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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 27, 1999
REGISTRATION NO. 333-89163
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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FIDELITY NATIONAL FINANCIAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 6361 86-0498599
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(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
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PETER T. SADOWSKI, ESQ.
17911 VON KARMAN AVENUE, SUITE 300 17911 VON KARMAN AVENUE, SUITE 300
IRVINE, CALIFORNIA 92614 IRVINE, CALIFORNIA 92614
(949) 622-5000 (949) 622-5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE (NAME, ADDRESS, INCLUDING ZIP CODE, AND
NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE,
PRINCIPAL EXECUTIVE OFFICES) OF AGENT FOR SERVICE)
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PLEASE SEND COPIES OF ALL COMMUNICATIONS TO:
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C. CRAIG CARLSON, ESQ. AILEEN C. MEEHAN, ESQ.
J. MICHAEL VAUGHN, ESQ. DEWEY BALLANTINE LLP
STRADLING YOCCA CARLSON & RAUTH 1301 AVENUE OF THE AMERICAS
A PROFESSIONAL CORPORATION NEW YORK, NEW YORK 10019
660 NEWPORT CENTER DRIVE (212) 259-8000
NEWPORT BEACH, CALIFORNIA 92660
(949) 725-4000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement is declared effective and all
other conditions to the merger (the "Merger") of Chicago Title Corporation
("Chicago Title") with and into Fidelity National Financial, Inc. (the
"Registrant") pursuant to the Agreement and Plan of Merger described in the
enclosed joint proxy statement/prospectus have been satisfied or waived.
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. [ ]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), SHALL DETERMINE.
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FIDELITY LOGO CHICAGO TITLE LOGO
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
Fidelity National Financial, Inc. and Chicago Title Corporation have agreed
to a merger in which Fidelity will acquire Chicago Title. This merger will
combine two of the country's leading title insurance companies. In the merger,
holders of Chicago Title common stock will receive for each share, at their
election (subject to proration), cash, shares of Fidelity common stock or a
combination of cash and shares of Fidelity common stock with an aggregate value
of $52.00, subject to adjustment under certain circumstances. Fidelity shares
are traded on the New York Stock Exchange under the symbol "FNF." On December
23, 1999, Fidelity's stock price was $13 15/16.
After careful consideration, the boards of directors of Fidelity and
Chicago Title have approved the merger agreement and have determined that the
merger is in the best interests of their stockholders. Each board of directors
recommends that stockholders vote "FOR" approval of the merger agreement.
We cannot complete the merger unless we obtain the necessary government
approvals and unless the stockholders of both of our companies approve it. We
have each scheduled special meetings of our stockholders to consider and vote on
the merger.
You are cordially invited to attend your special meeting. Whether or not
you plan to attend your stockholder meeting, please take the time to vote by
completing and mailing the enclosed proxy card to us. Chicago Title stockholders
may also vote by telephone or the Internet, as described in this joint proxy
statement/prospectus. If you date and mail your proxy card without indicating
how you want to vote, your proxy will be counted as a vote "FOR" the merger and,
in the case of Fidelity stockholders, a related proposal described in this
document. If you do not return your card or otherwise vote your shares, or if
you do not instruct your broker how to vote any shares held for you in "street
name," the effect will be the same as a vote against the merger.
This joint proxy statement/prospectus gives you detailed information about
the special meeting, the merger and related matters. We encourage you to read
this entire document carefully. You can also obtain information about our
companies from publicly available documents we have each filed with the
Securities and Exchange Commission.
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/s/ William P. Foley, II /s/ John Rau
William P. Foley, II John Rau
Chairman and Chief Executive Officer President and Chief Executive Officer
Fidelity National Financial, Inc. Chicago Title Corporation
</TABLE>
SEE "RISK FACTORS" BEGINNING ON PAGE 16 FOR A DESCRIPTION OF RISK FACTORS
THAT SHOULD BE CONSIDERED BY STOCKHOLDERS WITH RESPECT TO THE MERGER.
Neither the Securities and Exchange Commission nor any state securities
regulator has approved the Fidelity common stock to be issued in the merger or
determined if this joint proxy statement/prospectus is accurate or adequate. Any
representation to the contrary is a criminal offense.
THIS JOINT PROXY STATEMENT/PROSPECTUS IS DATED DECEMBER , 1999 AND IS
FIRST BEING MAILED TO STOCKHOLDERS ON OR ABOUT JANUARY , 2000
<PAGE> 3
FIDELITY NATIONAL FINANCIAL, INC.
17911 VON KARMAN AVENUE, SUITE 300
IRVINE, CALIFORNIA 92614
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 9, 2000
Notice is hereby given that a special meeting of stockholders of Fidelity
National Financial, Inc. will be held on Wednesday, February 9, 2000, at 10:00
a.m., local time, at Fess Parker's Doubletree Resort, located at 633 East
Cabrillo Boulevard, Santa Barbara, California 93103, to consider and vote upon
the following proposals:
1. To approve and adopt the Agreement and Plan of Merger, dated as of
August 1, 1999, by and between Fidelity and Chicago Title Corporation and
amended as of October 13, 1999, including the issuance of shares of Fidelity
common stock in the merger of Chicago Title with and into Fidelity;
2. To approve an amendment to Fidelity's Certificate of Incorporation to
increase the number of shares of Fidelity's common stock authorized for issuance
from 50,000,000 to 100,000,000;
and to transact such other business as may properly come before the special
meeting.
Only stockholders of record at the close of business on December 30, 1999
are entitled to notice of, and to vote at, the special meeting and any
adjournments or postponements thereof.
By Order of the Board of Directors
/s/ William P. Foley, II
William P. Foley, II
Chairman of the Board and
Chief Executive Officer
December , 1999
Irvine, California
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING,
WHETHER OR NOT YOU PLAN TO ATTEND IN PERSON. ACCORDINGLY, YOU ARE REQUESTED TO
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU
ATTEND THE SPECIAL MEETING, YOU MAY VOTE SHARES REGISTERED IN YOUR NAME (AND, IF
YOU HAVE A PROPER POWER OF ATTORNEY, SHARES REGISTERED IN A NOMINEE'S NAME) IN
PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
<PAGE> 4
CHICAGO TITLE CORPORATION
171 NORTH CLARK STREET
CHICAGO, ILLINOIS 60601
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 11, 2000
Notice is hereby given that a special meeting of stockholders of Chicago
Title Corporation will be held on Friday, February 11, 2000, at 9:00 a.m., local
time, at the Renaissance Chicago Hotel, One West Wacker Drive, Rhine Room -- 3rd
Floor, Chicago, Illinois 60601, to vote on a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of August 1, 1999, by and between Chicago
Title and Fidelity National Financial, Inc., and amended as of October 13, 1999,
and to transact such other business as may properly come before the special
meeting.
Only stockholders of record at the close of business on December 30, 1999
are entitled to notice of, and to vote at, the special meeting and any
adjournments or postponements thereof.
By Order of the Board of Directors
/s/ Paul T. Sands, Jr.
Paul T. Sands, Jr.
Executive Vice President, General
Counsel and Secretary
December , 1999
Chicago, Illinois
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING,
WHETHER OR NOT YOU PLAN TO ATTEND IN PERSON. ACCORDINGLY, YOU ARE REQUESTED TO
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. YOU MAY ALSO
VOTE BY TELEPHONE OR THE INTERNET, AS DESCRIBED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE SHARES
REGISTERED IN YOUR NAME (AND, IF YOU HAVE A PROPER POWER OF ATTORNEY, SHARES
REGISTERED IN A NOMINEE'S NAME) IN PERSON IF YOU WISH, EVEN IF YOU HAVE
PREVIOUSLY RETURNED YOUR PROXY CARD.
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TABLE OF CONTENTS
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PAGE
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Questions and Answers About the Merger...................... 1
Cautionary Statement Regarding Forward-Looking Statements... 3
Summary..................................................... 4
The Companies............................................. 4
The Special Meetings...................................... 4
The Merger................................................ 5
Comparative Per Share Market Price Information............ 12
Selected Consolidated Financial Data...................... 13
Comparative Per Share Data................................ 15
Risk Factors................................................ 16
Unaudited Pro Forma Condensed Combined Financial
Information............................................... 22
Market Price and Dividend Information....................... 28
The Fidelity Special Meeting................................ 29
The Chicago Title Special Meeting........................... 32
The Merger.................................................. 35
General................................................... 35
Merger Consideration...................................... 35
Background of the Merger.................................. 40
Fidelity Reasons for the Merger; Recommendation of the
Fidelity Board of Directors............................ 43
Chicago Title Reasons for the Merger; Recommendation of
the Chicago Title Board of Directors................... 44
Opinion of Fidelity's Financial Advisor................... 46
Opinion of Chicago Title's Financial Advisor.............. 51
Bank Financing............................................ 58
Certain U.S. Federal Income Tax Consequences of the
Merger................................................. 60
Required Regulatory Filings and Approvals................. 66
Resale of Fidelity Common Stock........................... 68
Management and Operations Following the Merger............ 68
Interests of Certain Persons in the Merger................ 69
Appraisal Rights.......................................... 72
Pending Litigation........................................ 74
Accounting Treatment...................................... 74
The Merger Agreement........................................ 75
General................................................... 75
Procedures for Election................................... 75
Distributions with Respect to Unexchanged Shares;
Transfers.............................................. 76
Corporate Governance...................................... 77
Representations and Warranties............................ 77
Concept of "Material Adverse Effect"...................... 78
Certain Covenants......................................... 78
Conditions to the Merger.................................. 84
Termination............................................... 86
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PAGE
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Termination Fee Payable by Chicago Title.................. 87
Amendment and Waiver...................................... 87
Amendment to Fidelity's Certificate of Incorporation........ 88
Description of Fidelity Capital Stock....................... 89
Comparison of Rights of Chicago Title Stockholders and
Fidelity Stockholders..................................... 93
Legal Matters............................................... 96
Experts..................................................... 96
Stockholder Proposals....................................... 96
Where You Can Find More Information......................... 98
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APPENDIX A -- Agreement and Plan of Merger, dated as of August 1, 1999, by
and between Fidelity National Financial, Inc. and Chicago
Title Corporation and amended as of October 13, 1999
APPENDIX B -- Fairness Opinion of Morgan Stanley & Co. Incorporated, dated
August 1, 1999
APPENDIX C -- Fairness Opinion of Merrill Lynch, Pierce, Fenner & Smith
Incorporated, dated August 1, 1999
APPENDIX D -- Section 262 of the Delaware General Corporation Law
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QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY ARE THE TWO COMPANIES PROPOSING TO MERGE?
A: Fidelity is one of the largest underwriters of title insurance in the United
States, with core strengths in the residential resale and refinance segments
of the title insurance industry. Chicago Title is also one of the largest
underwriters of title insurance in the United States, with core strengths in
the commercial and industrial and residential purchase segments of the title
insurance industry. The merger will combine our complementary strengths to
create a larger and more diversified company that we believe will provide
significant benefits to our stockholders and customers.
Q. WHAT AM I BEING ASKED TO VOTE ON?
A. Both the Fidelity and Chicago Title stockholders are being asked to approve
the proposed merger of Fidelity and Chicago Title. As part of the merger
proposal, Fidelity stockholders are also being asked to approve issuing
Fidelity common stock in the merger and to approve an amendment to Fidelity's
Certificate of Incorporation increasing the number of shares of Fidelity's
common stock authorized for issuance from 50,000,000 to 100,000,000.
Q: WHAT DO I NEED TO DO NOW?
A: After you have carefully read this joint proxy statement/prospectus, indicate
on your proxy card how you want to vote, and sign and mail it in the enclosed
prepaid return envelope as soon as possible so that your shares may be
represented and voted at the appropriate special meeting. If you sign and
send the proxy card without indicating how you want to vote, we will count
your proxy card as a vote in favor of the merger and, in the case of Fidelity
stockholders, also in favor of the amendment proposal. Chicago Title
stockholders may also vote by telephone or through the Internet. To vote by
telephone or through the Internet, Chicago Title stockholders should follow
the instructions contained in the enclosed proxy card or call Georgeson
Shareholder Communications, Inc. at (800) 223-2064 to obtain more
information. Votes cast by telephone or the Internet must be submitted prior
to the Chicago Title special meeting in order to be counted. The boards of
directors of Fidelity and Chicago Title recommend voting for the merger.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares only if you provide instructions on how to
vote. You should follow the directions provided by your broker regarding how
to instruct your broker to vote your shares. Without instructions, your
shares will not be voted on the proposed merger, which will have the same
effect as voting against the proposed merger. The availability of telephone
or Internet voting to Chicago Title stockholders whose shares are held in the
name of a bank or broker will depend on the voting procedures of the bank or
broker. If your shares are held in an account with a bank or broker
participating in the ADP Investor Communication Services Program, you may
choose to vote your shares via the Internet at the ADP Investor Communication
Services voting website (www.proxyvote.com) or telephonically, following the
instructions on your voting card.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD OR VOTED BY
TELEPHONE OR THROUGH THE INTERNET?
A: Yes. There are several ways in which you may revoke your proxy and change
your vote. First, you may send a written notice to the party to whom you
submitted your proxy stating that you would like to
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revoke your proxy. Second, you may complete and submit a new proxy card.
Third, you may attend the Fidelity special meeting or the Chicago Title
special meeting, as applicable, and vote in person. Simply attending the
special meeting, however, will not revoke your proxy. If you are a Chicago
Title stockholder and you voted by telephone or through the Internet, you can
change your vote by any of these three methods or you can revote by following
the instructions contained in your proxy card or provided by Georgeson
Shareholder Communications, Inc. If you have instructed a broker to vote your
shares, you must follow directions received from your broker to change your
vote.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. We will send Chicago Title stockholders separate written instructions for
exchanging their share certificates approximately 25 days prior to when we
expect the merger will be completed. Fidelity stockholders will keep their
existing share certificates.
Q: WHAT WILL HAPPEN TO MY FUTURE DIVIDENDS?
A: We do not expect to make any changes in Fidelity's or Chicago Title's
dividend policies before the merger. After the merger, Fidelity's quarterly
dividend is expected to be $0.10 per common share.
IF YOU WOULD LIKE ADDITIONAL COPIES OF THIS DOCUMENT, OR
IF YOU HAVE QUESTIONS ABOUT THE MERGER, INCLUDING THE PROCEDURES
FOR VOTING YOUR SHARES, PLEASE CONTACT:
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IF YOU ARE A FIDELITY STOCKHOLDER: IF YOU ARE A CHICAGO TITLE STOCKHOLDER:
MACKENZIE PARTNERS, INC. GEORGESON SHAREHOLDER COMMUNICATIONS,
156 FIFTH AVENUE INC.
NEW YORK, NEW YORK 10010 17 STATE STREET
PHONE NUMBER: (800) 322-2885 NEW YORK, NEW YORK 10004
PHONE NUMBER: (800) 223-2064
OR
OR
FIDELITY NATIONAL FINANCIAL, INC.
17911 VON KARMAN AVENUE, SUITE 300 CHICAGO TITLE CORPORATION
IRVINE, CALIFORNIA 92614 171 NORTH CLARK STREET
ATTENTION: PETER T. SADOWSKI CHICAGO, ILLINOIS 60601
PHONE NUMBER: (949) 622-5000 ATTENTION: INVESTOR RELATIONS
PHONE NUMBER: (888) 431-4288
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THIS DOCUMENT INCORPORATES BY REFERENCE IMPORTANT BUSINESS AND FINANCIAL
INFORMATION ABOUT FIDELITY AND CHICAGO TITLE FROM OTHER DOCUMENTS FILED WITH THE
SEC. YOU MAY HAVE PREVIOUSLY BEEN SENT SOME OF THESE DOCUMENTS, WHICH ARE LISTED
UNDER THE HEADING "WHERE YOU CAN FIND MORE INFORMATION," BUT YOU CAN OBTAIN ANY
OF THEM FROM FIDELITY OR CHICAGO TITLE, AS APPROPRIATE, OR THE SEC. THE
DOCUMENTS INCORPORATED BY REFERENCE ARE AVAILABLE WITHOUT CHARGE UPON WRITTEN OR
ORAL REQUEST TO THE PERSONS IDENTIFIED ABOVE. IF YOU WOULD LIKE TO REQUEST
DOCUMENTS FROM FIDELITY, PLEASE DO SO BY FEBRUARY 2, 2000 TO RECEIVE THEM BEFORE
THE FIDELITY SPECIAL MEETING. IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM
CHICAGO TITLE, PLEASE DO SO BY FEBRUARY 4, 2000 TO RECEIVE THEM BEFORE THE
CHICAGO TITLE SPECIAL MEETING.
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CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
This joint proxy statement/prospectus contains certain "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 with respect to the financial condition, results of operations and
business of each of Fidelity and Chicago Title. These statements may be made
directly in this document or may be "incorporated by reference" from other
documents filed with the SEC by Fidelity or Chicago Title. You can find many of
these statements by looking for words such as "believes," "expects,"
"anticipates," "estimates" or similar expressions in this joint proxy
statement/prospectus or in documents incorporated by reference herein.
These forward-looking statements are subject to numerous assumptions, risks
and uncertainties, and the Private Securities Litigation Reform Act provides a
"safe harbor" for these statements. Factors that may cause actual results to
differ from those contemplated by the forward-looking statements include, among
others, the following possibilities:
- Competitive pressures in the title insurance industry may increase
significantly.
- Changes in the interest rate environment may affect the volume of real
estate transactions and reduce our revenues.
- General economic or business conditions, both domestic and foreign, may
be less favorable than expected, resulting in, among other things, lower
than expected revenues.
- Costs or difficulties related to the integration of the businesses of
Fidelity and Chicago Title may be greater than expected.
- Legislative or regulatory changes may adversely affect the businesses in
which Fidelity and Chicago Title are engaged.
- Adverse changes may occur in the securities markets.
Because such statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements. Stockholders are cautioned not to place undue
reliance on such statements, which speak only as of the date of this joint proxy
statement/prospectus or, in the case of documents incorporated by reference, the
date of such documents.
All subsequent written and oral forward-looking statements attributable to
Fidelity or Chicago Title or any person acting on their behalf are expressly
qualified in their entirety by the cautionary statements contained or referred
to in this section. Neither Fidelity nor Chicago Title undertakes any obligation
to release publicly any revisions to such forward-looking statements to reflect
events or circumstances after the date of this joint proxy statement/prospectus
or to reflect the occurrence of unanticipated events.
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SUMMARY
This summary highlights information from this joint proxy
statement/prospectus. Because it is a summary, it does not contain all of the
information that may be important to you. We urge you to read carefully the
entire joint proxy statement/prospectus and the other documents to which this
document refers to obtain a full understanding of the merger.
THE COMPANIES
Fidelity National Financial, Inc.
17911 Von Karman Avenue, Suite 300
Irvine, California 92614
(949) 622-5000
Fidelity, through its principal subsidiaries, is one of the nation's
largest title insurance underwriters, engaged in the business of issuing title
insurance policies and providing diversified real estate services such as
escrow, collection and trust activities, real estate information and technology
services, trustee sale guarantees, credit reporting, attorney services, flood
zone certification, tax monitoring, home warranty insurance, reconveyances,
recordings, foreclosure publishing and posting services and exchange
intermediary services in connection with real estate transactions. Fidelity is
licensed in 49 states, the District of Columbia, Puerto Rico and the U.S. Virgin
Islands. Fidelity also originates, funds, purchases, sells, securitizes and
services equipment leases for a broad range of businesses through its wholly-
owned subsidiary, FNF Capital, Inc.
Chicago Title Corporation
171 North Clark Street
Chicago, Illinois 60601
(888) 431-4288
Chicago Title, through its principal subsidiaries, is one of the nation's
largest providers of title insurance and real estate-related services for
residential and commercial real estate transactions. One of the pioneers of the
title insurance industry over a century ago, Chicago Title currently has more
than 340 offices and approximately 4,100 agents in 49 states, Puerto Rico, the
U.S. Virgin Islands, Guam, and Canada. Chicago Title also offers escrow and
closing services and other information management-based real estate-related
services, including flood zone certification, credit information reporting, real
estate property evaluation services, property appraisal services, property
inspection, preservation and maintenance services, foreclosure and reconveyance
services, and mortgage services in the residential mortgage business.
THE SPECIAL MEETINGS
The Fidelity special meeting will be held on Wednesday, February 9, 2000 at
10:00 a.m., local time, at Fess Parker's Doubletree Resort, located at 633 East
Cabrillo Boulevard, Santa Barbara, California 93103. At the Fidelity special
meeting, Fidelity common stockholders will be asked to approve and adopt the
merger agreement, including the issuance of shares of Fidelity common stock in
the merger. Fidelity stockholders also will be asked to approve an amendment of
Fidelity's Certificate of Incorporation to increase the authorized number of
shares of common stock from 50,000,000 to 100,000,000.
The Chicago Title special meeting will be held on Friday, February 11, 2000
at 9:00 a.m., local time, at the Renaissance Chicago Hotel, One West Wacker
Drive, Rhine Room -- 3rd Floor, Chicago, Illinois 60601. At the Chicago Title
special meeting, Chicago Title common stockholders will be asked to approve and
adopt the merger agreement.
Record Date; Vote Required (Pages 29 and 33)
You are entitled to vote at your stockholders' special meeting if you owned
shares at the close of business on December 30, 1999, which is the record date
for the special meetings. On December 23, 1999, there were 27,378,767 shares of
Fidelity common stock and 21,898,070 shares of Chicago Title common stock issued
and outstanding and entitled to vote. You can cast one vote for each share of
Fidelity common stock or Chicago Title common stock that you owned on the record
date.
Approval by Fidelity stockholders of the merger agreement and the issuance
of shares of Fidelity common stock in the merger, and the increase in Fidelity's
authorized number of shares of common stock from 50,000,000 to 100,000,000,
requires the affirmative vote of more than 50% of the shares of Fidelity common
stock outstanding on the record date.
Approval by Chicago Title stockholders of the merger agreement requires the
affirmative vote
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of holders of at least 75% of the shares of Chicago Title common stock
outstanding on the record date.
Recommendations to Stockholders (Pages 43 and 44)
Fidelity's board of directors believes that the merger is fair to Fidelity
and to you as a Fidelity stockholder and in your best interests, and unanimously
recommends that you vote "FOR" the proposal to approve the merger agreement,
including the issuance of shares of Fidelity common stock in the merger, and
"FOR" the proposal to approve the increase in Fidelity's authorized number of
shares of common stock.
Chicago Title's board of directors believes that the merger is fair to
Chicago Title and to you as a Chicago Title stockholder and in your best
interests, and unanimously recommends that you vote "FOR" the proposal to
approve and adopt the merger agreement.
THE MERGER
We have attached the merger agreement to this document as Appendix A.
Please read the merger agreement. It is the legal document that governs the
transaction.
General (Page 35)
We propose a merger in which Chicago Title will merge with and into
Fidelity, with Fidelity being the surviving corporation. Chicago Title's
stockholders will own approximately 50.1% of the combined company and Fidelity's
stockholders will own the remainder. At the completion of the merger, the
Fidelity board of directors will be expanded to twelve directors, and four
members of the Chicago Title board of directors, designated by Chicago Title and
reasonably acceptable to Fidelity, will become directors of Fidelity. We hope to
complete the merger by the first quarter of 2000.
What You Will Receive (Page 35)
If you are a Chicago Title stockholder, your Chicago Title shares will be
converted into the right to receive merger consideration, consisting of cash,
shares of Fidelity common stock or a combination of cash and shares, having a
value of $52.00 per share of Chicago Title common stock, except in certain
circumstances which we describe below. Each Chicago Title stockholder will be
permitted to indicate its preference as to the number of shares of Chicago Title
common stock which it would like to have converted into cash and the number of
shares which it would like to be converted into shares of Fidelity common stock.
A number of factors may affect the extent to which Chicago Title stockholders
will receive Fidelity common stock and/or cash in amounts that are consistent
with their elections, including the elections of all other Chicago Title
stockholders and, as we describe below, Fidelity's right to choose whether to
pay a portion of the merger consideration in cash, shares of Fidelity common
stock, or a combination of cash and shares.
General. The total number of shares of Fidelity common stock to be issued
in the merger and the total amount of cash to be paid in the merger will not be
determined until the time of the merger. Initially, an allocation of the merger
consideration between shares of Fidelity common stock and cash to be issued in
respect of one share of Chicago Title common stock will be made, as follows:
- The Stock Portion -- a number of shares of Fidelity common stock equal to
an exchange ratio, calculated so that the holders of Chicago Title common
stock (excluding dissenting shares and shares held by Fidelity or Chicago
Title) will receive shares representing 50.1% of the outstanding shares
of Fidelity common stock. Based on the number of shares of Fidelity
common stock and Chicago Title common stock outstanding on December 23,
1999, the exchange ratio was 1.2553 on such date. As of December 23,
1999, 27,378,767 shares of Fidelity common stock and 21,898,070 shares of
Chicago Title common stock were outstanding.
- The Cash Portion -- the lesser of (x) $26.00 or (y) $52.00 reduced by the
value of the stock portion, based on the average value of a share of
Fidelity common stock during the 30 trading-day period ending two days
before the merger. Whenever we refer to the "average Fidelity share
price" in this document, we mean this 30 trading-day average.
- Additional Merger Consideration. If the sum of the cash portion and the
value of
5
<PAGE> 12
the stock portion is less than $52.00, then Fidelity will be required to add an
additional amount of merger consideration to make up the difference so that the
total value of the merger consideration is $52.00, except in certain
circumstances which we describe below. This additional amount of merger
consideration may be paid, at Fidelity's option, in cash, in additional
shares of Fidelity common stock valued at the average Fidelity share
price or in a combination of cash and shares.
The following table illustrates the application of the above formula and
the allocation of the merger consideration per Chicago Title share at various
average Fidelity share prices, and assumes Fidelity does not exercise any right
it may have to pay merger consideration having a value of less than $52.00 per
share, which we describe below. It is based on the number of shares of Fidelity
common stock and Chicago Title common stock outstanding as of December 23, 1999,
assumes that no shares of Chicago Title common stock are held by Fidelity and no
stockholders of Chicago Title exercise their appraisal rights and does not
consider the effect of the repurchase of shares of Chicago Title common stock by
Chicago Title which may be made pursuant to the merger agreement. This table
illustrates only the general allocation of the merger consideration on a per
Chicago Title share basis; it does not reflect the actual amounts of cash and
stock that will be received by any individual stockholder, which will be
determined based on the stockholder's elections (subject to proration) as to the
number of shares that it would like to have converted into cash and/or the
number of shares that it would like to have converted into stock.
<TABLE>
<CAPTION>
ADDITIONAL MERGER
CONSIDERATION TO
BE PAID IN CASH TOTAL VALUE
AVERAGE FIDELITY VALUE OF VALUE OF AND/OR OF MERGER
SHARE PRICE STOCK PORTION CASH PORTION FIDELITY SHARES* CONSIDERATION
- ---------------- ------------- ------------ ----------------- -------------
<S> <C> <C> <C> <C>
$10.00 $12.55 $26.00 $13.45 $52.00
11.00 13.81 26.00 12.19 52.00
12.00 15.06 26.00 10.94 52.00
13.00 16.32 26.00 9.68 52.00
14.00 17.57 26.00 8.43 52.00
15.00 18.83 26.00 7.17 52.00
16.00 20.08 26.00 5.92 52.00
17.00 21.34 26.00 4.66 52.00
18.00 22.60 26.00 3.40 52.00
19.00 23.85 26.00 2.15 52.00
20.00 25.11 26.00 0.89 52.00
21.00 26.36 25.64 -- 52.00
22.00 27.62 24.38 -- 52.00
23.00 28.87 23.13 -- 52.00
24.00 30.13 21.87 -- 52.00
</TABLE>
- ---------------
* At average Fidelity share prices below $15.00, assumes Fidelity does not elect
to pay a reduced amount of additional merger consideration.
