviving corporation or shares or depository
receipts of any other corporation which are either listed on a national
securities exchange, designated as a national market system security on an
interdealer quotation system by the NASD or held of record by more than 2,000
holders, plus cash in lieu of fractional shares, or (b) to stockholders of a
corporation surviving a merger if no vote of the stockholders of the surviving
corporation is required to approve the merger because the merger agreement does
not amend the existing certificate or incorporation, each share of the surviving
corporation outstanding prior to the merger is an identical outstanding or
treasury share after the merger, either no shares of common stock of the
surviving corporation and no shares, securities or obligations convertible into
such stock are to be issued or delivered under the plan of merger, or the
authorized, unissued shares or the treasury shares of common stock of the
surviving corporation to be issued or delivered under the plan of merger plus
those initially issuable upon conversion of any other shares, securities or
obligations to be issued or delivered under such plan do not exceed 20% of the
shares of common stock of such constituent corporation outstanding immediately
prior to the effective date of the merger.
SHAREHOLDER CONSENT TO ACTION WITHOUT A MEETING
Under the TBCA, any action that may be taken at a meeting of the
shareholders may be taken without a meeting if written consent thereto is signed
by all the holders of shares entitled to vote thereon. The articles of
incorporation of a Texas corporation may provide that action by written consent
in lieu of a meeting may be taken by the holders of that number of shares which,
under the corporation's articles of incorporation, would be required to take the
action which is the subject of the consent at a meeting at which the holders of
the
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<PAGE> 60
shares entitled to vote thereon were present and voted. The Alamo Articles do
not address the use of written consents in lieu of a meeting with respect to any
action subject to shareholder approval. As a result, the taking of any such
action without a meeting requires the unanimous written consent of all of the
Alamo shareholders entitled to vote thereon.
Under the DGCL, unless otherwise provided in the certificate of
incorporation, any action that can be taken at a meeting of stockholders can be
taken without a meeting if written consent thereto is signed by the holders of
outstanding stock having the minimum number of votes necessary to authorize or
take such action at a meeting of the stockholders. The Fidelity Certificate
provides that any action required or permitted to be taken by the stockholders
of Fidelity must be effected at a duly called annual or special meeting of such
holders and may not be effected by any consent in writing by such holders.
PROCEDURES FOR FILLING VACANT DIRECTORSHIPS
Under the TBCA, any vacancy occurring in the board of directors may be
filled by the shareholders or by the affirmative vote of a majority of the
remaining directors, although less than a quorum. A directorship to be filled by
reason of an increase in the number of directors may be filled by the
shareholders or by the board of directors for a term of office continuing only
until the next election of one or more directors by the shareholders, provided
that the board of directors may not fill more than two such directorships during
the period between any two successive annual meetings of shareholders.
Under the DGCL, unless the certificate of incorporation or bylaws provide
otherwise, vacancies and newly created directorships resulting from any increase
in the authorized number of directors may be filled by a majority of the
directors then in office, although less than a quorum. In the case of a
corporation the directors of which are divided into classes, directors chosen to
fill vacancies and newly created directorships hold office until the next
election of the class for which such directors shall have been chosen, and until
their successors shall be elected and qualified. The Fidelity Board of Directors
is divided into three classes, and the directors are elected by classes to
three-year terms.
RIGHT TO CALL MEETINGS
Under the TBCA, holders of not less than 10% of all of the shares entitled
to vote have the right to call a special shareholders' meeting, unless the
articles of incorporation provide for a number of shares greater than or less
than 10%, in which event, special meetings of the shareholders may be called by
the holders of at least the percentage of shares so specified in the articles of
incorporation, but in no event may the articles of incorporation provide for a
number of shares greater than 50% that would be required to call a special
meeting. The Alamo Articles do not alter the statutory rule described herein.
Under the DGCL, special meetings of the stockholders may be called by the
board of directors or such other persons as are authorized in the certificate of
incorporation or bylaws. The Fidelity Certificate provides that a special
meeting of stockholders may be called only by the Board of Directors pursuant to
a resolution approved by a majority of the whole Board of Directors.
CHARTER AMENDMENTS
Under the TBCA, an amendment to the articles of incorporation requires the
approval of the holders of at least two-thirds of the outstanding shares of the
corporation. The articles of incorporation of a Texas corporation may provide
for a different vote requirement in connection with an amendment to the articles
of incorporation, but not less than a majority of the shares entitled to vote on
that matter. The Alamo Articles do not so provide.
Under the DGCL, amendments to the certificate of incorporation must be
approved by the holders of a majority of the corporation's stock entitled to
vote thereon, unless the certificate of incorporation provides for a greater
number. Under certain circumstances, the Fidelity Certificate requires the
affirmative vote of the holders of at least 80% of the outstanding Fidelity
shares in order to alter, amend or adopt any provision inconsistent with, or
repeal provisions contained in, the Fidelity Certificate relating to (i) the
ability to adopt,
52
<PAGE> 61
amend and repeal certain sections of the Fidelity Bylaws, (ii) the inability of
stockholders to take action by written consent, (iii) the inability of
stockholders of Fidelity to call a special meeting or (iv) the election of
directors. Under certain circumstances, the Fidelity Certificate requires the
affirmative vote of the holders of at least 66 2/3% of the outstanding Fidelity
shares (not including shares owned by certain individuals and entities) in order
to alter, amend or adopt any provision inconsistent with, or repeal provisions
contained in, the Fidelity Certificate relating to certain business
combinations.
BYLAW AMENDMENTS
Under the TBCA, the board of directors may amend, repeal or adopt a
corporation's bylaws unless the articles of incorporation reserve this power
exclusively to the shareholders, or the shareholders in amending, repealing or
adopting a particular bylaw expressly provide that the board of directors may
not amend or repeal that bylaw. Alamo Articles do not restrict the ability of
the board of directors to amend, repeal or adopt bylaws, and the Alamo
shareholders have not to date amended, repealed or adopted a particular bylaw
restricting the ability of the board of directors to amend or repeal such bylaw.
Under the DGCL, the stockholders of a corporation have the right to amend,
repeal or adopt the bylaws and, if the corporation's certificate of
incorporation so provides, such power may also be conferred upon the directors.
The Fidelity Certificate provides that generally the Fidelity Bylaws may be
amended, repealed or adopted by the Fidelity Board of Directors. Under the DGCL,
the ability of the board of directors of a corporation to amend, repeal or adopt
bylaws does not divest the stockholders of such power. The Fidelity Certificate
provides that certain provisions of the Fidelity Bylaws relating to the
following matters may only, under certain circumstances, be amended, repealed or
adopted upon the affirmative vote of the holders of at least 80% of the
outstanding Fidelity shares: (i) call of special meetings of stockholders by the
Fidelity Board, (ii) inability of stockholders to take action by written
consent, (iii) conduct of meetings, (iv) notice of agenda matters, (v) election
of directors and (vi) indemnification and insurance.
CUMULATIVE VOTING
Under the TBCA, cumulative voting is available unless prohibited by a
corporation's articles of incorporation. The Alamo Articles expressly prohibit
cumulative voting. Under the DGCL, cumulative voting is not available unless so
provided in a corporation's certificate of incorporation. The Fidelity
Certificate does not provide for cumulative voting.
INSPECTION OF BOOKS AND RECORDS
The TBCA permits any person who shall have been a shareholder for at least
six months immediately preceding his demand, or who is the holder of at least 5%
of the outstanding stock of the corporation, to examine books and records of
account, minutes and share transfer records, provided that a written demand
setting forth a proper purpose of such examination is made and served on the
statutory agent of the corporation. The DGCL permits any stockholder of record
to inspect a company's stock ledger, the stockholder list and its other books
and records for any purpose reasonably related to such person's interest as a
stockholder provided that his written demand under oath is directed to the
company's registered office in Delaware or to its principal place of business.
CLASS VOTING
Under the TBCA, class voting is required in connection with certain
amendments of a corporation's articles of incorporation, removal of directors
elected by a class of shareholders and certain mergers, plans of exchange and
sales of substantially all of a corporation's assets.
Under the DGCL, class voting is required in connection with certain
amendments of a corporation's certificate of incorporation, removal without
cause of directors elected by a class of stockholders and election of existing
corporation to become a close corporation.
53
<PAGE> 62
REMOVAL OF DIRECTORS
Under the TBCA, a Texas corporation may provide for the removal of a
director with or without cause in its articles of incorporation or bylaws. The
Alamo Bylaws currently provide that directors may be removed only for cause and
only by the affirmative vote of the holders a majority of the shares entitled to
vote thereon.
Under the DGCL, a majority of stockholders may remove a director with or
without cause except: (i) if the board of directors of a Delaware corporation is
classified (i.e. elected for staggered terms), in which case a director may only
be removed for cause, unless the corporation's certificate of incorporation
provides otherwise; and (ii) in the case of a corporation which possesses
cumulative voting, if less than the entire board is to be removed, no director
may be removed without cause if the votes cast against his removal would be
sufficient to elect him if then cumulatively voted at an election of the entire
board of directors, or, if there be classes of directors, at an election of the
class of directors of which he is a part. The Fidelity Certificate does not
permit cumulative voting and it provides that subject to the rights of any
preferred stock to elect directors under specified circumstances, any director
may be removed from office, only with cause, and only by the affirmative vote of
the holders of 50% of the combined voting power of the then outstanding shares
entitled to vote thereon, voting together as a single class.
DISTRIBUTIONS AND DIVIDENDS
Under the TBCA, a distribution is defined as a transfer of money or other
property (except a corporation's shares or rights to acquire its shares), or an
issuance of indebtedness, by a corporation to its shareholders in the form of:
(i) a dividend on any class or series of the corporation's outstanding shares;
(ii) a purchase, redemption or other acquisition by the corporation, directly or
indirectly, of its shares; or (iii) a payment in liquidation of all or a portion
of its assets. Under the TBCA, a corporation may make a distribution, subject to
restrictions in its charter, if it does not render the corporation unable to pay
its debts as they become due in the course of its business, and if it does not
exceed the corporation's surplus. Surplus is defined in the TBCA as the excess
of net assets (essentially, the amount by which total assets exceed total debts)
over stated capital (essentially, the aggregate par value of the issued shares
having a par value plus consideration paid for shares without par value that
have been issued), as such stated capital may be adjusted by the board. This
limitation does not apply, if net assets equal or exceed the proposed
distribution, to distributions involving a purchase or redemption of shares to
eliminate fractional shares, collect indebtedness, pay dissenting shareholders
or redeem shares.
Under the DGCL, a corporation may, subject to any restrictions contained in
its Certificate of Incorporation, pay dividends out of surplus and, if there is
not surplus, out of net profits for the current and/or the preceding fiscal
year, unless the capital of the corporation is less than the capital represented
by issued and outstanding stock having a preferences on asset distributions.
Surplus is defined under the DGCL as the excess of the net assets (essentially,
the amount by which total assets exceed total liabilities) over capital
(essentially, the aggregate par value of the shares of the corporation having a
par value that have been issued plus consideration paid for shares without par
value that have been issued), as such capital may be adjusted by the board.
STOCK REDEMPTION AND REPURCHASE
As noted above, under the TBCA, the purchase or redemption by a corporation
of its shares constitutes a distribution. Accordingly, the discussion above
relating to distributions is applicable to stock redemptions and repurchases.
Under the DGCL, a corporation may purchase or redeem shares of any class
except when its capital is impaired or would be impaired by such purchase or
redemption. A corporation may, however, purchase or redeem out of capital any of
its own shares that are entitled upon any distribution of its assets to a
preference over another class or series of its stock, or, if no shares entitled
to such a preference are outstanding, any of its own shares, if such shares are
to be retired and the capital of the corporation reduced.
54
<PAGE> 63
PREEMPTIVE RIGHTS
Under the TBCA, shareholders of a corporation have a preemptive right to
acquire additional, unissued, or treasury shares of the corporation, or
securities of the corporation convertible into or carrying a right to subscribe
to or acquire shares, except to the extent limited or denied by statute or by
the articles of incorporation. The Alamo Articles expressly deny preemptive
rights.
Under the DGCL, stockholders have no preemptive rights to subscribe to
additional issues of stock or to any security convertible into such stock
unless, and except to the extent that, such rights are expressly provided in the
certificate of incorporation. The Fidelity Certificate does not provide for such
preemptive rights.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the TBCA, a corporation may indemnify a director against judgments,
penalties (including excise and similar taxes), fines, settlements and
reasonable expenses actually incurred in connection with a proceeding, if it is
determined by the requisite vote of directors or shareholders or by legal
counsel that the person: (i) conducted himself in good faith; (ii) reasonably
believed: (a) in the case of official conduct as a director, that his conduct
was in the corporation's best interests and (b) in all other cases, that his
conduct was not opposed to the corporation's best interests; and (iii) in the
case of any criminal proceeding, had no reasonable cause to believe his conduct
was unlawful. A director may not be indemnified in respect of a proceeding in
which the person is found liable on the basis that personal benefit was
improperly received by him or in which the person is found liable to the
corporation, except that indemnification may be provided if it is limited to
reasonable expenses actually incurred by the person in connection with the
proceeding and shall not be made in respect of any proceeding in which the
person is found liable for willful or intentional misconduct in the performance
of his duty to the corporation. Under the TBCA, a corporation must indemnify a
director or officer against reasonable expenses incurred by him in connection
with a proceeding in which he is a named defendant or respondent because he is
or was a director if he has been wholly successful in the defense of the
proceeding. Under certain circumstances a corporation may pay or reimburse a
director for reasonable expenses incurred in advance of the final disposition of
the proceeding. A corporation may also indemnify and advance expenses to any
officer, employee, agent or certain other persons serving at the request of the
corporation to the extent permitted by law, the articles of incorporation,
bylaws, action of directors or contract. A corporation may purchase insurance on
behalf of such persons against any liability asserted against him and incurred
in or arising out of such person's capacity with respect to the corporation. The
Alamo Articles provide that Alamo must indemnify its directors and officers from
and against any and all liabilities, costs and expenses incurred by them in such
capacities to the fullest extent permitted by the TBCA and that Alamo has the
power to purchase and maintain liability insurance for such persons as permitted
by the TBCA.
Under the DGCL, if it is determined by the requisite vote of directors or
stockholders, or by independent legal counsel, a corporation may indemnify a
director, officer, employee, agent or other person serving at the request of the
corporation against expenses (including attorneys' fees), judgments, fines and
amount paid in settlement actually and reasonably incurred in connection with a
proceeding (i) other than an action by or in the right of the corporation, if
such person acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interest of the corporation, and, with respect to a
criminal proceeding, had no reasonable cause to believe his conduct was
unlawful, and (ii) in an action by or in the right of the corporation, if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, except that no indemnification
may be made in connection with a matter to which such person shall be found to
be liable to the corporation unless the court determines such person is fairly
and reasonably entitled to indemnification for expenses. A corporation must
indemnify a director, officer, employee or agent who is successful in such
proceeding, on the merits or otherwise, against expenses (including attorneys'
fees) actually and reasonably incurred in connection therewith. Under certain
circumstances a corporation may pay or reimburse a director for expenses
incurred in advance of the final disposition of the proceeding. Rights to
indemnification and advancement of expenses under the DGCL are not exclusive of
any rights under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise. A corporation may purchase insurance on behalf of such
persons against any liability asserted against him and
55
<PAGE> 64
incurred in or arising out of such person's capacity with respect to the
corporation. The Fidelity Bylaws provide that Fidelity shall indemnify its
officers and directors to the full extent permitted by, and in the manner
permissible under, the DGCL and that the Fidelity Board may, in its discretion,
indemnify employees and agents who are made a party to any action, suit or
proceeding by reason of their position. The Fidelity Bylaws also provide that
Fidelity may, upon resolution of the board of directors, purchase and maintain
insurance on behalf of directors, officers, employees and agents, against
liabilities arising out of their positions, whether or not Fidelity would have
the power to indemnify such persons under applicable law, the Fidelity
Certificate or the Bylaws.
LIMITATION OF LIABILITY OF DIRECTORS
Texas law permits a corporation to include in its articles of incorporation
a provision that a director of the corporation is not liable to the corporation
or its shareholders for monetary damages for an act or omission in the
director's capacity as a director, except that such a provision cannot eliminate
or limit the liability of a director for: (a) a breach of a director's duty of
loyalty to the corporation or its shareholders; (b) an act or omission not in
good faith that constitutes a breach of duty of the director to the corporation
or an act or omission that involves intentional misconduct or a knowing
violation of the law; (c) a transaction from which a director received an
improper benefit, whether or not the benefit resulted from an action taken
within the scope of the director's office; or (d) an act or omission for which
the liability of a director is expressly provided for by statute. The Alamo
Articles contain a provision which eliminates director liability to the extent
provided by Texas law.
The DGCL permits a corporation to include in its certificate of
incorporation a provision eliminating or limiting a director's liability to the
corporation or its stockholders for monetary damages for breaches of fiduciary
duty, provided, however, that the liability for breaches of the duty of loyalty,
acts or omissions not in good faith or involving intentional misconduct or
knowing violation of the law, the unlawful purchase or redemption of stock or
payment of unlawful dividends or the receipt of improper personal benefits
cannot be eliminated or limited in any manner. The DGCL further provides that no
such provision shall eliminate or limit the liability of a director for any act
or omission occurring prior to the date when such provision becomes effective.
The Fidelity Certificate contains a provision eliminating director liability for
breaches of fiduciary duty to the extent permitted by the DGCL.
BUSINESS COMBINATIONS
Certain of the provisions in the Fidelity Certificate and Fidelity Bylaws
may make it more difficult for another person or entity to effect certain
business combinations with Fidelity or to take control of the Fidelity Board.
These provisions include, among others, (i) the establishment of a classified
Board of Directors with staggered terms of office; (ii) the elimination of the
right of stockholders to call special meetings of stockholders or to act by
written consent; (iii) advance notice requirements for stockholder proposals and
directors nominations; (iv) a provision that directors may only be removed for
cause; (v) a provision that a vacancy in any directorship, including a vacancy
arising through an increase in the number of directors, may be filled by a
majority of the remaining directors, even though less than a quorum; (vi) the
Fair Price Provisions; and (vii) a provision allowing the Fidelity Board to
designate the rights, preferences, powers and restrictions of any preferred
stock authorized and issued by Fidelity. Any amendment, alteration or repeal of
the provisions described in the preceding sentence, with the exception of the
provisions described in clauses (vi) and (vii), and any amendment or repeal of
certain provisions of the Fidelity Bylaws, must be approved by at least 80% of
the voting power of all the shares of Fidelity entitled to vote in the election
of directors, unless a two-thirds vote of Continuing Directors approves a
resolution calling for such amendment, alteration or appeal, in which case only
a majority stockholder vote is required. The provision described in clause (vi)
may only be amended by a vote of at least sixty-six and two-thirds percent of
the outstanding shares of voting stock not owned by a Related Person, unless a
two-thirds vote of Continuing Directors approves a resolution calling for such
amendment, alteration or appeal, in which case only a majority stockholder vote
is required for amendment, alteration or repeal.
None of the Alamo Articles, the Alamo Bylaws or the TBCA have similar
provisions.
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<PAGE> 65
STOCKHOLDER PROPOSALS
Proposals of stockholders of Fidelity which are intended to be presented by
such stockholders at Fidelity's 1999 Annual Meeting of Stockholders must be
received by Fidelity no later than January 13, 1999 in order to be considered
for inclusion in the proxy statement and form of proxy relating to that meeting.
EXPERTS
The consolidated financial statements of Fidelity as of December 31, 1996
and 1997, and for each of the years in the three-year period ended December 31,
1997, have been incorporated by reference herein and in the Registration
Statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
The Alamo consolidated financial statements as of December 31, 1997 and
1996 and for each of the three years in the period ended December 31, 1997
included in this Proxy Statement/Prospectus and the related financial statement
schedules included elsewhere in the Registration Statement have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports
appearing herein and elsewhere in the Registration Statement, and have been so
included in reliance upon the reports of such firm given upon their authority as
experts in accounting and auditing.
The consolidated financial statements of Granite appearing in Fidelity's
Current Report on Form 8-K, as amended, dated February 26, 1998, have been
incorporated by reference herein and in the Registration Statement in reliance
upon the report of Ehrhardt Keefe Steiner & Hottman PC, independent certified
public accountants, incorporated herein by reference, and upon the authority of
said firm as experts in accounting and auditing.
Representatives of Deloitte & Touche LLP are expected to be present at the
Special Meeting. Such representatives will have the opportunity to make a
statement if they desire to do so and are expected to be available to respond to
appropriate questions.
LEGAL MATTERS
The validity of the shares of Fidelity Common Stock offered hereby will be
passed upon for Fidelity by Stradling Yocca Carlson & Rauth, a Professional
Corporation, Newport Beach, California.
OTHER MATTERS
As of the date of this Proxy Statement/Prospectus, the Alamo Board knows of
no matters that will be presented for consideration at the Special Meeting other
than as described in this Proxy Statement/ Prospectus. If any other matters
shall properly come before the Special Meeting or any adjournments or
postponements thereof and be voted upon, the enclosed proxies will be deemed to
confer discretionary authority on the individuals named therein to vote the
shares represented by such proxies as to any such matters. The persons named as
proxies intend to vote or not to vote in accordance with the recommendation of
the management of Alamo.
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<PAGE> 66
ALAMO TITLE HOLDING COMPANY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Financial Statements:
Balance Sheets............................................ F-3
Statements of Operations.................................. F-4
Statements of Stockholders' Equity........................ F-5
Statements of Comprehensive Income........................ F-6
Statements of Cash Flows.................................. F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE> 67
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Alamo Title Holding Company
We have audited the accompanying consolidated balance sheets of Alamo Title
Holding Company and subsidiaries (the Company) as of December 31, 1997 and 1996,
and the related consolidated statements of operations, stockholders' equity,
comprehensive income and cash flows for each of the three years in the 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Alamo Title Holding Company and
subsidiaries at December 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997 in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
March 24, 1998 (except for Note 13,
for which the date is May 7, 1998)
San Antonio, Texas
F-2
<PAGE> 68
ALAMO TITLE HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1997 1996 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
INVESTMENTS:
Fixed maturities........................................ $22,817 $22,021 $22,637
Equity securities....................................... 7,135 3,484 8,433
Other long-term investments............................. 1,544 1,398 2,658
------- ------- -------
Total investments............................. 31,496 26,903 33,728
Cash and cash equivalents............................... 13,032 8,744 10,665
Accrued investment income............................... 375 414 225
Notes receivable, net of allowance...................... 1,265 1,463 2,175
Premiums receivable, net of allowance................... 804 562 270
Other receivables, net of allowance..................... 1,207 1,456 993
Property and equipment, net............................. 5,728 7,087 5,794
Title plants............................................ 6,215 5,301 6,329
Intangible assets, net.................................. 7,067 7,782 6,953
Deferred tax asset...................................... 445 313 451
Prepayments and other assets............................ 914 933 1,140
------- ------- -------
TOTAL......................................... $68,548 $60,958 $68,723
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
TITLE POLICY CLAIMS RESERVES............................ $10,927 $ 9,282 $11,109
OTHER LIABILITIES:
Accrued liabilities..................................... 2,053 1,453 920
Federal income taxes.................................... 687 -- 592
Deferred federal income taxes........................... 1,895 1,419 2,277
Accounts payable........................................ 1,537 973 1,155
Dividends payable....................................... 723 524 --
Other deferred liabilities.............................. 743 438 818
Other liabilities....................................... 543 676 597
------- ------- -------
Total other liabilities....................... 8,181 5,483 6,359
NOTES PAYABLE........................................... 7,220 7,983 7,063
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY:
Common stock: $2.50 par value; 1,600,000 shares
authorized, 1,323,836, 1,318,836 and 1,327,088 shares
issued; 1,315,786, 1,311,086 and 1,319,038 shares
outstanding at December 31, 1997, 1996, and March 31,
1998, respectively.................................... 3,309 3,297 3,318
Additional paid-in capital.............................. 1,688 1,584 1,764
Accumulated other comprehensive income.................. 1,209 596 1,890
Retained earnings....................................... 36,171 32,883 37,377
Treasury stock at cost (8,050, 7,750 and 8,050 shares at
December 31, 1997, 1996 and March 31, 1998,
respectively)......................................... (157) (150) (157)
------- ------- -------
Total stockholders' equity.................... 42,220 38,210 44,192
------- ------- -------
TOTAL......................................... $68,548 $60,958 $68,723
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 69
ALAMO TITLE HOLDING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------- --------------------------
1997 1996 1995 1998 1997
---------- ---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Title insurance premiums.............. $ 82,854 $ 76,838 $ 65,958 $ 21,382 $ 16,549
Net investment income................. 1,983 1,418 1,818 323 399
Net realized gains (losses)........... 267 117 (2) 50 (32)
Other income:
Commissions earned.................. 5,586 5,386 4,888 1,591 960
Escrow fees......................... 4,792 4,195 3,409 1,351 987
Abstract fees....................... 1,011 931 1,177 281 193
Title search fees................... 1,483 1,046 1,303 203 327
Other............................... 1,902 2,487 2,497 350 256
---------- ---------- ---------- ---------- ----------
Total revenues............... 99,878 92,418 81,048 25,531 19,639
EXPENSES:
Provision for claims.................. 2,897 2,973 2,972 760 729
Commissions expense................... 35,019 34,047 30,645 8,576 7,336
Personnel costs....................... 29,902 27,585 24,905 7,843 6,844
Selling, general and administrative... 24,694 21,306 19,606 6,237 5,509
Interest expenses..................... 615 654 898 111 150
---------- ---------- ---------- ---------- ----------
Total expenses............... 93,127 86,565 79,026 23,527 20,568
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE FEDERAL INCOME
TAXES............................... 6,751 5,853 2,022 2,004 (929)
PROVISION (BENEFIT) FOR FEDERAL INCOME
TAXES:
Current............................... 2,512 2,487 1,556 706 (345)
Deferred.............................. 28 (348) (668) 25 (4)
---------- ---------- ---------- ---------- ----------
Total provision (benefit) for
federal income taxes....... 2,540 2,139 888 731 (349)
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS)..................... $ 4,211 $ 3,714 $ 1,134 $ 1,273 $ (580)
========== ========== ========== ========== ==========
BASIC AND DILUTED NET INCOME (LOSS)
PER COMMON SHARE.................... $ 3.20 $ 2.88 $ 0.89 $ 0.97 $ (0.44)
========== ========== ========== ========== ==========
WEIGHTED AVERAGE BASIC SHARES
OUTSTANDING......................... 1,314,378 1,288,524 1,272,568 1,316,682 1,313,108
========== ========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 70
ALAMO TITLE HOLDING COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON STOCK ADDITIONAL COMPREHENSIVE TREASURY STOCK TOTAL
------------------- PAID-IN INCOME, RETAINED ---------------- STOCKHOLDERS'
SHARES AMOUNT CAPITAL NET OF TAXES EARNINGS SHARES AMOUNT EQUITY
--------- ------ ---------- ------------- -------- ------ ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1995.... 1,248,236 $3,121 $ 968 $ (202) $29,015 1,900 $ (30) $32,872
Net income.................. -- -- -- -- 1,134 -- -- 1,134
Cash dividends declared..... -- -- -- -- (258) -- -- (258)
Common stock options
exercised................. 30,000 75 208 -- -- -- -- 283
Common stock awards......... 4,400 11 82 -- -- -- -- 93
Purchase of treasury stock,
net....................... -- -- -- -- -- 5,850 (120) (120)
Change in net unrealized
gain on securities
available-for-sale, net of
taxes..................... -- -- -- 969 -- -- -- 969
--------- ------ ------ ------ ------- ----- ----- -------
BALANCE, December 31,
1995...................... 1,282,636 3,207 1,258 767 29,891 7,750 (150) 34,973
Net income.................. -- -- -- -- 3,714 -- -- 3,714
Cash dividends declared..... -- -- -- -- (722) -- -- (722)
Common stock options
exercised................. 30,000 75 205 -- -- -- -- 280
Common stock awards......... 6,200 15 121 -- -- -- -- 136
Change in net unrealized
gain on securities
available-for-sale, net of
taxes..................... -- -- -- (171) -- -- -- (171)
--------- ------ ------ ------ ------- ----- ----- -------
BALANCE, December 31,
1996...................... 1,318,836 3,297 1,584 596 32,883 7,750 (150) 38,210
Net income.................. -- -- -- -- 4,211 -- -- 4,211
Cash dividends declared..... -- -- -- -- (923) -- -- (923)
Common stock awards......... 5,000 12 104 -- -- -- -- 116
Purchase of treasury
stock..................... -- -- -- -- -- 300 (7) (7)
Change in net unrealized
gain on securities
available-for-sale, net of
taxes..................... -- -- -- 613 -- -- -- 613
--------- ------ ------ ------ ------- ----- ----- -------
BALANCE, December 31,
1997...................... 1,323,836 3,309 1,688 1,209 36,171 8,050 (157) 42,220
Unaudited:
Net income................ -- -- -- -- 1,273 -- -- 1,273
Cash dividends declared... -- -- -- -- (67) -- -- (67)
Common stock awards....... 3,252 9 76 -- -- -- -- 85
Change in net unrealized
gain on securities
available-for-sale, net
of taxes................ -- -- -- 681 -- -- -- 681
--------- ------ ------ ------ ------- ----- ----- -------
BALANCE, March 31, 1998..... 1,327,088 $3,318 $1,764 $1,890 $37,377 8,050 $(157) $44,192
========= ====== ====== ====== ======= ===== ===== =======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 71
ALAMO TITLE HOLDING COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------------- -------------------------
1997 1996 1995 1998 1997
------ ------ ------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET INCOME (LOSS)........................... $4,211 $3,714 $1,134 $1,273 $(580)
OTHER COMPREHENSIVE INCOME, net of tax:
Unrealized holding gains (losses) arising
during period(1)....................... 789 (94) 968 714 (284)
Less: reclassification adjustment for
gains (losses) included in net
income(2).............................. (176) (77) 1 (33) 21
------ ------ ------ ------ -----
Other comprehensive income.................. 613 (171) 969 681 (263)
------ ------ ------ ------ -----
COMPREHENSIVE INCOME........................ $4,824 $3,543 $2,103 $1,954 $(843)
====== ====== ====== ====== =====
</TABLE>
- ---------------
(1) Net of income tax (expense) benefit of $(450), $48, $(498), $(378) and $146
at December 31, 1997, 1996 and 1995 and March 31, 1998 and 1997,
respectively.
(2) Net of income tax (expense) benefit of $(91), $40, $1, $(17) and $11 at
December 31, 1997, 1996 and 1995 and March 31, 1998 and 1997, respectively.
See notes to consolidated financial statements.
