<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 16, 1998
REGISTRATION NO. 333-44153
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. ONE
TO
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
IRVINE, CALIFORNIA 92614
(714) 622-4333
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
ANDREW F. PUZDER
EXECUTIVE VICE PRESIDENT
FIDELITY NATIONAL FINANCIAL, INC.
3916 STATE STREET, SUITE 300
SANTA BARBARA, CALIFORNIA 93105
(805) 563-1566
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
C. CRAIG CARLSON, ESQ. KEVIN A. CUDNEY, ESQ.
J. MICHAEL VAUGHN, ESQ. ANNITA M. MENOGAN, ESQ.
STRADLING YOCCA CARLSON & RAUTH DORSEY & WHITNEY LLP
660 NEWPORT CENTER DRIVE 370 SEVENTEENTH STREET, SUITE 4400
NEWPORT BEACH, CALIFORNIA 92660 DENVER, COLORADO 80202
</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 Granite Financial, Inc., as described in the Agreement
and Plan of Merger, dated as of November 17, 1997, attached as Appendix A to the
Joint 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. [ ]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
FIDELITY NATIONAL FINANCIAL, INC.
17911 VON KARMAN AVE.
IRVINE, CALIFORNIA 92614
JANUARY 16, 1998
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Fidelity National Financial, Inc. ("Fidelity"), which will be held on Tuesday,
February 24, 1998, at 10:00 a.m., local time, at The Irvine Marriott Hotel,
located at 18000 Von Karman Avenue, Irvine, California 92612.
At this important meeting, you will be asked to consider and vote upon a
proposal to approve the issuance of shares of Fidelity Common Stock in
connection with Fidelity's proposed acquisition of Granite Financial, Inc.
("Granite"). Pursuant to an Agreement and Plan of Merger with Granite (the
"Merger Agreement"), Fidelity has agreed to acquire Granite by means of a merger
(the "Merger") of a newly-formed, wholly-owned subsidiary with and into Granite,
and to issue 0.7711 shares of Fidelity Common Stock in exchange for each Granite
share outstanding immediately before the Merger. The foregoing exchange ratio is
subject to adjustment as provided in the Merger Agreement.
Your Board of Directors has carefully considered the terms and conditions
of the proposed Merger with Granite and has determined that the Merger is fair
to and in the best interests of Fidelity and its stockholders. THE BOARD HAS
APPROVED THE MERGER AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE
STOCKHOLDERS OF FIDELITY APPROVE THE ISSUANCE OF SHARES OF FIDELITY COMMON STOCK
IN CONNECTION WITH THE MERGER.
In the material accompanying this letter, you will find a Notice of Special
Meeting of Stockholders, a Joint Proxy Statement/Prospectus relating to the
actions to be taken by Fidelity stockholders at the Special Meeting (as well as
the actions to be taken by Granite stockholders at their special meeting) and a
proxy card. The Joint Proxy Statement/Prospectus more fully describes the
proposed Merger and includes information about Fidelity and Granite.
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.
Sincerely,
/s/ WILLIAM P. FOLEY, II
William P. Foley, II
Chairman of the Board and Chief
Executive Officer
<PAGE> 3
FIDELITY NATIONAL FINANCIAL, INC.
17911 VON KARMAN AVE.
IRVINE, CALIFORNIA 92614
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 24, 1998
TO THE STOCKHOLDERS OF FIDELITY NATIONAL FINANCIAL, INC.:
A Special Meeting of Stockholders of Fidelity National Financial, Inc., a
Delaware corporation ("Fidelity"), will be held on Tuesday, February 24, 1998,
at 10:00 a.m., local time, at The Irvine Marriott Hotel, located at 18000 Von
Karman Avenue, Irvine, California 92612, (the "Special Meeting"), for the
following purposes:
1. To consider and vote upon a proposal to approve the issuance of
shares of Fidelity Common Stock pursuant to the merger (the "Merger") of
Granite Acquisition Corp., a wholly-owned subsidiary of Fidelity ("Merger
Sub"), with and into Granite Financial, Inc. ("Granite"), upon the terms
and subject to the conditions set forth in the Agreement and Plan of
Merger, dated as of November 17, 1997 (the "Merger Agreement"), by and
among Fidelity, Granite and Merger Sub; and
2. To transact such other business as may properly come before the
Special Meeting or any adjournment or postponement thereof.
Only holders of record of Fidelity Common Stock at the close of business on
January 15, 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
issuance of shares of Fidelity Common Stock pursuant to the Merger requires the
affirmative vote of the holders of a majority of the shares of Fidelity Common
Stock present in person or represented by proxy at the Special Meeting and
entitled to vote thereat.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ M'LISS JONES KANE
----------------------------------
M'Liss Jones Kane
Secretary
Irvine, California
January 16, 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
GRANITE FINANCIAL, INC.
16100 TABLE MOUNTAIN PARKWAY, SUITE A
GOLDEN, COLORADO 80403
JANUARY 16, 1998
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Granite Financial, Inc. ("Granite"), which will be held on Tuesday, February 24,
1998, at 10:00 a.m., local time, at the offices of Granite, 16100 Table Mountain
Parkway, Suite A, Golden, Colorado 80403.
At this important meeting, you will be asked to consider and vote upon a
proposal to approve and adopt the Agreement and Plan of Merger, dated as of
November 17, 1997 (the "Merger Agreement"), by and among Granite, Fidelity
National Financial, Inc. ("Fidelity"), and Granite Acquisition Corp., a newly-
formed, wholly-owned subsidiary of Fidelity ("Merger Sub"), and the merger (the
"Merger") of Merger Sub with and into Granite. As a result of the Merger,
Granite will become a wholly-owned subsidiary of Fidelity and each outstanding
share of Granite Common Stock will be converted into 0.7711 shares of Fidelity
Common Stock. The foregoing exchange ratio is 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 Granite and its stockholders. THE BOARD HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE
STOCKHOLDERS OF GRANITE APPROVE AND ADOPT THE MERGER AGREEMENT AND THE MERGER.
In the material accompanying this letter, you will find a Notice of Special
Meeting of Stockholders, a Joint Proxy Statement/Prospectus relating to the
actions to be taken by Granite stockholders at the Special Meeting (as well as
the actions to be taken by the Fidelity stockholders at their special meeting)
and a proxy card. The Joint Proxy Statement/Prospectus more fully describes the
proposed Merger and includes information about Granite 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.
Sincerely,
/s/ WILLIAM W. WEHNER
William W. Wehner,
Chairman of the Board and Chief
Executive Officer
<PAGE> 5
GRANITE FINANCIAL, INC.
16100 TABLE MOUNTAIN PARKWAY, SUITE A
GOLDEN, COLORADO 80403
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 24, 1998
TO THE STOCKHOLDERS OF GRANITE FINANCIAL, INC.:
A Special Meeting of Stockholders of Granite Financial, Inc., a Delaware
corporation ("Granite"), will be held on Tuesday, February 24, 1998, at 10:00
a.m., local time, at the offices of Granite, 16100 Table Mountain Parkway, Suite
A, Golden, Colorado 80403 (the "Special Meeting"), for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of November 17, 1997 (the "Merger
Agreement"), by and among Granite, Fidelity National Financial, Inc., a
Delaware corporation ("Fidelity"), and Granite Acquisition Corp., a
newly-formed, wholly-owned subsidiary of Fidelity ("Merger Sub"), and the
merger (the "Merger") of Merger Sub with and into Granite, as a result of
which Granite will become a wholly-owned subsidiary of Fidelity and each
outstanding share of Granite Common Stock (other than treasury shares and
shares owned by Fidelity or its subsidiaries), will be converted into
0.7711 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 stockholders of record of Granite Common Stock at the close of
business on January 16, 1998 are entitled to notice of, and will be entitled to
vote at, the Special Meeting or any adjournment or postponement thereof.
Approval and adoption of the Merger Agreement and the Merger will require the
affirmative vote of the holders of a majority of the shares of Granite Common
Stock present in person or represented by proxy at the Special Meeting and
entitled to vote thereat.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ WILIAM A. WIESE
William A. Wiese,
Secretary
Golden, Colorado
January 16, 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> 6
FIDELITY NATIONAL FINANCIAL, INC. GRANITE FINANCIAL, INC.
JOINT PROXY STATEMENT/PROSPECTUS
This Joint Proxy Statement/Prospectus is being furnished to the
stockholders of Fidelity National Financial, Inc., a Delaware corporation
("Fidelity"), and to the stockholders of Granite Financial, Inc., a Delaware
corporation ("Granite"), in connection with the solicitation of proxies by the
Boards of Directors of Fidelity and Granite for use at the Special Meeting of
Fidelity stockholders (the "Fidelity Meeting") and the Special Meeting of
Granite stockholders (the "Granite Meeting" and, together with the Fidelity
Meeting, the "Special Meetings"). The Fidelity Meeting is being held to approve
the issuance of shares of Common Stock, par value $.0001 per share, of Fidelity
(the "Fidelity Common Stock") in connection with the proposed merger (the
"Merger") of Granite Acquisition Corp., a newly formed, wholly-owned subsidiary
of Fidelity ("Merger Sub") with and into Granite, with Granite being the
surviving corporation in the Merger, pursuant to an Agreement and Plan of
Merger, dated as of November 17, 1997 (the "Merger Agreement"), by and among
Fidelity, Granite and Merger Sub. The Granite Meeting is being held to approve
and adopt the Merger Agreement. The Merger Agreement is attached to this Joint
Proxy Statement/Prospectus as Appendix A and is incorporated herein by
reference.
This Joint Proxy Statement/Prospectus also relates to up to 5,280,108
shares of Fidelity Common Stock offered hereby to the stockholders of Granite
upon consummation of the Merger. Upon the effectiveness of the Merger, each
share of Common Stock, par value $.001 per share, of Granite (the "Granite
Common Stock") will be converted into 0.7711 shares of Fidelity Common Stock (as
may be adjusted pursuant to the Merger Agreement in certain circumstances, the
"Exchange Ratio") and cash, without interest, in lieu of fractional shares.
Based upon the number of shares of Granite Common Stock and Fidelity Common
Stock outstanding as of December 31, 1997, and assuming no adjustments to the
Exchange Ratio, there will be an aggregate of approximately 4,736,097 shares of
Fidelity Common Stock issued in connection with the Merger, representing
approximately 20.1% of the total number of shares of Fidelity Common Stock to be
outstanding immediately after consummation of the Merger. For a more complete
description of the Merger Agreement and the Merger, see "THE MERGER."
On January 15, 1998, the closing sale price of Fidelity Common Stock on the
New York Stock Exchange ("NYSE") was $27.69, and the closing sale price of
Granite Common Stock on the Nasdaq National Market was $18.50. Because the
market price of Fidelity Common Stock is subject to fluctuation, the value of
the shares of Fidelity Common Stock that holders of Granite 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 Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to stockholders of Fidelity and Granite on or about
January 20, 1998.
STOCKHOLDERS OF FIDELITY AND GRANITE ARE STRONGLY URGED TO READ AND
CONSIDER CAREFULLY THIS JOINT PROXY STATEMENT/PROSPECTUS IN ITS ENTIRETY,
PARTICULARLY THE MATTERS REFERRED TO ON PAGE 14 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 JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Joint Proxy Statement/Prospectus is January 16, 1998
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
AVAILABLE INFORMATION................................................................ ii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...................................... iii
SUMMARY.............................................................................. 1
The Companies...................................................................... 1
Special Meetings of Stockholders................................................... 2
Opinions of Financial Advisors..................................................... 3
Recommendations of the Boards of Directors......................................... 3
The Merger......................................................................... 3
Recent Market Price Data........................................................... 8
SELECTED HISTORICAL FINANCIAL DATA OF FIDELITY....................................... 9
SELECTED HISTORICAL FINANCIAL DATA OF GRANITE........................................ 10
SELECTED PRO FORMA FINANCIAL DATA OF FIDELITY AND GRANITE COMBINED................... 12
COMPARATIVE PER SHARE DATA........................................................... 13
RISK FACTORS......................................................................... 14
THE FIDELITY MEETING................................................................. 18
THE GRANITE MEETING.................................................................. 19
THE MERGER........................................................................... 21
The Merger......................................................................... 21
Background of the Merger........................................................... 22
Reasons for the Merger............................................................. 23
Board Recommendations.............................................................. 24
Opinions of Financial Advisors..................................................... 24
Interests of Certain Persons in the Merger......................................... 34
Representations and Warranties; Covenants.......................................... 34
Conditions to the Merger........................................................... 35
Treatment of Options and Warrants to Purchase Granite Common Stock................. 35
Amendment or Termination of the Merger Agreement; Reimbursement of Expenses and
Breakup Fee..................................................................... 36
Related Agreements................................................................. 36
Regulatory Matters................................................................. 37
Management and Operations After the Merger......................................... 37
Certain Federal Income Tax Consequences............................................ 37
Restrictions on Resales by Affiliates.............................................. 39
Accounting Treatment............................................................... 40
No Dissenters' Rights.............................................................. 40
Exchange of Certificates........................................................... 40
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS................................... 41
PRICE RANGE OF COMMON STOCK AND DIVIDENDS............................................ 48
INFORMATION ABOUT FIDELITY........................................................... 49
INFORMATION ABOUT GRANITE............................................................ 50
COMPARISON OF RIGHTS OF STOCKHOLDERS OF FIDELITY AND GRANITE......................... 51
STOCKHOLDER PROPOSALS................................................................ 52
EXPERTS.............................................................................. 53
LEGAL MATTERS........................................................................ 53
OTHER MATTERS........................................................................ 53
APPENDICES
Appendix A -- Agreement and Plan of Merger
Appendix B -- Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated
Appendix C -- Opinion of Piper Jaffray Inc.
</TABLE>
i
<PAGE> 8
NO PERSON HAS BEEN AUTHORIZED BY FIDELITY OR GRANITE TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS JOINT 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 GRANITE. THIS JOINT PROXY STATEMENT/PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE
SECURITIES OFFERED BY THIS JOINT 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 JOINT PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF THE SECURITIES TO WHICH THIS JOINT 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 and Granite are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, file 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. 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 and Granite, 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.
The reports, proxy statements and other information filed by Granite with the
Commission may also be inspected at the offices of the National Association of
Securities Dealers, Inc., NASDAQ Reports Section, 1735 K Street, Washington,
D.C. 20006.
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 Joint 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 Joint 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 Joint 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 JOINT PROXY STATEMENT/PROSPECTUS RELATING
TO FIDELITY HAS BEEN FURNISHED BY FIDELITY, AND ALL INFORMATION HEREIN RELATING
TO GRANITE HAS BEEN FURNISHED BY GRANITE.
ii
<PAGE> 9
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by Fidelity with the Commission
are hereby incorporated by reference in this Joint Proxy Statement/Prospectus:
(i) the Fidelity Annual Report on Form 10-K for the year ended December 31,
1996, as filed on March 31, 1997 and amended on April 30, 1997; (ii) the
Fidelity Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997
(as filed on May 8, 1997), June 30, 1997 (as filed on August 6, 1997) and
September 30, 1997 (as filed on November 13, 1997); (iii) the Fidelity Current
Reports on Form 8-K dated September 23, 1997, November 3, 1997, November 5, 1997
and November 21, 1997; 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.
The following documents previously filed by Granite with the Commission are
hereby incorporated by reference in this Joint Proxy Statement/Prospectus: (i)
the Granite Annual Report on Form 10-KSB for the year ended June 30, 1997, as
filed on September 29, 1997; and (ii) the Granite Quarterly Report on Form
10-QSB for the quarter ended September 30, 1997, as filed on November 14, 1997.
In addition, all documents filed by Fidelity and Granite with the
Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Joint Proxy Statement/Prospectus and prior to the
date of the Special Meetings shall be deemed incorporated by reference into this
Joint 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 Joint
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 Joint Proxy Statement/Prospectus.
THIS JOINT 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, 3916 STATE STREET, SUITE 300, SANTA BARBARA,
CALIFORNIA 93105 (TELEPHONE (805) 563-1166). REQUESTS FOR DOCUMENTS RELATING TO
GRANITE SHOULD BE DIRECTED TO GRANITE FINANCIAL, INC., INVESTOR RELATIONS
DEPARTMENT, 16100 TABLE MOUNTAIN PARKWAY, SUITE A, GOLDEN, COLORADO 80403
(TELEPHONE (303) 216-3500). IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS
IN ADVANCE OF THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY FEBRUARY
17, 1998.
iii
<PAGE> 10
SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Joint 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 Joint Proxy Statement/Prospectus, the
accompanying Appendices and the documents incorporated herein by reference.
Unless otherwise expressly indicated or the context otherwise requires, all
information herein reflects the 10% stock dividend declared by Fidelity on
December 17, 1997, which was paid on January 14, 1998 to stockholders of record
on December 29, 1997 (the "Stock Dividend").
This Joint 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 Granite 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
Granite are greater than expected; (iii) revenues following the Merger are lower
than expected; (iv) competitive pressure in the financial services, title
insurance and equipment leasing 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. Through its principal 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.
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, Irvine, California
92614. Its telephone number is (714) 622-4333.
Merger Sub. Granite Acquisition Corp., a Delaware 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.
Granite. Granite is a finance company specializing in originating, funding,
acquiring, selling, securitizing and servicing non-cancelable, full-payment
equipment leases for a broad range of businesses located throughout the United
States. Granite's operations are primarily in the small-ticket segment of the
equipment leasing market, which generally encompasses leases of equipment with
original purchase prices of $150,000 or less. Granite is committed to providing
a high level of service to its network of independent lease originators and is
investing in advanced technology that will allow Granite to electronically link
each originator with Granite's systems and resources. Granite has also set up
vendor direct programs. Such programs will focus on establishing formal and
informal relationships with equipment vendors whereby Granite will be the
financing source recommended by the vendor to its equipment purchasers. As a
value added service, Granite may
1
<PAGE> 11
develop specialty lease finance programs and vendor direct programs which would
offer customized lease finance arrangements to respond to the needs of a
particular lease originator and vendor, respectively.
Unless otherwise indicated, "Granite" refers to Granite Financial, Inc.,
its limited liability company predecessor and its wholly-owned subsidiaries.
Granite's principal executive offices are located at 16100 Table Mountain
Parkway, Suite A, Golden, Colorado 80403. Its telephone number is (303)
216-3500.
SPECIAL MEETINGS OF STOCKHOLDERS
Date, Time and Place
Fidelity. The Fidelity Meeting will be held on Tuesday, February 24, 1998,
at 10:00 a.m., local time, at The Irvine Marriott Hotel, located at 18000 Von
Karman Avenue, Irvine, California 92612.
Granite. The Granite Meeting will be held on Tuesday, February 24, 1998, at
10:00 a.m., local time, at Granite's principal executive offices, which are
located at 16100 Table Mountain Parkway, Suite A, Golden, Colorado 80403.
Record Dates; Shares Outstanding and Entitled to Vote
Fidelity. Holders of record of Fidelity Common Stock at the close of
business on January 15, 1998 (the "Fidelity Record Date") are entitled to notice
of and to vote at the Fidelity Meeting. At the close of business on the Fidelity
Record Date, there were 18,777,931 shares of Fidelity Common Stock outstanding,
each of which will be entitled to one vote on each matter to be acted upon.
Granite. Holders of record of Granite Common Stock at the close of business
on January 16, 1998 (the "Granite Record Date") are entitled to notice of and to
vote at the Granite Meeting. As of the close of business on January 14, 1998,
there were 6,142,000 shares of Granite Common Stock outstanding, each of which
will be entitled to one vote on each matter to be acted upon.
Purposes of the Special Meetings
Fidelity Meeting. At the Fidelity Meeting, holders of record of Fidelity
Common Stock as of the close of business on the Fidelity Record Date will be
asked to consider and vote upon a proposal to approve the issuance of shares of
Fidelity Common Stock pursuant to the Merger Agreement and the Merger (the
"Share Issuance Proposal").
Granite Meeting. At the Granite Meeting, holders of record of Granite
Common Stock as of the close of business on the Granite Record Date will be
asked to consider and vote upon a proposal to approve and adopt the Merger
Agreement and the Merger.
Votes Required
Fidelity. Approval of the Share Issuance Proposal requires the affirmative
vote of a majority of the votes cast at the Fidelity Meeting, provided that at
least 50% of the votes entitled to be cast thereon are voted at the Fidelity
Meeting. As of the Fidelity Record Date, the directors and executive officers of
Fidelity and their affiliates had the right to vote an aggregate of 3,758,344
shares of Fidelity Common Stock, representing approximately 20.0% of Fidelity
Common Stock entitled to vote at the Fidelity Meeting. It is currently expected
that each such director and executive officer of Fidelity will vote the shares
of Fidelity Common Stock beneficially owned by him or her for approval of the
Share Issuance Proposal.
Granite. Approval and adoption of the Merger Agreement and the Merger
requires the affirmative vote of the holders of a majority of the outstanding
shares of Granite Common Stock. As of the close of business on January 14, 1998,
the directors and executive officers of Granite and their affiliates had the
right to vote an aggregate of 2,193,630 shares (excluding shares underlying
currently exercisable options) of Granite Common Stock, representing
approximately 35.7% of Granite Common Stock entitled to vote at the Granite
Meeting. Each of the directors and executive officers of Granite and certain
other stockholders of Granite has entered into a Stockholder Agreement with
Fidelity, pursuant to which each such director, executive officer or stockholder
has agreed to vote his shares of Granite Common Stock in favor of the Merger and
the Merger Agreement. See "THE MERGER -- Related Agreements -- Stockholder
Agreements."
2
<PAGE> 12
OPINIONS OF FINANCIAL ADVISORS
Fidelity. On November 17, 1997, Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"), which served as financial advisor to Fidelity in
connection with the Merger, rendered its oral opinion to the Board of Directors
of Fidelity (the "Fidelity Board") that, as of such date and based upon and
subject to the matters discussed with the Fidelity Board, the Exchange Ratio
(which was defined for the purposes of such opinion as 0.701 shares of Fidelity
Common Stock for each share of Granite Common Stock and which did not take into
account the Stock Dividend) was fair to Fidelity from a financial point of view.
Such opinion was confirmed in writing on the date of this Joint Proxy
Statement/Prospectus. A copy of the written opinion delivered by Merrill Lynch
on the date hereof is attached hereto as Appendix B and should be read in its
entirety with respect to the procedures followed, assumptions made, matters
considered and qualifications and limitations on the review undertaken by
Merrill Lynch in connection with such opinion. See "THE MERGER -- Opinions of
Financial Advisors -- Opinion of Merrill Lynch."
Granite. Piper Jaffray Inc. ("Piper Jaffray") delivered to the Board of
Directors of Granite on November 16, 1997, 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 consideration proposed to be paid
by Fidelity pursuant to the Merger Agreement was fair, from a financial point of
view, to the stockholders of Granite. For the purpose of preparing such opinion
and related analyses, Piper Jaffray assumed the then current implied purchase
price of $17.00 for each share of Granite Common Stock (based on the Exchange
Ratio set forth in the Merger Agreement). Such opinion was subsequently
reaffirmed by issuance to the Granite Board of a Piper Jaffray opinion dated the
date of this Joint Proxy Statement/Prospectus. In connection with preparing its
opinion dated the date of this Joint Proxy Statement/Prospectus, Piper Jaffray
confirmed the appropriateness of its reliance on the analyses used in preparing
its opinion dated November 16, 1997 by performing procedures to update certain
of such analyses and reviewing the assumptions on which such analyses were based
and the factors considered in connection therewith, modified, where appropriate,
to take into account (i) the fact that, as of the date hereof, the Exchange
Ratio represents an implied purchase price of $20.00 for each share of Granite
Common Stock, (ii) the Stock Dividend, which was announced after November 16,
1997, and (iii) certain other events occurring after November 16, 1997 that
affected the number of shares of Fidelity Common Stock expected to be issued to
holders of Granite Common Stock upon consummation of the Merger. Piper Jaffray's
opinion is directed only to the consideration to be received by holders of
Granite Common Stock and does not constitute a recommendation to the holders of
Granite Common Stock as to how they should vote at the Granite Meeting. The full
text of the opinion of Piper Jaffray dated as of the date of this Joint Proxy
Statement/Prospectus, which sets forth the assumptions made, matters considered
and limitations on the review undertaken by Piper Jaffray, is attached hereto as
Appendix C. The holders of Granite Common Stock are urged to read, and should
read, this opinion in its entirety. See "THE MERGER -- Opinions of Financial
Advisors -- Opinion of Piper Jaffray."
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
The Fidelity Board and the Board of Directors of Granite (the "Granite
Board") have unanimously approved the Merger Agreement and the Merger. The
Fidelity Board and the Granite Board each believe that the Merger is fair to and
in the best interests of their respective companies and stockholders, and
unanimously recommend that such stockholders vote "FOR" the matters to be voted
upon by such stockholders in connection with the Merger. For discussions of the
primary factors considered and relied upon by the Fidelity Board and the Granite
Board in reaching their respective 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 Granite, which will be the
surviving entity, and each outstanding share of Granite Common Stock will be
converted into 0.7711 shares of Fidelity Common Stock (subject to adjustment in
certain circumstances described below), plus cash, without interest, in lieu of
any resulting fractional shares of
3
<PAGE> 13
Fidelity Common Stock. The Exchange Ratio, as originally negotiated by Fidelity
and Granite in the Merger Agreement, was 0.701 shares of Fidelity Common Stock
for each share of Granite Common Stock, and has been adjusted to 0.7711 pursuant
to the terms of the Merger Agreement by reason of the Stock Dividend.
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
$20.75 or more than $25.94. If the Average Fidelity Stock Price is less than
$20.75, Fidelity may elect to either terminate the Merger Agreement or increase
the Exchange Ratio to a number equal to the product of the Exchange Ratio
multiplied by a fraction, the numerator of which is $20.75 and the denominator
of which is the Average Fidelity Stock Price. If the Average Fidelity Stock
Price is more than $25.94, the Exchange Ratio will be reduced to a number equal
to the product of the Exchange Ratio multiplied by a fraction, the numerator of
which is $25.94 and the denominator of which is the Average Fidelity Stock
Price. As used in the Merger Agreement, 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 Meetings. See
"THE MERGER -- The Merger."
Interests of Certain Persons in the Merger
At the Effective Time of the Merger, it is expected that William W. Wehner,
Chairman and Chief Executive Officer of Granite, will enter into an employment
agreement with Fidelity to continue as Chairman and Chief Executive Officer of
Granite following the Merger. Granite and Fidelity also may enter into
employment agreements with certain other members of management of Granite. See
"THE MERGER -- Interests of Certain Persons in the Merger."
Representations and Warranties; Covenants
Under the Merger Agreement, Fidelity and Granite made a number of
representations and warranties to each other, including representations and
warranties regarding their valid existence and good standing, authority to enter
into the Merger Agreement and to consummate the Merger, and the accuracy of
their respective filings with the Commission. Furthermore, Granite made certain
additional representations and warranties to Fidelity concerning, among other
things, its business, properties, contracts, compliance with applicable laws,
the absence of certain changes, taxes and issuance of its securities. Granite
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, Granite 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, except that the Granite Board may provide information
to and engage in negotiations with a third party regarding an Acquisition
Proposal if the Granite Board determines that its fiduciary duties, as defined
under the Delaware General Corporation Law (the "DGCL"), require Granite to
furnish information to and negotiate with such third party, and Fidelity is
notified orally and in writing of such Acquisition Proposal, including its
principal terms and conditions.