Reduced Merger Consideration. If the average Fidelity share price is less
than $15.00, then Fidelity is permitted to elect either to pay additional merger
consideration to ensure that the total value of the merger consideration is
$52.00 per Chicago Title share, or to pay a reduced amount of additional merger
consideration equal to the lesser of:
- the sum of (a) one-half of the amount of additional merger consideration
Fidelity would be required to pay if the average Fidelity share price
were $15.00 plus (b) the average Fidelity share price multiplied by a
fraction, (x) the numerator of which is one-half of the amount of
additional merger consideration Fidelity would be required to pay if the
average Fidelity share price were $15.00 and (y) the denominator of which
is $15.00, or
- the average Fidelity share price multiplied by a fraction, (x) the
numerator of which is the amount of additional merger consid-
6
<PAGE> 13
eration Fidelity would be required to pay if the average Fidelity share
price were $15.00 and (y) the denominator of which is $13.00.
This reduced amount of additional merger consideration may be paid, at
Fidelity's option, in cash, additional shares of Fidelity common stock (valued
at the average Fidelity share price), or a combination of cash and shares.
Using the same assumptions as in the preceding table, the following table
illustrates the total value of the merger consideration which would be payable
at various average Fidelity share prices below $15.00, if Fidelity chose to pay
merger consideration having a value of less than $52.00:
<TABLE>
<CAPTION>
REDUCED
ADDITIONAL MERGER
CONSIDERATION TO
BE PAID IN CASH TOTAL VALUE
AVERAGE FIDELITY VALUE OF VALUE OF AND/OR OF MERGER
SHARE PRICE STOCK PORTION CASH PORTION FIDELITY SHARES CONSIDERATION
- ---------------- ------------- ------------ ----------------- -------------
<S> <C> <C> <C> <C>
$10.00 $12.55 $26.00 $5.52 $44.07
11.00 13.81 26.00 6.07 45.88
12.00 15.06 26.00 6.45 47.51
13.00 16.32 26.00 6.69 49.01
14.00 17.57 26.00 6.93 50.50
15.00 18.83 26.00 7.17 52.00
</TABLE>
If Fidelity elects to pay the reduced amount of additional merger
consideration, Chicago Title will have the right to terminate the merger
agreement. A determination as to whether or not to terminate the merger
agreement would be made by Chicago Title's board of directors and would not be
submitted for approval by the Chicago Title stockholders.
Additional Tax Adjustments. Once the amount of the merger consideration and
the general allocation of the stock and cash portions of the merger
consideration are determined, the parties will determine the total number of
shares of Fidelity common stock to be issued as merger consideration and the
total amount of cash to be paid as merger consideration, taking into account two
additional adjustments. First, the total amount of shares of Fidelity common
stock included in the merger consideration will be increased (and the total
amount of cash decreased), if necessary, to satisfy certain conditions to the
merger designed to preserve the tax-free nature of the 1998 spin-off of Chicago
Title from Alleghany Corporation and the related spin-off of Alleghany Asset
Management, Inc. from Chicago Title and Trust Company, a subsidiary of Chicago
Title. Then, the total amount of shares of Fidelity common stock included in the
merger consideration will be increased (and the total amount of cash decreased),
if necessary, to ensure that the value of the stock portion of the merger
consideration, based on the actual price of Fidelity common stock on the day of
the merger, is at least equal to 40% of the total value of the merger
consideration.
If you are a Fidelity stockholder, each of your shares of Fidelity common
stock will remain issued and outstanding. However, you will own shares of a
larger, more diversified company.
Share repurchase. Pursuant to the merger agreement, Chicago Title also
intends, subject to applicable legal and contractual restraints, to offer to
repurchase up to approximately 790,000 outstanding shares of Chicago Title
common stock held by Chicago Title's officers, directors and employees, at a
cash purchase price equal to the merger consideration paid to Chicago Title
stockholders in the merger. The maximum aggregate cost of the repurchase to
Chicago Title would be $41.1 million, if all 790,000 shares are tendered and if
the merger consideration is $52.00 per Chicago Title share. Chicago Title
anticipates that any such repurchases would be made immediately prior to, and
contingent upon, the merger.
When Chicago Title Stockholders Will Elect the Form of Payment (Page 75)
Approximately 25 days prior to the anticipated merger completion date, we
will mail an election form and other transmittal materials to the Chicago Title
stockholders. If you are a Chicago Title stockholder, you must complete the
7
<PAGE> 14
letter of transmittal and election form to elect whether you prefer to receive
cash, Fidelity shares or a combination of cash and Fidelity shares in the
merger. The fully completed election form, together with your certificates
representing outstanding Chicago Title shares, must be returned to Harris Bank,
the exchange agent for the merger, before the time of the merger. If you do not
make an election by the election deadline, you will not be entitled to elect
from among the alternative forms of payment and will receive cash if there is an
oversubscription for Fidelity common shares, Fidelity common shares if there is
an oversubscription for cash, or both cash and shares if there is no
oversubscription.
Opinions of Financial Advisors (Pages 46 and 51)
Morgan Stanley & Co. Incorporated, which has served as Fidelity's financial
advisor in connection with the merger, has delivered its written opinion dated
August 1, 1999 to the Fidelity board of directors that as of such date the
merger consideration to be paid by Fidelity pursuant to the merger agreement was
fair from a financial point of view to Fidelity. A copy of the opinion delivered
by Morgan Stanley is attached to this document as Appendix B. You should read
the opinion in its entirety to understand the assumptions made, matters
considered and limitations on the review undertaken by Morgan Stanley in
providing this opinion.
Merrill Lynch, Pierce, Fenner & Smith Incorporated, which has served as
Chicago Title's financial advisor in connection with the merger, has delivered
its written opinion dated August 1, 1999 to the Chicago Title board of directors
that, as of such date and based on the assumptions made, matters considered and
limits of review stated therein, the merger consideration was fair from a
financial point of view to the holders of Chicago Title common stock (other than
Fidelity and its affiliates). A copy of the opinion delivered by Merrill Lynch
is attached to this document as Appendix C. You should read this opinion in its
entirety to understand the assumptions made, matters considered and limitations
on the review undertaken by Merrill Lynch in providing its opinion.
Certain U.S. Federal Income Tax Consequences of the Merger (Page 60)
Since the merger is expected to qualify as a reorganization under Section
368(a) of the Internal Revenue Code of 1986, neither Fidelity nor Chicago Title
will recognize any gain or loss as a result of the merger. The tax consequences
of the merger to a Chicago Title stockholder will vary depending upon the nature
of the consideration received by such stockholder in the merger. A Chicago Title
stockholder who receives solely shares of Fidelity common stock in the merger
will not recognize any gain or loss, except for any gain or loss attributable to
cash received in lieu of fractional shares. A Chicago Title stockholder who
receives a combination of Fidelity common stock and cash in the merger will not
recognize loss, but will recognize gain generally equal to the lesser of (1) the
cash received or (2) the excess of the sum of the fair market value of the
Fidelity common stock and the amount of cash received over such stockholder's
adjusted tax basis in the shares of Chicago Title common stock surrendered in
the merger. A Chicago Title stockholder who receives solely cash in the merger
generally will be required to recognize gain, and should be permitted to
recognize loss, equal to the difference between the amount of cash received by
such stockholder and such stockholder's adjusted tax basis in the shares of
Chicago Title common stock surrendered in the merger. Under certain
circumstances, the gain recognized by a Chicago Title stockholder may be treated
as a dividend and thus as ordinary income, rather than capital gain.
TAX MATTERS ARE VERY COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGER TO
EACH CHICAGO TITLE STOCKHOLDER WILL DEPEND ON THE STOCKHOLDER'S PARTICULAR FACTS
AND CIRCUMSTANCES. CHICAGO TITLE STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS TO UNDERSTAND FULLY THE TAX CONSEQUENCES TO THEM OF THE MERGER.
Interests of Certain Persons in the Merger (Page 69)
Stockholders should note that some of Chicago Title's directors and
executive officers may have interests in the merger that are different from, or
in addition to, the interests of Chicago Title stockholders generally.
8
<PAGE> 15
Financing (Page 58)
Fidelity has obtained a commitment letter from Bank of America, N.A. for
financing the cash portion of the merger consideration to be paid by Fidelity in
the merger. Bank of America, individually and as administrative agent for a
syndicate of lenders to be arranged, has committed to make available $800.0
million of senior credit facilities consisting of a $450.0 million term loan
facility, a $250.0 million revolving credit facility and a $100.0 million
18-month interim revolving credit facility. Fidelity expects to borrow
approximately $584.7 million under the new senior credit facilities to pay the
cash portion of the merger consideration. A portion of the new senior credit
facilities will be used to refinance existing indebtedness.
Regulatory Approvals Required for the Merger (Page 66)
The Hart-Scott-Rodino Antitrust Improvements Act of 1976 requires us to
furnish certain information and materials to the Antitrust Division of the
Department of Justice and the Federal Trade Commission and requires a specified
waiting period to expire or be terminated before the merger can be completed.
Even after the waiting period expires or terminates, the Antitrust Division of
the Department of Justice and the Federal Trade Commission will have the
authority to challenge the merger on antitrust grounds before or after the
merger is completed. Fidelity and Chicago Title filed the antitrust notification
and report forms on August 13, 1999. On September 10, 1999, the Federal Trade
Commission requested information to assist its analysis of the transaction under
the federal antitrust laws. Fidelity and Chicago Title are in the process of
providing the required information to the Federal Trade Commission. As of the
date of this document, the required waiting period has not expired or been
terminated.
The merger is also subject to the receipt of certain approvals from various
state insurance regulatory authorities and other governmental agencies and the
expiration of specified waiting periods. Fidelity and Chicago Title have made
all such applicable filings.
Share Ownership of Management and Directors
On December 10, 1999, directors and executive officers of Fidelity and
their affiliates held and were entitled to vote 4,522,787 shares of Fidelity
common stock, or approximately 16.5% of the shares of Fidelity common stock
outstanding on December 23, 1999.
On December 23, 1999, directors and executive officers of Chicago Title and
their affiliates held and were entitled to vote 2,020,838 shares of Chicago
Title common stock, or approximately 9.0% of the shares of Chicago Title common
stock outstanding on December 23, 1999.
Each of Allan P. Kirby, Jr., a director and stockholder of Chicago Title,
and F. M. Kirby, a stockholder of Chicago Title, have agreed, for a period
ending upon the earlier of the merger or the termination of the merger
agreement, to vote all shares of Chicago Title common stock over which he
exercises voting power in a non-fiduciary capacity in favor of the approval and
adoption of the merger agreement and the transactions contemplated thereby, with
the exception, in the case of Allan P. Kirby, Jr., of those shares for which he
held a power of attorney. The agreements will terminate in the event that the
merger agreement is amended so that the terms thereof, in the reasonable
judgment of Allan P. Kirby, Jr., or F. M. Kirby, as the case may be, are less
favorable to the stockholders of Chicago Title.
Appraisal Rights for Dissenting Stockholders (Page 72)
If you are a Chicago Title stockholder, Delaware law permits you to dissent
from the merger. If you dissent, the fair value of your Chicago Title stock may
be determined by a court and paid to you in cash. To do this, you must follow
certain procedures, including giving Chicago Title certain notices and not
voting your shares in favor of the merger. You will not receive any stock in
Fidelity if you dissent and follow all of the required procedures. Instead, you
will only receive the value of your shares as determined by a court. The value
of your shares as determined by the court may be more or less than the value of
the merger consideration. The relevant sections of Delaware law governing this
process are attached to this document as Appendix D.
9
<PAGE> 16
Conditions to Completion of the Merger (Page 84)
The completion of the merger depends on the satisfaction or waiver of a
number of conditions, including the following:
1. approval of the merger and the amendment to Fidelity's Certificate of
Incorporation to increase the number of shares of common stock
authorized for issuance from 50,000,000 to 100,000,000 by the holders of
more than 50% of the shares of Fidelity common stock;
2. approval of the merger by the holders of at least 75% of the shares of
Chicago Title common stock;
3. approval of the merger by certain federal and state regulatory
authorities and the expiration of applicable waiting periods;
4. the absence of any legal restraint blocking the merger;
5. receipt of legal opinions to the effect that the merger will qualify as
a "reorganization" within the meaning of Section 368 of the Internal
Revenue Code;
6. receipt of a legal opinion or an Internal Revenue Service ruling to the
effect that the merger will not adversely affect the prior tax-free
treatment of either the spin-off of Chicago Title to stockholders of
Alleghany Corporation or the spin-off of Alleghany Asset Management,
Inc., by Chicago Title and Trust Company to Alleghany immediately prior
to the spin-off of Chicago Title; and
7. the absence of a material adverse effect on Fidelity or Chicago Title
from March 31, 1999 until the time of the merger, other than effects
caused by, among other things, changes in general economic, securities
markets or title insurance industry conditions, interest rate levels, or
certain legal proceedings.
Chicago Title Stock Options (Page 71)
When we complete the merger, each unexercised stock option to buy Chicago
Title common stock outstanding under Chicago Title's stock option plans will
become an option to purchase Fidelity common stock. The number of shares of
Fidelity common stock subject to each new option, as well as the exercise price
of each new option, will be adjusted to reflect the applicable terms of the
merger.
Accounting Treatment (Page 74)
The merger will be accounted for as a "purchase" in accordance with
generally accepted accounting principles, which means that the assets and
liabilities of Chicago Title will be recorded on the books of Fidelity at their
fair values, with the excess, if any, allocated to goodwill.
Termination of the Merger Agreement (Page 86)
We may agree in writing to terminate the merger agreement at any time
without completing the merger, even after the stockholders of both our companies
have approved it.
In addition, either company can terminate the merger agreement at any time
if:
1. the merger has not been completed by March 31, 2000, which either of us
can extend to June 30, 2000 if either (x) all regulatory approvals have
not been obtained or the waiting period under the Hart-Scott-Rodino Act
has not expired or been terminated, or (y) an IRS ruling regarding the
effect of the merger on the prior spin-offs of Chicago Title and
Alleghany Asset Management has been applied for and is pending;
2. the Chicago Title stockholders or the Fidelity stockholders do not give
the required approvals;
3. the other company breaches or fails to perform any representation,
warranty, covenant or agreement set forth in the merger agreement in a
manner which would cause conditions to the merger not to be satisfied,
and such breach or failure to perform either cannot be cured or is not
cured within a period of ten days after written notice; or
4. any legal restriction permanently restraining, enjoining or otherwise
prohibiting completion of the merger has become final and
non-appealable.
Chicago Title may also terminate the merger at any time before the merger
is approved by the Chicago Title stockholders if its board of directors
10
<PAGE> 17
has determined that an alternative transaction with a third party is superior to
the merger and that Chicago Title should enter into an agreement relating to
that transaction. However, Chicago Title must give Fidelity three business days
to match the third party's offer before Chicago Title can terminate the merger
agreement. Chicago Title may also terminate the merger agreement if the average
Fidelity share price falls below $15.00 and Fidelity chooses to pay reduced
additional merger consideration so that the total value of the merger
consideration is less than $52.00 per share of Chicago Title common stock.
Fidelity may terminate the merger agreement if Chicago Title's board of
directors fails to make, withdraws or adversely modifies its recommendation of
the merger agreement or if Chicago Title's board of directors recommends any
other acquisition proposal to the stockholders of Chicago Title.
Termination Fee (Page 87)
Chicago Title could become obligated to pay Fidelity a termination fee of
$34.1 million if:
- Chicago Title terminates the merger agreement because the Chicago Title
board of directors has determined that an alternative transaction with a
third party is superior to the merger and that Chicago Title should enter
into an agreement relating to that transaction;
- either Fidelity or Chicago Title terminates the merger agreement after
the failure to obtain the required approval of the merger by the Chicago
Title stockholders and if an acquisition proposal by a third party was
communicated to the Chicago Title board of directors prior to the Chicago
Title special meeting, Chicago Title agrees to a business combination
with another party within 12 months of terminating the merger agreement
and the business combination is consummated; or
- Fidelity terminates the merger agreement following the modification or
withdrawal by the Chicago Title board of directors of its recommendation
in favor of the merger in a manner materially adverse to Fidelity,
following the Chicago Title board's failure to make such a recommendation
or following the Chicago Title board's recommendation to the Chicago
Title stockholders in favor of another acquisition proposal, except that
the termination fee is not payable if, at the time of any modification or
withdrawal, or failure to make, this recommendation, Fidelity has
breached or failed to perform any representation, warranty, covenant or
agreement set forth in the merger agreement in a manner which would
permit Chicago Title to terminate the agreement or would have a material
adverse effect on Fidelity, and the breach or failure is not sufficiently
cured within a period of ten days after written notice.
Comparison of Rights of Chicago Title Stockholders and Fidelity Stockholders
(Page 93)
The rights of Chicago Title's stockholders are currently governed by
Chicago Title's Certificate of Incorporation and By-laws, whereas the rights of
Fidelity stockholders are governed by Fidelity's Certificate of Incorporation
and By-laws. Upon the completion of the merger, Chicago Title stockholders will
become stockholders of Fidelity, and therefore their rights will be governed by
Fidelity's Certificate of Incorporation and By-laws. As a result of these
different Certificates of Incorporation and By-laws, Chicago Title stockholders
will have different rights as holders of Fidelity common stock than they
currently have as holders of Chicago Title common stock.
11
<PAGE> 18
COMPARATIVE PER SHARE MARKET PRICE INFORMATION
The following table sets forth the closing prices per share of Fidelity
common stock and Chicago Title common stock on the NYSE on July 29, 1999, and
December 23, 1999. July 29, 1999 was the last trading day before we announced
that we were holding discussions on a possible merger. December 23, 1999 was the
last practicable trading day for which information was available prior to the
date of this joint proxy statement/prospectus. The information presented in the
table below also includes the "equivalent stock price" of shares of Chicago
Title common stock on these dates. The "equivalent stock price" of shares of
Chicago Title common stock represents the equivalent value of the shares of
Fidelity common stock which would be received by the holder of one share of
Chicago Title common stock who elects to receive, and actually receives, only
shares of Fidelity common stock in the merger. This equivalent value is
determined by multiplying the closing prices per share for Fidelity common stock
on the NYSE on July 29, 1999, and December 23, 1999, by exchange ratios of
2.7055 and 3.5398, respectively. The exchange ratios were determined by dividing
$52.00 by the average price for Fidelity common stock during the 30 trading-day
periods ended two days before July 29, 1999 and December 23, 1999, respectively.
These average prices are $19.22 and $14.69, respectively. The equivalent value
calculated for December 23, 1999 assumes that Fidelity will elect to pay merger
consideration of $52.00 per Chicago Title share in the merger even though the
average price for the Fidelity common stock for the 30 trading day period ended
December 21, 1999 was less than $15.00. See "The Merger -- Merger
Consideration."
<TABLE>
<CAPTION>
FIDELITY CHICAGO TITLE CHICAGO TITLE
COMMON STOCK COMMON STOCK EQUIVALENT STOCK PRICE
------------------- ------------------- ----------------------
(DOLLARS PER SHARE) (DOLLARS PER SHARE) (DOLLARS PER SHARE)
<S> <C> <C> <C>
July 29, 1999......................... $17.50 $36.69 $47.35
December 23, 1999..................... $13.94 $46.00 $49.34
</TABLE>
The market price of both Fidelity and Chicago Title common stock will
fluctuate prior to the merger. No assurance can be given as to the future prices
or markets for Fidelity common stock or Chicago Title common stock. Also, if the
average Fidelity share price is less than $15.00 per share, Fidelity could pay
merger consideration having a value of less than $52.00 per share of Chicago
Title common stock. See "Risk Factors -- Chicago Title stockholders could end up
receiving merger consideration having a value of less than $52.00 per share of
Chicago Title common stock." You should obtain current stock price quotations
for both Fidelity and Chicago Title common stock. Additional market price
information is contained on page 28 under the heading "Market Price and Dividend
Information."
12
<PAGE> 19
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except per share amounts)
Fidelity National Financial, Inc.
The selected consolidated financial data of Fidelity as of and for the
years ended December 31, 1996, 1997 and 1998 has been derived from consolidated
financial statements of Fidelity incorporated by reference herein which have
been audited by KPMG LLP, independent auditors. The selected consolidated
financial data as of and for the nine months ended September 30, 1999 and 1998,
has been derived from unaudited consolidated financial statements filed with the
SEC and incorporated by reference herein and include all adjustments (consisting
of normal recurring accruals) which Fidelity considers necessary for a fair
presentation of the consolidated financial position, results of operations and
cash flows. Operating results for the nine months ended September 30, 1999 are
not necessarily indicative of the results that may be expected for the entire
year ending December 31, 1999. This information is qualified in its entirety by,
and should be read in conjunction with, Fidelity's consolidated financial
statements, and the notes thereto, and "Management's Discussion and Analysis of
Results of Operations and Financial Condition" which are included in reports
filed by Fidelity with the SEC and are incorporated by reference in this joint
proxy statement/prospectus. See "Where You Can Find More Information."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------- ---------------------
1996 1997 1998 1998 1999
-------- -------- ---------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Total revenue.................................... $734,795 $863,059 $1,288,465 $913,070 $1,043,930
Total expenses................................... 686,569 777,456 1,113,331 780,610 939,972
-------- -------- ---------- -------- ----------
Earnings before income taxes and extraordinary
item........................................... 48,226 85,603 175,134 132,460 103,958
Income tax expense............................... 18,985 36,595 69,442 55,540 41,843
-------- -------- ---------- -------- ----------
Earnings before extraordinary item............... 29,241 49,008 105,692 76,920 62,115
Extraordinary item............................... -- (1,700) -- -- --
-------- -------- ---------- -------- ----------
Net earnings..................................... $ 29,241 $ 47,308 $ 105,692 $ 76,920 $ 62,115
======== ======== ========== ======== ==========
PER SHARE AND OTHER DATA:
Basic net earnings............................... $ 29,241 $ 47,308 $ 105,692 $ 76,920 $ 62,115
======== ======== ========== ======== ==========
Basic earnings per share before extraordinary
item........................................... $ 1.43 $ 2.10 $ 3.79 $ 2.78 $ 2.05
Extraordinary item............................... -- (0.07) -- -- --
-------- -------- ---------- -------- ----------
Basic net earnings per share..................... $ 1.43 $ 2.03 $ 3.79 $ 2.78 $ 2.05
======== ======== ========== ======== ==========
Weighted average shares outstanding, basic
basis.......................................... 20,426 23,355 27,921 27,653 30,353
Diluted net earnings............................. $ 32,437 $ 50,450 $ 108,155 $ 78,803 $ 62,378
======== ======== ========== ======== ==========
Diluted net earnings per share before
extraordinary item............................. $ 1.23 $ 1.76 $ 3.23 $ 2.36 $ 1.95
Extraordinary item............................... -- (0.06) -- -- --
-------- -------- ---------- -------- ----------
Diluted net earnings per share................... $ 1.23 $ 1.70 $ 3.23 $ 2.36 $ 1.95
======== ======== ========== ======== ==========
Weighted average shares outstanding, diluted
basis.......................................... 26,431 29,599 33,474 33,347 32,037
Dividends per share.............................. $ 0.22 $ 0.24 $ 0.26 $ 0.19 $ 0.21
BALANCE SHEET DATA:
Investments...................................... $270,134 $376,285 $ 519,332 $434,327 $ 490,653
Cash and cash equivalents........................ 65,551 54,975 42,492 53,701 46,209
Notes payable.................................... 179,508 163,015 214,624 155,566 190,295
Reserve for claim losses......................... 196,527 201,674 224,534 215,611 239,254
Stockholders' equity............................. 162,645 274,050 396,740 354,768 446,200
</TABLE>
13
<PAGE> 20
Chicago Title Corporation
The selected consolidated financial data of Chicago Title as of and for the
years ended December 31, 1996, 1997 and 1998 has been derived from consolidated
financial statements of Chicago Title incorporated by reference herein which
have been audited by KPMG LLP, independent auditors. The selected consolidated
financial data as of and for the nine months ended September 30, 1999 and 1998,
has been derived from unaudited consolidated financial statements filed with the
SEC and incorporated by reference herein and include all adjustments (consisting
of normal recurring accruals) which Chicago Title considers necessary for a fair
presentation of the consolidated financial position, results of operations and
cash flows. Operating results for the nine months ended September 30, 1999 are
not necessarily indicative of the results that may be expected for the entire
year ending December 31, 1999. This information is qualified in its entirety by,
and should be read in conjunction with, Chicago Title's consolidated financial
statements, and the notes thereto, and "Management's Discussion and Analysis of
Results of Operations and Financial Condition" which are included in reports
filed by Chicago Title with the SEC and are incorporated by reference in this
joint proxy statement/prospectus. See "Where You Can Find More Information."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ ------------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Total revenue............................ $1,327,684 $1,467,446 $1,926,709 $1,375,740 $1,539,717
Total expenses........................... 1,257,991 1,383,843 1,785,004 1,276,180 1,419,229
---------- ---------- ---------- ---------- ----------
Operating earnings from continuing
operations before income taxes......... 69,693 83,603 141,705 99,560 120,488
Income tax expense....................... 23,115 27,894 53,536 37,710 42,034
---------- ---------- ---------- ---------- ----------
Net earnings from continuing
operations............................. 46,578 55,709 88,169(1) 61,850(1) 78,454(5)
Net earnings from discontinued
operations............................. 5,462 12,162 9,013 9,013 --
---------- ---------- ---------- ---------- ----------
Net earnings............................. $ 52,040 $ 67,871 $ 97,182 $ 70,863 $ 78,454
========== ========== ========== ========== ==========
PER SHARE AND OTHER DATA(2):
Basic and diluted net earnings........... $ 52,040 $ 67,871 $ 97,182 $ 70,863 $ 78,454
========== ========== ========== ========== ==========
Basic and diluted net earnings per share
from continuing operations............. $ 2.13 $ 2.54 $ 4.03(1) $ 2.83(1) $ 3.60(5)
Basic and diluted net earnings per share
from discontinued operations........... 0.25 0.56 0.41 0.41 --
---------- ---------- ---------- ---------- ----------
Basic and diluted net earnings per
share.................................. $ 2.38 $ 3.10 $ 4.44 $ 3.24 $ 3.60
========== ========== ========== ========== ==========
Weighted average shares outstanding,
basic and diluted basis................ 21,907 21,907 21,902 21,903 21,828
Dividends per share...................... N/A N/A 0.68(4) $ 0.34(4) $ 1.06
BALANCE SHEET DATA:
Investments.............................. $ 850,788 $1,066,578 $1,194,128 $1,125,579 $1,128,213
Cash and cash equivalents(3)............. 122,464 121,426 133,117 216,720 216,391
Notes payable............................ 43,282 32,443 21,648 41,876 21,437
Reserve for claim losses................. 532,923 564,334 618,831 603,168 656,220
Stockholders' equity..................... 360,595 403,547 461,592 444,634 496,240
</TABLE>
- ---------------
(1) Net earnings and basic and diluted net earnings per share from continuing
operations, excluding after-tax spin-off and related management
restructuring costs arising in connection with the 1998 spin-off of Chicago
Title from Alleghany, were $109,732 and $5.01 in 1998, and $83,413 and $3.81
in the first nine months of 1998.
(2) Basic and diluted earnings per share are the same for all periods presented.
(3) Cash and cash equivalents includes cash pledged to secure trust and escrow
deposits of $99,392, $100,207 and $93,887 as of December 31, 1996, 1997 and
1998, respectively, and $186,642 and $183,699 as of September 30, 1998 and
1999, respectively.
(4) Represents dividends paid subsequent to June 17, 1998.
(5) Net earnings and basic and diluted earnings per share from operations
excluding after-tax costs arising in connection with the merger, were
$81,545 and $3.74, respectively, for the nine months ended September 30,
1999.
14
<PAGE> 21
COMPARATIVE PER SHARE DATA
The following table sets forth certain information regarding our earnings,
dividends and book value per share on an historical basis, on a pro forma
combined basis and on an equivalent pro forma basis. The information set forth
below should be read in conjunction with the historical consolidated financial
statements of Fidelity and Chicago Title, including the notes thereto,
incorporated by reference or appearing elsewhere in this joint proxy
statement/prospectus. See "Unaudited Pro Forma Condensed Combined Financial
Information" and "Where You Can Find More Information."