F-6
<PAGE> 72
ALAMO TITLE HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------------------- -------------------------
1997 1996 1995 1998 1997
-------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................ $ 4,211 $ 3,714 $ 1,134 $ 1,273 $ (580)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 2,085 2,057 1,921 469 525
Gain on sale of investments, net....................... (267) (115) (54) (2) (5)
Loss on sale of property, equipment and other, net..... 416 264 (366) (50) 32
Compensation expense on stock award.................... 117 136 93 84 117
Other, net............................................. 23 22 120 (5) 5
Changes in operating assets and liabilities, net of
effects from acquisitions of other companies:
Accounts receivable.................................. (580) (339) (390) 748 471
Federal income taxes recoverable..................... 624 (624) 509 -- (284)
Prepayments.......................................... 120 (26) 127 (211) (125)
Other assets......................................... (123) (12) 88 136 189
Accounts payable..................................... 570 (1) 319 (382) (129)
Title policy claims reserves......................... 1,646 2,168 1,543 182 404
Other deferred liabilities........................... 305 378 (29) 75 106
Federal income taxes payable......................... 687 (983) 983 (126) --
Deferred income taxes................................ 28 (347) (668) 56 (65)
Other accrued liabilities............................ 461 783 (529) (1,090) (792)
-------- -------- -------- ------- -------
Net Cash Provided by (Used in) Operating Activities...... 10,323 7,075 4,801 1,157 (131)
-------- -------- -------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments................................. (11,700) (10,772) (11,927) (2,932) (1,490)
Proceeds from sales and redemptions of investments and
other assets........................................... 7,907 5,863 11,402 1,794 1,379
Principal repayments from mortgage-backed securities..... -- -- 40 -- --
Acquisitions of property and equipment................... (2,319) (1,530) (3,629) (409) (965)
(Purchases) sales of title plants........................ (962) 234 (2,023) (129) (700)
Proceeds from sale of assets............................. 1,917 31 -- 4 240
Note receivable originations............................. (453) (933) (1,186) (956) (50)
Note receivable collections.............................. 1,070 280 1,371 50 69
-------- -------- -------- ------- -------
Net Cash Used in Investing Activities.................... (4,540) (6,827) (5,952) (2,578) (1,517)
-------- -------- -------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid...................................... (724) (261) (382) (790) (591)
Proceeds from the exercise of stock options.............. -- 280 284 -- --
Proceeds from issuance of notes payable.................. 1,232 34 4,199 -- 1,196
Repayment of notes payable............................... (1,996) (2,100) (2,887) (156) (550)
Purchases of treasury stock.............................. (7) -- (120) -- --
-------- -------- -------- ------- -------
Net Cash (Used in) Provided by Financing Activities...... (1,495) (2,047) 1,094 (946) 55
-------- -------- -------- ------- -------
Net (Decrease) Increase in Cash and Cash Equivalents..... 4,288 (1,799) (57) (2,367) (1,593)
CASH AND CASH EQUIVALENTS, beginning of period........... 8,744 10,543 10,600 13,032 8,744
-------- -------- -------- ------- -------
CASH AND CASH EQUIVALENTS, end of period................. $ 13,032 $ 8,744 $ 10,543 $10,665 $ 7,151
======== ======== ======== ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for income taxes............. $ 1,200 $ 4,069 $ -- $ 800 $ --
Cash paid during the period for interest................. 592 654 899 128 145
</TABLE>
SIGNIFICANT NON-CASH TRANSACTIONS:
During the year ended December 31, 1997, the Company sold assets with a net book
value of $214 for cash of $225 and a note receivable of $75. In addition, the
Company consolidated certain notes payable totaling $4,500 to a secured
revolving credit note.
See notes to consolidated financial statements.
F-7
<PAGE> 73
ALAMO TITLE HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1997 IS UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Organization -- Alamo Title Holding Company (ATH) was formed in 1993 for
the purpose of operating as the parent of Alamo Title Insurance and Subsidiaries
(ATI) and other subsidiaries operating in the title business. In December 1993,
ATH exchanged 1,241,436 shares of its common stock for substantially all of the
shares of ATI outstanding. As a result, ATH owns 99.9% of the stock of ATI.
The reorganization described in the preceding paragraph has been accounted
for as a combination of affiliated entities in a manner similar to the
pooling-of-interest method. Therefore, the consolidated financial statements of
ATH and Subsidiaries are based on the historical costs and operations of the
merged entities.
Principles of Consolidation -- The consolidated financial statements
include the accounts of ATH, ATI and ATH's wholly-owned subsidiaries, SWT
Holdings, Inc. and Subsidiaries, Alamo Title Company of Tarrant County, Inc. and
Subsidiary, Alamo Title of Travis County, Inc., and Alamo Title of Guadalupe
County, Inc. (collectively referred to herein as the Company). All significant
intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Interim Reporting -- The interim consolidated financial statements are
unaudited but, in the opinion of management, incorporate all adjustments
necessary for a fair presentation of the Company's financial position and
results of operations for such interim periods. Such adjustments are of a normal
recurring nature. The results of operations for any interim period are not
necessarily indicative of results for the full year.
Cash and Cash Equivalents -- For purposes of reporting cash flows, the
Company considers all highly liquid financial instruments maturing within ninety
days of purchase to be cash equivalents.
Accounts Receivable -- The Company principally operates in Texas,
accordingly credit risk is affected by conditions or occurrences within the
Texas economy and real estate industry. The Company continually evaluates the
creditworthiness of its customers and generally does not require collateral.
Investment Securities -- The Company classifies its investment securities
as available-for-sale. Accordingly, investment securities are stated at fair
value and the related unrealized gains and losses are excluded from earnings and
are reported, net of tax, as a separate component of stockholders' equity until
realized. The estimated fair value amounts have been determined by management
using available market information and appropriate valuation methodologies.
However, considerable judgment is necessarily required to interpret market data
to develop the estimates of fair value, and there are inherent limitations in
any estimation technique. Accordingly, such estimates are not necessarily
indicative of the amounts the Company could realize in a current market
exchange.
Premiums and discounts are amortized and accreted to operations using the
straight-line method of accounting, adjusted for prepayments as applicable. The
specific identification method is used to compute gains and losses on sales of
investment securities.
Notes Receivable -- Notes receivable are stated at the principal amount
outstanding. The related interest income is recognized using the interest
method. Interest revenue received on impaired loans, if any, continues to be
applied either against principal or realized as interest revenue, according to
management's judgment as to the collectibility of principal.
F-8
<PAGE> 74
ALAMO TITLE HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1997 IS UNAUDITED)
Allowance for Losses on Notes Receivable -- The Company provides an
allowance for losses on notes receivable, if, based on current information and
events, it is probable that the Company will be unable to collect all amounts
due, both interest and principal, according to the contractual terms of the note
agreement.
Property and Equipment -- Property and equipment are stated at cost.
Depreciation and amortization are provided on the straight-line and
double-declining balance methods over the following estimated useful lives of
the assets:
<TABLE>
<S> <C>
Buildings.............................................. 15 - 40 years
Furniture and equipment................................ 5 - 10 years
EDP software........................................... 3 - 5 years
EDP equipment.......................................... 5 years
Library................................................ 20 years
Automobiles............................................ 3 - 5 years
Leasehold improvements................................. 5 - 10 years
</TABLE>
Title Plants -- Title plants are capitalized at the lower of cost or
appraised value at date of acquisition. Title plants are not being depreciated
since there has been no diminution of value; however, impairments of title plant
carrying amounts deemed to be other than temporary are expensed. Costs of
maintaining and updating title plants are expensed as incurred.
Covenant Not to Compete -- The covenant not to compete was stated at
amortized cost. Amortization was provided using the straight-line method over a
11-year period.
Goodwill -- Goodwill is stated at amortized cost. Amortization is provided
using the straight-line method over 10 and 20-year periods.
Impairment of Long-Lived Assets -- Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
to be Disposed of" requires that long-lived assets and certain identifiable
intangilbes to be held and used be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of affected assets
may not be recoverable.
Title Policy Claims Reserves -- The Company provides for estimated title
insurance losses and related expenses based on existing circumstances and
historical loss experience. The reserve reflects the estimated costs to settle
all claims which have been reported to the Company, as well as an estimate for
claims incurred but not reported.
Estimates of title policy claims reserve involve an exercise of judgment.
While it is possible that in particular periods the Company may sustain losses
which are substantial in relation to the title policy claims reserves, it is the
judgment of management that the title policy claims reserves at December 31,
1997 are adequate to absorb losses.
Title Insurance Premiums and Commissions -- Title insurance premiums and
expenses related to the issuance of title policies are recognized when they are
reported by the agents.
Stock-Based Compensation -- The Company accounts for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board No. 25, Accounting for Stock Issued to Employees, and related
interpretations. Accordingly, compensation cost for stock options is measured as
the excess, if any, of the quoted market price of the Company's common stock at
the date of grant over the amount an employee must pay to acquire the stock. The
Company has adopted the disclosure requirements of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation, as
included in Note 10.
F-9
<PAGE> 75
ALAMO TITLE HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1997 IS UNAUDITED)
Federal Income Taxes -- The Company recognizes income taxes for (a) the
amount of taxes payable or refundable for the current year, and (b) deferred tax
assets and liabilities for the future tax consequences of events that have been
recognized in the Company's consolidated financial statements or tax returns.
Deferred tax assets and liabilities are measured based upon 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 effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Basic Net Income per Common Share -- Basic net income per common share is
computed by dividing net income by the weighted-average number of shares of
common stock outstanding during each year (1,314,378, 1,288,524, 1,272,568,
1,316,682 and 1,313,108 shares for the years ended December 31, 1997, 1996 and
1995 and for the three months ended March 31, 1998 and 1997, respectively). The
potential dilution from the assumed exercise of stock options granted does not
change the computation.
2. ACQUISITIONS
The Company purchased substantially all of the assets of Southwest Land
Title Company of Angleton, effective January 31, 1997 and created a new
corporation, Alamo Title Company of Brazoria, Inc., into which the acquired
assets were placed.
The acquisition was recorded using the purchase method; accordingly, the
purchase price was allocated to assets acquired using their fair market values.
The excess of the purchase price over the fair market value of net assets
acquired is recorded as goodwill.
The purchase price for the acquisition was allocated as follows (in
thousands):
<TABLE>
<S> <C>
Property and equipment, net................................. $ 150
Title plants................................................ 700
Goodwill.................................................... 250
------
Total............................................. $1,100
======
</TABLE>
In January 1998, the Company purchased a 20% share of Rio Grande Title
Company, a title agency in New Mexico, for $900,000. The Company will account
for this investment using the equity method.
During the year ended December 31, 1995, the Company purchased
substantially all of the assets of three title agencies: Title Agency of Austin,
Inc. (effective June 1, 1995), Guadalupe County Abstract Company (effective May
17, 1995), and 1st Security Title Company (effective April 6, 1995). The Company
created three new corporations, Alamo Title of Travis County, Inc. and Alamo
Title of Guadalupe County, Inc., and Alamo Title Company of Austin, Inc. into
which the acquired assets from Title Agency of Austin, Inc., Guadalupe County
Abstract Company, and 1st Security Title Company were placed, respectively.
The acquisitions were recorded using the purchase method; accordingly, the
purchase price was allocated to assets acquired using their fair market values.
The excess of the purchase price over the fair market value of net assets
acquired is recorded as goodwill.
F-10
<PAGE> 76
ALAMO TITLE HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1997 IS UNAUDITED)
The purchase prices for the acquisitions were allocated as follows (in
thousands):
<TABLE>
<S> <C>
Property and equipment, net................................. $ 725
Title plants................................................ 1,931
Goodwill.................................................... 920
Other assets................................................ 68
Short-term liabilities...................................... (517)
Long-term liabilities....................................... (1,477)
-------
Total............................................. $ 1,650
=======
</TABLE>
The results of operations of the above companies have been included in the
accompanying financial statements since the respective acquisition dates.
In November 1995, ATH entered into a joint venture agreement in the Dallas
area to conduct title business. ATH owns 50% of a company which has a fee
attorney relationship with an attorney. The attorney owns 50% of the joint
venture and provides all management functions. ATH's investment was $388,709,
$264,223 and $76,000 at December 31, 1997, 1996 and 1995, respectively, and is
accounted for using the equity method. The joint venture's operations in 1997,
1996 and 1995 were minimal. ATH is committed to providing certain start-up funds
for new title company branches as they are opened.
3. INVESTMENT SECURITIES
At December 31, 1997 and 1996, the amortized cost and fair values of
investment securities are summarized as follows (in thousands):
<TABLE>
<CAPTION>
CARRYING
GROSS UNREALIZED AMOUNT AT
AMORTIZED ---------------- FAIR
COST GAINS LOSSES VALUE
--------- ------ ------ ---------
<S> <C> <C> <C> <C>
1997:
Fixed maturities:
Municipal bonds..................................... $19,999 $ 483 $ (1) $20,481
U.S. Government and agencies........................ 2,183 56 (2) 2,237
Foreign governments................................. 90 -- (1) 89
Certificates of deposit............................. 10 -- -- 10
Equity securities..................................... 5,795 1,690 (350) 7,135
Other long-term investments........................... 1,544 -- -- 1,544
------- ------ ----- -------
Total....................................... $29,621 $2,229 $(354) $31,496
======= ====== ===== =======
1996:
Fixed maturities:
Municipal bonds..................................... $13,945 $ 102 $ (50) $13,997
U.S. Government and agencies........................ 8,005 29 (113) 7,921
Foreign government bonds............................ 104 -- (1) 103
Equity securities..................................... 2,547 993 (56) 3,484
Other long-term investments........................... 1,398 -- -- 1,398
------- ------ ----- -------
Total....................................... $25,999 $1,124 $(220) $26,903
======= ====== ===== =======
</TABLE>
F-11
<PAGE> 77
ALAMO TITLE HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1997 IS UNAUDITED)
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties. Contractual maturities of investments in debt
securities are as follows at December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
--------- -------
<S> <C> <C>
Due in one year or less.................................. $ 144 $ 144
Due from one year to five years.......................... 6,510 6,336
Due after five years..................................... 15,618 16,327
------- -------
Total debt securities.......................... $22,272 $22,807
======= =======
</TABLE>
Income from investments and net realized gains and losses from sales of
investments for the three years ended December 31 were as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Fixed maturities:
Municipal bonds........................................... $ 762 $ 527 $ 210
U.S. Government and agencies.............................. 365 423 277
Other..................................................... 7 7 8
Equity securities:
Public utilities.......................................... 7 2 10
Banks, trusts and insurance companies..................... 14 14 11
Industrial, miscellaneous and other....................... 134 134 361
Other long-term investments:
Interest on notes receivable.............................. 117 126 172
Real estate rental income................................. 62 104 112
Sale of fixed assets...................................... 274 (265) 304
Other..................................................... (26) 45 14
Short-term investments and cash equivalents................. 267 301 339
------ ------ ------
Total income from investments..................... $1,983 $1,418 $1,818
====== ====== ======
Realized gains/(losses):
Debt securities:
Gains.................................................. $ 63 $ 1 $ 40
Losses................................................. (39) (5) (61)
------ ------ ------
Net....................................................... 24 (4) (21)
Equity securities:
Gains.................................................. $ 328 $ 249 $ 62
Losses................................................. (85) (129) (43)
------ ------ ------
Net....................................................... 243 120 20
------ ------ ------
Total net realized gains (losses)................. $ 267 $ 117 $ (2)
====== ====== ======
</TABLE>
At December 31, 1997 and 1996, municipal bonds with an amortized cost of
$144,387 and $139,464, respectively, were pledged to the Texas Department of
Insurance, and a certificate of deposit with a cost of $100,000 was pledged to
the New Mexico Department of Insurance.
F-12
<PAGE> 78
ALAMO TITLE HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1997 IS UNAUDITED)
4. NOTES RECEIVABLE
Notes receivable consist of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Notes receivable backed by equipment, title plants, capital
stock of unaffiliated title agencies and life insurance
proceeds from policies on the makers of certain notes.... $1,198 $1,381
Unsecured note receivable.................................. 75 90
------ ------
Total............................................ 1,273 1,471
Less allowance for losses on notes receivable.............. (8) (8)
------ ------
Notes receivable, net...................................... $1,265 $1,463
====== ======
</TABLE>
The above notes receivable bear interest at fixed and variable rates,
ranging from 6% to 10.25%, and mature at various dates through 2014.
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Land..................................................... $ 34 $ 321
Buildings................................................ 82 1,698
Furniture and equipment.................................. 9,219 8,923
EDP software............................................. 882 313
EDP equipment............................................ 3,490 2,999
Library.................................................. 161 161
Automobiles.............................................. 272 690
Leasehold improvements................................... 1,302 1,283
------- -------
Total.......................................... 15,442 16,388
Less accumulated depreciation and amortization........... (9,714) (9,301)
------- -------
Property and equipment, net.............................. $ 5,728 $ 7,087
======= =======
</TABLE>
6. INTANGIBLE ASSETS
Intangible assets consist of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Goodwill................................................. $ 9,336 $ 9,086
Covenant not to compete.................................. -- 450
------- -------
Total.......................................... 9,336 9,536
Less accumulated amortization............................ (2,269) (1,754)
------- -------
Intangible assets, net................................... $ 7,067 $ 7,782
======= =======
</TABLE>
F-13
<PAGE> 79
ALAMO TITLE HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1997 IS UNAUDITED)
7. TITLE POLICY CLAIMS RESERVES
Changes in the title policy claims reserves are as follows for the years
ended December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- ------
<S> <C> <C>
Claims incurred but not reported (IBNR):
Balance, beginning of year................................ $ 8,239 $6,163
Provision for title policy claims......................... 2,897 2,973
Transfers to reserve for reported claims.................. (1,811) (897)
------- ------
Balance, end of year...................................... 9,325 8,239
------- ------
Reserve for reported claims:
Balance, beginning of year................................ 1,042 950
Claims paid............................................... (1,251) (804)
Transfers from IBNR....................................... 1,811 897
------- ------
Balance, end of year...................................... 1,602 1,043
------- ------
Total title policy claims reserves, end of year... $10,927 $9,282
======= ======
</TABLE>
F-14
<PAGE> 80
ALAMO TITLE HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1997 IS UNAUDITED)
8. NOTES PAYABLE
Notes payable consists of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Secured revolving credit note to bank is secured by Alamo
Title Holding Company's pledge of all common stock owned
in Alamo Title Company of Tarrant County, Inc.; Alamo
Title of Travis County, Inc.; Alamo Title of Guadalupe
County, Inc.; Alamo Title Company of Brazoria County, Inc.
The note is payable in semi-annual principal installments
of installments of $750,000 through June 2000. The notes
bears an interest rate option of various rates, payable
quarterly through June 2000............................... $3,750 $ --
Secured revolving credit note to bank is secured by Alamo
Title Holding Company's pledge of all common stock owned
in Alamo Title Company of Tarrant County, Inc.; Alamo
Title of Travis County, Inc.; Alamo Title of Guadalupe
County, Inc.; Alamo Title Company of Brazoria County, Inc.
The note is payable in quarterly principal installments of
$35,000 through December 2001. The note bears an interest
rate option of various rates, payable quarterly through
December 2001............................................. 560 --
Secured note payable to bank collateralized by stock of
Alamo Title Company of Austin, Inc.; Alamo Title of Travis
County, Inc.; Alamo Title of Guadalupe County, Inc. The
note is payable in quarterly principal installments of
$100,000 through June 2000. The note bears interest
payable quarterly at the lesser of LIBOR plus 1% or prime
minus 1.25%............................................... -- 1,400
Secured note payable to bank collateralized by stock of
Alamo Title Company of Tarrant County, Inc. The note is
payable in semi-annual principal installments of $300,000
through March 1999. The note bears interest payable
quarterly at the lesser of LIBOR plus 1% or prime minus
1.25%..................................................... -- 1,500
Unsecured line of credit payable to bank guaranteed by SWT
Holdings, Inc. Minimum annual principal payments of
$700,000 are due each anniversary date, and interest is
payable quarterly at the lesser of LIBOR plus 1% or prime
minus 1.25%............................................... -- 2,100
Unsecured promissory notes.................................. 2,910 2,983
------ ------
Total notes payable............................... $7,220 $7,983
====== ======
</TABLE>
Annual maturities of notes payable are as follows for the years ended
December 31 (in thousands):
<TABLE>
<S> <C>
1998................................................ $2,527
1999................................................ 2,056
2000................................................ 1,306
2001................................................ 512
2002................................................ 392
Thereafter.......................................... 427
------
Total.......................................... $7,220
======
</TABLE>
Of the unsecured promissory notes, $1,524,628 is payable in monthly
principal and interest installments totaling $32,790. These notes bear interest
rates varying from 6% to 7.5% and mature at various dates through February 2004.
Notes payable totaling $882,750, are payable in quarterly principal installments
totaling $43,250, plus accrued interest. These notes bear interest rates varying
from the prime rate to the prime rate plus 1%, and mature at various dates
through February 2007. A non-interest bearing note for $13,200 is due in
February 1998. The remaining $488,933 bears interest at 7.5% and is due in April
1998.
F-15
<PAGE> 81
ALAMO TITLE HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1997 IS UNAUDITED)
9. FEDERAL INCOME TAXES
The provision for federal income taxes differs from the amounts computed
using the statutory federal income tax rate of 34% as follows for the years
ended December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ -----
<S> <C> <C> <C>
Tax computed at statutory rate............................ $2,295 $1,990 $ 688
Nontaxable interest....................................... (261) (185) (78)
Dividends received deduction.............................. (29) (33) (100)
Goodwill amortization..................................... 233 140 135
Meals and entertainment................................... 146 130 134
Club dues................................................. 47 54 50
Key-man life insurance.................................... 23 23 22
Other, net................................................ 86 20 37
------ ------ -----
Provision for federal income taxes........................ $2,540 $2,139 $ 888
====== ====== =====
</TABLE>
Deferred income taxes and benefits are provided for differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax basis. Significant deferred tax assets and liabilities are
as follows at December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Deferred tax assets:
Accrued vacation.......................................... $ 81 $ 98
Bad debts................................................. -- 3
Accrued liabilities....................................... 21 6
Deferred salaries......................................... 108 44
Group insurance........................................... 101 149
Non-compete agreement..................................... 76 --
Other..................................................... 58 13
------ ------
Deferred tax asset.......................................... 445 313
====== ======
Deferred tax liabilities:
Unrealized loss on securities available-for-sale.......... 624 307
Property and equipment.................................... 474 468
Unearned premium reserves and title policy claims
reserves............................................... 425 338
Title plants.............................................. 329 306
Other..................................................... 43 --
------ ------
Deferred tax liability...................................... 1,895 1,419
====== ======
</TABLE>
The changes in the net deferred tax liability were allocated as follows
during the years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---- ----- -----
<S> <C> <C> <C>
Deferred income tax provision (benefit)..................... $ 28 $(348) $(668)
Decrease (increase) in stockholders' equity resulting from
change in net unrealized gain on securities
available-for-sale........................................ 317 (87) 499
---- ----- -----
Increase (decrease) in net deferred tax liability........... $345 $(435) $(169)
==== ===== =====
</TABLE>
F-16
<PAGE> 82
ALAMO TITLE HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1997 IS UNAUDITED)
10. COMMITMENTS AND CONTINGENCIES
The Company leases certain branch office facilities and equipment under
operating leases. All the leases are noncancelable and have various expiration
dates extending through 2006. Aggregate future minimum rental commitments as of
December 31, 1997 are as follows (in thousands):
<TABLE>
<S> <C>
1998................................................ $2,979
1999................................................ 2,442
2000................................................ 1,796
2001................................................ 1,646
2002................................................ 1,144
Thereafter.......................................... 2,343
</TABLE>
Total rent expense for 1997, 1996 and 1995 was $4,709,350, $4,642,995 and
$3,491,907, respectively. At December 31, 1997, the Company was contingently
liable for guarantees of indebtedness, maturing at various dates through 2007,
owed by third parties of $832,636.
On April 2, 1996, a putative class action was filed in State District Court
in Dallas, Texas against all title insurance underwriters licensed to do
business in Texas. Certain title insurance agents were subsequently joined as
Defendants. The suit principally alleges that, in connection with closing real
estate transactions to which he or she was a party, each Plaintiff paid to a
Defendant -- or, in the case of the Company, one of its title insurance agents
(a) a title insurance premium for a title insurance policy and (b) certain other
charges such as, for example, escrow fees and recording fees. The essence of
Plaintiffs' alleged cause of action is that they were overcharged because all
escrow or other real estate closing services were already paid for when they
paid a title insurance premium. Defendants have denied that Plaintiffs have a
cause of action because a title insurance transaction is distinct from the much
larger real estate transaction.
On November 17, 1997, the Court granted the Defendants' special exceptions
and struck 36 paragraphs from the Plaintiffs' Petition to the extent that these
paragraphs alleged that a title insurance premium includes charges for closing a
real estate transaction. The Court allowed Plaintiffs to replead in conformity
with its order, and Plaintiffs filed a new Petition. Defendants believe that the
latest Petition fails to conform to the Court's order and still fails to state a
cause of action. Accordingly, Defendants have filed a motion to dismiss, which
is still pending.
While the Company intends to vigorously defend this action, and
developments in the case to date have been consistent with its position, the
effects, if any, of an adverse judgment on the Company are not presently
estimable.
The Company, in the ordinary course of business, is subject to claims made
under, and from time to time is named as a defendant in other legal proceedings
relating to, policies of insurance it has issued or other services performed on
behalf of insured policy holders 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.
11. EMPLOYEE BENEFIT PLANS
The Company maintains a 401(k) savings plan covering all eligible
employees. An employee is considered eligible if he or she is employed a minimum
of thirty hours per week and has completed sixty days of service, as defined by
the plan. For any plan year (January 1 to December 31), a participant may elect
to contribute from 1% to 12% of his or her earnings subject to limits set forth
in the plan. The Company may, at
F-17
<PAGE> 83
ALAMO TITLE HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1997 IS UNAUDITED)
its discretion, match participants' contributions on the first 6% of
compensation at a rate determined at the beginning of each plan year.
Additionally, the Company may make a discretionary contribution for each plan
year. The matching contributions were set at 50% for 1998, 1997, 1996 and 1995
resulting in matching contributions approximating $417,000, $413,000, $401,000,
$112,000 and $115,000 for 1997, 1996 and 1995, and the three months ended March
31, 1998 and 1997, respectively. The Company did not make discretionary
contributions in the three months ended March 31, 1998, nor in 1997, 1996 and
1995.
Effective January 1, 1996, the Company established a non-qualified deferred
compensation plan for certain eligible employees. Participants may elect to
defer all or any portion of their salary to the Plan. The Company will match
participants' contributions at the matching rate set by the 401(k) savings plan,
which when added to the participants' contributions to the 401(k) savings plan
discussed above, does not exceed maximum salary deferral permitted by law. Plan
assets of approximately $439,000, $378,000 and $135,000 are included in equity
securities in 1998, 1997 and 1996, respectively. Plan liabilities of
approximately $439,000, $378,000 and $135,000 are included in other deferred
liabilities in 1998, 1997 and 1996, respectively. There were no matching
contributions in 1998, 1997 and 1996.
The Company provides health care benefits to its employees through a
self-insured program administered through a third party administrator. The
Company records an expense to recognize the estimated health care liability,
including estimates of the ultimate costs for both reported claims and claims
incurred but not reported, based on studies prepared by the third party
administrator. The program has insured stop-loss policy coverage for individual
claims in excess of $50,000. Such stop-loss coverage is subject to aggregate
deductible and maximum pay limitations for the Company. At December 31, 1997,
1996 and 1995, and March 31, 1998 and 1997, the Company's expense for providing
health care benefits approximated $1,791,000, $2,018,000, $1,595,000, $423,000
and $420,000, respectively.
In accordance with non-qualified stock option arrangements, options may be
granted for a total of 152,400 shares of the Company's common stock. For options
outstanding at December 31, 1997, exercise prices ranged from $9.55 to $29.14
per share and had a weighted average remaining contractual life of 2.7 years.
Option prices are calculated as fair value of the common stock either at
December 31 of the year preceding the grant or at the date of grant, and certain
options provide for a reduction of the exercise price by cash dividends paid.
Options outstanding are as follows:
<TABLE>
<CAPTION>
WEIGHTED-
TOTAL AVERAGE
OPTIONS EXERCISE
OUTSTANDING PRICE
----------- ---------
<S> <C> <C>
Options outstanding, January 1, 1995........................ 143,600 $17.58
Exercised................................................. (30,000) 9.43
------- ------
Options outstanding, December 31, 1995...................... 113,600 20.09
Exercised................................................. (30,000) 9.33
------- ------
Options outstanding, December 31, 1996...................... 83,600 $23.89
======= ======
Options outstanding, December 31, 1997...................... 83,600 $23.99
======= ======
Options exercisable, December 31, 1996...................... 37,625 $22.54
======= ======
Options exercisable, December 31, 1997...................... 55,200 $22.70
======= ======
</TABLE>
Pursuant to a stock award agreement for 26,505 shares, 20,000 shares have
been awarded as of December 31, 1997.
In addition to the option and award arrangements, stock appreciation rights
(SARs) have been granted to certain officers of the Company. The SARs permit the
optionee to receive an aggregate payment equal to the
F-18
<PAGE> 84
ALAMO TITLE HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1997 IS UNAUDITED)
difference between the initial value per share at the date of the grant and the
value of said share on the date the rights are surrendered for payment. The SARs
vest in installments during the five-year period following the date of grant. As
of December 31, 1997, 3,600 rights have vested.
12. STATUTORY REQUIREMENTS AND RESTRICTIONS
For state insurance purposes, a portion of each year's title insurance
premiums is deferred and amortized to income in subsequent years. The Company is
required to hold, in cash and other suitable investments, amounts equal to the
balance in unearned title insurance premiums for the protection of the policy
holders. Such assets are not subject to distribution to creditors and the
stockholders until all claims related to the underlying title insurance policies
have been discharged. Unearned title insurance premiums for statutory reporting
requirements were $14,544,382, $14,192,725 and $13,136,000 at December 31, 1997,
1996 and 1995, respectively.
Under Texas law, ATI must maintain minimum capital stock and retained
earnings balances of $1,000,000 each. In addition, ATI cannot pay a dividend in
excess of certain limits without the approval of the Texas Insurance
Commissioner. Based on unaudited statutory reports as filed, the maximum
dividend which could have been paid without such approval in 1997, 1996 and 1995
was $5,601,169, $6,191,069 and $5,024,896 respectively.
Texas Insurance Statutes generally require reinsurance of all single risks
in excess of one-half of the statutory capital and surplus of a title insurer.
ATI has entered into a reinsurance treaty with Chicago Title Insurance Company
to automatically reinsure policies in excess of $2,500,000, with certain
exceptions. ATI remains liable for all risk, including policy losses, loss
adjustment expenses, court costs and attorneys' fees up to $2,500,000.
13. SUBSEQUENT EVENTS
On May 7, 1998, the Company announced that it had entered into an agreement
and plan of merger to merge Alamo Title Holding Company with a newly formed
subsidiary of Fidelity National Financial, Inc. (Fidelity). The merger is
subject to regulatory approvals and the approval of the Company's shareholders.
Under the terms of the definitive agreement, Fidelity will issue 2.1
million shares of its common stock for 100% of the Company's shares. The
transaction value is collared between $75 million and $85 million. If the
average price of Fidelity common stock during the pricing period multiplied by
the 2.1 million shares equates to less than $75 million in value, shares shall
be added to total a minimum of $75 million in value. If the average price of the
Fidelity common stock multiplied by the 2.1 million shares totals more than $85
million, the number of shares shall be reduced such that the total transaction
value equals a maximum of $85 million. If the transaction closes after November
15, 1998 and the total transaction value equals more than $90 million based on
the value of the 2.1 million shares, the value above $90 million will be shared
equally by both the Company and Fidelity. 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."
F-19
<PAGE> 85
APPENDIX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF
MAY 6, 1998
AMONG
FIDELITY NATIONAL FINANCIAL, INC.,
AT MERGER, INC.