From and after the effective time of the Merger, Fidelity shall have the
right to continue, amend or terminate any Granite 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 Granite 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 Granite, subject to certain limitations. See "THE
MERGER -- Representations and Warranties; Covenants."
4
<PAGE> 14
Conditions to the Merger
In addition to the stockholder approvals sought hereby, the obligations of
Granite, 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 matters, the absence of material adverse changes,
subject to certain exceptions, in the value, condition, prospects, business or
results of operations of Fidelity or Granite, 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 Granite, would prevent the Merger from being
accounted for as a pooling-of-interests, and the receipt of a tax opinion by
Fidelity and Granite 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 Granite Common Stock
As of the Granite Record Date, there were options to purchase an aggregate
of 405,500 shares of Granite Common Stock (the "Granite Options") outstanding
under the Granite 1996 Omnibus Stock Option Plan, as amended (the "Granite
Option Plan"), and warrants to purchase an aggregate of 300,000 shares of
Granite Common Stock (the "Granite Warrants") outstanding, of which warrants to
purchase 262,500 shares of Common Stock are held by Piper Jaffray, Granite's
financial advisor.
At the Effective Time, each Granite 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 Granite Option, the number of
shares of Fidelity Common Stock as the holder would have received if such
Granite Option was exercised in full immediately prior to the Merger and been
the holder of Granite Common Stock issuable upon exercise of such Granite
Option.
At the Effective Time, each Granite Warrant will be assumed by Fidelity in
accordance with the respective provisions of each such Warrant and will
thereafter be deemed to constitute a warrant to purchase, on the same terms and
conditions as were applicable under such Warrant, the same number of shares of
Fidelity Common Stock as the holder of such Warrant would have been entitled to
receive pursuant to the Merger had such holder exercised such warrant in full
immediately prior to the Effective Time and been the holder of Granite Common
Stock issuable upon exercise of such Warrant. See "THE MERGER -- Treatment of
Options and Warrants to Purchase Granite Common Stock."
Amendment or Termination of the Merger Agreement; Breakup Fee
The Merger Agreement may be amended by the parties at any time before or
after approvals of the stockholders of Fidelity and Granite sought hereby,
except that, after such stockholder approval, no amendment may be made without
the further approval of such stockholders which would alter or change (i) the
amount or kind of consideration to be received in exchange for any shares of
capital stock of Granite, or (ii) 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 approvals of the stockholders of Fidelity
or Granite are not obtained, (ii) the Merger has not been consummated by June
15, 1998, (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.
5
<PAGE> 15
The Merger Agreement may be terminated by Fidelity if the Average Fidelity
Stock Price is less than $20.75 per share, or if the Granite 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").
The Merger Agreement may also be terminated by the Granite Board if Granite
receives an Acquisition Proposal on terms the Granite Board (after consultation
with its financial advisors) determines in good faith to be more favorable to
Granite's stockholders than the terms of the Merger, and the Granite Board
determines, upon the written advice of its legal counsel, that to continue to
recommend that holders of Granite Common Stock vote in favor of the Merger or to
fail to recommend or accept the Acquisition Proposal would violate the fiduciary
duties of the Granite Board (a "Superior Proposal Termination"). See "THE
MERGER -- Amendment or Termination of the Merger Agreement; Reimbursement of
Expenses and Breakup Fee."
The Merger Agreement provides for the reimbursement of Fidelity's
documented fees and expenses related to the Merger Agreement and the payment of
an additional fee of $5.0 million by Granite (i) upon a Superior Proposal
Termination or a Withdrawal Termination, or (ii) (A) if any person or group,
other than Fidelity or Merger Sub or any of their respective subsidiaries or
affiliates, shall have become the beneficial owner of a majority of the
outstanding shares of Granite's Common Stock, and (B) either Granite shall fail
to obtain the approval of Granite stockholders sought hereby or the Granite
Board shall have withdrawn or changed its recommendation or refused to make a
recommendation in favor of the Merger Agreement and the Merger.
Related Agreements
Each of the directors and executive officers of Granite and certain holders
of Granite 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 and against any
proposal made in opposition to or in competition with consummation of the Merger
and the Merger Agreement, and enter into Irrevocable Proxies appointing
Fidelity's Board of Directors as the sole and exclusive attorneys and proxies
with respect to all of the shares of Granite Common Stock owned by them in
connection with any vote of Granite stockholders on any matter relating to the
Merger or the Merger Agreement. See "THE MERGER -- Related
Agreements -- Stockholder 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 Granite have executed agreements
that prohibit such persons from disposing of their Fidelity Common Stock or
Granite Common Stock, as the case may be, until Fidelity publicly releases its
first report of combined financial results of Fidelity and Granite for a period
of at least 30 days of combined operations of the two companies. See "THE
MERGER -- Related Agreements -- Affiliate Agreements."
Regulatory Matters
Consummation of the Merger is subject to the expiration or termination of
the applicable waiting period (and any extension thereof) under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"). Notification reports were filed by Fidelity and Granite with the
Department of Justice and the Federal Trade Commission under the HSR Act on
January 14, 1998 and the specified waiting period requirements of the HSR Act is
scheduled to expire on February 13, 1998, unless extended or sooner terminated.
See "THE MERGER -- Regulatory Matters."
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
stockholders of Granite on the exchange of their shares of Granite Common Stock
for shares of Fidelity Common Stock, except to the extent that Granite
stockholders receive cash in the exchange (i.e., cash in lieu of fractional
shares). The obligations of Granite, Fidelity and Merger Sub to consummate the
Merger are conditioned upon the receipt by each of Fidelity and Granite of an
opinion that the Merger qualifies as a tax-free reorganization. Granite
stockholders 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."
6
<PAGE> 16
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 Granite will be
combined at the effective time of the Merger and carried forward at their
previously recorded amounts. The stockholders' equity accounts of Fidelity and
Granite 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 Granite as if the Merger had taken place
prior to the periods covered by such financial statements. See "THE
MERGER -- Accounting Treatment."
No Dissenters' Rights
Holders of Granite Common Stock do not have dissenters' appraisal rights
under the DGCL with respect to the Merger, and holders of Fidelity Common Stock
do not have dissenters' appraisal rights with respect to the Share Issuance
Proposal. See "THE MERGER -- No 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 stockholder of record of Granite a letter of transmittal with
instructions to be used by such stockholder in surrendering his, her or its
Granite 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 GRANITE COMMON STOCK SHOULD NOT SEND STOCK CERTIFICATES WITH
THEIR PROXY CARDS. IF THE MERGER IS APPROVED AND CONSUMMATED, GRANITE
STOCKHOLDERS 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 Granite Common Stock will
become holders of Fidelity Common Stock. As a result, their rights as
stockholders, which are now governed by Granite's Certificate of Incorporation
and Bylaws, will be governed by Fidelity's Certificate of Incorporation and
Bylaws. Because of certain differences between the provisions of Granite's
Certificate of Incorporation and Bylaws and those of Fidelity, the rights of
Granite stockholders after the Merger will be different from the rights of
Granite stockholders before the Merger. For a discussion of various differences
between the rights of stockholders of Granite and the rights of stockholders of
Fidelity, see "COMPARISON OF RIGHTS OF STOCKHOLDERS OF FIDELITY AND GRANITE."
7
<PAGE> 17
RECENT MARKET PRICE DATA
The following table sets forth the closing sales prices per share of
Fidelity Common Stock on the NYSE and Granite Common Stock on the Nasdaq
National Market on November 14, 1997, the last trading day before the
announcement of the proposed Merger, and on January 15, 1998, the latest
practicable trading day before the printing of this Joint Proxy
Statement/Prospectus. The Granite equivalent represents the closing sale price
of a share of Fidelity Common Stock on such date multiplied by the Exchange
Ratio of 0.7711.
<TABLE>
<CAPTION>
FIDELITY GRANITE GRANITE
COMMON STOCK COMMON STOCK EQUIVALENT
------------ ------------ ----------
<S> <C> <C> <C>
November 14, 1997.................... $22.05 $10.75 $17.00
January 15, 1998..................... $27.69 $18.50 $21.35
</TABLE>
Stockholders are advised to obtain current market quotations for Fidelity
Common Stock and Granite Common Stock. It is expected that the market price of
Fidelity Common Stock will fluctuate between the date of this Joint 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 Granite stockholders 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
Granite stockholders 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."
8
<PAGE> 18
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, 1996 and
as of and for the nine months ended September 30, 1996 and 1997. The data for
the three fiscal years has been derived from the consolidated financial
statements of Fidelity, which have been audited by KPMG Peat Marwick LLP,
independent certified public auditors, and which are incorporated by reference
in this Joint Proxy Statement/Prospectus. The data as of and for the nine months
ended September 30, 1996 and September 30, 1997 are derived from unaudited
consolidated financial statements of Fidelity which include all adjustments,
consisting only of normal recurring adjustments and accruals, that Fidelity
considers necessary for a fair presentation of its financial position and
results of operations for these periods. Interim operating results for the nine
months ended September 30, 1997 are not necessarily indicative of the results
that may be expected for the entire fiscal year ended December 31, 1997 or any
future period. 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>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- ---------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenue............................................ $492,804 $409,845 $636,913 $464,718 $529,565
Total expenses........................................... 480,465 400,385 596,360 434,038 482,096
-------- -------- -------- -------- --------
Earnings before income taxes and extraordinary item...... 12,339 9,460 40,553 30,680 47,469
Income tax expense....................................... 2,594 1,828 16,216 12,272 19,484
-------- -------- -------- -------- --------
Earnings before extraordinary item....................... 9,745 7,632 24,337 18,408 27,985
Extraordinary item, net.................................. 2,400 (813) -- -- --
-------- -------- -------- -------- --------
Net earnings............................................. $ 12,145 $ 6,819 $ 24,337 $ 18,408 $ 27,985
======== ======== ======== ======== ========
PER SHARE AND OTHER DATA:
Earnings per share before extraordinary item............. $ .49 $ .49 $ 1.55 $ 1.17 $ 1.73
Extraordinary item, net per share........................ .12 (.05) -- -- --
-------- -------- -------- -------- --------
Net earnings per share, primary basis.................... $ .61 $ .44 $ 1.55 $ 1.17 $ 1.73
======== ======== ======== ======== ========
Net earnings per share, fully diluted basis.............. $ .61 $ .44 $ 1.34 $ 1.01 $ 1.42
======== ======== ======== ======== ========
Weighted average shares outstanding, primary basis....... 19,936 15,694 15,692 15,674 16,161
Weighted average shares outstanding, fully diluted
basis.................................................. 24,864 15,694(1) 20,550 20,507 21,351
Dividends per share...................................... $ .21 $ .21 $ .24 $ .17 $ .19
Earnings before income taxes and extraordinary item as a
percent of total revenue............................... 2.5% 2.3% 6.4% 6.6% 9.0%
BALANCE SHEET DATA:
Investments.............................................. $217,648 $180,082 $227,674 $225,057 $289,759
Cash and cash equivalents ............................... 34,689 47,431 63,971 56,007 80,329
Total assets............................................. 418,119 405,063 509,296 491,770 576,259
Notes payable............................................ 142,129 136,047 148,922 146,659 150,918
Reserve for claim losses................................. 153,306 146,094 187,245 188,914 188,333
Stockholders' equity..................................... 73,954 77,947 110,251 98,857 153,789
</TABLE>
- ---------------
(1) As other dilutive securities have an antidilutive effect, the other dilutive
securities are not presented.
9
<PAGE> 19
SELECTED HISTORICAL FINANCIAL DATA OF GRANITE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table sets forth selected financial data of Granite as of and
for the period ended June 30, 1995 and as of and for each of the fiscal years in
the two-year period ended June 30, 1997 and as of and for the three months ended
September 30, 1996 and 1997. The data for each of the two fiscal years in the
two-year period ended June 30, 1997 has been derived from the consolidated
financial statements of Granite which have been audited by Ehrhardt Keefe
Steiner & Hottman PC, independent certified public auditors, which are
incorporated by reference in this Joint Proxy Statement/Prospectus. The data as
of and for the three months ended September 30, 1996 and September 30, 1997 are
derived from unaudited consolidated financial statements of Granite which
include all adjustments, consisting only of normal recurring adjustments and
accruals, that Granite considers necessary for a fair presentation of its
financial position and results of operations for these periods. Certain
reclassifications have been made to the historical financial data in order to
conform to the anticipated Fidelity and Granite combined presentation. Interim
operating results for the three months ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the entire fiscal
year ending June 30, 1998 or any future period. The following selected
consolidated financial data of Granite should be read in conjunction with
Granite's consolidated financial statements and the notes thereto incorporated
by reference herein. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
<TABLE>
<CAPTION>
FISCAL YEAR THREE MONTHS
FEBRUARY 21, 1995 ENDED JUNE 30, ENDED SEPTEMBER 30,
(INCEPTION) TO ------------------- -------------------
JUNE 30, 1995 1996 1997 1996 1997
----------------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue....................... $ 97 $ 2,565 $10,093 $ 1,512 $ 3,702
Total expenses...................... 274 1,802 6,595 995 2,311
------- ------- ------- ------- -------
Earnings (loss) before income
taxes............................ (177) 763 3,498 517 1,391
Income tax expense.................. -- 282 1,431 191 530
------- ------- ------- ------- -------
Net earnings (loss)................. $ (177) $ 481 $ 2,067 $ 326 $ 861
======= ======= ======= ======= =======
PER SHARE AND OTHER DATA:
Earnings (loss) per share........... $ (0.09) $ 0.24 $ 0.63 $ 0.16 $ 0.15
Weighted average shares
outstanding...................... 2,000(1) 2,000(1) 3,265 2,000(1) 5,913
Earnings (loss) before income taxes
as a percentage of total
revenue.......................... (182.5)% 29.7% 34.7% 34.2% 37.6%
BALANCE SHEET DATA:
Cash, cash equivalents and
restricted cash(2)............... $ 444 -- $ 681 $ 8 $ 5,578
Direct financing leases............. 313 8,672 9,907 9,697 13,018
Direct financing leases assigned to
lender........................... -- 22,576 15,511 20,932 13,954
Securitization residual interest.... -- -- 10,138 -- 15,220
Total assets........................ 851 32,353 45,747 32,208 63,817
Notes payable....................... -- 28,543 26,317 27,929 23,261
Stockholders' equity................ 767 2,759 15,464 3,277 34,332
</TABLE>
- ---------------
(1) For periods presented prior to December 31, 1996, the number of shares
outstanding as of the period end on a weighted average basis are pro forma
for Granite's October 1996 initial public offering, as there were no shares
outstanding prior to that date.
(2) Cash, cash equivalents and restricted cash includes restricted cash of
$1,239, $676 and $1,175 as of June 30, 1997, September 30, 1996, and
September 30, 1997, respectively.
10
<PAGE> 20
SELECTED HISTORICAL FINANCIAL DATA OF GRANITE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table sets forth selected financial data of Granite as of and
for the period ended December 31, 1995, as of and for the year ended December
31, 1996 and as of and for the nine months ended September 30, 1996 and 1997.
The data as of and for each of the periods are derived from unaudited
consolidated financial statements of Granite which include all adjustments,
consisting only of normal recurring adjustments and accruals, that Granite
considers necessary for a fair presentation of its financial position and
results of operations for these periods. Certain reclassifications have been
made to the historical financial data in order to conform to the anticipated
Fidelity and Granite combined presentation. The Granite operating results and
financial position for each of the periods have been restated from the Granite
fiscal reporting periods to a calendar year basis to conform to Fidelity's
reporting periods. Operating results are not necessarily indicative of the
results that may be expected for any future period. The following selected
consolidated financial data of Granite should be read in conjunction with
Granite's consolidated financial statements and the notes thereto incorporated
by reference herein. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
FEBRUARY 21, 1995 DECEMBER 31, ENDED SEPTEMBER 30,
(INCEPTION) TO ------------ -------------------
DECEMBER 31, 1995 1996 1996 1997
----------------- ------------ ------- -------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue........................... $ 953 $ 5,464 $ 3,221 $10,040
Total expenses.......................... 756 3,644 2,315 6,582
------- -------- ------- -------
Earnings before income taxes............ 197 1,820 906 3,458
Income tax expense...................... 139 773 334 1,331
------- -------- ------- -------
Net earnings............................ $ 58 $ 1,047 $ 572 $ 2,127
======= ======== ======= =======
PER SHARE AND OTHER DATA:
Earnings per share...................... $ 0.03 $ 0.45 $ 0.29 $ 0.48
Weighted average shares outstanding..... 2,000(1) 2,336 2,000(1) 4,454
Earnings before income taxes as a
percentage of total revenue.......... 20.7% 33.3% 28.1% 34.4%
BALANCE SHEET DATA:
Cash, cash equivalents and restricted
cash(2).............................. $ 540 $ 8,393 $ 8 $ 5,578
Direct financing leases................. 800 8,250 9,697 13,018
Direct financing leases assigned to
lender............................... -- 19,267 20,932 13,954
Securitization residual interest........ -- 1,517 -- 15,220
Total assets............................ 1,601 39,717 32,208 63,817
Notes payable........................... -- 22,603 27,929 23,261
Stockholders' equity.................... 1,222 14,184 3,277 34,332
</TABLE>
- ---------------
(1) For periods presented prior to December 31, 1996, the number of shares
outstanding as of the period end on a weighted average basis are pro forma
for Granite's October 1996 initial public offering as there were no shares
outstanding prior to that date.
(2) Cash, cash equivalents and restricted cash includes restricted cash of $835,
$676, and $1,175 as of December 31, 1996, September 30, 1996 and 1997,
respectively.
11
<PAGE> 21
SELECTED PRO FORMA FINANCIAL DATA OF FIDELITY AND GRANITE 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 COMBINED COMBINED COMBINED
FISCAL YEAR FISCAL YEAR FISCAL YEAR NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1994(1) 1995 1996 1996 1997
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenue............................... $492,804 $410,798 $642,377 $ 467,939 $ 539,605
Total expenses.............................. 480,465 401,141 600,004 436,353 488,678
-------- -------- -------- --------- ---------
Earnings before income taxes and
extraordinary item........................ 12,339 9,657 42,373 31,586 50,927
Income tax expense.......................... 2,594 1,967 16,989 12,606 20,815
-------- -------- -------- --------- ---------
Earnings before extraordinary item.......... 9,745 7,690 25,384 18,980 30,112
Extraordinary item, net..................... 2,400 (813) -- -- --
-------- -------- -------- --------- ---------
Net earnings................................ $ 12,145 $ 6,877 $ 25,384 $ 18,980 $ 30,112
======== ======== ======== ========= =========
PER SHARE AND OTHER DATA:
Earnings per share before extraordinary
item...................................... $ 0.49 $ 0.37 $ 1.23 $ 0.92 $ 1.42
Extraordinary item per share, net........... 0.12 (0.04) -- -- --
-------- -------- -------- --------- ---------
Net earnings per share, primary basis....... $ 0.61 $ 0.33 $ 1.23 $ 0.92 $ 1.42
======== ======== ======== ========= =========
Net earnings per share, fully diluted
basis(2).................................. $ 0.61 $ 0.33 $ 1.12 $ 0.83 $ 1.24
======== ======== ======== ========= =========
Weighted average shares outstanding, primary
basis(3).................................. 19,936 20,706 20,704 20,686 21,173
Weighted average shares outstanding, fully
diluted basis(3).......................... 24,864 20,706 25,562 25,519 26,363
Earnings before income taxes and
extraordinary item as a percentage of
total revenue............................. 2.5% 2.4% 6.6% 6.8% 9.4%
Dividends per share......................... $ 0.21 $ 0.21 $ 0.24 $ 0.17 $ 0.19
BALANCE SHEET DATA(4):
Cash, cash equivalents and restricted
cash(5)................................... $ 34,689 $ 46,977 $ 70,234 $ 54,216 $ 82,877
Investments................................. 217,648 180,082 227,674 225,057 289,759
Direct financing leases..................... -- 800 8,250 9,697 13,018
Direct financing leases assigned to
lender.................................... -- -- 19,267 20,932 13,954
Securitization residual interest............ -- -- 1,517 -- 15,220
Total assets................................ 418,119 405,670 546,883 522,179 637,046
Notes payable............................... 142,129 136,047 171,525 174,588 174,179
Reserve for claim losses.................... 153,306 146,094 187,245 188,914 188,333
Stockholders' equity........................ 73,954 78,175 122,305 100,335 185,091
</TABLE>
- ---------------
(1) Data presented for Fidelity only, as Granite was not formed until February
21, 1995.
(2) Combined fully diluted earnings assumed to be Granite net income plus
previously reported Fidelity fully diluted earnings.
(3) The combined pro forma earnings per share information presented assumes that
the Fidelity shares and options issued in connection with the Merger have
been outstanding for the entire period.
(4) Cash, total assets and stockholders' equity have been adjusted to reflect
the cumulative impact of dividends that would have been paid on an
additional 4,735,000 shares issued and outstanding.
(5) Cash, cash equivalents and restricted cash includes restricted cash of $835,
$676, and $1,175 as of December 31, 1996, September 30, 1996 and 1997,
respectively.
12
<PAGE> 22
COMPARATIVE PER SHARE DATA
The following table presents (i) selected comparative per share data for
each of Fidelity and Granite on a historical basis, and (ii) selected unaudited
pro forma comparative per share data reflecting the consummation by Fidelity of
the Merger. The Granite pro forma equivalent amounts are presented with respect
to each item of pro forma information on a calendar year basis (for the period
from inception to December 31, 1995, for the twelve month period ended December
31, 1996 and the nine month period ended September 30, 1997), and have been
calculated by multiplying the corresponding pro forma combined amounts per share
of Fidelity Common Stock by the Exchange Ratio of 0.7711.
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 Granite,
incorporated by reference 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 Granite 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 combined financial position that
would have resulted had the Merger been consummated at the beginning of the
periods presented.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED
----------------------- SEPTEMBER 30,
1994 1995 1996 1997
---- ---- ----- -----------------
<S> <C> <C> <C> <C>
FIDELITY COMMON STOCK:
Net income per share (primary basis):
Historical.................................... $.61 $.44 $1.55 $1.73
Pro forma combined(1)......................... N/A(2) .33 1.23 1.42
Cash dividends paid per share:
Historical.................................... $.21 $.21 $ .24 $ .19
Pro forma combined............................ N/A(2) .21 .24 .19
Book value per share at period end:
Historical.................................... $ -- $ -- $7.20 $9.73
Pro forma combined............................ -- -- 6.10 9.01
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED
FEBRUARY 21, 1995 JUNE 30,
(INCEPTION) TO ---------------- THREE MONTHS ENDED
JUNE 30, 1995 1996 1997 SEPTEMBER 30, 1997
----------------- ---- ----- ------------------
<S> <C> <C> <C> <C>
GRANITE COMMON STOCK (HISTORICAL)(1):
Net income (loss) per share............ $(.09) $.24 $ .63 $ .15
Cash dividends paid per share.......... -- -- -- --
Book value per share at period end..... -- -- 4.15 5.59
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED
-------------------------- SEPTEMBER 30,
1994(2) 1995 1996 1997
------- ---- ----- -----------------
<S> <C> <C> <C> <C>
GRANITE COMMON STOCK (PRO FORMA EQUIVALENT)(1):
Net income per share (primary basis)............ N/A $.25 $ .94 $1.09
Cash dividends paid per share................... N/A .16 .19 .15
Book value per share at period end.............. -- -- 4.70 6.96
</TABLE>
- ---------------
(1) For periods presented prior to December 31, 1996 the number of shares
outstanding as of the period end on a weighted average basis are pro forma
for Granite's October 1996 initial public offering as there were no shares
outstanding prior to that date.
(2) Not applicable as Granite was not formed until February 21, 1995.
13
<PAGE> 23
RISK FACTORS
Each Fidelity stockholder and Granite stockholder should carefully consider
and evaluate the following factors, among others, before voting.
This Joint 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 Granite 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
Granite are greater than expected; (iii) revenues following the Merger are lower
than expected; (iv) competitive pressure in the financial services, title
insurance and equipment leasing 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 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 Granite 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 Granite.
INTEGRATION OF OPERATIONS; MANAGEMENT OF GROWTH
The integration of the operations of Fidelity and Granite 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-
14
<PAGE> 24
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
15
<PAGE> 25
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
Title insurance companies, including underwriters, underwritten title
companies and independent agents, are subject to extensive regulation under
applicable state laws. Each insurance underwriter is usually subject to a
holding company act in its state of domicile which regulates, among other
matters, the ability to pay dividends and investment policies. The laws of most
states in which Fidelity transacts business establish supervisory agencies with
broad administrative powers relating to issuing and revoking licenses to
transact business, regulating trade practices, licensing agents, approving
policy forms, accounting principles, financial practices, establishing reserve
and capital and surplus requirements, defining suitable investments for
reserves, capital and surplus and approving rate schedules.
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,
Commonwealth Land Title Insurance Company, First American Title Insurance
Company, Lawyers Title Insurance Corporation, Old Republic Title Insurance
Company and Stewart Title Guaranty Company, as well as numerous independent
agency operations at the 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.
The market for financing in the small-ticket segment of the equipment
leasing industry is highly competitive. Granite competes with a number of
national, regional and local finance companies. Granite also competes against
captive finance companies affiliated with major equipment manufacturers,
commercial banks, savings and loan associations, credit unions and conventional
leasing companies. Many of Granite's competitors, as well as potential
competitors, possess substantially greater financial, marketing, personnel and
16
<PAGE> 26
other resources than Granite. Granite's competitors and potential competitors
include far larger, more established companies that have access to capital
markets for unsecured commercial paper and investment grade rated debt
instruments, and to other funding sources that may be unavailable to Granite.
Granite is currently developing an interactive system for lease origination. If
similar systems are first developed or implemented by others, Granite could be
at a competitive disadvantage. There can be no assurance Granite will be able to
compete successfully against current or future competitors or that competitive
pressures faced by Granite will not materially adversely affect its business,
operating results and financial condition.
17
<PAGE> 27
THE FIDELITY MEETING
The Fidelity Meeting will be held on Tuesday, February 24, 1998 at 10:00
a.m., local time, at The Irvine Marriott Hotel, located at 18000 Von Karman
Avenue, Irvine, California 92612. At the Fidelity Meeting, holders of Fidelity
Common Stock will be asked, in accordance with the requirements of the NYSE, to
consider and vote upon the Share Issuance Proposal. The NYSE requires
stockholder approval of the issuance of shares of Fidelity Common Stock in
connection with the Merger because the number of shares to be issued is expected
to exceed 20% of the shares of Fidelity Common Stock outstanding immediately
prior to the effective time of the Merger.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of Fidelity Common Stock at the close of business on
the Fidelity Record Date are entitled to notice of and to vote at the Fidelity
Meeting. As of the close of business on the Fidelity Record Date, there were
18,777,931 shares of Fidelity Common Stock outstanding and entitled to vote,
held of record by 878 stockholders. Each holder of Fidelity Common Stock is
entitled to one vote for each share of Fidelity Common Stock held as of the
Fidelity Record Date.