<TABLE>
<CAPTION>
EQUIVALENT
PRO FORMA
AMOUNT
FIDELITY CHICAGO TITLE PRO FORMA PER SHARE OF
HISTORICAL HISTORICAL COMBINED(1)(3) CHICAGO TITLE(2)(3)
---------- ------------- -------------- -------------------
<S> <C> <C> <C> <C>
NINE MONTHS ENDED SEPTEMBER 30, 1999
Basic net income per share of common stock:
Continuing operations...................... $ 2.05 $ 3.60 $ 1.50 $ 5.24
Discontinued operations.................... -- -- -- --
------ ------ ------ ------
Total basic net income per share of
common stock.......................... $ 2.05 $ 3.60 $ 1.50 $ 5.24
====== ====== ====== ======
Diluted net income per share of common stock:
Continuing operations...................... $ 1.95 $ 3.60 $ 1.47 $ 5.12
Discontinued operations.................... -- -- -- --
------ ------ ------ ------
Total diluted net income per share of
common stock.......................... $ 1.95 $ 3.60 $ 1.47 $ 5.12
====== ====== ====== ======
Cash dividends declared per share of common
stock...................................... $ 0.21 $ 1.06 $ 0.21 $ 0.73
Book value per share of common stock (at end
of period)................................. $15.64 $22.73 $15.21 $53.15
YEAR ENDED DECEMBER 31, 1998
Basic net income per share of common stock:
Continuing operations...................... $ 3.79 $ 4.03 $ 2.10 $ 7.36
Discontinued operations.................... -- 0.41 0.14 0.49
------ ------ ------ ------
Total basic net income per share of
common stock.......................... $ 3.79 $ 4.44 $ 2.24 $ 7.85
====== ====== ====== ======
Diluted net income per share of common stock:
Continuing operations...................... $ 3.23 $ 4.03 $ 1.97 $ 6.90
Discontinued operations.................... -- 0.41 0.13 0.45
------ ------ ------ ------
Total diluted net income per share of
common stock.......................... $ 3.23 $ 4.44 $ 2.10 $ 7.35
====== ====== ====== ======
Cash dividends declared per share of common
stock...................................... $ 0.26 $ 0.68(4) $ 0.26 $ 0.91
Book value per share of common stock (at end
of period)................................. $13.73 $21.07 N/A N/A
</TABLE>
- ---------------
(1) The Pro Forma Combined Per Share Data assumes the issuance of approximately
37,008,000 shares of Fidelity's common stock to effect the merger based on
the number of Fidelity and Chicago Title shares outstanding at September 30,
1999. See Note 1 of Notes to Unaudited Pro Forma Condensed Combined
Financial Statements.
(2) The Equivalent Pro Forma Amount per share of Chicago Title Data represents
the equivalent amounts per share that a holder of Chicago Title common stock
would receive, assuming the holder elects to receive, and actually receives,
only shares of Fidelity common stock as merger consideration. Amounts assume
an exchange ratio of 3.4946, determined by dividing the merger consideration
of $52.00 per share by $14.88, the average price for Fidelity common stock
during the 30 trading-day period ending two days before September 30, 1999.
See "The Merger -- Merger Consideration."
(3) The Pro Forma Combined and Equivalent Pro Forma Amount per share of Chicago
Title Data does not reflect cost savings expected to be realized following
the merger. See Note 6 of Notes to Unaudited Pro Forma Condensed Combined
Financial Statements. In addition, the actual number of shares of Fidelity
common stock to be issued in the merger may be more or less than the amounts
reflected in this table and will depend upon, among other things, the actual
numbers of Fidelity and Chicago Title shares outstanding immediately prior
to the merger and the average Fidelity share price. See "The
Merger -- Merger Consideration."
(4) Represents dividends paid subsequent to June 17, 1998.
15
<PAGE> 22
RISK FACTORS
Stockholders should consider the following matters in deciding whether to
vote in favor of the merger agreement, in addition to the other information
included or incorporated by reference in this joint proxy statement/prospectus.
CHICAGO TITLE STOCKHOLDERS COULD END UP RECEIVING MERGER CONSIDERATION HAVING A
VALUE OF LESS THAN $52.00 PER SHARE OF CHICAGO TITLE COMMON STOCK.
The merger agreement provides that Chicago Title stockholders will be
entitled to receive for each share of Chicago Title common stock cash, shares of
Fidelity common stock (based on the average Fidelity share price) or a
combination of cash and shares of Fidelity common stock having a value of
$52.00. However, the merger agreement provides that if the average Fidelity
share price common stock falls below $15.00, Fidelity could choose to pay merger
consideration having an aggregate value of less than $52.00 per share of Chicago
Title common stock. In that event, Chicago Title will have the right to
terminate the merger agreement. A determination as to whether or not to
terminate the merger agreement would be made by the Chicago Title board of
directors and would not be submitted for approval by the Chicago Title
stockholders. The opinion delivered by Merrill Lynch, Pierce, Fenner & Smith
Incorporated to the Chicago Title board of directors dated August 1, 1999 that
as of such date the merger consideration contemplated by the merger agreement
was fair from a financial point of view to the Chicago Title stockholders does
not express an opinion as to the fairness of the merger consideration if the
average Fidelity share price falls below $15.00 and Fidelity chooses to pay
merger consideration having an aggregate value of less than $52.00 per share of
Chicago Title common stock. For a more detailed description of the merger
consideration, see "The Merger -- Merger Consideration."
Because stock prices fluctuate, the market price of Fidelity common stock
at the time the merger occurs may be more or less than the average Fidelity
share price upon which the number of shares of Fidelity common stock included in
the merger consideration is determined. Also, the market value of the shares of
Fidelity common stock that Chicago Title stockholders receive in the merger may
increase or decrease following the merger.
CHICAGO TITLE STOCKHOLDERS MAY RECEIVE MERGER CONSIDERATION THAT IS INCONSISTENT
WITH THEIR ELECTIONS.
Although Chicago Title stockholders will be able to elect (subject to
proration) to receive cash for all of their shares, stock for all of their
shares, or a combination of cash and stock for their shares, the merger
agreement provides that Fidelity can choose to pay a greater or lesser portion
of the merger consideration in the form of Fidelity common shares, depending
upon the price of Fidelity common shares at the time of the merger. The merger
agreement also provides that, in order to satisfy certain conditions to the
merger relating to tax matters, the total amount of cash and the total amount of
Fidelity common shares included in the merger consideration will be adjusted so
that Chicago Title stockholders will own at least 50.1% of Fidelity's
outstanding shares of common stock immediately after the merger, and that at
least 40% of the total value of the merger consideration, determined on the
basis of the market price of the Fidelity common stock on the date of the
merger, paid to all Chicago Title stockholders is paid in Fidelity shares. These
adjustments to the total amount of cash and the total amount of Fidelity common
shares included in the merger consideration may affect the extent to which
Chicago Title stockholders who make elections may receive stock and/or cash in
amounts that are not consistent with their elections. The elections made by all
other Chicago Title stockholders will also affect the extent to which the
election made by any individual Chicago Title stockholder can be accommodated.
As a result of all of the foregoing, a Chicago Title
16
<PAGE> 23
stockholder who elects solely Fidelity common stock may nevertheless receive
some cash, and a Chicago Title stockholder who elects a specified percentage of
cash may receive more or less cash than elected. For a more detailed description
of the merger consideration, see "The Merger -- Merger Consideration."
EXECUTIVE OFFICERS AND DIRECTORS OF CHICAGO TITLE HAVE POTENTIAL CONFLICTS OF
INTEREST IN THE MERGER.
Stockholders should be aware of a potential conflict of interest relating
to the benefits available to executive officers and directors when considering
Chicago Title's board of directors' determinations to approve the merger. As
discussed under "The Merger -- Interests of Certain Persons in the Merger," the
executive officers and directors of Chicago Title have benefit plans that
provide them with interests in the merger that are different from and in
addition to your interests as stockholders.
THE ACTUAL TAX TREATMENT OF THE MERGER AND OF THE 1998 DISTRIBUTIONS OF CHICAGO
TITLE AND ALLEGHANY ASSET MANAGEMENT MAY DIFFER FROM THE TAX TREATMENT WE EXPECT
TO RECEIVE.
The merger agreement provides that the obligations of the parties to
complete the merger are conditioned upon the receipt as of the time of the
merger by Chicago Title of an opinion of Swidler Berlin Shereff Friedman, LLP
(or other counsel acceptable to Chicago Title), and the receipt as of the time
of the merger by Fidelity of an opinion of Gibson, Dunn & Crutcher LLP (or other
counsel acceptable to Chicago Title), in each case subject to the qualifications
discussed below, to the effect that, on the basis of facts, representations and
reasonable assumptions set forth in those opinions, for United States federal
income tax purposes, the merger will be treated as a "reorganization" within the
meaning of Section 368 of the Internal Revenue Code.
Until June 1998, Chicago Title and Trust Company was a wholly-owned
subsidiary of Alleghany, and Alleghany Asset Management, Inc. was a wholly-owned
subsidiary of Chicago Title and Trust Company. In June 1998, Chicago Title and
Trust Company distributed all of the shares of Alleghany Asset Management to
Alleghany. Thereafter, Alleghany contributed Chicago Title and Trust Company to
Chicago Title, and then Alleghany distributed all of the shares of Chicago Title
to Alleghany's stockholders. Alleghany received a tax ruling from the IRS
stating that the distribution by Chicago Title and Trust Company of Alleghany
Asset Management to Alleghany, and the subsequent distribution of Chicago Title
by Alleghany to Alleghany's stockholders, would be tax-free spin-offs to Chicago
Title and Trust Company, Alleghany and to Alleghany's stockholders. However,
notwithstanding a ruling as to the tax-free nature of a spin-off, certain events
that occur subsequent to a spin-off may cause the spin-off to be taxable to the
distributing company. The obligation of Chicago Title to complete the merger is
subject to the condition that Chicago Title shall have received a ruling from
the IRS or an opinion of Swidler Berlin Shereff Friedman, LLP (or other counsel
acceptable to Chicago Title and Alleghany), to the effect that the merger will
not affect the qualification of the spin-offs for tax-free treatment, or that
Alleghany shall have consented to the merger. The obligation of Fidelity to
complete the merger is subject to the condition that Chicago Title shall have
received such IRS ruling or opinion of Swidler Berlin Shereff Friedman, LLP (or
other counsel acceptable to Fidelity), or that Fidelity shall have received an
opinion of Gibson, Dunn & Crutcher LLP (or other counsel acceptable to
Fidelity), to the effect that the merger will not affect the qualification of
the spin-offs for tax-free treatment. In October 1999, a request for a private
letter ruling to the effect that the merger would not adversely affect the
qualification of the spin-offs for tax-free treatment was submitted to the IRS.
17
<PAGE> 24
In rendering the tax opinions with respect to the matters described above
and as to the accuracy of the discussion of certain United States federal income
tax consequences of the merger herein, counsel will rely upon, and will assume
as accurate and correct (without any independent investigation) certain
representations as to factual matters contained in certificates delivered by
Chicago Title, Fidelity and others. If such representations as to factual
matters are inaccurate, the opinions could be adversely affected. Similarly, if
an IRS private letter ruling is obtained, the ruling will be based upon
representations made by Chicago Title, Fidelity and others as to factual
matters. The inaccuracy of any of those factual representations could cause the
IRS to revoke the ruling.
The tax opinions will represent tax counsels' best judgment as to the tax
treatment of the merger and the effect of the merger on the distributions of
Chicago Title and Alleghany Asset Management in June 1998, but will not be
binding on the IRS, and we cannot assure you that the IRS will not contest the
conclusions expressed therein. If, contrary to the conclusions reached in the
opinions of tax counsel, the merger is not treated as a reorganization within
the meaning of Section 368 of the Internal Revenue Code, the merger will be
fully taxable to Chicago Title and the Chicago Title stockholders. Similarly, if
the conclusions reached in the opinion of tax counsel with respect to the effect
of the merger or the spin-off are successfully challenged, or if an IRS ruling
with respect to that matter is received and subsequently revoked, and the merger
is considered to adversely affect the tax-free nature of the spin-offs,
Alleghany could be required to pay income tax on the gain inherent in the stock
of Alleghany Asset Management and/or Chicago Title at the time of the spin-offs.
In that event, pursuant to the terms of the tax sharing agreement entered into
by Alleghany and Chicago Title at the time of the spin-off, Fidelity, as
successor to Chicago Title, would be required to indemnify Alleghany for the
amount of tax paid by Alleghany on the spin-offs. The amount of tax liability
for which Chicago Title could be required to indemnify Alleghany in that
circumstance would be substantial.
DIFFICULTIES ASSOCIATED WITH INTEGRATING FIDELITY AND CHICAGO TITLE COULD AFFECT
FIDELITY'S ABILITY TO REALIZE COST SAVINGS.
Fidelity and Chicago Title expect the combined company to realize cost
savings and other financial and operating benefits from the merger, but there
can be no assurance regarding when or the extent to which the combined company
will be able to realize these benefits. The merger involves the integration of
certain operations of two companies that have previously operated independently
from each other. The companies have a number of systems, many of which are
dissimilar, which must be integrated or, in some places, replaced. Difficulties
associated with integrating Fidelity and Chicago Title would have an adverse
effect on the surviving corporation's ability to realize the expected financial
and operational benefits of the merger.
FIDELITY'S INCREASED LEVERAGE WILL CREATE INCREASED DEMANDS ON CASH FLOW FOR
DEBT SERVICE.
To finance the merger, Fidelity expects to borrow approximately $584.7
million to pay the cash portion of the merger consideration. This debt will
create increased demands upon the available cash of the combined company to pay
principal and interest. Increased debt and debt service obligations may have an
adverse effect on the combined company's capital position and liquidity. While
Fidelity believes that future operating cash flow, together with available
financing arrangements, will be sufficient to fund its operating requirements,
leverage and debt service requirements could have important consequences to
holders of Fidelity common stock, including the following:
- such requirements may make Fidelity more vulnerable to economic downturns
and to adverse changes in interest rates;
18
<PAGE> 25
- Fidelity's ability to obtain additional financing in the future for
working capital, capital expenditures, acquisitions, general corporate
purposes or other purposes may be impaired;
- a substantial portion of Fidelity's cash flow from operations may have to
be dedicated to the payment of principal and interest on its
indebtedness, thereby reducing the funds available for operations;
- certain of the borrowings may be at variable rates of interest, which
would make Fidelity more vulnerable to increases in interest rates; and
- in connection with such indebtedness, Fidelity expects to become subject
to numerous financial and other restrictive covenants (including
restrictions on payments of dividends, incurrences of additional
indebtedness and sales of assets), the failure to comply with which may
result in an event of default which, if not cured or waived, could cause
such indebtedness to be declared immediately due and payable. Any
substantial increase in Fidelity's debt levels, the inability of Fidelity
to borrow funds at favorable interest rates or to comply with the
financial or other restrictive covenants could have a material adverse
effect on the business, financial condition, results of operations or
prospects of Fidelity.
THE PRICE OF FIDELITY'S COMMON STOCK MAY FLUCTUATE RAPIDLY AND PREVENT
STOCKHOLDERS FROM SELLING THEIR STOCK AT A PROFIT.
The market price of Fidelity's common stock could fluctuate rapidly and
affect the amount of profit, if any, which stockholders may realize from the
sale of Fidelity common stock. Since January 1, 1998 the market price has ranged
from a low of $13.44 per share to a high of $39.66 per share. Fluctuations may
occur, among other reasons, in response to:
- operating results;
- announcements by Fidelity or its competitors;
- regulatory changes;
- economic changes;
- general market conditions;
- legislative changes; and
- other risk factors described in this joint proxy statement/prospectus.
The trading price of Fidelity's common stock could continue to be subject
to wide fluctuations in response to the factors set forth above and other
factors, many of which are beyond Fidelity's control. The stock market in recent
years has experienced extreme price and trading volume fluctuations that often
have been unrelated or disproportionate to the operating performance of
individual companies. You should consider the likelihood of these market
fluctuations before investing in Fidelity stock.
THE SALE OF A SUBSTANTIAL AMOUNT OF FIDELITY COMMON STOCK AFTER THE MERGER COULD
ADVERSELY AFFECT THE MARKET PRICE OF FIDELITY COMMON STOCK.
All of the shares of Fidelity common stock that Chicago Title stockholders
receive in the merger may be sold immediately, except for those shares received
by affiliates of Chicago Title within the meaning of Rule 145 of the Securities
Act of 1933. Substantially all of the
19
<PAGE> 26
outstanding shares of Fidelity common stock are freely tradable (subject to
certain Rule 144 restrictions in the case of Fidelity affiliates). The sale of a
substantial amount of Fidelity common stock after the merger could adversely
affect its market price. It could also impair Fidelity's ability to raise money
through the sale of more stock or other forms of capital. In addition, the sale
of authorized but unissued shares of Fidelity common stock by Fidelity after the
merger could adversely affect its market price. Based on certain assumptions we
have made, we expect that there will be approximately 54.9 million shares of
Fidelity common stock outstanding after the merger, excluding Fidelity shares
issuable upon the exercise of outstanding options. Fidelity's Certificate of
Incorporation, as it is proposed to be amended in this joint proxy
statement/prospectus, will authorize the issuance of up to approximately 45.1
million additional shares of Fidelity common stock.
FIDELITY'S REVENUE MAY FLUCTUATE WITH INTEREST RATES AND FROM SEASON TO SEASON.
The level of title insurance and real estate related services activity is
dependent upon, among other things, the volume of real estate transactions. The
volume of real estate transactions nationally and within particular geographic
regions has historically been influenced by such factors as the overall interest
rate environment, which impacts the availability of capital for investment in
real estate as well as the number of sales, the strength of the national and/or
regional economy and family income levels. Because these factors can be
volatile, revenue levels for the title industry also can be volatile. Recently,
historically low interest rates have resulted in an increased number of real
estate sales, resales and refinancings. However, when interest rates increase,
real estate activity typically declines and the title insurance industry tends
to experience lower revenues. Moreover, a favorable interest rate environment or
trend may not necessarily result in increased levels or continued high levels of
real estate transactions if other market factors (such as a recessionary economy
or increased unemployment) combine to depress the volume of real estate
transactions. Accordingly, we cannot assure you that historical levels of
premiums and fees received by Fidelity and Chicago Title will be available to
the combined company in the future.
In addition, the title insurance business is seasonal, since real estate
activity is seasonal. The first calendar quarter is typically the weakest
quarter in terms of revenue due to the generally low volume of home sales during
the winter. The fourth calendar quarter is typically the strongest in terms of
revenue due to the desire of commercial entities to complete transactions by
year-end. These traditional seasonal patterns can be altered if there is a
significant change in the level of mortgage refinancing, since refinancing
activity is correlated with movements in the level of interest rates and is not
tied to a seasonal pattern.
FIDELITY FACES COMPETITION THAT COULD ADVERSELY AFFECT ITS PROFITABILITY.
The title insurance and real estate services industries are highly
competitive. We believe that competition is based primarily on the quality and
timeliness of services. Where price is not regulated by governmental
authorities, pricing can also be an important competitive factor. For larger
commercial customers and mortgage originators, the size and financial strength
of the title insurer are important competitive factors, particularly in
multi-site transactions and in situations involving real estate-related
investment vehicles such as real estate investment trusts and real estate
mortgage investment conduits. Our principal competitors after the merger will
include First American Financial Corporation, LandAmerica Financial Group, Inc.,
Old Republic International Corporation and Stewart Information Services
Corporation, each of whom has the size, capital base and distribution channels
to compete effectively with Fidelity. Fidelity and Chicago Title also compete
with many smaller title insurance and real estate services companies that serve
regional market areas. These smaller companies may expand into other markets in
which Fidelity and Chicago Title compete. Also, the removal of regulatory
20
<PAGE> 27
barriers in the future might result in new competitors entering the title
insurance business that have greater financial resources and other competitive
advantages. New competitors in the title insurance industry may also result as
technological changes lower the barriers to entry. Competition among the major
title insurance companies, expansion by smaller regional companies and any new
entrants could adversely affect Fidelity's business operations and financial
condition.
CHANGES IN THE REGULATORY STRUCTURE OR THE STATUTES OR REGULATIONS APPLICABLE TO
FIDELITY COULD HAVE A MATERIAL IMPACT ON ITS OPERATIONS.
Fidelity's title insurance business is subject to extensive regulation by
state insurance authorities in each state in which Fidelity operates. These
agencies have broad administrative and supervisory power relating to the
following:
- licensing requirements;
- trade practices;
- accounting and financing practices;
- capital and surplus requirements;
- the amount of dividends and other payments that can be made by Fidelity's
title insurance subsidiaries without prior regulatory approval;
- investment practices; and
- rate schedules.
Most states also regulate insurance holding companies, like Fidelity, in a
variety of matters such as acquisitions, change of control events and the terms
of affiliate transactions. These regulations may impede or impose burdensome
conditions on rate increases or other actions that Fidelity may want to take to
enhance its operating results, and could affect its ability to pay dividends on
its common stock. In addition, Fidelity may incur significant costs in the
course of complying with regulatory requirements. We cannot assure you that
future legislative or regulatory changes will not adversely affect Fidelity's
business operations.
21
<PAGE> 28
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following Unaudited Pro Forma Condensed Combined Financial Information
is based on the historical financial statements of Fidelity and Chicago Title
and has been prepared to illustrate the effect of the merger and the related
financing transactions.
The Unaudited Pro Forma Condensed Combined Balance Sheet is as of September
30, 1999 and is presented as if both the merger and the related financing
transactions occurred as of September 30, 1999. The Unaudited Pro Forma
Condensed Combined Statements of Earnings for the year ended December 31, 1998
and for the nine-month period ended September 30, 1999 assume that both the
merger and the related financing transactions occurred as of January 1, 1998.
The Unaudited Pro Forma Condensed Combined Financial Information should be
read in conjunction with the historical financial statements and accompanying
disclosures contained in Fidelity's third quarter 1999 Form 10-Q and 1998 Form
10-K and Chicago Title's third quarter 1999 Form 10-Q and 1998 Form 10-K, which
are incorporated by reference into this joint proxy statement/prospectus.
The merger will be accounted for under the purchase method of accounting in
accordance with Accounting Principles Board Opinion No. 16. Under the purchase
method of accounting, assets acquired and liabilities assumed are recorded at
their estimated fair values. Goodwill is created to the extent that the merger
consideration, including certain acquisition and closing costs, exceeds the fair
value of net assets acquired. Based on the information currently available, the
merger is expected to initially create approximately $792 million in goodwill.
It is estimated that this goodwill will be amortized on a straight-line basis
over 20 years. The actual goodwill arising from the merger will be based on the
merger consideration, including certain acquisition and closing costs, and fair
values of assets and liabilities on the date the merger is consummated. No
assurance can be given that the actual goodwill amount arising from the merger
or the goodwill amortization period will not be more or less than the amount or
period currently contemplated in the Unaudited Pro Forma Condensed Combined
Financial Information.
Fidelity expects that it will incur debt issuance and other costs in
connection with the financing of the merger which will be capitalized. Certain
post-combination integration expenses resulting from combining the companies,
which will be expensed, are not reflected in the Unaudited Pro Forma Condensed
Combined Financial Information. Additionally, the Unaudited Pro Forma Condensed
Combined Financial Information is based on a number of assumptions, estimates
and uncertainties including, but not limited to, estimates of the fair values of
assets acquired and liabilities assumed, the number of Chicago Title common
shares outstanding immediately prior to the merger, and estimated acquisition
and closing costs.
The Unaudited Pro Forma Condensed Combined Financial Information presented
below does not reflect future events that may occur after the merger. Fidelity
believes that operating expense synergies between Fidelity and Chicago Title
will be realized after the merger. However, for purposes of the Unaudited Pro
Forma Condensed Combined Financial Information presented below, these synergies
have not been reflected because we cannot assure you that they will be realized.
The Unaudited Pro Forma Condensed Combined Financial Information assumes
the issuance of approximately 37,008,000 shares of Fidelity's common stock to
effect the merger; with the remainder of the recorded purchase price,
approximately $600 million, paid in cash. However, the actual number of shares
issued may be more or less than this amount depending upon, among other things,
the actual numbers of Chicago Title shares and Fidelity shares outstanding
immediately prior to the merger and the average Fidelity share price during the
30 trading-day period ending two days before the merger.
As a result of these assumptions, estimates and uncertainties, the
accompanying Unaudited Pro Forma Condensed Combined Financial Information does
not purport to describe the actual financial condition or results of operations
that would have been achieved had the merger in fact occurred on the dates
indicated, nor does it purport to predict Fidelity's future financial condition
or results of operations.