AND
ALAMO TITLE HOLDING COMPANY
<PAGE> 86
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE I
THE MERGER
1.1 The Merger.................................................. A-2
1.2 Closing..................................................... A-2
1.3 Effective Time of the Merger................................ A-2
1.4 Effects of the Merger....................................... A-2
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS
2.1 Conversion of Shares........................................ A-2
2.2 Surrender and Payment....................................... A-4
2.3 Fractional Shares........................................... A-5
2.4 Stock Options, Stock Awards and SARs........................ A-5
ARTICLE III
THE SURVIVING CORPORATION
3.1 Articles of Incorporation................................... A-6
3.2 Bylaws...................................................... A-6
3.3 Directors................................................... A-6
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of the Company............... A-6
(a) Organization, Standing and Corporate Power............ A-6
(b) Subsidiaries.......................................... A-7
(c) Capital Structure..................................... A-7
(d) Authority; Noncontravention........................... A-8
(e) Financial Statements; No Undisclosed Liabilities...... A-9
(f) Licenses, Approvals, etc.............................. A-9
(g) Real Properties....................................... A-9
(h) Tangible Personal Property............................ A-10
(i) Environmental Compliance.............................. A-10
(j) Absence of Certain Changes or Events.................. A-11
(k) Litigation............................................ A-12
(l) Legal and Regulatory Compliance....................... A-12
(m) Absence of Changes in Stock or Benefit Plans.......... A-13
(n) ERISA Compliance...................................... A-13
(o) Taxes................................................. A-15
(p) Contracts; Debt Instruments........................... A-16
(q) Insurance............................................. A-17
(r) Interests of Officers and Directors................... A-17
(s) Approval by Board..................................... A-17
(t) Brokers............................................... A-17
</TABLE>
i
<PAGE> 87
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
(u) Pooling of Interests.................................. A-17
(v) Disclosure............................................ A-18
4.2 Representations and Warranties of Parent and Merger A-18
Subsidiary..................................................
(a) Organization, Standing and Corporate Power............ A-18
(b) Authority; Noncontravention........................... A-18
(c) SEC Documents; Financial Statements; No Undisclosed A-19
Liabilities.................................................
(d) Litigation............................................ A-19
(e) Absence of Certain Changes............................ A-19
(f) Brokers............................................... A-19
(g) Insurance............................................. A-19
(h) Interests of Officers and Directors................. A-20
(i) Pooling of Interests.................................. A-20
(j) Disclosure............................................ A-20
ARTICLE V
COVENANTS OF THE COMPANY
5.1 Conduct of Business......................................... A-20
5.2 Affiliate Agreements........................................ A-22
5.3 Access to Information....................................... A-22
5.4 No Solicitation............................................. A-22
5.5 Pooling of Interests; Tax Treatment......................... A-23
5.6 Confidentiality............................................. A-23
5.7 Minority Interests.......................................... A-23
ARTICLE VI
COVENANTS OF PARENT
6.1 Confidentiality............................................. A-23
6.2 Obligations of Merger Subsidiary............................ A-24
6.3 Employee Benefit Plans...................................... A-24
6.4 Indemnification and Insurance............................... A-24
6.5 Stock Exchange Listing...................................... A-25
6.6 Publication of Combined Financial Results................... A-25
6.7 Access to Information....................................... A-25
6.8 Pooling of Interests; Tax Treatment......................... A-26
ARTICLE VII
COVENANTS OF PARENT AND THE COMPANY
7.1 Regulatory Applications; Reasonable Efforts; Notification... A-26
7.2 Shareholder Meeting; Proxy Material......................... A-27
7.3 Press Releases.............................................. A-28
7.4 Shareholder Approvals....................................... A-28
ARTICLE VIII
CONDITIONS TO THE MERGER
8.1 Conditions to the Obligations of Each Party................. A-29
8.2 Conditions to the Obligations of Parent and Merger A-29
Subsidiary..................................................
8.3 Conditions to the Obligations of the Company................ A-30
</TABLE>
ii
<PAGE> 88
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE IX
TERMINATION
9.1 Termination................................................. A-31
9.2 Effect of Termination....................................... A-32
ARTICLE X
MISCELLANEOUS
10.1 Notices..................................................... A-32
10.2 Survival of Representations and Warranties.................. A-33
10.3 Amendments; No Waivers...................................... A-33
10.4 Fees and Expenses........................................... A-33
10.5 Successors and Assigns; Parties in Interest................. A-33
10.6 Severability................................................ A-33
10.7 Governing Law............................................... A-33
10.8 Entire Agreement............................................ A-33
10.9 Counterparts; Effectiveness; Interpretation................. A-33
10.10 Effect of Disclosure Schedule............................... A-34
</TABLE>
iii
<PAGE> 89
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), is entered into as of
May 6, 1998, by and among ALAMO TITLE HOLDING COMPANY, a Texas corporation (the
"Company"), FIDELITY NATIONAL FINANCIAL, INC., a Delaware corporation
("Parent"), and AT MERGER, INC., a Texas corporation and a wholly-owned
subsidiary of Parent ("Merger Subsidiary").
WHEREAS, the respective Boards of Directors of Parent, Merger Subsidiary
and the Company have approved the merger of Merger Subsidiary into the Company
as set forth below (the "Merger"), upon the terms and subject to the conditions
set forth in this Agreement and the Texas Business Corporation Act (the "TBCA"),
whereby each issued and outstanding share of common stock, par value $2.50 per
share, of the Company (the "Shares") (excluding shares owned, directly or
indirectly, by the Company or any subsidiary of the Company or by Parent, Merger
Subsidiary or any other subsidiary of Parent) shall be converted into the Merger
Consideration (as defined herein);
WHEREAS, the Board of Directors of the Company has unanimously (i)
determined that this Agreement and the transactions contemplated hereby,
including the Merger, are fair to and in the best interests of the shareholders
of the Company, (ii) determined that the consideration to be paid in the Merger
is fair to and in the best interests of the shareholders of the Company, (iii)
approved this Agreement and the transactions contemplated hereby, including the
Merger, and (iv) resolved to recommend approval and adoption of this Agreement,
the Merger and the other transactions contemplated hereby by such shareholders;
WHEREAS, the Board of Directors of Parent has determined that this
Agreement and the transactions contemplated hereby, including the Merger, are
fair to and in the best interests of the shareholders of the Parent, and
approved this Agreement and the transactions contemplated hereby, including the
Merger;
WHEREAS, as a condition and inducement to Parent's willingness to enter
into this Agreement, certain shareholders of the Company have entered into
agreements with Parent in the form attached hereto as Exhibit A (the
"Shareholder Agreements");
WHEREAS, it is intended that the Merger be (i) treated as a tax-free
reorganization pursuant to the provisions of Section 368(a)(1) of the Internal
Revenue Code of 1986, as amended (the "Code"), and (ii) accounted for as a
"pooling of interests" for accounting purposes; and
WHEREAS, Parent, Merger Subsidiary and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to consummation thereof.
NOW, THEREFORE, in consideration of the foregoing and the mutual promises,
representations, warranties, covenants and agreements herein contained, the
parties hereto, intending to be legally bound, hereby agree as follows:
<PAGE> 90
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the TBCA, Merger Subsidiary shall be
merged with and into the Company at the Effective Time (as defined herein). At
the Effective Time, (i) the separate corporate existence of Merger Subsidiary
shall cease, and (ii) the Company shall continue as the surviving corporation as
a direct wholly-owned subsidiary of Parent (Merger Subsidiary and the Company
are sometimes hereinafter referred to as "Constituent Corporations" and, as the
context requires, the Company, after giving effect to the Merger, is sometimes
hereinafter referred to as the "Surviving Corporation").
1.2 Closing. The closing of the Merger (the "Closing") shall take place as
soon as practicable, but in any case on or prior to the third business day after
which all of the conditions set forth in Article VIII hereof shall be fulfilled
or waived in accordance with this Agreement (the "Closing Date"). At the time of
the Closing, the Company and Merger Subsidiary will file the articles of merger
with the Secretary of State of the State of Texas (the "Articles of Merger") and
make all other filings or recordings required by the TBCA in connection with the
Merger.
1.3 Effective Time of the Merger. The Merger shall, subject to the TBCA,
become effective as of such time as the Certificate of Merger is issued by the
Secretary of State of the State of Texas or at such later time as is specified
in the Articles of Merger (the "Effective Time").
1.4 Effects of the Merger. At the Effective Time, the Surviving
Corporation shall have the following rights and obligations, pursuant to Article
5.06 of the TBCA:
(a) All rights, title and interests to all real estate and other
property owned by the Company and Merger Subsidiary shall be allocated to
and vested in the Surviving Corporation without reservation or impairment,
without further act deed, and without any transfer or assignment having
occurred, but subject to any existing liens or other encumbrances thereon.
(b) All liabilities and obligations of the Company and Merger
Subsidiary shall be allocated to the Surviving Corporation, and the
Surviving Corporation shall be the primary obligor therefor and, except as
otherwise provided by law or contract, no other party to the merger, other
than the Surviving Corporation, shall be liable thereon.
(c) A proceeding pending by or against the Company or Merger
Subsidiary may be continued as if the Merger did not occur, or the
Surviving Corporation to which the liability, obligation, asset or right
associated with such proceeding is allocated to and vested in may be
substituted in the proceeding.
(d) The Surviving Corporation shall have all the rights, privileges,
immunities and powers and shall be subject to all the duties and
liabilities of a corporation organized under the laws of the State of
Texas.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL
STOCK OF THE CONSTITUENT CORPORATIONS
2.1 Conversion of Shares. At the Effective Time, by virtue of the Merger
and without any action on the part of the holder of any Shares or any shares of
capital stock of Merger Subsidiary:
(a) each Share owned by the Company or owned by Parent, Merger
Subsidiary or any subsidiary of any of the Company, Parent or Merger
Subsidiary immediately prior to the Effective Time shall be canceled, and
no payment shall be made with respect thereto;
(b) each share of common stock of Merger Subsidiary outstanding
immediately prior to the Effective Time shall be converted into and become
one fully paid and nonassessable share of common stock of the Surviving
Corporation and such shares shall constitute the only outstanding shares of
capital stock of the Surviving Corporation; and
A-2
<PAGE> 91
(c) each Share outstanding immediately prior to the Effective Time,
except as otherwise provided in Section 2.1(a) and subject to adjustment as
set forth below, shall be converted into the right to receive a number
(rounded to the nearest 1/1000) of shares of Parent's common stock, par
value $.0001 per share (the "Parent Common Stock"), without interest (the
"Exchange Ratio"), which shall be calculated on the basis of a fraction,
the numerator of which is 2,100,000 and the denominator of which is the
number of issued and outstanding Shares immediately prior to the Effective
Time, on a fully-diluted basis assuming the issuance of any and all Shares
issuable upon the exercise of any options, warrants and other rights to
purchase Shares and Shares issuable pursuant to the Stock Award (as
hereinafter defined) and the conversion or exchange of any and all
instruments convertible into or exchangeable for Shares and including the
number of Shares with respect to which the Company has granted stock
appreciation rights (the "Outstanding Company Shares"), together with cash
in lieu of any fractional share of Parent Common Stock as provided in
Section 2.3 below (the "Merger Consideration"); provided, however, that the
Exchange Ratio shall be subject to adjustment as follows:
(i) Subject to the provisions of Section 9.1(f) of this Agreement,
if the Average Parent Stock Price (as defined in Section 9.1(f) below)
is less than $35.714 (the "Minimum Price"), the Exchange Ratio shall be
recalculated to a number (rounded to the nearest 1/1000) equal to a
fraction, the numerator of which is the quotient obtained by dividing
$75.0 million by the Average Parent Stock Price, and the denominator of
which is the number of Outstanding Company Shares; and
(ii) Subject to clause 2.1(c)(iii) below, if the Average Parent
Stock Price is more than $40.476 (the "Maximum Price"), the Exchange
Ratio shall be recalculated to a number (rounded to the nearest 1/1000)
equal to a fraction, the numerator of which is the quotient obtained by
dividing $85.0 million by the Average Parent Stock Price, and the
denominator of which is the number of Outstanding Company Shares; and
(iii) If the Effective Time is after November 15, 1998 and the
Average Parent Stock Price is greater than $42.857 (the "Adjusted
Maximum Price"), the Exchange Ratio shall be recalculated to a number
(rounded to the nearest 1/1000) equal to a fraction, the numerator of
which is the quotient obtained by dividing (x) the sum of $85.0 million
plus fifty percent of the Excess Amount (as hereinafter defined) by (y)
the Average Parent Stock Price, and the denominator of which is the
number of Outstanding Company Shares. The "Excess Amount" shall mean the
amount, if any, by which (A) the product of (i) the sum of the number of
shares of Parent Common Stock issuable pursuant to Section 2.1 and the
shares of Parent Common Stock issuable by Parent after the Effective
Time pursuant to the options and awards described in Section 2.4 below
(in each case as adjusted for any Capital Change (as defined below) but
without giving effect to any recalculations required by subparagraphs
(i), (ii) or (iii) of this Section 2.1(c)), multiplied by the (ii)
Average Parent Stock Price, exceeds (B) $90.0 million.
As of the date of this Agreement, the parties acknowledge that the
Exchange Ratio would be 1.489 shares of Parent Common Stock for each
Share, which is based on 1,410,691 Outstanding Company Shares
(representing the sum of the 1,317,838 outstanding Shares plus the
Company Options and Stock Awards (as hereinafter defined) and stock
appreciation rights with respect to 6,000 shares (the "Company SARs")
and assumes that the Average Parent Stock Price is greater than $35.714
and less than $40.476. In the event, prior to the Effective Time, of any
recapitalization of either Parent or the Company through a subdivision
of its outstanding shares into a greater number of shares, or a
combination of its outstanding shares into a lesser number of shares, or
any reorganization, reclassification or other change in its outstanding
shares into the same or a different number of shares of other classes,
or a declaration of or dividend on its outstanding shares payable in
shares of its capital stock (a "Capital Change"), then (a) the Exchange
Ratio shall be appropriately adjusted so as to maintain after such
Capital Change the relative proportionate interests in the number of
shares of Parent Common Stock (assuming consummation of the Merger)
which the holders of Outstanding Company Shares and the holders of
shares of Parent Common Stock had immediately prior to such Capital
Change, (b) the Minimum Price shall be adjusted to that amount
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which, when multiplied by the Exchange Ratio (as adjusted for such
Capital Change) and further multiplied by the number of Outstanding
Company Shares, is equal to $75.0 million, (c) the Maximum Price shall
be adjusted to that amount which, when multiplied by the Exchange Ratio
(as adjusted for such Capital Change) and further multiplied by the
number of Outstanding Company Shares, is equal to $85.0 million, and (d)
the Adjusted Maximum Price shall be adjusted to that amount which, when
multiplied by the Exchange Ratio (as adjusted for such Capital Change)
and further multiplied by the number of Outstanding Company Shares, is
equal to $90.0 million.
2.2 Surrender and Payment.
(a) Prior to the Effective Time, Parent shall appoint a bank or trust
company reasonably acceptable to the Company (the "Exchange Agent") for the
purpose of exchanging certificates representing Shares for the Merger
Consideration. Parent will make available to the Exchange Agent the Merger
Consideration to be paid in respect of the Shares (the "Exchange Fund").
Promptly after the Effective Time, Parent will send, or will cause the
Exchange Agent to send, to each holder of Shares at the Effective Time a
letter of transmittal, in a form reasonably acceptable to the Company, for
use in such exchange (which shall specify that the delivery shall be
effected, and risk of loss and title shall pass, only upon proper delivery
of the certificates representing Shares to the Exchange Agent). The
Exchange Agent shall, pursuant to irrevocable instructions, make the
payments provided in this Section 2.2. The Exchange Fund shall not be used
for any other purpose, except as provided in this Agreement.
(b) Each holder of Shares that have been converted into the Merger
Consideration, upon surrender to the Exchange Agent of a certificate or
certificates representing such Shares, together with a properly completed
letter of transmittal covering such Shares and other customary
documentation, will be entitled to receive the Merger Consideration payable
in respect of such Shares. As of the Effective Time, all such Shares shall
no longer be outstanding and shall automatically be canceled and retired
and shall cease to exist, and each holder of a certificate previously
representing any such Shares shall cease to have any rights with respect
thereto, except the right to receive the Merger Consideration upon
surrender of the certificates representing such Shares, as contemplated
hereby.
(c) If any portion of the Merger Consideration is to be paid to a
person other than the registered holder of the Shares represented by the
certificate or certificates surrendered in exchange therefor, it shall be a
condition to such payment that the certificate or certificates so
surrendered shall be properly endorsed or otherwise be in proper form for
transfer and that the person requesting such payment shall pay to the
Exchange Agent any transfer or other taxes required as a result of such
payment to a person other than the registered holder of such Shares or
establish to the satisfaction of the Exchange Agent that such tax has been
paid or is not payable. For purposes of this Agreement, "person" means an
individual, a corporation, a partnership, an association, a trust or any
other entity or organization, including a government or political
subdivision or any agency or instrumentality thereof.
(d) After the Effective Time, there shall be no further registration
of transfers of Shares. If, after the Effective Time, certificates
representing Shares are presented to the Surviving Corporation, they shall
be canceled and exchanged for the consideration provided for, and in
accordance with the procedures set forth, in this Article II.
(e) Any portion of the Exchange Fund made available to the Exchange
Agent pursuant to this Agreement that remains unclaimed by the holders of
Shares six months after the Effective Time shall be returned to Parent,
upon Parent's demand, and any such holder who has not exchanged his Shares
for the Merger Consideration in accordance with this Section 2.2 prior to
that time shall thereafter look only to Parent for payment of the Merger
Consideration in respect of such holder's Shares. Notwithstanding the
foregoing, Parent shall not be liable to any holder of Shares for any
amount paid to a public official pursuant to and in accordance with the
requirements of applicable abandoned property, escheat or similar laws.
(f) No dividends or other distributions declared or made after the
Effective Time with respect to the Parent Common Stock for which the record
date is after the Effective Time shall be paid to the
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holder of any certificate formerly representing Shares until the holder of
such certificate is surrendered to the Exchange Agent as provided herein.
Following surrender of any such certificate, there shall be paid to the
holder of record of the certificates representing whole shares of Parent
Common Stock issued in exchange therefor, without interest, (i) at the time
of such surrender, the amount of dividends or other distributions with a
record date after the Effective Time theretofore paid with respect to such
whole shares of Parent Common Stock and (ii) at the appropriate payment
date, the amount of dividends or other distributions with a record date
after the Effective Time but a payment date subsequent to surrender payable
with respect to such whole shares of Parent Common Stock.
(g) Company Dissenting Shares. Notwithstanding anything to the
contrary in this Agreement, Shares that are issued and outstanding
immediately prior to the Effective Time and that are held by any
shareholder who has not voted such Shares in favor of the adoption and
approval of this Agreement and has properly exercised dissenter's rights
under Articles 5.11 - 5.13 of the TBCA (the "Dissenting Shares") shall not
be converted into or be exchangeable for the right to receive such number
of shares of Parent Common Stock provided for in Section 2.1, but shall be
entitled to receive such consideration as shall be determined in accordance
with Articles 5.11 - 5.13, inclusive, of the TBCA; provided, however, that
if the holder of such shares shall have failed to perfect its dissenter's
rights or such holder's dissenter's rights shall have been effectively
withdrawn or lost under Article 5.12 of the TBCA, such holder's Dissenting
Shares shall thereupon be deemed to have been converted into and have
become exchangeable for, at the Effective Time, shares of Parent Common
Stock as provided in Section 2.1 above.
2.3 Fractional Shares. No fractional shares of Parent Common Stock will be
issued in connection with the Merger. In lieu of any fractional share of Parent
Common Stock to which the holder of any Share would otherwise be entitled to
receive, such holder shall be entitled to receive an amount of cash equal to the
value of such fractional shares of Parent Common Stock, which shall be based
upon the closing sale price of the Parent Common Stock on the Closing Date as
reported on the New York Stock Exchange (the "NYSE"). The fractional interests
of each holder of Shares will be aggregated so that no holder of Shares will
receive cash in an amount equal to or greater than the value of one whole share
of Parent Common Stock. Parent shall provide sufficient funds to the Exchange
Agent to make the payments contemplated by this Section 2.3.
2.4 Stock Options, Stock Awards and SARs.
(a) At the Effective Time, each of the Company Options (as defined in
Section 4.1(c) below) shall, by virtue of the Merger and without any
further action on the part of the Company, Parent or the holder of any
Company Options, be assumed by Parent in such manner that Parent (i) is a
corporation "assuming a stock option in a transaction to which Section
424(a) applies" within the meaning of Section 424 of the Code, or (ii) to
the extent that Section 424 of the Code does not apply to any such Company
Options, would be such a corporation were Section 424 applicable to such
option. Each Company Option assumed by Parent shall be exercisable upon the
same terms and conditions as under the applicable option agreement covering
such Company Option, except that (A) each such Company Option shall be
exercisable for that whole number of shares of Parent Common Stock (rounded
to the nearest whole share) into which the number of Shares subject to such
Company Option immediately prior to the Effective Time would be converted
pursuant to this Agreement, and (B) the exercise price per share of Parent
Common Stock shall be an amount calculated by dividing the aggregate
exercise price for the Shares otherwise purchasable pursuant to such
Company Option immediately prior to the Effective Time divided by the
number of full shares of Parent Common Stock deemed purchasable pursuant to
such option immediately after the Effective Time (the price per share, as
so determined, being rounded upward to the nearest full cent). No payment
shall be made for fractional interests.
(b) As soon as practicable after the Effective Time, Parent shall use
reasonable efforts to file a registration statement on Form S-8 (or any
successor or other appropriate form) with respect to the shares of Parent
Common Stock subject to such options, the Stock Awards and the options
described in Section 2.4(d) below, and shall use its best efforts to
maintain the effectiveness of such registration
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statement (and maintain the current status of the prospectus contained
therein) for so long as such options remain outstanding.
(c) At the Effective Time, the outstanding award granted by the
Company to issue 3,253 Shares pursuant to the Amended Stock Award
Agreement, dated as of January 26, 1996, by and among the Company, W. Paul
Holladay, Jr. And Charlotte M. Holladay, as amended by that certain First
Amendment to Amended Stock Award Agreement, dated as of August 1, 1997 (the
"Stock Award"), shall, by virtue of the Merger and without any further
action on the part of the Company, any party to the Stock Award or the
Parent and pursuant to the terms thereof, be assumed by Parent and shall
represent the right to receive, in accordance with and subject to the terms
and conditions of the Stock Award, a number of shares of Parent Common
Stock equal to 3,253 multiplied by the Exchange Ratio. The Company shall
not exercise the Repurchase Option (as such term is defined in the Stock
Award) which becomes exercisable by reason of the occurrence of the
Triggering Event (as such term is defined in the Stock Award) resulting
from the decision by the Company's Board of Directors to submit this
Agreement to the Company's shareholders for approval.
(d) Company SARs. As of the Effective Time, the Company SARs awarded
to Alan L. Stinson pursuant to the Stock Option and Stock Appreciation
Rights Agreement, dated April 25, 1994, between the Company and Alan L.
Stinson shall be converted into an option to purchase a number of shares of
Parent Common Stock equal to the product of the number of Shares with
respect to which the Company SARs apply multiplied by the Exchange Ratio,
at an exercise price equal to the amount necessary to preserve, as of the
Effective Time, the value inherent in the Company SARs.
ARTICLE III
THE SURVIVING CORPORATION
3.1 Articles of Incorporation. The Articles of Incorporation of the
Company in effect at the Effective Time shall be the Articles of Incorporation
of the Surviving Corporation until amended in accordance with applicable law.
3.2 Bylaws. The bylaws of the Company in effect at the Effective Time
shall be the bylaws of the Surviving Corporation until amended in accordance
with applicable law.
3.3 Directors. Upon the Effective Time, the Board of Directors of the
Surviving Corporation shall consist of five (5) members who shall be designated
by Parent and shall serve as the initial directors of the Surviving Corporation
until successors are duly elected and qualified in accordance with applicable
law.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of the Company. The Company represents
and warrants to Parent and Merger Subsidiary, subject to the exceptions and
qualifications set forth in the disclosure schedule as amended or supplemented
from time to time pursuant to Section 7.1(e) (as amended or supplemented, the
"Disclosure Schedule") delivered by the Company to Parent and Merger Subsidiary,
as follows (whenever the representations or warranties of the Company are
qualified by the knowledge of the Company, knowledge shall mean knowledge of the
executive officers of the Company):
(a) Organization, Standing and Corporate Power. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Texas and has the requisite corporate power and
authority to carry on its business as now being conducted. The Company is
duly qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification or licensing necessary,
other than in such jurisdictions where the failure to be so qualified or
licensed (individually or in the aggregate) could not reasonably be
expected to (i) have a material adverse effect on the value, condition
(financial or otherwise), business, or results of operations of the Company
and its subsidiaries taken as a whole,
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(ii) materially impair or prevent the ability of any party hereto to
perform its obligations under this Agreement or (iii) prevent consummation
of any of the transactions contemplated by this Agreement (each, a
"Material Adverse Effect"). The Company has delivered or made available to
Parent complete and correct copies of its Articles of Incorporation and
bylaws, and the joint venture, partnership and other governing agreements
and documents ("Joint Venture Documents") of any such partnership, joint
venture or similar business or entity in which the Company, directly or
indirectly, has any ownership interests other than the subsidiaries listed
below (the "Joint Ventures") in each case as amended to the date of this
Agreement.
(b) Subsidiaries. Section 4.1(b) of the Disclosure Schedule lists each
subsidiary of the Company, its form of organization, its jurisdiction of
incorporation or formation, if applicable, and the holders of the
outstanding capital stock or other equity interests of such subsidiary.
Each of the subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction in which it is
incorporated and has the requisite corporate power and authority to carry
on its business as now being conducted. Each of the subsidiaries is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification or licensing necessary,
other than in such jurisdictions where the failure to be so qualified or
licensed (individually or in the aggregate) could not reasonably be
expected to have a Material Adverse Effect. The Company has delivered or
made available to Parent and correct copies of the charter documents of
each of its subsidiaries. Section 4.1(b) of the Disclosure Schedule also
lists all Joint Venture Documents to which any of the Company's
subsidiaries is a party or otherwise governing any such subsidiary. All the
outstanding shares of capital stock or other ownership interests of each
such subsidiary of the Company have been validly issued and are fully paid
and nonassessable and all such shares or ownership interests indicated as
being owned by the Company or any of its subsidiaries are owned by the
Company, by another subsidiary of the Company or by the Company and another
such subsidiary, free and clear of all liens and, except as disclosed in
Section 4.1(b) of the Disclosure Schedule, free of any other limitation or
restriction (including any restriction on the right to vote, sell or
otherwise dispose of such capital stock or equity interests). Except for
the capital stock of its subsidiaries, capital stock owned and held by the
Company and/or its subsidiaries in their respective investment portfolios
in the ordinary course of business, and as set forth in Section 4.1(b) of
the Disclosure Schedule, the Company does not own, directly or indirectly,
any capital stock or other equity interest in any person. For purposes of
this Agreement, a "subsidiary" of any person means another person in which
such first person, directly or indirectly, owns 50% or more of the equity
interests or has the right, through ownership of equity, contractually or
otherwise, to elect at least a majority of its Board of Directors or other
governing body.
(c) Capital Structure. The authorized capital stock of the Company
consists of 1,600,000 Shares. As of the date of this Agreement, 1,317,838
Shares are issued and outstanding, (ii) 8,050 Shares are held by the
Company as treasury stock and no Shares are held by any of the Company's
subsidiaries, (iii) 83,600 Shares are reserved for issuance upon the
exercise of outstanding options to purchase Shares (the "Company Options"),
and (iv) 3,253 Shares are reserved for issuance pursuant to the Stock
Awards. Except as set forth above, no shares of capital stock or other
equity or voting securities of the Company are issued, reserved for
issuance or outstanding. All outstanding shares of capital stock of the
Company are, and all Shares which may be issued pursuant to the Company
Options or the Company Stock Awards will, when issued, be duly authorized,
validly issued, fully paid and nonassessable and not subject to preemptive
rights. There are not any bonds, debentures, notes or other indebtedness or
securities of the Company having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on
which shareholders of the Company may vote. Except as set forth above in
Section 4.1(c) of the Disclosure Schedule, there are not any securities,
options, warrants, calls, rights, commitments, agreements, arrangements or
undertakings of any kind to which the Company or any of its subsidiaries is
a party or by which any of them is bound obligating the Company or any of
its subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock or other equity or
voting securities of the Company or of any of its subsidiaries or
obligating the Company or any of its subsidiaries to issue, grant, extend
or enter into any such security, option, warrant,
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call, right, commitment, agreement, arrangement or undertaking. Section
4.1(c) of the Disclosure Schedule also sets forth a true and correct list
of the Company Options which are outstanding as of the date hereof, which
list sets forth, for each holder of a Company Option, the number of Shares
subject thereto, the exercise price and the expiration date thereof. There
are no outstanding rights, commitments, agreements, arrangements or
undertakings of any kind obligating the Company or any of its subsidiaries
to repurchase, redeem or otherwise acquire or dispose of any shares of
capital stock or other equity or voting securities of the Company or any of
its subsidiaries or any securities of the type described in the two
immediately preceding sentences.
(d) Authority; Noncontravention. The Company has the requisite
corporate power and authority to enter into this Agreement and, subject to
the Company Shareholder Approval (as defined below) required in connection
with the consummation of the Merger, to consummate the transactions
contemplated by this Agreement. The Merger requires the approval by the
affirmative vote of the holders of two-thirds of the outstanding Shares
(the "Company Shareholder Approval"), which approval is the only vote of
the holders of any class or series of the capital stock of the Company
necessary to approve the Merger and this Agreement and the transactions
contemplated hereby. The execution and delivery of this Agreement by the
Company and the consummation by the Company of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate action on the part of the Company, except for the Company
Shareholder Approval in connection with the consummation of the Merger.
This Agreement has been duly executed and delivered by the Company and,
assuming this Agreement constitutes a valid and binding agreement of Parent
and Merger Subsidiary, constitutes a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms. The
execution and delivery of this Agreement does not, and the consummation of
the transactions contemplated by this Agreement and compliance with the
provisions of this Agreement will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation, modification
or acceleration of any obligation or to a loss of a material benefit under,
or result in the creation of any Lien upon any of the properties or assets
of the Company or any of its subsidiaries under, (i) the Articles of
Incorporation or bylaws of the Company or the comparable charter or
organizational documents of any of its subsidiaries, (ii) except as
disclosed in Section 4.1(d) of the Disclosure Schedule, any loan or credit
agreement, note, bond, mortgage, indenture, lien, lease or any other
contract, agreement, instrument, permit, commitment, concession, franchise
or license applicable to the Company or any of its subsidiaries or their
respective properties or assets, or (iii) subject to the governmental
filings and other matters referred to in the following sentence, any
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or any of its subsidiaries or their respective
properties or assets. No consent, approval, franchise, order, license,
permit, waiver or authorization of, or registration, declaration or filing
with or exemption, notice, application, or certification by or to
(collectively, "Consents") any federal, state or local government or any
arbitration panel or any court, tribunal, administrative or regulatory
agency or commission or other governmental authority, department, bureau,
commission or agency, domestic or foreign (a "Governmental Entity"), is
required by or with respect to the Company or any of its subsidiaries in
connection with the execution and delivery of this Agreement by the Company
or the consummation by the Company of the transactions contemplated by this
Agreement, except for (i) the required consents listed on Section 4.1(d) of
the Disclosure Schedule, (ii) the filing of the Articles of Merger in
accordance with the TBCA and similar documents with the relevant
authorities of other states in which the Company is qualified to do
business, (iii) the filing of a premerger notification and report form by
the Company under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), (iv) filings and approvals with state insurance
regulatory authorities, (v) any filings or consents required by or with
respect to Parent, and (vi) such other Consents as to which the failure to
obtain or make, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect. As of the date hereof, the
Company is not aware of any reason why any applicable regulatory approvals
will not be received without the imposition of any condition, restriction
or term that would impose an unreasonable burden upon the Company or the
Parent or have a Material Adverse Effect, it being understood that the
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foregoing is not intended to apply to any such reason which relates to the
Parent or the nature of Parent's business.