The required quorum for the transaction of business at the Fidelity Meeting
is a majority of the shares of Fidelity Common Stock issued and outstanding on
the Fidelity 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.
Additional information with respect to beneficial ownership of Fidelity
Common Stock by individuals and entities owning more than 5% of such stock, and
more detailed information with respect to beneficial ownership of Fidelity
Common Stock by directors and executive officers of Fidelity, is incorporated by
reference from the Annual Report on Form 10-K of Fidelity for its year ended
December 31, 1996. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
VOTING OF PROXIES
The Fidelity proxy accompanying this Joint Proxy Statement/Prospectus is
solicited on behalf of the Fidelity Board for use at the Fidelity Meeting.
Stockholders are requested to complete, date and sign the accompanying proxy
card and promptly return it in the accompanying envelope or otherwise mail it to
Fidelity. All proxies that are properly executed and returned, and that are not
revoked, will be voted at the Fidelity Meeting in accordance with the
instructions indicated on the proxies or, if no direction is indicated, "FOR"
approval of the Share Issuance Proposal. The Fidelity Board does not presently
intend to bring any business before the Fidelity Meeting other than the Share
Issuance Proposal and, so far as is known to the Fidelity Board, no other
matters are to be brought before the Fidelity Meeting. As to any business that
may properly come before the Fidelity 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" approval of the Share
Issuance Proposal will not be voted in respect of any motion made for
adjournment of the Fidelity Meeting for purposes of soliciting additional
proxies to approve the Share Issuance Proposal. A Fidelity stockholder who has
given a proxy may revoke it at any time before it is exercised at the Fidelity
Meeting, by (i) delivering to the Secretary of Fidelity (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 Fidelity Meeting
or (iii) attending the Fidelity Meeting and voting in person (although
attendance at the Fidelity Meeting will not, by itself, revoke a proxy).
VOTE REQUIRED
The affirmative vote of the majority of the votes cast at the Fidelity
Special Meeting is required to approve the Share Issuance Proposal; provided,
however, that at least 50% of the votes entitled to be cast thereon are voted at
the Fidelity Meeting. Abstentions and broker non-votes will not be deemed to
have been
18
<PAGE> 28
cast either "for" or "against" the Share Issuance Proposal and, since approval
of the Share Issuance Proposal requires the vote of a majority of the votes cast
at the Fidelity Meeting, will have no effect on the approval of the Share
Issuance Proposal.
SOLICITATION OF PROXIES AND EXPENSES
Fidelity will bear the cost of the solicitation of proxies in the enclosed
form from its stockholders. In addition to the solicitation of proxies by mail,
the directors, officers and employees of Fidelity may solicit proxies from
stockholders by telephone, telegram, letter, facsimile or in person. Following
the original mailing of the proxies and other soliciting materials, Fidelity
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 Fidelity Common Stock and to request authority for the exercise of
proxies. In such cases, Fidelity, upon the request of the record holders, will
reimburse such holders for their reasonable expenses.
THE GRANITE MEETING
The Granite Meeting will be held on Tuesday, February 24, 1998 at 10:00
a.m., local time, at the offices of Granite, 16100 Table Mountain Parkway, Suite
A, Golden, Colorado 80403. At the Granite Meeting, holders of Granite Common
Stock will be asked to consider and vote upon a proposal to approve and adopt
the Merger Agreement and the Merger.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of Granite Common Stock at the close of business on
the Granite Record Date are entitled to notice of and to vote at the Granite
Meeting. As of the close of business on January 14, 1998, there were 6,142,000
shares of Granite Common Stock outstanding and entitled to vote, held of record
by 15 stockholders. Each holder of Granite Common Stock is entitled to one vote
for each share of Granite Common Stock held as of the Granite Record Date.
The required quorum for the transaction of business at the Granite Meeting
is a majority of the shares of Common Stock issued and outstanding on the
Granite 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.
Additional information with respect to beneficial ownership of Granite
Common Stock by individuals and entities owning more than 5% of such stock, and
more detailed information with respect to beneficial ownership of Granite Common
Stock by directors and executive officers of Granite, is incorporated by
reference from the Annual Report on Form 10-KSB of Granite for its fiscal year
ended June 30, 1997. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
VOTING OF PROXIES
The Granite proxy accompanying this Joint Proxy Statement/Prospectus is
solicited on behalf of the Granite Board for use at the Granite Meeting.
Stockholders are requested to complete, date and sign the accompanying proxy
card and promptly return it in the accompanying envelope or otherwise mail it to
Granite. All proxies that are properly executed and returned, and that are not
revoked, will be voted at the Granite Meeting in accordance with the
instructions indicated on the proxies or, if no direction is indicated, "FOR"
approval and adoption of the Merger Agreement and the Merger. The Granite Board
does not presently intend to bring any other business before the Granite Meeting
and, so far as is known to the Granite Board, no other matters are to be brought
before the Granite Meeting. As to any business that may properly come before the
Granite 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 and adopt the Merger Agreement and
the
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Merger will not be voted in respect of any motion made for adjournment of the
Granite Meeting for purposes of soliciting additional proxies to approve and
adopt the Merger Agreement and the Merger. A stockholder of Granite who has
given a proxy may revoke it at any time before it is exercised at the Granite
Meeting, by (i) delivering to the Secretary of Granite (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 Granite Meeting or
(iii) attending the Granite Meeting and voting in person (although attendance at
the Granite Meeting will not, by itself, revoke a proxy).
Each of the directors and executive officers of Granite and certain other
holders of Granite 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 (i) vote their shares
in favor of the Merger Agreement and the Merger and any matter that could
reasonably be expected to facilitate the Merger and against any proposal made in
opposition to or in competition with consummation of the Merger and the Merger
Agreement; and (ii) enter into Irrevocable Proxies appointing Fidelity's Board
of Directors as the sole and exclusive attorneys and proxies with respect to all
of the shares of Granite Common Stock owned by them.
VOTE REQUIRED
Pursuant to the DGCL and Granite's Certificate of Incorporation, approval
and adoption of the Merger Agreement and the Merger requires the affirmative
vote of the holders of a majority of the outstanding shares of Granite 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
Granite will bear the cost of the solicitation of proxies in the enclosed
form from its stockholders. In addition to the solicitation of proxies by mail,
the directors, officers and employees of Granite may solicit proxies from
stockholders by telephone, telegram, letter, facsimile or in person. Following
the original mailing of the proxies and other soliciting materials, Granite 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 Granite Common Stock and to request authority for the exercise of proxies. In
such cases, Granite, upon the request of the record holders, will reimburse such
holders for their reasonable expenses.
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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 Joint Proxy Statement/Prospectus
and incorporated herein by reference.
THE MERGER
The Merger Agreement provides that, subject to the approval and adoption of
the Merger Agreement by the stockholders of Granite, the approval of the Share
Issuance Proposal by the stockholders of Fidelity and the satisfaction or waiver
of the other conditions, Merger Sub will be merged with and into Granite,
whereupon the separate corporate existence of Merger Sub will cease and Granite
will be the surviving corporation of the Merger (the "Surviving Corporation").
As a result of the Merger, Granite 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 Delaware, or at
such later date and time as may be set forth in the Certificate of Merger (the
"Effective Time") in accordance with the DGCL. The Merger will have the effects
described in the DGCL, and the Certificate of Incorporation and Bylaws of the
Surviving Corporation will be those of Granite, as in effect immediately prior
to the Effective Time. At the Effective Time, the conversion of Granite Common
Stock into shares of Fidelity Common Stock will be effected as described below.
Upon the Effective Time, the initial directors of the Surviving Corporation,
until successors are duly elected and qualified in accordance with applicable
law, will be William W. Wehner (the Chairman of the Board and Chief Executive
Officer of Granite), one person designated by Granite and three persons
designated by Fidelity.
At the Effective Time, automatically by virtue of the Merger and without
any action on the part of the holder thereof, each share of Granite Common Stock
(excluding shares held by Granite 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 0.7711 shares of Fidelity
Common Stock, plus cash in lieu of fractional shares. The Exchange Ratio, as
originally negotiated by Fidelity and Granite in the Merger Agreement, was 0.701
shares of Fidelity Common Stock for each share of Granite Common Stock, and has
been adjusted to 0.7711 pursuant to the terms of the Merger Agreement by reason
of the Stock Dividend. The Exchange Ratio is 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 Joint 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 Granite stockholders 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 Granite 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 and
Granite 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 is subject to adjustment, as provided in the Merger
Agreement, if the Average Fidelity Stock Price is less than $20.75 or more than
$25.94. If the Average Fidelity Stock Price is less than $20.75, Fidelity may
elect to either terminate the Merger Agreement or increase the Exchange Ratio to
a number equal to the product of the Exchange Ratio multiplied by a fraction,
the numerator of which is $20.75 and the denominator of which is the Average
Fidelity Stock Price. If the Average Fidelity Stock Price is more than $25.94,
the Exchange Ratio will be reduced to a number equal to the product of the
Exchange Ratio multiplied by a fraction, the numerator of which is $25.94 and
the denominator of which is the Average Fidelity Stock Price.
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Whether or not Fidelity will have a right to terminate the Agreement
pursuant to the foregoing paragraph will not be known until the date that the
Average Fidelity Stock Price can be determined. If such date were the date of
this Joint Proxy Statement/Prospectus, no such right of termination would exist,
based on the prevailing market price of Fidelity Common Stock. The Fidelity
Board has made no 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 will, consistent with its fiduciary duties, take into account all relevant
facts and circumstances as they exist at such time and will consult with its
respective financial advisors and legal counsel. Approval of the Agreement by
the Granite stockholders at the Granite Meeting and by the Fidelity stockholders
at the Fidelity Meeting will confer on the Fidelity Board the power, consistent
with its fiduciary duties of such Board, to elect to consummate the Merger if
such an event occurs after stockholder approval is obtained without any further
action by, or solicitation of the votes of, the stockholders of Granite or
Fidelity. The fairness opinions received by each of Granite and Fidelity are
each dated as of the date of this Joint Proxy Statement/Prospectus and are based
on conditions in effect on the date thereof. Accordingly, none of such opinions
address the circumstances that might arise if the matters contemplated by the
previous paragraph were to occur. In such an event, Granite or Fidelity, as the
case may be, intends that it would obtain the reconfirmation of its respective
investment bankers with respect to the fairness of the revised transaction prior
to proceeding with the consummation of the Merger.
BACKGROUND OF THE MERGER
On the afternoon of October 3, 1997, William P. Foley II, Chairman and
Chief Executive Officer of Fidelity, and Allen D. Meadows, Executive Vice
President and Chief Financial Officer of Fidelity, traveled to Golden, Colorado
to meet with William W. Wehner, Chairman and Chief Executive Officer of Granite,
and Robert P. Rinek, Managing Director of Piper Jaffray, to discuss a possible
merger of Fidelity and Granite. Mr. Foley outlined his strategic vision of a
combination between the two companies, operating philosophies and objectives and
the potential strategic benefits of such a combination, although no proposals
were made at this time as to the purchase price to be paid by Fidelity or the
structure of the transaction. Mr. Wehner indicated that Granite would be
interested in considering a combination with Fidelity, but would not be in a
position to seriously explore such a combination until concrete terms were
proposed by Fidelity.
On October 28, 1997, Mr. Foley delivered to the Granite Board a non-binding
indication of interest and preliminary transaction proposal. The letter
detailed, among other items, the price and structure of the proposed merger, due
diligence requirements for both parties, the pro forma post-merger organization
and certain other conditions.
On October 29, 1997, the Granite Board met to consider the proposed merger
and its potential benefits to the Granite stockholders. Representatives of Piper
Jaffray attended this meeting. The Granite Board, after due consideration of the
potential benefits of the proposed Merger, decided to pursue further the
Fidelity proposal.
On November 3, 1997, Granite formally retained Piper Jaffray, a national
investment banking firm, to act as its financial advisor in connection with the
proposed merger. Granite selected Piper Jaffray because of Piper Jaffray's
experience and expertise in the financial services sector and in transactions
similar to the proposed merger, its familiarity with Granite and its business,
and its reputation in the investment banking industry.
On November 5, 1997, Mr. Meadows sent to the Fidelity Board certain
background information on Granite as well as information regarding the
discussions taking place between Granite and Fidelity, the strategic rationale
for the proposed Merger and the perceived financial and operating benefits of
such a combination.
On November 6, 1997, certain members of Granite's senior management and
representatives of Piper Jaffray traveled to Santa Barbara, California to meet
with Fidelity's executive officers and to commence Granite's on-site due
diligence investigation of Fidelity. This investigation lasted for two days.
On Friday, November 7, 1997, Fidelity's legal advisors delivered a form of
merger agreement to Granite and to its legal advisors and Piper Jaffray.
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On Monday, November 10, 1997, Mr. Wehner traveled to California, where he
met with Mr. Foley and discussed further the proposed combination between
Granite and Fidelity as well as certain post-merger operating strategies.
On November 11, 1997, a senior management team from Fidelity and
representatives of Merrill Lynch traveled to Golden, Colorado to conduct an
on-site due diligence review of Granite and its operations. This on-site
investigation lasted for two days.
On November 14, 1997, legal advisors of Fidelity and Granite met
telephonically to begin preliminary discussions of issues relating to the draft
merger agreement proposed by Fidelity. On Saturday evening, November 15, 1997,
Fidelity received and reviewed with its legal advisors the issues raised by
Granite's initial response to the draft merger agreement proposed by Fidelity.
On Sunday morning, November 16, 1997, legal advisors for both Fidelity and
Granite met telephonically to discuss the issues raised by Granite. For the
remainder of Sunday, November 16, 1997 and continuing through the afternoon of
Monday, November 17, 1997, Fidelity and Granite and their respective legal
advisors negotiated the terms of the Merger Agreement and the forms of
stockholder agreements and affiliate agreements to be entered into by their
respective affiliates in connection therewith.
On November 16, 1997, the Granite Board reviewed, with the assistance of
Granite'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 Piper Jaffray concerning the Fidelity proposal,
the terms of the definitive Merger Agreement and the Piper Jaffray fairness
opinion regarding the Merger; the fairness opinion was delivered orally and
subsequently confirmed in writing. Based upon that review and after due
consideration of other factors, the Granite Board unanimously approved and
authorized the execution of the Merger Agreement on the evening of November 16,
1997.
On November 17, 1997, the Fidelity Board met telephonically to consider the
proposed transaction with Granite. With the assistance of Fidelity's legal
advisor, the Fidelity Board reviewed, among other things, management's due
diligence findings concerning Granite. Representatives of Merrill Lynch then
reviewed with the Fidelity Board certain financial analyses relating to the
proposed transaction and rendered its oral opinion. See "Opinions of Financial
Advisors -- Opinion of Merrill Lynch." Based upon its review, the Fidelity Board
approved, by unanimous vote of all directors present, and authorized the
execution of the Merger Agreement on the evening of November 17, 1997. The
Merger Agreement was executed and delivered by the parties shortly thereafter.
On the evening of November 17, 1997, the proposed Merger was publicly
announced.
REASONS FOR THE MERGER
Fidelity. The Fidelity Board believes that the Merger will help create a
unique specialty finance company with the financial and managerial resources to
compete effectively in the rapidly changing financial services market.
The Fidelity Board determined that the Merger represents a unique strategic
fit between two financially sound institutions. The Fidelity Board believes the
Merger will result in a company that is financially stronger overall, has less
sensitivity to external economic variables and greater growth prospects than
either company individually. Additionally, the greater financial resources of
the combined company will permit it to better participate in the consolidation
of several of the key businesses and diversify its business mix by deploying
capital to higher margin, higher growth business lines. The Fidelity Board also
considered the benefits available to the combined companies through the lower
cost of warehouse lines of credit that Fidelity can bring to Granite, the
additional lease volumes from small business lending and franchise financing
that the combined companies can generate and the consolidation of certain
redundant back office and support departments.
Granite. In reaching its determination to approve and adopt the Merger
Agreement, the Granite Board considered a number of factors and the potential
synergies which would result from a Merger with Fidelity. Specifically, the
Granite Board considered: (i) Granite's growth prospects on a stand alone basis
as well as in
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combination with Fidelity, (ii) the ability of the combined company to utilize
cash flow produced by Fidelity in the investment opportunities generated by the
Granite business operations through financing leases; (iii) the benefit to
Granite of holding, rather than selling, leases and the concomitant benefit of
realizing income from the leases over the life of the leases rather than a
one-time benefit from a sale; (iv) the ability to offset and counterbalance the
cyclical nature of interest rates which benefits Granite when rates are high,
and which benefits Fidelity when interest rates are low; (v) switching the focus
of the investment community from the insurance industry to the high-growth
industry of specialty finance; (vi) reduction in the cost of funds to Granite
from the ability to leverage Fidelity's cash flow; (vii) the greater market
float and liquidity of Fidelity Common Stock; and (viii) opportunities for
Granite to finance equipment for entities affiliated with Fidelity.
The Granite Board based its conclusions, in part, on presentations by its
financial advisors and Granite Management; the strategy, business operations,
earnings and financial condition of Fidelity on a historical and prospective
basis; the results of due diligence investigations regarding Fidelity; its
assessment, with the assistance of financial and legal counsel, concerning the
likelihood that Fidelity would obtain all required regulatory approvals of the
Merger; and the expectation that the Merger will generally be a tax-free
transaction to Granite and its stockholders.
The foregoing discussion of the information and factors considered by the
Granite Board is not intended to be exhaustive. In reaching its determination to
approve and recommend the Merger, the Granite 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
Granite 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 RECOMMENDATIONS
THE BOARD OF DIRECTORS OF FIDELITY BELIEVES THAT THE MERGER IS FAIR TO AND
IN THE BEST INTERESTS OF FIDELITY AND ITS STOCKHOLDERS AND THEREFORE UNANIMOUSLY
RECOMMENDS THAT FIDELITY STOCKHOLDERS VOTE FOR THE APPROVAL OF THE SHARE
ISSUANCE PROPOSAL.
THE BOARD OF DIRECTORS OF GRANITE BELIEVES THAT THE MERGER IS FAIR TO AND
IN THE BEST INTERESTS OF GRANITE AND ITS STOCKHOLDERS AND THEREFORE UNANIMOUSLY
RECOMMENDS THAT GRANITE STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT AND THE MERGER.
OPINIONS OF FINANCIAL ADVISORS
OPINION OF MERRILL LYNCH
On November 6, 1997, Fidelity engaged Merrill Lynch to act as its exclusive
financial advisor in connection with the Merger. Pursuant to the terms of its
engagement, Merrill Lynch agreed to assist Fidelity in analyzing, structuring,
negotiating and effecting an acquisition transaction with Granite. Fidelity
selected Merrill Lynch because Merrill Lynch is a nationally recognized
investment banking firm with substantial experience in transactions similar to
the Merger and was familiar with Fidelity and its business. As part of its
investment banking business, Merrill Lynch is continually engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions.
As part of its engagement, representatives of Merrill Lynch telephonically
participated in the meeting of the Fidelity Board held on November 17, 1997 at
which the Fidelity Board considered the Merger and approved the Merger
Agreement. At that meeting, Merrill Lynch rendered its oral opinion that, as of
such date, the Exchange Ratio (which was defined for the purposes of such
opinion as 0.701 shares of Fidelity Common Stock for each share of Granite
Common Stock and which did not take into account the Stock
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Dividend) was fair to Fidelity from a financial point of view. Such opinion was
reconfirmed in writing as of the date of this Joint Proxy Statement/Prospectus.
The full text of Merrill Lynch's written opinion (the "Opinion"), dated as
of the date of this Joint Proxy Statement/Prospectus, is attached hereto as
Appendix B and is incorporated herein by reference. The description of the
Opinion set forth herein is qualified in its entirety by reference to the full
text of the Opinion set forth in Appendix B. Fidelity stockholders are urged to
read the Opinion in its entirety for a description of the procedures followed,
assumptions made, matters considered, and qualifications and limitations on the
review undertaken, by Merrill Lynch in connection therewith.
MERRILL LYNCH'S OPINION IS DIRECTED TO THE FIDELITY BOARD OF DIRECTORS AND
ADDRESSES ONLY THE FAIRNESS FROM A FINANCIAL POINT OF VIEW OF THE EXCHANGE RATIO
TO FIDELITY. IT DOES NOT ADDRESS THE MERITS OF THE UNDERLYING DECISION BY
FIDELITY TO ENGAGE IN THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
FIDELITY STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE ON THE SHARE
ISSUANCE PROPOSAL AT THE FIDELITY MEETING.
Merrill Lynch has informed Fidelity that in arriving at its written
opinion, Merrill Lynch, among other things: (1) reviewed certain
publicly-available business and financial information relating to Fidelity and
Granite that Merrill Lynch deemed to be relevant; (2) reviewed certain
information, including financial forecasts, relating to the businesses,
earnings, assets, liabilities and prospects of Fidelity and Granite furnished to
Merrill Lynch by senior management of Fidelity and Granite, as well as the
amount and timing of the cost savings and related expenses and revenue
enhancements expected to result from the Merger furnished to Merrill Lynch by
senior management of Fidelity and Granite (the "Synergies"); (3) conducted
discussions with members of senior management of Fidelity and Granite concerning
the foregoing, including the respective businesses, prospects, regulatory
conditions and contingencies of Fidelity and Granite before and after giving
effect to the Merger and the Synergies; (4) reviewed the market prices and
valuation multiples for Fidelity Common Stock and Granite Common Stock and
compared them with those of certain publicly-traded companies which Merrill
Lynch deemed to be relevant; (5) reviewed the results of operations of Fidelity
and Granite and compared them with those of publicly-traded companies which
Merrill Lynch deemed to be relevant; (6) compared the proposed financial terms
of the Merger with the financial terms of certain other transactions which
Merrill Lynch deemed to be relevant; (7) reviewed the potential pro forma impact
of the Merger; (8) reviewed the Merger Agreement; and (9) reviewed such other
financial studies and analyses and took into account such other matters as
Merrill Lynch deemed necessary, including an assessment of general economic,
market and monetary conditions.
In preparing its Opinion, Merrill Lynch assumed and relied upon the
accuracy and completeness of all information supplied or otherwise made
available to it, discussed with or reviewed by or for it, or publicly available,
and Merrill Lynch has not assumed responsibility for independently verifying
such information or undertaken an independent evaluation or appraisal of the
assets or liabilities of Fidelity or Granite nor has it been furnished any such
evaluation or appraisal. Merrill Lynch is not an expert in the evaluation of
allowances for credit losses and has neither made an independent evaluation of
the adequacy of the allowance for credit losses of Fidelity or Granite, nor
reviewed any individual credit files relating to Fidelity or Granite and, as a
result, assumed that the aggregate allowance for credit losses for both Fidelity
and Granite is adequate to cover such losses and will be adequate on a pro forma
basis for the combined entity. In addition, Merrill Lynch has not assumed any
obligation to conduct, nor has it conducted, any physical inspection of the
properties or facilities of Fidelity or Granite. With respect to the financial
forecast information, including, without limitation, financial forecasts,
evaluation of contingencies and projections regarding under-performing and
non-performing assets, net charge-offs, adequacy of reserves and future economic
conditions and the Synergies, furnished to or discussed with Merrill Lynch by
Fidelity or Granite, Merrill Lynch has, with Fidelity's consent, assumed that
they have been reasonably prepared and reflect the best currently available
estimates, allocations and judgments of the senior management of Fidelity and
Granite as to the expected future performance of Fidelity, Granite or the
combined entity, as the case may be, and the Synergies and expressed no opinion
as to such financial forecast information or the Synergies or the assumptions
upon which
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they were based. The Opinion is predicated on the Merger receiving the tax and
accounting treatment contemplated in the Merger Agreement and was necessarily
based on economic, market and other conditions as in effect on, and the
information made available to Merrill Lynch, as of the date thereof.
Merrill Lynch also assumed that in the course of obtaining the necessary
regulatory or other consents or approvals (contractual or otherwise) for the
Merger, no restrictions, including any amendments or modifications, will be
imposed that will have a material adverse affect on the contemplated benefits of
the Merger, including the Synergies. The Opinion was also rendered without
regard to the necessity for, or level of, any obligations, undertakings or
divestitures which may be imposed or required in the course of obtaining
regulatory approvals for the Merger.
In connection with rendering the Opinion, Merrill Lynch performed a variety
of financial analyses, including those summarized below. The summary set forth
below does not purport to be a complete description of the analyses performed by
Merrill Lynch in this regard, although it describes all material analyses
performed by Merrill Lynch in connection therewith. The preparation of a
fairness opinion involves various determinations as to the most appropriate and
relevant methods of financial analysis and the application of these methods to
the particular circumstances and, therefor, such an opinion is not readily
susceptible to a partial analysis or summary description. Accordingly,
notwithstanding the separate analyses summarized below, Merrill Lynch believes
that its analyses must be considered as a whole and that selecting portions of
the analyses and factors considered by it, without considering all such analyses
and factors, or attempting to ascribe relative weights to some or all such
analyses and factors, could create an incomplete view of the evaluation process
underlying the Opinion.
In performing its analyses, Merrill Lynch made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Fidelity or Granite. The
analyses performed by Merrill Lynch are not necessarily indicative of actual
values or actual future results, which may be significantly more or less
favorable than suggested by such analyses. Such analyses were prepared solely as
part of Merrill Lynch's analysis of the fairness of the Exchange Ratio to
Fidelity from a financial point of view and were provided to the Fidelity Board
in connection with the delivery of the Opinion. Merrill Lynch gave the various
analyses described below approximately similar weight and did not draw any
specific conclusions from or with regard to any one method of analysis. With
respect to the comparison of selected comparable companies analysis and the
analysis of selected commercial finance company merger transactions summarized
herein, no public company utilized as a comparison is identical to Fidelity or
Granite and no transaction is identical to the Merger. Accordingly, an analysis
of publicly-traded comparable companies and comparable business combinations is
not mathematical; rather, it 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
announced merger transaction values, as the case may be, of Fidelity, Granite
and the companies to which they are being compared. The analyses do not purport
to be appraisals or to reflect the prices at which Granite might actually be
sold or the prices at which any securities may trade at the present time or at
any time in the future. In addition, as described below, the Opinion is just one
of many factors taken into consideration by the Fidelity Board.
The projections furnished to Merrill Lynch and used by it in certain of its
analyses were prepared by the senior management of Fidelity and Granite.
Fidelity and Granite do not publicly disclose internal management projections of
the type provided to Merrill Lynch in connection with its review of the Merger,
and as a result, such projections were not prepared with a view towards public
disclosure. The projections were based on numerous variables and assumptions
which are inherently uncertain, including, without limitation, factors related
to general economic and competitive conditions and, accordingly, actual results
could vary significantly from those set forth in such projections.