22
<PAGE> 29
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
FIDELITY CHICAGO TITLE PRO FORMA
HISTORICAL HISTORICAL COMBINED ADJUSTMENTS PRO FORMA
---------- ------------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments
Fixed maturities available for sale, at fair
value..................................... $ 339,730 $1,096,620 $1,436,350 $1,436,350
Equity securities, at fair value............ 33,259 31,593 64,852 64,852
Other long-term investments, at cost, which
approximates fair value................... 42,353 -- 42,353 42,353
Short-term investments, at cost, which
approximates fair value................... 71,496 -- 71,496 71,496
Investments in real estate and partnerships,
net....................................... 3,815 -- 3,815 3,815
---------- ---------- ---------- --------- ----------
Total investments...................... 490,653 1,128,213 1,618,866 1,618,866
Cash and cash equivalents..................... 46,209 216,391 262,600 (59,500)(1c),(2)(3) 203,100
Leases and residual interests in
securitizations............................. 128,394 -- 128,394 128,394
Trade receivables, net........................ 69,186 69,383 138,569 138,569
Goodwill...................................... 53,060 128,745 181,805 662,952(2) 844,757
Prepaid expenses and other assets............. 77,270 104,865 182,135 9,500(3) 191,635
Title plants.................................. 59,666 152,455 212,121 50,000(2) 262,121
Property and equipment, net................... 51,685 112,755 164,440 164,440
Deferred tax asset............................ 23,927 105,062 128,989 7,736(2) 136,725
---------- ---------- ---------- --------- ----------
Total assets........................... $1,000,050 $2,017,869 $3,017,919 $ 670,688 $3,688,607
========== ========== ========== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Accounts payable and accrued liabilities.... $ 123,498 $ 290,284 $ 413,782 $ 31,604(2) $ 445,386
Notes payable............................... 190,295 21,437 211,732 584,652(1b) 796,384
Reserve for claim losses.................... 239,254 656,220 895,474 895,474
Trust and escrow deposits secured by pledged
assets.................................... -- 553,688 553,688 553,688
---------- ---------- ---------- --------- ----------
Total liabilities...................... 553,047 1,521,629 2,074,676 616,256 2,690,932
---------- ---------- ---------- --------- ----------
Minority interests.......................... 803 -- 803 803
Stockholders' equity:
Common stock................................ 4 21,833 21,837 (21,829)(1a) 8
Additional paid-in capital.................. 246,945 113,736 360,681 436,932(1a) 797,613
Retained earnings........................... 321,759 366,243 688,002 (366,243)(1a) 321,759
---------- ---------- ---------- --------- ----------
568,708 501,812 1,070,520 48,860 1,119,380
---------- ---------- ---------- --------- ----------
Accumulated other comprehensive earnings.... (5,860) (5,572) (11,432) 5,572(4) (5,860)
Less treasury stock......................... 116,648 -- 116,648 116,648
---------- ---------- ---------- --------- ----------
Total stockholders' equity............. 446,200 496,240 942,440 54,432 996,872
---------- ---------- ---------- --------- ----------
Total liabilities and stockholders'
equity............................... $1,000,050 $2,017,869 $3,017,919 $ 670,688 $3,688,607
========== ========== ========== ========= ==========
</TABLE>
23
<PAGE> 30
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
FIDELITY CHICAGO TITLE PRO FORMA
HISTORICAL HISTORICAL COMBINED ADJUSTMENTS PRO FORMA
---------- ------------- ---------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
REVENUE:
Title insurance premiums and escrow fees.... $ 726,869 $1,283,447 $2,010,316 $2,010,316
Other fees and revenue.................... 297,314 206,021 503,335 503,335
Interest and investment income, including
realized gains (losses)................ 19,747 50,249 69,996 69,996
---------- ---------- ---------- -------- ----------
1,043,930 1,539,717 2,583,647 2,583,647
---------- ---------- ---------- -------- ----------
EXPENSES:
Personnel costs........................... 311,137 475,679 786,816 786,816
Other operating expenses.................. 244,259 307,975 552,234 552,234
Agent commissions......................... 325,235 533,090 858,325 858,325
Provision for claim losses................ 45,194 89,722 134,916 134,916
Interest expense.......................... 10,047 3,147 13,194 31,882(5) 45,076
---------- ---------- ---------- -------- ----------
935,872 1,409,613 2,345,485 31,882 2,377,367
---------- ---------- ---------- -------- ----------
Operating earnings........................ 108,058 130,104 238,162 (31,882) 206,280
Goodwill amortization..................... 4,100 9,616 13,716 20,073(5) 33,789
---------- ---------- ---------- -------- ----------
Earnings before income taxes.............. 103,958 120,488 224,446 (51,954) 172,492
Income tax expense........................ 41,843 42,034 83,877 (12,370)(5) 71,507
---------- ---------- ---------- -------- ----------
Earnings from continuing operations....... $ 62,115 $ 78,454 $ 140,569 $(39,584) $ 100,985
========== ========== ========== ======== ==========
EARNINGS PER SHARE:
Basic..................................... $ 2.05 $ 3.60 N/A N/A $ 1.50
Diluted................................... $ 1.95 $ 3.60 N/A N/A $ 1.47
</TABLE>
24
<PAGE> 31
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
FIDELITY CHICAGO TITLE PRO FORMA
HISTORICAL HISTORICAL COMBINED ADJUSTMENTS PRO FORMA
---------- ------------- ---------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenue:
Title insurance premiums and escrow fees... $1,040,577 $1,617,588 $2,658,165 $2,658,205
Other fees and revenue................... 208,301 243,875 452,176 452,136
Interest and investment income, including
realized gains (losses)............... 39,587 65,246 104,833 104,833
---------- ---------- ---------- -------- ----------
1,288,465 1,926,709 3,215,174 3,215,174
---------- ---------- ---------- -------- ----------
Expenses:
Personnel costs.......................... 394,284 619,814 1,014,098 1,014,098
Other operating expenses................. 254,580 380,135 634,715 634,715
Agent commissions........................ 385,649 648,023 1,033,672 1,033,672
Provision for claim losses............... 59,294 123,920 183,214 183,214
Interest expense......................... 17,024 4,707 21,731 $ 42,509(5) 64,240
---------- ---------- ---------- -------- ----------
1,110,831 1,776,599 2,887,430 42,509 2,929,939
---------- ---------- ---------- -------- ----------
Operating earnings....................... 177,634 150,110 327,744 (42,509) 285,235
Goodwill amortization.................... 2,500 8,405 10,905 31,180(5) 42,085
---------- ---------- ---------- -------- ----------
Earnings before income taxes............. 175,134 141,705 316,839 (73,689) 243,150
Income tax expense....................... 69,442 53,536 122,978 (16,493)(5) 106,485
---------- ---------- ---------- -------- ----------
Earnings from continuing operations...... $ 105,692 $ 88,169 $ 193,861 $(57,196) $ 136,665
========== ========== ========== ======== ==========
Earnings per share:
Basic.................................... $ 3.79 $ 4.03 N/A N/A $ 2.10
Diluted.................................. $ 3.23 $ 4.03 N/A N/A $ 1.97
</TABLE>
25
<PAGE> 32
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
RECORDED
VALUE
----------
<S> <C>
1. This pro forma adjustment reflects the issuance of common
stock and incurrence of debt in connection with the
merger of Fidelity and Chicago Title resulting in:
a. Pursuant to the merger agreement, Chicago Title
stockholders are required to own at least 50.1% of the
pro forma combined common shares outstanding after
giving effect to the merger. Based on Fidelity's shares
outstanding as of September 30, 1999, Fidelity would be
required to issue a minimum of 28,651,000 shares of
Fidelity common stock to Chicago Title stockholders.
The price of the Fidelity common shares to be received
by Chicago Title stockholders will be based on the
average price per share of Fidelity common stock during
the 30 trading day period ending two trading days
before the merger. However, for purposes of this
analysis and in accordance with EITF 95-19, the assumed
common stock issuance price is $14.88 per share, which
represents the average closing common stock price of
Fidelity on the New York Stock Exchange for the thirty
day period ending two days prior to September 30, 1999.
This analysis further assumes that Fidelity issues
37,008,000 shares pursuant to the merger agreement and
the remainder of the recorded purchase price,
approximately $600 million, is paid in cash. Further,
this analysis does not consider the effect of the
purchase of Chicago Title common shares by Chicago
Title which may be made subsequent to September 30,
1999 pursuant to the merger agreement. The number of
shares assumed to be issued and the assumed price per
share of the common stock to be issued in connection
with the merger are estimates, and the number of shares
actually issued by Fidelity and the price per share at
the time the shares are issued in the merger may vary
significantly from these estimates. See "The
Merger -- Merger Consideration."....................... $ 550,672
b. The incurrence by Fidelity of debt from bank
financing, which is assumed paid to Chicago Title
shareholders in connection with the merger............. 584,652
c. Assumed transaction costs to be paid from
available cash......................................... 15,000
----------
Total recorded purchase price. $1,150,324
==========
2. The significant adjustments comprising the purchase price
allocation are as follows:
Book value of Chicago Title net assets
acquired at September 30, 1999.................. $ 496,240
Less: Goodwill.................................. (128,745)
----------
Book value of tangible net assets at September 30,
1999............................................ 367,495
Adjustments, net.................................. (8,868)
Goodwill.......................................... 791,697
----------
Total purchase price......................... $1,150,324
==========
</TABLE>
For purposes of these Pro Forma Condensed Financial Statements, the assets
and liabilities acquired reflect their recorded book value except as noted. The
allocation of the purchase price is preliminary. Fidelity has not yet had an
opportunity to obtain appraisals or other relevant information related to the
valuation of certain assets and liabilities. However, Fidelity does not believe
that the difference between the recorded book value and the fair value
26
<PAGE> 33
ultimately assigned will have a material impact on Fidelity's pro forma
financial position or results of operations.
Components of net adjustments:
a. Record exit, termination, relocation and other costs to be paid from
available cash, $35,000.
b. Increase title plants to market value, $50,000.
c. Record unfunded employee benefit liability of $22,104 and related
deferred income tax asset of $7,736.
d. Record amounts due to Chicago Title advisors, legal counsel and
accountants, $9,500.
3. Capitalize debt issuance costs to be paid from available cash, $9,500.
4. Reflects adjustment of $5,572 to investment valuation resulting from purchase
accounting requirement to reestablish cost basis as current market value.
5. This pro forma adjustment reflects: (i) interest related to debt incurred in
connection with the merger at an assumed interest rate of 7.00%, $40,926 for
the year ended December 31, 1998 and $30,694 for the nine months ended
September 30, 1999 and amortization of related debt issuance costs, $1,583
for the year ended December 31, 1998 and $1,188 for the nine months ended
September 30, 1999; (ii) additional amortization resulting from goodwill
created at the time of the merger, incremental goodwill of $662,952,
resulting in total merger related goodwill of $791,697, over a period of 20
years, $39,585 per year, resulting in incremental amortization of $31,180 for
the year ended December 31, 1998 and incremental amortization of $20,073 for
the nine months ended September 30, 1999; and (iii) income tax benefit
related to additional interest expense and amortization of debt issuance
costs at an effective rate of 38.8% or $16,493 for the year ended December
31, 1998 and $12,370 for the nine months ended September 30, 1999.
6. Management has identified certain expense savings which it believes will be
achieved through reductions in staff, consolidation of general and
administrative functions, data processing and elimination of certain
duplicate or excess facilities. These expense savings have been identified by
members of senior management of Fidelity after discussions with members of
the senior management of Chicago Title. As a result, management of Fidelity
believes that the combination of the two operations will yield annualized
pre-tax savings of $65 million to $75 million within the first 12 months and
recurring annual pre-tax expense savings of approximately $100 million. It is
expected to take three years from the date of the merger to realize fully
these expense savings. No adjustment has been included in the unaudited pro
forma condensed combined financial statements for the anticipated expense
savings. There can be no assurance that anticipated expense savings will be
achieved in the amounts or at the times anticipated.
To implement the changes necessary to realize such savings, Fidelity will
incur certain expenses, primarily relating to transaction costs, the
termination of leases on certain offices to be closed and the payment of
employee relocation and severance benefits. Pursuant to EITF 95-3, Fidelity
has included in the Pro Forma Condensed Combined Balance Sheet a pro forma
adjustment of $35,000 relating to anticipated exit, employee termination and
relocation costs for certain leases and employees. At this time, Fidelity has
not determined precisely which leases will be terminated or which employee
groups will be terminated or relocated. The plan has not been communicated to
employees. It is anticipated that the plan will be finalized shortly after
the merger is consummated and will be completed within one year from that
date. Any adjustments to the accrual for exit, termination and relocation
costs will result in an addition to or reduction of goodwill.
In addition, Fidelity anticipates that, in the quarter in which the merger
occurs, it will record an additional one-time after-tax charge to earnings
related to anticipated exit, employee termination and relocation costs for
certain leases and employees, which has not yet been quantified.
27
<PAGE> 34
MARKET PRICE AND DIVIDEND INFORMATION
Fidelity's common stock is listed on the NYSE under the symbol "FNF."
Chicago Title's common stock has been listed on the NYSE under the symbol "CTZ"
since June 18, 1998, the date on which Alleghany completed the spin-off of
Chicago Title. As of December 23, 1999, there were approximately 1,000 holders
of record of Fidelity common stock and approximately 11,642 holders of record of
Chicago Title common stock. The table below sets forth, for the calendar
quarters indicated, the high and low sales prices per share of Fidelity common
stock and Chicago Title common stock, as reported on the NYSE Composite Tape,
and the dividends per share declared on Fidelity common stock and Chicago Title
common stock. All prices are adjusted for applicable stock splits.
<TABLE>
<CAPTION>
FIDELITY CHICAGO TITLE
COMMON STOCK COMMON STOCK(1)
--------------------------- ---------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
1997:
First Quarter.................... $12.81 $ 9.92 $0.058 -- -- --
Second Quarter................... 14.00 9.50 0.058 -- -- --
Third Quarter.................... 19.63 12.97 0.058 -- -- --
Fourth Quarter................... 28.58 14.98 0.064 -- -- --
1998:
First Quarter.................... $33.86 $23.41 $0.064 -- -- --
Second Quarter................... 36.81 29.66 0.064 $47.38 $44.50 --
Third Quarter.................... 39.66 24.55 0.064 51.44 35.00 $0.34
Fourth Quarter................... 30.50 20.86 0.070 47.94 37.50 0.34
1999:
First Quarter.................... $30.75 $14.56 $0.070 $46.81 $31.75 $0.34
Second Quarter................... 21.00 14.50 0.070 41.19 33.56 0.36
Third Quarter.................... 21.06 13.44 0.070 48.19 34.50 0.36
Fourth Quarter (through December
23, 1999)..................... 16.00 13.81 0.100 46.50 37.25 0.36
</TABLE>
- ---------------
(1) Until June 17, 1998, Chicago Title was a wholly-owned subsidiary of
Alleghany.
Following the merger, the holders of Fidelity common stock will be entitled
to receive such dividends as may be declared by the board of directors of
Fidelity from funds legally available therefor. Fidelity has paid a quarterly
cash dividend of $0.07 per share on its common stock in each of the last five
fiscal quarters. On December 22, 1999, Fidelity's board of directors increased
the amount of its quarterly cash dividend to $0.10 per share and declared a cash
dividend in that amount, which will be paid on January 18, 2000 to holders of
record of Fidelity common stock on January 3, 2000. After the merger, Fidelity's
quarterly dividend is expected to continue to be $0.10 per share. The continued
payment of dividends on Fidelity's common stock will depend upon Fidelity's
operating results, business requirements, financial condition and such other
factors as the Fidelity board of directors considers relevant. In addition,
Fidelity's new senior credit facility will restrict Fidelity's ability to pay
cash dividends, and certain restrictions apply under applicable insurance laws
to the payment of dividends to Fidelity by its insurance subsidiaries. See "Risk
Factors -- Fidelity's increased leverage will create increased demands on cash
flow for debt service" and "The Merger -- Bank Financing."
28
<PAGE> 35
THE FIDELITY SPECIAL MEETING
This joint proxy statement/prospectus is being mailed to the holders of
Fidelity common stock for use at the Fidelity special meeting to be held on
Wednesday, February 9, 2000 at 10:00 a.m., local time, at Fess Parker's
Doubletree Resort, located at 633 East Cabrillo Boulevard, Santa Barbara,
California 93103, and at any adjournments or postponements thereof.
At the Fidelity special meeting, Fidelity stockholders will be asked to
consider and vote upon proposals to approve and adopt the merger agreement
between Chicago Title and Fidelity and the issuance of shares of Fidelity common
stock in the merger, and to approve an amendment to Fidelity's Certificate of
Incorporation to increase the authorized number of shares of Fidelity common
stock from 50,000,000 to 100,000,000.
Proxies
If you are a Fidelity stockholder, you may use the accompanying proxy if
you are unable to attend the Fidelity special meeting in person or wish to have
your shares voted by proxy even if you do attend the Fidelity special meeting.
All shares of Fidelity common stock represented by valid proxies received
pursuant to this solicitation, and not revoked before they are exercised, will
be voted in the manner specified therein. Proxies that do not contain voting
instructions will be voted in favor of approval and adoption of the merger
agreement and the issuance of shares of Fidelity common stock in the merger and
the amendment to Fidelity's Certificate of Incorporation. If you do not return
your proxy card or otherwise vote your shares, or if you do not instruct your
broker how to vote any shares held for you in "street name," the effect will be
the same as a vote against these proposals.
Revocation of Proxies
A Fidelity stockholder who signs and mails the enclosed proxy may revoke it
at any time before it is voted by giving written notice of revocation to
Fidelity, by mailing a later dated proxy which is received by Fidelity prior to
the Fidelity special meeting, or by voting in person at the Fidelity special
meeting. All written notices of revocation and other communications with respect
to revocation of Fidelity proxies should be addressed to Fidelity National
Financial, Inc., 17911 Von Karman Avenue, Irvine, California 92614, Attention:
Corporate Secretary.
Record Date; Vote Required
Only holders of record of shares of Fidelity common stock at the close of
business on December 30, 1999 are entitled to notice of and to vote at the
Fidelity special meeting, with each share entitled to one vote. Fidelity
stockholders have no dissenters' rights in connection with the merger.
Approval and adoption of the merger agreement and the issuance of shares of
Fidelity common stock in the merger requires the favorable vote of the holders
of at least a majority of the shares of Fidelity common stock outstanding as of
the record date. Approval of the amendment to Fidelity's Certificate of
Incorporation to increase the authorized number of shares of Fidelity common
stock also requires the favorable vote of the holders of at least a majority of
the shares of Fidelity common stock outstanding as of the record date.
Under NYSE rules, brokers and nominees are precluded from exercising their
voting discretion on the proposal to approve and adopt the merger agreement and,
for this reason, absent specific instructions from the beneficial owner of
shares, they are not permitted to vote such shares. Because the favorable vote
of the holders of a majority of the shares of Fidelity common stock outstanding
as of the record date is required for approval of each proposal, an
29
<PAGE> 36
abstention or a broker non-vote with respect to either proposal will have the
effect of a vote against that proposal. ACCORDINGLY, THE FIDELITY BOARD OF
DIRECTORS URGES THE FIDELITY STOCKHOLDERS TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED, POSTAGE-PAID
ENVELOPE.
Quorum
Holders of a majority of the outstanding shares of Fidelity common stock
entitled to vote must be present, either in person or by proxy, at the Fidelity
special meeting to constitute a quorum. In general, abstentions and broker
non-votes will be counted as present or represented for the purposes of
determining a quorum for the Fidelity special meeting.
Expenses of Solicitation
The expenses of the solicitation of proxies with respect to the Fidelity
special meeting will be borne by Fidelity. In addition to solicitation by mail,
arrangements will be made with brokers and other custodians, nominees and
fiduciaries to send proxy materials to their principals and Fidelity will, upon
request, reimburse them for reasonable expenses of so doing. Solicitation of
proxies from some Fidelity stockholders may be made by Fidelity's officers,
directors, consultants and employees by telephone, facsimile, or in person after
the initial solicitation. In addition, MacKenzie Partners, Inc. has been
retained to assist Fidelity in the solicitation of proxies. MacKenzie Partners,
Inc. may contact Fidelity stockholders by mail, telephone, facsimile, telegraph
and personal interviews and may request brokers, dealers and other nominee
stockholders to forward materials to the beneficial owners of shares of Fidelity
common stock. MacKenzie Partners, Inc. will receive reasonable and customary
compensation for its services (estimated at $10,000), will be reimbursed for
certain reasonable out-of-pocket expenses and will be indemnified against
certain liabilities and expenses in connection therewith, including certain
liabilities under the federal securities laws.
Recommendation of the Fidelity Board of Directors
THE FIDELITY BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE MERGER, DECLARED THAT THE MERGER AGREEMENT AND THE MERGER ARE
ADVISABLE AND DETERMINED THAT THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS
OF, FIDELITY AND THE FIDELITY STOCKHOLDERS. ACCORDINGLY, THE FIDELITY BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE FIDELITY STOCKHOLDERS VOTE "FOR"
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE ISSUANCE OF SHARES OF
FIDELITY COMMON STOCK PURSUANT TO THE MERGER AND "FOR" APPROVAL OF THE PROPOSAL
TO INCREASE THE AUTHORIZED SHARES OF FIDELITY COMMON STOCK TO 100,000,000. See
"The Merger -- Fidelity Reasons for the Merger; Recommendation of the Fidelity
Board of Directors."
Miscellaneous
It is not expected that any other matters will be brought before the
Fidelity special meeting. If any other matters are properly brought before the
Fidelity special meeting, including a motion to adjourn or postpone the Fidelity
special meeting to another time and/or place for the purpose of, among other
things, permitting dissemination of information regarding material developments
relating to the merger agreement and the merger, or soliciting additional
proxies in favor of the approval of the merger agreement and the merger, the
persons named on the accompanying proxy card will vote the shares represented by
the proxy upon such matters in their discretion. However, if Fidelity proposes
to adjourn or postpone its special meeting for the purpose of soliciting
additional votes in favor of the merger agreement and the merger, and seeks a
vote of Fidelity stockholders on such proposal, proxies that have been voted
against the
30
<PAGE> 37
merger agreement and merger (or on which a Fidelity stockholder has elected to
abstain) will not be voted in favor of any adjournment or postponement for the
purpose of soliciting additional proxies. Any other proxy will be deemed to have
voted "FOR" any such adjournment or postponement proposal. Should the Fidelity
special meeting be reconvened, all proxies will be voted in the same manner as
such proxies would have been voted when the Fidelity special meeting was
originally convened, except for proxies effectively revoked or withdrawn prior
to the time proxies are voted at the reconvened Fidelity special meeting.
FIDELITY STOCKHOLDERS SHOULD NOT SEND IN ANY STOCK CERTIFICATES WITH THEIR
PROXY CARDS. FIDELITY STOCKHOLDERS WILL NOT EXCHANGE THEIR STOCK CERTIFICATES IN
CONNECTION WITH THE MERGER.
31
<PAGE> 38
THE CHICAGO TITLE SPECIAL MEETING
This joint proxy statement/prospectus is being mailed to the holders of
Chicago Title common stock for use at the Chicago Title special meeting to be
held on Friday, February 11, 2000 at 9:00 a.m., local time, at the Renaissance
Chicago Hotel, One West Wacker Drive, Rhine Room -- 3rd Floor, Chicago, Illinois
60601, and at any adjournments or postponements thereof.
At the Chicago Title special meeting, Chicago Title stockholders will be
asked to consider and vote upon a proposal to approve and adopt the merger
agreement and the merger.
Proxies
If you are a Chicago Title stockholder, you may use the accompanying proxy
if you are unable to attend the Chicago Title special meeting in person or wish
to have your shares voted by proxy even if you do attend the Chicago Title
special meeting. All shares of Chicago Title common stock represented by valid
proxies received pursuant to this solicitation, and not revoked before they are
exercised, will be voted in the manner specified therein. Proxies that do not
contain voting instructions will be voted in favor of the merger and the merger
agreement. If you do not return your proxy card or otherwise vote your shares,
or if you do not instruct your broker how to vote any shares held for you in
"street name," the effect will be the same as a vote against the merger.
Telephone Proxies and Internet Voting -- Additional Voting Choices
A Chicago Title stockholder may use a toll-free telephone line to authorize
the voting of its shares or submit a proxy by the Internet in lieu of returning
an executed proxy card. The telephone and Internet voting procedures are
designed to authenticate a stockholder's identity, to allow a stockholder to
vote its shares and to confirm that a stockholder's instructions have been
properly recorded. Specific instructions for telephone and Internet voting are
contained in the enclosed proxy card and can also be obtained by calling
Georgeson Shareholder Communications, Inc. at (800) 223-2064. Chicago Title has
been advised by counsel that these procedures comply with Delaware law. The
availability of telephone or Internet voting to stockholders whose shares are
held in the name of a bank or broker will depend on the voting procedures of the
bank or broker. If your shares are held in an account with a bank or broker
participating in the ADP Investor Communication Services Program, you may choose
to vote your shares via the Internet at the ADP Investor Communication Services
voting website (www.proxyvote.com) or telephonically, following the instructions
on your voting card.
Revocation of Proxies
A Chicago Title stockholder who signs and mails the enclosed proxy may
revoke it at any time before it is voted by giving written notice of revocation
to Chicago Title, by mailing a later dated proxy which is received by Chicago
Title prior to the Chicago Title special meeting, or by voting in person at the
Chicago Title special meeting. If you voted by telephone or through the
Internet, you can change your vote by any of these three methods or you can
revote by following the instructions contained in your proxy card or provided by
Georgeson Shareholder Communications, Inc. In all cases, the latest dated proxy
revokes an earlier dated proxy, regardless of which method is used (mail,
telephone or Internet) to give or revoke a proxy, or if different methods are
used to give and revoke a proxy. All written notices of revocation and other
communications with respect to revocation of Chicago Title proxies should be
addressed to Chicago Title Corporation, 171 North Clark Street, Chicago,
Illinois 60601, Attention: Corporate Secretary.
32
<PAGE> 39
Record Date; Vote Required
Only holders of record of shares of Chicago Title common stock at the close
of business on December 30, 1999 are entitled to notice of and to vote at the
Chicago Title special meeting, with each share entitled to one vote.
Approval and adoption of the merger agreement and the merger requires the
favorable vote of the holders of at least 75% of the shares of Chicago Title
common stock outstanding as of the record date.
Under NYSE rules, brokers and nominees are precluded from exercising their
voting discretion on the proposal to approve and adopt the merger agreement and
the merger and, for this reason, absent specific instructions from the
beneficial owner of shares of Chicago Title common stock, they are not permitted
to vote such shares. Because the favorable vote of the holders of 75% of the
shares of Chicago Title common stock outstanding as of the record date is
required for approval and adoption of the merger agreement and the merger, an
abstention or a broker non-vote with respect to the proposal to approve and
adopt the merger agreement and the merger will have the effect of a vote against
the merger agreement and the merger. ACCORDINGLY, THE CHICAGO TITLE BOARD OF
DIRECTORS URGES THE CHICAGO TITLE STOCKHOLDERS TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED, POSTAGE-PAID
ENVELOPE.
Quorum
Holders of a majority of the shares of Chicago Title common stock entitled
to vote must be present, either in person or by proxy, at the Chicago Title
special meeting to constitute a quorum. In general, broker non-votes and
abstentions are counted as present or represented for the purposes of
determining a quorum for the Chicago Title special meeting.
Expenses of Solicitation
The expenses of the solicitation of proxies with respect to the Chicago
Title special meeting will be borne by Chicago Title. In addition to
solicitation by mail, arrangements will be made with brokers and other
custodians, nominees and fiduciaries to send proxy materials to their principals
and Chicago Title will, upon request, reimburse them for reasonable expenses of
so doing. Solicitation of proxies from some Chicago Title stockholders may be
made by Chicago Title's officers and regular employees by telephone, facsimile,
or in person after the initial solicitation. In addition, Georgeson Shareholder
Communications, Inc. has been retained to assist Chicago Title in the
solicitation of proxies. Georgeson Shareholder Communications, Inc. may contact
Chicago Title stockholders by mail, telephone, facsimile, telegraph and personal
interviews and may request brokers, dealers and other nominee shareholders to
forward materials to the beneficial owners of shares of Chicago Title common
stock. Georgeson Shareholder Communications, Inc. will receive reasonable and
customary compensation for its services (estimated at $25,000), will be
reimbursed for certain reasonable out-of-pocket expenses and will be indemnified
against certain liabilities and expenses in connection therewith, including
certain liabilities under the federal securities laws.
Recommendation of the Chicago Title Board of Directors
THE CHICAGO TITLE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE MERGER, DECLARED THAT THE MERGER AGREEMENT AND THE MERGER ARE
ADVISABLE AND DETERMINED THAT THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS
OF, CHICAGO TITLE AND THE CHICAGO TITLE STOCKHOLDERS. ACCORDINGLY, THE CHICAGO
TITLE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT CHICAGO TITLE STOCKHOLDERS
VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER
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<PAGE> 40
AGREEMENT AND THE MERGER. See "The Merger -- Chicago Title Reasons for the
Merger; Recommendation of the Chicago Title Board of Directors."
MISCELLANEOUS
It is not expected that any other matter will be brought before the Chicago
Title special meeting. If any other matters are properly brought before the
Chicago Title special meeting, including a motion to adjourn or postpone such
Chicago Title special meeting to another time and/or place for the purpose of,
among other things, permitting dissemination of information regarding material
developments relating to the merger agreement and the merger, or soliciting
additional proxies in favor of the approval of the merger agreement and the
merger, the persons named on the accompanying proxy card will vote the shares
represented by the proxy upon such matters in their discretion. However, if
Chicago Title proposes to adjourn or postpone its special meeting for the
purpose of soliciting additional votes in favor of the merger agreement and the
merger, and seeks a vote of Chicago Title stockholders on such proposal, proxies
that have been voted against the merger agreement and merger (or on which a
Chicago Title stockholder has elected to abstain) will not be voted in favor of
any adjournment or postponement for the purpose of soliciting additional
proxies. Any other proxy will be deemed to have voted "FOR" any such adjournment
or postponement proposal. Should the Chicago Title special meeting be
reconvened, all proxies will be voted in the same manner as such proxies would
have been voted when the Chicago Title special meeting was originally convened,
except for proxies effectively revoked or withdrawn prior to the time proxies
are voted at the reconvened Chicago Title special meeting.
CHICAGO TITLE STOCKHOLDERS SHOULD NOT SEND IN ANY STOCK CERTIFICATES WITH
THEIR PROXY CARDS. APPROXIMATELY 25 DAYS PRIOR TO THE ANTICIPATED MERGER
COMPLETION DATE, THE EXCHANGE AGENT WILL MAIL TO EACH STOCKHOLDER OF RECORD OF
CHICAGO TITLE AS OF FIVE DAYS PRIOR TO SUCH MAILING DATE AN ELECTION FORM AND
OTHER TRANSMITTAL MATERIALS TO BE USED BY THE STOCKHOLDER TO ELECT TO RECEIVE
CASH OR STOCK OR A COMBINATION OF BOTH FOR HIS OR HER CHICAGO TITLE SHARES.
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<PAGE> 41
THE MERGER
The following describes certain aspects of the proposed merger. Because
this discussion is a summary, it may not contain all of the information that is
important to you. To understand the merger fully, and for a more complete
description of the legal terms of the merger, you are urged to read the merger
agreement carefully. A copy of the merger agreement is attached as Appendix A to
this document and is incorporated in this document by reference.
GENERAL
The merger agreement provides for the merger of Chicago Title with and into
Fidelity, with Fidelity surviving the merger. The merger will become effective
at the effective time in accordance with a certificate of merger to be filed
with the Secretary of State of the State of Delaware. It is anticipated that
this filing will be made as soon as practicable after the last of the conditions
to the merger, as set forth in the merger agreement, has been satisfied or
waived.