(e) Financial Statements; No Undisclosed Liabilities. Attached hereto
as Section 4.1(e) of the Disclosure Schedule are copies of the audited
consolidated balance sheets of the Company and its subsidiaries as of
December 31, 1995, 1996 and 1997 and the audited consolidated statements of
operations, shareholder's equity and cash flows of the Company and its
subsidiaries for each of the fiscal years then ended, together with the
unaudited consolidated balance sheets and consolidated statement of
operations and shareholder's equity of the Company and its subsidiaries as
of and for the period ended March 31, 1998 (collectively, with the notes to
the audited financial statements, the "Financial Statements"). Except as
set forth in Section 4.1(e) of the Disclosure Schedule, the Financial
Statements have been prepared in accordance with GAAP (except as may be
noted therein), and present fairly, in all material respects, the
consolidated financial position of the Company and its subsidiaries as of
December 31, 1995, 1996, 1997 and March 31, 1998, respectively, and the
consolidated results of operations of the Company and its subsidiaries for
each of the periods then ended. Except as set forth in Section 4.1(e) of
the Disclosure Schedule and except as disclosed in the Financial Statements
or incurred in the ordinary course of business since the date thereof,
neither Company nor any of its subsidiaries has incurred any liability
(accrued, absolute, contingent or otherwise) that would be required by GAAP
to be reflected on a balance sheet of the Company or described in the notes
thereto.
(f) Licenses, Approvals, etc. Each of the Company and its subsidiaries
possesses or has been granted all registrations, filings, applications,
certifications, notices, consents, licenses, permits, approvals,
certificates, franchises, orders, qualifications, authorizations and
waivers of any Governmental Entity (federal, state and local) necessary to
entitle it to conduct its business in the manner in which it is presently
being conducted (the "Licenses"), which Licenses are listed in Section
4.1(f) of the Disclosure Schedule. Except as described in Section 4.1(f) of
the Disclosure Schedule, all licenses are in full force and effect. Except
as described in Section 4.1(f) of the Disclosure Schedule, no complaint,
claim, prosecution, indictment, action, suit, arbitration, investigation or
proceeding by or before any Governmental Entity (an "Action") is pending
or, to the knowledge of the Company, threatened seeking the revocation or
limitation of any of the Licenses.
(g) Real Properties. Section 4.1(g) of the Disclosure Schedule lists
all real property (including all land and buildings) which is owned by the
Company or any of its subsidiaries (the "Owned Real Estate"). Each of the
Company and its subsidiaries has good and indefeasible title to the Owned
Real Estate, free and clear of all security interests, agreements,
mortgages, covenants, conditions, restrictions, easements, charges, claims
assessments and encumbrances, except for (i) rights of lessees or
sublessees in such matters that are reflected in a written lease or
sublease; (ii) current taxes (including assessments collected with taxes)
not yet due and payable; (iii) encumbrances, if any, that are not
substantial in character, amount or extent and do not materially detract
from the value, or interfere with present use, or the ability of the
Company or any of its subsidiaries to dispose, of the property subject
thereto or affected thereby; and (iv) other matters as described in Section
4.1(g) of the Disclosure Schedule or disclosed in the Financial Statements.
The activities of the Company and its subsidiaries with respect to the
Owned Real Estate owned by them for use in connection with their operations
are, to the Knowledge of the Company, permitted and authorized by
applicable zoning laws, ordinances and regulations and all laws and
regulations of any Governmental Entity. The buildings and improvements on
the Owned Real Estate owned by the Company and its subsidiaries are in good
condition and repair, ordinary wear and tear excepted and do not require
more than normal and routine maintenance to keep them in such condition.
Section 4.1(g) of the Disclosure Schedule lists all real property
(including all land and buildings) which is leased by the Company or any of
its subsidiaries as lessee or sublessee (the "Leased Real Estate"). The
Company has delivered or caused to be delivered or made available to Parent
complete and accurate copies of the written leases and subleases which
relate to the Leased Real Estate, together with all amendments or
supplements thereto (the "Leases"). The Company has not received written
notice of condemnation or eminent domain proceedings pending or threatened
against any Leased Real Estate property. Except as disclosed in Section
4.1(g) of the Disclosure Schedule, the Company has not
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received any notice from any Governmental Entity of any zoning, ordinance,
building, fire or health code or other legal violation in respect of any
Leased Real Estate. The Leases are in full force and effect and are valid,
binding and enforceable in accordance with their respective terms; (ii) no
amount payable under any Lease is past due; (iii) the Company is in
compliance in all material respects with all commitments and obligations on
its part to be performed or observed under each Lease and is not aware of
the failure by any other party to any Lease to comply in all material
respects with all of its commitments and obligations; (iv) the Company has
not received any written notice (A) of a default (which has not been
cured), offset or counterclaim under any Lease, or, any other communication
calling upon it to comply with any provision of any Lease or asserting
noncompliance, or asserting the Company has waived or altered its rights
thereunder, and no event or condition has happened or presently exists
which constitutes a default or, after notice or lapse of time or both,
would constitute a default under any Lease on the part of the Company or
any other party, or (B) of any Action against any party under any Lease
which if adversely determined would result in such Lease being terminated
or cut off; and (v) the Company has not assigned, mortgaged, pledged or
otherwise encumbered its interest, if any, under any Lease.
(h) Tangible Personal Property. Except as disclosed in Section 4.1(h)
of the Disclosure Schedule, the Company and its subsidiaries (i) have good
and valid title to all the tangible personal property material to its
business and reflected in the latest audited Financial Statements as being
owned by the Company and its subsidiaries or acquired after the date
thereof (other than property disposed of or transferred in the ordinary
course of business and in consideration for reasonably equivalent value
since the date thereof), free and clear of all liens except (A) statutory
liens securing payments not yet due and (B) such imperfections or
irregularities of title or liens as do not materially affect the use of the
properties or assets subject thereto or affected thereby or otherwise
materially impair business operations at such properties, and (ii) are
collectively the lessee of all tangible personal property material to the
Company's business and reflected as leased in the latest audited Financial
Statements (or on the books and records of the Company as of the date
thereof) or acquired after the date thereof and are in possession of the
properties purported to be leased thereunder (other than with respect to
leases that have expired under their respective terms) and each such lease
is valid and in full force and effect without default thereunder by the
lessee or, to the Company's knowledge, the lessor. Each of the Company and
each of its subsidiaries enjoys peaceful and undisturbed possession under
all such leases. Such owned and leased tangible personal property is in
good working order, reasonable wear and tear excepted.
(i) Environmental Compliance.
(i) For purposes of this Section 4.1(i), (A) "Hazardous Substance" means
any pollutant, contaminant, hazardous or toxic substance or waste, solid
waste, petroleum or any fraction thereof, or any other chemical,
substance or material listed or identified in or regulated by or under
any Environmental Law; (B) "Environmental Law" means the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C.
Section 9601 et seq., the Solid Waste Disposal Act, as amended by the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq.,
the Clean Water Act, 33 U.S.C. Section 1251 et seq., the Clean Air Act,
42 U.S.C. Section 7401 et seq., the Toxic Substances Control Act, 15
U.S.C. Section 2601 et seq., the Safe Drinking Water Act, 42 U.S.C.
Section 300f et seq., the Emergency Planning and Community Right to Know
Act, 42 U.S.C. Section 11001 et seq., the Occupational Safety and Health
Act, 29 U.S.C. Section 651 et seq., the Oil Pollution Act, 33 U.S.C.
Section 2701 et seq., in each case as amended from time to time and all
regulations promulgated thereunder, and any other statute, law,
regulation, ordinance, bylaw, rule, judgment, order, decree or directive
of any Governmental Entity dealing with the pollution or protection of
natural resources or the indoor or ambient environment or with the
protection of human health or safety; and (C) "RCRA Hazardous Waste"
means a solid waste that is listed or classified as a hazardous waste,
as that term is defined in or pursuant to the Resource Conservation and
Recovery Act, as amended, 42 U.S.C. Section 6901 et seq.
(ii) Except as set forth on Section 4.1(i) of the Disclosure
Schedule: (A) there are no claims pending against the Company or any of
its subsidiaries, or any of their respective predecessors (the
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"Company Interests") relating to or arising out of a Hazardous Substance
nor are any such claims, to the Company's knowledge, threatened against
Company Interests, nor has the Company or any of its subsidiaries
received any notice, alleging or warning that any Real Estate or any
real property previously operated by any Company Interests is, has been
or may be in violation of or in noncompliance with any Environmental
Law; (B) to the Company's knowledge, no Hazardous Substances are now
present in amounts, concentrations or conditions requiring removal,
remediation or any other response, action or corrective action under, or
forming the basis of a claim pursuant to, any Environmental Law, in, on,
from or under the Real Estate or any real property previously owned or
operated by any Company Interests; (C) the Real Estate is not being and
has not been during the period of time they have been leased by any
Company Interests used in connection with the business of manufacturing,
storing or transporting Hazardous Substances, and no RCRA Hazardous
Wastes are being or have been during the period of time operated by any
Company Interests treated, stored or disposed of there in violation of
any Environmental Law; and (D) there neither are nor have been during
the period of time they have been operated by any Company Interests any
underground storage tanks, lagoons or other containment facilities of
any kind which contain or contained any Hazardous Substances on the Real
Estate.
(iii) The Company has made available to the Parent true and correct
copies of any and all written communications received by the Company
from any Governmental Entities relating in whole or in part to the
existence of Hazardous Substances at any Real Estate or any real
property previously owned or operated by any Company Interests or the
compliance of the owners, operators or lessees thereof with respect to
any Environmental Law.
(j) Absence of Certain Changes or Events. Except as contemplated by
this Agreement or disclosed in Section 4.1(j) of the Disclosure Schedule or
consented to in writing by Parent, since December 31, 1997, the Company and
its subsidiaries have conducted their business only in the ordinary course
consistent with past practice, and there has not been (i) subject to the
proviso to Section 8.2(a) below, any event, occurrence or development
which, individually or in the aggregate, has had or could reasonably be
expected to have a Material Adverse Effect, (ii) any declaration, setting
aside or payment of any dividend or other distribution (whether in cash,
stock or property) with respect to any of the Company's capital stock or
any repurchase, redemption or other acquisition by the Company or any of
its subsidiaries of any outstanding shares of capital stock or other
securities of the Company or any of its subsidiaries, (iii) any adjustment,
split, combination or reclassification of any of its capital stock or any
issuance or the authorization of any issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock,
(iv) (A) any granting by the Company or any of its subsidiaries to any
current or former director, officer or employee of the Company or any of
its subsidiaries of any increase in salary, compensation and other
benefits, except for grants to employees who are not executive officers or
directors in the ordinary course of business consistent with past practice,
(B) any granting by the Company or any of its subsidiaries to any such
director, officer or employee of any increase in severance or termination
pay (including the acceleration in the vesting of Shares (or other
property) or the provision of any tax gross-up), or (C) any entry by the
Company or any of its subsidiaries into any employment, deferred
compensation, severance or termination agreement or arrangement with or for
the benefit of any such current or former director, officer or employee,
(v) any damage, destruction or loss, whether or not covered by insurance,
that has had or could have a Material Adverse Effect, (vi) any change in
accounting methods, principles or practices by the Company or any of its
subsidiaries, (vii) any amendment, waiver or modification of any material
term of any outstanding security of the Company or any of its subsidiaries,
(viii) any incurrence, assumption or guarantee by the Company or any of its
subsidiaries of any material indebtedness for borrowed money or other
material obligations, other than in the ordinary course of business
consistent with past practice, (ix) any creation or assumption by the
Company or any of its subsidiaries of any Lien on any asset, other than in
the ordinary course of business consistent with past practice, (x) any
making of any lease, loan, advance or capital contributions to or
investment in any person other than in the ordinary course of business
consistent with past practice and other than investments in cash
equivalents made in the ordinary course of business consistent with past
practice, (xi) any transaction or commitment made, or any contract or
agreement entered into, by the
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Company or any of its subsidiaries relating to its assets or business on
behalf of the Company or any of its subsidiaries of more than $200,000 in
the aggregate for any series of transactions (other than normal issuances
of title insurance policies), (xii) any acquisition or disposition of any
assets or any merger or consolidation with any person on behalf of the
Company or any of its subsidiaries (other than dispositions of assets in
the ordinary course of business and in consideration for reasonably
equivalent value), (xiii) any relinquishment by the Company or any of its
subsidiaries of any contract or other right, in either case, material to
the Company and its subsidiaries taken as a whole, other than transactions
and commitments in the ordinary course of business consistent with past
practice and settlement of title insurance claims for less than $100,000,
or (xiv) any agreement, commitment, arrangement or undertaking by the
Company or any of its subsidiaries to perform any action described in
clauses (i) through (xiii).
(k) Litigation. Except as disclosed in Section 4.1(k) of the
Disclosure Schedule, there are no Actions or proceedings pending or, to the
knowledge of the Company, threatened against the Company or any of its
subsidiaries which, if determined adversely, would have a Material Adverse
Effect.
(l) Legal and Regulatory Compliance.
(i) Each of the Company and its subsidiaries, and their respective
predecessors and affiliates, has complied with all applicable laws
(including rules, regulations, codes, plans, injunctions, judgments,
orders, decrees, rulings, and charges thereunder) of all Governmental
Entities (and all agencies thereof), except where any 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 any of them alleging any
failure so to comply.
(ii) Each of the Company and its subsidiaries has all material
licenses, certificates, franchises, rights and permits that are
necessary for the conduct of its business, and such licenses are in full
force and effect. No suspension, revocation or non-renewal of any such
license, certificate, franchise, right or permit, or any event which
(whether with notice or the lack of time or both) might result in any
such suspension, revocation or failure to renew, has occurred. Each of
the Company and its subsidiaries has posted all deposits of securities
and cash required by regulatory authorities having jurisdiction over it,
and the Disclosure Schedule sets forth a list of such deposits and the
locations thereof. The properties, assets, operations ad businesses of
the Company and its subsidiaries are, and have been maintained and
conducted, in compliance with all applicable licenses, certificates,
franchises, rights and permits, except where failure to do so would not
have a Material Adverse Effect.
(iii) Each of the Company and its subsidiaries has filed all
reports, registrations and statements, together with any amendments
required to be made with respect thereto, that were required to be filed
with (a) all appropriate insurance regulatory agencies; and (b) any
other appropriate federal, state or local governmental or regulatory
authority. All such reports registrations and filings, as of their
respective filing or mailing dates, (a) were true and complete in all
material respects (or were amended so as to be so promptly following
discovery of any discrepancy); and (b) complied in all material respects
with all the statutes, rules and regulations enforced or promulgated by
the governmental or regulatory authority with which they were filed (or
were amended so as to be so promptly following discover of any such
non-compliance) and none contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. True and
correct copies of all such reports, registrations and statements have
been provided or made available to the Parent.
(iv) Section 4.1(l) of the Disclosure Schedule contains a true and
complete list of all reinsurance policies and agreements, and all excess
loss and fidelity insurance policies, of the Company and its
subsidiaries and shows the limits, the reinsurer or insurer, and any
pending material claims against such insurer thereunder with respect to
the Company and its subsidiaries. Such policies and agreements are in
full force and effect, subject to no breach by the Company or its
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subsidiaries which shall give rise to a right in the insurer or
reinsurer to deny any claim by the Company or its subsidiaries. Neither
the Company nor any of its subsidiaries have committed any breach under
any reinsurance agreements and policies or excess loss and fidelity
insurance policies listed in Section 4.1(l) of the Disclosure Schedule,
except where any such breach, individually or in the aggregate, would
not have a Material Adverse Effect. None of the Company or any of its
subsidiaries has received notice of any breach under any reinsurance
agreements and policies or excess loss and fidelity insurance policies
listed in Section 4.1(l) of the Disclosure Schedule. Each of the Company
and its subsidiaries has notified each such reinsurer or insurer of all
claims, known to them, of which they are required to provide notice in
accordance with the terms of such reinsurance and insurance policies and
agreements.
(m) Absence of Changes in Stock or Benefit Plans. Except as disclosed
in Section 4.1(m) of the Disclosure Schedule or as required under this
Agreement or resulting from the consummation of the transactions
contemplated hereby, since January 1, 1996, there has not been (i) any
acceleration, amendment or change of the period of exercisability or
vesting of any Company Options (including any discretionary acceleration of
the exercise periods or vesting by the Company's Board of Directors or any
committee thereof) or authorization of cash payments in exchange for any
Company Options, (ii) any adoption or material amendment by the Company or
any of its subsidiaries of any collective bargaining agreement or any
bonus, pension, profit sharing, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
stock appreciation right, retirement, vacation, severance, disability,
death benefit, hospitalization, medical, worker's compensation, disability,
supplementary unemployment benefits, or other plan, arrangement or
understanding (whether or not legally binding) or any employment agreement
providing compensation or benefits to any current or former employee,
officer, director or independent contractor of the Company or any of its
subsidiaries or any beneficiary thereof or entered into, maintained or
contributed to, as the case may be, by the Company or any of its
subsidiaries (collectively, "Benefit Plans"), or (iii) any adoption of, or
amendment to, or change in employee participation or coverage under, any
Benefit Plans which would increase materially the expense of maintaining
such Benefit Plans above the level of the expense incurred in respect
thereof for the fiscal year ended on December 31, 1996.
(n) ERISA Compliance.
(i) Section 4.1(n) of the Disclosure Schedule contains a list of
all "employee pension benefit plans" (defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")),
"employee welfare benefit plans" (defined in Section 3(l) of ERISA) and
all other Benefit Plans. With respect to each Benefit Plan, the Company
will deliver or make available to Parent a true, correct and complete
copy of: (A) each writing constituting a part of such Benefit Plan,
including without limitation all plan documents, benefit schedules,
trust agreements, and insurance contracts and other funding vehicles;
(B) the most recent Annual Report (Form 5500 Series) and accompanying
schedule, if any; (C) the current summary plan description, if any; (D)
the most recent annual financial report, if any; and (E) the most recent
determination letter from the United States Internal Revenue Service, if
any.
(ii) Section 4.1(n) of the Disclosure Schedule identifies each
Benefit Plan that is intended to be a "qualified plan" within the
meaning of Section 401(a) of the Code ("Qualified Plans"). The Internal
Revenue Service has issued a favorable determination letter with respect
to each Qualified Plan that has not been revoked, and there are no
existing circumstances nor any events that have occurred that could
adversely affect the qualified status of any Qualified Plan or the
related trust.
(iii) Except as set forth in Section 4.1(n) of the Disclosure
Schedule, the Company and its subsidiaries have complied, and are now in
compliance, in all material respects with all provisions of ERISA, the
Code, and all laws and regulations applicable to the Benefit Plans.
Except as set forth in Section 4.1(n) of the Disclosure Schedule, no
prohibited transaction has occurred with respect to any Benefit Plan.
All contributions required to be made to any Benefit Plan by applicable
law or regulation or by any plan document or other contractual
undertaking, and all premiums due or
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payable with respect to insurance policies funding any Benefit Plan, for
any period through the date hereof have been timely made or paid in full
or, to the extent not required to be made or paid on or before the date
hereof, have been fully reflected in the Financial Statements.
(iv) Except as set forth in Section 4.1(n) of the Disclosure
Schedule, no Benefit Plan is subject to Title IV or Section 302 of ERISA
or Section 412 or 4971 of the Code. None of the Company, its
subsidiaries and their respective ERISA Affiliates (as defined below)
has at any time since September 2, 1974, contributed to or been
obligated to contribute to any "multiemployer plan" within the meaning
of Section 4001(a)(3) of ERISA or any plan with two or more contributing
sponsors at least two of whom are not under common control, within the
meaning of Section 4063 of ERISA. There does not now exist, nor do any
circumstances exist that could result in, any Controlled Group Liability
(as defined below) that would be a liability of the Company or any of
its subsidiaries following the Closing. "ERISA Affiliate" means, with
respect to any entity, trade or business, any other entity, trade or
business that is a member of a group described in Section 414(b), (c),
(m) or (o) of the Code or Section 4001(b)(1) of ERISA that includes the
first entity, trade or business, or that is a member of the same
"controlled group" as the first entity, trade or business pursuant to
Section 4001(a)(14) of ERISA. "Controlled Group Liability" means any and
all liabilities under (i) Title IV of ERISA, (ii) Section 302 of ERISA,
(iii) Sections 412 and 4971 of the Code, (iv) the continuation coverage
requirements of Section 601 et seq. of ERISA and Section 4980B of the
Code, and (v) corresponding or similar provisions of foreign laws or
regulations, other than such liabilities that arise solely out of, or
relate solely to, the Benefit Plans.
(v) Except as set forth in Section 4.1(n) of the Disclosure
Schedule, neither the Company nor any of its subsidiaries has any
liability for life, health, medical or other welfare benefits to former
employees or beneficiaries or dependents thereof, except for health
continuation coverage as required by Section 4980B of the Code or Part 6
of Title I of ERISA and at no expense to the Company and its
subsidiaries.
(vi) Except as set forth in Section 4.1(n) of the Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (either alone
or in conjunction with any other event) result in, cause the accelerated
vesting or delivery of, or increase the amount or value of, any payment
or benefit to any employee of the Company or any of its subsidiaries.
Without limiting the generality of the foregoing, no amount paid or
payable by the Company or any of its subsidiaries in connection with the
transactions contemplated hereby (either solely as a result thereof or
as a result of such transactions in conjunction with any other event)
will be an "excess parachute payment" within the meaning of Section 280G
of the Code.
(vii) No labor organization or group of employees of the Company or
any of its subsidiaries has made a pending demand for recognition or
certification, and there are no representation or certification
proceedings or petitions seeking a representation proceeding presently
pending or threatened to be brought or filed, with the National Labor
Relations Board or any other labor relations tribunal or authority.
There are no organizing activities, strikes, work stoppages, slowdowns,
lockouts, material arbitrations or material grievances, or other
material labor disputes pending or, to the knowledge of the Company,
threatened against or involving the Company or any of its subsidiaries.
(viii) There are no pending or, to the Company's knowledge,
threatened claims (other than claims for benefits in the ordinary
course), lawsuits or arbitrations which have been asserted or instituted
against the Benefit Plans, any fiduciaries thereof with respect to their
duties to the Benefit Plans or the assets of any of the trusts under any
of the Benefit Plans which could reasonably be expected to result in any
material liability of the Company or any of its subsidiaries to the
Pension Benefit Guaranty Corporation, the Department of Treasury, the
Department of Labor or any multiemployer Benefit Plan.
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(o) Taxes. For purposes of this Agreement, (A) the term "Returns"
shall mean all returns, declarations, reports, statements, and other
documents required to be filed with respect to federal, state, local and
foreign Taxes (as defined below) or for information purposes, and the term
"Return" means any one of the foregoing Returns, and (B) the term "Taxes"
shall mean all federal, state, local and foreign net income, gross income,
gross receipts, sales, use, ad valorem, transfer, franchise, profits,
license, lease, service, service use, withholding, payroll, employment,
excise, severance, stamp, occupation, premium, property, windfall profits,
customs, duties, or other taxes, together with any interest and any
penalties, additions to tax, or additional amounts with respect thereto,
and the term "Tax" means any one of the foregoing Taxes.
(i) Except as set forth in Section 4.1(o)(i) of the Disclosure
Schedule, the Company and its subsidiaries have duly prepared and filed
federal, state, local and foreign Returns which were required to be
filed by or in respect of the Company and its subsidiaries, or any of
their properties, income and/or operations. As of the time they were
filed, such Returns accurately reflected the material facts regarding
the income, business, assets, operations, activities, status of the
entity or whose behalf the Return was filed, and any other information
required to be shown thereon. No extension of time within which the
Company or any of its subsidiaries may file any Return is currently in
force.
(ii) Except as disclosed in Section 4.1(o)(ii) of the Disclosure
Schedule, with respect to all amounts in respect of Taxes imposed on the
Company or any of its subsidiaries or for which the Company or any of
its subsidiaries is or could be liable, whether to taxing authorities or
to other Persons, all amounts required to be paid by or on behalf of the
Company or any of its subsidiaries to taxing authorities or others have
been paid.
(iii) Except as disclosed in Section 4.1(o)(iii) of the Disclosure
Schedule, there is no review or audit by any taxing authority of any Tax
liability of the Company or any of its subsidiaries currently in
progress. Except as disclosed in Section 4.1(o)(iii) of the Disclosure
Schedule, the Company and its subsidiaries have not received any written
notice of any pending or threatened audit by the Internal Revenue
Service or any state, local or foreign agency of any Returns or Tax
liability of the Company or any of its subsidiaries for any period. The
Company and its subsidiaries currently have no unpaid deficiencies
assessed by the Internal Revenue Service or any state, local or foreign
taxing authority arising out of any examination of any of the Returns of
the Company or any of its subsidiaries nor, to the knowledge of the
Company, is there reason to believe that any material deficiency will be
assessed.
(iv) No agreements are in force or are currently being negotiated
by or on behalf of the Company or any of its subsidiaries for any waiver
or for the extension of any statute of limitations governing the time of
assessments or collection of any Tax. No closing agreements or
compromises concerning Taxes of the Company or any subsidiaries are
currently pending.
(v) The Company and its subsidiaries have withheld from each
payment made to any of their respective officers, directors and
employees, the amount of all applicable Taxes, including, but not
limited to, income tax, social security contributions, unemployment
contributions, backup withholding and other deductions required to be
withheld therefrom by any Tax law and have paid the same to the proper
Taxing authorities within the time required under any applicable Tax
law.
(vi) There are no liens for Taxes, whether imposed by any federal,
state, local or foreign taxing authority, outstanding against any assets
owned by the Company or its subsidiaries, except for liens for Taxes
that are not yet due and payable. None of the assets owned by the
Company or its subsidiaries is property that is required to be treated
as being owned by any other person pursuant to the safe harbor lease
provisions of former Section 168(f)(8) of the Code. None of the assets
owned by the Company or its subsidiaries directly or indirectly secures
any debt, the interest on which is tax-exempt under Section 103(a) of
the Code. None of the assets owned by the Company or its subsidiaries is
"tax-exempt use property" within the meaning of Section 168(h) of the
Code. None
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of Company or any of its subsidiaries is a person other than a United
States person within the meaning of the Code.
(vii) Except as set forth in Section 4.1(o)(vii) of the Disclosure
Schedule, neither the Company nor any of its subsidiaries is a party to
any agreement, contract, or arrangement that, individually or
collectively, could give rise to the payment of any amount (whether in
cash or property, including Shares or other equity interests) that would
not be deductible pursuant to the terms of Sections 162(a)(1), 162(m),
162(n) or 280G of the Code.
(p) Contracts; Debt Instruments.
(i) Except as otherwise disclosed in Section 4.1(p)(i) of the
Disclosure Schedule, neither the Company nor any of its subsidiaries is
a party to or subject to:
(A) any collective bargaining or other agreements with labor
unions, trade unions, employee representatives, work committees,
guilds or associations representing employees of the Company and its
subsidiaries;
(B) any employment, consulting, severance, termination, or
indemnification agreement, contract or arrangement, including any
oral agreement, contract or arrangement which requires the payment of
over $50,000, with any current or former officer, consultant,
director or employee;
(C) any lease for real or personal property in which the amount
of payments which the Company is required to make, or is expected to
receive, on an annual basis exceeds $50,000;
(D) any agreement, contract, instrument, arrangement or
commitment to repurchase assets previously sold or leased, or to
indemnify or otherwise compensate the purchaser in respect thereof;
(E) any agreement, contract, policy, License, document,
instrument, arrangement or commitment that materially limits the
freedom of the Company or any of its subsidiaries to compete in any
line of business or with any person or in any geographic area or
which would so materially limit the freedom of the Company or any of
its subsidiaries after the Effective Time, or by virtue of the
transaction contemplated by this Agreement, Parent, Merger Subsidiary
or any of their subsidiaries after the Effective Time; or
(F) any agreement or contract relating to any outstanding
commitment for capital expenditures, or any partially or fully
executory agreement or contract relating to the acquisition or
disposition of rights or assets other than those entered into in the
ordinary course consistent with past practices;
(G) any sale-leaseback, conditional sale, exclusive dealing,
brokerage, finder's fee contract or agreement; or
(H) any other agreement, contract, policy, License, document,
instrument, arrangement or commitment not made in the ordinary course
of business which is material to the Company and its subsidiaries
taken as a whole and which is not otherwise disclosed in the
Disclosure Schedules.
(ii) None of the Company, its subsidiaries and, to the knowledge of
the Company, none of the other parties to any of the contracts and
agreements identified in Section 4.1(p)(i) of the Disclosure Schedule is
in material default under or has terminated any such contract or
agreement, or in any way expressed to the Company an intent to
materially reduce or terminate the amount of its business with the
Company or any of its subsidiaries in the future.
(iii) Set forth in Section 4.1(p)(iii) of the Disclosure Schedule
is (A) a list of all loan or credit agreements, notes, bonds, mortgages,
indentures and other agreements and instruments pursuant to which any
indebtedness of the Company or any of its subsidiaries is outstanding or
may
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be incurred, (B) the respective principal amounts currently outstanding
thereunder, and (C) any interest rate swaps, caps, floors or option
agreements or similar interest rate risk management agreements. Except
as set forth in Section 4.1(p)(iii) of the Disclosure Schedule, all such
indebtedness is prepayable at any time without penalty, subject to the
notice provisions of the agreements governing such indebtedness (which,
except as set forth in Section 4.1(p)(iii) of the Disclosure Schedule,
do not require a notice period of more than thirty days). For purposes
of this Section 4.1(p)(iii), "indebtedness" shall mean, with respect to
any person, without duplication, (A) all obligations of such person for
borrowed money, or with respect to deposits or advances of any kind to
such person, (B) all obligations of such person evidenced by bonds,
debentures, notes or similar instruments, (C) all obligations of such
person upon which interest charges are customarily paid, (D) all
obligations of such person under conditional sale or other title
retention agreements relating to property purchased by such person, (E)
all obligations of such person issued or assumed as the deferred
purchase price of property or services (excluding obligations of such
person to creditors for raw materials, inventory, services and supplies
incurred in the ordinary course of such person's business), (F) all
capitalized lease obligations of such person, (G) all indebtedness of
others secured by any Lien on property or assets owned or acquired by
such person, whether or not the obligations secured thereby have been
assumed, (H) all obligations of such person under interest rate or
currency swap transactions (valued at the termination value thereof),
(I) all letters of credit issued for the account of such person, (J) all
obligations of such person to purchase securities (or other property)
which arises out of or in connection with the sale of the same or
substantially similar securities or property, and (K) all guarantees and
arrangements having the economic effect of a guarantee of such person of
any indebtedness of any other person.
(q) Insurance. The Company and its subsidiaries are covered by valid
and currently effective insurance policies issued in favor of the Company
that are customary for companies of similar size and financial condition
which conduct similar businesses. All such policies are in full force and
effect, all premiums due thereon have been paid and the Company has
complied with the provisions of such policies. The Company has not received
any written notice from or on behalf of any insurance carrier issuing
policies or binders relating to or covering the Company and its
subsidiaries that there will be a cancellation or non-renewal of existing
policies or binders, or material modification of any of the methods of
doing business, will be required.
(r) Interests of Officers and Directors. Except as disclosed in
Section 4.1(r) of the Disclosure Schedule, neither any of the Company's or
any of its subsidiaries' executive officers or directors, nor any member of
their respective immediate families or any entity with respect to which any
such person is an affiliate, has any interest in any property, real or
personal, tangible or intangible, used in or pertaining to the business of
the Company or its subsidiaries, or any other business relationship with
the Company or any of its subsidiaries.
(s) Approval by Board. The Board of Directors of the Company has duly
authorized and approved the execution and delivery of this Agreement by the
Company and the transactions contemplated hereby prior to the execution by
the Company of this Agreement.