The following is a summary of the material analyses presented by Merrill
Lynch to the Fidelity Board on November 17, 1997 in connection with the Opinion
dated the date hereof.
Summary of Proposal. Merrill Lynch reviewed the terms of the proposed
transaction, including the Exchange Ratio and the implied aggregate transaction
value. Based on the closing price of the Fidelity
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Common Stock of $22.05 (which takes into account the Stock Dividend) on November
14, 1997, Merrill Lynch calculated the implied transaction value per share of
Granite of $17.00 and an implied total transaction value of approximately $113
million, representing a 58% premium to market. Based on this implied transaction
value, Merrill Lynch calculated the price to fully diluted book, price to fully
diluted tangible book, price to latest quarter annualized earnings, price to
projected 1998 and 1999 earnings multiples and the implied premium to
receivables in the contemplated transaction. This analysis yielded a price to
fully diluted book value multiple of 3.28x, a price to fully diluted tangible
book value multiple of 3.70x, a price to latest quarter annualized earnings
multiple of 34.53x, a price to projected 1998 earnings multiple of 9.38x (based
on estimates of Fidelity's senior management), a price to projected 1999
earnings multiple of 11.35x (based on estimates of Fidelity's senior management)
and an implied premium to receivables of 74.24%. Based upon the implied
transaction value, Merrill Lynch also calculated the price as an implied premium
to the November 14, 1997 closing price, the price as an implied premium to the
30-day average price and the price as an implied premium to the 52-week high
price. This analysis yielded implied premiums of 58.1%, 57.9% and 33.3%,
respectively.
Pro Forma Merger Analysis. Based on projections provided by Fidelity,
Merrill Lynch analyzed certain pro forma effects of the Merger. This analysis
indicated that the transaction would be dilutive to projected earnings per share
of Fidelity Common Stock in 1998 and accretive thereafter and that the Merger
would be dilutive to Fidelity's book value and tangible book value per share at
the assumed closing of the Merger on or before March 31, 1998. In this analysis,
Merrill Lynch assumed that Fidelity performed in accordance with the earnings
forecasts provided to Merrill Lynch by Fidelity's senior management.
Analysis of Selected Commercial Finance Company Merger
Transactions. Merrill Lynch reviewed publicly available information regarding
the commercial finance company merger transactions with a value greater than $80
million and less than $2.3 billion which had occurred in the United States since
January 1, 1996 that it deemed to be relevant. Merrill Lynch compared the price
to book value, price to annualized pre-tax income as of September 30, 1997,
price to annualized net income as of September 30, 1997 and premium to
receivables in the contemplated transaction and in such selected commercial
finance company merger transactions. This analysis yielded a range of price to
book value multiples of 1.9x to 4.0x with a mean of 3.0x and a median of 3.1x,
compared with a transaction multiple of 3.28x for Granite, a range of price to
annualized pre-tax income as of September 30, 1997 multiples of 7.3x to 16.1x
with a mean of 12.3x and a median of 12.9x, compared with a transaction multiple
of 20.13x for Granite, a range of price to annualized net income as of September
30, 1997 multiples of 11.8x to 27.0x with a mean of 19.6x and a median of 19.6x,
compared with a transaction multiple of 34.53x for Granite, and a range of
premium paid to receivables of 11.1% to 74.8% with a mean of 32.3% and a median
of 27.9%, compared with a transaction premium paid to receivables of 74.24% for
Granite (assuming that premium is calculated as purchase price less book value
and receivables are net of unearned income and allowance for loan loss). This
analysis yielded an overall imputed reference range per share of Granite Common
Stock on a fully diluted basis of $6.38 to $21.77, based on the high and low
imputed range of the foregoing analyses and an overall imputed reference range
of aggregate values for Granite Common Stock of $40.4 million to $137.9 million,
based on the high and low imputed range of the foregoing analyses.
No company or transaction used in the above analysis as a comparison is
identical to Fidelity or the Merger. Accordingly, an analysis of the results of
the foregoing necessarily involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies and other factors that could affect the public trading value or
announced merger transaction value, as the case may be, of the companies to
which they are being compared.
Discounted Dividend Stream Analysis -- Granite. Using a discounted stream
analysis, Merrill Lynch estimated the present value of the future streams of
after tax cash flows that Granite could produce on a stand-alone basis from 1997
through 2003 and distribute to stockholders ("dividendable net income"). In this
analysis, Merrill Lynch assumed that Granite performed in accordance with the
earnings forecasts provided to Merrill Lynch by Fidelity's senior management,
and that Granite's tangible common equity to tangible managed asset ratio would
be maintained at a minimum 10.00% level. Merrill Lynch estimated the terminal
values for the Fidelity Common Stock at 10.0, 11.0 and 12.0 times Fidelity's
2003 estimated operating income
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(defined as net income before amortization of intangibles). The dividendable net
income streams and terminal values were then discounted to present values using
different discount rates (ranging from 12% to 16%) chosen to reflect different
assumptions regarding required rates of return of holders or prospective buyers
of Granite Common Stock. This discounted dividend stream analysis indicated a
net present value per share of Granite Common Stock reference range of between
$15.94 to $23.91 and an aggregate net present value reference range of $105.737
million to $158.618 million. As indicated above, this analysis was based on
Fidelity senior management estimates and is not necessarily indicative of actual
values or actual future results and does not purport to reflect the prices at
which any securities may trade at the present or at any time in the future.
Merrill Lynch noted that the discounted dividend stream analysis was included
because it is a widely used valuation methodology, but noted that the results of
such methodology are highly dependent upon the numerous assumptions that must be
made, including earnings growth rates, dividend payout rates, terminal values
and discount rates.
Discounted Stockholder Return Analysis -- Fidelity. Merrill Lynch analyzed
the net present value of the stockholder returns of Fidelity Common Stock based
on street earnings estimates of Fidelity for 1998 and extrapolated thereafter
using mean growth rate estimates based on a consensus of research analysts. A
dividend payout rate of 12.0% was assumed based upon Fidelity's current payout
rate at September 30, 1997 and was held constant through 2002. The range of
estimated terminal values for Fidelity was calculated by applying terminal value
multiples ranging from 10.0x to 12.0x to Fidelity's estimated 2002 earnings.
Terminal values and the estimated stream of dividends (cash flow stream) were
discounted to present value using discount rates ranging from 12.0% to 16.0%.
Utilizing terminal value multiples of 10.0x to 12.0x and discount rates of 12.0%
to 16.0%, this analysis resulted in an equity reference range for Fidelity of
approximately $17.02 to $24.03 per fully diluted share.
Comparison of Selected Comparable Companies -- Granite. Merrill Lynch
compared selected operating and stock market results of Granite to the publicly
available corresponding data of certain other companies which Merrill Lynch
deemed to be relevant, including Resource America, Amplicon Inc., PLM
International, First Sierra Financial and Leasing Solutions (collectively, the
"Granite Composite"). This comparison showed, among other things, that for the
latest twelve months ended June 30, 1997 (i) the ratio of Granite's market price
to estimated earnings for the latest twelve months ended June 30, 1997 was 19.2x
compared to a mean of 19.9x for the Granite Composite (assuming reported average
earnings estimates based on First Call calendarized estimates as of November 6,
1997 for both Granite and the Granite Composite), (ii) the ratio of Granite's
market price to estimated earnings for the twelve months ending December 31,
1997 was 16.3x, compared to a mean of 15.4x for the Granite Composite (assuming
reported average earnings estimates based on First Call calendarized estimates
as of November 6, 1997 for both Granite and the Granite Composite), (iii) the
ratio of Granite's market price to estimated earnings for the twelve months
ending December 31, 1998 was 11.3x, compared to a mean of 13.1x for the Granite
Composite as of November 14, 1997 (assuming reported average earnings estimates
based on First Call calendarized estimates as of November 6, 1997 for both
Granite and the Granite Composite), (iv) the ratio of Granite's market price to
book value per share was 2.0x, compared to a mean of 3.2x for the Granite
Composite (assuming book value based upon the most recent Quarterly Report on
Form 10-Q filed with the Securities and Exchange Commission for both Granite and
the Granite Composite), (v) Granite's annualized return on average common equity
was 10.2%, compared to a mean of 13.3% for the Granite Composite and (vi)
Granite's five year growth rate was 25.0%, compared to a mean of 22.5% for the
Granite Composite (assuming reported average earnings estimates based on IBES
calendarized estimates as of November 6, 1997 for both Granite and the Granite
Composite). The foregoing analyses indicated a range of imputed values per share
of Granite Common Stock, on a fully diluted basis, of $5.53 to $35.03, with a
median ranging from $9.66 to $14.74 and a mean ranging from $10.18 to $16.88.
Comparison of Selected Comparable Companies -- Fidelity. Merrill Lynch
compared selected operating and stock market results of Fidelity to the publicly
available corresponding data of certain other companies which Merrill Lynch
deemed to be relevant, including Chicago Title & Trust, Stewart Title &
Insurance and Lawyers Title Corp. (collectively the "Fidelity Composite"). This
comparison showed, among other things, that at or as of the last twelve months
ended June 30, 1997 (i) Fidelity's dividend yield per share was 1.2% on
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a fully diluted basis, compared with a mean of 0.6% for the Fidelity Composite,
(ii) Fidelity's five year growth rate per share was 10.0% on a fully diluted
basis, compared to a mean of 7.5% for the Fidelity Composite (assuming reported
average earnings estimates based on IBES estimates as of November 7, 1997 for
both Fidelity and the Fidelity Composite), (iii) the ratio of Fidelity's market
price to year to date annualized earnings per share was 14.0x on a fully diluted
basis, compared to a mean of 14.4x for the Fidelity Composite, (iv) the ratio of
Fidelity's market price to estimated earnings for the twelve month period ending
December 31, 1997 was 11.5x on a fully diluted basis, compared to a mean of
14.0x for the Fidelity Composite (assuming reported average earnings estimates
based on IBES estimates as of November 7, 1997 for both Fidelity and the
Fidelity Composite), (v) the ratio of Fidelity's market price to estimated
earnings for the twelve month period ending December 31, 1998 was 10.5x on a
fully diluted basis, compared to a mean of 12.9x for the Fidelity Composite
(assuming reported average earnings estimates based on IBES estimates as of
November 7, 1997 for both Fidelity and the Fidelity Composite) and (vi) the
ratio of Fidelity's market price to book value was 2.0x on a fully diluted
basis, compared to a mean of 1.1x for the Fidelity Composite. The foregoing
analysis indicated a range of imputed values per share of Fidelity Common Stock
on a fully diluted basis of $9.76 to $32.10, with a median ranging from $10.40
to $22.72 and a mean ranging from $11.77 to $22.54.
Additionally, the comparison to selected comparable companies also showed,
among other things, that as of September 30, 1997 (i) Fidelity's annualized
return on average assets was 6.5% on a fully diluted basis and 6.5% on a primary
basis, compared to a mean of 3.7% for the Fidelity Composite, (ii) Fidelity's
annualized return on average common equity was 14.2% on a fully diluted basis
and 20.8% on a primary basis, compared to a mean of 8.1% for the Fidelity
Composite, (iii) Fidelity's annualized operating margin (calculated as the sum
of earnings before taxes, claims loss provisions and interest expense divided by
total revenue (excluding investment revenue)) was 13.9% on a fully diluted basis
and 14.3% on a primary basis, compared with a mean of 10.5% for the Fidelity
Composite, (iv) Fidelity's ratio of long term debt to average common equity was
27.2% on a fully diluted basis and 84.2% on a primary basis, compared with a
mean of 13.0% for the Fidelity Composite and (v) at September 30, 1997,
Fidelity's ratio of average common equity to average assets was 45.6% on a fully
diluted basis and 31.1% on a primary basis, compared with a mean of 44.3% for
the Fidelity Composite.
The foregoing analysis was based upon the September 30, 1997 Quarterly
Report on Form 10-Q filed with the Commission by Fidelity and the June 30, 1997
Quarterly Report on Form 10-Q filed with the Commission by each company
comprising the Fidelity Composite. In preparing the foregoing analysis, Merrill
Lynch assumed that the fully diluted calculations included the conversion of
LYONS to common equity and primary calculations included the conversion of LYONS
to debt.
In connection with the Opinion (dated as of the date of this Joint Proxy
Statement/Prospectus), Merrill Lynch performed procedures to update, as
necessary, certain of the analyses described above and reviewed the assumptions
on which such analyses described above were based and the factors considered in
connection therewith. Merrill Lynch did not perform any analyses in addition to
those described above in updating its November 17, 1997 opinion.
Merrill Lynch has been retained by the Fidelity Board as an independent
contractor to act as exclusive financial advisor to Fidelity with respect to the
Merger. Merrill Lynch is a nationally recognized investment banking firm which,
among other things, regularly engages in the valuation of businesses and
securities, including financial institutions, in connection with mergers and
acquisitions. In addition, within the past two years, Merrill Lynch has provided
financial advisory, investment banking and other services to Fidelity and has
received fees of approximately $50,000 for the rendering of such services. In
the ordinary course of its securities business, Merrill Lynch and its affiliates
may trade debt and/or equity securities of Fidelity or Granite for its own
account and the account of its customers, and accordingly, may from time to time
hold a long or short position in such securities.
Fidelity and Merrill Lynch entered into a letter agreement dated November
6, 1997 relating to the services to be provided by Merrill Lynch in connection
with the Merger. Fidelity has agreed to pay fees to Merrill Lynch as follows:
(i) a cash fee of $100,000, which was payable on November 6, 1997, (ii) a cash
fee of $300,000, which was payable upon execution of the Merger Agreement and
(iii) an additional cash fee of
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$250,000, payable at the closing of the Merger or any alternative acquisition
transaction involving Fidelity and Granite during the period which Merrill Lynch
has been engaged by Fidelity or within two years of such period. In such letter
agreement, Fidelity also agreed to reimburse Merrill Lynch for its reasonable
out-of-pocket expenses incurred in connection with its advisory work, including
the reasonable fees and disbursements of its legal counsel, up to certain
limits. Fidelity also agreed to indemnify Merrill Lynch against certain
liabilities related to or arising out of the Merger, including liabilities
arising under the securities laws.
OPINION OF PIPER JAFFRAY
Piper Jaffray was retained by Granite to act as financial advisor in
connection with the Merger pursuant to an engagement letter dated November 3,
1997. Piper Jaffray was selected based on its experience and expertise in the
financial services sector and in transactions similar to the Merger, its
familiarity with Granite and its business, and its reputation in the investment
banking industry. Granite requested Piper Jaffray, in its role as financial
advisor, to render its opinion to the Granite Board regarding the fairness, from
a financial point of view, to Granite stockholders of the consideration proposed
to be paid by Fidelity to Granite stockholders in the Merger and to assist
Granite's management and Board of Directors in analyzing the proposed Merger and
the proposed Exchange Ratio.
Piper Jaffray is an investment banking firm engaged, among other things, in
the valuation of businesses and their securities in connection with mergers and
acquisitions, underwriting and secondary distributions of securities, private
placements and valuations for estate, corporate and other purposes. In the past,
Piper Jaffray has acted as an underwriter for a secondary offering of Granite
Common Stock. Piper Jaffray received customary compensation in connection
therewith, including certain warrants, which it currently holds, to acquire
shares of Granite Common Stock. Piper Jaffray has provided other investment
banking services to Granite in the past. In the ordinary course of its business,
Piper Jaffray and its affiliates may actively trade Granite Common Stock and
Fidelity Common Stock for their own account and for the accounts of their
customers, and, therefore, may at any time hold a long or short position in such
securities. Piper Jaffray also provides research coverage for Granite and
initiated research coverage for Fidelity on December 1, 1997.
Piper Jaffray delivered to the Granite Board of Directors on November 16,
1997, its oral opinion (subsequently confirmed by written 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 in the opinion
and described below, the consideration proposed to be paid by Fidelity pursuant
to the Merger Agreement was fair, from a financial point of view, to the
stockholders of Granite. Such opinion was subsequently reaffirmed by issuance to
the Granite Board of a Piper Jaffray opinion dated the date of this Joint Proxy
Statement/ Prospectus. That opinion and Piper Jaffray's written opinion dated
November 16, 1997, are herein collectively referred to as the "Piper Opinion." A
copy of the Piper Jaffray opinion dated the date of this Joint Proxy
Statement/Prospectus is attached to this Joint Proxy Statement/Prospectus as
Appendix C and is incorporated herein by reference. The November 16, 1997
opinion is substantially identical to the Piper Jaffray opinion attached hereto.
While Piper Jaffray rendered its opinion and provided certain analyses to
the Granite Board, Piper Jaffray was not requested to and did not make any
recommendation to the Granite Board as to the specific form or amount of the
consideration to be received by Granite stockholders in the Merger, which was
determined through negotiations between Fidelity and Granite. The Piper Opinion,
which was delivered for use and considered by the Granite Board, is directed
only to the fairness to Granite stockholders, from a financial point of view, of
the proposed consideration to be paid by Granite in connection with the Merger,
does not address the value of a share of Granite Common Stock, does not address
Granite's underlying business decision to participate in the Merger and does not
constitute a recommendation to any Granite stockholder as to how such
stockholder should vote with respect to the Merger. However, Piper Jaffray has
consented, which consent is included as an exhibit to the Registration Statement
of which this Joint Proxy Statement/Prospectus is a part, to the inclusion of
the Piper Jaffray opinion included herein, and to the references to its firm.
Piper Jaffray does not admit that it is an expert within the meaning of the term
"expert" as used in the Securities Act and the rules and regulations promulgated
thereunder, or that its opinions constitute a report or valuation within the
meaning of Section 11 of the Securities Act and the rules and regulations
promulgated thereunder.
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Piper Jaffray was not advised by Granite, Fidelity or their respective
legal counsel concerning the probable outcome of, or estimated damages which
might arise from, any pending or threatened litigation, possible unasserted
claims or other contingent liabilities, to which Granite or Fidelity or their
affiliates was a party or may be subject and undertook no analysis independent
thereof. Accordingly, the Piper Opinion made no assumption concerning, and
therefore did not consider, the possible assertion of claims, outcomes or
damages arising out of any such matters.
THE SUMMARY OF THE PIPER OPINION SET FORTH BELOW IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE PIPER JAFFRAY OPINION DATED THE
DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS AND ATTACHED HERETO AS APPENDIX C.
GRANITE STOCKHOLDERS ARE URGED TO READ THE PIPER OPINION IN ITS ENTIRETY FOR A
COMPLETE DESCRIPTION OF THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS OF
THE REVIEW UNDERTAKEN.
In arriving at the Piper Opinion, Piper Jaffray reviewed, analyzed and
relied upon material bearing upon the financial and operating condition and
prospects of Granite and Fidelity and material prepared in connection with the
Merger, and considered such financial and other factors as it deemed appropriate
under the circumstances, including, among other things, the following: (i) the
Merger Agreement; (ii) information relative to the business, financial condition
and operations of Granite and Fidelity furnished by management of Granite and
Fidelity respectively; (iii) certain internal financial planning information of
Granite and Fidelity furnished by management of Granite and Fidelity,
respectively, and certain pro forma internal financial planning information for
Granite and Fidelity furnished by management of Fidelity; (iv) selected market
information for Granite Common Stock and Fidelity Common Stock; (v) to the
extent publicly available, the financial terms of certain merger and acquisition
transactions deemed relevant; (vi) publicly available information relative to
Granite and Fidelity; and (vii) certain financial and securities data of Granite
and Fidelity and companies deemed reasonably similar or comparable to Granite
and Fidelity. In addition, Piper Jaffray engaged in discussion with members of
management of Granite and Fidelity concerning the respective financial
condition, current operating results and business outlook of Granite and
Fidelity, including the prospects for Granite and Fidelity on a combined basis
and any potential operating efficiencies and synergies which may arise from the
Merger.
For purposes of the Piper Opinion, Piper Jaffray relied upon and assumed
the accuracy, completeness and fairness of the financial and other information
made available to it and did not attempt to independently verify such
information. Piper Jaffray relied upon the assurances of Granite and Fidelity
management that the information provided by Granite and Fidelity had a
reasonable basis and, with respect to financial planning data and other business
outlook information, reflected the best available estimates, and that they were
not aware of any information or fact that would make the information provided to
Piper Jaffray incomplete or misleading. Piper Jaffray relied, without
independent verification, on the assessments by management of Granite and
Fidelity. In connection with rendering its opinion, Piper Jaffray assumed that
the Merger would be accounted for as a pooling-of-interests under generally
accepted accounting principles, and made certain pro forma adjustments Piper
Jaffray deemed appropriate. Piper Jaffray did not take into account any
nonrecurring acquisition costs or potential cost savings or synergies that may
be realizable as a result of the Merger. In arriving at the Piper Opinion, Piper
Jaffray did not perform, nor was it furnished, any appraisal or valuation of
specific assets or liabilities of Granite or Fidelity and expressed no opinion
regarding the liquidation value of any entity. No limitations were imposed by
Granite on the scope of Piper Jaffray's investigation or the procedures to be
followed in rendering its opinion. Piper Jaffray expressed no opinion as to the
price at which shares of Granite Common Stock or Fidelity Common Stock may trade
at any future time. The Piper Opinion is based upon information available to
Piper Jaffray, and the facts and circumstances as they existed and were subject
to evaluation on the respective dates of the Piper Opinion. Events occurring
after such dates could materially affect the assumptions used in preparing the
Piper Opinion.
Piper Jaffray performed certain financial and comparative analyses,
including those summarized below, which it discussed with the Granite Board on
November 16, 1997. In delivering its opinion to the Granite Board on November
16, 1997, Piper Jaffray prepared and delivered to the Granite Board certain
written materials containing various analyses and other information relevant to
such opinion. At the time and for the purpose of such preparation, the Exchange
Ratio of 0.701 as set forth in the Merger Agreement represented an implied
purchase price of $17.00 for each share of Granite Common Stock. Piper Jaffray
confirmed the
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appropriateness of its reliance on the described analyses in connection with its
opinion dated the date of this Joint Proxy Statement/Prospectus by performing
procedures to update certain of such analyses and reviewing the assumptions on
which such analyses were based and the factors considered in connection
therewith, modified, where appropriate, to take into account (i) the fact that,
as of such date, the Exchange Ratio represents an implied purchase price of
$20.00 for each share of Granite Common Stock, (ii) the Stock Dividend, which
was announced on December 17, 1997, and (iii) certain other events occurring
after Piper Jaffray delivered its opinion on November 16, 1997 that affected the
number of shares of Fidelity Common Stock expected to be issued to holders of
Granite Common Stock upon consummation of the Merger. The discussion below
summarizes those material analyses performed by Piper Jaffray and reviewed with
the Granite Board on November 16, 1997 in connection with rendering Piper
Jaffray's opinion dated November 16, 1997 and its oral presentation to the
Granite Board on such date.
Selected Market Information. Piper Jaffray reviewed certain stock trading
characteristics of Granite Common Stock and Fidelity Common Stock, including
stock price and volume comparisons for periods ending November 14, 1997. Piper
Jaffray also analyzed the per share purchase price and aggregate transaction
value based on the Exchange Ratio and other terms set forth in the Merger
Agreement.
Pro Forma Analysis. Piper Jaffray analyzed the hypothetical pro forma
effects of the Merger on Granite's implied share equivalent earnings per share
for the fiscal year ended June 30, 1997, and on Granite's estimated earnings per
share for the fiscal years ending June 30, 1998 and 1999. In this analysis,
Granite's projected stand-alone earnings per share were compared to projected
post-Merger earnings per share attributable to Granite's interest in the pro
forma combined entity, reflecting certain pro forma changes resulting from the
Merger. This analysis was based on internal projections for Granite and Fidelity
provided by Granite's and Fidelity's respective managements (excluding
nonrecurring acquisition costs, potential cost savings and synergies that may be
realizable as a result of the Merger) as adjusted for certain pro forma changes
Piper Jaffray deemed appropriate. The projected implied share equivalent
earnings per share for Granite were then compared to Granite's projected
earnings over the same periods on a stand-alone basis. This analysis indicated
that the Merger would be accretive to Granite's earnings per share in 1997 and
to Granite's projected earnings per share in 1998 and 1999.
Contribution Analysis. Piper Jaffray analyzed the hypothetical pro forma
contribution of each of Granite and Fidelity to the combined company for the
years ending December 31, 1997 through 1999. For these periods, Piper Jaffray
analyzed Granite's expected contribution, to the pro forma pretax income, net
income, and book values contributed by Granite to the combined entity compared
with the post-Merger equity interest to be held by Granite's stockholders. This
analysis shows that Granite would have contributed 5.0%, 4.9% and 21.3% to
combined pretax income, net income, and book value, respectively, in fiscal
1997. In fiscal 1999, the Granite contribution is projected to be 16.6%, 17.1%
and 19.5% of combined pretax income, net income, and book value, respectively.
Based on Piper Jaffray's analysis, Granite stockholders would account for
approximately 19.1% of the combined companies' equity on a fully diluted basis.
Comparable Merger and Acquisition Analysis. Piper Jaffray reviewed selected
transactions involving acquired companies deemed comparable to Granite that have
been completed from January 1, 1994 to the present involving target companies
operating in the commercial finance sector in which the target was 100%
acquired. This analysis was based on publicly available information obtained
from Securities and Exchange Commission filings, public company disclosures,
press releases, industry and popular press reports, data bases and other
sources. This search yielded nine transactions deemed comparable and for which
valuation data was available. Based on its analysis of the comparable
transactions, Piper Jaffray derived the mean, median and ranges of latest twelve
months net income and book value multiples for the comparable transaction group
and compared such multiples to Granite's comparable multiples. The comparable
transaction group's mean and median equity value to latest twelve month net
income multiples of 18.0x and 17.3x, and range of 12.8x to 23.7x, were compared
with Granite's multiple of 43.0x; and the mean and median equity value to book
value multiples of 2.3x and 2.2x, and range of 0.6x to 4.2x, were compared with
Granite's multiple of 3.3x.
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Premium Analysis. Piper Jaffray reviewed publicly available information for
selected completed merger and acquisition transactions from January 1, 1994 to
present involving target companies operating in the specialty finance sector.
This review yielded 14 completed transactions which were deemed comparable and
six for which premium data was available. Based on its review of the six
comparable transactions for which premium data was available, Piper Jaffray
derived the mean, median and range of premiums paid in the comparable
transactions and compared them to the premium to be paid to Granite's
stockholders. The comparable transaction group's mean and median premiums of
8.2% and 2.9% above the trading price on the day prior to announcement, and
range of 0.0% to 34.2%, were compared to a 58.1% premium to be paid to Granite's
stockholders; the mean and median premiums of 19.7% and 22.1% above the trading
price one month prior to the announcement, and range of 6.4% to 28.1%, were
compared to a 54.5% premium to be paid to Granite's stockholders; and the mean
and median premiums of 33.8% and 26.6% above the trading price three months
prior to the announcement, and range of 3.8% to 92.1%, were compared to the
65.8% premium to be paid to Granite's stockholders.