When the merger is completed:
- the separate corporate existence of Chicago Title will terminate;
- the combined company will be a Delaware corporation named Fidelity
National Financial, Inc.;
- the Certificate of Incorporation and By-laws of Fidelity then in effect
will be the certificate of incorporation and by-laws of the combined
company;
- Fidelity, as the surviving corporation, will succeed to all of Chicago
Title's assets and liabilities;
- stockholders of Chicago Title who receive Fidelity common stock in the
merger would own approximately 50.1% of the combined company and
Fidelity's stockholders the remainder; and
- Fidelity will increase the size of its board of directors by four and
will appoint four persons who are currently directors of Chicago Title
and are reasonably acceptable to Fidelity to fill the vacancies.
We hope to complete this transaction in the first quarter of 2000.
MERGER CONSIDERATION
In the merger, shares of Chicago Title common stock will be converted into
the right to receive merger consideration, consisting of cash, shares of
Fidelity common stock or a combination of cash and shares, having a value of
$52.00 per share of Chicago Title common stock, except in certain circumstances
we describe below. Each Chicago Title stockholder will be permitted to indicate
its preference as to the number of shares of Chicago Title common stock it would
like to be converted into Fidelity common stock and the number of shares which
it would like to be converted into cash. We describe below how the merger
consideration will be determined and allocated between cash and shares of
Fidelity common stock, as well as a number of factors which may affect the
extent to which Chicago Title stockholders will receive Fidelity common stock
and/or cash in amounts that are consistent with their election.
No fractional shares of Fidelity common stock will be issued in the merger.
Any fractional share of Fidelity common stock which would otherwise be payable
to a Chicago Title stockholder will be settled in cash in an amount equal to the
value of such fractional share, based upon the average value of a share of
Fidelity common stock during the 30 trading-day
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<PAGE> 42
period ending two days before the merger, which we will refer to as the "average
Fidelity share price."
General Allocation of Cash and Stock. The total number of shares of
Fidelity common stock to be issued in the merger and the total amount of cash to
be paid in the merger will not be determined until the time of the merger. An
initial allocation of the per share merger consideration between Fidelity shares
and cash will be made as follows:
- The STOCK PORTION of the merger consideration to be issued in respect of
each outstanding share of Chicago Title common stock will be a number of
shares of Fidelity common stock equal to an exchange ratio, calculated so
that the holders of Chicago Title common stock immediately prior to the
merger (excluding shares held by dissenting stockholders, shares held by
Chicago Title in its treasury and shares held by Fidelity or its
affiliates) will receive shares representing 50.1% of the outstanding
shares of Fidelity common stock. This exchange ratio is calculated as a
fraction, (x) the numerator of which is 1.004, multiplied by the number
of outstanding shares of Fidelity common stock immediately prior to the
merger and (y) the denominator of which is the number of outstanding
shares of Chicago Title common stock immediately prior to the merger
(excluding shares held by dissenting stockholders, shares held by Chicago
Title in its treasury and shares held by Fidelity or its subsidiaries).
For example, based on the 27,378,767 shares of Fidelity common stock and
the 21,898,070 shares of Chicago Title common stock outstanding as of
December 23, 1999, the exchange ratio for the stock portion would be:
<TABLE>
<C> <S> <C>
1.004 X 27,378,767 = 1.2553
21,898,070
</TABLE>
- The CASH PORTION of the merger consideration to be paid in respect of
each outstanding share of Chicago Title common stock will be equal to the
lesser of (x) $26.00 or (y) $52.00 reduced by the value of the stock
portion (valued at the average Fidelity share price).
- If the sum of the cash portion of the merger consideration and the value
of the stock portion is less than $52.00 (based on the average Fidelity
share price), then Fidelity will be required to add an amount of
ADDITIONAL MERGER CONSIDERATION to make up the difference so that the
total value of the merger consideration is $52.00, except in certain
circumstances which we describe below. This additional amount may be
paid, at Fidelity's option, in cash, additional shares of Fidelity common
stock (valued at the average Fidelity share price), or a combination of
cash and shares.
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<PAGE> 43
The following table illustrates the application of the above formula and
the allocation of the merger consideration on a per share basis at various
average Fidelity share prices and based on the exchange ratio for the stock
portion as of December 23, 1999. This table is illustrative only of the general
allocation of the merger consideration on a per share basis; it does not reflect
the actual amounts of cash and stock that will be received by any individual
stockholder, which will be determined based on the stockholder's elections and
the election of Fidelity to pay additional merger consideration in cash,
Fidelity shares or a combination thereof (subject to proration) as to the number
of shares that it would like to have converted into cash and/or the number of
shares that it would like to have converted into stock.
<TABLE>
<CAPTION>
ADDITIONAL MERGER
CONSIDERATION TO
BE PAID IN CASH TOTAL VALUE
AVERAGE FIDELITY VALUE OF VALUE OF AND/OR OF MERGER
SHARE PRICE STOCK PORTION CASH PORTION FIDELITY SHARES* CONSIDERATION
- ---------------- ------------- ------------ ----------------- -------------
<S> <C> <C> <C> <C>
$10.00 $12.55 $26.00 $13.45 $52.00
11.00 13.81 26.00 12.19 52.00
12.00 15.06 26.00 10.94 52.00
13.00 16.32 26.00 9.68 52.00
14.00 17.57 26.00 8.43 52.00
15.00 18.83 26.00 7.17 52.00
16.00 20.08 26.00 5.92 52.00
17.00 21.34 26.00 4.66 52.00
18.00 22.60 26.00 3.40 52.00
19.00 23.85 26.00 2.15 52.00
20.00 25.11 26.00 0.89 52.00
21.00 26.36 25.64 -- 52.00
22.00 27.62 24.38 -- 52.00
23.00 28.87 23.13 -- 52.00
24.00 30.13 21.87 -- 52.00
</TABLE>
- ---------------
* At average Fidelity share prices below $15.00, assumes Fidelity does not elect
to pay a reduced amount of additional merger consideration.
The above table assumes that, immediately prior to the merger, 27,378,767
shares of Fidelity common stock are outstanding and 21,898,070 shares of Chicago
Title common stock are outstanding (the same numbers of shares as were
outstanding on December 23, 1999), none of which are held by dissenting Chicago
Title stockholders, by Chicago Title in its treasury or by Fidelity or its
subsidiaries, and does not consider the effect of the repurchase of shares of
Chicago Title common stock by Chicago Title which may be made pursuant to the
merger agreement. As we described in the first bullet point above, based on such
numbers of shares, the number of shares required to be issued in respect of the
stock portion is 1.2553 Fidelity shares. The above table also assumes that
Fidelity will elect to pay the amount of additional merger consideration needed
to ensure that the value of the merger consideration is equal to $52.00 per
share of Chicago Title common stock, even if, as we describe below, it is not
required to do so because the average Fidelity share price is less than $15.00.
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<PAGE> 44
Allocation of Cash and Stock if the Average Fidelity Share Price is Less
than $15.00. If the average Fidelity share price is less than $15.00, then
Fidelity is permitted to elect either to pay additional merger consideration to
ensure that the total value of the merger consideration (based on the average
Fidelity share price) is $52.00 per Chicago Title share or to pay a reduced
amount of additional merger consideration equal to the lesser of:
- the sum of (a) one-half of the amount of additional merger consideration
Fidelity would be required to pay if the average Fidelity share price
were $15.00 plus (b) the average Fidelity share price multiplied by a
fraction, (x) the numerator of which is one-half of the amount of
additional merger consideration Fidelity would be required to pay if the
average Fidelity share price were $15.00 and (y) the denominator of which
is $15.00, or
- the average Fidelity share price multiplied by a fraction, (x) the
numerator of which is the amount of additional merger consideration
Fidelity would be required to pay if the average Fidelity share price
were $15.00 and (y) the denominator of which is $13.00.
This reduced amount of additional merger consideration may be paid, at
Fidelity's option, in cash, additional shares of Fidelity common stock (valued
at the average Fidelity share price), or a combination of cash and shares.
For example, using the same assumptions as in the preceding table, if the
average Fidelity share price were $15.00, the amount of additional merger
consideration which Fidelity would be required to pay would be $7.17. The
following table illustrates the reduced amount of additional merger
consideration that Fidelity could elect to pay at various average Fidelity share
prices below $15.00, as well as the total value of the merger consideration at
each price.
<TABLE>
<CAPTION>
REDUCED
ADDITIONAL
MERGER
CONSIDERATION
TO BE PAID IN TOTAL VALUE
AVERAGE FIDELITY VALUE OF VALUE OF CASH AND/OR OF MERGER
SHARE PRICE STOCK PORTION CASH PORTION FIDELITY SHARES CONSIDERATION
- ---------------- ------------- ------------ --------------- -------------
<S> <C> <C> <C> <C>
$10.00 $12.55 $26.00 $5.52 $44.07
11.00 13.81 26.00 6.07 45.88
12.00 15.06 26.00 6.45 47.51
13.00 16.32 26.00 6.69 49.01
14.00 17.57 26.00 6.93 50.50
15.00 18.83 26.00 7.17 52.00
</TABLE>
If Fidelity elects to pay the reduced amount of additional merger
consideration, Chicago Title will have the right to terminate the merger
agreement. A determination as to whether or not to terminate the merger
agreement would be made by the Chicago Title board of directors and would not be
submitted for approval by the Chicago Title stockholders.
Special Allocations for U.S. Federal Income Tax Purposes. Once the amount
of the merger consideration and the general allocation of the stock and cash
portions of the merger consideration are determined, the parties will determine
the total number of shares of Fidelity common stock to be issued as merger
consideration and the total amount of cash to be paid as merger consideration,
taking into account two additional adjustments. These adjustments are designed
to minimize the risk that the merger (a) could adversely affect the tax-free
nature of the spin-off of Chicago Title from Alleghany or the spin-off of
Alleghany Asset Management from Chicago Title and Trust Company or (b) would not
qualify as a reorganization under Section 368(a) of the Internal Revenue Code.
See "-- Certain U.S. Federal Income Tax Consequences of the Merger."
- First, the total amount of shares of Fidelity common stock included in
the merger consideration will be increased (and the total amount of cash
decreased), if necessary,
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<PAGE> 45
to ensure that Chicago Title stockholders will own at least 50.1% of
Fidelity's outstanding shares of common stock immediately after the
merger, plus a percentage equal to the shares issued (and not
repurchased) by Chicago Title since the spin-off over the shares of
Chicago Title common stock outstanding at the time of the merger, if such
adjustment is necessary in order to satisfy certain conditions to the
merger relating to the tax-free nature of the Chicago Title and Alleghany
Asset Management spin-offs.
- Then, the total amount of shares of Fidelity common stock included in the
merger consideration will be increased (and the total amount of cash
decreased), if necessary, to ensure that the value of the shares of
Fidelity common stock issued as the stock portion of the merger
consideration (excluding fractional shares paid in cash), determined on
the basis of the market price for Fidelity common stock as of the date of
the merger, is at least equal to 40% of the total value of the merger
consideration.
If either of these two adjustments are required, the aggregate value of the
merger consideration payable will be equal to the total value of merger
consideration which would otherwise be payable if the adjustments were not made.
The actual determination of the merger consideration which Fidelity will
pay, and the allocation of the cash and/or stock portions of the merger
consideration, will depend upon a number of factors which are not determinable
as of the date of this joint proxy statement/prospectus. These factors include:
- the number of shares of Fidelity common stock which are outstanding
immediately prior to the merger, which can be affected by repurchases
made by Fidelity prior to the merger and by exercises of Fidelity stock
options;
- the number of shares of Chicago Title common stock which are outstanding
immediately prior to the merger, which can be affected by repurchases
made by Chicago Title and by exercises of Chicago Title stock options;
- the number of shares of Chicago Title common stock held by Chicago Title
as treasury stock or held by Fidelity or its subsidiaries immediately
prior to the merger;
- the number of shares of Chicago Title common stock held by dissenting
stockholders who elect to pursue their appraisal rights under Delaware
law;
- the average Fidelity share price and, if the average Fidelity share price
is below $15.00, whether Fidelity has chosen to pay merger consideration
having a value of less than $52.00 per Chicago Title share; and
- the actual market price of the Fidelity common stock on the date of the
merger.
The determination of the portion of the merger consideration to be paid in
cash and the portion to be paid in Fidelity shares, as well as the elections of
other Chicago Title stockholders, will affect the extent to which any individual
Chicago Title stockholder will receive stock and/or cash consistent with its
election. For example, if the amount of cash which Chicago Title stockholders
elect to receive in the merger exceeds the amount of cash which Fidelity is
obligated to pay in the merger, all Chicago Title shares with respect to which a
cash election was made will be converted into a combination of cash and Fidelity
shares. Likewise, if the number of Fidelity shares which Chicago Title
stockholders elect to receive in the merger exceeds the number of shares which
Fidelity is obligated to issue in the merger, all Chicago Title shares with
respect to which a stock election was made will be converted into a combination
of Fidelity shares and cash.
Because stock prices fluctuate, the market price of Fidelity common stock
on the date of the merger may be more or less than the average Fidelity share
price. Also, the market value
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<PAGE> 46
of the shares of Fidelity common stock that Chicago Title stockholders receive
in the merger may increase or decrease following the merger.
Share repurchase. Pursuant to the merger agreement, Chicago Title also
intends, subject to applicable legal and contractual restraints, to offer to
repurchase up to approximately 790,000 outstanding shares of Chicago Title
common stock held by Chicago Title's officers, directors and employees, at a
cash purchase price equal to the merger consideration paid to Chicago Title
stockholders in the merger. The maximum aggregate cost of the repurchase to
Chicago Title would be $41.1 million, if all 790,000 shares are tendered and if
the merger consideration is $52.00 per Chicago Title share. Chicago Title
anticipates that any such repurchases would be made immediately prior to, and
contingent upon, the merger.
BACKGROUND OF THE MERGER
In early March 1999, representatives of Morgan Stanley contacted William P.
Foley, II, Chairman and Chief Executive Officer of Fidelity, to inquire whether
Fidelity would have an interest in discussing a potential strategic combination
with Chicago Title. Mr. Foley indicated he was interested in pursuing such
discussions. On March 23, 1999 representatives of Morgan Stanley met with Mr.
Foley and certain members of Fidelity's management team in Santa Barbara,
California to review publicly available financial data and information regarding
Chicago Title and to discuss the other possible terms upon which such a
strategic combination might be accomplished. On April 6, 1999, representatives
of Morgan Stanley and Fidelity reconvened to discuss alternative transaction
structures. On April 6, 1999, Fidelity engaged Morgan Stanley to act as its
financial advisor in its analysis of and deliberations over the potential
transaction.
On April 29, 1999, at the invitation of a representative of Delano &
Kopperl, Inc., a business consulting firm, John J. Burns, Jr., Chairman of the
executive committee of the Chicago Title board of directors and President and
chief executive officer of Alleghany and David B. Cuming, Senior Vice President
of Alleghany, attended a meeting at the offices of Morgan Stanley in New York
with Mr. Foley, Frank P. Willey, President of Fidelity, Patrick F. Stone, Chief
Operating Officer of Fidelity, and representatives of Morgan Stanley. At the
meeting, Mr. Foley suggested that it might be beneficial to both Fidelity and
Chicago Title to consider the possibility of a business combination. Mr. Foley
suggested that one form of business combination might involve a merger in which
Chicago Title would be acquired by Fidelity.
Following that initial meeting through the date of the execution of the
merger agreement, Fidelity and Chicago Title exchanged information and held due
diligence meetings between senior executives of Fidelity and senior executives
and directors of Chicago Title in order to refine the terms and conditions of
the proposed transaction and Fidelity's strategy for the combined entity.
On May 27, 1999, the executive committee of the Chicago Title board of
directors held a meeting at which Mr. Burns reported on the April 29 meeting and
on Fidelity's preliminary acquisition proposal. Both Mr. Burns and John Rau,
President and Chief Executive Officer of Chicago Title, recommended to the
committee that the proposal should be further explored. The committee authorized
Mr. Rau to engage in such discussions with Fidelity and its advisors as would
assist the committee in evaluating the acquisition proposal for further action
by the Chicago Title board of directors and, in connection with such
discussions, to cause Chicago Title to enter into a confidentiality agreement
with Fidelity. The committee also determined to engage Merrill Lynch to act as
its financial advisor in connection with its assessment of the proposal and its
recommendation to the board of directors of Chicago Title regarding the proposal
and to engage a major international management consulting firm to assist Chicago
Title in assessing the strategic fit with Fidelity, as well as the opportunities
for cost savings presented by the possible combination of the two companies.
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<PAGE> 47
On June 9, 1999, a meeting of the executive committee of the Chicago Title
board of directors was held at which Mr. Rau updated the committee as to the
progress of discussions with Fidelity. After discussion with Merrill Lynch and
Chicago Title's outside consultant, the committee decided to schedule a special
meeting of the full Chicago Title board of directors to discuss Fidelity's
acquisition proposal. On June 14, 1999, representatives of Morgan Stanley met
with Fidelity's board of directors to discuss the proposed merger.
On June 21, 1999, the Chicago Title board of directors held a special
meeting at which the board was informed of the initial Fidelity acquisition
proposal and of the ongoing discussions between Chicago Title and Fidelity and
their respective representatives. Mr. Burns and Mr. Rau commented on the
background and development of the proposal and noted that the possible
transaction would involve a finder, Delano & Kopperl, Inc. Merrill Lynch
discussed the progress of negotiations on terms of the possible transaction.
Dewey Ballantine LLP, corporate counsel to Chicago Title, then discussed the
fiduciary duties of the Chicago Title board in connection with the possible
transaction and certain other legal matters. The board of directors authorized
Chicago Title management to proceed with negotiations of the terms of a business
combination with Fidelity, and also authorized the engagement of Merrill Lynch
as financial advisor to the board of directors in connection with the possible
transaction and the engagement of the outside consultants to assist the board of
directors in assessing the strategic fit with Fidelity, as well as the
opportunities for cost savings presented by the possible combination of the two
companies.
On June 22, 1999, Merrill Lynch was engaged as financial advisor to Chicago
Title's board of directors in connection with the possible business combination
with Fidelity.
On June 24, 1999, Fidelity and Chicago Title entered into a confidentiality
agreement, and, on June 25, 1999, Chicago Title responded to Fidelity's merger
proposal.
On June 30, 1999, Mr. Foley, Mr. Stone and a representative of Morgan
Stanley met with Mr. Rau and a representative of Merrill Lynch to continue
negotiations and present the strategies and business rationale for the merger.
Throughout July 1999, representatives of Fidelity and Chicago Title and their
respective financial advisors continued negotiations in person and by telephone
concerning the terms of the merger. These negotiations focused primarily on
purchase price, form of merger consideration and employee severance and
retention programs.
On July 12, 1999, the executive committee of the Chicago Title board of
directors held a meeting at which it reviewed the status of the possible
transaction. The executive committee also considered the presentation of Chicago
Title's outside consultant regarding the strategic fit with Fidelity and the
opportunities for cost savings presented by the possible combination of the two
companies.
On July 23, 1999, representatives of Fidelity and Chicago Title agreed,
subject to the completion of their diligence reviews of one another's
businesses, the negotiation of a mutually acceptable definitive merger agreement
and the approvals of the Fidelity and Chicago Title boards of directors, that
the amount of the merger consideration would be $52.00 per share of Chicago
Title common stock, payable in a combination of cash and shares of Fidelity
common stock. Discussion of the allocation of the merger consideration between
cash and shares of Fidelity common stock continued, with the understanding that
the preferred allocation would be 50% cash and 50% stock, such allocation to be
adjusted so that the tax-free nature of the June 1998 distributions of Chicago
Title by Alleghany and of Alleghany Asset Management by Chicago Title and Trust
Company would not be adversely affected and that the merger would qualify as a
tax-free reorganization for purposes of the Internal Revenue Code.
On July 23, 1999, counsel for Chicago Title provided Fidelity with a draft
of the merger agreement. Fidelity's counsel provided Fidelity's initial
responses to the draft merger agreement
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<PAGE> 48
to Chicago Title on July 26, 1999. On July 27, 1999, a meeting of the Chicago
Title board of directors was held. At that meeting, the directors were updated
as to the developments regarding the proposed business combination with Fidelity
which had occurred since the special meeting of the board of directors held on
June 21, 1999. Mr. Rau informed the board of the meeting of the executive
committee of the board which had been held on July 12 to review the status of
the transaction at that time. Dewey Ballantine reviewed the terms and conditions
of the proposed merger agreement, as well as remaining open issues. The Chicago
Title board also consulted with Merrill Lynch, and with its outside consultant
regarding the strategic fit with Fidelity and the opportunities for cost savings
presented by the possible combination of the two companies. At the conclusion of
the July 27 meeting, the Chicago Title board authorized Chicago Title management
to continue discussions with Fidelity regarding a possible merger.
From July 28 through July 31, 1999, representatives from all parties met in
Chicago to complete their due diligence reviews, and negotiation of the
definitive merger agreement continued.
On July 30, 1999, a story appeared in the Los Angeles Times reporting that
Fidelity and Chicago Title were in merger negotiations. In response to a request
from the NYSE, Fidelity and Chicago Title confirmed they were in discussions
concerning a possible business combination. Representatives of Fidelity and
Chicago Title continued negotiation of the merger agreement on July 31, 1999 and
August 1, 1999.
On August 1, 1999, a meeting of Fidelity's board of directors was held
wherein Mr. Foley described the proposed merger, summarized Chicago Title's
business and various rationales for the transaction, and gave an overview of
Fidelity's due diligence review of Chicago Title. Morgan Stanley presented its
fairness opinion and described for and discussed with the Fidelity board the
analyses it conducted in reaching its conclusion. Thereafter, following further
discussion, the Fidelity board, by the affirmative vote of all directors
present, approved the merger agreement and the merger, declared that the merger
agreement and the merger were advisable, and determined that the merger was fair
to, and in the best interest of, Fidelity and its stockholders.
At a meeting held on August 1, 1999, Mr. Rau provided the Chicago Title
board with a summary of the merger discussions with Fidelity and the various
rationales for and the contemplated benefits of the proposed merger, as well as
an overview of Chicago Title's due diligence review of Fidelity. During the
meeting, Merrill Lynch delivered its oral opinion to the Chicago Title board of
directors, subsequently confirmed in writing, that as of that date and based on
the assumptions made, matters considered and limits of review as set forth in
such opinion, the consideration to be received by the holders of Chicago Title
common stock in connection with the merger was fair from a financial point of
view to those stockholders, other than Fidelity and its affiliates. Dewey
Ballantine made a presentation on the terms and conditions of the merger
agreement and updated the board as to how open issues had been resolved. Dewey
Ballantine also reviewed with the board its fiduciary duties under Delaware law.
Following further discussion, Chicago Title's board, by the affirmative vote of
all directors present, approved the merger agreement and the merger, declared
that the merger agreement and the merger were advisable, and determined that the
merger was fair to, and in the best interest of, Chicago Title and its
stockholders. Each of Fidelity and Chicago Title then executed the merger
agreement, and Fidelity issued a press release announcing the execution of the
merger agreement on August 1, 1999.
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<PAGE> 49
FIDELITY REASONS FOR THE MERGER; RECOMMENDATION OF THE FIDELITY BOARD OF
DIRECTORS
In reaching its determination to recommend approval and adoption of the
merger agreement and the merger, the Fidelity board of directors considered a
number of factors, including the following:
- The current status of Fidelity's business, operations, financial
condition, earnings and prospects, and current industry, economic and
market conditions.
- The consistency of the merger with Fidelity's long-term business
strategies.
- The expectation that the merger would result in synergies for the two
companies' operations, including giving the two companies access to each
other's distribution network which would enable their products to expand
beyond their current market.
- The expectation that the merger will yield annualized pre-tax savings of
$65 million to $75 million within the first 12 months after the merger
and recurring annual pre-tax expense savings of approximately $100
million.
- The business, operations, financial condition, earnings and prospects of
Chicago Title, and current industry, economic and market conditions. In
making its determination, the Fidelity board of directors took into
account the fact that senior management of Fidelity had performed a due
diligence review of Chicago Title's business.
- The belief that the combined company's expected strong credit position
will provide the combined company with enhanced opportunities to market
Fidelity's financial products and less costly access to the capital
markets relative to Fidelity on a stand-alone basis.
- The anticipated financial impact of the proposed transaction on the
combined company's future financial performance and on Fidelity
stockholders.
- The complementary nature of the two companies' businesses and the belief
of senior management that Fidelity and Chicago Title possess
complementary skills and assets.
- The structure of the merger and the terms of the merger agreement,
including the fact that the merger is intended to qualify as a
reorganization under Section 368 of the Internal Revenue Code.
- Morgan Stanley's financial and strategic analyses and presentation to the
Fidelity board of directors on August 1, 1999 as well as the opinion of
Morgan Stanley that, as of August 1, 1999, and subject to the assumptions
made, matters considered and limitations on the review undertaken, the
merger consideration to be paid by Fidelity pursuant to the merger
agreement is fair from a financial point of view to Fidelity. See
"-- Opinion of Fidelity's Financial Advisor" below.
- The opportunity for Fidelity stockholders to participate in a larger,
more diversified title insurance and financial products and services
company.
The discussion above addresses the material factors considered by the
Fidelity board of directors in its consideration of the merger. In view of the
variety of factors and the amount of information considered, the Fidelity board
of directors did not find it practicable to, and did not, make specific
assessments of, quantify or otherwise assign relative weights to the specific
factors considered in reaching its determination. The determination was made
after consideration of all of the factors as a whole. In addition, individual
members of the Fidelity board of directors may have given different weights to
different factors.
43
<PAGE> 50
THE FIDELITY BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE
MERGER, DECLARED THAT THE MERGER AGREEMENT AND THE MERGER ARE ADVISABLE AND
DETERMINED THAT THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF, FIDELITY
AND THE FIDELITY STOCKHOLDERS. ACCORDINGLY, THE FIDELITY BOARD UNANIMOUSLY
RECOMMENDS THAT THE FIDELITY STOCKHOLDERS VOTE "FOR" APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT AND THE MERGER AND THE ISSUANCE OF SHARES OF FIDELITY
COMMON STOCK IN THE MERGER AND "FOR" APPROVAL OF THE PROPOSAL TO INCREASE THE
AUTHORIZED SHARES OF FIDELITY COMMON STOCK TO 100,000,000.
CHICAGO TITLE REASONS FOR THE MERGER; RECOMMENDATION OF THE CHICAGO TITLE BOARD
OF DIRECTORS
In reaching its determination to recommend approval and adoption of the
merger agreement and the merger, the Chicago Title board of directors consulted
with Chicago Title management, as well as with its financial advisor, Merrill
Lynch, and an outside consultant, and considered a number of factors, including
the following:
- The terms and conditions of the proposed merger, including the premium to
be paid (if Fidelity pays merger consideration having an aggregate value
of $52.00 per share of Chicago Title common stock and does not exercise
any right it may have to pay merger consideration having a value of less
than $52.00 per share of Chicago Title common stock, such premium would
equal approximately 42% based on the closing price of Chicago Title's
shares on July 29, 1999, the last trading day before Fidelity and Chicago
Title announced that we were holding discussions on a possible merger).
- The expectation that the transaction would provide tax deferral to
Chicago Title stockholders who receive shares of Fidelity common stock in
the merger.
- The fact that the merger would allow Chicago Title stockholders, if they
so elect, and subject to the allocation procedures contained in the
merger agreement, to retain an equity interest in the combined
corporation.
- The anticipated benefits of the merger for Chicago Title's core
businesses as a result of the financial, marketing and distribution
advantages that will result from a combination with Fidelity.
- The business, operations, financial condition, earnings and prospects of
each of Chicago Title and Fidelity. In making its determination, the
Chicago Title board of directors took into account the fact that senior
management of Chicago Title, with the assistance of outside consultants,
had performed a due diligence review of Fidelity's business.
- The likelihood of obtaining required regulatory approvals and financing
required to pay the cash portion of the merger consideration.