(t) Brokers. No broker, investment banker, financial advisor or other
person, other than McDonald & Company Securities, Inc. and Sterling Capital
Ventures, L.L.C., the fees and expenses of which will be paid by the
Company (and copies of whose engagement letters and a calculation of the
fees that would be due thereunder have been provided or made available to
Parent), is entitled to any broker's, finder's, financial advisor's or
other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf
of the Company or any of its subsidiaries. No such engagement letters
obligate the Company to continue to use their services or pay fees or
expenses in connection with any future transaction.
(u) Pooling of Interests. The Company has no reason to believe that
the Merger will not qualify as, and has not taken or agreed to take any
action, or omitted or agreed to omit to take any action, which would
disqualify the Merger as, a "pooling of interests" for accounting purposes.
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(v) Disclosure. The representations and warranties of the Company
contained in this Agreement are true and correct in all material respects
and do not omit any material fact necessary to make the statements
contained therein, in light of the circumstances under which they were
made, not misleading. There is no fact known to the Company which has not
been disclosed to Parent in the Disclosure Schedule, taken as a whole,
which has had, or would reasonably be expected to have, a Material Adverse
Effect.
4.2 Representations and Warranties of Parent and Merger Subsidiary. Parent
and Merger Subsidiary represent and warrant to the Company, subject to the
exceptions and qualifications set forth in the disclosure schedule to be
delivered by the Parent to the (the "Parent Disclosure Schedule"):
(a) Organization, Standing and Corporate Power. Each of Parent and
Merger Subsidiary is a corporation duly organized, validly existing and in
good standing under the laws of its respective state of incorporation and
has the requisite corporate power and authority to carry on its business as
now being conducted. Each of the Parent and its subsidiaries is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification or licensing necessary,
other than in such jurisdictions where the failure to be so qualified or
licensed (individually or in the aggregate) could not reasonably be
expected to (i) have a material adverse effect on the value, condition
(financial or otherwise), business, or results of operations of the Parent
and its subsidiaries taken as a whole, (ii) materially impair or prevent
the ability of any party hereto to perform its obligations under this
Agreement or (iii) prevent consummation of any of the transactions
contemplated by this Agreement (each, a "Parent Material Adverse Effect").
(b) Authority; Noncontravention. Parent and Merger Subsidiary have all
requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated by this Agreement. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate action on the part of Parent and Merger Subsidiary. This
Agreement has been duly executed and delivered by Parent and Merger
Subsidiary and, assuming this Agreement constitutes a valid and binding
agreement of the Company, constitutes a valid and binding obligation of
such party, enforceable against such party in accordance with its terms.
The execution and delivery of this Agreement do not, and the consummation
of the transactions contemplated by this Agreement and compliance with the
provisions of this Agreement will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation, modification
or acceleration of any obligation or to a loss of a material benefit under,
or result in the creation of any Lien upon any of the properties or assets
of Parent or any of its subsidiaries under, (i) the certificate of
incorporation or bylaws or other organizational documents of Parent or
Merger Subsidiary, (ii) except as disclosed in Section 4.2(b) of the
Parent's Disclosure Schedule, any loan or credit agreement, note, bond,
mortgage, indenture, lease or any other contract, agreement, instrument,
permit, concession, franchise or license applicable to Parent or Merger
Subsidiary or their respective properties or assets or (iii) subject to the
governmental filings and other matters referred to in the following
sentence, any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Parent, Merger Subsidiary or any other subsidiary
of Parent or their respective properties or assets, other than, in the case
of clause (ii) or (iii), any such conflicts, violations, defaults, rights,
losses or liens that individually or in the aggregate would not have a
Parent Material Adverse Effect. Other than those Consents referred to in
the Disclosure Schedule on the part of the Company, no Consent of any
Governmental Entity is required by or with respect to Parent, Merger
Subsidiary or any other subsidiary of Parent in connection with the
execution and delivery of this Agreement or the consummation by Parent or
Merger Subsidiary, as the case may be, of any of the transactions
contemplated by this Agreement, except for (i) the consents disclosed in
Section 4.2(b) of the Parent Disclosure Schedule, (ii) the filing of the
Articles of Merger in accordance with the TBCA and similar documents with
the relevant authorities of other states in which the Company is qualified
to do business, (iii) the filing of a premerger notification and report
form under the HSR Act, (iv) filings and approvals of applications with
state insurance regulatory authorities, (v) compliance with applicable
requirements of the Exchange Act and the Securities Act, and applicable
state blue sky laws, with respect
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to the Registration Statement and the Prospectus/Proxy Statement, and (vi)
such other Consents as to which the failure to obtain or make, individually
or in the aggregate, could not reasonably be expected to have a Parent
Material Adverse Effect.
(c) SEC Documents; Financial Statements; No Undisclosed
Liabilities. Parent has provided or made available to the Company true and
correct copies of all reports, schedules, forms, statements, exhibits and
other documents filed with the SEC by Parent under or pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act") since
January 1, 1996 (the "Parent SEC Documents"), all of which were timely
filed with the SEC. The Parent SEC Documents constitute all forms, reports
and documents required to be filed with the SEC under the Securities Act of
1933, as amended (the "Securities Act"), the Exchange Act and the rules and
regulations promulgated thereunder. As of their respective dates, or as
subsequently amended prior to the date of this Agreement, the Parent SEC
Documents complied in all material respects with the requirements of the
Exchange Act applicable to such Parent SEC Documents, and none of the
Parent SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The financial statements of the
Company included in the Parent SEC Documents comply in all material
respects with applicable accounting requirements and the published rules
and regulations of the SEC with respect thereto, have been prepared in
accordance with GAAP (except as may be indicated in the notes thereto) and
fairly present the consolidated financial position of the Parent and its
consolidated subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). Except as set forth in the Parent SEC Documents or incurred
in the ordinary course of business since the date of the last consolidated
balance sheet of the Parent included therein or incurred in connection with
acquisition transactions completed after December 31, 1997, neither Parent
nor any of its subsidiaries has incurred any liability (accrued, absolute,
contingent or otherwise) that would be required by GAAP to be reflected on
a balance sheet of the Parent or described in the notes thereto.
(d) Litigation. There are (i) no continuing orders, injunctions or
decrees of any court, arbitrator or governmental authority to which Parent
or any of its subsidiaries is a party or by which any of its properties or
assets are bound or, to the best knowledge of the executive officers of
Parent, to which any of its directors, officers, employees or agents is a
party or by which any of their properties or assets are bound, and (ii) no
actions, suits or proceedings pending against Parent or, to the best
knowledge of the executive officers of Parent, against any of its or any of
its subsidiaries' directors, officers, employees or agents or, to the
actual knowledge of the executive officers of Parent, threatened against
Parent or against any of its directors, officers, employees or agents, at
law or in equity, or before or by any federal or state commission, board,
bureau, agency or instrumentality, that in the case of clauses (i) or (ii)
would reasonably likely, individually or in the aggregate, to have a Parent
Material Adverse Effect.
(e) Absence of Certain Changes. Except as disclosed in the Parent SEC
Documents filed with the SEC prior to the date hereof, since December 31,
1997 Parent has conducted its business only in the ordinary course of such
business and there has not been (i) any Parent Material Adverse Effect, or
(ii) any material change in the accounting principles, practices or methods
of Parent.
(f) Brokers. No broker, investment banker, financial advisor or other
person, other than NationsBanc Montgomery Securities LLC, the fees and
expenses of which will be paid by the Parent, is entitled to any broker's,
finder's, financial advisor's or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Parent or any of its subsidiaries.
(g) Insurance. The Parent and its subsidiaries are covered by valid
and currently effective insurance policies issued in favor of the Parent
that are customary for companies of similar size and financial condition
which conduct similar businesses. All such policies are in full force and
effect, all premiums due thereon have been paid and the Parent has complied
with the provisions of such policies with respect to which the failure to
comply with would result in a cancellation of such policies. The
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Parent has not received any written notice from or on behalf of any
insurance carrier issuing policies or binders relating to or covering the
Parent and its subsidiaries that there will be a cancellation or non-
renewal of existing policies or binders, or material modification of any of
the methods of doing business.
(h) Interests of Officers and Directors. Except as required to be
disclosed, and actually disclosed, in the Parent SEC Documents, neither any
of the Parent's or any of its subsidiaries' executive officers or
directors, nor any member of their respective immediate families or any
entity with respect to which any such person is an affiliate, has any
material interest in any property, real or personal, tangible or
intangible, used in or pertaining to the business of the Parent or its
subsidiaries, or any other business relationship with the Parent or any of
its subsidiaries.
(i) Pooling of Interests. Parent has no reason to believe that the
Merger will not qualify as, and has not taken or agreed to take any action,
or omitted or agreed to omit to take any action, which would disqualify the
Merger as, a "pooling of interests" for accounting purposes.
(j) Disclosure. The representations and warranties of the Parent
contained in this Agreement are true and correct in all material respects,
and do not omit any material fact necessary to make the statements
contained therein, in light of the circumstances under which they were
made, not misleading. There is no fact known to the Parent which has not
been disclosed to the Company in the Parent Disclosure Schedule and the
Parent SEC Documents, taken as a whole, which has had, or would reasonably
be expected to have, a Parent Material Adverse Effect.
ARTICLE V
COVENANTS OF THE COMPANY
5.1 Conduct of Business. During the period from the date of this Agreement
to the Effective Time, the Company shall, and shall cause its subsidiaries to,
carry on their businesses in the ordinary course of business in substantially
the same manner as heretofore conducted and, to the extent consistent therewith,
use all reasonable efforts to preserve intact their current business
organizations, keep available the services of their current officers and
employees (as a group) and preserve their relationships with customers,
suppliers, licensors, licensees, distributors and others having business
dealings with them. Without limiting the generality of the foregoing, during the
period from the date of this Agreement to the Effective Time, except as
contemplated by this Agreement the Company shall not, and shall not permit any
of its subsidiaries to, without the prior written approval of Parent (which
shall not be unreasonably withheld or delayed):
(a) (i) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, stock or property) in respect of, any of
its capital stock, other than dividends and distributions by any direct or
indirect wholly-owned subsidiary of the Company to its parent; (ii) adjust,
split, combine or reclassify any of its capital stock or issue or authorize
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock or (iii) purchase, redeem or
otherwise acquire any shares of capital stock of the Company or any of its
subsidiaries or any other securities thereof or any rights, warrants or
options to acquire any such shares or other securities; provided, however,
that (A) in the event that the Effective Time has not occurred on or prior
to November 15, 1998, the Company shall be permitted to declare and pay
regular quarterly cash dividends on the Shares in amounts consistent with
past practice; however, in no event shall the aggregate amount of such
permitted cash dividends paid during any period of three (3) consecutive
months (commencing on November 16, 1998) exceed $0.05 per Share and (B) so
long as Alamo Title Insurance ("Alamo") is not a wholly-owned subsidiary of
the Company, the Company shall be permitted, subject to applicable law and
subject to the provisions of this Agreement, to cause Alamo to declare and
pay one cash dividend to its shareholders (including the Company) to the
extent necessary to provide cash to the Company to pay general and
administrative expenses actually and reasonably incurred in the ordinary
course of business or in connection with the transactions contemplated
hereby if (i) the Company shall have (A) first caused all wholly-owned
subsidiaries of the Company to pay dividends in order to fund such expenses
of the Company and (B) reasonably determined that, with respect to each
such wholly-owned subsidiary, no additional dividends from such subsidiary
may be made or that the payment of additional dividends would cause
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such subsidiary not to have sufficient working capital for its anticipated
requirements), and (ii) the Company shall have given Parent ten (10)
business days' advance notice of its intent to cause Alamo to pay such
dividend (which notice shall describe the amount of such dividend and the
purposes for which the cash distributed to the Company would be used) and
Parent shall have failed to reasonably object to such dividend within five
(5) business days following receipt of such notice (in which case Parent
and the Company shall cooperate and determine in good faith the
reasonableness of the proposed dividend);
(b) issue, deliver, sell, pledge or otherwise encumber any shares of
its capital stock, any other voting securities or any securities
convertible into, or any rights, warrants or options, including Company
Options, to acquire, any such shares, voting securities or convertible
securities (other than the issuance of Shares upon the exercise of Company
Options outstanding as of the date hereof or pursuant to the Stock Awards,
in each case in accordance with the respective terms and provisions
thereof);
(c) amend its Articles of Incorporation, bylaws or other comparable
charter or organizational documents;
(d) amend, modify or waive any provision of any material contract or
agreement to which the Company or any of the Company's subsidiaries is a
party, including, without limitation, any such agreements identified in the
Disclosure Schedule, other than in the ordinary course of business;
(e) mortgage or otherwise encumber or subject to any Lien or sell,
lease, license, transfer or otherwise dispose of any material properties or
assets, except in the ordinary course of business consistent with past
practice or pursuant to existing contracts or commitments;
(f) amend, modify or waive any material term of any outstanding
security of the Company or its subsidiaries;
(g) incur, assume, guarantee or become obligated with respect to any
indebtedness, other than drawings on existing revolving credit facilities
listed in Section 4.1(p) of the Disclosure Schedule, in the ordinary course
of business, consistent with past practice and in accordance with the terms
thereof, or incur, assume, guarantee or become obligated with respect to
any other material obligations other than in the ordinary course of
business and consistent with past practice;
(h) make or agree to make any new capital expenditures or acquisitions
of assets or property or other acquisitions or commitments in excess of
$25,000 individually or $100,000 in the aggregate or otherwise acquire or
agree to acquire any material assets or property;
(i) make any material tax election or take any material tax position
(unless required by law) or change its fiscal year or accounting methods,
policies or practices (except as required by changes in GAAP) or settle or
compromise any material income tax liability;
(j) enter into any, or commit to enter into, any lease, loan, advance
or capital contributions to or investment in any person other than in the
ordinary course of business consistent with past practice;
(k) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction thereof, in the ordinary course
of business consistent with past practice and in accordance with their
terms or the settlement or other disposition of litigation matters or title
insurance claims by a payment or payments not exceeding $100,000, or
release or waive any material rights or claims, or waive the benefits of,
or agree to modify in any manner, any confidentiality, standstill or
similar agreement to which the Company or any of its subsidiaries is a
party;
(l) (i) grant to any current or former director, officer or employee
of the Company or any of its subsidiaries any material increase in
compensation or benefits, except for employees who are not officers or
directors in the ordinary course of business consistent with past practice,
(ii) grant to any such director, officer, or employee any increase in
severance or termination pay (including the acceleration in the
exercisability of Company Options or in the vesting of Shares (or other
property) except for automatic acceleration in accordance with the terms of
the Option Agreements covering such options), or
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(iii) enter into any employment, deferred compensation, severance or
termination agreement or arrangement with or for the benefit of any such
current or former director, officer, or employee;
(m) (i) take or agree or commit to take any action that would make any
representation or warranty of the Company hereunder inaccurate in any
material respect at, or as of any time prior to, the Effective Time or (ii)
omit or agree or commit to omit to take any action necessary to prevent any
such representation or warranty from being inaccurate in any material
respect at any such time; or
(n) authorize any of, or commit or agree to take any of, the foregoing
actions.
5.2 Affiliate Agreements. The Company shall obtain and deliver to Parent
as promptly as practicable after (and shall use its reasonable best efforts to
obtain and deliver within five days after) the date hereof a signed
representation letter substantially in the form of Exhibit B hereto from each
executive officer and director of the Company and each shareholder of the
Company who may reasonably be deemed an "affiliate" of the Company within the
meaning of such term as used in Rule 145 under the Securities Act and for
purposes of qualifying for pooling of interests accounting treatment for the
Merger, and shall obtain and deliver to Parent a signed representation letter
substantially in the form of Exhibit B from any person who becomes an executive
officer or director of the Company or any shareholder who becomes such an
"affiliate" after the date hereof as promptly as practicable after (and shall
use its reasonable best efforts to obtain and deliver within five days after)
such person achieves such status. Parent shall use its best reasonable efforts
to obtain and deliver to the Company as promptly as practicable after (and shall
use its reasonable best efforts to obtain and deliver within five days after)
the date hereof a signed representation letter substantially in the form of
Exhibit C hereto from each executive officer and director of Parent and each
shareholder of Parent who may reasonably be deemed an "affiliate" of Parent
within the meaning of such term as used in Rule 145 under the Securities Act and
for purposes of qualifying for pooling of interests accounting treatment for the
Merger. Parent may place appropriate legends on the stock certificates of
affiliates of the Company and Parent and shall obtain and deliver to the Company
a signed representation letter substantially in the form of Exhibit Cfrom any
person who becomes an executive officer or director of Parent or any shareholder
who becomes such an "affiliate" after the date hereof as promptly as practicable
after (and shall use its reasonable best efforts to obtain and deliver within
five days after) such person achieve such status.
5.3 Access to Information. From the date hereof until the Effective Time,
the Company will give Parent, its counsel, financial advisors, auditors and
other authorized representatives full access, subject to reasonable restrictions
by the Company so as not to disrupt or impair the Company's personnel, business
or operations (during normal business hours and upon reasonable notice) to the
offices, properties, officers, employees, accountants, auditors, counsel and
other representatives, books and records of the Company and its subsidiaries
(including to perform any environmental studies), will furnish to Parent, its
counsel, financial advisors, auditors and other authorized representatives such
financial, operating and property related data and other information as such
persons may reasonably request, and will instruct the Company's and its
subsidiaries' employees, counsel and financial advisors to cooperate with Parent
in its investigation of the business of the Company and its subsidiaries;
provided that no investigation pursuant to this Section 5.3 shall affect any
representation or warranty given by the Company hereunder. In order to minimize
the interference with, and disruption of, the Company's and its subsidiaries
day-to-day operations, Parent agrees, to the extent reasonably possible, to
coordinate all of its correspondence and contact with the Company's personnel,
business or operations through an executive officer of the Company designated by
the Company to coordinate such activities.
5.4 No Solicitation. The Company agrees that neither the Company nor any
of its subsidiaries shall, and the Company shall direct and use its best efforts
to cause the respective officers and directors of the Company and its
subsidiaries and the Company's employees, agents and representatives (including,
without limitation, any investment banker, attorney or accountant retained by
the Company or any of its subsidiaries) not to, initiate, continue, solicit, or
encourage, directly or indirectly, any inquiries or the making of any proposal
or offer (including, without limitation, any proposal or offer to shareholders
of the Company) with respect to a merger, consolidation or similar transaction
involving, or any purchase of all or any significant portion of the assets or
any equity securities of, the Company or any of its subsidiaries (any such
proposal or
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offer being hereinafter referred to as an "Acquisition Proposal") or engage in
any negotiations concerning, or provide any confidential information or data to,
or have any discussions with, any person relating to an Acquisition Proposal, or
approve, recommend or otherwise facilitate any effort or attempt to make or
implement an Acquisition Proposal or, enter into any letter of intent, agreement
or understanding with any other person or entity related to or with the intent
to effect any Acquisition Proposal. The Company will take all necessary steps to
inform the individuals or entities referred to in the first sentence hereof of
the obligations undertaken in this Section 5.4. The Company will notify Parent
immediately, orally and in writing (including the names of any party making and
the principal terms of any such proposal), if any such inquiries or proposals
are received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated or continued with the
Company. Immediately following the execution of this Agreement, the Company will
request each person which has heretofore executed a confidentiality agreement in
connection with its consideration of acquiring the Company or any portion
thereof (the "Confidentiality Agreements") to return all confidential
information heretofore furnished to such person by or on behalf of the Company.
The Company will keep Parent fully informed of the status and details (including
amendments or proposed amendments) of any such request, proposal or inquiry.
5.5 Pooling of Interests; Tax Treatment. The Company shall not take any
action which would disqualify the Merger as a "pooling of interests" for
accounting purposes or as a "reorganization" that would be tax free to the
shareholders of the Company pursuant to Section 368(a) of the Code.
5.6 Confidentiality. Prior to the Effective Time and after any termination
of this Agreement (and without limiting or affecting the rights and obligations
of the parties under the Confidentiality Agreement (as defined in Section 10.8
below)), the Company will hold, and will use its reasonable best efforts to
cause its officers, directors, employees, accountants, counsel, consultants,
advisors and agents to hold, in confidence, unless compelled to disclose by
judicial or administrative process or by other requirements of law, all
confidential documents and information concerning Parent and its subsidiaries
furnished to the Company in connection with the transactions contemplated by
this Agreement except to the extent that such information can be shown to have
been (i) previously known on a nonconfidential basis by the Company, (ii) in the
public domain through no fault of the Company or (iii) later lawfully acquired
by the Company from sources other than Parent; provided that the Company may
disclose such information to its officers, directors, employees, accountants,
counsel, consultants, advisors and agents in connection with the transactions
contemplated by this Agreement so long as such persons have a need to know such
information, are informed by the Company of the confidential nature of such
information and are directed by the Company to treat such information
confidentially. The Company's obligation to hold any such information in
confidence shall be satisfied if it exercises the same care with respect to such
information as it would take to preserve the confidentiality of its own similar
information. If this Agreement is terminated, the Company will, and will use its
best efforts to cause its officers, directors, employees, accountants, counsel,
consultants, advisors and agents to, deliver to Parent, upon request, or, at the
election of the Company, destroy, all documents and other materials and all
copies thereof, obtained by the Company or on its behalf from Parent in
connection with this Agreement that are subject to such confidentiality.
5.7 Minority Interests. The Company shall use its reasonable best efforts
to purchase, or cause Alamo to purchase, for cash, prior to the Effective Time,
the minority interests in Alamo not owned by the Company (which are represented
by 1,200 shares of common stock of Alamo), on terms and conditions reasonably
acceptable to Parent.
ARTICLE VI
COVENANTS OF PARENT
Parent agrees that:
6.1 Confidentiality. Prior to the Effective Time and after any termination
of this Agreement (and without limiting or affecting the rights and obligations
of the parties under the Confidentiality Agreement), Parent will hold, and will
use its reasonable best efforts to cause its officers, directors, employees,
accountants,
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counsel, consultants, advisors and agents to hold, in confidence, unless
compelled to disclose by judicial or administrative process or by other
requirements of law, all confidential documents and information concerning the
Company and its subsidiaries furnished to Parent in connection with the
transactions contemplated by this Agreement except to the extent that such
information can be shown to have been (i) previously known on a nonconfidential
basis by Parent, (ii) in the public domain through no fault of Parent or (iii)
later lawfully acquired by Parent from sources other than the Company; provided
that Parent may disclose such information to its officers, directors, employees,
accountants, counsel, consultants, advisors and agents in connection with the
transactions contemplated by this Agreement so long as such persons have a need
to know such information, are informed by Parent of the confidential nature of
such information and are directed by Parent to treat such information
confidentially. Parent's obligation to hold any such information in confidence
shall be satisfied if it exercises the same care with respect to such
information as it would take to preserve the confidentiality of its own similar
information. If this Agreement is terminated, Parent will, and will use its best
efforts to cause its officers, directors, employees, accountants, counsel,
consultants, advisors and agents to, deliver to the Company, upon request, or,
at the election of Parent, destroy, all documents and other materials and all
copies thereof, obtained by Parent or on its behalf from the Company in
connection with this Agreement that are subject to such confidentiality.
6.2 Obligations of Merger Subsidiary. Parent will take all action
necessary to cause Merger Subsidiary to perform its obligations under this
Agreement and to consummate the Merger on the terms and conditions set forth in
this Agreement.
6.3 Employee Benefit Plans. Subject to the following agreements, from and
after the Effective Time, Parent shall have the right to continue, amend or
terminate any of the Benefit Plans in accordance with the terms thereof and
subject to any limitation arising under applicable law. It is the parties'
current intention that the Company will retain its employee plans in effect for
the benefit of employees of the Company and its subsidiaries subject to any
changes which are deemed necessary or desirable in order for the employee plans
of the Company and Parent to remain qualified under applicable provisions of the
Code. However, nothing in this statement of current intentions or in this
Agreement shall be deemed to confer any rights to persons who are not parties to
this Agreement (such as, but not limited to, employees, former employees or
independent contractors of the Company) to continuation of their current benefit
plans or to any particular forms or types of benefits. The Company, subject to
the provisions of this Agreement, and Parent, each reserve full authority to
amend, terminate, discontinue or otherwise revise their employee plans and/or to
adopt new plans from time to time subject solely to the discretion of their
respective boards of directors.
6.4 Indemnification and Insurance.
(a) From and after the Effective Time, the Parent shall, and shall
cause the Company and its subsidiaries to, indemnify, defend and hold
harmless each person who is now, or who becomes, prior to the Effective
Time, an officer, director, employee or agent of the Company or any of its
subsidiaries (the "Indemnified Parties") against all losses, claims,
damages, costs, expenses (including attorneys' fees), liabilities or
judgments or amounts that are paid in settlement (which settlement shall
require the prior written consent of Parent) of or in connection with any
claim, action, suit, proceeding or investigation (a "Claim") in which an
Indemnified Party is, or is threatened to be made, a party or a witness
based in whole or in part on or arising in whole or in part out of the fact
that such person is or was a director, officer, employee or agent of the
Company or any of its subsidiaries if such Claim pertains to any matter or
fact arising, existing or occurring on or prior to the Effective Time
(including, without limitation, the Merger and other transactions
contemplated by this Agreement), regardless of whether such Claim is
asserted or claimed prior to, or after the Effective Time (the "Indemnified
Liabilities") to the fullest extent permitted by Parent's Certificate of
Incorporation and Bylaws and applicable Delaware law or the Company's or
its subsidiaries, as the case may be, Articles of Incorporation and Bylaws
and applicable Texas law. Further, Parent shall cause the Company and its
subsidiaries to advance any fees and expenses of defending such Claim to
the fullest extent permitted by applicable law. Any Indemnified Party
wishing to claim indemnification under this Section 6.4(a), upon learning
of any Claim, shall notify Parent (but the failure so to notify Parent
shall not relieve it from any liability which Parent may have under this
Section 6.4(a) except to the extent such failure prejudices Parent) and
shall deliver to Parent any
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undertaking required by Delaware and/or Texas law. The obligations of
Parent described in this Section 6.4(a) shall continue in full force and
effect, without any amendment thereto, for a period of not less than three
years from the Effective Time; provided, however, that all rights to
indemnification in respect of any Claim asserted or made within such period
shall continue until the final disposition of such Claim. The foregoing
indemnification shall not apply to any actions, suits, proceedings, orders
or investigations which at the date hereof are pending or, to the knowledge
of the Company or its directors, threatened unless disclosed on Schedule
6.4(a).
(b) From and after the Effective Time, the directors, officers and
employees of the Company or any of its subsidiaries who become directors,
officers or employees of Parent, the Surviving Corporation or any other of
the subsidiaries, shall also have indemnification rights with prospective
application. The prospective indemnification rights shall consist of such
rights to which directors, officers and employees of Parent or its
subsidiaries are entitled under the provisions of the Certificate of
Incorporation, Bylaws or similar governing documents of Parent, the
Surviving Corporation and other subsidiaries, as in effect from time to
time after the Effective Time, as applicable, and provisions of applicable
law as in effect from time to time after the Effective Time.
(c) The Parent and the Company agree to indemnify and hold harmless
each other, their respective directors, officers and employees and each
person, if any, who controls the respective party, against any and all
loss, liability, claim, damage and expense whatsoever (including, but not
limited to, any and all legal or other expenses reasonably incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever) to which they or any of them may
become subject under the Securities Act, the Exchange Act or any other
statute or at common law or otherwise or under the laws of foreign
countries, arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(as defined in Section 7.2 below), or Prospectus/Proxy Statement (as
defined in Section 7.2 below) (as from time to time each may be amended or
supplemented) based upon written information furnished by the Company or
the Parent to each other or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(d) The contractual obligations provided under paragraphs (a) and (b)
of this Section 6.4 are intended to benefit, and be enforceable directly
by, the Indemnified Parties, and shall be binding on all respective
successors of Parent and the Company.
6.5 Stock Exchange Listing. Parent shall use its best efforts to list on
the NYSE, subject to official notice of issuance, the shares of Parent Common
Stock to be issued in the Merger.
6.6 Publication of Combined Financial Results. Parent shall use reasonable
efforts to publish as soon as practicable after the end of its first fiscal
quarter which includes at least 30 days of post-Merger combined operations,
combined sales and net income figures and any other financial Information
necessary as contemplated by and in accordance with the terms of SEC Accounting
Series Release No. 135 and any related accounting rules.
6.7 Access to Information. From the date hereof until the Effective Time,
the Parent will give the Company, its counsel, financial advisors, auditors and
other authorized representatives full access subject to reasonable restrictions
by the Parent so as not to disrupt or impair the Parent's personnel, business or
operations (during normal business hours and upon reasonable notice) to the
offices, properties, officers, employees, accountants, auditors, counsel and
other representatives, books and records of the Parent and its subsidiaries,
will furnish to the Company, its counsel, financial advisors, auditors and other
authorized representatives such financial, operating and property related data
and other information as such persons may reasonably request, and will instruct
the Parent's and its subsidiaries' employees, counsel and financial advisors to
cooperate with the Company in its investigation of the business of the Parent
and its subsidiaries; provided that no investigation pursuant to this Section
6.7 shall affect any representation or warranty given by the Parent hereunder.
In order minimize the interference with, and disruption of, the Parent's and its
subsidiaries day-to-day operations, the Company agrees, to the extent reasonably
possible, to coordinate all of its
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correspondence and contact with Parent's personnel, business or operations
through an executive officer of the Parent designated by the Parent to
coordinate such activities.
6.8 Pooling of Interests; Tax Treatment. The Parent shall not take any
action which would disqualify the Merger as a "pooling of interests" for
accounting purposes or as a "reorganization" that would be tax free to the
shareholders of the Company pursuant to Section 368(a) of the Code.
ARTICLE VII
COVENANTS OF PARENT AND THE COMPANY
The parties hereto agree that:
7.1 Regulatory Applications; Reasonable Efforts; Notification.
(a) Each of Parent and the Company and their respective subsidiaries
shall (i) promptly prepare and make or cause to be made all filings
required of such party or any of its subsidiaries and obtain all permits,
consents, approvals, and authorizations of all third parties, Regulatory
Authorities and Governmental Entities necessary to consummate the
transactions contemplated by this Agreement, (ii) comply at the earliest
practicable date with any request for additional information, documents, or
other material received by such party or any of its subsidiaries from any
Regulatory Authority or other Governmental Entity in respect of such
filings or such transactions, and (iii) cooperate with the other party in
connection with any such filing, and in connection with resolving any
investigation or other inquiry of any such Regulatory Authority or other
Governmental Entity. Each party shall promptly inform the other party of
any communication with, and any proposed understanding, undertaking, or
agreement with, any Regulatory Authority or Governmental Entity regarding
any such filings or any such transaction. Neither party shall participate
in any meeting, with any Regulatory Authority or Governmental Entity in
respect of any such filings, investigation, or other inquiry without giving
the other party notice of the meeting and, to the extent permitted by such
Regulatory Authority or Governmental Entity, the opportunity to attend and
participate.
(b) Each of Parent and the Company shall use all reasonable efforts to
take such action as may be required to cause the expiration of the notice
periods under the HSR Act or any state statutes, rules, regulations, orders
or decrees that are designed to prohibit, restrict or regulate actions
having the purpose or effect of monopolization or restraint of trade with
respect to the transactions contemplated hereby as promptly as possible
after the execution of this Agreement. Such efforts shall include, without
limitation, requesting early termination of any applicable waiting period
under the HSR Act.
(c) Each of the parties agrees to use all reasonable efforts to take,
or cause to be taken, all actions, and to do, or cause to be done, and to
assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement, including (i) the obtaining of all other
necessary actions or nonactions, waivers, consents and approvals from
Regulatory Authorities or Governmental Entities and the making of all other
necessary registrations and filings (including other filings with
Regulatory Authorities or Governmental Entities, if any), (ii) the
obtaining of all necessary consents, approvals or waivers from third
parties, (iii) the preparation, filing and dissemination of the
Registration Statement and the Prospectus/Proxy Statement and (iv) the
execution and delivery of any additional instruments necessary to
consummate the transactions contemplated by, and to fully carry out the
purposes of, this Agreement.