Comparable Public Company Analysis. Piper Jaffray reviewed information
relating to eight publicly traded companies involved in commercial finance.
Share pricing for publicly traded companies in the public market reflects the
value of a minority interest and does not reflect a control premium. Based on
its review, Piper Jaffray derived mean and median net margins of 11.6% and
11.2%, and a range of 4.7% to 23.3% (compared to a 2.5% net margin for Granite);
mean and median historical earnings per share growth percentages of 31.8% and
28.2%, and a range of 0.0% to 57.3% (compared to a 65.8% growth percentage for
Granite); mean and median projected five year earnings per share growth of 20.1%
and 19.0%, and a range of 11.5% to 37.5% (compared to projected earnings per
share growth of 25.0% for Granite); and mean and median total debt to capital
ratios of 65.6% and 72.9%, and a range of 5.3% to 81.1% (compared to a debt to
capital ratio of 31.7% for Granite). Piper Jaffray also derived mean and median
price to latest twelve month earnings multiples of 19.5x and 20.6x, and a range
of 11.1x to 26.7x (compared to a multiple of 43.0x for Granite); mean and median
price to estimated calendar 1997 earnings multiples of 18.1x and 18.1x, and a
range of 13.3x to 21.5x (compared to a multiple of 25.8x for Granite); mean and
median price to estimated calendar 1998 earnings multiples of 14.6x and 15.5x,
and a range of 10.5x to 17.4x (compared to a multiple of 17.9x for Granite);
mean and median dividend yields of 1.11% and 1.15%, and a range of 0.67% to
1.51% (compared to no dividend for Granite); and mean and median equity value to
tangible book value multiples of 2.4x and 2.5x, and a range of 2.0x to 2.8x
(compared to a 3.7x multiple for Granite).
In reaching its conclusions as to the fairness to the Granite stockholders
of the consideration to be paid by Fidelity in the Merger and in its
presentation to the Granite Board, Piper Jaffray did not rely on any single
analysis or factor described above, assign relative weights to the analyses or
factors considered by it, or make any conclusions as to how the results of any
given analysis, taken alone, supported its fairness opinion. The preparation of
a fairness opinion is a complex process and not necessarily susceptible to
partial analyses or summary description. Piper Jaffray believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and of the factors considered by it, without considering all factors
and analyses, would create a misleading view of the process underlying the Piper
Opinion. The analyses of Piper Jaffray are not necessarily indicative of actual
values or future results, which may be significantly more or less favorable than
suggested by such analyses. Analyses relating to the value of companies do not
purport to be appraisals or valuations or necessarily reflect the price at which
companies may actually be sold. No company or transaction used in any comparable
analysis as a comparison is identical to Granite, Fidelity or the Merger.
Accordingly, an analysis of the results is not mathematical; rather it involves
complex considerations and judgments concerning, among other things, differences
in financial and operating characteristics of the comparable companies and other
factors that could affect the public trading value of such companies.
For acting as financial advisor to Granite in connection with the Merger,
Granite has agreed to pay Piper Jaffray fees as follows: (a) $200,000, all of
which has been paid, in connection with Piper Jaffray rendering the Piper
Opinion and (b) 1.5% of the aggregate total Merger Consideration, of which a
retainer of $25,000 has been paid and the balance of which is contingent upon,
and due upon, consummation of the Merger. Granite has also agreed to pay the
reasonable out-of-pocket expenses of Piper Jaffray, not to exceed $25,000
without
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Granite's approval, and to indemnify Piper Jaffray against certain liabilities
incurred (including liabilities under the federal securities laws) in connection
with the engagement of Piper Jaffray by Granite.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Following the Merger, William W. Wehner, Chairman and Chief Executive
Officer of Granite, will enter into an employment agreement with Fidelity to
continue as Chairman and Chief Executive Officer of Granite following the
Merger. See "Management and Operations After the Merger." Granite and Fidelity
also may enter into employment agreements with certain other members of
management of Granite.
REPRESENTATIONS AND WARRANTIES; COVENANTS
Under the Merger Agreement, Granite, 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 Agreement and to consummate
the Merger, the accuracy of their Commission filings and disclosure documents,
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.
Granite has made further representations regarding its subsidiaries, its
capital structure, its financing business, its licenses and government
approvals, its assets, environmental compliance, the absence of certain changes
or events, litigation involving Granite, compliance with laws and regulations,
certain benefit plans, taxes, contracts and debt instruments, and the approval
of the Merger Agreement, the Merger and the Stockholder Agreements by the
Granite Board.
Granite 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. Granite 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 stockholder of Granite who is an affiliate within the
meaning of Rule 145 of the Securities Act, and, subject to the fiduciary duties
of the officers and directors, using its best efforts to obtain stockholder
approval of the Merger Agreement and the Merger. Granite 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 Granite upon
Fidelity's reasonable request. Granite also agreed not to initiate, continue,
solicit or encourage any Acquisition Proposal, except that the Granite Board may
provide information to engage in negotiations with a third party regarding an
Acquisition Proposal in accordance with the Granite Board's fiduciary duties as
defined by the DGCL.
From and after the Effective Time, Fidelity shall have the right to
continue, amend or terminate any Granite 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 Granite, 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 Granite 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 Granite 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 Granite 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 the shares of Fidelity Common Stock issuable upon
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exercise of the Granite Options under the Securities Act and to cause these
shares to be listed on the NYSE, (iii) to not participate as an owner, partner,
shareholder, joint venturer or co-venturer or through any other means, other
than in the ordinary course of business, in any business or other relationship
with any business or entity identified by Granite, in writing as an actual or
potential acquisition target, (iv) to provide Granite access to information
about Fidelity upon Granite's reasonable request, and (v) 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.
CONDITIONS TO THE MERGER
In addition to the stockholder approvals sought hereby, the obligations of
Granite, Fidelity and Merger Sub to consummate the Merger are subject to (i)
termination or expiration of any applicable waiting period under the HSR Act
relating to the Merger, (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 consummation of the Merger, (iii) the receipt of
a tax opinion by each of Fidelity and Granite to the effect that, for federal
income tax purposes, the Merger will qualify as a "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 Granite 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 Granite
(other than changes resulting from changes in interest rates with respect to
Fidelity), 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.
Fidelity's obligations under the Merger Agreement are also subject to the
absence of any action by any governmental entity, whether actually instituted or
pending, seeking to delay, restrain, prohibit or limit (or seeking 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 Granite, Fidelity, Merger Sub, or any of their
respective subsidiaries, or seeking 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, in the reasonable judgment of Fidelity,
be likely to materially adversely affect any such rights.
TREATMENT OF OPTIONS AND WARRANTS TO PURCHASE GRANITE COMMON STOCK
At the Effective Time, each Granite 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 Granite Option, 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 Granite Option in
full immediately prior to the Merger and been the holder of Granite Common Stock
issuable upon exercise of such Granite Option, at an exercise price per share
calculated by dividing the aggregate exercise price for the shares of Granite
Common Stock otherwise purchasable pursuant to such Granite Option by the number
of full shares of Fidelity Common Stock deemed purchasable pursuant to such
option. If the Granite 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. Pursuant to the terms of the Granite
Option Plan, any awards under the Granite Option Plan in the form of unvested
stock options become immediately exercisable as of the date of a merger
agreement, exchange agreement, reorganization or sale agreement. Accordingly,
all outstanding Granite Options became fully exercisable upon execution of the
Merger Agreement without further action by Granite or the option holders.
At the Effective Time, each Granite Warrant will be assumed by Fidelity in
accordance with the respective provisions of each such Warrant and will
thereafter be deemed to constitute a warrant to purchase, on the same terms and
conditions as were applicable under such Granite Warrant, the same number of
shares of Fidelity Common Stock as the holder of such Granite Warrant would have
been entitled to receive pursuant to the Merger had such holder exercised such
Granite Warrant in full immediately prior to the Effective Time
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and been the holder of the Granite Common Stock issuable upon exercise of such
Granite Warrant, at an exercise price to be determined in accordance with the
respective provisions of each such Granite Warrant.
AMENDMENT OR TERMINATION OF THE MERGER AGREEMENT; REIMBURSEMENT OF EXPENSES AND
BREAKUP FEE
AMENDMENTS AND WAIVERS
Any provision of the Merger Agreement may be amended or waived prior to the
Effective Time; provided, that, after the adoption of the Merger Agreement by
the stockholders of Granite or Fidelity, no such amendment or waiver may be made
without the further approval of such stockholders which would alter or change
the amount or kind of consideration to be received in exchange for any shares of
Granite Common Stock, or any of the principal terms of the Merger.
TERMINATION OF MERGER AGREEMENT
The Merger Agreement may be terminated (i) by mutual written consent of
Fidelity and Granite or, (ii) by either Fidelity or Granite if (A) the required
approval of the stockholders of Granite or Fidelity is not obtained at the
Special Meetings, (B) the Merger has not been consummated by June 15, 1998
(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 if the Average
Fidelity Stock Price is less than $20.75 per share or the Granite 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.
The Merger Agreement may also be terminated by Granite if Granite receives
an Acquisition Proposal on terms the Granite Board (after consultation with its
independent financial advisors) determines in good faith to be more favorable to
Granite's stockholders than the terms of the Merger, and the Granite Board
determines, upon the written advice of its legal counsel, that to continue to
recommend that holders of shares of Granite Common Stock vote in favor of the
Merger, notwithstanding the receipt of such offer with respect to an Acquisition
Proposal, or to fail to recommend or accept the Acquisition Proposal, would
violate the fiduciary duties of the Granite Board; provided, however, that
Granite has provided Fidelity and Merger Sub with three business days prior
written notice of its intent to so terminate this Agreement together with a
detailed summary of the terms and conditions (including proposed financing, if
any) of such Acquisition Proposal.
REIMBURSEMENT OF EXPENSES; BREAKUP FEE
The Merger Agreement provides for the reimbursement of Fidelity's
documented fees and expenses in connection with this transaction and the payment
of an additional breakup fee of $5.0 million by Granite if (i) Fidelity
terminates the Merger Agreement as a result of a Withdrawal Termination, (ii)
Granite terminates the Agreement pursuant to a Superior Proposal Termination, or
(iii) an Acquiring Person shall have become the beneficial owner of a majority
of the outstanding shares of Granite Common Stock, and either Granite shall fail
to obtain the stockholder approval sought hereby or Granite's Board of Directors
shall have withdrawn or changed its recommendation or refused to make a
recommendation in favor of the Merger Agreement and the Merger.
RELATED AGREEMENTS
STOCKHOLDER AGREEMENTS
Each of the directors and executive officers of Granite and certain other
holders of Granite Common Stock have entered into agreements with Fidelity which
provide that, until the consummation of the Merger or
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the termination of the Merger Agreement in accordance with its terms, they will
(i) vote their shares in favor of the Merger Agreement and the Merger and any
matter that could reasonably be expected to facilitate the Merger and against
any proposal made in opposition to or in competition with consummation of the
Merger and the Merger Agreement; and (ii) enter into Irrevocable Proxies
appointing Fidelity's Board of Directors as the sole and exclusive attorneys and
proxies with respect to all of the shares of Granite Common Stock owned by them.
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 Granite have executed agreements
that prohibit such persons from disposing of their Fidelity Common Stock or
Granite Common Stock, as the case may be, until Fidelity publicly releases its
first report of combined financial results of Fidelity and Granite for a
specified period of at least 30 days of combined operations of the two
companies.
REGULATORY MATTERS
Transactions such as the Merger are reviewed by the Department of Justice
and the Federal Trade Commission (the "FTC") to determine whether they comply
with applicable antitrust laws. Under the provisions of the HSR Act, the Merger
may not be consummated until such time as certain information has been furnished
to the Department of Justice and the FTC and the specified waiting period
requirements of the HSR Act have been satisfied. Notification forms were filed
by Granite and Fidelity with the Department of Justice and the FTC under the HSR
Act on January 14, 1998, and the waiting period under the HSR Act is scheduled
to expire on February 13, 1998, unless extended or sooner terminated.
At any time before or after the Effective Time of the Merger, the
Department of Justice, the FTC, state attorneys general or a private person or
entity could challenge the Merger under the antitrust laws and seek, among other
things, to enjoin the Merger or to cause Fidelity to divest itself, in whole or
in part, of Granite or, in the alternative, other aspects of its business. Based
on information available to them, Fidelity and Granite believe that the Merger
will not violate federal or state antitrust laws. However, there can be no
assurance that a challenge to the Merger on antitrust grounds will not be made
or that, if such a challenge is made, Fidelity and Granite would prevail or
would not be required to accept certain conditions, possibly including certain
divestitures or hold-separate agreements in order to consummate the Merger.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
At the Effective Time, William W. Wehner will be added to the existing
Fidelity Board to form the Board of Directors of the combined company.
Information concerning the existing Fidelity Board is set forth in the 1996
Fidelity Form 10-K, which is incorporated herein by reference, and information
concerning Mr. Wehner is set forth in the 1997 Granite Form 10-KSB, which is
incorporated herein by reference. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE." For additional information regarding operations of Fidelity and
Granite, see "INFORMATION ABOUT FIDELITY" and "INFORMATION ABOUT GRANITE."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
considerations relevant to the exchange of shares of Granite 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, a Professional
Corporation ("SYCR"), and the opinions to be delivered immediately prior to the
Effective Time of the Merger by SYCR and by Dorsey & Whitney LLP (the "Tax
Opinions"), that the Merger will constitute a "reorganization" within the
meaning of Section 368 of the Code (a "Reorganization").
Holders of Granite Common Stock should be aware that this discussion does
not deal with all federal income tax considerations that may be relevant to
particular stockholders of Granite in light of their particular 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 Granite Common Stock as capital
assets. In addition, the following discussion is based on current legal
authorities as of the date hereof, and no assurance
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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 Granite
Common Stock is acquired or sold, Fidelity shares are disposed of, or
transactions in which Granite Common Stock is sold after the date of the Merger
Agreement and prior to the Effective Time of the Merger.
ACCORDINGLY, STOCKHOLDERS OF GRANITE ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING 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 stockholders of Granite
solely upon their receipt of Fidelity Common Stock solely in exchange for
Granite Common Stock pursuant to the Merger (except to the extent of gain
or loss recognized as a result of cash received in lieu of a fractional
share of Fidelity Common Stock).
(b) The aggregate tax basis of the Fidelity Common Stock received by
each Granite stockholder in the Merger will be the same as the aggregate
tax basis of Granite Common Stock surrendered in exchange therefor less 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 Granite Common Stock
surrendered in exchange therefor was held, provided that the Granite Common
Stock is held as a capital asset at the time of the Merger.
(d) If a Granite stockholder receives cash in lieu of a fractional
share of Fidelity Common Stock, such Granite stockholder will be treated as
if such fractional share of Fidelity Common Stock had been issued in the
Merger and then redeemed by Fidelity. A Granite stockholder 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
stockholder's basis in the fractional share.
(e) Neither Fidelity, Merger Sub nor Granite 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 are and will be subject to the truth and accuracy of
certain representations made by Fidelity, Granite and certain stockholders of
Granite regarding, among other things, the conduct of the business of Granite
following the Merger and the presence of a continuing interest in Fidelity
Common Stock by the stockholders of Granite. In particular, affiliates of
Granite have represented that they do not have, and are not aware of, a present
intention to sell or otherwise dispose of more than 50% of the shares of
Fidelity Common Stock to be issued in the Merger.
The obligations of Granite, Fidelity and Merger Sub to consummate the
Merger are conditioned upon the receipt of the Tax Opinions. If the Tax Opinions
are not received, the Merger will not be consummated unless the conditions
requiring receipt of the Tax Opinions are waived and the approvals of Granite
and Fidelity stockholders are resolicited by means of an updated Joint Proxy
Statement/Prospectus.
A successful IRS challenge to the Reorganization status of the Merger would
result in the stockholders of Granite recognizing taxable gain or loss, as of
the Effective Time, with respect to each share of Granite
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Common Stock surrendered equal to the difference between the stockholder'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
stockholder'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 Granite or
Fidelity as of the time that the Merger Agreement and the Merger are submitted
to the Granite stockholders for approval and adoption 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 Granite, 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 Granite 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 stockholders 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 Granite as of the time that
the Merger Agreement and the Merger are submitted to the Granite stockholders
for approval and adoption (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
Granite 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 Granite 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 Granite 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.
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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 Granite 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 Granite 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,
stockholders' equity and operating results of Granite.
NO DISSENTERS' RIGHTS
Neither holders of Fidelity Common Stock nor holders of Granite Common
Stock will have dissenters' appraisal rights under the DGCL with respect to the
Merger.
EXCHANGE OF CERTIFICATES
As soon as practicable after the Effective Time of the Merger, Fidelity
will cause the Exchange Agent to mail to each stockholder of record of Granite a
letter of transmittal with instructions to be used by such stockholder in
surrendering certificates which, prior to the Merger, represented shares of
Granite 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 Granite Common Stock which were outstanding immediately
prior to the effective time of the Merger.
HOLDERS OF GRANITE COMMON STOCK SHOULD NOT SEND STOCK CERTIFICATES WITH
THEIR PROXY CARDS. IF THE MERGER IS APPROVED AND CONSUMMATED, GRANITE
STOCKHOLDERS WILL RECEIVE INSTRUCTIONS REGARDING PROCEDURES FOR THE EXCHANGE OF
THEIR STOCK CERTIFICATES.
Upon the surrender of a Granite 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 Granite Common Stock
is entitled pursuant to the provisions of the Merger Agreement. In the event of
a transfer of ownership of Granite Common Stock which is not registered in the
transfer records of Granite, a certificate representing the appropriate number
of shares of Fidelity Common Stock may be issued to a transferee if the
certificate representing such Granite 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 Granite 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 Granite stockholder is entitled under the Merger Agreement. Upon
consummation of the Merger, shares of Granite Common Stock will cease to be
traded on the Nasdaq National Market, and there will be no further market for
Granite Common Stock.
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UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed balance sheet as of
September 30, 1997 combines the historical consolidated balance sheets of
Fidelity and Granite as if the Merger had been effective on September 30, 1997,
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 income
for the nine months ended September 30, 1997 and the years ended December 31,
1996, 1995 and 1994 present the combined results of operations of Fidelity and
Granite as if the Merger had been effective at the beginning of each period.
The unaudited pro forma combined condensed statements of income were
prepared based upon the historical consolidated financial statements of Fidelity
as of and for the nine months ended September 30, 1997 and as of and for each of
the years in the three-year period ended December 31, 1996, as previously filed
with the Commission and incorporated by reference herein, and upon unaudited
historical consolidated financial statements of Granite as of and for the nine
months ended September 30, 1997 and as of and for the 12-month period ended
December 31, 1996 and the period from inception (February 21, 1995) to December
31, 1995.
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 Granite 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 of Fidelity and Granite incorporated by
reference 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, stockholders'
equity, income and expenses of Fidelity and Granite are combined and reflected
at their historical amounts.
41
<PAGE> 51
PRO FORMA COMBINED CONDENSED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997
---------------------------------------------------------------
FIDELITY GRANITE
GRANITE NATIONAL PRO FORMA FIDELITY
FINANCIAL, INC. FINANCIAL, INC. ADJUSTMENTS COMBINED
--------------- --------------- ----------- --------
<S> <C> <C> <C> <C>
Investments:
Fixed maturities available for sale, at fair
value...................................... $ -- $ 174,008 $ $174,008
Equity securities, at fair value.............. -- 84,438 84,438
Other long-term investments, at cost, which
approximates fair value.................... -- 8,866 8,866
Short-term investments, at cost, which
approximates fair value.................... -- 15,272 15,272
Investments in real estates and partnerships,
net........................................ -- 7,175 7,175
------- --------- ------- --------
Total investments..................... -- 289,759 289,759
Cash, cash equivalents and restricted cash...... 5,578(1) 80,329 (3,030)(2) 82,877
Leases and lease residual interests............. 42,192 -- 42,192
Trade receivables............................... -- 50,502 50,502
Notes receivable................................ -- 8,659 8,659
Prepaid and other assets........................ 14,780 60,304 75,084
Title plants.................................... -- 51,661 51,661
Property and equipment, net..................... 1,267 35,045 36,312
------- --------- ------- --------
$63,817 $ 576,259 $(3,030) $637,046
======= ========= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities........ $ 4,644 $ 52,154 $ $ 56,798
Notes payable................................... 23,261 150,918 174,179
Reserve for claim losses........................ -- 188,333 188,333
Deferred income taxes........................... -- 15,053 15,053
Income taxes payable............................ 1,580 12,523 14,103
------- --------- ------- --------
29,485 418,981 448,466
------- --------- ------- --------
Minority interest............................... -- 3,489 3,489
Stockholders' equity:
Preferred stock............................... -- -- --
Common stock.................................. 6 2 (5)(3) 3
Additional paid-in capital.................... 31,761 68,376 5(3) 100,142
Retained earnings............................. 2,565 116,001 (3,030)(2) 115,536
------- --------- ------- --------
34,332 184,379 (3,030) 215,681
------- --------- ------- --------
Net unrealized gains on investments........... -- 23,785 23,785
Less treasury stock........................... -- 54,375 54,375
------- --------- ------- --------
34,332 153,789 (3,030) 185,091
------- --------- ------- --------
$63,817 $ 576,259 $(3,030) $637,046
======= ========= ======= ========
</TABLE>
- ---------------
(1) Cash, cash equivalents and restricted cash includes restricted cash of
$1,175.
(2) Cash, total assets and stockholders' equity have been adjusted to reflect
the cumulative impact of dividends that would have been paid on an
additional 4,735,000 shares issued and outstanding.
(3) Adjustment represents the conversion of the Granite Common Stock, $.001 par
value, to Fidelity Common Stock, $.0001 par value.
42
<PAGE> 52
PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS(1))
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1997
--------------------------------- ---------------------------------
GRANITE GRANITE
FIDELITY FIDELITY
GRANITE FIDELITY COMBINED GRANITE FIDELITY COMBINED
------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Title insurance premiums........... $ -- $346,543 $346,543 $ -- $381,432 $381,432
Escrow fees........................ -- 50,242 50,242 -- 58,365 58,365
Other fees and revenue............. 3,221 56,009 59,230 10,040 63,995 74,035
Interest and investment income,
including realized gains
(losses)........................ -- 11,924 11,924 -- 25,773 25,773
------- -------- -------- ------- -------- --------
3,221 464,718 467,939 10,040 529,565 539,605
------- -------- -------- ------- -------- --------
EXPENSE:
Personnel costs.................... 635 159,735 160,370 2,014 171,854 173,868
Other operating expenses........... 1,680 110,574 112,254 4,568 119,115 123,683
Agent commission................... -- 131,773 131,773 -- 157,919 157,919
Provision for claim losses......... -- 25,048 25,048 -- 26,041 26,041
Interest expense................... -- 6,908 6,908 -- 7,167 7,167
------- -------- -------- ------- -------- --------
2,315 434,038 436,353 6,582 482,096 488,678
------- -------- -------- ------- -------- --------
Earnings before income taxes....... 906 30,680 31,586 3,458 47,469 50,927
Income tax expense................. 334 12,272 12,606 1,331 19,484 20,815
------- -------- -------- ------- -------- --------
Net earnings....................... $ 572 $ 18,408 $ 18,980 $ 2,127 $ 27,985 $ 30,112
======= ======== ======== ======= ======== ========
Primary net earnings per share..... $ 0.29 $ 1.17 $ 0.92 $ 0.48 $ 1.73 $ 1.42
======= ======== ======== ======= ======== ========
Weighted average shares
outstanding, primary basis...... 2,000(2) 15,674 20,686(3) 4,454 16,161 21,173(3)
======= ======== ======== ======= ======== ========
Fully diluted earnings per share... 0.29 $ 1.01 $ 0.83(4) 0.48 $ 1.42 $ 1.24(4)
======= ======== ======== ======= ======== ========
Weighted average shares
outstanding, fully diluted
basis........................... 2,000(2) 20,507 25,519(3) 4,454 21,351 26,363(3)
======= ======== ======== ======= ======== ========
</TABLE>
43
<PAGE> 53
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS(1))
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
-------------------------------------
GRANITE
FIDELITY
GRANITE FIDELITY COMBINED
----------- -------- --------
<S> <C> <C> <C>
REVENUE:
Title insurance premiums.............................. $ -- $475,961 $475,961
Escrow fees........................................... -- 66,927 66,927
Other fees and revenue................................ 5,464 76,333 81,797
Interest and investment income, including realized
gains (losses)..................................... -- 17,692 17,692
------- -------- --------
5,464 636,913 642,377
------- -------- --------
EXPENSE:
Personnel costs....................................... 979 211,668 212,647
Other operating expenses.............................. 2,665 154,043 156,708
Agent commission...................................... -- 187,901 187,901
Provision for claim losses............................ -- 33,302 33,302
Interest expense...................................... -- 9,446 9,446
------- -------- --------
3,644 596,360 600,004
------- -------- --------
Earnings before income taxes.......................... 1,820 40,553 42,373
Income tax expense.................................... 773 16,216 16,989
------- -------- --------
Net earnings.......................................... $ 1,047 $ 24,337 $ 25,384
======= ======== ========
Primary net earnings per share........................ $ 0.45 $ 1.55 $ 1.23
======= ======== ========
Weighted average shares outstanding, primary basis.... 2,336 15,692 20,704(3)
======= ======== ========
Fully diluted earnings per share...................... 0.45 $ 1.34 $ 1.12(4)
======= ======== ========
Weighted average shares outstanding, fully diluted
basis.............................................. 2,336 20,550 25,562(3)
======= ======== ========
</TABLE>
44
<PAGE> 54
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS(1))
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
-------------------------------------
GRANITE
FIDELITY
GRANITE FIDELITY COMBINED
--------- -------- --------
<S> <C> <C> <C>
REVENUE:
Title insurance premiums................................ $ -- $285,552 $285,552
Escrow fees............................................. -- 49,723 49,723
Other fees and revenue.................................. 953 56,954 57,907
Interest and investment income, including realized gains
(losses)............................................. -- 17,616 17,616
------- -------- --------
953 409,845 410,798
------- -------- --------
EXPENSE:
Personnel costs......................................... 462 165,514 165,976
Other operating expenses................................ 294 123,888 124,182
Agent commission........................................ -- 82,713 82,713
Provision for claim losses.............................. -- 19,031 19,031
Interest expense........................................ -- 9,239 9,239
------- -------- --------
756 400,385 401,141
------- -------- --------
Earnings before income taxes and extraordinary item..... 197 9,460 9,657
Income tax expense...................................... 139 1,828 1,967
------- -------- --------
Earnings before extraordinary item...................... 58 7,632 7,690
Extraordinary item, loss on early retirement of debt,
net of applicable income taxes....................... -- (813) (813)
------- -------- --------
Net earnings............................................ $ 58 $ 6,819 $ 6,877
======= ======== ========
Primary earnings per share before extraordinary item.... $ 0.03 $ 0.49 $ 0.37
Extraordinary item, loss on early retirement of debt,
net of applicable income taxes....................... -- $ (0.05) $ (0.04)
------- -------- --------
Primary net earnings per share.......................... $ 0.03 $ 0.44 $ 0.33
======= ======== ========
Weighted average shares outstanding, primary basis...... 2,000(2) 15,694 20,706(3)
======= ======== ========
Fully diluted earnings per share........................ 0.03 $ 0.44 $ 0.33(4)
======= ======== ========
Weighted average shares outstanding, fully diluted
basis................................................ 2,000(2) 15,694(5) 20,706(3)
======= ======== ========
</TABLE>
45
<PAGE> 55
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS(1))
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1994(6)
--------------------
FIDELITY
--------------------
<S> <C>
REVENUE:
Title insurance premiums.................................................. $369,275
Escrow fees............................................................... 52,260
Other fees and revenue.................................................... 59,351
Interest and investment income, including realized gains (losses)......... 11,918
--------
492,804
--------
EXPENSE:
Personnel costs........................................................... 181,953
Other operating expenses.................................................. 129,367
Agent commission.......................................................... 132,713
Provision for claim losses................................................ 27,838
Interest expense.......................................................... 8,594
--------
480,465
--------
Earnings before income taxes and extraordinary item....................... 12,339
Income tax expense........................................................ 2,594
--------
Earnings before extraordinary item........................................ 9,745
Extraordinary item, gain on early retirement of debt, net of applicable
income taxes........................................................... 2,400
--------
Net earnings.............................................................. $ 12,145
========
Primary earnings per share before extraordinary item...................... $ 0.49
Extraordinary item, gain on early retirement of debt, net of applicable
income taxes........................................................... 0.12
--------
Primary net earnings per share............................................ $ 0.61
========
Weighted average shares outstanding, primary basis........................ 19,936
========
Fully diluted earnings per share.......................................... $ 0.61
========
Weighted average shares outstanding, fully diluted basis.................. 24,864
========
</TABLE>
46
<PAGE> 56
FOOTNOTES TO THE PRO FORMA CONDENSED FINANCIAL STATEMENTS
(1) Share and per share data have been adjusted to give affect to the 10% stock
dividend declared December 17, 1997, to stockholders of record as of
December 29, 1997, to be distributed January 14, 1998.