- The terms and conditions of the merger agreement, including:
- that Chicago Title may provide information to and negotiate with
unsolicited bidders, if the Chicago Title board determines a bid is,
or could reasonably be expected to result in, a superior proposal;
- that prior to obtaining the Chicago Title stockholder vote, Chicago
Title may terminate the merger agreement to accept a superior
proposal for a competing transaction;
- that Chicago Title could be obligated to pay Fidelity a termination
fee of $34.1 million; and
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<PAGE> 51
- that while the termination fee provisions of the merger agreement
could have the effect of discouraging alternative proposals for a
business combination with Chicago Title, it would not preclude bona
fide alternative proposals and that the size of the termination fee
was reasonable in light of the size and benefits of the transaction.
See "The Merger Agreement -- Termination Fee Payable by Chicago
Title" for a description of the termination fee provisions of the
merger agreement.
- The impact of the merger on employees and customers served by Chicago
Title following the merger.
- The non-financial terms of the transaction, including the fact that
Chicago Title is expected to be operated separately within the Fidelity
corporate group and that four directors of Chicago Title would become
directors of Fidelity.
- The complementary nature of the two companies' businesses and the belief
of senior management that Chicago Title and Fidelity possess
complementary skills and assets.
- That there are risks associated with obtaining the necessary financing
and regulatory approvals, and as a result of certain conditions to the
completion of the merger, it is possible that the merger may not be
completed even if approved by stockholders. See "The Merger
Agreement -- Conditions to the Merger."
- The fact that following announcement of the merger agreement, Chicago
Title's relationships with employees, agents and customers might be
negatively affected because of uncertainty surrounding Chicago Title's
future status and direction.
- The fact that the executive officers and directors of Chicago Title may
be deemed to have interests in the proposed merger that are different
from and in addition to the interests of Chicago Title stockholders
generally. See "-- Interests of Certain Persons in the Merger" below.
- The opinion, dated August 1, 1999, of Merrill Lynch as to the fairness,
from a financial point of view, of the consideration to be received by
the holders of Chicago Title common stock (other than Fidelity and its
affiliates) in the merger. See "-- Opinion of Chicago Title's Financial
Advisor" below.
The discussion above addresses the material factors considered by the
Chicago Title board of directors in its consideration of the merger. In view of
the variety of factors and the amount of information considered, the Chicago
Title board of directors did not find it practicable to, and did not, make
specific assessments of, quantify or otherwise assign relative weights to the
specific factors considered in reaching its determination. The determination was
made after consideration of all of the factors as a whole. In addition,
individual members of the Chicago Title board of directors may have given
different weights to different factors. For a discussion of the interests of
certain members of Chicago Title's management and the Chicago Title board of
directors in the merger, see "-- Interests of Certain Persons in the Merger"
below.
THE CHICAGO TITLE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE MERGER, DECLARED THAT THE MERGER AGREEMENT AND THE MERGER ARE
ADVISABLE AND DETERMINED THAT THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS
OF, CHICAGO TITLE AND THE CHICAGO TITLE STOCKHOLDERS. ACCORDINGLY, THE CHICAGO
TITLE BOARD UNANIMOUSLY RECOMMENDS THAT THE CHICAGO TITLE STOCKHOLDERS VOTE
"FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER.
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<PAGE> 52
OPINION OF FIDELITY'S FINANCIAL ADVISOR
In a letter agreement dated April 6, 1999, Fidelity retained Morgan Stanley
to provide financial advisory services, including the rendering of a financial
opinion in connection with the merger based on Morgan Stanley's qualifications,
expertise and reputation. At a meeting of Fidelity's board of directors on
August 1, 1999, Morgan Stanley rendered its oral opinion to Fidelity's board,
and subsequently confirmed in writing, that, as of August 1, 1999, based upon
and subject to the considerations set forth in the opinion, the merger
consideration to be paid by Fidelity pursuant to the merger agreement was fair
to Fidelity from a financial point of view.
THE FULL TEXT OF MORGAN STANLEY'S WRITTEN OPINION, DATED AS OF AUGUST 1,
1999, WHICH SETS FORTH, AMONG OTHER THINGS, ASSUMPTIONS MADE, PROCEDURES
FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS
ATTACHED AS APPENDIX B TO THIS JOINT PROXY STATEMENT/PROSPECTUS. FIDELITY
STOCKHOLDERS SHOULD READ THE OPINION CAREFULLY AND IN ITS ENTIRETY. THE OPINION
IS DIRECTED TO FIDELITY'S BOARD OF DIRECTORS, ADDRESSES ONLY THE FAIRNESS OF THE
MERGER CONSIDERATION TO BE PAID BY FIDELITY FROM A FINANCIAL POINT OF VIEW, AND
DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER OR CONSTITUTE A RECOMMENDATION
TO ANY FIDELITY STOCKHOLDER AS TO HOW TO VOTE AT THE FIDELITY SPECIAL MEETING.
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE
OPINION.
In connection with rendering its opinion, Morgan Stanley:
- reviewed certain publicly available financial statements and other
information of Chicago Title and Fidelity;
- reviewed certain internal financial statements and other financial and
operating data concerning Chicago Title prepared by the management of
Chicago Title;
- reviewed certain financial projections prepared by the management of
Chicago Title;
- discussed the past and current operations and financial condition and the
prospects of Chicago Title, including information relating to certain
strategic, financial and operational benefits anticipated from the
merger, with senior executives of Chicago Title;
- discussed the past and current operations and financial condition and the
prospects of Chicago Title with senior executives of Fidelity;
- reviewed certain internal financial statements and other financial and
operating data concerning Fidelity prepared by the management of
Fidelity;
- reviewed certain financial projections prepared by the management of
Fidelity;
- discussed the past and current operations and financial condition and the
prospects of Fidelity, including information relating to certain
strategic, financial and operational benefits anticipated from the
merger, with senior executives of Fidelity;
- reviewed with senior executives of Fidelity the pro forma impact of the
merger on Fidelity's earnings per share, consolidated capitalization and
financial ratios;
- reviewed the reported prices and trading activity for Chicago Title's
common stock and Fidelity's common stock;
- compared the financial performance of Chicago Title and the prices and
trading activity of Chicago Title common stock with those of certain
other comparable publicly traded companies and their securities;
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<PAGE> 53
- compared the financial performance of Fidelity and the prices and trading
activity of Fidelity common stock with those of certain other comparable
publicly traded companies and their securities;
- reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
- participated in discussions and negotiations among representatives of
Chicago Title and Fidelity and their financial and legal advisors;
- reviewed the draft merger agreement and certain related documents; and
- performed such other analyses and considered such other factors as Morgan
Stanley deemed appropriate.
Morgan Stanley assumed and relied upon, without independent verification,
the accuracy and completeness of the information it reviewed for the purposes of
its opinion. With respect to the financial projections, including information
relating to certain strategic, financial and operational benefits anticipated
from the merger, Morgan Stanley assumed that they had been reasonably prepared
on bases reflecting the best currently available estimates and judgments of the
future financial performance of Chicago Title and Fidelity. Morgan Stanley also
relied upon, without independent verification, the assessment of Fidelity of the
strategic, financial and operational benefits expected to result from the
merger. In addition, Morgan Stanley assumed that the merger will be consummated
in accordance with the terms set forth in the merger agreement, including, among
other things, that the merger will be treated as a tax-free reorganization
and/or exchange pursuant to the Internal Revenue Code and that the merger will
not be effected in a manner that would cause Fidelity to incur any material
obligations to Alleghany pursuant to the tax sharing agreement between Chicago
Title and Alleghany, dated as of June 17, 1998. Morgan Stanley has not made any
independent valuation or appraisal of the assets or liabilities of Chicago
Title, nor was Morgan Stanley furnished with any such appraisals. Morgan
Stanley's opinion is necessarily based on financial, economic, market and other
conditions as in effect on, and the information made available to it as of,
August 1, 1999.
The following is a brief summary of certain analyses performed by Morgan
Stanley in connection with its opinion. These summaries include information
presented in tabular format. In order to fully understand the financial analyses
used by Morgan Stanley, the tables must be read together with the text of each
summary. The tables alone do not constitute a complete description of the
financial analyses.
Public Trading Multiple Analysis of Chicago Title. Using publicly
available information, Morgan Stanley performed an analysis comparing Chicago
Title's current trading value and the implied multiples for a variety of
operating statistics to those of selected publicly traded companies that share
certain characteristics with Chicago Title. In particular, Morgan Stanley
focused on the following companies:
- Fidelity
- First American Financial Corporation
- LandAmerica Financial Group, Inc.
- Old Republic International Corporation
- Stewart Information Services Corporation
47
<PAGE> 54
Morgan Stanley reviewed financial information including the
price-to-forecasted-earnings multiples for calendar years 1999 and 2000. The
financial information was based on a compilation of earnings projections by
securities research analysts. The tables below summarize these analyses and the
relevant statistics for Chicago Title as of July 29, 1999.
<TABLE>
<CAPTION>
LOW HIGH
--- ----
<S> <C> <C> <C>
COMPARABLE COMPANIES:
Price to Forecasted 1999 Earnings.................... 5.7x 8.9x
Price to Forecasted 2000 Earnings.................... 5.8 8.2
CHICAGO TITLE:
Price to Forecasted 1999 Earnings.................... 7.8x
Price to Forecasted 2000 Earnings.................... 7.5
</TABLE>
Morgan Stanley applied these multiples from the comparable companies to
Chicago Title's corresponding financial statistics to arrive at a range of per
share equity values for Chicago Title. Using this methodology, Morgan Stanley
observed that the implied value per share of Chicago Title common stock ranged
from $32.38 to $40.75 without a control premium, and $42.09 to $57.05 with a
30-40% control premium. Morgan Stanley further observed that, based on the same
methodology, and including assumed operational benefits from the merger prepared
by Fidelity's management, that the implied value per share of Chicago Title
common stock ranged from $50.64 to $63.74 without a control premium. Morgan
Stanley noted that the merger consideration contemplated by the merger agreement
was $52.00 per share. No company considered in the foregoing analysis is
identical to Chicago Title. In evaluating comparable companies, Morgan Stanley
made judgments and assumptions with regard to industry performance, general
business, economic, market and financial conditions and other matters, many of
which are beyond the control of Fidelity or Chicago Title, such as the impact of
competition on Chicago Title and the industry generally, industry growth rates
and the absence of any adverse material change in the financial condition and
prospects of Chicago Title and the title insurance industry or in the financial
markets in general. Mathematical analysis (such as determining the average or
median) is not in itself a meaningful method of using comparable company data.
Selected Transaction Analysis. Using publicly available information,
Morgan Stanley examined the terms of certain transactions involving acquisitions
of companies in businesses that possessed similar characteristics to the
business of Chicago Title. These transactions included Fidelity's prior
acquisition of Alamo Title, Lawyers Title Corporation's acquisition of
Commonwealth Land Title Insurance Company and a number of other transactions
involving the acquisition of insurance companies. Based on this review, Morgan
Stanley selected a range of implied values per share equal to 11.0-13.0 times
last twelve months earnings. Applying this range to Chicago Title's last twelve
months earnings produced an implied value per share for Chicago Title common
stock of between $55.48 and $65.57. No transaction utilized in the analysis of
selected precedent transactions is identical to the merger in timing and size,
and, accordingly, an analysis of the results of the foregoing necessarily
involves complex considerations and judgments concerning financial and operating
characteristics of Chicago Title and other factors that would affect the
acquisition value of the companies to which it is being compared. In evaluating
the precedent transactions, Morgan Stanley made judgments and assumptions with
regard to industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Fidelity
or Chicago Title, such as the impact of competition on Chicago Title and the
title insurance industry generally, industry growth rates and the absence of any
adverse material change in the financial condition and prospects of Chicago
Title and the title insurance industry or in the financial markets in general.
Mathematical analysis (such as determining the average or median) is not in
itself a meaningful method of using selected transaction data.
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<PAGE> 55
Discounted Cash Flow Analysis of Chicago Title. Morgan Stanley performed a
discounted cash flow analysis for Chicago Title based upon publicly available
information, equity research estimates and financial projections provided by
Chicago Title's management (the "research case"). In addition, Morgan Stanley
conducted a discounted cash flow analysis for Chicago Title based upon publicly
available information and equity research estimates, but incorporated a lower
long-term growth rate (the "adjusted research case"). Separate analyses were
prepared by Morgan Stanley using each of the two sets of financial forecasts.
Morgan Stanley performed a discounted cash flow analysis utilizing
calculated unlevered free cash flows, defined as net income plus the aggregate
of depreciation and amortization, other non-cash expenses and after-tax interest
expense less the sum of capital expenditures and investment in noncash working
capital. Morgan Stanley calculated terminal values by applying a range of
multiples from 6.0x to 8.0x to last twelve months net income. The cash flow
streams and terminal values were then discounted to the present using an
estimates range of the weighted average cost of capital for Chicago Title of
10.0% to 12.0%. Morgan Stanley performed its analysis both including and
excluding assumed operational benefits from the transaction prepared by
Fidelity's management. The results of this analysis are summarized in the table
below.
<TABLE>
<CAPTION>
CASE ESTIMATED VALUE PER SHARE
- ---- -------------------------
<S> <C>
Research case -- without operational benefits............... $57.03 - $66.14
Research case -- with operational benefits.................. $75.47 - $87.58
Adjusted research case -- without operational benefits...... $42.97 - $49.24
Adjusted research case -- with operational benefits......... $61.56 - $70.69
</TABLE>
Fidelity Comparable Company Analysis. Using publicly available
information, Morgan Stanley performed an analysis comparing Fidelity's current
trading value and the implied multiples for a variety of operating statistics,
both historical and projected, to those of selected publicly traded companies
possessing similar characteristics with Fidelity. In particular, Morgan Stanley
focused on the following companies:
- Chicago Title
- First American Financial Corporation
- LandAmerica Financial Group, Inc.
- Old Republic International Corporation
- Stewart Information Services Corporation
Morgan Stanley reviewed financial information including the
price-to-forecasted-earnings multiples for calendar years 1999 and 2000. The
financial information was based on a compilation of earnings projections by
securities research analysts. The tables below summarize these analyses and the
relevant statistics for Fidelity as of July 29, 1999.
<TABLE>
<CAPTION>
LOW HIGH
---- ----
<S> <C> <C> <C>
COMPARABLE COMPANIES:
Price to Forecasted 1999 Earnings.................... 5.7x 8.9x
Price to Forecasted 2000 Earnings.................... 5.8 8.2
FIDELITY:
Price to Forecasted 1999 Earnings.................... 6.2x
Price to Forecasted 2000 Earnings.................... 6.3
</TABLE>
Morgan Stanley applied these multiples and percentages from the comparable
companies to Fidelity's corresponding financial statistics to arrive at a range
of per share equity values for
49
<PAGE> 56
Fidelity. Using this methodology, Morgan Stanley observed that the implied value
per share of Fidelity common stock ranged from $16.83 to $21.06. No company used
in the foregoing analysis is identical to Fidelity. In evaluating comparable
companies, Morgan Stanley made judgments and assumptions with regard to industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of Fidelity, such as the
impact of competition on Fidelity and the title insurance industry generally,
industry growth rates and the absence of any adverse material change in the
financial condition and prospects of Fidelity or the title insurance industry or
in the financial markets in general. Mathematical analysis (such as determining
the average or median) is not in itself a meaningful method of using comparable
company data.
Fidelity Discounted Cash Flow Analysis. Morgan Stanley performed a
discounted cash flow analysis for Fidelity based upon publicly available
information, equity research estimates and financial projections provided by
Fidelity's management (the "research case"). In addition, Morgan Stanley
conducted a discounted cash flow analysis for Fidelity based upon publicly
available information and equity research estimates, but incorporated a lower
long-term growth rate (the "adjusted research case"). Separate analyses were
prepared by Morgan Stanley using each of the two sets of financial forecasts.
Morgan Stanley performed a discounted cash flow analysis utilizing calculated
unlevered free cash flows, and calculated terminal values by applying a range of
multiples from 6.0x to 8.0x to last twelve months net income. The cash flow
streams and terminal values were then discounted to the present using an
estimates range of the weighted average cost of capital for Fidelity of 10.0% to
12.0%. The results of this analysis is summarized in the table below.
<TABLE>
<CAPTION>
CASE ESTIMATED VALUE PER SHARE
- ---- -------------------------
<S> <C>
Research case............................................... $28.86 - $33.52
Adjusted research case...................................... $21.74 - $25.01
</TABLE>
Pro Forma Analysis of the Merger. Morgan Stanley analyzed the pro forma
impact of the merger on Fidelity's earnings per share ("EPS") for each of the
fiscal years ending 2000, 2001 and 2002. The analysis was performed utilizing
securities research analysts' estimates for Fidelity and Chicago Title and
incorporated assumed operational benefits anticipated from the merger prepared
by Fidelity's management. Based on these forecasts and assuming the achievement
of the assumed benefits, the merger is expected to be accretive to Fidelity's
EPS in each of the years examined.
Morgan Stanley performed a variety of financial and comparative analyses
for purposes of delivering its opinion. The preparation of a fairness opinion is
a complex process and is not necessarily susceptible to a partial analysis or
summary description. Morgan Stanley believes that the analyses summarized above
must be considered as a whole and that selecting portions thereof, without
considering all the analyses, would create an incomplete view of the process
underlying Morgan Stanley's analyses and opinion. In addition, Morgan Stanley
may have given various analyses and factors more or less weight than other
analyses and factors, and may have deemed various assumptions more or less
probable than other assumptions, so that the range of valuations resulting from
any particular analysis described above should therefore not be taken to be
Morgan Stanley's view of the actual value of Fidelity or Chicago Title.
Further, in performing its analyses, Morgan Stanley 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 Chicago Title. Any estimates contained in Morgan Stanley's analyses are not
necessarily indicative of future results or actual values, which may be
significantly more or less favorable than those suggested by such estimates. The
analyses performed were prepared solely as a part of Morgan Stanley's analysis
of the fairness to Fidelity from a financial point of view of the merger
consideration to be paid pursuant to the
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<PAGE> 57
merger agreement and were conducted in connection with the delivery of Morgan
Stanley's opinion, dated August 1, 1999, to Fidelity's board of directors.
Morgan Stanley's analyses do not purport to be appraisals of or to reflect the
prices at which shares of Chicago Title's common stock might actually trade. The
merger consideration was determined through arm's-length negotiations between
Fidelity and Chicago Title and was approved by Fidelity's board of directors.
Morgan Stanley did not recommend any specific merger consideration to Fidelity
or specify any merger consideration as constituting the only appropriate
consideration for the merger.
In addition, as described above, Morgan Stanley's opinion and presentation
to Fidelity's board of directors was one of many factors taken into
consideration by the board in making its determination to recommend adoption of
the merger agreement. Consequently, the Morgan Stanley analyses described above
should not be viewed as determinative of the opinion of Fidelity's board or
management with respect to the value of Chicago Title, or as indicative of
whether Fidelity's board would have been willing to agree to differently
constituted merger consideration or merger consideration in a different amount.
Morgan Stanley is an internationally recognized investment banking and
advisory firm. Morgan Stanley, as part of its investment banking and financial
advisory business, is continuously engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. In the ordinary course of Morgan Stanley's trading and brokerage
activities, Morgan Stanley or its affiliates may at any time or from time to
time hold long or short positions, trade or otherwise effect transactions, for
its own account or for the account of customers, in the securities of Fidelity
or Chicago Title.
Pursuant to an engagement letter, dated April 6, 1999, between Fidelity and
Morgan Stanley, Fidelity agreed to pay to Morgan Stanley a fee of approximately
$5,250,000 and to reimburse Morgan Stanley for its expenses incurred in
performing the services described above. Fidelity also agreed to indemnify
Morgan Stanley and its affiliates, their respective directors, officers, agents
and employees and each person, if any, controlling Morgan Stanley or any of its
affiliates against certain liabilities and expenses, including certain
liabilities under federal securities laws, related to or arising out of Morgan
Stanley's engagement and any related transactions. Morgan Stanley may receive
additional fees for providing financing services to Fidelity in connection with
the merger.
OPINION OF CHICAGO TITLE'S FINANCIAL ADVISOR
On August 1, 1999, at a special meeting of the Board of Directors of
Chicago Title, Merrill Lynch delivered its oral opinion that, as of that date
and based on the assumptions made, matters considered and limits of review as
set forth in such opinion, the consideration to be received by the holders of
Chicago Title common stock in the merger was fair from a financial point of view
to those holders, other than Fidelity and its affiliates. Merrill Lynch
subsequently confirmed its oral opinion by delivery of its written opinion dated
August 1, 1999.
THE FULL TEXT OF THE MERRILL LYNCH OPINION, WHICH STATES THE ASSUMPTIONS
MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE SCOPE OF
THE REVIEW UNDERTAKEN BY MERRILL LYNCH IN RENDERING ITS OPINION, IS INCLUDED IN
THIS JOINT PROXY STATEMENT/PROSPECTUS AS APPENDIX C AND IS INCORPORATED BY
REFERENCE INTO THIS JOINT PROXY STATEMENT/PROSPECTUS. THE MERRILL LYNCH OPINION
IS FOR THE USE AND BENEFIT OF THE CHICAGO TITLE BOARD OF DIRECTORS AND ADDRESSES
ONLY THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, TO THE HOLDERS OF CHICAGO
TITLE COMMON STOCK, OTHER THAN FIDELITY AND ITS AFFILIATES, OF THE CONSIDERATION
TO BE RECEIVED IN THE MERGER. THE MERRILL LYNCH OPINION DOES NOT ADDRESS THE
MERITS OF THE UNDERLYING DECISION BY
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<PAGE> 58
CHICAGO TITLE TO ENGAGE IN THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION
TO ANY HOLDER OF CHICAGO TITLE COMMON STOCK AS TO HOW SUCH STOCKHOLDER SHOULD
VOTE ON THE PROPOSED MERGER. THE MERRILL LYNCH OPINION DOES NOT EXPRESS AN
OPINION AS TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE CONSIDERATION
TO BE RECEIVED IN CONNECTION WITH THE MERGER IF THE AVERAGE PRICE OF FIDELITY
COMMON STOCK FALLS BELOW $15.00 PER SHARE AND FIDELITY CHOOSES TO PAY MERGER
CONSIDERATION HAVING A VALUE OF LESS THAT $52.00 PER SHARE OF CHICAGO TITLE
COMMON STOCK. THE MERRILL LYNCH OPINION ALSO DOES NOT EXPRESS ANY OPINION AS TO
THE PRICES AT WHICH THE SHARES OF COMMON STOCK OF CHICAGO TITLE OR FIDELITY WILL
TRADE FOLLOWING THE ANNOUNCEMENT OF THE MERGER OR THE PRICES AT WHICH THE COMMON
STOCK OF FIDELITY WILL TRADE FOLLOWING CONSUMMATION OF THE MERGER. THIS
DESCRIPTION OF THE MERRILL LYNCH OPINION IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF THE MERRILL LYNCH OPINION. HOLDERS OF CHICAGO
TITLE COMMON STOCK ARE URGED TO, AND SHOULD, READ THE MERRILL LYNCH OPINION
CAREFULLY AND IN ITS ENTIRETY.
In arriving at the Merrill Lynch opinion, Merrill Lynch, among other
things:
1. reviewed certain publicly available business and financial information
relating to Chicago Title and Fidelity that Merrill Lynch deemed to be
relevant;
2. reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets, liabilities and prospects
of Chicago Title and Fidelity, as well as the amount and timing of the
cost savings and related expenses and synergies expected to result from
the merger, furnished to Merrill Lynch by Chicago Title and Fidelity,
respectively;
3. conducted discussions with members of senior management and
representatives of Chicago Title and Fidelity concerning the matters
described in items (1) and (2) above, as well as their respective
businesses and prospects before and after giving effect to the merger
and the expected cost savings and related expenses and synergies of the
merger;
4. reviewed the market prices and valuation multiples for the shares of
Chicago Title common stock and Fidelity common stock and compared them
with those of certain publicly available companies that Merrill Lynch
deemed to be relevant;
5. reviewed the results of operations of Chicago Title and Fidelity and
compared them with those of certain publicly traded companies that
Merrill Lynch deemed to be relevant;
6. compared the proposed financial terms of the merger with the financial
terms of certain other transactions that Merrill Lynch deemed to be
relevant;
7. participated in discussions and negotiations among representatives of
Chicago Title and Fidelity and their financial and legal advisors;
8. reviewed the potential pro forma impact of the merger;
9. reviewed a draft dated July 31, 1999 of the merger agreement; and
10. reviewed such other financial studies and analyses and took into
account such other matters that Merrill Lynch deemed necessary,
including Merrill Lynch's assessment of general economic, market and
monetary conditions.
In preparing its opinion, Merrill Lynch assumed and relied on 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 it did not
assume any responsibility for independently verifying such information or
undertake an independent evaluation or appraisal of
52
<PAGE> 59
any of the assets or liabilities of Chicago Title or Fidelity and was not
furnished with any such evaluation or appraisal. In addition, Merrill Lynch did
not assume any obligation to conduct any physical inspection of the properties
or facilities of Chicago Title or Fidelity. With respect to the financial
forecasts and the information regarding the expected cost savings and related
expenses and synergies of the merger furnished to or discussed with Merrill
Lynch by Chicago Title and Fidelity, Merrill Lynch assumed that they had been
reasonably prepared and reflected the best currently available estimates and
judgment of Chicago Title's or Fidelity's management as to the expected future
financial performance of Chicago Title or Fidelity, as the case may be, and as
to the expected cost savings and related expenses and synergies of the merger.
Merrill Lynch further assumed that the merger will be accounted for as a
purchase under generally accepted accounting principles, that it will qualify as
a tax-free reorganization for U.S. federal income tax purposes and that it will
not adversely affect the treatment for U.S. federal income tax purposes of the
distribution of shares of common stock of Chicago Title by Alleghany Corporation
in 1998. Merrill Lynch also assumed that the final form of the merger agreement
would be substantially similar to the last draft reviewed by it.
The Merrill Lynch opinion was necessarily based upon market, economic and
other conditions as they existed and could be evaluated on, and on the
information made available to, discussed with or reviewed by or for Merrill
Lynch as of the date of its opinion. For purposes of rendering its opinion,
Merrill Lynch assumed that the merger will be consummated substantially in
accordance with the terms set forth in the merger agreement, including in all
respects material to its analysis, that the representations and warranties of
each party contained in the merger agreement and all related documents and
instruments are true and correct, that each party to the merger agreement and
all related documents and instruments 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. 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 divestiture requirements or amendments or
modifications, would be imposed that would have a material adverse effect on the
contemplated benefits of the merger. In connection with the preparation of the
Merrill Lynch opinion, Merrill Lynch was not authorized by Chicago Title to
solicit, nor did Merrill Lynch solicit, third party indications of interest for
the acquisition of all or any part of Chicago Title.
Set forth below is a brief summary of the analyses performed by Merrill
Lynch in connection with the preparation of its opinion. These descriptions of
financial analyses include information presented in tabular format. In order to
fully understand the financial analyses performed by Merrill Lynch, the tables
must be read together with the text of each description. The tables alone do not
constitute a complete description of the financial analyses. Considering the
data in the tables without considering the full narrative description of the
financial analyses, including the methodologies and assumptions underlying the
analyses, could create a misleading or incomplete view of the financial analyses
performed by Merrill Lynch.
Chicago Title
Implied Transaction Values. Merrill Lynch reviewed the trading price for
Chicago Title common stock and compared it with the merger consideration of
$52.00 per share. This analysis indicated that the merger consideration
represented a premium of 41.7% over the market price of Chicago Title common
stock of $36.69 per share at the close of business on July 29, 1999, which was
the last closing price prior to the announcement of discussions between Chicago
Title and Fidelity.
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<PAGE> 60
Selected Publicly Traded Comparable Companies Analysis. Merrill Lynch
compared certain financial data relating to Chicago Title to six publicly traded
title insurance corporations:
- Fidelity,
- Old Republic International Corp.,
- First American Financial Corp.,
- LandAmerica Financial Group, Inc.,
- Stewart Information Services Corporation, and
- Investors Title Company.