(d) Notwithstanding anything to the contrary in Section 7.1(a) or (b),
(i) neither Parent nor any of its subsidiaries shall be required to divest,
or cause or permit the Company or its subsidiaries or affiliates to divest,
any of their respective businesses, product lines or assets, or to take or
agree to take any other action or agree to any limitation that could
reasonably be expected to have a material adverse effect on the value,
condition (financial or otherwise), prospects, business or results of
operations or prospects of Parent and its subsidiaries taken as a whole or
of the Company and its subsidiaries taken as a
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whole, or all such entities taken together, and (ii) neither Parent nor
Merger Subsidiary shall be required to waive any of the conditions to the
Merger set forth in Article VIII.
(e) Each party shall give prompt notice to the other party of (i) any
representation or warranty made by it contained in this Agreement becoming
untrue or inaccurate in any material respect, or (ii) the failure by it to
comply with or satisfy in any material respect any covenant, condition or
agreement to be complied with or satisfied by it under this Agreement or
(iii) the occurrence of any event that may make the satisfaction of the
conditions in Article VIII impossible or unlikely; provided, however, that
no such notification shall affect the representations, warranties,
covenants or agreements of the parties or the conditions to the obligations
of the parties under this Agreement. The matters relating to clauses (i)
and (ii) above described in such notice from the Company to Parent shall be
deemed a supplement or amendment to the Disclosure Schedule. Within ten
(10) business days after receipt of such notice, Parent may exercise its
right to terminate this Agreement pursuant to Section 9.1(d) hereof if the
information in such supplement or amendment indicates the Company has
suffered or is reasonably likely to suffer a Material Adverse Effect.
(f) The Company shall give prompt notice to Parent, and Parent or
Merger Subsidiary shall give prompt notice to the Company, of:
(i) any notice or other communication from any person alleging that
the consent of such person is or may be required in connection with the
transactions contemplated by this Agreement;
(ii) any notice or other communication from any Governmental Entity
in connection with the transactions contemplated by this Agreement; and
(iii) any actions, suits, claims, investigations or proceedings
commenced or, to the best of its knowledge threatened against, relating
to or involving or otherwise affecting it or any of its subsidiaries
which, if pending on the date of this Agreement would have been required
to have been disclosed pursuant to Section 4.1(j), 4.1(k), 4.1(l),
4.1(n) or 4.1(o) or Section 4.2(h) or which relate to the consummation
of the transactions contemplated by this Agreement.
7.2 Shareholder Meeting; Proxy Material.
(a) For the purpose (i) of holding meetings of shareholders of the
Company to approve this Agreement and the Merger, and (ii) of registering
under the Securities Act the Parent Common Stock to be issued as
contemplated by this Agreement, the parties hereto shall cooperate in the
preparation, as soon as reasonably practicable, of an appropriate
registration statement (such registration statement, together with all and
any amendments and supplements thereto, being herein referred to as the
"Registration Statement"), which shall include a prospectus/proxy statement
satisfying all applicable requirements of the Securities Act, the Exchange
Act, and the rules and regulations thereunder (such prospectus/proxy
statement, together with any and all amendments or supplements thereto,
being herein referred to as the "Prospectus/Proxy Statement"). At the time
the Registration Statement becomes effective under the Securities Act, at
the time the Prospectus/Proxy Statement or any amendment or supplement
thereto is first mailed to shareholders of the Company, at all time
subsequent to such mailing (including, without limitation, the time such
shareholders vote upon a proposal to approve and adopt this Agreement and
the Merger), and at the Effective Time, the Registration Statement and the
Prospectus/ Proxy Statement, as supplemented or amended, if applicable,
will (i) comply in all material respects with applicable provisions of the
Securities Act and the Exchange Act, and (ii) not contain any untrue
statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
(b) Parent shall furnish such information concerning Parent and its
subsidiaries as is necessary in order to cause the Prospectus/Proxy
Statement, insofar as it relates to Parent and its subsidiaries and
Parent's Common Stock, to be prepared in accordance with Section 7.2(a).
Parent agrees promptly to advise the Company if at any time prior to the
Company's meeting of shareholders held to consider and vote on the Merger
any information provided by Parent in the Prospectus/Proxy Statement
becomes incorrect or incomplete in any material respect.
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(c) The Company shall furnish Parent with such information concerning
the Company and its subsidiaries as is necessary in order to cause the
Prospectus/Proxy Statement, insofar as it relates to the Company and its
subsidiaries to be prepared in accordance with Section 7.2(a). Parent
agrees to provide the Company with reasonable opportunity to review and
comment on the Prospectus/Proxy Statement. The Company agrees promptly to
advise Parent if at any time prior to the Company's meeting of shareholders
any information provided by the Company in the Prospectus/Proxy Statement
becomes incorrect or incomplete in any material respect, and to provide
Parent with the information needed to correct such inaccuracy or omission.
(d) Parent promptly shall file the Registration Statement with the
SEC. Parent shall use reasonable efforts to cause the Registration
Statement to become effective under the Securities Act at the earliest
practicable date. The Company authorizes Parent to utilize in the
Registration Statement the information concerning the Company provided to
Parent for the purpose of inclusion in the in the Prospectus/Proxy
Statement, provided that the Company and its counsel shall have an
opportunity to review the Registration Statement prior to filing with the
SEC and shall otherwise participate in responding to the comments of the
SEC and the process of achieving the effectiveness of the Registration
Statement. Parent shall advise the Company promptly when the Registration
Statement has become effective and of any supplements or amendments
thereto, and Parent shall furnish the Company with copies of all such
documents. Prior to the Effective Time or the termination of this
Agreement, each party shall consult with the other with respect to any
material (other than the Prospectus/Proxy Statement) that might constitute
a "prospectus" relating to the Merger within the meaning of the Securities
Act prior to using or disseminating such prospectus.
(e) Parent shall use reasonable efforts to cause to be delivered to
the Company a letter relating to the Registration Statement from KPMG Peat
Marwick LLP, Parent's independent auditors, dated a date within two
business days before the date on which the Registration Statement shall
become effective and addressed to the Company, in form and substance
reasonably satisfactory to the Company and customary in scope and substance
for letters delivered by independent public accountants in connection with
registration statements similar to the Registration Statement.
(f) The Company shall use reasonable efforts to cause to be delivered
to Parent a letter relating to the Registration Statement from Deloitte &
Touche LLP, the Company's independent auditors, dated a date within two
business days before the date on which the Registration Statement shall
become effective and addressed to Parent, in form and substance reasonably
satisfactory to Parent and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the Registration Statement.
(g) Parent and the Company each shall bear 50% of all SEC filing fees
with respect to the Registration Statement and the Company shall bear 100%
of all printing and mailing costs in connection with the preparation and
mailing of the Prospectus/Proxy Statement to shareholders of the Company.
Parent and the Company shall bear their own legal and accounting expenses
in connection with the Registration Statement.
7.3 Press Releases. Parent and the Company shall agree with each other as
to the form and substance of any press release related to this Agreement or the
transactions contemplated hereby, and shall consult with each other as to the
form and substance of other public disclosures which may relate to the
transactions contemplated by this Agreement; provided, however, that nothing
contained herein shall prohibit either party, following notification to the
other party and reasonable opportunity to comment, from making any disclosure
which is required by law, regulation or stock exchange requirements.
7.4 Shareholder Approvals. The Company shall, as soon as practicable
following the effective date of the Registration Statement, duly call, give
notice of, convene and hold a meeting of its shareholders for the purpose of
obtaining the Company Shareholder Approval and taking such other actions as it
deems advisable or proper, and shall schedule such meeting based on consultation
with Parent.
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ARTICLE VIII
CONDITIONS TO THE MERGER
8.1 Conditions to the Obligations of Each Party. The obligations of the
Company, Parent and Merger Subsidiary to consummate the Merger are subject to
the satisfaction of the following conditions:
(a) the Registration Statement shall have become effective under the
Securities Act and no stop order suspending the effectiveness thereof shall
have been issued and remain in effect and no proceedings for that purpose
shall have been initiated or threatened by the SEC and not withdrawn;
(b) any consents, waivers, clearances, approvals and authorizations of
Regulatory Authorities or other Governmental Entities (including without
limitation, the expiration or early termination of all applicable waiting
periods under the HSR Act) that are necessary to permit consummation of the
Merger shall have been obtained and shall remain in full force and effect,
and all statutory waiting periods in respect thereof shall have been
terminated or have expired, in each case without the imposition of any
condition, restriction or term which could reasonably be expected to have a
Material Adverse Effect;
(c) no provision of any applicable law or regulation and no judgment,
injunction, order, decree or other legal restraint shall prohibit or make
illegal the consummation of the Merger;
(d) tax opinions addressed to each of Parent and the Company by their
respective counsel or independent certified public accountants, or by such
counsel or independent certified public accountants as are mutually
acceptable to Parent and the Company, in form and substance mutually
acceptable to Parent and the Company shall have been obtained with respect
to the Merger, based on customary reliance and subject to customary
qualifications, to the effect that, for federal income tax purposes, the
Merger will qualify as a tax-free "reorganization" under Section 368(a) of
the Code; and
(e) the Parent Common Stock to be issued to holders of Shares in the
Merger shall have been approved for listing on the NYSE, subject to
official notice of issuance.
8.2 Conditions to the Obligations of Parent and Merger Subsidiary. The
obligations of Parent and Merger Subsidiary to consummate the Merger are further
subject to the satisfaction of the following conditions:
(a) there shall not be effected, instituted, pending or proposed any
action by any Governmental Entity (by legislation, rulemaking, interpretive
opinion, change of applicable law or otherwise) (i) an effect of which is
to make illegal, to delay materially or otherwise directly or indirectly to
restrain or prohibit the consummation by Parent or Merger Subsidiary of the
Merger, seeking to obtain material damages or imposing any material adverse
conditions in connection therewith or otherwise directly or indirectly
relating to the transactions contemplated by this Agreement or the Merger,
(ii) an effect of which is to restrain or prohibit Parent's or Merger
Subsidiary's ownership or operation (or that of their respective
subsidiaries or affiliates) of all or any portion of the business or assets
of the Company and its subsidiaries, or of Parent and its subsidiaries or
affiliates, or to compel Parent or any of its subsidiaries or affiliates to
dispose of or hold separate all or any material portion of the business or
assets of the Company and its subsidiaries, or of Parent and its
subsidiaries and affiliates, (iii) an effect of which is to impose
limitations on the ability of Parent or any of its subsidiaries or
affiliates effectively to exercise full rights of ownership of the Shares,
including, without limitation, the right to vote any Shares acquired or
owned by Parent or any of its subsidiaries or affiliates on all matters
properly presented to the Company's shareholders, (iv) an effect of which
is to require divestiture by Parent or any of its subsidiaries or
affiliates of any Shares, or (v) that otherwise is likely to have a
Material Adverse Effect or a Parent Material Adverse Effect (provided,
however, that no action by a Governmental Entity which specifically affects
the title insurance industry by materially reducing, or proposing to
materially reduce, title insurance premium rates shall, for purposes of
this Section 8.2(a) and Section 4.1(j) above, constitute a present or
prospective Material Adverse Effect or Parent Material Adverse Effect
unless the effect of such action is reasonably likely to reduce the
Company's gross revenues from title insurance premiums by more than twenty
percent (20%));
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(b) the Company shall have performed in all material respects its
covenants and agreements under this Agreement, and the representations and
warranties of the Company set forth in this Agreement (after giving effect
to any supplement or amendment to the Disclosure Schedule) that are
qualified as to materiality shall be true when made and at and as of the
Effective Time as if made at and as of such time, and the representations
and warranties set forth in this Agreement (after giving effect to any
supplement or amendment to the Disclosure Schedule) that are not so
qualified shall be true in all material respects when made and at and as of
the Effective Time as if made at and as of such time except to the extent
any such representation or warranty is made as of a specified date, in
which case such representation or warranty shall have been true and correct
as of such specified date; and Parent and Merger Subsidiary shall have
received a certificate of the Chief Executive Officer or a Vice President
of the Company to that effect;
(c) no change (other than a change described in the proviso to clause
(v) of Section 8.2(a) above) shall have occurred or been threatened (and no
development shall have occurred or been threatened involving a prospective
change) that has or is likely to have a Material Adverse Effect;
(d) Parent shall have been furnished with copies of the text of the
resolutions by which the corporate action on the part of the Company
necessary to approve this Agreement, the Shareholders Agreements and the
transactions contemplated hereby and thereby were taken, together with a
certificate dated as of the Effective Time executed on behalf of the
Company by its corporate secretary certifying to Parent that such copies
are true, correct and complete copies of such resolutions and that such
resolutions were duly adopted and have not been amended or rescinded;
(e) The Company Shareholder Approval shall have been obtained, and
holders of no more than five percent (5%) of the Shares shall be entitled
to claim dissenters' rights under Articles 5.11 - 5.13 of the TBCA with
respect to such Shares; and
(f) Parent shall have received an opinion, dated as of or shortly
before the Effective Time, from KPMG Peat Marwick LLP, stating its opinion
that the Merger shall qualify for "pooling of interests" accounting
treatment.
8.3 Conditions to the Obligations of the Company. The obligations of the
Company to consummate the Merger are subject to the further satisfaction of the
following conditions:
(a) there shall not be effected, instituted, pending or proposed any
action by any Governmental Entity (by legislation, rulemaking, change of
applicable law or otherwise) (i) an effect of which is to make illegal, to
delay materially or otherwise directly or indirectly to restrain or
prohibit the consummation by the Company of the Merger, seeking to obtain
material damages or imposing any material adverse conditions in connection
therewith or otherwise directly or indirectly relating to the transactions
contemplated by this Agreement or the Merger, (ii) an effect of which is to
restrain or prohibit Parent's or Merger Subsidiary's ownership or operation
(or that of their respective subsidiaries or affiliates) of all or any
portion of the business or assets of the Company and its subsidiaries, or
of Parent and its subsidiaries or affiliates, or to compel Parent or any of
its subsidiaries or affiliates to dispose of or hold separate all or any
material portion of the business or assets of the Company and its
subsidiaries, or of Parent and its subsidiaries and affiliates, (iii) an
effect of which is to impose limitations on the ability of Parent or any of
its subsidiaries or affiliates effectively to exercise full rights of
ownership of the Shares, including, without limitation, the right to vote
any Shares acquired or owned by Parent or any of its subsidiaries or
affiliates on all matters properly presented to the Company's shareholders,
(iv) an effect of which is to require divestiture by Parent or any of its
subsidiaries or affiliates of any Shares, or (v) that otherwise is likely
to have a Material Adverse Effect or a Parent Material Adverse Effect;
(b) Parent and Merger Subsidiary shall have performed in all material
respects their covenants and agreements under this Agreement, and the
representations and warranties of Parent and Merger Subsidiary set forth in
this Agreement that are qualified as to materiality shall be true when made
at and as of the Effective Time as if made and at and as of such time, and
the representations and warranties set forth in this Agreement that are not
so qualified shall be true in all material respects when made and at
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and as of the Effective Time as if made at and as of such time; and the
Company shall have received certificates of the Chief Executive Officer or
a Vice President of Parent and Merger Subsidiary to that effect;
(c) the Company Shareholder Approval shall have been obtained; and
(d) no change shall have occurred or been threatened (and no
development shall have occurred or been threatened involving a prospective
change), other than changes resulting from changes in interest rates, that
has or is likely to have a Parent Material Adverse Effect.
ARTICLE IX
TERMINATION
9.1 Termination. This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time (notwithstanding the Company
Shareholder Approval):
(a) by mutual written consent of the Company and Parent;
(b) by either Parent or the Company, if the meeting, or any
adjournment thereof, at which the Company Shareholder Approval is proposed
and voted upon, the Company Shareholder Approval shall not have been
obtained;
(c) by either the Company or Parent, if the Merger has not been
consummated by December 31, 1998 (or March 31, 1999, if the sole reason for
the failure to consummate the Merger on or prior to December 31, 1998 is
the failure of the condition precedent set forth in Section 8.1(b) to have
been satisfied and such condition is reasonably likely to be satisfied on
or before March 31, 1999); provided that the party seeking to terminate the
Agreement shall not have breached its obligations under this Agreement in
any material respect;
(d) by Parent, at any time prior to the Effective Time, by action of
the Board of Directors of Parent, if there has been a breach by the Company
of any of its representations, warranties, covenants or agreements
contained in this Agreement, or if any representation or warranty of the
Company shall have become untrue, in either case which has or could
reasonably be expected to have a Material Adverse Effect; provided,
however, that Parent shall not be permitted to terminate this Agreement
pursuant to this Section 9.1(d) as a result of any such breach or
occurrence with respect to which the Company notifies Parent pursuant to
Section 7.1(e) and the Parent fails to give notice of such termination
within the ten (10) business day period after receipt of such notice;
(e) by the Company, at any time prior to the Effective Time, by action
of the Board of Directors of the Company, if there has been a breach by the
Parent or Merger Subsidiary of any of their representations, warranties,
covenants or agreements contained in this Agreement, or if any
representation or warranty of the Parent or Merger Subsidiary shall have
become untrue, in either case which has or could reasonably be expected to
have a Material Adverse Effect or Parent Material Adverse Effect;
(f) by the Parent or the Company, if the Average Parent Stock Price
(as defined below) is less than $33.333 (which amount shall be subject to
adjustment in the event of a Capital Change in a manner consistent with the
provisions of Section 2.1(d)); or
(g) by the Parent, if the Company's Board of Directors shall have
determined not to or shall have failed to recommend to its shareholders the
approval and adoption of this Agreement and the Merger and the transactions
contemplated hereby or if the Board of Directors of the Company or any
committee thereof shall have withdraw or modified, or proposed publicly to
withdraw or modify, in a manner adverse to Parent, the approval or
recommendation by such Board of Directors or such committee of this
Agreement or the Merger and the transactions contemplated hereby.
For purposes of this Agreement, the "Average Parent Stock Price" shall be
the average of the daily closing sales prices of the Parent Common Stock as
reported on the New York Stock Exchange Composite
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Transactions reporting system (as reported by The Wall Street Journal or, if not
reported thereby, as reported by another authoritative source as mutually agreed
by Parent and the Company) for the 20 consecutive full trading days ending on
the third business day immediately prior to the date (as originally scheduled in
the notice mailed to shareholders of the Company, and without giving effect to
any adjournments or postponements) of the meeting of shareholders to obtain the
Company Shareholder Approval referred to in Section 7.4 hereof.
9.2 Effect of Termination. If this Agreement is terminated pursuant to
Section 9.1, this Agreement shall become void and of no effect with no liability
on the part of any party hereto or their respective officers and directors,
except that the agreements contained in Sections 5.6, 6.1, and Article X shall
survive the termination hereof. Specifically, and without limiting the
generality of the foregoing, Parent and Merger Subsidiary agree that, except as
expressly provided in this Section 9.2, termination of this Agreement shall be
their sole and exclusive remedy for any nonwillful breach by the Company of its
representations, warranties and covenants under this Agreement and the Company
agrees that termination of this Agreement shall be its sole and exclusive remedy
for any nonwillful breach by Parent or Merger Subsidiary of their
representations, warranties and covenants under this Agreement. If this
Agreement is terminated by reason of a willful breach by a party, then the
breaching party shall be liable to the non-breaching party for all actual,
consequential and incidental damages suffered by the non-breaching party arising
from such willful breach.
ARTICLE X
MISCELLANEOUS
10.1 Notices. All notices, requests and other communications to any party
hereunder shall be in writing (including telecopy or similar writing) and shall
be given,
if to Parent or Merger Subsidiary, to:
Fidelity National Financial, Inc.
3916 State Street, Suite 300
Santa Barbara, California 93105
Telecopy: (805) 898-7191
Attn: Frank P. Willey, President
with a copy to:
Stradling Yocca Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, CA 92660-6441
Telecopy: (949) 725-4100
Attn: C. Craig Carlson, Esq.
if to the Company, to:
Alamo Title Holding Company
10010 San Pedro, Suite 800
San Antonio, Texas 78216
Telecopy: 210-377-3675
Attn: Robert T. Rork
with a copy to:
Cox & Smith Incorporated
Suite 1800, 112 E. Pecan St.
San Antonio, Texas 78205
Telecopy: 210-226-8395
Attn: James B. Smith, Jr.
or such other address or telecopy number as such party may hereafter specify for
the purpose by notice to the other parties hereto. Each such notice, request or
other communication shall be effective when delivered at the address specified
in this Section.
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10.2 Survival of Representations and Warranties. The representations and
warranties of the parties contained herein and in any certificate or other
writing delivered pursuant hereto shall not survive the Effective Time of the
Merger.
10.3 Amendments; No Waivers.
(a) Any provision of this Agreement may be amended or waived prior to
the Effective Time if, and only if, such amendment or waiver is in writing
and signed, in the case of an amendment, by the Company, Parent and Merger
Subsidiary or in the case of a waiver, by the party against whom the waiver
is to be effective; provided, that after the adoption of this Agreement by
the shareholders of the Company, no such amendment or waiver shall, without
the further approval of such shareholders, alter or change (i) the amount
or kind of consideration to be received in exchange for any shares of
capital stock of the Company, or (ii) any of the principal terms of the
Merger.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single
or partial exercise thereof preclude any other or further exercise thereof
or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any
rights or remedies provided by law.
10.4 Fees and Expenses. Except as otherwise provided in this Agreement,
all costs and expenses incurred in connection with this Agreement shall be paid
by the party incurring such cost or expense.
10.5 Successors and Assigns; Parties in Interest. The provisions of this
Agreement shall be binding, upon and inure to the benefit of the parties hereto
and their respective successors and assigns; provided, that no party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the consent of the other parties hereto except that, with the
consent of the Company, Merger Subsidiary may transfer or assign, in whole or
from time to time in part, to one or more of Parent or any of its wholly-owned
subsidiaries, any or all of its rights or obligations, but any such transfer or
assignment will not relieve Merger Subsidiary of its obligations under this
Agreement. Except as expressly set forth herein nothing in this Agreement,
express or implied, is intended to or shall confer upon any person not a party
hereto any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement, including to confer third party beneficiary rights.
10.6 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated, and the parties shall negotiate
in good faith to modify this Agreement and to preserve each party's anticipated
benefits under this Agreement.
10.7 Governing Law. This Agreement shall be construed in accordance with
and governed by the internal laws of the State of Delaware, without giving
effect to the principles of conflicts of laws thereof, except that the
consummation and effectiveness of the Merger shall be governed by, and construed
in accordance with, applicable provisions of the TBCA and the Delaware General
Corporation Law.
10.8 Entire Agreement. Except for the Confidentiality Agreement dated
March 2, 1998, between the Parent and the Company (the "Confidentiality
Agreement"), this Agreement, including Exhibits and Disclosure Schedules to this
Agreement, constitutes the entire agreement, and supersedes all other prior
agreements, written and oral, among the parties, with respect to the subject
matter hereof.
10.9 Counterparts; Effectiveness; Interpretation. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall
have received counterparts hereof signed by all of the other parties hereto.
When a reference is made in this Agreement to a Section, such reference shall be
to a Section of this Agreement unless otherwise indicated. The table of contents
and headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement.
Whenever the words "include", "includes"
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or "including" are used in this Agreement, they shall be deemed to be followed
by the words "without limitation".
10.10 Effect of Disclosure Schedule. Notwithstanding anything to the
contrary contained in this Agreement or in any Section of the Disclosure
Schedule, any information disclosed in one Section of the Disclosure Schedule
shall be deemed to be disclosed in all Sections of the Disclosure Schedule, to
the extent that such deemed disclosure is apparent from the information actually
disclosed.
The parties hereto have caused this Agreement to be duly executed by their
respective authorized officers as of the day and year first above written.
FIDELITY NATIONAL FINANCIAL, INC.
By: /s/ FRANK P. WILLEY
------------------------------------
Name: Frank P. Willey
Title: President
AT MERGER, INC.
By: /s/ FRANK P. WILLEY
------------------------------------
Name: Frank P. Willey
Title: President
ALAMO TITLE HOLDING COMPANY
By: /s/ ROBERT T. RORK
------------------------------------
Name: Robert T. Rork
Title: President
A-34
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APPENDIX B
[MCDONALD & COMPANY LETTERHEAD]
, 1998
Board of Directors
Alamo Title Holding Company
10010 San Pedro, Suite 800
San Antonio, TX 78216
Gentlemen:
You have requested our opinion with respect to the fairness, from a
financial point of view, as of the date hereof, to the holders of common stock,
par value $2.50 per share ("Alamo Common"), of Alamo Title Holding Company
("Alamo") of the exchange ratio (the "Exchange Ratio") as set forth in Article
II, Section 2.1 of the Agreement and Plan of Merger (the "Agreement") dated as
of May 6, 1998 by and among Alamo Title Holding Company ("Alamo"), Fidelity
National Financial, Inc. ("Fidelity") and AT Merger, Inc., a wholly-owned
subsidiary of Fidelity ("Merger Sub").
The Agreement provides for the acquisition of Alamo by Fidelity through the
merger (the "Merger") of Merger Sub with and into Alamo. In connection with the
Merger, among other things, at the Effective Time (as defined in the Merger
Agreement), the separate corporate existence of Merger Sub shall cease and Alamo
shall continue as the surviving corporation as a direct wholly-owned subsidiary
of Fidelity. The Alamo Common shall be converted into an aggregate number of
shares of Fidelity common stock as set forth in Article II, Section 2.1 of the
Agreement (the "Aggregate Merger Shares"). Alamo shareholders will be entitled
to receive cash in lieu of fractional shares of Fidelity common stock. The terms
and conditions of the Merger are more fully set forth in the Agreement.
McDonald & Company Securities, Inc., as part of its investment banking
business, is customarily engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes.
We have acted as Alamo's financial advisor in connection with, and have
participated in certain negotiations leading to, the execution of the Agreement.
In connection with rendering our opinion set forth herein, we have among other
things:
<TABLE>
<C> <S>
(i) Reviewed Fidelity's Annual Reports to Shareholders and
Annual Reports on Form 10-K for each of the years ended
December 31, 1997, December 31, 1996 and December 31, 1995,
including the audited financial statements contained
therein;
(ii) Reviewed Fidelity's Quarterly Reports to Shareholders on
Form 10-Q for the three months ended March 31, 1998,
including the financial statements contained therein
(iii) Reviewed Alamo's audited financial statements, prepared
under GAAP and under Statutory Accounting Principles, for
each of the years ended December 31, 1997, December 31, 1996
and December 31, 1995;
(iv) Reviewed certain other public and non-public information,
primarily financial in nature, relating to the respective
businesses, earnings, assets and prospects of Fidelity and
Alamo provided to us or publicly available;
(v) Participated in meetings and telephone conferences with
members of senior management of Fidelity and Alamo
concerning the financial condition, business, assets,
financial forecasts and prospects of the respective
companies, individually and on a combined basis, as well as
other matters we believed relevant to our inquiry;
(vi) Compared the results of operations and financial condition
of Fidelity and Alamo with that of certain companies which
we deemed to be relevant for purposes of this opinion;
</TABLE>
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Board of Directors
Alamo Title Holding Company
, 1998
Page 2
<TABLE>
<C> <S>
(vii) Reviewed the financial terms, to the extent publicly
available, of certain acquisition transactions which we
deemed to be relevant for purposes of this opinion;
(viii) Reviewed the Agreement and its schedules and exhibits and
certain related documents and disclosure schedules; and
(ix) Performed such other reviews and analyses as we have deemed
appropriate.
</TABLE>
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and other
information reviewed by us and have relied upon the accuracy and completeness of
the representations, warranties and covenants of Fidelity and Alamo contained in
the Agreement. We have not been engaged to undertake, and have not assumed any
responsibility for, nor have we conducted, an independent investigation or
verification of such matters. We have not been engaged to and we did not conduct
a physical inspection of any of the assets, properties or facilities of either
Fidelity or Alamo, nor have we made or obtained or been furnished with any
independent evaluation or appraisal of any of such assets, properties or
facilities or any of the liabilities of either Fidelity or Alamo. With respect
to financial forecasts used in our analysis, we have assumed that such forecasts
have been reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the management of Fidelity and Alamo as to the future
performance of Fidelity and Alamo, as the case may be. We express no view as to
such financial forecasts or the assumptions on which they are based. We have
also assumed that all of the conditions to the consummation of the Merger, as
set forth in the Agreement, would be satisfied and that the Merger would be
consummated on a timely basis in the manner contemplated by the Agreement.
We will receive a fee for our services as financial advisor to Alamo, a
substantial portion of which is contingent upon closing of the Merger. We will
also receive a fee for our services in rendering this opinion.
In the ordinary course of business, we may trade securities of Fidelity for
our own account and for the accounts of customers and, accordingly, we may at
any time hold a long or short position in such securities.
This opinion is based on economic and market conditions and other
circumstances existing on, and information made available as of, the date
hereof. In addition, our opinion is, in any event, limited to the fairness to
holders of Alamo Common, as of the date hereof, from a financial point of view,
of the Exchange Ratio to the holders of Alamo Common, and does not address the
underlying business decision by Alamo to effect the Merger or any other terms of
the Merger, does not compare or discuss the relative merits of any competing
proposal or any other terms of the Merger, and does not constitute a
recommendation to any Alamo shareholder as to how such shareholder should vote
with respect to the Merger. This opinion does not represent our opinion as to
what the value of Fidelity common stock may be at the effective date of the
Merger or as to the prospects of Fidelity's business or Alamo's business.
This opinion is directed to and has been prepared for the confidential use
of the Board of Directors of Alamo. This opinion shall not be reproduced,
summarized, described or referred to or given to any other person without our
prior written consent. Notwithstanding the foregoing, we consent to the
inclusion of this opinion in the proxy statement to be mailed to the holders of
Alamo common stock in connection with the Merger, provided that this opinion
will be reproduced in such proxy statement in full, and any description of or
reference to us or our actions, or any summary of the opinion in such proxy
statement, will be in a form acceptable to us and our counsel.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio is fair to the holders of Alamo Common from a
financial point of view.
Very truly yours,
McDONALD & COMPANY SECURITIES, INC.
<PAGE> 125
APPENDIX C
ARTICLES 5.11 - 5.13 OF THE TEXAS BUSINESS CORPORATION ACT
Art. 5.11 Rights of Dissenting Shareholders in the Event of Certain Corporate
Actions
A. Any shareholder of a domestic corporation shall have the right to
dissent from any of the following corporate actions:
(1) Any plan of merger to which the corporation is a party if
shareholder approval is required by Article 5.03 or 5.16 of this Act and
the shareholder holds shares of a class or series that was entitled to vote
thereon as a class or otherwise;
(2) Any sale, lease, exchange or other disposition (not including any
pledge, mortgage, deed of trust or trust indenture unless otherwise
provided in the articles of incorporation) of all, or substantially all,
the property and assets, with or without good will, of a corporation if
special authorization of the shareholders is required by this Act and the
shareholders hold shares of a class or series that was entitled to vote
thereon as a class or otherwise;
(3) Any plan of exchange pursuant to Article 5.02 of this Act in which
the shares of the corporation of the class or series held by the
shareholder are to be acquired.