(2) In the case of Granite, for periods presented prior to December 31, 1996,
the number of shares on a weighted average basis are pro forma for Granite's
October 1996 initial public offering, as there were no shares outstanding
prior to that date.
(3) The combined pro forma earnings per share information presented assume that
the Fidelity shares and options issued in connection with the Merger have
been outstanding for the entire period.
(4) Combined fully diluted earnings assumed to be Granite net income plus
previously reported Fidelity fully diluted earnings.
(5) As other dilutive securities have an antidilutive effect, the other dilutive
securities are not presented.
(6) Data presented for Fidelity only as Granite was not formed until February
21, 1995.
47
<PAGE> 57
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
Fidelity. The Fidelity Common Stock is listed on the NYSE under the trading
symbol "FNF." As of the Fidelity Record Date, the Fidelity Common Stock was held
of record by approximately 878 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 $ .07
1998
First Quarter (through January 15, 1998)....................... $ 32.06 $ 26.69
</TABLE>
Granite. Since Granite's initial public offering on October 25, 1996, the
Granite Common Stock has been quoted on the Nasdaq National Market under the
trading symbol "GFNL." As of the close of business on January 14, 1998, the
Granite Common Stock was held of record by approximately 15 persons. Granite has
historically not paid dividends on its Common Stock and does not anticipate
paying any dividends in the future. The following table sets forth the range of
high and low closing sale prices reported on the Nasdaq National Market for
Granite Common Stock for the periods indicated:
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
FISCAL 1997
Second Quarter (from October 25, 1996)................................... $ 9.50 $ 8.00
Third Quarter............................................................ $ 12.75 $ 9.38
Fourth Quarter........................................................... $ 11.00 $ 8.38
FISCAL 1998
First Quarter............................................................ $ 12.00 $ 8.75
Second Quarter........................................................... $ 17.87 $ 10.25
Third Quarter (through January 15, 1998)................................. $ 18.50 $ 17.25
</TABLE>
48
<PAGE> 58
INFORMATION ABOUT FIDELITY
Through its principal 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 and Nations Title Insurance Company;
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.
Certain information relating to the operations of Fidelity and executive
compensation, various benefit plans (including stock option plans), voting
securities and the principal holders thereof, and certain relationships and
related transactions and other related matters as to Fidelity is incorporated by
reference or set forth in the Fidelity Annual Report on Form 10-K for the year
ended December 31, 1996, incorporated herein by reference. Stockholders of
Fidelity and Granite desiring copies of such documents may contact Fidelity at
its address or telephone number indicated under "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
49
<PAGE> 59
INFORMATION ABOUT GRANITE
Granite is a finance company specializing in originating, funding,
acquiring, selling, securitizing and servicing non-cancelable, full-payment
equipment leases for a broad range of businesses located throughout the United
States. Granite's operations are primarily in the small-ticket segment of the
equipment leasing market, which generally encompasses leases of equipment with
original purchase prices of $150,000 or less. Granite is committed to providing
a high level of service to its network of independent lease originators and is
investing in advanced technology that will allow Granite to electronically link
each originator with Granite's systems and resources. Granite has also set up
vendor direct programs. Such programs will focus on establishing formal and
informal relationships with equipment vendors whereby Granite will be the
financing source recommended by the vendor to its equipment purchasers. As a
value added service, Granite may develop specialty lease finance programs and
vendor direct programs which would offer customized lease finance arrangements
to respond to the needs of a particular lease originator and vendor,
respectively.
Granite currently operates under a consolidation strategy that encompasses
the purchase of both companies active in its market segment and independent
lease originators that may or may not currently conduct business with Granite.
Granite's current subsidiaries are GF Funding Corp. I, GF Funding Corp. II, GF
Funding Corp. III, GF Funding Corp. IV, Granite Financial Acquisition Corp. I
d/b/a Global Finance & Leasing and North Pacific Funding, Inc. dba C&W Leasing,
and its wholly-owned subsidiary CKC Corporation dba U.S. Funding.
Certain information relating to the operations of Granite and executive
compensation, various benefit plans (including stock option plans), voting
securities and the principal holders thereof, and certain relationships and
related transactions and other related matters as to Granite is incorporated by
reference or is set forth in the Granite Annual Report on Form 10-KSB for the
year ended June 30, 1997, incorporated herein by reference. Copies of such
documents may be obtained from Granite at the address or telephone number
indicated under "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
50
<PAGE> 60
COMPARISON OF RIGHTS OF STOCKHOLDERS OF FIDELITY AND GRANITE
Fidelity and Granite are Delaware corporations subject to the provisions of
the DGCL. The rights of Fidelity stockholders are governed by Fidelity's
Certificate of Incorporation (the "Fidelity Certificate"), its Bylaws (the
"Fidelity Bylaws") and the DGCL. The rights of Granite's stockholders are
governed by Granite's Certificate of Incorporation (the "Granite Certificate"),
its Bylaws (the "Granite Bylaws") and the DGCL. Upon consummation of the Merger,
holders of Granite Common Stock will become holders of Fidelity Common Stock. As
a result, the rights of Granite stockholders will be governed by the Fidelity
Certificate and Fidelity Bylaws. In most respects, the rights of Fidelity
stockholders and Granite stockholders are similar. The following is a summary of
the material differences between the rights of Fidelity stockholders and the
rights of Granite stockholders under their respective Certificates of
Incorporation and Bylaws.
STOCKHOLDER ACTION WITHOUT A MEETING
The Fidelity Certificate eliminates the right of stockholders to act by
written consent. The Granite Bylaws permits stockholders to act by written
consent; provided, that such consent must be signed by all stockholders entitled
to vote with respect to the subject matter thereof.
BOARD OF DIRECTORS
The Fidelity Board is divided into three classes, and the directors are
elected by classes to three-year terms, so that approximately one-third of the
directors of Fidelity will be elected at each annual meeting of its
stockholders. The Granite Board is not classified, so that all directors of
Granite are elected at each annual meeting of stockholders.
REMOVAL OF DIRECTORS
The DGCL provides that any director may be removed, with or without cause,
by the holders of a majority of the shares then entitled to vote at an election
of directors, except, in the case of a corporation whose board is classified,
stockholders may effect such removal only for cause, unless its certificate of
incorporation provides otherwise. Accordingly, Fidelity's stockholders may
remove Fidelity's directors only for cause, while Granite's stockholders may
remove Granite's directors with or without cause. The Fidelity Certificate
allows for the removal of directors 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 of stock entitled to vote generally in the election of
directors, voting together as a single class.
BUSINESS COMBINATIONS
Granite is governed by Section 203 of the DGCL, which limits the ability of
a corporation to engage in certain "business combinations" (as defined in
Section 203) with an "interested stockholder" (as defined in Section 203).
Fidelity has elected not to be governed by Section 203 of the DGCL.
The Fidelity Certificate contains provisions (the "Fair Price Provisions")
which require the approval of the holders of two-thirds of those shares that are
not beneficially owned or controlled by a stockholder who directly or indirectly
owns 10% or more of the outstanding voting shares of Fidelity (a "Related
Person"), as a condition to specified business combinations (the "Business
Combinations") with or proposed by any Related Person or any affiliate or
associate of a Related Person. However, where the transaction (i) has been
approved by two-thirds of the directors who are not affiliated with the Related
Person (the "Continuing Directors") or (ii) meets certain minimum price criteria
and procedural conditions, then such supermajority vote is not required.
For purposes of the Fair Price Provisions of the Fidelity Certificate, a
Business Combination includes: (i) a merger or consolidation of Fidelity or any
of its subsidiaries with a Related Person; (ii) the sale or other disposition by
Fidelity or any of its subsidiaries of assets worth more than a specified amount
to a Related Person; (iii) the sale to Fidelity or any of its subsidiaries of
all or more than a specified amount of the assets of a Related Person or its
affiliates; (iv) the issuance of stock or other securities of Fidelity or any of
its
51
<PAGE> 61
subsidiaries to a Related Person in exchange for cash or property worth more
than a specified amount; (v) the adoption of any plan or proposal to liquidate
or dissolve Fidelity that is proposed by a Related Person; (vi) any
reclassification of securities, recapitalization or other transaction which has
the direct or indirect effect of increasing the proportionate share of the
outstanding stock (of any class or series of stock) of Fidelity or any of its
subsidiaries owned by a Related Person; or (vii) any agreement, contract, or
other arrangement providing directly or indirectly for any of the foregoing.
The Fair Price Provisions require the consideration to be paid to
Fidelity's stockholders in a Business Combination not approved by either the
Continuing Directors or the required supermajority vote to be either cash or the
same type of consideration paid by the Related Person that it paid for any of
Fidelity's voting stock that it previously acquired, with the fair market value
of any consideration other than cash to be determined by a majority of the
Continuing Directors. The Fair Price Provisions require the Related Person to
meet the minimum price criteria with respect to each class or series of common
or preferred stock, whether or not the related Person owned shares of that class
or series prior to proposing the Business Combination.
ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER PROVISIONS
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.
STOCKHOLDER PROPOSALS
Proposals of stockholders of Fidelity which are intended to be presented by
such stockholders at Fidelity's 1998 Annual Meeting of Stockholders must have
been received by Fidelity no later than January 13, 1998 in order to be
considered for inclusion in the proxy statement and form of proxy relating to
that meeting.
Proposals of stockholders of Granite which are intended to be presented by
such stockholders at Granite's 1998 Annual Meeting of Stockholders (if the
Merger is not consummated) must be received by Granite no later than June 27,
1998 in order to be considered for inclusion in the proxy statement and form of
proxy relating to that meeting.
52
<PAGE> 62
EXPERTS
The consolidated financial statements of Fidelity as of December 31, 1995
and 1996, and for each of the years in the three-year period ended December 31,
1996, 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 consolidated financial statements of Granite as of June 30, 1997 and
for each of the years in the two-year period ended June 30, 1997, 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 by reference herein, and upon the authority of
said firm as experts in accounting and auditing.
Representatives of KPMG Peat Marwick LLP are expected to be present at the
Fidelity Meeting, and representatives of Ehrhardt Keefe Steiner & Hottman PC are
expected to be present at the Granite Meeting. In each case, 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 and the
federal income tax consequences in connection with the Merger will be passed
upon for Fidelity by Stradling Yocca Carlson & Rauth, a professional
corporation, Newport Beach, California. The federal income tax consequences in
connection with the Merger will be passed upon for Granite by Dorsey & Whitney
LLP, Denver, Colorado.
OTHER MATTERS
As of the date of this Joint Proxy Statement/Prospectus, the Fidelity Board
and the Granite Board know of no matters that will be presented for
consideration at the Special Meetings other than as described in this Joint
Proxy Statement/Prospectus. If any other matters shall properly come before
either 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 respective managements of Fidelity
and Granite.
53
<PAGE> 63
APPENDIX A
AGREEMENT AND PLAN OF MERGER
dated as of
November 17, 1997
among
FIDELITY NATIONAL FINANCIAL, INC.,
GRANITE ACQUISITION CORP.
and
GRANITE FINANCIAL, INC.
<PAGE> 64
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
ARTICLE I
THE MERGER
1.1 The Merger..................................................................... A-1
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-3
2.3 Fractional Shares.............................................................. A-4
2.4 Stock Options and Warrants..................................................... A-4
ARTICLE III
THE SURVIVING CORPORATION
3.1 Certificate of Incorporation................................................... A-4
3.2 Bylaws......................................................................... A-4
3.3 Directors...................................................................... A-4
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of the Company.................................. A-5
(a) Organization, Standing and Corporate Power............................... A-5
(b) Subsidiaries............................................................. A-5
(c) Capital Structure........................................................ A-5
(d) Authority; Noncontravention.............................................. A-6
(e) SEC Documents; Financial Statements; No Undisclosed Liabilities.......... A-7
(f) Intentionally Omitted.................................................... A-7
(g) Financing Business Representations....................................... A-7
(h) Licenses, Approvals, etc................................................. A-8
(i) Real Properties.......................................................... A-8
(j) Tangible Personal Property............................................... A-9
(k) Intellectual Property.................................................... A-9
(l) Environmental Compliance................................................. A-9
(m) Absence of Certain Changes or Events..................................... A-10
(n) Litigation............................................................... A-11
(o) Compliance with Laws..................................................... A-11
(p) Absence of Changes in Stock or Benefit Plans............................. A-11
(q) ERISA Compliance......................................................... A-11
(r) Taxes.................................................................... A-12
(s) Contracts; Debt Instruments.............................................. A-14
(t) Insurance................................................................ A-15
(u) Interests of Officers and Directors...................................... A-15
</TABLE>
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<S> <C> <C> <C>
(v) Approval by Board........................................................ A-15
(w) Brokers.................................................................. A-15
(x) Pooling of Interests..................................................... A-15
(y) Disclosure............................................................... A-15
4.2 Representations and Warranties of Parent and Merger Subsidiary................. A-15
(a) Organization, Standing and Corporate Power............................... A-16
(b) Authority; Noncontravention.............................................. A-16
(c) SEC Documents; Financial Statements; No Undisclosed Liabilities.......... A-17
(d) Brokers.................................................................. A-17
(e) Insurance................................................................ A-17
(f) Interests of Officers and Directors...................................... A-17
(g) Pooling of Interests..................................................... A-17
(h) Disclosure............................................................... A-17
ARTICLE V
COVENANTS OF THE COMPANY
5.1 Conduct of Business............................................................ A-18
5.2 Affiliate Agreements........................................................... A-19
5.3 Access to Information.......................................................... A-19
5.4 No Solicitation................................................................ A-20
5.5 Pooling of Interests; Tax Treatment............................................ A-20
5.6 Stockholder Agreement.......................................................... A-20
ARTICLE VI
COVENANTS OF PARENT
6.1 Confidentiality................................................................ A-20
6.2 Obligations of Merger Subsidiary............................................... A-21
6.3 Employee Benefit Plans......................................................... A-21
6.4 Indemnification and Insurance.................................................. A-21
6.5 Stock Exchange Listing......................................................... A-22
6.6 Publication of Combined Financial Results...................................... A-22
6.7 Registration Relating to Company Options....................................... A-22
6.8 Certain Transactions........................................................... A-22
6.9 Access to Information.......................................................... A-22
6.10 Pooling of Interests; Tax Treatment............................................ A-22
ARTICLE VII
COVENANTS OF PARENT AND THE COMPANY
7.1 HSR Act Filings; Reasonable Efforts; Notification.............................. A-23
7.2 Stockholder Meeting; Proxy Material............................................ A-24
7.3 Press Releases................................................................. A-25
7.4 Securities Reports............................................................. A-25
</TABLE>
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7.5 Stockholder Approvals.......................................................... A-25
7.6 Disclosure Schedules........................................................... A-25
ARTICLE VIII
CONDITIONS TO THE MERGER
8.1 Conditions to the Obligations of Each Party.................................... A-26
8.2 Conditions to the Obligations of Parent and Merger Subsidiary.................. A-26
8.3 Conditions to the Obligations of the Company................................... A-27
ARTICLE IX
TERMINATION
9.1 Termination.................................................................... A-28
9.2 Effect of Termination.......................................................... A-28
ARTICLE X
MISCELLANEOUS
10.1 Notices........................................................................ A-29
10.2 Survival of Representations and Warranties..................................... A-29
10.3 Amendments; No Waivers......................................................... A-30
10.4 Fees and Expenses.............................................................. A-30
10.5 Successors and Assigns; Parties in Interest.................................... A-30
10.6 Severability................................................................... A-30
10.7 Governing Law.................................................................. A-31
10.8 Entire Agreement............................................................... A-31
10.9 Counterparts; Effectiveness; Interpretation.................................... A-31
10.10 Effect of Disclosure Schedule.................................................. A-31
</TABLE>
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), is entered into as of
November 17, 1997, among GRANITE FINANCIAL, INC., a Delaware corporation (the
"Company"), FIDELITY NATIONAL FINANCIAL, INC., a Delaware corporation
("Parent"), and GRANITE ACQUISITION CORP., a Delaware 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 General Corporation Law of the State of
Delaware (the "DGCL"), whereby each issued and outstanding share of common
stock, par value $.001 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 (as defined herein), are fair to and in the best interests
of the stockholders of the Company, (ii) determined that the consideration to be
paid in the Merger is fair to and in the best interests of the stockholders 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 stockholders;
WHEREAS, the Board of Directors of Parent has (i) determined that this
Agreement and the transactions contemplated hereby, including the Merger, are
fair to and in the best interests of the stockholders of the Parent, (ii)
approved this Agreement and the transactions contemplated hereby, including the
Merger, and (iii) resolved to recommend approval of the issuance of the Parent
Common Stock (as defined herein) in connection with the Merger by the Parent's
stockholders;
WHEREAS, as a condition and inducement to Parent's willingness to enter
into this Agreement, certain stockholders of the Company have agreed to enter
into agreements with Parent in the form attached hereto as Exhibit A (the
"Stockholder Agreements");
WHEREAS, it is intended that the Merger be (i) treated as a 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:
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 DGCL, 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").
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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 a certificate of merger
with the Secretary of State of the State of Delaware (the "Certificate of
Merger") and make all other filings or recordings required by the DGCL in
connection with the Merger.
1.3 Effective Time of the Merger. The Merger shall, subject to the DGCL,
become effective as of such time as the Certificate of Merger is duly filed with
the Secretary of State of the State of Delaware or at such later time as is
specified in the Certificate of Merger (the "Effective Time").
1.4 Effects of the Merger. From and after the Effective Time, the
Surviving Corporation shall possess all the rights, privileges, powers and
franchises and be subject to all of the restrictions, disabilities, duties and
liabilities of the Company (including, without limitation, the obligation to pay
the expenses described in Section 4.1(w) below) and Merger Subsidiary, all as
provided under the DGCL.
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
(c) each Share outstanding immediately prior to the Effective Time shall,
except as otherwise provided in Section 2.1(a), be converted into the right to
receive 0.701 of a share (the "Exchange Ratio") of Parent's common stock, par
value $.0001 per share (the "Parent Common Stock"), without interest, 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) If the Average Parent Stock Price (as defined in Section 9.1(vi) below)
is less than $22.82, Parent may elect to either (1) terminate this Agreement as
provided in Section 9.1(vi) below, or (2) increase the Exchange Ratio to a
number (rounded to the nearest 1/1000) equal to the product of the Exchange
Ratio multiplied by a fraction, the numerator of which is $22.82 and the
denominator of which is the Average Parent Stock Price; and
(ii) If the Average Parent Stock Price is more than $28.53, the Exchange
Ratio shall be reduced to a number (rounded to the nearest 1/1000) equal to the
product of the Exchange Ratio multiplied by a fraction, the numerator of which
is $28.53 and the denominator of which is the Average Parent Stock Price.
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 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 Shares
and the holders of shares of Parent Common Stock had immediately prior to such
Capital Change.
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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 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.
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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 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 and Warrants.
(a) At the Effective Time, each Company Option (defined below) shall be
assumed by the Parent and shall thereafter be deemed to constitute an option to
purchase, on the same terms and conditions as were applicable under such Company
Option, the same Merger Consideration as the holder of such Company Option would
have been entitled to receive pursuant to the Merger had such holder exercised
such Company Option in full immediately prior to the Effective Time and been the
holder of the Shares issuable upon exercise of such Company Option, at an
exercise price per share calculated by dividing the aggregate exercise price for
the Shares otherwise purchasable pursuant to such Company Option by the number
of full shares of Parent Common Stock deemed purchasable pursuant to such
option; provided, however, that in the case of any Company Option to which
Section 421 of the Code applies by reason of its qualification as an "incentive
stock option" the exercise price and the number of shares purchasable pursuant
to such option and the terms and conditions of exercise of such option shall be
determined in order to comply with Section 424(a) of the Code. "Company Option"
means any option granted, whether or not exercisable, and not exercised or
expired, to a current or former employee, director or independent contractor of
the Company or any of its subsidiaries or any predecessor thereof to purchase
Shares pursuant to the Company's 1996 Omnibus Stock Option Plan, as amended (the
"Option Plan").
(b) At the Effective Time, the warrant to purchase 112,500 Shares, dated
July 28, 1997, issued to Piper Jaffray Inc., the warrant to purchase 37,500
Shares, dated July 28, 1997, issued to Cruttenden Roth Incorporated, and the
warrant to purchase 150,000 Shares, dated October 29, 1996, issued to Cruttenden
Roth Incorporated (collectively, the "Warrants") shall each be assumed by the
Parent in accordance with the respective provisions of each such Warrant and
shall thereafter be deemed to constitute a warrant to purchase, on the same
terms and conditions as were applicable under such Warrant, the same Merger
Consideration as the holder of such Warrant would have been entitled to receive
pursuant to the Merger had such holder exercised such Warrant in full
immediately prior to the Effective Time and been the holder of the Shares
issuable upon exercise of such Warrant, at an exercise price to be determined in
accordance with the respective provisions of each such Warrant.
ARTICLE III
THE SURVIVING CORPORATION
3.1 Certificate of Incorporation. The Certificate of Incorporation of the
Company in effect at the Effective Time shall be the Certificate 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 shall
consist of five (5) members, and the initial directors of the Surviving
Corporation shall, until successors are duly elected and qualified in accordance
with applicable law, include William W. Wehner, James E. Lewis and three (3)
persons designated by Parent.
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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 to be delivered by the
Company to Parent and Merger Subsidiary within six (6) business days after the
execution of this Agreement (the "Disclosure Schedule"), as follows (whenever
the representations or warranties of the Company are qualified by the knowledge
of the Company, knowledge shall mean actual knowledge of the management
employees of the Company identified in Section 4.1 of the Disclosure Schedule):
(a) Organization, Standing and Corporate Power. Each of the Company and
each of its Significant Subsidiaries (as defined below) 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
Company and each of 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), prospects, business, or results of operations of the
Company and its subsidiaries taken as a whole, (ii) impair the ability of any
party hereto to perform its obligations under this Agreement or (iii) prevent or
materially delay consummation of any of the transactions contemplated by this
Agreement (a "Material Adverse Effect"). The Company has delivered to Parent
complete and correct copies of its Certificate of Incorporation and bylaws and
the charter documents of its Significant Subsidiaries. The Company is not a
party to any joint venture, partnership or similar business or entity (the
"Joint Ventures"). 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; and a "Significant Subsidiary" means GF
Funding Corp. I, GF Funding Corp. II, GF Funding Corp. III and any subsidiary of
the Company that constitutes a Significant Subsidiary within the meaning of Rule
1-02 of Regulation S-X of the United States Securities and Exchange Commission
(the "SEC").
(b) Subsidiaries. Section 4.1(b) of the Disclosure Schedule lists each
subsidiary of the Company, its form of organization, its respective jurisdiction
of incorporation or formation, if applicable, and the holders of the outstanding
capital stock or other equity interests of such subsidiaries and indicates
whether such subsidiary is a Significant 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 (as defined herein) and 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, the Company does not own, directly or indirectly, any capital
stock or other equity interest in any person.
(c) Capital Structure. The authorized capital stock of the Company consists
of 20,000,000 Shares and 2,000,000 shares of Preferred Stock, par value $.001
per share. As of November 14, 1997, (i) 6,140,000 Shares were issued and
outstanding, (ii) no Shares were held by the Company or by any of the Company's
subsidiaries, (iii) 900,000 Shares were reserved for issuance upon the exercise
of Company Options pursuant to the Option Plan, of which Company Options to
Purchase 708,500 Shares were outstanding, (iv) 300,000 Shares were reserved
issuance pursuant to the Warrants, and (v) no shares of Preferred Stock were
issued, reserved for issuance or outstanding. 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 Warrants 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
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<PAGE> 72
Company having the right to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matters on which stockholders of the
Company may vote. Except as set forth above in this Section 4.1(c) and 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, 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
Stockholder 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 a majority of the outstanding Shares (the "Company Stockholder
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
Stockholder 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) except as disclosed in Section 4.1(d)(i) of the
Disclosure Schedule, the Certificate 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)(ii) 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 , including, without
limitation, any Financing Documents (as defined in Section 4.1(g) below) and any
agreements, contracts, or other instruments evidencing or entered into in
connection with or with respect to any Securitization Assets (as defined in
Section 4.1(g) below), 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, other than, in the
case of clause (iii), any such conflicts, violations, defaults that,
individually or in the aggregate, would not have a Material Adverse Effect. 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 arbitrable 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)(i) and 4.1(d)(ii) of the Disclosure Schedule, (ii) the filing of
the
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Certificate of Merger in accordance with the DGCL 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) compliance with any applicable requirements of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder (the "Exchange Act"), and (v) 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.