These comparable companies were chosen because they are publicly traded
companies with operations that for purposes of this analysis may be considered
reasonably similar to the operations of Chicago Title. For each of these
comparable companies and Chicago Title, Merrill Lynch calculated the market
price per share of common stock to estimated 1999 earnings, 2000 earnings and
2001 earnings, each referred to in this section as the 1999 P/E multiple, the
2000 P/E multiple and the 2001 P/E multiple, respectively, and to GAAP book
value as of June 30, 1999.
For purposes of calculating the P/E multiples of the comparable companies,
Merrill Lynch used the closing price per share of their common stock on July 30,
1999, except for Chicago Title and Fidelity, for which Merrill Lynch utilized
the closing price on July 29, 1999, and their estimated earnings per share or
"EPS" as reported by First Call Corporation as of July 30, 1999. The following
table sets forth information concerning the range of P/E multiples and multiples
to GAAP book value of the comparable companies (other than Old Republic
International) and Chicago Title:
<TABLE>
<CAPTION>
COMPARABLE COMPANIES
MULTIPLE RANGE
-----------------------------
LOW MEDIAN MEAN HIGH CHICAGO TITLE
--- ------ ---- ---- -------------
<S> <C> <C> <C> <C> <C>
1999 P/E....................... 5.9x 7.6x 7.3x 9.3x 7.7x
2000 P/E....................... 4.2 6.3 6.4 8.6 7.5
2001 P/E....................... 3.9 5.6 5.7 7.8 6.6
GAAP Book Value 6/30/99........ 0.6 1.2 1.0 1.4 1.7
</TABLE>
Merrill Lynch calculated implied equity values per share of the comparable
companies by applying the above multiples to net operating income, excluding
non-recurring items and realized capital gains or losses. Merrill Lynch also
calculated implied equity values per share adding a 30% control premium as
determined in the following section. The following table presents the range of
equity values per share based on these analyses:
<TABLE>
<CAPTION>
IMPLIED EQUITY VALUE
IMPLIED EQUITY VALUE PER SHARE WITH 30%
PER SHARE CONTROL PREMIUM
-------------------- --------------------
LOW HIGH LOW HIGH
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1999 P/E.............................. $28.19 $44.32 $36.65 $57.62
2000 P/E.............................. 20.51 42.23 26.67 54.90
2001 P/E.............................. 21.80 42.86 28.34 55.72
GAAP Book Value 6/30/99............... 12.98 31.11 16.87 40.44
</TABLE>
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<PAGE> 61
Control Premium Analysis. Merrill Lynch compared the premium paid over the
trading price for mergers during 1998 and 1999 of companies valued at $750
million to $1.5 billion, as of one day, one week and one month prior to the
announcement of the transactions. The following table represents the range of
such premiums:
<TABLE>
<CAPTION>
PREMIUM TO TRADING PRICE
--------------------------------
ONE DAY ONE WEEK ONE MONTH
------- -------- ---------
<S> <C> <C> <C>
ALL TRANSACTIONS SINCE JANUARY 1998
Mean....................................... 24.9% 31.6% 33.8%
Median..................................... 16.2 21.0 26.1
ALL TRANSACTIONS SINCE JANUARY 1998
(EXCLUDING 100% STOCK TRANSACTIONS)
Mean....................................... 21.9% 29.5% 31.7%
Median..................................... 18.4 21.0 30.2
</TABLE>
Selected Acquisitions Analysis. Using publicly available information,
Merrill Lynch analyzed information relating to two title insurance industry
acquisitions that Merrill Lynch deemed relevant in the evaluation of the merger.
For the selected comparable transactions, Merrill Lynch calculated multiples of
equity values at the time of the announcement of such transactions based on the
consideration to be paid in such transactions to trailing net operating income
and book value. The following table represents the results of Merrill Lynch's
calculations:
<TABLE>
<CAPTION>
EQUITY VALUE -- GAAP
----------------------------------------
TRAILING
ANNOUNCED DATE ACQUIROR TARGET EQUITY VALUE NOI BOOK VALUE
- -------------- ----------------- ----------------------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
August 21, 1997 Lawyers Title Commonwealth Land Title $649.3 25.7x 2.37x
May 7, 1998 Fidelity National Alamo Title Holding 79.4 18.9 1.88
</TABLE>
Merrill Lynch calculated imputed equity values per share of common stock of
Chicago Title by utilizing two different methods: (1) by applying the foregoing
multiples to the trailing net operating income and book value of Chicago Title,
and (2) by applying adjusted multiples to the trailing net operating income of
Chicago Title. The adjusted multiples reflect the difference between current
multiples and the mean price/trailing operating earnings at the time the above
transactions were announced. Merrill Lynch derived the adjusted multiples by
calculating the premium paid based on the title insurance industry mean
price/trailing EPS at the time the above transactions were announced and
applying such premium to the current title insurance industry mean
price/trailing operating earnings. The following table reflects the foregoing
calculations:
<TABLE>
<CAPTION>
IMPUTED CHICAGO TITLE
VALUE PER SHARE
--------------------------
TRAILING NOI BOOK VALUE
------------ ----------
<S> <C> <C>
IMPUTED CHICAGO TITLE VALUATION ANALYSIS --
BASED ON ANNOUNCED MULTIPLES
Commonwealth Land Title................................ $128.76 $52.09
Alamo Title Holding.................................... 94.69 41.32
IMPUTED CHICAGO TITLE VALUATION ANALYSIS --
BASED ON ADJUSTED EARNINGS MULTIPLES
Commonwealth Land Title................................ $ 96.08 $52.09
Alamo Title Holding.................................... 54.28 41.32
</TABLE>
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<PAGE> 62
Discounted Dividend Analysis. Merrill Lynch performed a discounted
dividend analysis based on First Call Corporation median consensus EPS estimates
as of July 30, 1999 assuming a 10% growth rate in assets and a 10% growth rate
in earnings with distributable dividends in excess of a target tangible
equity/total assets ratio.
Merrill Lynch calculated implied equity values per share of Chicago Title
common stock by utilizing discount rates ranging from 11.0% to 14.0% and
terminal value multiples of estimated 2005 net income ranging from 6.0x to
10.0x. Merrill Lynch arrived at these discount rates based on its judgment of
the weighted average cost of equity of selected publicly traded title insurance
companies, and arrived at these terminal multiples based on its review of the
trading characteristics of the common stock of selected publicly traded title
insurance companies and of comparable acquisitions of selected title insurance
companies. The following table represents the implied equity values per share of
Chicago Title common stock:
<TABLE>
<CAPTION>
VALUE PER SHARE
--------------------------
DISCOUNT RATE 6.0x 8.0x 10.0x
- ------------- ------ ------ ------
<S> <C> <C> <C>
11.0%........................................... $36.49 $45.15 $53.80
12.0%........................................... 35.20 43.52 51.83
13.0%........................................... 33.97 41.96 49.96
14.0%........................................... 32.80 40.48 48.16
</TABLE>
Fidelity
Selected Publicly Traded Comparable Companies Analysis. Merrill Lynch
compared certain financial data relating to Fidelity to six publicly traded
corporations:
- Chicago Title,
- Old Republic International Corp.,
- First American Financial Corp.,
- LandAmerica Financial Group, Inc.,
- Stewart Information Services Corporation, and
- Investors Title Company.
These comparable companies were chosen because they are publicly traded
companies with operations that for purposes of this analysis may be considered
reasonably similar to the operations of Fidelity. For each of these comparable
companies and Fidelity, Merrill Lynch calculated the market price per share of
common stock to estimated 1999 earnings, 2000 earnings and 2001 earnings, each
referred to in this section as the 1999 P/E multiple, the 2000 P/E multiple and
the 2001 P/E multiple, respectively.
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<PAGE> 63
For purposes of calculating the P/E multiples of the comparable companies,
Merrill Lynch used the closing price per share of their common stock on July 30,
1999, except for Chicago Title and Fidelity for which Merrill Lynch utilized the
closing price on July 29, 1999, and their estimated earnings per share or "EPS"
as reported by First Call Corporation as of July 30, 1999. The following table
sets forth information concerning the range of P/E multiples of the comparable
companies (other than Old Republic International) and Chicago Title:
<TABLE>
<CAPTION>
COMPARABLE COMPANIES MULTIPLE RANGE
------------------------------------------
LOW MEDIAN MEAN HIGH FIDELITY
---- ------ ---- ---- --------
<S> <C> <C> <C> <C> <C>
1999 P/E........................... 5.9x 7.7x 7.6x 9.3x 6.2x
2000 P/E........................... 4.2 6.9 6.6 8.6 6.3
2001 P/E........................... 3.9 6.3 6.0 7.8 5.6
GAAP Book Value 6/30/99............ 0.6 1.3 1.1 1.7 1.2
</TABLE>
Merrill Lynch calculated implied equity values per share of the comparable
companies by applying the above multiples to net operating income, excluding
non-recurring items and realized capital gains or losses. The following table
presents the range of equity values per share of the comparable companies:
<TABLE>
<CAPTION>
IMPLIED EQUITY
VALUE PER SHARE
----------------
LOW HIGH
------ ------
<S> <C> <C>
1999 P/E................................................. $16.71 $26.28
2000 P/E................................................. 11.60 23.87
2001 P/E................................................. 12.36 24.30
GAAP Book Value 6/30/99.................................. 8.96 25.34
</TABLE>
Discounted Dividend Analysis. Merrill Lynch performed a discounted
dividend analysis based on First Call Corporation median consensus EPS estimates
as of July 30, 1999 assuming a 10% growth rate in assets and a 15% growth rate
in earnings with distributable dividends in excess of target tangible
equity/total assets ratio.
Merrill Lynch calculated implied equity values per share of Fidelity common
stock by utilizing discount rates ranging from 11.0% to 14.0% and terminal value
multiples of estimated 2005 net income ranging from 6.0x to 10.0x. Merrill Lynch
arrived at these discount rates based on its judgment of the weighted average
cost of equity of selected publicly traded title insurance companies, and
arrived at these terminal multiples based on its review of the trading
characteristics of the common stock of selected publicly traded title insurance
companies and of comparable acquisitions of selected title insurance companies.
The following table represents the implied equity values per share of Fidelity
common stock:
<TABLE>
<CAPTION>
VALUE PER SHARE
--------------------------
DISCOUNT RATE 6.0x 8.0x 10.0x
- ------------- ------ ------ ------
<S> <C> <C> <C>
11.0%........................................... $21.62 $27.76 $33.88
12.0%........................................... 20.76 26.66 32.54
13.0%........................................... 19.94 25.61 31.27
14.0%........................................... 19.16 24.60 30.05
</TABLE>
Pro Forma Financial Analysis
Based on First Call Corporation earnings estimates for Chicago Title and
Fidelity and projections for expected cost savings and related expenses and
synergies of the merger provided by Chicago Title and Fidelity, Merrill Lynch
analyzed certain pro forma effects of the merger, which included, among other
things, the impact of the merger on Fidelity's EPS. This analysis
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<PAGE> 64
indicated that the transaction would be accretive to projected EPS of Fidelity
common stock, and that the merger was accretive to Fidelity's book value but
dilutive to Fidelity's tangible book value per share of Fidelity common stock.
The summary set forth above of the analyses performed by Merrill Lynch in
connection with its opinion does not purport to be a complete description of
such analyses. The preparation of a fairness opinion is a complex process and is
not susceptible to partial analysis or summary description. Merrill Lynch
believes that its analyses and the summary set forth above must be considered as
a whole and that selecting portions of its analyses, without considering all
analyses, or selecting part or all of the above summary, without considering all
factors and analyses, would create an incomplete view of the process underlying
Merrill Lynch's opinion.
Compensation Arrangements
Merrill Lynch acted as financial advisor to the board of directors of
Chicago Title in connection with the merger. Pursuant to a letter agreement
dated June 22, 1999 between Chicago Title and Merrill Lynch, Merrill Lynch will
receive a fee from Chicago Title for its services, $250,000 of which was payable
upon execution of the letter agreement, $750,000 of which was payable upon
execution of the merger agreement and the remainder of which is contingent on
the completion of the merger. Assuming completion of the merger, Merrill Lynch's
total fee will be $5 million. In addition, Chicago Title has agreed to reimburse
Merrill Lynch for its reasonable out-of-pocket expenses incurred in connection
with rendering financial advisory services, including the reasonable fees and
disbursements of its legal counsel. Chicago Title has agreed to indemnify
Merrill Lynch and its directors, officers, agents, employees and controlling
persons, for all losses, claims, damages and liabilities related to or arising
out of its rendering of services under its engagement as financial advisor,
including liabilities incurred under the federal securities laws.
BANK FINANCING
Fidelity has entered into a commitment letter with Bank of America, N.A.
and Banc of America Securities LLC with respect to financing the merger. Bank of
America has agreed, pursuant to the commitment letter and subject to the
conditions described in the commitment letter, to act as administrative agent
for new senior credit facilities, consisting of a $450.0 million term loan
facility, a $250.0 million revolving credit facility and a $100.0 million short-
term revolving credit facility. Bank of America has also committed to lend
Fidelity all $800.0 million of the borrowings to be made available under the new
senior credit facility. Banc of America Securities agreed to act as a lead
arranger to form a syndicate of financial institutions for the new senior credit
facilities.
As of the date of this document, Fidelity anticipates borrowing
approximately $584.7 million under the new senior credit facilities to pay the
cash portion of the merger consideration payable to Chicago Title stockholders.
Approximately $138.7 million of the new senior credit facilities will be used to
refinance $138.7 million aggregate principal amount of indebtedness outstanding
at September 30, 1999.
Bank of America's loan commitments are subject to customary conditions,
including the negotiation, execution and delivery of definitive documents for
the new senior credit facilities, the absence of any changes, occurrences or
developments that could, in Bank of America's opinion, have a material adverse
effect on Fidelity or Chicago Title and the absence of any material adverse
changes in or material disruption of conditions in the financial, banking or
capital markets which Bank of America deems material in connection with the
syndication of the new senior credit facilities.
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<PAGE> 65
The following is a description of certain aspects of the new senior credit
facilities to be arranged by Bank of America for Fidelity:
Term. Borrowings under the term loan facility are expected to be $450.0
million and will be subject to repayment in quarterly installments, ranging from
$12.5 million initially to $25.0 million, over a six-year term. The revolving
credit facility will terminate and all borrowings under the revolving credit
facility will be due and payable six years from the closing date. The short term
revolving credit facility will terminate and all borrowings under the short-
term revolving credit facility will be due and payable 18 months from the
closing date.
Interest Rates. Borrowings under the new senior credit facilities will
bear interest at a rate equal to LIBOR or, at Fidelity's option, an alternate
base rate, in either case plus an applicable margin. The alternate base rate
will be the higher of Bank of America's reference rate or the federal funds rate
plus 0.50%. The applicable margin will initially be set at 150.0 basis points
for LIBOR loans and 25.0 basis points for alternate base rate loans until the
later of six months following the closing date, or when Fidelity obtains a
long-term senior unsecured unsupported debt rating from both Standard & Poor's
Rating Group and Moody's Investors Service, Inc. Thereafter, the applicable
margin will be determined on the basis of Fidelity's actual senior unsecured
debt rating, ranging from 75.0 to 200.0 basis points for LIBOR loans and from
zero to 75.0 basis points for alternate base rate loans. If Fidelity does not
obtain a senior unsecured debt rating from both S&P and Moody's within six
months from the closing date, the applicable margin will be determined after the
initial six-month period by a leverage-based pricing grid to be agreed upon.
Security and Guarantees. Borrowings of Fidelity under the new senior
credit facilities will be unsecured if Fidelity receives investment grade
long-term senior unsupported debt ratings from both of S&P and Moody's before
the closing. Otherwise, Fidelity will be required to pledge the shares of its
domestic subsidiaries (including subsidiaries of Chicago Title) as collateral
security for borrowings under the new senior credit facilities. The new senior
credit facilities will be guaranteed by certain existing and future
non-insurance subsidiaries of Fidelity (including non-insurance subsidiaries of
Chicago Title), to the extent possible under applicable law.
Covenants. The new senior credit facilities will include customary
financial covenants which will require Fidelity to maintain a minimum net worth,
a minimum statutory surplus at Fidelity's primary insurance subsidiaries, a
minimum debt service coverage ratio and a maximum consolidated debt to total
capitalization ratio.
The senior credit facilities will also include customary affirmative
covenants, pertaining to compliance with laws and with material contracts,
delivery of periodic financial statements and other reports to the lenders and
the maintenance of Fidelity's property and insurance, and negative covenants,
which will restrict or limit Fidelity's ability to incur debt, guarantees and
liens, to sell or dispose of assets or enter into mergers, to pay dividends,
repurchase shares of stock and prepay other indebtedness, to make certain
investments and acquisitions, to make capital expenditures and to engage in
certain transactions with its affiliates. The senior credit facilities will also
include representations and warranties of Fidelity and events of default which
are usual and customary for acquisition financing transactions. The new senior
credit facilities will also require Fidelity to prepay outstanding borrowings
with the proceeds from certain sales of securities, new indebtedness and sales
of assets, in each case with customary exceptions.
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<PAGE> 66
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
Tax Matters Relating to the 1998 Distributions of Chicago Title and Alleghany
Asset Management
Until June 1998, Chicago Title and Trust Company was a wholly-owned
subsidiary of Alleghany, and Alleghany Asset Management was a wholly-owned
subsidiary of Chicago Title and Trust Company. In June 1998, Chicago Title and
Trust Company distributed all of the shares of Alleghany Asset Management to
Alleghany. Thereafter, Alleghany contributed Chicago Title and Trust Company to
Chicago Title, and then Alleghany distributed all of the shares of Chicago Title
to Alleghany's stockholders. Alleghany received a tax ruling from the IRS
stating that the distribution by Chicago Title and Trust Company of Alleghany
Asset Management to Alleghany, and the subsequent distribution of Chicago Title
by Alleghany to Alleghany's stockholders would be tax-free spin-offs to Chicago
Title and Trust Company, Alleghany and to Alleghany's stockholders. However,
notwithstanding a ruling as to the tax-free nature of a spin-off, certain events
that occur subsequent to a spin-off may cause the spin-off to be taxable to the
distributing company.
In connection with the spin-off of Chicago Title to the stockholders of
Alleghany, Chicago Title and Alleghany entered into a tax sharing agreement.
That tax sharing agreement generally addresses two areas. First, it allocates
responsibility for federal income and certain state income taxes arising in
taxable periods through the spin-off. Second, it provides for indemnification by
Chicago Title of Alleghany for any taxes imposed in connection with these
spin-offs and certain related transactions.
Under the tax sharing agreement, Chicago Title must reimburse Alleghany for
(1) the amount of the federal income tax liability that Chicago Title and its
subsidiaries would have incurred for all taxable periods through the spin-off,
calculated, generally, as if Chicago Title and its subsidiaries were a separate
consolidated group for federal income tax purposes (except that Chicago Title is
not liable for any federal income taxes in respect of Alleghany Asset Management
and its subsidiaries for any period), and (2) the appropriate part of any state
or local tax imposed on receipts, income, capital or net worth that is computed
on a consolidated, unitary or combined basis by reference to the assets and/or
activities of Chicago Title and its subsidiaries and those of Alleghany and any
of its other subsidiaries (including, for this purpose, Alleghany Asset
Management and its subsidiaries). If the IRS or any other applicable taxing
authority increases any tax for periods prior to the spin-off transactions, and
if such tax is paid by Alleghany or its subsidiaries but is allocable to Chicago
Title under the tax sharing agreement, then Chicago Title will be liable to
Alleghany for the amount of such increase in tax. While the merger should not
increase the potential for, or the amount of, such liability of Chicago Title
for taxes under the tax sharing agreement, Fidelity will succeed to this
potential liability as a result of the merger.
The tax sharing agreement also obligates Chicago Title to indemnify
Alleghany and its subsidiaries for any income or other taxes imposed on
Alleghany or its subsidiaries arising out of, or attributable to, the spin-off
of Chicago Title and certain related transactions for any reason whatsoever
(other than income taxes directly attributable to certain acts or
representations of Alleghany or its subsidiaries) and for any income or other
taxes imposed on Alleghany or its subsidiaries arising out of, or attributable
to, the spin-off of Alleghany Asset Management as a result of any acts or
representations by Chicago Title or its subsidiaries. In addition, Chicago Title
agreed for two years after the spin-off not to undertake any actions that might
adversely affect the tax-free status of the spin-offs or that were otherwise
specifically prohibited, including any merger, without either the written
consent of Alleghany or a tax opinion or IRS ruling, in each case, acceptable to
Alleghany, stating that the action would not adversely affect the tax-free
treatment of either spin-off.
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Tax Opinions
The merger agreement provides that the obligations of the parties to
complete the merger are conditioned upon the receipt as of the time of the
merger by Chicago Title of an opinion of Swidler Berlin Shereff Friedman, LLP
(or other counsel acceptable to Chicago Title), and the receipt as of the time
of the merger by Fidelity of an opinion of Gibson, Dunn & Crutcher LLP (or other
counsel acceptable to Fidelity), in each case subject to the qualifications
discussed below, to the effect that, on the basis of facts, representations and
reasonable assumptions set forth in those opinions, for United States federal
income tax purposes, the merger will be treated as a "reorganization" within the
meaning of Section 368 of the Internal Revenue Code.
The obligation of Chicago Title to complete the merger is also conditioned
upon either (i) the receipt by Chicago Title of (x) a private letter ruling from
the IRS that is reasonably satisfactory to Alleghany or (y) an opinion of
Swidler Berlin Shereff Friedman, LLP (or other counsel acceptable to Chicago
Title and Alleghany), in either case, to the effect that the merger does not
adversely affect the prior tax-free treatment of either the distribution by
Chicago Title and Trust Company of Alleghany Asset Management to Alleghany or
the distribution by Alleghany of Chicago Title to Alleghany's stockholders, or
(ii) the written consent by Alleghany to the merger. In addition, the obligation
of Fidelity to complete the merger is conditioned upon either (i) the receipt by
Chicago Title of a private letter ruling from the IRS satisfactory to Fidelity
or (ii) the receipt by Chicago Title of an opinion of Swidler Berlin Shereff
Friedman, LLP (or other counsel acceptable to Fidelity) or the receipt by
Fidelity of an opinion of Gibson, Dunn & Crutcher LLP (or other counsel
acceptable to Fidelity), in either case, to the effect that the merger does not
adversely affect the prior tax-free treatment of either the distribution by
Chicago Title and Trust Company of Alleghany Asset Management to Alleghany or
the distribution by Alleghany of Chicago Title to Alleghany's stockholders. In
October 1999, a request for a private letter ruling to the effect that the
merger would not adversely affect the prior tax-free treatment of either
distribution was submitted to the IRS.
In rendering the tax opinions with respect to the matters described above
and as to the accuracy of the discussion herein of certain United States federal
income tax consequences of the merger, counsel will rely upon, and will assume
as accurate and correct (without any independent investigation) certain
representations as to factual matters contained in certificates delivered by
Chicago Title, Fidelity and others. If such representations as to factual
matters are inaccurate, the opinions could be adversely affected. Similarly, if
an IRS private letter ruling is obtained, the ruling will be based upon
representations made by Chicago Title, Fidelity and others as to factual
matters. The inaccuracy of any of those factual representations could cause the
IRS to revoke the ruling.
The tax opinions will represent tax counsels' best judgment as to the tax
treatment of the merger and the effect of the merger on the distributions of
Chicago Title and Alleghany Asset Management in June 1998, but will not be
binding on the IRS, and we cannot assure you that the IRS will not contest the
conclusions expressed therein. If contrary to the conclusions reached in the
opinions of tax counsel, the merger is not treated as a reorganization within
the meaning of Section 368 of the Internal Revenue Code, the merger will be
fully taxable to Chicago Title and the Chicago Title stockholders.
Similarly, if the conclusions reached in the opinion of tax counsel with
respect to the effect of the merger or the spin-off are successfully challenged,
or if an IRS ruling with respect to that matter is received and subsequently
revoked, and the merger is considered to adversely affect the tax-free nature of
the spin-offs, Alleghany could be required to pay income tax on the gain
inherent in the stock of Alleghany Asset Management and/or Chicago Title at the
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time of the spin-offs. In that event, pursuant to the terms of the tax sharing
agreement entered into by Alleghany and Chicago Title at the time of the
spin-off, Fidelity, as successor to Chicago Title, would be required to
indemnify Alleghany for the amount of tax paid by Alleghany on the spin-offs.
The amount of tax liability for which Chicago Title could be required to
indemnify Alleghany in that circumstance would be substantial.
The balance of the discussion regarding the tax consequences of the merger
is based on the conclusions set forth in the opinions of tax counsel that the
merger will be treated as a reorganization under Section 368 of the Internal
Revenue Code.
Material Federal Income Tax Consequences to Chicago Title Stockholders
The following is a summary of the material United States federal income tax
consequences of the merger to a stockholder of Chicago Title who at the time of
the merger holds shares of Chicago Title common stock as a capital asset (i.e.,
generally, held for investment). This discussion is based on the provisions of
the Internal Revenue Code, federal tax regulations and relevant administrative
and judicial interpretations thereof, all in effect as of the date of this joint
proxy statement/prospectus, and is subject to change at any time (possibly with
retroactive effect). This discussion does not address the United States federal
income tax considerations applicable to a Chicago Title stockholder who is
subject to special or differing treatment under the Internal Revenue Code
because of the stockholder's tax status, individual circumstances or other
factors unrelated to the merger, such as Chicago Title stockholders who are
non-U.S. persons, financial institutions, dealers in securities, insurance
companies, tax-exempt entities, holders who acquired shares of Chicago Title
common stock pursuant to the exercise or cancellation of an employee stock
option or right or otherwise as compensation and holders who hold Chicago Title
common stock as part of a hedge, straddle, constructive sale or conversion
transaction. In addition, we have not provided any information with respect to
any non-income tax considerations or the tax consequences of the merger under
applicable foreign, state or local laws. CHICAGO TITLE STOCKHOLDERS ARE URGED TO
CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE FEDERAL INCOME AND OTHER TAX
CONSEQUENCES OF THE MERGER, INCLUDING THE EFFECTS OF STATE, LOCAL AND FOREIGN
TAX LAWS.
General. The United States federal income tax consequences of the merger
to a Chicago Title stockholder will depend upon whether the Chicago Title
stockholder exchanges such stockholder's Chicago Title common stock in the
merger solely for Fidelity common stock (except to the extent the stockholder
receives cash in lieu of a fractional share of Fidelity common stock), for some
combination of cash and Fidelity common stock, or solely for cash, and will also
depend upon the Chicago Title stockholder's particular situation.
The merger agreement provides that Fidelity can choose to pay a greater or
lesser portion of the merger consideration in the form of cash or shares of
Fidelity common stock, depending upon the price of Fidelity common stock at the
time of the merger. The merger agreement also provides that the total amount of
cash and the total amount of Fidelity common shares included in the merger
consideration will be adjusted so that Chicago Title stockholders will own 50.1%
of Fidelity's outstanding shares of common stock immediately after the merger,
and that the aggregate value of the whole shares of Fidelity common stock to be
issued in the merger (valued at the time of the merger) to Chicago Title
stockholders equals or exceeds 40% of the aggregate consideration to be issued
in connection with the merger (including cash in lieu of a fractional share of
Fidelity common stock). For purposes of the preceding sentence, shares of
Chicago Title common stock owned by dissenters to the merger, shares of Chicago
Title common stock held by Fidelity or any of its subsidiaries immediately prior
to the time of the merger, and shares of Chicago Title common stock redeemed by
Chicago Title since January 1, 1999 will be treated as having been exchanged in
the merger for cash. Finally, the elections made by all other Chicago Title
stockholders will affect the extent to which the
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election made by any individual Chicago Title stockholder can be accommodated.
As a result of all of the foregoing, a Chicago Title stockholder who elects
solely Fidelity common stock may nevertheless receive some cash, and a Chicago
Title stockholder who elects a specified percentage of cash may receive more or
less cash than elected.
Exchange Solely for Fidelity Common Stock. No gain or loss will be
recognized by a Chicago Title stockholder who in the merger exchanges all of the
shares of Chicago Title common stock owned by the stockholder solely for shares
of Fidelity common stock (except for any gain or loss attributable to cash, if
any, received in lieu of any fractional shares of Fidelity common stock).