B. Notwithstanding the provisions of Section A of this Article, a
shareholder shall not have the right to dissent from any plan of merger in which
there is a single surviving or new domestic or foreign corporation, or from any
plan of exchange, if:
(1) the shares held by the shareholder are part of a class shares of
which are on the record date fixed to determine the shareholders entitled
to vote on the plan of merger or plan of exchange;
(a) listed on a national securities exchange;
(b) listed on the Nasdaq Stock Market (or successor quotation
system) or designated as a national market security on an interdealer
quotation system by the National Association of Securities Dealers,
Inc., or successor entity; or
(c) held of record by not less than 2,000 holders;
(2) the shareholder is not required by the terms of the plan of merger
or plan of exchange to accept for the shareholder's shares any
consideration that is different than the consideration (other than cash in
lieu of fractional shares that the shareholder would otherwise be entitled
to receive) to be provided to any other holder of shares of the same class
or series of shares held by such shareholder; and
(3) the shareholder is not required by the terms of the plan of merger
or the plan of exchange to accept for the shareholder's shares any
consideration other than:
(a) shares of a domestic or foreign corporation that, immediately
after the effective time of the merger or exchange, will be part of a
class or series of shares of which are
(i) listed, or authorized for listing upon official notice of
issuance, on a national securities exchange;
(ii) approved for quotation as a national market security on an
interdealer quotation system by the National Association of
Securities Dealers, Inc., or successor entity; or
(iii) held of record by not less than 2,000 holders,
(b) cash in lieu of fractional shares otherwise entitled to be
received; or
(c) any combination of securities and cash described in
Subdivisions (a) and (b) of this subsection.
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Art. 5.12. Procedure for Dissent by Shareholders as to Said Corporate Actions
A. Any shareholder of any domestic corporation who has the right to dissent
from any of the corporate actions referred to in Article 5.11 of this Act may
exercise that right to dissent only by complying with the following procedures:
(1) (a) With respect to proposed corporate action that is submitted to
a vote of shareholders at a meeting, the shareholder shall file with the
corporation, prior to the meeting, a written objection to the action,
setting out that the shareholder's right to dissent will be exercised if
the action is effective and giving the shareholder's address, to which
notice thereof shall be delivered or mailed in that event. If the action is
effected and the shareholder shall not have voted in favor of the action,
the corporation, in the case of action other than a merger, or the
surviving or new corporation (foreign or domestic) or other entity that is
liable to discharge the shareholder's right of dissent, in the case of a
merger, shall, within ten (10) days after the action is effected, deliver
or mail to the shareholder written notice that the action has been
effected, and the shareholder may, within ten (10) days from the delivery
or mailing of the notice, make written demand on the existing, surviving,
or new corporation (foreign or domestic) or other entity, as the case may
be, for payment of the fair value of the shareholder's shares. The fair
value of the shares shall be the value thereof as of the day immediately
preceding the meeting, excluding any appreciation or depreciation in
anticipation of the proposed action. The demand shall state the number and
class of the shares owned by the shareholder and the fair value of the
shares as estimated by the shareholder. Any shareholder failing to make
demand within the ten (10) day period shall be bound by the action.
(b) With respect to proposed corporate action that is approved
pursuant to Section A of Article 9.10 of this Act, the corporation, in the
case of action other than a merger, and the surviving or new corporation
(foreign or domestic) or other entity that is liable to discharge the
shareholder's right of dissent, in the case of a merger, shall, within ten
(10) days after the date the action is effected, mail to each shareholder
of record as of the effective date of the action notice of the fact and
date of the action and that the shareholder may exercise the shareholder's
right to dissent from the action. The notice shall be accompanied by a copy
of this Article and any articles or documents filed by the corporation with
the Secretary of State to effect the action. If the shareholder shall not
have consented to the taking of the action, the shareholder may, within
twenty (20) days after the mailing of the notice, make written demand on
the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, for payment of the fair value of the
shareholder's shares. The fair value of the shares shall be the value
thereof as of the date the written consent authorizing the action was
delivered to the corporation pursuant to Section A of Article 9.10 of this
Act, excluding any appreciation or depreciation in anticipation of the
action. The demand shall state the number and class of shares owned by the
dissenting shareholder and the fair value of the shares as estimated by the
shareholder. Any shareholder failing to make demand within the twenty (20)
day period shall be bound by the action.
(2) Within twenty (20) days after receipt by the existing, surviving,
or new corporation (foreign or domestic) or other entity, as the case may
be, of a demand for payment made by a dissenting shareholder in accordance
with Subsection (1) of this Section, the corporation (foreign or domestic)
or other entity shall deliver or mail to the shareholder a written notice
that shall either set out that the corporation (foreign or domestic) or
other entity accepts the amount claimed in the demand and agrees to pay
that amount within ninety (90) days after the date on which the action was
effected, and, in the case of shares represented by certificates, upon the
surrender of the certificates duly endorsed, or shall contain an estimate
by the corporation (foreign or domestic) or other entity of the fair value
of the shares, together with an offer to pay the amount of that estimate
within ninety (90) days after the date on which the action was effected,
upon receipt of notice within sixty (60) days after that date from the
shareholder that the shareholder agrees to accept that amount and, in the
case of shares represented by certificates, upon the surrender of the
certificates duly endorsed.
(3) If, within sixty (60) days after the date on which the corporate
action was effected, the value of the shares is agreed upon between the
shareholder and the existing, surviving, or new corporation (foreign or
domestic) or other entity, as the case may be, payment for the shares shall
be made within
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ninety (90) days after the date on which the action was effected and, in
the case of shares represented by certificates, upon surrender of the
certificates duly endorsed. Upon payment of the agreed value, the
shareholder shall cease to have any interest in the shares or in the
corporation.
B. If, within the period of sixty (60) days after the date on which the
corporate action was effected, the shareholder and the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be, do
not so agree, then the shareholder or the corporation (foreign or domestic) or
other entity may, within sixty (60) days after the expiration of the sixty (60)
day period, file a petition in any court of competent jurisdiction in the county
in which the principal office of the domestic corporation is located, asking for
a finding and determination of the fair value of the shareholder's shares. Upon
the filing of any such petition by the shareholder, service of a copy thereof
shall be made upon the corporation (foreign or domestic) or other entity, which
shall, within ten (10) days after service, file in the office of the clerk of
the court in which the petition was filed a list containing the names and
addresses of all shareholders of the domestic corporation who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the corporation (foreign or domestic) or other
entity. If the petition shall be filed by the corporation (foreign or domestic)
or other entity, the petition shall be accompanied by such a list. The clerk of
the court shall give notice of the time and place fixed for the hearing of the
petition by registered mail to the corporation (foreign or domestic) or other
entity and to the shareholders named on the list at the addresses therein
stated. The forms of the notices by mail shall be approved by the court. All
shareholders thus notified and the corporation (foreign or domestic) or other
entity shall thereafter be bound by the final judgment of the court.
C. After the hearing of the petition, the court shall determine the
shareholders who have complied with the provisions of this Article and have
become entitled to the valuation of and payment for their shares, and shall
appoint one or more qualified appraisers to determine that value. The appraisers
shall have power to examine any of the books and records of the corporation the
shares of which they are charged with the duty of valuing, and they shall make a
determination of the fair value of the shares upon such investigation as to them
may seem proper. The appraisers shall also afford a reasonable opportunity to
the parties interested to submit to them pertinent evidence as to the value of
the shares. The appraisers shall also have such power and authority as may be
conferred on Masters in Chancery by the Rules of Civil Procedure or by the order
of their appointment.
D. The appraisers shall determine the fair value of the shares of the
shareholders adjudged by the court to be entitled to payment for their shares
and shall file their report of that value in the office of the clerk of the
court. Notice of the filing of the report shall be given by the clerk to the
parties in interest. The report shall be subject to exceptions to be heard
before the court both upon the law and the facts. The court shall by its
judgment determine the fair value of the shares of the shareholders entitled to
payment for their shares and shall direct the payment of that value by the
existing, surviving, or new corporation (foreign or domestic) or other entity,
together with interest thereon, beginning 91 days after the date on which the
applicable corporate action from which the shareholder elected to dissent was
effected to the date of such judgment, to the shareholders entitled to payment.
The judgment shall be payable to the holders of uncertificated shares
immediately but to the holders of shares represented by certificates only upon,
and simultaneously with, the surrender to the existing, surviving, or new
corporation (foreign or domestic) or other entity, as the case may be, of duly
endorsed certificates for those shares. Upon payment of the judgment, the
dissenting shareholders shall cease to have any interest in those shares or in
the corporation. The court shall allow the appraisers a reasonable fee as court
costs, and all court costs shall be allotted between the parties in the manner
that the court determines to be fair and equitable.
E. Shares acquired by the existing, surviving, or new corporation (foreign
or domestic) or other entity, as the case may be, pursuant to the payment of the
agreed value of the shares or pursuant to payment of the judgment entered for
the value of the shares, as in this Article provided, shall, in the case of a
merger, be treated as provided in the plan of merger and, in all other cases,
may be held and disposed of by the corporation as in the case of other treasury
shares.
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F. The provisions of this Article shall not apply to a merger if, on the
date of the filing of the articles of merger, the surviving corporation is the
owner of all the outstanding shares of the other corporations, domestic or
foreign, that are parties to the merger.
G. In the absence of fraud in the transaction, the remedy provided by this
Article to a shareholder objecting to any corporate action referred to in
Article 5.11 of this Act is the exclusive remedy for the recovery of the value
of his shares or money damages to the shareholder with respect to the action. If
the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, complies with the requirements of this Article, any
shareholder who fails to comply with the requirements of this Article shall not
be entitled to bring suit for the recovery of the value of his shares or money
damages to the shareholder with respect to the action.
Art. 5.13. Provisions Affecting Remedies of Dissenting Shareholders
A. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act shall not thereafter be entitled to
vote or exercise any other rights of a shareholder except the right to receive
payment for his shares pursuant to the provisions of those articles and the
right to maintain an appropriate action to obtain relief on the ground that the
corporate action would be or was fraudulent, and the respective shares for which
payment has been demanded shall not thereafter be considered outstanding for the
purposes of any subsequent vote of shareholders.
B. Upon receiving a demand for payment from any dissenting shareholder, the
corporation shall make an appropriate notation thereof in its shareholder
records. Within twenty (20) days after demanding payment for his shares in
accordance with either Article 5.12 or 5.16 of this Act, each holder of
certificates representing shares so demanding payment shall submit such
certificates to the corporation for notation thereon that such demand has been
made. The failure of holders of certificated shares to do so shall, at the
option of the corporation, terminate such shareholder's rights under Articles
5.12 and 5.16 of this Act unless a court of competent jurisdiction for good and
sufficient cause shown shall otherwise direct. If uncertificated shares for
which payment has been demanded or shares represented by a certificate on which
notation has been so made shall be transferred, any new certificate issued
therefor shall bear similar notation together with the name of the original
dissenting holder of such shares and a transferee of such shares shall acquire
by such transfer no rights in the corporation other than those which the
original dissenting shareholder had after making demand for payment of the fair
value thereof.
C. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act may withdraw such demand at any
time before payment for his shares or before any petition has been filed
pursuant to Article 5.12 or 5.16 of this Act asking for a finding and
determination of the fair value of such shares, but no such demand may be
withdrawn after such payment has been made or, unless the corporation shall
consent thereto, after any such petition has been filed. If, however, such
demand shall be withdrawn as hereinbefore provided, or if pursuant to Section B
of this Article the corporation shall terminate the shareholder's rights under
Article 5.12 or 5.16 of this Act, as the case may be, or if no petition asking
for a finding and determination of fair value of such shares by a court shall
have been filed within the time provided in Article 5.12 or 5.16 of this Act, as
the case may be, or if after the hearing of a petition filed pursuant to Article
5.12 or 5.16, the court shall determine that such shareholder is not entitled to
the relief provided by those articles, then, in any such case, such shareholder
and all persons claiming under him shall be conclusively presumed to have
approved and ratified the corporate action from which he dissented and shall be
bound thereby, the right of such shareholder to be paid the fair value of his
shares shall cease, and his status as a shareholder shall be restored without
prejudice to any corporate proceedings which may have been taken during the
interim, and such shareholder shall be entitled to receive any dividends or
other distributions made to shareholders in the interim.
Art 5.16. Merger with Entities
A. In any case in which at least ninety (90%) percent of the outstanding
shares of each class and series of shares, membership interests, or other
ownership interests of one or more domestic or foreign corporations
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to other entities is owned by another domestic or foreign corporation or other
entity, and at least one of the parent or subsidiary entities is a domestic
corporation and the other or others are domestic corporations, foreign
corporations, or other entities organized under the laws of a jurisdiction that
permit such a merger or whose organizational documents or other constituent
documents not inconsistent with those laws permit such a merger, the corporation
or other entity having such share ownership may (1) merge such other domestic or
foreign corporation or corporation or other entities into itself, (2) merge
itself into any one or more of such other corporations or other entities, or (3)
merge itself and one or more of such entities or corporations into one or more
of the other entities:
(a) in the event that the corporation or other entity having at
least 90 percent ownership will be a surviving entity in the merger, by
executing and filing articles of merger in accordance with Section B of
this Article; or
(b) in the event that the corporation or other entity having at
least 90 percent ownership will not be a surviving entity in the merger,
by the entity having such share ownership adopting a plan of merger in
the manner required by the laws of its jurisdiction of organization or
formation and its organizational or other constituent documents, except
that no action under Section 5.03 shall be required to be taken by the
corporation or corporations whose shares are so owned, and executing and
filing articles of merger in accordance with Section B of this Article.
B. The articles of merger shall be signed on behalf of the parent entity by
an officer or other duly authorized representative of the parent entity and
shall set forth:
(1) The name of the parent entity and the name of each subsidiary
entity and the type of entity and respective jurisdiction under which each
such subsidiary entity is organized.
(2) The total number or percentage of outstanding shares, membership
interests, or other ownership interests, identified by class, series or
group, and the number or percentage of shares, membership interests, or
other ownership interests in each class, series, or group owned by the
parent entity.
(3) A copy of the resolution or merger adopted by the parent entity in
accordance with the laws or jurisdiction of organization or formation and
its organizational or other constituent documents together with a statement
that the resolution was so adopted and the date of the adoption thereof. If
the parent entity does not own all the outstanding shares, membership
interests, or other ownership interests of each class of each subsidiary
entity that is a party to the merger, the resolution shall state the terms
and conditions of the merger, including the cash or other property,
including shares, obligations, evidences of ownership, rights to purchase
securities, or other securities of any person or entity or any combination
of the shares, obligations, evidences of ownership, rights, or other
securities, to be used, paid or delivered by the surviving entity upon
surrender of each share, membership interest, or other ownership interest
of the subsidiary entity or entities not owned by the parent entity.
(4) If the surviving entity is a foreign corporation or other entity,
the address, including street number if any, of its registered or principal
office in the jurisdiction under whose laws it is governed. If the
surviving entity is a foreign corporation or other entity, on the merger
taking effect the surviving entity is deemed to (a) appoint the Secretary
of State of this state as its agent for service of process to enforce an
obligation or the rights of dissenting shareholders of each domestic
corporation that is a party to the merger, and (b) agree that it will
promptly pay to the dissenting shareholders of each domestic corporation
that is a party to the merger the amount, if any, to which they are
entitled under this Article.
(5) If a plan of merger is required by Section A of this Article to be
adopted in the manner required by Article 5.03 of this Act, the information
required by Section A of Article 5.04 of this Act.
C. The articles of merger shall be delivered to the Secretary of State and
filed as provided by Section B and C of Article 5.04 of this Act.
D. The effective date and the effect of such merger shall be the same as
provided in Articles 5.05 and 5.06 of this Act if the surviving entity is a
domestic corporation. If the surviving entity is a foreign corporation
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or other entity, the effective date and the effect of such merger shall be the
same as in the case of the merger of domestic corporations except in so far as
the laws of such other jurisdiction provide otherwise.
E. In the event all of the shares of a subsidiary domestic corporation that
is a party to a merger effected under this Article are not owned by the parent
entity immediately prior to the merger, the surviving parent entity shall,
within ten (10) days after the effective date of the merger, mail to each
shareholder of record of each subsidiary domestic corporation a copy of the
articles of merger and notify the shareholder that the merger has become
effective. Any such shareholder who holds shares of a class or series that would
have been entitled to vote on the merger if it had been effected pursuant to
Article 5.03 of this Act shall have the right to dissent from the merger and
demand payment of the fair value for the shareholder's shares in lieu of the
cash or other property to be used, paid or delivered to such shareholder upon
the surrender of such shareholder's shares pursuant to the terms and conditions
of the merger, with the following procedure:
(1) Such shareholder shall within twenty (20) days after the mailing
of the notice and copy of the articles of merger make written demand on the
surviving parent entity for payment of the fair value of the shareholder's
shares. The fair value of the shares shall be the value thereof as of the
day before the effective date of the merger, excluding any appreciation or
depreciation in anticipation of such act. The demand shall state the number
and class of the shares owned by the dissenting shareholder and the fair
value of such shares as estimated by the shareholder. Any shareholder
failing to make demand within the twenty (20) day period shall be bound by
the corporate action.
(2) Within ten (10) days after receipt by the surviving entity of a
demand for payment by the dissenting shareholder of the fair value of the
shareholder's shares in accordance with Subsection (1) of this section, the
surviving entity shall deliver or mail to the dissenting shareholder a
written notice which shall either set out that the surviving entity accepts
the amount claimed in the demand and agrees to pay such amount within
ninety (90) days after the date on which the corporate action was effected
and, in the case of shares represented by certificates, upon the surrender
of the shares certificates duly endorsed, or shall contain an estimate by
the surviving parent entity of the fair value of such shares, together with
an offer to pay the amount of that estimate within ninety (90) days after
the date on which such corporate action was effected, upon receipt of
notice within sixty (60) days after that date from such shareholder that
the shareholder agrees to accept that amount and, in the case of shares
represented by certificates, upon the surrender of the shares certificates
duly endorsed.
(3) If, within sixty (60) days after the date on which the corporate
action was effected, the value of the shares is agreed upon between the
dissenting shareholder and the surviving entity, payment for the shares
shall be made within ninety (90) days after the date on which the corporate
action was effected and, in the case of shares represented by certificates,
upon surrender of his certificate or certificates representing such shares.
Upon payment of the agreed value, the dissenting shareholder shall cease to
have any interest in such shares or in the corporation.
(4) If, within sixty (60) days after the date on which such corporate
action was effected, the shareholder and the surviving entity do not so
agree, then the dissenting shareholder or the surviving entity may, within
sixty (60) days after the expiration of the sixty (60) day period, file a
petition in any court of competent jurisdiction in the county in which the
principal office of the corporation is located, asking for a finding and
determination of the fair value of the shareholder's shares as provided in
Section B of Article 5.12 of this Act and thereupon the parties shall have
the rights and duties and follow the procedure set forth in Sections B to D
inclusive of Article 5.12.
(5) In the absence of fraud in the transaction, the remedy provided by
this Article to a shareholder objecting to the corporate action is the
exclusive remedy for the recovery of the value of the shareholder's shares
or money damages to the shareholder with respect to the corporate action.
If the surviving entity complies with the requirements of this Article, any
such shareholder who fails to comply with the requirements of this Article
shall not be entitled to bring suit for the recovery of the value of the
shareholder's shares or money damages to such shareholder with respect to
such corporate action.
C-6
<PAGE> 131
F. If a plan of merger is required by Section A of this Article to be
adopted in the manner required by Article 5.03 of this Act, the provisions of
Articles 5.11 and 5.12 of this Act shall apply to the rights of the shareholders
of a parent corporation to dissent from such merger. Except as otherwise
provided in this Article, the provisions of Articles 5.11 and 5.12 of this Act
shall not be applicable to a merger effected under the provisions of this
Article. The provisions of Article 5.13 of this Act shall be applicable to any
merger effected under the provisions of this Article to the extent provided in
Article 5.13 of this Act.
C-7
<PAGE> 132
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Certificate of Incorporation limits, to the maximum extent
permitted by Delaware law, the personal liability of directors for monetary
damages for breach of their fiduciary duties as a director. The Registrant's
Bylaws provide that the Registrant shall indemnify its officers and directors
and may indemnify its employees and other agents to the fullest extent permitted
by Delaware law.
Section 145 of the DGCL provides that a corporation may indemnify any
person made a party to an action (other than an action by or in the right of the
corporation) by reason of the fact that he or she was a director, officer,
employee or agent of the corporation or was serving at the request of the
corporation against expenses (including attorneys' fees), judgments, fines, and
amounts paid in settlement actually and reasonably incurred by him or her in
connection with such action if he or she acted in good faith and in a manner he
or she reasonably believed to be in, or not opposed to, the best interests of
the corporation and, with respect to any criminal action (other than an action
by or in the right of the corporation), has no reasonable cause to believe his
or her conduct was unlawful.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following exhibits are filed herewith or incorporated by reference
herein:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of May 6, 1998, by
and among Fidelity National Financial, Inc., AT Merger, Inc.
and Alamo Title Holding Company, included as Appendix A to
the accompanying Proxy Statement /Prospectus
5.1 Opinion of Stradling Yocca Carlson & Rauth, a Professional
corporation
8.1 Form of Opinion of Stradling Yocca Carlson & Rauth, a
Professional corporation
8.2 Form of Opinion of Cox & Smith Incorporated
10.1 Form of Affiliate Agreement (Alamo Affiliates)
10.2 Form of Affiliate Agreement (Fidelity Affiliates)
10.3 Form of Shareholder Agreement (Alamo Affiliates)
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Ehrhardt Keefe Steiner & Hottman PC
23.4 Consent of McDonald & Company Securities, Inc.
23.5 Consent of Cox & Smith Incorporated (included in Exhibit
8.2)
23.6 Consent of Stradling Yocca Carlson & Rauth (included in
Exhibits 5.1 and 8.1)
24.1 Power of Attorney (included on Signature Page to
Registration Statement)
99.1 Form of Proxy for Special Meeting of Shareholders of Alamo
Title Holding Company
</TABLE>
(b) The following financial statement schedules of Alamo Title Holding
Company are filed herewith:
Schedule V -- Valuation and Qualifying Accounts.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to the Registration Statement: (i) to
include any prospectus required by Section 10(a)(3) of the Securities Act;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the Registration
II-1
<PAGE> 133
Statement (or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement; (iii) to include any
material information with respect to the plan of distribution not
previously disclosed in the Registration Statement or any material change
to such information in the Registration Statement;
(2) that, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof;
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering;
(4) that, for purposes of determining any liability under the
Securities Act, each filing of the Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Exchange Act that is incorporated by
reference in the Registration Statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof;
(5) that prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of the Registration
Statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form;
(6) That every prospectus (i) that is filed pursuant to paragraph (5)
immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof;
(7) to respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of Form
S-4, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of this Registration Statement through the date of
responding to the request; and
(8) to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in this Registration Statement
when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 20 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-2
<PAGE> 134
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Santa Barbara, State of
California, on the 30th day of June, 1998.
FIDELITY NATIONAL FINANCIAL, INC.
By: /s/ WILLIAM P. FOLEY, II
--------------------------------------
William P. Foley, II
Chairman of the Board
and Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of Fidelity National Financial
Inc., do hereby make, constitute and appoint William P. Foley, II, Andrew F.
Puzder and Allen D. Meadows, and each of them acting individually, our true and
lawful attorneys and agents, with power to act without any other and with full
power of substitution, to do any and all acts and things in our name and behalf
in our capacities as directors and officers and to execute, deliver and file any
and all instruments for us and in our names in the capacities indicated below,
which said attorneys and agents, or either of them, may deem necessary or
advisable to enable said corporation to comply with the Securities Act of 1933,
as amended, and any rules, regulations, and requirements of the Securities and
Exchange Commission, in connection with this Registration Statement, including
specifically, but without limitation, power and authority to sign for use or any
of us, in our names and in the capacities indicated below, any and all
amendments (including post-effective amendments) to this Registration Statement,
or any related registration statement that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and any
and all documents in support thereof or supplemental thereto; and we do hereby
ratify and confirm all that the said attorneys and agents, or any of them, shall
do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ WILLIAM P. FOLEY, II Chairman of the Board and Chief June 30, 1998
- ----------------------------------------------------- Executive Officer (Principal
William P. Foley, II Executive Officer)
/s/ FRANK P. WILLEY President and Director Executive June 30, 1998
- ----------------------------------------------------- Vice President and Chief
Frank P. Willey Financial Officer
/s/ ALLEN D. MEADOWS (Principal Financial and June 30, 1998
- ----------------------------------------------------- Principal Accounting Officer)
Allen D. Meadows
/s/ WILLIAM A. IMPARATO Director June 30, 1998
- -----------------------------------------------------
William A. Imparato
/s/ DONALD M. KOLL Director June 30, 1998
- -----------------------------------------------------
Donald M. Koll
/s/ DANIEL D. LANE Director June 30, 1998
- -----------------------------------------------------
Daniel D. Lane
</TABLE>
<PAGE> 135
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GENERAL WILLIAM LYON Director June 30, 1998
- -----------------------------------------------------
General William Lyon
/s/ STEPHEN C. MAHOOD Director June 30, 1998
- -----------------------------------------------------
Stephen C. Mahood
/s/ J. THOMAS TALBOT Director June 30, 1998
- -----------------------------------------------------
J. Thomas Talbot
/s/ CARY H. THOMPSON Director June 30, 1998
- -----------------------------------------------------
Cary H. Thompson
/s/ WILLIAM W. WEHNER Director June 30, 1998
- -----------------------------------------------------
William W. Wehner
</TABLE>
<PAGE> 136
SCHEDULE V
ALAMO TITLE HOLDING COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
COL. A COL. B COL. C - ADDITIONS COL. D COL. E
------ ---------- ----------------------- ----------- ----------
CHARGED TO
BALANCE AT CHARGED TO OTHER BALANCE AT
BEGINNING COSTS AND ACCTS- DEDUCTIONS- END OF
CLASSIFICATION OF PERIOD EXPENSES DESCRIBED DESCRIBE PERIOD
-------------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995:
Title policy claims reserves.............. 5,570 2,972 0 (1,429)(1) 7,113
Allowance on:
Notes receivable........................ 60 203 0 (263)(2) 0
Premiums receivable..................... 0 100 0 (57)(2) 43
Other receivables....................... 0 2 0 (2)(2) 0
Amortization of cost in excess of net
assets acquired...................... 777 480 0 0 1,257
YEAR ENDED DECEMBER 31, 1996:
Title policy claims reserves.............. 7,113 2,973 0 (805)(1) 9,281
Allowance on:
Notes receivable........................ 0 8 0 0(2) 8
Premiums receivable..................... 43 (42) 0 0(2) 1
Other receivables....................... 0 17 0 (10)(2) 7
Amortization of cost in excess of net
assets acquired...................... 1,257 497 0 0 1,754
YEAR ENDED DECEMBER 31, 1997:
Title policy claims reserves.............. 9,281 2,897 0 (1,251)(1) 10,927
Allowance on:
Notes receivable........................ 8 19 0 (19)(2) 8
Premiums receivable..................... 1 0 0 (1)(2) 0
Other receivables....................... 7 2 0 (7)(2) 2
Amortization of title plant costs....... 0 49 0 0 49
Amortization of cost in excess of net
assets acquired...................... 1,754 965 0 (450)(3) 2,269
</TABLE>
- ---------------
(1) Represents payments of claim losses, net of recoupments
(2) Represents uncollectible accounts written off, net of recoveries
(3) Represents write off of non-compete balance
<PAGE> 137
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
------- ----------- ------------
<S> <C> <C>
2.1 Agreement and Plan of Merger, dated as of May 6, 1998, by
and among Fidelity National Financial, Inc., AT Merger, Inc.
and Alamo Title Holding Company, included as Appendix A to
the accompanying Proxy Statement /Prospectus................
5.1 Opinion of Stradling Yocca Carlson & Rauth, a Professional
corporation.................................................
8.1 Form of Opinion of Stradling Yocca Carlson & Rauth, a
Professional corporation....................................
8.2 Form of Opinion of Cox & Smith Incorporated.................
10.1 Form of Affiliate Agreement (Alamo Affiliates)..............
10.2 Form of Affiliate Agreement (Fidelity Affiliates)...........
10.3 Form of Shareholder Agreement (Alamo Affiliates)............
23.1 Consent of KPMG Peat Marwick LLP............................
23.2 Consent of Deloitte & Touche LLP............................
23.3 Consent of Ehrhardt Keefe Steiner & Hottman PC..............
23.4 Consent of McDonald & Company Securities, Inc...............
23.5 Consent of Cox & Smith Incorporated (included in Exhibit
8.2)........................................................
23.6 Consent of Stradling Yocca Carlson & Rauth (included in
Exhibits 5.1 and 8.1).......................................
24.1 Power of Attorney (included on Signature Page to
Registration Statement).....................................
99.1 Form of Proxy for Special Meeting of Shareholders of Alamo
Title Holding Company.......................................
</TABLE>
<PAGE> 1
Exhibit 5.1
[STRADLING YOCCA CARLSON & RAUTH LETTERHEAD]
July 7, 1998
Fidelity National Financial, Inc.
17911 Von Karman Avenue, Suite 300
Irvine, California 92614
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
At your request, we have examined the form of Registration Statement
(the "Registration Statement") on Form S-4 being filed by Fidelity National
Financial, Inc., a Delaware corporation (the "Company"), with the Securities and
Exchange Commission on July 6, 1998, in connection with the registration under
the Securities Act of 1933, as amended, of up to 2,086,562 shares (the "Shares")
of common stock, par value $.0001 per share, of the Company (the "Common
Stock"), to be issued by the Company to the former shareholders of Alamo Title
Holding Company, a Texas corporation ("Alamo") upon consummation of the merger
(the "Merger") of a wholly-owned subsidiary of the Company with and into Alamo
pursuant to the Agreement and Plan of Merger, dated as of May 6, 1998, by and
among the Company, such subsidiary and Alamo (the "Merger Agreement").
We have examined the proceedings heretofore taken and are familiar with
the additional proceedings proposed to be taken by the Company in connection
with the authorization and issuance of the shares of Common Stock.
Based upon such examination, and subject to compliance with applicable
state securities and "blue sky" laws, it is our opinion that the Shares, when
issued upon consummation of the Merger in accordance with the terms of the
Merger Agreement and in the manner described in the Registration Statement, will
be legally issued, fully paid and non-assessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and to the use of our name under the heading "Legal Matters" in the
Proxy Statement/Prospectus, which is a part of the Registration Statement.
Very truly yours,
/s/ STRADLING YOCCA CARLSON & RAUTH
<PAGE> 1
EXHIBIT 8.1
[STRADLING YOCCA CARLSON & RAUTH LETTERHEAD]
July __, 1998
Fidelity National Financial, Inc.
17911 Von Karman Avenue, Suite 300
Irvine, California 92614
Ladies and Gentlemen:
We have acted as counsel for Fidelity National Financial, Inc., a
Delaware corporation ("Fidelity"), in connection with the preparation and
execution of the Agreement and Plan of Merger, dated as of May 6, 1998 (the
"Merger Agreement") among Fidelity, AT Merger, Inc., a Texas corporation, a
newly formed and wholly-owned subsidiary of Fidelity ("Merger Sub"), and Alamo
Title Holding Company, a Texas corporation ("Alamo"). Pursuant to the Merger
Agreement, Merger Sub will merge with and into Alamo (the "Merger") with Alamo
as the surviving corporation, which will become a wholly-owned subsidiary of
Fidelity. Unless otherwise defined, capitalized terms referred to herein have
the meanings set forth in the Merger Agreement. All section references, unless
otherwise indicated, are to the Internal Revenue Code of 1986, as amended (the
"Code").
You have requested our opinion regarding certain United States federal
income tax consequences of the Merger. In delivering this opinion, we have
reviewed and relied upon the facts, statements, descriptions and representations
set forth in the Registration Statement on Form S-4 filed by Fidelity with the
Securities and Exchange Commission (which contains a Proxy Statement/Prospectus)
(the "Registration Statement"), the Merger Agreement (including Exhibits) and
such other documents pertaining to the Merger as we have deemed necessary or
appropriate. We have also received and relied upon certificates of officers of
Fidelity, Merger Sub and Alamo (the "Officers' Certificates"). We have assumed
that the Officers' Certificates will be updated as of the Effective Time and
that such updated Officers' Certificates will be duly executed and delivered by
the appropriate officers of Fidelity, Merger Sub and Alamo. We have assumed the
representations referred to in this letter remain accurate in all respects that
are material to this opinion at all relevant times and we have made no
investigation or inquiry whatsoever with respect to the accuracy of any such
representations. Any variance of the actual facts or the representations of
principal stockholders could materially affect our opinion as expressed herein
and possibly render it wholly or partially inapplicable.