(e) SEC Documents; Financial Statements; No Undisclosed Liabilities. The
Company has timely filed all reports, schedules, forms, statements, exhibits and
other documents required to be filed by the Company with the SEC under or
pursuant to the Exchange Act or the Securities Act of 1933, as amended, and the
rules and regulations thereunder (the "Securities Act") since the Company's
initial public offering in October 1996 (the "Company SEC Documents"). True and
correct copies of each of the Company SEC Documents have been provided or made
available to Parent. As of their respective dates, or as subsequently amended
prior to the date of this Agreement, the Company SEC Documents complied in all
material respects with the requirements of the Securities Act or the Exchange
Act, as the case may be, applicable to such Company SEC Documents, and none of
the Company 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 Company 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 United States generally
accepted accounting principles (except, in the case of unaudited statements, as
permitted by Form 10-Q of the SEC) applied on a consistent basis throughout the
periods involved ("GAAP") (except as may be indicated in the notes thereto) and
fairly present the consolidated financial position of the Company 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 Company SEC Document, neither the Company nor any of its
subsidiaries has any liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise), except for liabilities and obligations
which, individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect.
(f) Intentionally Omitted.
(g) Financing Business Representations.
(i) The Company has provided or made available to Parent, for each
financing transaction conducted by the Company or any Subsidiary with respect to
any type of property under which the Company is the lessor, the seller, the
lender or an assignee thereof and which would be properly reflected in a
consolidated balance sheet of the Company and any Subsidiary in the lines
captioned "Direct Financing Leases" (the "Financing Transactions") the following
information as of September 30, 1997: (A) the contract number assigned by the
Company; (B) the name of the party obligated to make rent, purchase price or
debt service payments; (C) the billing address of such obligor; (D) the primary
location of the equipment; (E) the initial cost of equipment leased, sold or
acting as collateral; (F) the general type of equipment leased, sold or acting
as collateral; (G) the remaining amount of all receivables of the Company
related to such transaction; (H) the amount and timing of rental, purchase price
or debt service payments to the Company with respect thereto; (I) the date the
related lease, installment sale or loan agreement commenced and terminates; (J)
the principal amount and remaining term of any nonrecourse debt of the Company
with respect thereto; (K) the type of purchase option granted with respect to
the equipment; and (L) the residual value reflected on the Company's books of
any equipment to which the Company is entitled upon expiration of the related
lease or installment sales agreement.
(ii) The Company has provided or made available to Parent, accurate and
complete copies of each of the agreements, contracts, leases and other
instruments entered into with respect to Financing Transactions (the "Financing
Documents"). The original execution copy of the Financing Documents are in the
possession of the Company, a trustee under a securitization transaction or a
secured lender of the Company. Except for any
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Financing Transaction with respect to which the value of the equipment is less
than $30,000, the Company has caused to be filed UCC-1 financing statements with
respect to each item of property involved in any Financing Transaction and has
made such other filings or notifications, or taken possession or has obtained
certificates of title, as are necessary to give the Company a perfected security
interest in and lien upon such property.
(iii) Each of the Financing Documents is valid and enforceable in
accordance with its terms, except as may be limited by bankruptcy laws or other
similar laws affecting rights of creditors generally. The Company is not, and to
the Company's knowledge no other party thereto is, in default in the
performance, observance or fulfillment of any material obligation, covenant or
condition contained in the Financing Documents (except overdue accounts which
are not material in amount). To the Company's knowledge, no event has occurred
which with or without the giving of notice or lapse of time, or both, would
constitute a default under the Financing Documents (except overdue accounts
which are not material in amount).
(iv) The Company has not engaged in any Financing Transaction as to which
the Company has taken the position that it is a true lease for tax purposes.
(v) Section 4.1(g) of the Disclosure Schedule sets forth for each portfolio
securitization transaction entered into by the Company or any subsidiary,
including without limitation any rights of the Company in respect of the
servicing, collection or credit enhancement of the assets included in such
securitized portfolios (the "Securitization Assets") the following information
as of September 30, 1997: (A) the outstanding principal due to investors; (B)
the outstanding amount of the Company's recourse or repurchase obligation for
defaulted transactions in the pool, a projection of the base servicing fees and
credit enhancement, excess servicing, or incentive fees assuming scheduled lease
runoffs; and (C) a list of leases in each securities pool.
(h) 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(h) of the Disclosure
Schedule. Except as described in Section 4.1(h) of the Disclosure Schedule, all
of the Licenses are in full force and effect. Except as described in Section
4.1(h) of the Disclosure Schedule, no Action (as defined herein) is pending or,
to the knowledge of the Company, threatened seeking the revocation or limitation
of any of the Licenses.
(i) Real Properties. Neither the Company nor any of its subsidiaries
currently owns, and neither the Company nor any of its subsidiaries or any of
their respective predecessors have ever owned, fee title to any real property.
Section 4.1(i) 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 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(i) of the Disclosure Schedule, the Company has not received any
notice from any city, village or other 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 complaint, claim, prosecution,
indictment, action, suit, arbitration, investigation or proceeding by or before
any Governmental Entity (an "Action") against any party under any Lease which if
adversely determined would
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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.
(j) Tangible Personal Property. Except as disclosed in Section 4.1(j) 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 included in the Company SEC
Documents as being owned by the Company and its subsidiaries or acquired after
the date thereof (except properties sold or otherwise disposed of in the
ordinary course of business 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 included in the Company SEC Documents (or on the books and records of
the Company as of the date thereof) or acquired after the date thereof (except
for leases that have expired by their terms or that have been transferred in the
ordinary course of business) and are in possession of the properties purported
to be leased thereunder, 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.
(k) Intellectual Property. To the knowledge of the Company, the ownership,
operation and conduct by the Company and its subsidiaries of its business, as
presently owned, operated, and conducted, does not infringe upon or conflict in
any respect with any patent, copyright, trademark, trade name, service mark,
brand name, any related regulations or other intellectual property rights of any
other person, and to the knowledge of the Company no other person is infringing
upon any such rights of the Company and its subsidiaries, in each case.
(l) Environmental Compliance.
(i) For purposes of this Section 4.1(l), (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. sec. 9601 et seq., the Solid Waste Disposal Act, as
amended by the Resource Conservation and Recovery Act, 42 U.S.C. sec. 6901 et
seq., the Clean Water Act, 33 U.S.C. sec. 1251 et seq., the Clean Air Act, 42
U.S.C. sec. 7401 et seq., the Toxic Substances Control Act, 15 U.S.C. sec. 2601
et seq., the Safe Drinking Water Act, 42 U.S.C. sec. 300f et seq., the Emergency
Planning and Community Right to Know Act, 42 U.S.C. sec. 11001 et seq., the
Occupational Safety and Health Act, 29 U.S.C. sec. 651 et seq., the Oil
Pollution Act, 33 U.S.C. sec. 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.
sec. 6901 et seq.
(ii) Except as set forth on Section 4.1(l) 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 "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 Leased 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 Leased Real
Estate or any real property previously owned or operated by any Company
Interests; (C) the Leased Real Estate is not
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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 Leased 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 Authorities relating in whole or in part to the existence of
Hazardous Substances at any Leased 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.
(m) Absence of Certain Changes or Events. Except as contemplated by this
Agreement or disclosed in Section 4.1(m) of the Disclosure Schedule, since
September 30, 1997, the Company and its subsidiaries have conducted the Business
only in the ordinary course consistent with past practice, and there has not
been (i) 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 material increase in compensation or benefits, except for grants to
employees who are not 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 Financing Transactions 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, but in no event in the amount
of more than $100,000 for any one transaction or $250,000 in the aggregate, and
other than acquisitions of equipment lease portfolios or 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 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
$100,000 for any transaction or $250,000 for any series of transactions, other
than in connection with acquisitions of equipment lease portfolios, (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 in
connection with acquisitions of equipment lease portfolios, (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, 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).
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(n) Litigation. Except as disclosed in Section 4.1(n) 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,
individually, or in the aggregate, in which a determination adverse to the
Company could reasonably be expected to have a Material Adverse Effect.
(o) Compliance with Laws. The conduct by the Company and its subsidiaries
of its business is and has been in compliance with (i) all statutes and laws,
(ii) to the knowledge of the Company, all regulations, ordinances, and rules,
and (iii) judgments, orders or decrees to which the Company or any of its
subsidiaries is a party, except for violations or failures so to comply, if any,
that, individually or in the aggregate, could not reasonably be expected to have
a Material Adverse Effect or to give rise to material fines or other material
civil penalties or any criminal liabilities. Except as set forth on Section
4.1(o) of the Disclosure Schedule, the Company has not received any notice or
other communications relating to any alleged violation of any statute, law,
regulation, ordinance, rule, judgment, order or decree from any Governmental
Entity, or of any investigation with respect thereto, applicable to the Company
or its subsidiaries.
(p) Absence of Changes in Stock or Benefit Plans. Except as disclosed in
Section 4.1(p) of the Disclosure Schedule or as required under this Agreement,
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 under
the Option Plan (including any discretionary acceleration of the exercise
periods or vesting by the Company's Board of Directors or any committee thereof
or any other persons administering the Option Plan) or authorization of cash
payments in exchange for any Company Options under the Option Plan, (ii) other
than the adoption of the Company's 401(k) Plan, 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) other than the adoption of the Company's 401(k) Plan, 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 June 30, 1997.
(q) ERISA Compliance.
(i) Section 4.1(q) 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 has delivered or made 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(q) 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) 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 of which the failure to
company with would have a Material Adverse Effect. Except as set forth in
Section 4.1(q) of the Disclosure Schedule, no prohibited transaction has
occurred with respect to any Benefit Plan. All
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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 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 Company SEC Documents.
(iv) 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 the Company SEC Documents or in Section 4.1(q)
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(q) 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, and the fiduciaries of the Benefit Plans have not advised the Company
that with respect to their duties to the Benefit Plans or the assets or any of
the trusts under any of the Benefit Plans, there are any pending or threatened
claims (other than claims for benefits in the ordinary course), lawsuits or
arbitrations which have been asserted or instituted against 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.
(r) 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
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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(r)(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) 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
material 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) The Company has not been advised that there is any review or audit in
process 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(r)(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 Tax Liens, 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
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(r)(viii) 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.
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(s) Contracts; Debt Instruments.
(i) Except as otherwise disclosed in Section 4.1(s)(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;
(F) any agreement or contract relating to any outstanding commitment for
material 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(s)(i) of the Disclosure Schedule or otherwise
disclosed in the Company SEC Documents is in 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(s)(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 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(s)(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(s)(iii) of the
Disclosure Schedule, do not require a notice period of more than thirty days).
For purposes of this Section 4.1(s)(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,
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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.
(t) 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; provided, that the Company currently does not have in force
any directors and officers liability insurance coverage. 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 with respect to which
the failure to comply with would result in a cancellation 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.
(u) Interests of Officers and Directors. Except as disclosed in the Company
SEC Documents, neither any of the Company's or any of its subsidiaries' 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 Company or its subsidiaries, or any other
business relationship with the Company or any of its subsidiaries.
(v) 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 and has duly approved the
execution of the Stockholder Agreements by the stockholders of the Company party
thereto, in each of the foregoing cases prior to the execution by the Company of
this Agreement or the execution of the Stockholder Agreements by such
stockholders.
(w) Brokers. Piper Jaffray, Inc. ("Piper") has delivered to the Company's
Board of Directors its oral opinion that the consideration to be paid in the
Merger is fair to the holders of Shares from a financial point of view, and
shall deliver such opinion in writing to the Company's Board of Directors
immediately prior to the date the Company mails the Proxy Statement/Prospectus
to the Company's stockholders. In addition, no broker, investment banker,
financial advisor or other person, other than Piper, 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 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.
(x) Pooling of Interests. The Company 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.
(y) Disclosure. The representative 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 and the Company SEC Documents, 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
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schedule delivered by the Parent to the Company concurrently with the execution
of this Agreement (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 have a material adverse effect on the value,
condition (financial or otherwise), prospects, business, or results of
operations of the Parent and its subsidiaries as a whole, (ii) impair the
ability of any party hereto to perform its obligations under this Agreement or
(iii) prevent or materially delay consummation of any of he transactions
contemplated by this Agreement.
(b) Authority; Noncontravention. Parent and Merger Subsidiary have all
requisite corporate power and authority to enter into this Agreement and,
subject to the Parent Stockholder Approval (as defined below), to consummate the
transactions contemplated by this Agreement. The approval by the affirmative
vote of the holders of a majority of the shares of Parent Common Stock
represented and voted on a proposal to approve the issues of shares of Parent
Common Stock in the Merger (provided that the total vote cast on such proposal
represents over 50% of the shares entitled to vote), as required by the New York
Stock Exchange, is required to complete the Merger (the "Parent Stockholder
Approval"), which approval is the only vote of the holders of any class or
series of the capital stock of Parent necessary to approve the transactions
contemplated hereby. 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 of Parent or
Merger Subsidiary, (ii) except as disclosed in Section 4.2(b) of the Parent's
Disclosure Schedules, 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 impair the ability of Parent and Merger Subsidiary to
perform their respective obligations under this Agreement or prevent the
consummation of any of the transactions contemplated by this Agreement (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 Certificate of Merger in accordance with the DGCL 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) compliance with applicable requirements of
the Exchange Act and the Securities Act, and applicable state blue sky laws,
with respect to the Registration Statement and the Prospectus/Proxy Statement,
and (v) 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.
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(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 Exchange Act since January 1, 1995
(the "Parent SEC Documents"), all of which were timely filed with the SEC. 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).
(d) Brokers. No broker, investment banker, financial advisor or other
person, other than Merrill Lynch & Co., 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. Merrill Lynch & Co. has orally delivered
to the Parent's Board of Directors its opinion that the consideration to be paid
in the Merger is fair to the holders of Parent Common Stock from a financial
point of view and shall deliver such opinion in writing to the Parent's Board of
Directors immediately prior to the date the Proxy Statement is mailed to the
Parent's stockholders.
(e) 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 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, will be required.
(f) Interests of Officers and Directors. Except as disclosed in the Parent
SEC Documents, neither any of the Parent's or any of its subsidiaries' 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.
(g) Pooling of Interests. The Parent 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.
(h) 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.
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ARTICLE V
COVENANTS OF THE COMPANY
The Company agrees that:
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 or as set forth in Section 5.1 of the Disclosure
Schedule, the Company shall not, and shall not permit any of its subsidiaries
to, without the prior written approval of Parent:
(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;
(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 or Warrants outstanding
as of the date hereof);
(c) amend its Certificate 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;
(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 (as defined in Section 4.1(s) hereof), other than drawings on
existing revolving credit facilities listed in Section 4.1(s) 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 $50,000
individually or $200,000 in the aggregate or otherwise acquire or agree to
acquire any material assets or property, other than acquisitions of equipment
lease portfolios in the ordinary course of business;
(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;
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(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
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 or any grant pursuant to any
existing contract or agreement, (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 Plan), or (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 stockholder 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 stockholder 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
stockholder 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 C from any
person who becomes an executive officer or director of Parent or any stockholder
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 (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.
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5.4 No Solicitation. The Company agrees that neither the Company nor any
of its subsidiaries nor any of the respective officers and directors of the
Company or its subsidiaries shall, and the Company shall direct and use its best
efforts to cause its 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 stockholders
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 offer being hereinafter referred to as an "Acquisition Proposal")
or, subject to the fiduciary duties of the Board of Directors of the Company
under the DGCL, 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 otherwise facilitate any effort or
attempt to make or implement an Acquisition Proposal or, enter into any
agreement or understanding with any other person or entity 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.
Subject to the fiduciary duties of the Board of Directors of the Company under
the DGCL, 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
stockholders of the Company pursuant to Section 368(a) of the Code.
5.6 Stockholder Agreement. The Company shall use its best efforts to cause
(i) Kramer Spellman, L.P., to enter into a Stockholder Agreement and an
Affiliate Agreement within thirty (30) days after the date of this Agreement,
and (ii) each of the persons named in Schedule 5.6 to enter into a Stockholder
Agreement and an Affiliate Agreement within fifteen (15) days after the date of
this Agreement.
ARTICLE VI
COVENANTS OF PARENT
Parent agrees that:
6.1 Confidentiality. Prior to the Effective Time and after any termination
of this Agreement, Parent 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 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,
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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 cause the Company
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 (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 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. 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 undertaking required by Delaware 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 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
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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), (b) and (c)
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 New York Stock Exchange, 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 Registration Relating to Company Options. Parent shall register the
shares of Parent Common Stock issuable upon exercise of the Company Options
after the Effective Time in either the Registration Statement or in a
registration statement on Form S-8 to be filed as soon as practicable following
the Effective Time, and shall cause the shares of Parent Common Stock issuable
upon exercise thereof from and after the Effective Time, when issued, to be
listed on the New York Stock Exchange.
6.8 Certain Transactions. Following the execution of this Agreement and
through the Effective Time or sooner termination of this Agreement, Parent shall
not, directly or indirectly, participate or commence participation as an owner,
partner, shareholder, joint venturer or co-venturer or through any other means
in any business or other relationship (other than in the ordinary course of
business of Parent or its subsidiaries) with any business or entity identified
by the Company, in writing as an actual or potential acquisition target.
6.9 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 (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 6.9 shall affect any
representation or warranty given by the Parent hereunder.
6.10 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
stockholders of the Company pursuant to Section 368(a) of the Code.
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ARTICLE VII
COVENANTS OF PARENT AND THE COMPANY
The parties hereto agree that:
7.1 HSR Act Filings; Reasonable Efforts; Notification.
(a) Each of Parent and the Company shall (i) promptly make or cause to be
made the filings required of such party or any of its subsidiaries under the HSR
Act with respect to the transactions contemplated by this Agreement, (ii) comply
at the earliest practicable date with any request under the HSR Act for
additional information, documents, or other material received by such party or
any of its subsidiaries from the Federal Trade Commission or the Department of
Justice or any 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 agency or other Governmental Entity under the HSR Act, the Sherman
Act, as amended, the Clayton Act, as amended, the Federal Trade Commission Act,
as amended, and any other federal or 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
any such filing or any such transaction. Each party shall promptly inform the
other party of any communication with, and any proposed understanding,
undertaking, or agreement with, any Governmental Entity regarding any such
filings or any such transaction. Neither party shall participate in any meeting,
with any 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 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) Subject to the fiduciary duties of their respective Boards of
Directors, 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 Governmental Entities and the
making of all other necessary registrations and filings (including other filings
with 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), (b) or (c),
(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 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 respect or (ii) the failure by it to comply with or
satisfy in any respect any covenant, condition or agreement to be compiled with
or satisfied by it under
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this Agreement; 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.
(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(m), 4.1(n), 4.1(o), 4.1(q) or 4.1(r) or which relate to the
consummation of the transactions contemplated by this Agreement.
7.2 Stockholder Meeting; Proxy Material.
(a) For the purpose (i) of holding meetings of stockholders of Parent and
the Company to approve this Agreement, the Merger and, with respect to Parent,
the issuance of shares of Parent Common Stock in 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 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/joint proxy statement satisfying all applicable requirements of the
Securities Act, the Exchange Act, and the rules and regulations thereunder (such
prospectus/joint 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 stockholders of the Company and Parent, at
all time subsequent to such mailing (including, without limitation, the time
such stockholders 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 as is necessary
in order to cause the Prospectus/Proxy Statement, insofar as it relates to
Parent and Parent 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
Parent or Company stockholders' meetings 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.
(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 Parent or Company stockholders' meetings 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 shall promptly 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
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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 Ehrhardt Keefe
Steiner & Hottman P.C., 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 shall each bear 50% of all SEC filing fees with
respect to the Registration Statement and all printing and mailing costs in
connection with the preparation and mailing of the Prospectus/Proxy Statement to
stockholders of Parent and the Company. Parent and the Company shall bear their
own legal and accounting expenses in connection with the Registration Statement.
Parent shall pay the filing fees required by the HSR Act.
(h) Parent shall use reasonable efforts to cause to be issued the letter
regarding pooling of interests accounting treatment for the Merger from KPMG
Peat Marwick LLP, Purchaser's independent auditors, if required by the SEC.
(i) The Company shall use reasonable efforts to cause to be issued the
letter regarding pooling of interests accounting treatment for the Merger from
Ehrhardt Keefe Steiner & Hottman P.C., the Company's independent auditors, if
required by the SEC.
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 Securities Reports. Each of Parent and Company agrees to timely file
all reports required to be filed by it pursuant to the Exchange Act. Each of
Parent and the Company agree to provide to the other party copies of all reports
and other documents filed under the Securities Act or Exchange Act with the SEC
by it between the date hereof and the Effective Time within five days after the
date such reports or other documents are filed with the SEC.
7.5 Stockholder Approvals. Each of Parent and the Company shall call a
meeting of its stockholders for the purpose of voting upon this Agreement and
the Merger, and shall schedule such meeting based on consultation with the other
party.
7.6 Disclosure Schedules. The Company shall deliver the Disclosure
Schedule to Parent within six (6) business days after the date of this
Agreement. Parent shall have a period of not more than ten (10) business
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days after receipt of such Disclosure Schedule to review such Disclosure
Schedule. During such period the Company shall, and shall cause its employees
and representatives to, provide Parent with copies of such documents and such
information as Parent may reasonably request to verify the information presented
in the Disclosure Schedule and the accuracy of the Company's representations and
warranties. Parent shall have the right to terminate this Agreement and its
obligations hereunder, in the manner described in Article IX of this Agreement,
if Parent rejects the Disclosure Schedule; provided, however, that Parent's
approval of the Disclosure Schedule shall not be unreasonably withheld. Without
limiting the generality of the foregoing, Parent may reject the Disclosure
Schedule if the Disclosure Schedule contains information of any fact, event,
circumstance, development or occurrence which, in Parent's reasonable judgment,
has had or could reasonably be expected to have a Material Adverse Effect.
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 been declared effective and shall
not be subject to any stop orders of the SEC;
(b) any applicable waiting period under the HSR Act relating to the Merger
shall have been terminated or expired;
(c) no provision of any applicable law or regulation and no judgment,
injunction, order, decree or other legal restraint shall prohibit the
consummation of the Merger;
(d) a tax opinion addressed to both Parent and the Company by such counsel
or independent certified public accountants as is 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 "reorganization"
under Section 368(a) of the Code; and
(e) the Parent Common Stock to be issued to holder of Shares in the Merger
shall have been approved for listing on the New York Stock Exchange, 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 instituted or pending any action by any Governmental
Entity (i) challenging or seeking 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) seeking 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) seeking 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 stockholders, (iv) seeking to require divestiture by
Parent or any of its subsidiaries or affiliates of any Shares, or (v) that
otherwise, in the reasonable judgment of Parent, is likely to have a Material
Adverse Effect or a Parent Material Adverse Effect;
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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 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
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; 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 shall have occurred or been threatened (and no development
shall have occurred or been threatened involving a prospective change) that, in
the reasonable judgment of Parent, has or is likely to have a Material Adverse
Effect.
(d) each of the persons described in Schedule 5.6 hereto shall have
executed and delivered to the Company a Stockholder Agreement and an Affiliate
Agreement;
(e) Parent shall have been furnished with (i) copies of the text of the
resolutions by which the corporate action on the part of the Company necessary
to approve this Agreement, the Stockholders 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;
(f) the Parent Stockholder Approval shall have been obtained;
(g) Parent shall have received Affiliate Agreements from all executive
officers and directors of the Company and each stockholder who is an affiliate
of the Company;
(h) no event shall have occurred which, in the reasonable opinion of
Parent, would prevent the Merger from being accounted for as a pooling of
interests; and
(i) That certain Agreement, dated July 22, 1997, by and among Heartland
Bank, Heartland Leasing Corporation of Missouri and the Company shall have been
terminated.
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) 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 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;
(b) the Company Stockholder Approval shall have been obtained;
(c) 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, in the reasonable
judgment of the Company, has or is likely to have a Parent Material Adverse
Effect.
(d) No event shall have occurred which, in the reasonable opinion of the
Company would prevent the Merger from being accounted for as a pooling of
interests.
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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
Stockholder Approval or the Parent Stockholder Approval):
(i) by mutual written consent of the Company and Parent;
(ii) by either Parent or the Company, if the meeting, or any adjournment
thereof, at which the Company Stockholder Approval or the Parent Stockholder
Approval is proposed and voted upon, the Company Stockholder Approval or the
Parent Stockholder Approval shall not have been obtained;
(iii) by either the Company or Parent, if the Merger has not been
consummated by June 15, 1998 (provided that the party seeking to terminate the
Agreement shall not have breached its obligations under this Agreement in any
material respect);
(iv) by Parent, at any time prior to the Effective Time, by action of the
Board of Directors of Parent, if (x) there has been a breach by the Company of
any of the 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, or (y) the Board of Directors of the Company shall
have withdrawn or modified in a manner adverse to Parent or Merger Subsidiary
its approval or recommendation of this Agreement or the Merger, or shall have
resolved to do any of the foregoing;
(v) by the Company, at any time prior to the Effective Time, by action of
the Board of Directors of the Company, if (A) Parent or Merger Subsidiary any of
the 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 (B) the Company
receives an Acquisition Proposal on terms the Company's Board of Directors
(after consultation with its independent financial advisors) determines in good
faith to be more favorable to the Company's stockholders than the terms of the
Merger, and the Company's Board of Directors determines, upon the written advice
of its legal counsel, that to continue to recommend that holders of Shares vote
in favor of the Merger, notwithstanding the receipt of such offer with respect
to an Acquisition Proposal, or to fail to recommend or accept the Acquisition
Proposal, would violate the fiduciary duties of the Company's Board of
Directors; provided, however, that the Company shall not be permitted to
terminate this Agreement pursuant to this Section 9.1(v)(B) unless it has
provided Parent and Merger Subsidiary with three (3) business days prior written
notice of its intent to so terminate this Agreement together with a detailed
summary of the terms and conditions (including proposed financing, if any) of
such Acquisition Proposal; provided, further, that Parent shall receive the fees
set forth in Section 10.4(b) immediately prior to or concurrently with any
termination pursuant to this Section 9.1(v)(B) by wire transfer in same day
funds;
(vi) by the Parent, if the Average Parent Stock Price (as defined below) is
less than $22.82 per share. 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
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 last date (as originally
scheduled in the notices mailed to the stockholders of the parties, and without
giving effect to any adjournments or postponements) of the meetings of
stockholders to obtain the stockholder approvals referred to in Section 7.2
hereof; or
(vii) by Parent, pursuant to Section 7.6 of this Agreement.
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 6.1, 10.4 and 10.6 shall
survive the termination
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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 or Section 10.4(b), 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 (including
termination by Parent pursuant to Section 7.6 of 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, CA 93105
Telecopy: (805) 898-7149
Attn: Andrew F. Puzder, Executive Vice President
with a copy to:
Stradling, Yocca, Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, CA 92660-6441
Telecopy: (714) 725-4100
Attn: C. Craig Carlson, Esq.
if to the Company, to:
Granite Financial, Inc.
16100 Table Mountain Parkway, Suite A
Golden, CO 80403
Telecopy: (303) 216-3600
Attn: William W. Wehner, Chairman of the Board
and Chief Executive Officer
with a copy to:
Dorsey & Whitney LLP
4400 Republic Plaza Building
370 Seventeenth Street
Denver, Colorado 80202-5644
Telecopy: (303) 629-3450
Attn: Kevin A. Cudney, Esq.
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.
10.2 Survival of Representations and Warranties. The representations and
warranties and agreements contained herein and in any certificate or other
writing delivered pursuant hereto shall not survive the Effective
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Time or the termination of this Agreement except for the representations,
warranties and agreements set forth in Sections 6.1, 6.4(c), 10.4 and 10.6.
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
stockholders of the Company or the Parent, no such amendment or waiver shall,
without the further approval of such stockholders, 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.
(a) 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.
(b) If (w) (1) any person or group (as contemplated by Section 13(d)(3) of
the Exchange Act) other than Parent or Merger Subsidiary or any of their
respective subsidiaries or affiliates (collectively, an "Acquiring Person")
shall have become the beneficial owner of a majority of the outstanding Shares,
and (2) either the Company shall fail to obtain the Company Stockholder Approval
or the Company's Board of Directors shall have withdrawn or changed its
recommendation or refused to make a recommendation in favor of this Agreement
and the Merger, or (x) Parent shall have terminated this Agreement pursuant to
Section 9.1(iv)(y), or (y) the Company shall have terminated this Agreement
pursuant to Section 9.1(v)(B), then the Company shall promptly, but in no event
later than five (5) days after the date of any request therefor, reimburse
Parent for the documented fees and expenses of Parent and Merger Subsidiary
related to this Agreement and the transactions contemplated hereby and an
additional fee of $5,000,000 which amounts shall be payable by wire transfer in
same day funds; provided, however, that if the Company shall have terminated
this Agreement pursuant to Section 9.1(v)(B), such amounts shall be paid in
accordance with the provisions of such Section. The Company acknowledges that
the agreements contained in this Section 10.4(b) are an integral part of the
transactions contemplated in this Agreement, and that, without these agreements,
Parent and Merger Subsidiary would not enter into this Agreement; accordingly,
if the Company fails to pay promptly the amounts due pursuant to this Section
10.4(b), and, in order to obtain such payments, Parent or Merger Subsidiary
commences a suit against the Company for the fees set forth in this paragraph
(b), the prevailing party shall pay to the other party or parties their costs
and expenses (including attorneys' fees and expenses) in connection with such
suit, together with interest on the amount thereof at the prime rate of the
Citibank, N.A. on the date such payment was required to be made.
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 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,
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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, the DGCL.
10.8 Entire Agreement. This Agreement, including Exhibits and 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" 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/ ANDREW F. PUZDER
------------------------------------
Name: Andrew F. Puzder
Title: Executive Vice President
GRANITE ACQUISITION CORP.
By: /s/ ANDREW F. PUZDER
------------------------------------
Name: Andrew F. Puzder
Title: Executive Vice President
GRANITE FINANCIAL, INC.
By: /s/ WILLIAM W. WEHNER
------------------------------------
Name: William W. Wehner
Title: Chairman and CEO
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<PAGE> 98
APPENDIX B
LOGO
(LOGO)
January , 1998
Board of Directors
Fidelity National Financial, Inc.
17911 Von Karman Avenue
Suite 500
Irvine, California 92714
Members of the Board:
We understand that Fidelity National Financial, Inc. ("FNF"), Granite
Acquisition Corp., a wholly owned subsidiary of FNF ("GAC"), and Granite
Financial, Inc. ("Granite") have entered into an Agreement and Plan of Merger
(the "Agreement") dated as of November 17, 1997 pursuant to which GAC will be
merged with and into Granite in a transaction (the "Merger") initially
structured to provide that each outstanding share of Granite's common stock, par
value $0.001 per share (the "Granite Shares"), would be converted into the right
to receive 0.701 shares (the "Pre-Dividend Exchange Ratio") of the common stock,
$0.0001 par value per share, of FNF (the "FNF Shares"). You have advised us
that, in order to consider the effect of a 10% FNF stock dividend declared on
December 17, 1997 and paid on January 14, 1998 to FNF stockholders of record on
December 29, 1997, pursuant to the Agreement, the Pre-Dividend Exchange Ratio
has been adjusted to convert each Granite Share into the right to receive 0.7711
FNF Shares (the "Exchange Ratio"). The terms and conditions of the Merger are
set forth more fully in the Agreement.
You have asked us whether, in our opinion, the Exchange Ratio is fair to
FNF from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly-available business and financial information
relating to FNF and Granite that we deemed to be relevant;
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<PAGE> 99
(2) Reviewed certain information, including financial forecasts, relating
to the businesses, earnings, assets, liabilities and prospects of
Granite and FNF furnished to us by senior management of FNF, as well as
the amount and timing of the cost savings and related expenses and
revenue enhancements expected to result from the Merger furnished to us
by senior management of FNF (the "Expected Synergies");
(3) Conducted discussions with members of senior management of FNF and
Granite concerning the foregoing, including the respective businesses,
prospects, regulatory condition and contingencies of FNF and Granite
before and after giving effect to the Merger and the Expected
Synergies;
(4) Reviewed the market prices and valuation multiples for the FNF Shares
and Granite Shares and compared the trading value of the FNF Shares and
the Granite Shares with those of certain publicly-traded companies
which we deemed to be relevant;
(5) Reviewed the results of operations of Granite and FNF and compared them
with those of certain publicly-traded companies which we deemed to be
relevant;
(6) Compared the proposed financial terms of the Merger with the financial
terms of certain other transactions which we deemed to be relevant;
(7) Reviewed the potential pro forma impact of the Merger;
(8) Reviewed the Agreement; and
(9) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our
assessment of general economic, market and monetary conditions.
In preparing our opinion, we have, with your consent, assumed and relied on
the accuracy and completeness of all information supplied or otherwise made
available to us, discussed with or reviewed by or for us, or publicly available,
and we have not assumed responsibility for independently verifying such
information or undertaken an independent evaluation or appraisal of the assets
or liabilities of FNF or Granite, nor have we been furnished any such evaluation
or appraisal. We are not experts in the evaluation of allowances for credit
losses and we have neither made an independent evaluation of the adequacy of the
allowance for credit losses of FNF or Granite, nor reviewed any individual
credit files relating to FNF or Granite and, as a result, we have assumed that
the aggregate allowance for credit losses for both FNF and Granite is adequate
to cover such losses and will be adequate on a pro forma basis for the combined
entity. In addition, we have not assumed any obligation to conduct, nor have we
conducted, any physical inspection of the properties or facilities of FNF or
Granite. With respect to the financial forecast information, including, without
limitation, financial forecasts, evaluation of contingencies and projections
regarding under-performing and non-performing assets, net charge-offs, adequacy
of reserves and future economic conditions and the Expected Synergies, furnished
to or discussed with us by FNF or Granite, we have assumed that they have been
reasonably prepared and reflect the best currently available estimates,
allocations and judgements of the senior management of FNF and Granite as to the
expected future financial performance of FNF, Granite or the combined entity, as
the case many be, and the Expected Synergies. We express no opinion as to such
financial forecast information or the Expected Synergies or the assumptions upon
which they were based. We have further assumed that the Merger will qualify as a
tax-free reorganization for U.S. federal income tax purposes and will be
accounted for as a pooling of interests.
Our opinion is necessarily based upon market, economic and other conditions
as in effect, and on the information made available to us, as of the date
hereof. For the purposes of rendering this opinion, we have assumed, in all
respects material to our analysis, that the representations and warranties of
each party in the Agreement and all related documents and instruments
(collectively, the "Documents") contained therein are true and correct, that
each party to the Documents will perform all of the covenants and agreements
required to be performed by such party under such Documents, and that all
conditions to the consummation of the Merger will be satisfied without waiver
thereof. We have also assumed that in the course of obtaining the necessary
regulatory or other consents or approvals (contractual or otherwise) for the
Merger, no restrictions,
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including any amendment or modifications, will be imposed that will have a
material adverse affect on the contemplated benefits of the Merger, including
the Expected Synergies.
We are acting as financial advisor to the Board of Directors of FNF in
connection with the Merger and will receive a fee from FNF for our services, a
significant portion of which is contingent upon the consummation of the Merger.
In addition, FNF has agreed to indemnify us for certain liabilities arising out
of our engagement. We have in the past provided financial advisory, investment
banking and other services to FNF, and may continue to do so, and have received,
and may receive, customary fees for the rendering of such services. In addition,
in the ordinary course of our business, we also may actively trade debt and/or
equity securities of FNF and its respective affiliates for our own account and
the accounts of our customers, and therefore we may from time to time hold a
long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of FNF.
Our opinion does not address the merits of the underlying decision by FNF to
engage in the Merger, and does not constitute a recommendation to any
stockholder as to how such stockholder should vote on the proposed Merger at any
meeting of stockholders called or held for purposes of considering the Merger.
We are not expressing any opinion herein as to the prices at which FNF
Shares will trade following the consummation of the Merger.
On the basis of and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Exchange Ratio is fair to FNF from a financial point
of view.
Very truly yours,
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APPENDIX C
[PIPER JAFFRAY LETTERHEAD]
January , 1998
Board of Directors
Granite Financial, Inc.
16100 Table Mountain Parkway
Suite A
Golden, CO 80403
Members of the Board:
We understand that Granite Financial, Inc. ("Granite" or the "Company"),
Fidelity National Financial, Inc. ("Fidelity"), and Granite Acquisition Corp., a
wholly owned subsidiary of Fidelity ("Merger Subsidiary"), entered into an
Agreement and Plan of Merger dated as of November 17, 1997 (the "Merger
Agreement"), pursuant to which, among other things, Granite will become a wholly
owned subsidiary of Fidelity through the merger of Merger Subsidiary with and
into Granite (the "Transaction"). Pursuant to the Merger Agreement, and subject
to certain exceptions and adjustments, including an exchange rate adjustment
mechanism that limits the implied per share purchase price range to between $16
and $20, inclusive, of Fidelity common stock, at the effective time of the
Transaction each share of Granite common stock, $0.001 par value, will be
converted into the right to receive 0.7711 shares of Fidelity common stock
(after adjusting for a 10% stock dividend declared by Fidelity on December 17,
1997 which was paid on January 14, 1998 to Fidelity stockholders of record on
December 29, 1997), $0.0001 par value. Granite stockholders will be entitled to
receive cash in lieu of fractional shares of Fidelity common stock. You have
requested our opinion as to whether the consideration to be received in the
Transaction by the stockholders of Granite, pursuant to the Merger Agreement, is
fair, from a financial point of view, as of the date hereof, to the stockholders
of Granite.
Piper Jaffray Inc. ("Piper Jaffray"), as a customary part of its investment
banking business, is engaged in the valuation of businesses and their securities
in connection with mergers and acquisitions, underwritings and secondary
distributions of securities, private placements, and valuations for estate,
corporate and other purposes. For our services in rendering this opinion,
Granite will pay us a fee and indemnify us against certain liabilities. Piper
Jaffray is also entitled to additional fees which are contingent on consummation
of the Transaction. We have, in the past, provided financing and financial
advisory services to the Company and have received fees and other compensation
for the rendering of such services, including certain warrants, which we
currently hold, to acquire shares of Granite's common stock. In the ordinary
course of our respective businesses, we and our affiliates may actively trade
securities of Granite and Fidelity for our own account or the accounts of our
customers and, accordingly, may at any time hold a long or short position in
such securities.
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Board of Directors
Granite Financial Inc.
January 16, 1998
Page 2
In arriving at our opinion, we have undertaken such reviews, analyses and
inquiries as we deemed necessary and appropriate under the circumstances. Among
other things, we have:
1. Reviewed the Merger Agreement.
2. Reviewed the Report on Form 10-KSB for Granite for the fiscal year ended
June 30, 1997.
3. Reviewed the Reports on Form 10-QSB for Granite for the quarters ended
September 30, 1997, March 31, 1997, December 31, 1996 and September 30,
1996.
4. Reviewed Granite's final prospectuses dated October 25, 1996 and July 23,
1997 relating to an initial public offering and a secondary offering of
common stock, respectively.
5. Reviewed the Reports on Form 10-K for Fidelity for the three fiscal years
ended December 31, 1996, December 31, 1995 and December 31, 1994.
6. Reviewed the Reports on Form 10-Q for Fidelity for the quarters ended
September 30, 1997, June 30, 1997, March 31, 1997 and September 30, 1996.
7. Reviewed financial forecasts for Granite for the fiscal years ending June
30, 1997 through June 30, 2002 furnished by Granite management.
8. Reviewed the financial forecasts for Fidelity for the fiscal years ending
December 31, 1997 through December 31, 1999 furnished by Fidelity
management.
9. Visited the headquarters of Granite and conducted discussions with members
of senior management of Granite, including the Chief Executive Officer and
Chief Financial Officer. Topics discussed included, but were not limited to,
the background and rationale of the proposed Transaction, the financial
condition, operating performance and the balance sheet characteristics of
Granite and the prospects for Granite, as well as for Granite and Fidelity
on a combined basis.
10. Conducted discussions with members of senior management of Fidelity,
including the Chief Executive Officer and Chief Financial Officer. Topics
discussed included, but were not limited to, the background and rationale of
the proposed Transaction, the financial condition, operating performance and
the balance sheet characteristics of Fidelity and the prospects for
Fidelity, as well as for Granite and Fidelity on a combined basis.
11. Reviewed selected market information for Granite and Fidelity common stock.
12. Reviewed the financial terms, to the extent publicly available, of certain
comparable merger and acquisition transactions which we deemed relevant.
13. Considered the projected pro forma effect of the Transaction on Granite's
implied share equivalent earnings per share for the three years ending June
30, 1999.
14. Analyzed the premiums paid in recent public company acquisitions involving
the sale of certain publicly traded companies we deemed reasonably similar
or comparable to Granite.
15. Compared certain financial data of Granite and Fidelity with certain
financial data of companies we deemed reasonably similar or comparable to
Granite and Fidelity.
16. Reviewed the Joint Proxy Statement/Prospectus relating to the Transaction.
17. Reviewed such other financial data, performed such other analyses and
considered such other information as we deemed necessary and appropriate
under the circumstances.
We have relied upon and assumed the accuracy and completeness of the financial
statements and other information provided by Granite and Fidelity or otherwise
made available to us from public and other sources
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Board of Directors
Granite Financial Inc.
January 16, 1998
Page 3
and have not assumed responsibility independently to verify such information. We
have further relied upon the assurances of Granite's and Fidelity's managements
that the information provided has been prepared on a reasonable basis in
accordance with industry practice and, with respect to financial forecasts,
reflects the best currently available estimates and judgment of Granite's and
Fidelity's respective managements as to the expected future financial
performance of Granite and Fidelity, and that they are not aware of any
information or facts that would make the information provided to us incomplete
or misleading. Without limiting the generality of the foregoing, for the purpose
of this opinion, we have assumed that Granite and Fidelity are not a party to
any pending transactions, including external financing, recapitalizations,
acquisitions or merger discussions, other than the Transaction or in the
ordinary course of business. We have also assumed that the Transaction will be
consummated in accordance with the Merger Agreement, including, without
limitation, that the Transaction will qualify for pooling-of-interests
accounting treatment and as a tax-free transaction for Granite's stockholders.
In arriving at our opinion, we have not performed any appraisals or valuations
of specific assets or liabilities of Granite or Fidelity and have not been
furnished with any such appraisals or valuations, and express no opinion
regarding the liquidation value of Granite or Fidelity. Without limiting the
generality of the foregoing, we have undertaken no independent analysis of any
pending or threatened litigation, possible unasserted claims or other contingent
liabilities to which either Granite or Fidelity or its affiliates is a party or
may be subject and, at Granite's direction and with its consent, our opinion
makes no assumption concerning, and therefore does not consider, the possible
assertion of claims, outcomes or damages arising out of any such matters.
Our opinion is necessarily based upon information available to us, facts and
circumstances and economic, market and other conditions as they exist and are
subject to evaluation on the date hereof. Events occurring after the date hereof
could materially affect the assumptions used in preparing this opinion. However,
we do not have any obligation to update, revise or reaffirm this opinion except
as required by the Merger Agreement. We are not expressing any opinion herein as
to the prices at which shares of Granite's or Fidelity's common stock have
traded or at which such shares may trade at any future time.
We have not been authorized by the Board of Directors to solicit other
purchasers for the Company or alternative transactions to the Transaction. We
were not requested to opine as to, and this opinion does not in any manner
address, Granite's underlying decision to proceed with or effect the Transaction
or structure thereof.
This opinion is for the benefit of the Board of Directors of Granite in
evaluating the Transaction and shall not be published or otherwise used by any
other persons for any other purposes nor shall any public references to Piper
Jaffray be made without our prior written consent. This opinion is not intended
to be and does not constitute a recommendation to any stockholder as to how such
stockholder should vote at the stockholders' meeting to be held in connection
with the Transaction.
Based upon and subject to the foregoing and based upon such other factors as we
consider relevant, it is our opinion that, as of the date hereof, the
consideration to be received by the stockholders of Granite in the Transaction
pursuant to the Merger Agreement is fair, from a financial point of view, to the
stockholders of Granite.
Sincerely,
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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 November 17, 1997, by and among
Fidelity National Financial, Inc., Granite Acquisition Corp. and Granite
Financial, Inc., included as Appendix A to the accompanying Joint Proxy
Statement/Prospectus.
5.1 Opinion of Stradling Yocca Carlson & Rauth, a Professional corporation.
8.1 Opinion of Stradling Yocca Carlson & Rauth, a Professional corporation.
8.2 Opinion of Dorsey & Whitney LLP.
*10.1 Form of Affiliate Agreement (Granite Affiliates).
*10.2 Form of Affiliate Agreement (Fidelity Affiliates).
*10.3 Form of Stockholder Agreement (Granite Affiliates).
23.1 Consent of Stradling Yocca Carlson & Rauth (included in Exhibits 5.1 and 8.1).
23.2 Consent of Merrill Lynch & Co.
23.3 Consent of Piper Jaffray Inc.
*23.4 Consent of KPMG Peat Marwick LLP.
*23.5 Consent of Ehrhardt Keefe Steiner & Hottman PC.
23.6 Consent of Dorsey & Whitney LLP (included in Exhibit 8.2).
*24.1 Power of Attorney (included on Signature Page to Registration Statement).
*99.1 Consent of William W. Wehner to the use of his name as a person about to become
a director of Fidelity National Financial, Inc.
*99.2 Notice of Special Meeting of Stockholders of Fidelity National Financial, Inc.
*99.3 Letter to Stockholders of Fidelity National Financial, Inc.
*99.4 Form of Proxy for Special Meeting of Stockholders of Fidelity National
Financial, Inc.
*99.5 Notice of Special Meeting of Stockholders of Granite Financial, Inc.
*99.6 Letter to Stockholders of Granite Financial, Inc.
*99.7 Form of Proxy for Special Meeting of Stockholders of Granite Financial, Inc.
</TABLE>
- ---------------
* Previously filed.
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<PAGE> 105
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 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 posteffective 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> 106
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. One to 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 16th day of January, 1998.
FIDELITY NATIONAL FINANCIAL, INC.
By: /s/ WILLIAM P. FOLEY, II
-----------------------------------
William P. Foley, II
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. One to 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 January 16, 1998
- -------------------------------------------- Chief Executive Officer
William P. Foley, II (Principal Executive Officer)
/s/ ALLEN D. MEADOWS Executive Vice President and January 16, 1998
- -------------------------------------------- Chief Financial Officer
Allen D. Meadows (Principal Financial and
Accounting Officer)
/s/ FRANK P. WILLEY President and Director January 16, 1998
- --------------------------------------------
Frank P. Willey
* Director January 16, 1998
- --------------------------------------------
William A. Imparato
* Director January 16, 1998
- --------------------------------------------
Donald M. Koll
* Director January 16, 1998
- --------------------------------------------
Daniel D. Lane
* Director January 16, 1998
- --------------------------------------------
Stephen C. Mahood
* Director January 16, 1998
- --------------------------------------------
J. Thomas Talbot
* Director January 16, 1998
- --------------------------------------------
Cary H. Thompson
</TABLE>
* By: /s/ ANDREW F. PUZDER
- --------------------------------------
Andrew F. Puzder
Attorney-in-fact
S-1
<PAGE> 107
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT TITLE PAGES
------ ---------------------------------------------------------------------- ------------
<C> <S> <C>
2.1 Agreement and Plan of Merger, dated as of November 17, 1997, by and
among Fidelity National Financial, Inc., Granite Acquisition Corp. and
Granite Financial, Inc., included as Appendix A to the accompanying
Joint Proxy Statement/Prospectus......................................
5.1 Opinion of Stradling Yocca Carlson & Rauth, a Professional
corporation...........................................................
8.1 Opinion of Stradling Yocca Carlson & Rauth, a Professional
corporation...........................................................
8.2 Opinion of Dorsey & Whitney LLP.......................................
*10.1 Form of Affiliate Agreement (Granite Affiliates)......................
*10.2 Form of Affiliate Agreement (Fidelity Affiliates).....................
*10.3 Form of Stockholder Agreement (Granite Affiliates)....................
23.1 Consent of Stradling Yocca Carlson & Rauth (included in Exhibits 5.1
and 8.1)..............................................................
23.2 Consent of Merrill Lynch & Co.........................................
23.3 Consent of Piper Jaffray Inc..........................................
*23.4 Consent of KPMG Peat Marwick LLP......................................
*23.5 Consent of Ehrhardt Keefe Steiner & Hottman PC........................
23.6 Consent of Dorsey & Whitney LLP (included in Exhibit 8.2).............
*24.1 Power of Attorney (included on Signature Page to Registration
Statement)............................................................
*99.1 Consent of William W. Wehner to the use of his name as a person about
to become a director of Fidelity National Financial, Inc..............
*99.2 Notice of Special Meeting of Stockholders of Fidelity National
Financial, Inc........................................................
*99.3 Letter to Stockholders of Fidelity National Financial, Inc............
*99.4 Form of Proxy for Special Meeting of Stockholders of Fidelity National
Financial, Inc........................................................
*99.5 Notice of Special Meeting of Stockholders of Granite Financial, Inc...
*99.6 Letter to Stockholders of Granite Financial, Inc......................
*99.7 Form of Proxy for Special Meeting of Stockholders of Granite
Financial, Inc........................................................
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
EXHIBIT 5.1
[LETTERHEAD OF STRADLING YOCCA CARLSON & RAUTH]
January 16, 1998
Fidelity National Financial, Inc.
17911 Von Karman Avenue
Irvine, California 92614
Re: Registration Statement on Form S-4
Gentlemen:
At your request, we have examined the form of Registration Statement on
Form S-4 filed by Fidelity National Financial, Inc., a Delaware corporation (the
"Company"), with the Securities and Exchange Commission (the "Commission") on
January 13, 1998 (File No. 333-44153), as amended by Amendment No. One filed
with the Commission on January 16, 1998 (collectively, the "Registration
Statement"), in connection with the registration under the Securities Act of
1933, as amended, of up to 5,280,108 shares (the "Shares") of Common Stock, par
value $.0001 per share, of the Company (the "Common Stock"). Such shares of
Common Stock are to be issued by the Company in connection with the merger of a
wholly-owned subsidiary with and into Granite Financial, Inc.
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 and paid for in the manner described in the Registration Statement, will
be validly 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
Joint Proxy Statement/Prospectus, which is a part of the Registration Statement.
Very truly yours,
STRADLING YOCCA CARLSON & RAUTH
<PAGE> 1
EXHIBIT 8.1
[LETTERHEAD OF STRADLING YOCCA CARLSON & RAUTH]
January 16, 1998
Fidelity National Financial, Inc.
17911 Von Karman Avenue
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 November 17, 1997 (the "Merger
Agreement") among Fidelity, Granite Acquisition Corp., a Delaware corporation, a
newly formed and wholly-owned subsidiary of Fidelity ("Merger Sub"), and Granite
Financial, Inc., a Delaware corporation ("Granite"). Pursuant to the Merger
Agreement, Merger Sub will merge with and into Granite (the "Merger") with
Granite 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 Joint 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 Granite (the "Officers'
Certificates") and representations from certain principal stockholders of
Granite. 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
Granite. 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.
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. 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;
3. 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
4. The Merger will be reported by Fidelity and Granite 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)
<PAGE> 2
Fidelity National Financial, Inc.
January 16, 1998
Page Two
and the statements set forth in the Officers' Certificates and the
representations made by certain principal stockholders of Granite 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 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
headings "Certain Federal Income Tax Consequences" and "Legal Matters" in the
Registration Statement.
Very truly yours,
STRADLING YOCCA CARLSON & RAUTH
<PAGE> 1
EXHIBIT 8.2
[LETTERHEAD OF DORSEY & WHITNEY LLP]
January 16, 1998
Granite Financial, Inc.
16100 Table Mountain Parkway, Suite A
Golden, Colorado 80403
Dear Ladies and Gentlemen:
We have acted as your counsel in connection with the Registration Statement
on Form S-4 filed on January 16, 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 a wholly-owned subsidiary of Fidelity National Financial, Inc. with
and into Granite Financial, Inc.
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 Joint Proxy Statement/Prospectus included
therein (the "Joint Proxy Statement/Prospectus"), the Agreement and Plan of
Merger dated November 17, 1997 among Fidelity National Financial, Inc., Granite
Acquisition Corp., and Granite Financial, Inc., and such other documents as we
have deemed necessary or appropriate.
We hereby confirm that the discussions in the Joint Proxy
Statement/Prospectus under the captions "SUMMARY -- Certain Federal Income Tax
Matters" and "THE MERGER -- Certain Federal Income Tax Consequences" 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.
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
Joint 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,
DORSEY & WHITNEY LLP
BJS
<PAGE> 1
EXHIBIT 23.2
LOGO
(LOGO)
Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated
We hereby consent to the use of our opinion letter dated January 16,1998 to
the Board of Directors of Fidelity National Financial, Inc. included as Appendix
B to the Joint Proxy Statement which forms a part of the Registration Statement
on Form S-4 relating to the proposed merger of Granite Acquisition Corp., a
wholly owned subsidiary of Fidelity National Financial, Inc. with and into
Granite Financial, Inc. and to the references to our firm and to such opinion in
such Joint Proxy Statement under the captions "Summary-Opinions of Financial
Advisors-Fidelity", "The Merger-Background of the Merger" and "Opinions of
Financial Advisors-Opinion of Merrill Lynch".
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.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
January 15, 1998
<PAGE> 1
EXHIBIT 23.3
[PIPER JAFFRAY LETTERHEAD]
CONSENT OF PIPER JAFFRAY INC.
Board of Directors
Granite Financial, Inc.
We hereby consent to the use of our name in the Joint Proxy
Statement-Prospectus of Granite Financial, Inc. and Fidelity National Financial,
Inc. forming part of the Registration Statement on Form S-4 of Fidelity National
Financial, Inc. and to the inclusion of our opinion as an appendix to such Joint
Proxy Statement-Prospectus.
In giving the foregoing consent, we do not admit that we are 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 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 or
regulations of the Securities and Exchange Commission thereunder.
PIPER JAFFRAY INC.
Minneapolis, Minnesota
January 16, 1998