<PAGE> 2
Fidelity National Financial, Inc
July __, 1998
Page Two
In connection with rendering this opinion, we have also assumed
(without any independent investigation) that:
1. Original documents (including signatures) are authentic, documents
submitted to us as copies conform to the original documents, and there has been
(or will be by the Effective Time) due execution and delivery of all documents
where due execution and delivery are prerequisites to effectiveness thereof;
2. Holders of no more than five percent (5%) of the Shares exercise
their dissenter's rights in connection with the Merger;
3. Any statement made in any of the documents referred to herein as
being "to the best of the knowledge" of any person or party, is correct without
such qualification;
4. All statements, descriptions and representations contained in any of
the documents referred to herein or otherwise made to us are true and correct in
all material respects and no actions have been (or will be) taken which are
inconsistent with such representations; and
5. The Merger will be reported by Fidelity and Alamo on their
respective federal income tax returns in a manner consistent with the opinion
set forth below.
Based on our examination of the foregoing items and subject to the
assumptions, exceptions, limitations and qualifications set forth herein, we are
of the opinion that, if the Merger is consummated in accordance with the Merger
Agreement (and without any waiver, breach or amendment of any of the provisions
thereof) and the statements set forth in the Officers' Certificates are true and
correct as of the date hereof, on the date on which the Registration Statement
is deemed effective under the Securities Act by the Commission, and at the
Effective Time, then, for federal income tax purposes, the Merger will qualify
as a "reorganization" as defined in Section 368(a) of the Code.
This opinion represents and is based upon our best judgment regarding
the application of federal income tax laws arising under the Code, existing
judicial decisions, administrative regulations and published rulings and
procedures. Our opinion is not binding upon the Internal Revenue Service or the
courts, and there is no assurance that the Internal Revenue Service will not
successfully assert a contrary position. Furthermore, no assurance can be given
that future legislative, judicial or administrative changes, on either a
prospective or retroactive basis, would not adversely affect the accuracy of the
conclusions stated herein. Nevertheless, we undertake no responsibility to
advise you of any new developments in the application or interpretation of the
federal income tax laws.
This opinion addresses only the classification of the Merger as a
reorganization under Section 368(a) of the Code, and does not address any other
federal, state, local or foreign tax
<PAGE> 3
Fidelity National Financial, Inc
July __, 1998
Page Three
consequences that may result from the Merger or any other transaction (including
any transaction undertaken in connection with the Merger).
No opinion is expressed as to any transaction other than the Merger as
described in the Merger Agreement. In the event any one of the statements,
representations, warranties or assumptions upon which we have relied to issue
this opinion is incorrect, our opinion might be adversely affected and may not
be relied upon.
This opinion has been delivered to you solely for the purpose of being
included as an exhibit to the Registration Statement. It may not be relied upon
for any other purpose or by any person other than the addressee, without our
prior written consent. We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement and to the use of our name under the
heading "Certain Federal Income Tax Consequences" in the Registration Statement.
Very truly yours,
<PAGE> 1
EXHIBIT 8.2
COX & SMITH
I N C O R P O R A T E D
ATTORNEYS * COUNSELORS
112 East Pecan Street
Suite 1800
San Antonio, Texas 78205-1521
(210) 554-5500
Fax (210) 226-8395
www.coxsmith.com
Writer's Direct Number Writer's E-Mail Address
(210)554-5265 [email protected]
July , 1998
Alamo Title Holding Company
10010 San Pedro, Suite 800
San Antonio, Texas 78216-3895
Dear Ladies and Gentlemen:
We have acted as your counsel in connection with the Registration
Statement on Form S-4 filed on July 6, 1998 (the "Registration Statement") with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Securities Act"). The Registration Statement relates to the
proposed merger of AT Merger, Inc., a Texas corporation ("Sub"), which is a
wholly-owned subsidiary of Fidelity National Financial, Inc., a Delaware
corporation ("Fidelity"), with and into Alamo Title Holding Company, a Texas
corporation ("Alamo").
In connection with this opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
the Registration Statement, the Proxy Statement/Prospectus included therein (the
"Proxy Statement/Prospectus"), the Agreement and Plan of Merger dated May 6,
1998 ("Merger Agreement") among Fidelity, Sub, and Alamo, and such other
documents as we have deemed necessary or appropriate. We have also received and
relied upon Certificates of Officers of Fidelity, Sub, and Alamo (the "Officers'
Certificates"). We have assumed that the Officers' Certificates will be updated
as of the Effective Time and that such updated Officers' Certificates will be
duly executed and delivered by the appropriate officers of Fidelity, Sub, and
Alamo. The aforementioned Registration Statement, Proxy Statement/Prospectus,
Merger Agreement and Officers' Certificates are sometimes collectively referred
to herein as the "Representations". We have assumed the Representations remain
accurate in all respects that are material to this opinion at all relevant times
and we have made no investigation or inquiry whatsoever with respect to the
accuracy of the Representations. Any variance of the actual facts from the
Representations could materially affect our opinion as expressed herein and
possibly render said opinion wholly or partially inapplicable.
<PAGE> 2
COX & SMITH
I N C O R P O R A T E D
ATTORNEYS * COUNSELORS
Alamo Title Holding Company
July , 1998
Page 2
Based on our examination of the foregoing items, the continuing accuracy
of the Representations, and subject to the assumptions, exceptions, limitations
and qualifications set forth herein, we are of the opinion that, if the Merger
is consummated in accordance with the Merger Agreement (and without any waiver,
breach of amendment of any of the provisions thereof) (i) for federal income tax
purposes, the Merger will qualify as a "reorganization" as defined in Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and (ii)
the discussions in the Proxy Statement/Prospectus under the caption "THE MERGER
- -- Certain Federal Income Tax Consequences" and "SUMMARY -- THE MERGER --
Certain Federal Income Tax Matters" are a fair and accurate summary of the
matters addressed therein, based upon current law and the facts and assumptions
stated or referred to therein. There can be no assurance that contrary positions
may not be taken by the Internal Revenue Service.
This opinion represents and is based upon our best judgment regarding
the application of federal income tax laws arising under the Code, existing
judicial decisions, administrative regulations and published rulings and
procedures. Our opinion is not binding upon the Internal Revenue Service or the
courts, and there is no assurance that the Internal Revenue Service will not
successfully assert a contrary position. Furthermore, no assurance can be given
that future legislative, judicial or administrative changes, on either a
prospective or retroactive basis, would not adversely affect the accuracy of the
conclusions stated herein. Nevertheless, we undertake no responsibility to
advise you of any new developments in the application or interpretation of the
federal income tax laws.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the captions "THE MERGER
- -- Certain Federal Income Tax Consequences" and "LEGAL MATTERS" in the Proxy
Statement/Prospectus. In giving such consent, we do not thereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Securities Act.
Very truly yours,
COX & SMITH INCORPORATED
By:
-----------------------------------
William H. Lester, Jr.,
For the Firm
<PAGE> 1
EXHIBIT 10.1
AFFILIATE AGREEMENT
THIS AFFILIATE AGREEMENT (this "Agreement") is made and entered into as
of __________ ___, 1998, by and between FIDELITY NATIONAL FINANCIAL, INC., a
Delaware corporation ("Parent") and the shareholder of ALAMO TITLE HOLDING
COMPANY, a Texas corporation (the "Company"), identified on the signature page
hereto (the "Affiliate").
RECITALS:
A. Parent and the Company are parties to that certain Agreement and Plan
of Merger, dated as of May ___, 1998 (the "Merger Agreement"), which provides
for the acquisition of the Company by Parent by means of a merger (the "Merger")
of a wholly-owned subsidiary of Parent ("Merger Sub") with and into the Company
(unless otherwise defined herein as the context otherwise requires, capitalized
terms shall have the respective meanings set forth in the Merger Agreement);
B. Affiliate is the record holder and beneficial owner (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) of and has the right to vote and dispose of the number of shares of the
outstanding capital stock of the Company indicated on the signature page of this
Agreement (the "Company Shares"), which shares will be converted, upon the
Effective Time of the Merger, into the right to receive shares of Parent Common
Stock (the "Parent Shares"); and
C. Affiliate understands that, since the Merger will be accounted for
using the "pooling of interests" method and the Affiliate is or may be an
"affiliate" of the Company (within the meaning of Rule 145 under the Securities
Act of 1933, as amended (the "Securities Act"), the Parent Shares received in
the Merger may only be disposed of in conformity with the limitations described
herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, the parties agree as follows:
1. Agreement to Retain Shares.
1.1 Transfer and Encumbrance. Affiliate agrees not to transfer,
sell, exchange, pledge or otherwise dispose of or encumber the Company Shares,
the Parent Shares or any New Shares (as defined in Section 1.2 below) or to make
any offer or agreement relating thereto, at any time prior to the Expiration
Date. As used herein, the term "Expiration Date" shall mean the date Parent
shall have publicly released a report including the combined financial results
of Parent and the Company for a period of at least 30 days of combined
operations of Parent and the Company.
1.2 New Shares. Affiliate agrees that any shares of capital stock
of the Company or Parent that Affiliate purchases or with respect to which
Affiliate otherwise acquires beneficial ownership after the date of this
Agreement and prior to the Expiration Date ("New Shares") shall be subject to
the terms and conditions of Section 1.1 of this Agreement to the same extent as
if they constituted Company Shares or Parent Shares.
<PAGE> 2
2. Rule 145. Affiliate understands and agrees that Affiliate may be
deemed to be an "affiliate" of the Company within the meaning of Rule 145
promulgated by the Securities and Exchange Commission (the "SEC") under the
Securities Act, although nothing contained herein should be construed as an
admission of such fact or as a waiver of any right of Affiliate to object to any
claim that he, she or it is an affiliate on or after the date hereof.
3. Reliance Upon Representations, Warranties and Covenants. Affiliate
has been informed that the treatment of the Merger as a reorganization for
federal income tax purposes requires that a sufficient number of shareholders of
the Company maintain a meaningful continuing equity ownership interest in Parent
after the Merger. Affiliate understands that the representations, warranties and
covenants of Affiliate set forth herein will be relied upon by Parent, the
Company and their respective counsel and accounting firms.
4. Representations, Warranties and Covenants of Affiliate. Affiliate
represents, warrants and covenants as follows:
(a) Affiliate has full power and authority to execute this
Agreement, to make the representations, warranties and covenants herein
contained and to perform Affiliate's obligations hereunder.
(b) Set forth below the Affiliate's signature below is the
number of Company Shares owned by Affiliate, including all Company Shares as to
which Affiliate has sole or shared voting or investment power and all rights,
options and warrants to acquire the shares of capital stock of the Company owned
or held by Affiliate.
(c) Affiliate will not sell, transfer, exchange, pledge or
otherwise dispose of, or make any offer or agreement relating to any of the
foregoing with respect to, any Parent Shares that Affiliate may acquire in
connection with the Merger, or any securities that may be paid as a dividend or
otherwise distributed thereon or with respect thereto or issued or delivered in
exchange or substitution therefor (all such shares and other securities of
Parent are sometimes collectively referred to as "Restricted Securities"), or
any option, right or other interest with respect to any Restricted Securities,
unless: (i) such transaction is permitted pursuant to Rule 145(c) and 145(d)
under the Securities Act; (ii) if reasonably requested by Parent, counsel
representing Affiliate, which counsel is reasonably satisfactory to Parent,
shall have advised Parent in a written opinion letter satisfactory to Parent and
Parent's legal counsel, and upon which Parent and its legal counsel may rely,
that no registration under the Securities Act would be required in connection
with the proposed sale, transfer or other disposition; (iii) a registration
statement under the Securities Act covering the Parent Shares proposed to be
sold, transferred or otherwise disposed of, describing the manner and terms of
the proposed sale, transfer or other dispositions, and containing a current
prospectus, shall have been filed with the SEC and made effective under the
Securities Act; or (iv) an authorized representative of the SEC shall have
rendered written advice to Affiliate (sought by Affiliate or counsel to
Affiliate, with a copy thereof and all other related communications delivered to
Parent) to the effect that the SEC would take no action, or that the staff of
the SEC would not recommend that the SEC take any action, with respect to the
proposed disposition if consummated.
5. Rules 144 and 145. From and after the Effective Time of the Merger
and for so long as is necessary in order to permit Affiliate to sell the Parent
Shares held by Affiliate pursuant to Rule 145 and, to the extent applicable,
Rule 144 under the Securities Act, Parent will use its reasonable efforts to
file on a timely basis all reports required to be filed by it pursuant to
Section 13 of the Securities Exchange Act of 1934, as amended, referred to in
paragraph (c)(1) of Rule 144 under the Securities Act, in order to permit
Affiliate to sell the Parent Shares held by it pursuant to the terms and
conditions of Rule 145 and the applicable provisions of Rule 144.
2
<PAGE> 3
6. Legends. Affiliate also understands and agrees that stop transfer
instructions will be given to Parent's transfer agent with respect to
certificates evidencing the Restricted Securities and that there will be placed
on the certificate evidencing the Restricted Securities legends stating in
substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED,
SOLD, PLEDGED, EXCHANGED, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT
OF 1933, AS AMENDED, AND THE OTHER CONDITIONS SPECIFIED IN THAT
CERTAIN AFFILIATE AGREEMENT DATED AS OF __________ __, 1998
BETWEEN THE ISSUER AND THE STOCKHOLDER, A COPY OF WHICH AFFILIATE
AGREEMENT MAY BE INSPECTED BY THE HOLDER OF THIS CERTIFICATE AT
THE PRINCIPAL OFFICES OF THE ISSUER."
After the Expiration Date, Parent agrees to remove the above legend, and
replace such legend with the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED,
SOLD, PLEDGED, EXCHANGED, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT
OF 1933, AS AMENDED."
Parent agrees to remove promptly such stop transfer instructions and
legend (i) upon full compliance with this Agreement by the undersigned,
including, without limitation, a sale or transfer of Parent Shares permitted
under Section 4(c) above, or (ii) if Parent shall have received an opinion of
counsel, in form and substance reasonably satisfactory to Parent, or a
"no-action letter" obtained by the undersigned from the staff of the Commission,
to the effect that the restrictions imposed by Rule 145 under the Securities Act
no longer apply to the Affiliate.
7. Termination. This Agreement shall be terminated and shall be of no
further force and effect upon the termination of the Merger Agreement in
accordance with the terms thereof.
8. Counterparts. This Agreement shall be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one instrument.
9. Binding Agreement. This Agreement will inure to the benefit of and be
binding upon and enforceable against the parties and their successors and
assigns, including administrators, executors, representatives, heirs, legatees
and devisees of Affiliate and pledgees holding Restricted Securities as
collateral.
10. Waiver. No waiver by any party hereto of any condition or of any
breach of any provision of this Agreement shall be effective unless in writing
and signed by each party hereto.
11. Governing Law. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the laws of the State of Delaware.
12. Attorneys' Fees. In the event of any legal actions or proceeding to
enforce of interpret the provisions hereof, the prevailing party shall be
entitled to reasonable attorney's fees, whether or not the proceeding results in
a final judgment.
3
<PAGE> 4
13. Effect of Headings. The Section headings herein are for convenience
only and shall not affect the construction or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the day and year first above written.
FIDELITY NATIONAL FINANCIAL, INC.
By: _______________________________
Name:
Title:
______________________________________
Name of Affiliate:
Affiliate's Address for Notice:
Company Shares beneficially owned:
Shares of Common Stock:
Shares subject to:
Options:
Warrants:
Other Rights:
4
<PAGE> 1
EXHIBIT 10.2
AFFILIATE AGREEMENT
THIS AFFILIATE AGREEMENT (this "Agreement") is made and entered into as
of _________ ___, 1998, by and between FIDELITY NATIONAL FINANCIAL, INC., a
Delaware corporation ("Parent") and the stockholder of Parent identified on the
signature page hereto (the "Affiliate").
RECITALS:
A. Parent and Alamo Title Holding Company, a Texas corporation (the
"Company") are parties to that certain Agreement and Plan of Merger, dated as of
May ___, 1998 (the "Merger Agreement"), which provides for the acquisition of
the Company by Parent by means of a merger (the "Merger") of a wholly-owned
subsidiary of Parent ("Merger Sub") with and into the Company (unless otherwise
defined herein as the context otherwise requires, capitalized terms shall have
the respective meanings set forth in the Merger Agreement);
B. Affiliate is the record holder and beneficial owner (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) of and has the right to vote and dispose of the number of shares of the
outstanding capital stock of the Parent indicated on the signature page of this
Agreement (the "Parent Shares"); and
C. Affiliate understands that, since the Merger will be accounted for
using the "pooling of interests" method the Parent Shares may only be disposed
of in conformity with the limitations described herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, the parties agree as follows:
1. Agreement to Retain Shares.
1.1 Transfer and Encumbrance. Affiliate agrees not to transfer,
sell, exchange, pledge or otherwise dispose of or encumber the Parent Shares or
any New Shares (as defined in Section 1.2 below) or to make any offer or
agreement relating thereto, at any time prior to the Expiration Date. As used
herein, the term "Expiration Date" shall mean the date Parent shall have
publicly released a report including the combined financial results of Parent
and the Company for a period of at least 30 days of combined operations of
Parent and the Company.
1.2 New Shares. Affiliate agrees that any shares of capital stock
of Parent that Affiliate purchases or with respect to which Affiliate otherwise
acquires beneficial ownership after the date of this Agreement and prior to the
Expiration Date ("New Shares") shall be subject to the terms and conditions of
Section 1.1 of this Agreement to the same extent as if they constituted Parent
Shares.
2. Rule 145. Affiliate understands and agrees that it is intended that
the Merger will be treated as a "reorganization" for federal income tax
purposes.
3. Termination. This Agreement shall be terminated and shall be of no
further force and effect upon the termination of the Merger Agreement in
accordance with the terms thereof.
<PAGE> 2
4. Binding Agreement. This Agreement will inure to the benefit of and be
binding upon and enforceable against the parties and their successors and
assigns, including administrators, executors, representatives, heirs, legatees
and devisees of Affiliate and pledgees holding Restricted Securities as
collateral.
5. Waiver. No waiver by any party hereto of any condition or of any
breach of any provision of this Agreement shall be effective unless in writing
and signed by each party hereto.
6. Governing Law. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the laws of the State of Delaware.
7. Attorneys' Fees. In the event of any legal actions or proceeding to
enforce of interpret the provisions hereof, the prevailing party shall be
entitled to reasonable attorney's fees, whether or not the proceeding results in
a final judgment.
8. Effect of Headings. The Section headings herein are for convenience
only and shall not affect the construction or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the day and year first above written.
FIDELITY NATIONAL FINANCIAL, INC.
By: ___________________________________
Name:
Title:
__________________________________________
Name of Affiliate:
Affiliate's Address for Notice:
Parent Shares beneficially owned:
Shares of Common Stock:
Shares subject to:
Options:
Warrants:
Other Rights:
2
<PAGE> 1
EXHIBIT 10.3
RESTATED SHAREHOLDER AGREEMENT
THIS RESTATED SHAREHOLDER AGREEMENT (the "Agreement") is made and
entered into as of July , 1998 between FIDELITY NATIONAL FINANCIAL, INC., a
Delaware corporation ("Parent") and the shareholders of ALAMO TITLE HOLDING
COMPANY, a Texas corporation (the "Company") identified on Schedule 1 hereto
(the "Shareholders").
RECITALS
A. Concurrently with the execution of this Agreement, Parent, a
wholly-owned subsidiary of Parent ("Merger Sub") and the Company are entering
into an Agreement and Plan of Merger (the "Merger Agreement") which provides for
the acquisition of the Company by Parent by means of a merger (the "Merger") of
Merger Sub with and into the Company (unless otherwise defined herein as the
context otherwise requires, capitalized terms shall have the respective meanings
set forth in the Merger Agreement);
B. As an inducement to Parent to enter into the Agreement, the
Shareholders are willing to enter into and be bound by this Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, the parties agree as follows:
1. Ownership of Shares; Agreement to Retain Shares.
1.1 Ownership. Each of the Shareholders represents and warrants
that, except as noted in Schedule 1 hereto, such Shareholder is the record
holder and beneficial owner (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) of and has the right to
vote and dispose of the number of shares of the outstanding capital stock of the
Company indicated on Schedule 1 to this Agreement (the "Shares").
1.2 Additional Purchases. Each of the Shareholders agrees that
any shares of capital stock of the Company that such Shareholder purchases or
with respect to which such Shareholder otherwise acquires beneficial ownership
after the execution of this Agreement and prior to the Expiration Date ("New
Shares") shall be subject to the terms and conditions of this Agreement to the
same extent as if they constituted Shares.
2. Agreement to Vote Shares. At every meeting of the shareholders of the
Company called with respect to any of the following, and at every adjournment
thereof, and on every action or approval by written consent of the shareholders
of the Company with respect to any of the following, each of the Shareholders
shall vote, or cause to be voted, the Shares and any New Shares in favor of
approval of the Merger Agreement and the Merger and any matter that could
reasonably be expected to facilitate the Merger. Each of the Shareholders agrees
not, directly or indirectly, to solicit or encourage any offer from any party
concerning the
<PAGE> 2
possible disposition of all or any substantial portion of the business, assets
or capital stock of the Company; provided, that, if such Shareholder is a
director of the Company, the Shareholder may take any action in his or her role
as a director of the Company which is permitted under the Merger Agreement.
3. Representations, Warranties and Covenants of the Shareholder. Each
Shareholder hereby represents, warrants and covenants to Parent that, except as
indicated on the signature page below, such Shareholder (i) is the beneficial
owner of the Shares, which at the date hereof and at all times up until the
Expiration Date will be free and clear of any liens, claims, options, charges or
other encumbrances (other than those relating to margin accounts); (ii) does not
beneficially own any shares of capital stock of the Company other than the
Shares (excluding shares as to which the Shareholder currently disclaims
beneficial ownership in accordance with applicable law); and (iii) has full
power and authority to make, enter into and carry out the terms of this
Agreement.
4. Affiliate Agreement; Additional Documents. Each of the Shareholders
hereby covenants and agrees to execute and deliver the Affiliate Agreement
described in the Merger Agreement and any other documents necessary or
desirable, in the reasonable opinion of Parent, to carry out the intent of this
Agreement.
5. Termination. This Agreement shall terminate and shall have no further
force or effect as of the Expiration Date.
6. Miscellaneous.
6.1 Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, then the remainder of the terms, provisions, covenants
and restrictions of this Agreement shall remain in full force and effect and
shall in no way be affected, impaired or invalidated.
6.2 Binding Effect and Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns and, in the case of
a Shareholder, his or her personal representatives or estates; provided,
however, that, except as otherwise specifically provided herein, neither this
Agreement nor any of the rights, interests or obligations of a Shareholder may
be assigned by such Shareholder without the prior written consent of Parent.
6.3 Amendments and Modification. This Agreement may not be
modified, amended, altered or supplemented except upon the execution and
delivery of a written agreement executed by the party against whom enforcement
is sought.
2
<PAGE> 3
6.4 Specific Performance; Injunctive Relief. The parties hereto
acknowledge that Parent will be irreparably harmed and that there will be no
adequate remedy at law for a violation of any of the covenants or agreements of
the Shareholders set forth herein. Therefore, it is agreed that, in addition to
any other remedies that may be available to Parent upon any such violation,
Parent shall have the right to enforce such covenants and agreements by specific
performance, injunctive relief or by any other means available to Parent at law
or in equity.
6.5 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and sufficient if delivered in
person, by cable, telegram or telex, or sent by mail (registered or certified
mail, postage prepaid, return receipt requested) or overnight courier (prepaid)
to the respective parties as follows:
If to Parent: Fidelity National Financial, Inc.
3916 State Street, Suite 300
Santa Barbara, California 93105
Telecopy: (805) 898-7191
Attn: Frank P. Willey, President
With a copy to its General Counsel at the same address
With a copy to: Stradling Yocca Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, California 92660
Attn: C. Craig Carlson, Esq.
If the Shareholders: To the addresses for
notice set forth on Schedule 1 hereto.
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall only be
effective upon receipt.
6.6 Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the internal laws of the State of
Texas.
6.7 Entire Agreement. This Agreement contains the entire
understanding of the parties in respect of the subject matter hereof, and
supersedes all prior negotiations and understandings between the parties with
respect to such subject matter.
6.8 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
6.9 Effect of Headings. The section headings herein are for
convenience only and shall not affect the construction of interpretation of this
Agreement.
6.10 Restatement of Original Agreement. This Restated
Shareholder Agreement amends and restates, and shall be deemed to supercede,
that certain Shareholder Agreement, dated as of May 6, 1998, by and among the
parties hereto.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties have caused this Shareholder Agreement
to be duly executed on the date and year first above written.
FIDELITY NATIONAL FINANCIAL, INC.
By: \s\ Frank P. Willey
-------------------------------
Name: Frank P. Willey
Title: President
SHAREHOLDERS: \s\ Don H. Still
----------------------------------
Name of Shareholder: Don H. Still
\s\ Jack E. Biegler
----------------------------------
Name of Shareholder: Jack E. Biegler
\s\ Marilou M. Long
----------------------------------
Name of Shareholder: Marilou M. Long
\s\ James M. Wilson
----------------------------------
Name of Shareholder: James M. Wilson
\s\ Robert T. Rork
----------------------------------
Name of Shareholder: Robert T. Rork
\s\ Alan L. Stinson
----------------------------------
Name of Shareholder: Alan L. Stinson
\s\ E. Don Walker, Jr.
----------------------------------
Name of Shareholder: E. Don Walker, Jr.
\s\ W. W. McAllister III
----------------------------------
Name of Shareholder: W. W. McAllister III
4
<PAGE> 5
\s\ Howard A. Halff
----------------------------------
Name of Shareholder: Howard A. Halff
\s\ Alex H. Halff
----------------------------------
Name of Shareholder: Alex H. Halff
\s\ Sid W. Terry
----------------------------------
Name of Shareholder: Sid W. Terry
\s\ Ruth W. McCracken
----------------------------------
Name of Shareholder: Ruth W. McCracken
5
<PAGE> 6
SCHEDULE 1
TO
SHAREHOLDER AGREEMENT
<TABLE>
<CAPTION>
NAME OF ADDRESS FOR NUMBER OF SHARES
SHAREHOLDER NOTICES BENEFICIALLY OWNED
----------- ----------- ------------------
<S> <C> <C>
Jack E. Biegler 200.0
Alex H. Halff 368,967.0
Howard A. Halff 217,710.0
Mary Lou M. Long --
W. W. McAllister 14,640.0
Ruth W. McCracken 1,200.0
Robert T. Rork 41,000.01
Don H. Still 58,780.0
Alan L. Stinson 6,000.0
Sid W. Terry 60,096.02
E. Don Walker, Jr. --
James M. Wilson 10,000.0
</TABLE>
- --------
1 Includes options to purchase 40,000 Shares.
2 Owned of record by Sid W. Terry Investment Partnership.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Fidelity National Financial, Inc.:
We consent to the use of our reports incorporated herein by reference and to
the reference to our firm under the heading "Experts" in the registration
statement.
/s/ KPMG Peat Marwick LLP
Los Angeles, California
July 6, 1998
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULES
To the Board of Directors and Stockholders of
Alamo Title Holding Company
San Antonio, Texas
We consent to the use in this Registration Statement of Fidelity National
Financial, Inc. on Form S-4 of our report on Alamo Title Holding Company dated
March 24, 1998, appearing in the Prospectus, which is a part of this
Registration Statement, and to the references to us under the heading "Experts"
in such Prospectus.
Our audits of the consolidated financial statements referred to in our
aforementioned report also included the financial statement schedules of Alamo
Title Holding Company, listed in Item 21(b). These financial statement schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits. In our opinion, such financial statement
schedules, when considered in relation to the basic financial statements taken
as a whole, present fairly in all material respects the information set forth
therein.
/s/ Deloitte & Touche LLP
San Antonio, Texas
July 6, 1998
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference, in this Registration Statement on
Form S-4, of our report dated August 20, 1997, on our audit of the consolidated
financial statements of Granite Financial, Inc. and Subsidiaries. We also
consent to the references to our firm under the caption "Experts".
/s/ Ehrhardt Keefe Steiner & Hottman PC
----------------------------------------
Ehrhardt Keefe Steiner & Hottman PC
July 6, 1998
Denver, Colorado
<PAGE> 1
EXHIBIT 23.4
CONSENT OF MCDONALD & COMPANY SECURITIES, INC.
We hereby consent (i) to the use of our opinion letter to the Board of
Directors of Alamo Title Holding Company ("Alamo") included as Appendix B to the
Proxy Statement/Prospectus relating to the transaction provided for by that
certain Agreement and Plan of Merger dated as of May 6, 1998 by and among Alamo,
Fidelity National Financial, Inc. and AT Merger, Inc., a wholly-owned subsidiary
of Fidelity ("Merger Sub") and (ii) to all of the summaries of and references to
our firm and such opinion in such Proxy Statement/Prospectus. In giving such
consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder, nor do we thereby admit that we are experts with respect to any part
of such Registration Statement within the meaning of the term "experts" as used
in the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
/s/ McDONALD & COMPANY SECURITIES, INC.
July 6, 1998
<PAGE> 1
EXHIBIT 99.1
PROXY
ALAMO TITLE HOLDING COMPANY
10010 SAN PEDRO, SUITE 800
SAN ANTONIO, TEXAS 78216-3895
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Alex H. Halff and James Halff as
proxies, each with the power to appoint his substitute, and hereby authorizes
each of them to represent and to vote, as designated below, all shares of the
Common Stock of Alamo Title Holding Company ("Alamo") held of record by the
undersigned on ______, 1998, at a Special Meeting of Shareholders to be held on
______, 1998 and at any adjournment or postponement thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED
IN FAVOR OF THE PROPOSAL TO APPROVE THE AGREEMENT AND PLAN OF MERGER AND THE
MERGER.
1. Approval of the Agreement and Plan of Merger, dated as of May 6,
1998, among Fidelity National Financial, Inc., AT Merger, Inc.
("Merger Sub") and Alamo Title Holding Company, and the Merger
of Merger Sub with and into Alamo, as more fully described in
the accompanying Proxy Statement/Prospectus.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. In their discretion, the Proxies are authorized to vote upon
procedural matters, including, without limitation, potential
adjournments of the Special Meeting, and such other business as
may properly come before the meeting or any adjournment or
postponement thereof, for which discretionary authority may be
exercised.
<PAGE> 2
Please date this Proxy and sign it exactly as your name or names appear below.
When shares are held by joint tenants, both should sign. When signing as an
attorney, executor, administrator, trustee or guardian, please give full title
as such. If shares are held by a corporation, please sign in full corporate name
by the President or other authorized director. If shares are held by a
partnership, please sign in partnership name by authorized person.
All other proxies heretofore given by the undersigned to vote shares of stock of
Alamo Title Holding Company, which the undersigned would be entitled to vote if
personally present at the Special Meeting or any adjournment or postponement
thereof, are hereby expressly revoked.
Date___________________________________________
_______________________________________________
_______________________________________________
_______________________________________________
(Signature)
_______________________________________________
(Signature if held jointly)
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
CARD PROMPTLY USING THE ENCLOSED ENVELOPE. IF
YOUR ADDRESS IS INCORRECTLY SHOWN, PLEASE PRINT
CHANGES.