The aggregate adjusted tax basis of such shares of Fidelity common stock
will be equal to the aggregate adjusted tax basis of the shares of Chicago Title
common stock that the Chicago Title stockholder surrenders in the merger (except
for any portion of the basis in the Chicago Title common stock that is allocable
to any fractional share interest in any share of Fidelity common stock for which
cash is received). Also, the stockholder's holding period for the Fidelity
common stock received in the merger will include the period during which the
stockholder held the shares of Chicago Title common stock exchanged therefor. If
a Chicago Title stockholder has differing tax bases and/or holding periods in
respect of the stockholder's shares of Chicago Title common stock, the
stockholder should consult with a tax advisor prior to the merger in order to
identify the tax bases and/or holding periods of the particular shares of
Fidelity common stock that the stockholder receives in the merger.
Exchange for Fidelity Common Stock and Cash. If a Chicago Title
stockholder exchanges in the merger the shares of Chicago Title common stock
owned by the stockholder for a combination of Fidelity common stock and cash
(other than cash in lieu of fractional shares of Fidelity common stock), the
stockholder will not be permitted to recognize any loss. However, the
stockholder will be required to recognize gain equal to the lesser of (1) the
amount of cash received or (2) the amount of gain realized. The amount of gain
realized is equal to the difference between (1) the sum of the cash and the fair
market value of the Fidelity common stock that the stockholder receives in the
merger and (2) the stockholder's adjusted tax basis in the shares of Chicago
Title common stock that such stockholder surrenders in the merger. For this
purpose, a Chicago Title stockholder must calculate gain or loss separately for
each identifiable block of shares of Chicago Title common stock surrendered in
the merger, and a Chicago Title stockholder cannot offset a loss recognized on
one block of such shares against a gain recognized on another block of such
shares. Any gain recognized by a Chicago Title stockholder will be treated as
capital gain unless the receipt of the cash "has the effect of a distribution of
a dividend" within the meaning of Section 356(a)(2) of the Internal Revenue
Code, in which case, such gain will be treated as a dividend to the extent of
the Chicago Title stockholder's ratable share of the undistributed accumulated
earnings and profits of Fidelity and/or Chicago Title. Any gain which is treated
as a capital gain will be treated as a long-term capital gain if the shares of
Chicago Title common stock that are surrendered in the merger and that give rise
to the gain have been held for more than one year as of the effective time of
the merger.
In general, the determination as to whether the gain that a Chicago Title
stockholder recognizes as a result of the merger will be treated as capital gain
or dividend income is made pursuant to the stock redemption provisions of
Section 302 of the Internal Revenue Code. Under those provisions, the
transaction will be treated as if the Chicago Title stockholder had first
exchanged in the merger all of the stockholder's shares of Chicago Title common
stock solely for Fidelity common stock, and then Fidelity immediately redeemed a
portion of this Fidelity common stock for the amount of cash which the Chicago
Title stockholder actually receives in the merger; we refer to this as a "deemed
redemption." Under the principles of Section 302, the cash received in the
deemed redemption will be treated as dividend income
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unless it (1) results in a "substantially disproportionate" redemption of the
Chicago Title stockholder's equity interest in Fidelity, (2) is "not essentially
equivalent to a dividend with respect to such stockholder," or (3) is considered
to be a complete redemption of all of the Chicago Title stockholder's stock in
Fidelity. In applying the principles of Section 302, the constructive ownership
rules of Section 318 of the Code apply in determining a Chicago Title
stockholder's ownership interest in Fidelity both immediately after the merger
(but before the deemed redemption) and after the deemed redemption. Under those
rules, a Chicago Title stockholder is deemed to own stock held by certain family
members, estates and trusts of which the stockholder is a beneficiary, a
partnership in which the Chicago Title stockholder is a partner and a
corporation in which the Chicago Title stockholder is a direct or indirect 50%
stockholder, as well as stock subject to an option actually or constructively
owned by the stockholder or these other entities. As these constructive
ownership rules are complex, if a Chicago Title stockholder believes that he or
she may be subject to these rules, the stockholder should consult with the
stockholder's tax advisor.
The deemed redemption will be "substantially disproportionate" and,
therefore, will not have the effect of a distribution of a dividend with respect
to a Chicago Title stockholder if the percentage of the outstanding Fidelity
common stock that a Chicago Title stockholder actually and constructively owns
immediately after the deemed redemption is less than 80% of the percentage of
the outstanding Fidelity common stock that a Chicago Title stockholder actually
and constructively owns (including the Fidelity common stock which the
stockholder was deemed to own) immediately before the deemed redemption.
The determination as to whether the deemed redemption is "not essentially
equivalent to a dividend," and, therefore, does not have the effect of a
distribution of a dividend with respect to a Chicago Title stockholder, will
depend upon the Chicago Title stockholder's particular circumstances. At a
minimum, however, in order for the deemed redemption to be "not essentially
equivalent to a dividend," the deemed redemption must result in a "meaningful
reduction" in the Chicago Title stockholder's deemed percentage stock ownership
of Fidelity. In general, that determination requires a comparison of (1) the
percentage of the outstanding Fidelity common stock that a Chicago Title
stockholder actually and constructively owns (including the Fidelity common
stock which the stockholder is deemed to own) immediately before the deemed
redemption with (2) the percentage of the outstanding Fidelity common stock that
a Chicago Title stockholder actually and constructively owns immediately after
the deemed redemption. The IRS has indicated in a published revenue ruling that
a stockholder in a publicly-held corporation whose relative stock interest in
the corporation is minimal and who exercises no "control" over corporate affairs
is generally treated as having had a meaningful reduction in the stockholder's
interest in the corporation as a result of a redemption transaction if the
stockholder's percentage stock ownership in the corporation has been reduced to
any extent, taking into account the shareholder's actual and constructive
ownership before and after the deemed redemption.
The aggregate tax basis of the Fidelity common stock which a Chicago Title
stockholder receives when the stockholder exchanges the stockholder's shares of
Chicago Title common stock for a combination of Fidelity common stock and cash
pursuant to the merger will be the same as the aggregate tax basis of the shares
of Chicago Title common stock which the stockholder surrenders in the merger
(less any portion of such basis allocable to any fractional share interest in
any share of Fidelity stock for which cash is received), decreased by the cash
the stockholder receives and increased by any gain the stockholder recognizes as
a result of the merger (whether capital gain or dividend income). The holding
period of the Fidelity common stock received will include the holding period of
the shares of Chicago Title common stock which the stockholder surrenders in
exchange therefor. If a Chicago Title stockholder has differing tax bases and/or
holding periods with respect to the stockholder's shares of Chicago Title common
stock, the stockholder should consult a tax advisor prior to the merger in order
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to identify the particular shares of Chicago Title common stock which the
stockholder exchanges in the merger and the particular tax bases and/or holding
periods of the particular shares of Fidelity common stock that the stockholder
receives in the merger.
Exchange Solely for Cash. A Chicago Title stockholder who exchanges all of
the shares of Chicago Title common stock actually owned by the stockholder
solely for cash may be treated as (1) having sold the shares of Chicago Title
common stock to Fidelity, (2) having received shares of Fidelity stock in the
merger and having had such shares redeemed by Fidelity immediately after the
merger, or (3) having had the shares of Chicago Title common stock owned by the
stockholder redeemed by Chicago Title prior to the merger. In the event of sale
treatment, gain or loss will be recognized, measured by the difference between
the cash received and the adjusted tax basis of the Chicago Title stock
surrendered.
In the event of deemed redemption treatment, whether the deemed redemption
would be treated as an exchange or a distribution of a dividend would be
determined under Section 302 of the Internal Revenue Code. Generally, the deemed
redemption would be treated as an exchange, rather than a dividend distribution,
if it is (1) in "complete redemption" of all of the Chicago Title stockholder's
stock in the redeeming corporation, (2) "substantially disproportionate" with
respect to the stockholder, or (3) "not essentially equivalent to a dividend."
See the preceding section, "Exchange for Fidelity Common Stock and Cash," for a
discussion of when a deemed redemption will be considered "substantially
disproportionate" or "not essentially equivalent to a dividend." In making this
determination under Section 302, the constructive ownership rules of Section 318
of the Internal Revenue Code will apply in comparing a Chicago Title
stockholder's ownership interest in the redeeming corporation both immediately
before and after the merger. If the deemed redemption qualifies as an exchange
under Section 302 of the Internal Revenue Code, a Chicago Title stockholder will
be permitted to recognize any loss realized and will be required to recognize
any gain realized on the exchange. The gain or loss recognized by a Chicago
Title stockholder who receives solely cash in the merger as a result of a sale
or exchange treatment will be treated as a capital gain or loss, which will be
treated as a long-term capital gain or loss if the holding period for the shares
of Chicago Title common stock exchanged therefor was greater than one year as of
the effective time of the merger.
If the deemed redemption does not qualify as an exchange under Section 302,
the cash received by a Chicago Title stockholder will be treated as a dividend
distribution, and thus as ordinary income, to the extent of the current and
accumulated earnings and profits of the redeeming corporation, and any excess
will be treated as gain from the sale or exchange of the Chicago Title Stock.
Moreover, under such circumstances, the Chicago Title stockholder will not be
permitted to recognize any loss.
Given the unclear state of the law with respect to the exchange of Chicago
Title stock solely for cash, Chicago Title stockholders who receive solely cash
in the merger are urged to consult their own tax advisors with regard to the tax
consequences of the receipt of cash.
Cash Received In Lieu of a Fractional Share. No fractional shares of
Fidelity common stock will be issued in the merger. Cash which a Chicago Title
stockholder receives in lieu of a fractional share of Fidelity common stock will
be treated as if the Chicago Title stockholder had received such fractional
share pursuant to the merger and then exchanged the fractional share for cash in
a redemption by Fidelity subject to Section 302 of the Internal Revenue Code.
Any gain or loss will be recognized, measured by the difference between the
amount of the cash received and the portion of the tax basis of the share of
Chicago Title common stock allocable to that fractional share interest.
Generally, the gain or loss realized on this deemed redemption of a fractional
share will be a capital gain or loss and will be a long-term capital gain or
loss if the holding period for the share of Chicago Title common stock in
respect of
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which the cash in lieu of the fractional share was received was greater than one
year as of the effective time of the merger.
Backup Withholding. Unless a Chicago Title stockholder complies with
certain reporting and/or certification procedures or is an "exempt recipient"
(i.e., in general, corporations and certain other entities), such stockholder
may be subject to withholding tax of 31% with respect to any cash payments
received pursuant to the merger.
REQUIRED REGULATORY FILINGS AND APPROVALS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and the
rules promulgated under the Hart-Scott-Rodino Act, Fidelity and Chicago Title
cannot complete the merger until they notify and furnish information to the
Federal Trade Commission and the Antitrust Division of the U.S. Department of
Justice and specified waiting period requirements are satisfied. Fidelity and
Chicago Title filed notification and report forms under the Hart-Scott-Rodino
Act with the FTC and the Antitrust Division on August 13, 1999. On September 10,
1999, the FTC requested information to assist its analysis of the transaction
under the federal anti-trust laws. The request for additional information
extended the waiting period for an additional 20 days after Fidelity and Chicago
Title have substantially complied with the request. Fidelity and Chicago Title
are in the process of providing the required information to the FTC. As of the
date of this document, the FTC has not terminated the waiting period or advised
Fidelity and Chicago Title that they have substantially complied with the
request for additional information.
At any time before or after completion of the merger, the Antitrust
Division or the FTC could take such action under the antitrust laws as it deems
necessary or desirable in the public interest, including seeking to enjoin the
consummation of the merger or seeking divestiture of substantial assets of
Fidelity or Chicago Title. Private parties may also bring actions under the
antitrust laws under certain circumstances. Although Fidelity and Chicago Title
believe that the merger is legal under the antitrust laws, there can be no
assurance that a challenge to the merger on antitrust grounds will not be made
or, if such a challenge is made, that it would not be successful.
Chicago Title is subject to a consent agreement with the FTC effective July
22, 1991 and amended in July 1996 and February 1999, which settled certain
antitrust objections raised by the FTC in respect of the acquisition by Chicago
Title of Ticor Title. The consent agreement provided for the divestiture, after
the acquisition of Ticor Title, of certain title plants serving overlapping
geographical areas. Until July 2001, Chicago Title is required to give prior
notification to the FTC of any acquisitions of an ownership interest in a title
plant serving the same geographical area as a plant in which Chicago Title or
any of its subsidiaries already has an ownership interest. Chicago Title is not,
however, required to provide notice with respect to any acquisition of a copy of
title records or other information from an entity which retains the ownership
and control of the original and where competition in the ordinary course between
the parties is not otherwise restrained. Chicago Title is also required to
provide notification to the FTC in advance of any change in corporate structure,
such as the creation, dissolution or sale of subsidiaries or any other change
that may affect compliance with the consent agreement.
Chicago Title's insurance subsidiaries are subject to regulation in each
jurisdiction in which they transact an insurance business. Regulatory officials
in each such state have broad supervisory and administrative powers over the
insurance subsidiaries. Primary insurance regulatory authority, however, rests
with the insurance departments of California, Missouri and Oregon, the states in
which one or more of Chicago Title's insurance subsidiaries are domiciled, and
Michigan, the state in which Security Union Title Insurance Company, an
insurance subsidiary of Chicago Title, is commercially domiciled. Regulators in
non-domiciliary
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states, while the exercise of their authority may have ramifications upon all
operations of an insurer, focus primarily upon the operations of an insurer
within their respective states.
The jurisdictions in which the insurance subsidiaries are domiciled or
commercially domiciled, pursuant to the insurance holding company acts in those
jurisdictions, require prior approval for persons to acquire control of the
insurance subsidiaries, whether directly or indirectly, through merger or
acquisition or otherwise. Accordingly, in connection with the merger, Fidelity
has filed prior approval applications (each, a "Form A") for approval in
California, Missouri and Oregon. The respective insurance departments in these
states have requested information to assist their analysis of the merger.
Fidelity is in the process of providing the requested information.
While insurance holding company acts vary somewhat from state to state,
they are generally based upon a model act drafted by the National Association of
Insurance Commissioners. Under the versions of the NAIC model act enacted in
California, Missouri and Oregon, the respective insurance departments must
approve or disapprove an acquisition within 60 days after a complete Form A has
been filed. Regulators exercise considerable discretion, however, in determining
when a Form A filing is deemed "complete." Accordingly, the statutory review
period may be considerably longer than 60 days. Regulators may disapprove any
acquisition which:
- would cause the insurance subsidiaries to cease to qualify for their
licenses to transact insurance;
- would substantially lessen competition or tend to create a monopoly;
- might, due to the financial condition of the acquiring person, jeopardize
the financial stability of the insurance subsidiaries or prejudice the
interest of their policyholders;
- would result in a major change in the insurance subsidiaries' business or
corporate structure which is not fair and reasonable to policyholders; or
- would result in control over the insurance subsidiaries by persons whose
competence, experience and integrity indicate that it is not in the
interest of policyholders or the public for them to assume control.
Fidelity has also requested and obtained from New York (where, in addition
to California and Texas, Fidelity currently owns insurance subsidiaries) a
determination that F.M. Kirby, who beneficially owns approximately 12.6% of the
outstanding common stock of Chicago Title, will not be deemed to control
Fidelity as a result of the merger. Fidelity intends to make a similar filing in
Texas. We cannot currently determine the number of shares of Fidelity common
stock, if any, Mr. Kirby may own after the merger.
In addition to the Form A filings and disclaimer filings, as required by
law, Fidelity has filed pre-acquisition notification forms regarding the
potential competitive impact of the proposed merger (each, a "Form E") in
Alaska, Arkansas, Arizona, Delaware, District of Columbia, Georgia, Hawaii,
Idaho, Indiana, Kentucky, Maryland, Minnesota, New Hampshire, New Jersey, North
Dakota, Pennsylvania, South Carolina, Tennessee, Virginia and Washington. The
Form E filings are generally reviewed within 30 days after filing with the
applicable state insurance departments, subject to an automatic 30 day extension
if requested by the insurance department. Form E filings allow non-domiciliary
insurance departments to determine whether an acquisition or merger would
substantially lessen competition or tend to create a monopoly in their
respective states. While prior approval of the merger is not required in these
states, insurance departments may seek to impose conditions on the merger,
including divestiture of business in their respective states. As of the date of
this document, 14 of the 20 jurisdictions in which Form E filings have been made
have either approved or are deemed to have approved
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the merger. Fidelity is in the process of providing information requested by the
respective insurance departments of the remaining six jurisdictions.
Fidelity is also required to obtain the approvals of state banking
regulators in Arizona, Illinois and Indiana for the transfer of Chicago Title's
trust company businesses to Fidelity in connection with the merger. Fidelity has
applied for and received such approvals.
The need for regulatory approvals, possible disapproval by all or any of
the California, Missouri or Oregon departments of insurance, and the possible
orders of other states, could deter, delay or prevent the merger or adversely
affect the terms upon which the insurance subsidiaries conduct their business
after the merger. Since the statutory criteria discussed herein focus primarily
on the interests of policyholders, rather than of stockholders, these
requirements could deter, delay, or prevent transactions which could be
advantageous to stockholders.
RESALE OF FIDELITY COMMON STOCK
All shares of Fidelity common stock received by Chicago Title stockholders
in the merger will be freely transferable, except that Fidelity common stock
received by persons who are deemed to be "affiliates" (as such term is defined
in Rule 145 under the Securities Act) of Chicago Title at the time of the
Chicago Title special meeting may be resold by them only in transactions
permitted by the resale provisions of Rule 145 under the Securities Act (or Rule
144 under the Securities Act in the case of such persons who become affiliates
of Fidelity) or as otherwise permitted under the Securities Act. Persons who may
be deemed to be "affiliates" of Chicago Title 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.
Pursuant to the terms of the merger agreement, Chicago Title agreed to
deliver to Fidelity a list of names of those persons whom Chicago Title believes
to be "affiliates" of Chicago Title within the meaning of Rule 145 under the
Securities Act. Chicago Title has agreed to use its commercially reasonable best
efforts to cause each person who is identified as an "affiliate" in the list
referred to above to deliver to Fidelity, at least 30 days prior to the merger,
an affiliate letter in the form attached to the merger agreement. Such affiliate
letter shall provide that the Chicago Title affiliate will agree not to sell,
transfer or otherwise dispose of any shares of Fidelity common stock to be
received by such person in or pursuant to the merger, except in compliance with
applicable provisions of the Securities Act.
This joint proxy statement/prospectus cannot be used in connection with
resales of Fidelity common stock received in the merger by any person who may be
deemed to be an "affiliate" of Chicago Title under the Securities Act.
MANAGEMENT AND OPERATIONS FOLLOWING THE MERGER
Following the merger, Fidelity will continue the operations of Chicago
Title. The board of directors of the surviving corporation will be comprised of
the members of the current Fidelity board of directors, and four Chicago Title
directors, who will be designated by Chicago Title and reasonably acceptable to
Fidelity. See "The Merger -- Interests of Certain Persons in the Merger." The
officers of Fidelity after the merger will include the current Fidelity officers
and certain Chicago Title officers may be named as officers of the combined
company. Chicago Title's stockholders will become stockholders of Fidelity, and
their rights as stockholders will be governed by Fidelity's Certificate of
Incorporation and By-laws. See "Comparison of Rights of Chicago Title
Stockholders and Fidelity Stockholders." Fidelity's Certificate of Incorporation
will be amended, subject to receipt of stockholder approval of the amendment at
the Fidelity
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special meeting, to increase the authorized number of shares of Fidelity common
stock from 50,000,000 to 100,000,000. Fidelity's By-laws will be amended so that
the approval of directors representing 75% of the Fidelity board of directors
will be required for any transaction to which Fidelity or any of its
subsidiaries is to be a party and in which any member of Fidelity's board of
directors or any executive officer of Fidelity has an interest, if such
transaction is of a type which would be required to be disclosed in a proxy
statement of Fidelity, and for any amendment to the 75% director approval
provision. Fidelity's By-laws also will be amended to increase to 12 the number
of directors authorized to serve on Fidelity's board of directors.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Chicago Title's management have interests in the merger
that are different from and in addition to their interests as Chicago Title
stockholders generally. The Chicago Title board of directors was aware of these
interests and considered them in approving the merger agreement.
The merger agreement provides that upon the merger, Fidelity will cause to
be elected to the Fidelity board of directors four Chicago Title directors, who
will be designated by Chicago Title and reasonably acceptable to Fidelity.
Arrangements with Chicago Title Employees. Fidelity has agreed to maintain
for the benefit of employees of Chicago Title, until January 1, 2001, the
Chicago Title employee benefit and incentive plans in effect immediately prior
to the merger, except that, if a particular Fidelity plan would provide enhanced
benefits, Fidelity may determine that employees will participate in that plan
prior to January 1, 2001. Fidelity has agreed that Chicago Title employees
meeting the eligibility criteria set forth in the merger agreement upon the
merger may participate in Fidelity's existing benefit plans on a basis
comparable to other Fidelity employees. Fidelity has agreed that the service
credited to each Chicago Title employee under the Fidelity benefit plans, and
also under any vacation, sick pay, short-term disability or similar salary
continuation policy, will include all service recognized by Chicago Title at the
time of the merger, and any service with Fidelity thereafter. Chicago Title
employees will not be subject to any waiting periods or pre-existing condition
exclusions under Fidelity benefit plans that are longer or impose a greater
limitation than those under the terms of the corresponding Chicago Title benefit
plans immediately prior to the extension of coverage under the Fidelity benefit
plans. In addition, all Chicago Title employees participating in any Chicago
Title bonus and/or short-term or long-term incentive compensation plans as of
the merger will receive, generally at the effective time of the merger, all
amounts due thereunder for the calendar years preceding and including the date
of the merger, except that amounts due for the year the merger takes place will
be pro rated. The projected value of existing 1999 annual bonus opportunities
for John Rau, and for Thomas H. Hodges, Peter G. Leemputte, Christopher
Abbinante and William T. Halvorsen, Jr., who are the next four most highly
compensated executive officers of Chicago Title, which are scheduled to be paid
in 2000, are approximately $952,000, $288,000, $297,500, $217,000 and $217,000,
respectively. The projected value of existing long-term incentive awards to
Messrs. Hodges, Leemputte, Abbinante and Halvorsen, which are scheduled to be
paid in 2000, are approximately $542,913, $313,219, $448,111 and $880,145,
respectively. Fidelity will also honor the terms of Chicago Title's general
severance benefits program in effect at the time of the merger for nine months
following the merger, which provides benefits based on employee grade, salary
and length of service. Except as noted below, Chicago Title officers will be
entitled to receive these benefits.
Arrangements with Chicago Title Executives and Key Employees. In addition
to the benefits extended to Chicago Title employees generally, pursuant to the
merger agreement, Chicago Title will designate up to 50 individuals (unless
Fidelity consents to a higher number of designees) as senior executives or key
employees of Chicago Title. If, within 12 months after
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the merger, any of these senior executives and key employees is terminated by
Fidelity other than for cause (as defined in the merger agreement) or resigns
for good reason (as defined in the merger agreement), he or she will receive,
for one year in the case of a senior executive and for three to six months (as
designated by Chicago Title) in the case of a key employee, continuing cash
payments in equal installments in amounts corresponding to his or her base
salary and annual target bonus, a lump sum representing his or her target bonus
for the year of such termination, prorated to the date of termination, continued
insurance and other employee benefits on such terms as existed prior to such
termination, and outplacement services. Individuals designated to participate in
this program will not be entitled to any benefits under Chicago Title's general
severance benefits program and any amounts they receive under this program will
be reduced by amounts they may receive under any pre-existing individual
severance arrangement. If the employment of Messrs. Hodges, Leemputte, Abbinante
and Halvorsen, each of whom is party to an agreement described in this section,
were terminated immediately after the merger, their estimated cash severance
benefits would be $463,500, $445,500, $439,000 and $455,000, respectively. Upon
the merger, Messrs. Hodges, Leemputte, Abbinante and Halvorsen also will become
entitled to lifetime annual payments, commencing upon normal retirement at age
65 (subject to reduction for early retirement), of $25,000, $25,000, $21,000 and
$21,000, respectively, under Chicago Title's Executive Salary Continuation Plan.
Arrangements with John Rau. Mr. Rau, President and Chief Executive Officer
of Chicago Title, will be paid upon the merger a special incentive equal to 0.5%
of the total value of the merger consideration (approximately $6.0 million). In
addition, Mr. Rau will be entitled to resign at any time after the merger, and
his resignation will be deemed a termination by Chicago Title without cause for
purposes of determining Mr. Rau's severance compensation under his existing
employment agreement with Chicago Title. Mr. Rau's severance benefits will
consist of continuation of his base salary until December 31, 2001, and annual
bonuses, at the rate of his then current annual base salary and 60% of his
maximum annual bonus, and continuation of all employee benefits until December
31, 2001. Mr. Rau, after helping to counsel the integration effort, plans to
relinquish any day-to-day operating role. Mr. Rau will be entitled to receive
(without reduction for early commencement) the retirement benefits allocated to
him by Chicago Title prior to the merger as though he had achieved the maximum
term of service and age thereunder. All restricted stock and stock options held
by Mr. Rau will be fully vested and exercisable at the time of the merger. The
estimated value of Mr. Rau's cash severance benefits is approximately $2,330,000
(assuming, for these purposes, that two full years remain on Mr. Rau's contract
at the time of the merger). Mr. Rau also will be entitled to lifetime annual
payments of $40,000 under Chicago Title's Executive Salary Continuation Plan.
After his resignation, Mr. Rau will be entitled to retain, at Fidelity's
expense, a secretary and an office commensurate with his status through December
31, 2001, and will continue as Chairman/President of the Chicago Title and Trust
Company Foundation. Mr. Rau will not be entitled to receive the other benefits
extended to Chicago Title employees, senior executives or key employees pursuant
to the merger agreement.
Retention Agreements with Key Employees. In order to provide the
appropriate degree of stability and continuity in the business operations of
Chicago Title prior to the merger, Chicago Title will enter into retention
agreements with selected key employees which will provide for transitional
incentive compensation if the key employee remains an employee through the
merger or a later specified date. The total amount payable under all retention
agreements will not exceed $20.0 million, however, Fidelity's approval shall be
required for any retention agreements which would cause the total amount to
exceed $15.0 million. Generally, not more than 50% of the transitional incentive
will be paid at the time of the merger and the remaining 50% or more will be
paid six months after the merger, unless an earlier payment date is approved by
Fidelity. Payment of the amounts under retention agreements that require
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Fidelity's approval may be made at any time within the first 12 months after the
merger, and may be paid in the form of options to purchase Fidelity common
shares. The total value payable to any employee will not exceed 150% of the
employee's base salary and target annual bonus, unless Fidelity approves a
greater amount. In the event that any key employee with whom Chicago Title has a
retention agreement is terminated "without cause" or resigns for "good reason"
(each as defined), the full transitional incentive (or any unpaid portion
thereof) shall be paid immediately. Each of Messrs. Hodges, Leemputte, Abbinante
and Halvorsen has entered into a retention agreement, which call for
transitional incentives of $675,000, $656,250, $567,032, and $567,032,
respectively.
Stock-Based Rights. In the merger, each outstanding option to purchase
shares of Chicago Title common stock, whether or not vested or exercisable, will
be converted into an option to acquire, on the same terms and conditions as
applied to the relevant Chicago Title option (except that such Fidelity option
shall be vested and immediately exercisable), that number of shares of Fidelity
common stock determined by multiplying the number of shares of Chicago Title
common stock subject to the Chicago Title option by a fraction equal to the
value of the merger consideration divided by the average Fidelity share price
with any fractional shares of Fidelity common stock resulting from such
calculation being rounded down to the nearest whole share, at a price per share
(rounded up to the nearest whole cent) equal to (x) the aggregate exercise price
for the Chicago Title common stock covered by the option divided by (y) the
number of full shares of Fidelity common stock covered by such Chicago Title
option upon conversion. The number of Chicago Title shares covered by unvested
options held by Messrs. Rau, Hodges, Leemputte, Abbinante, and Halvorsen that
will vest and become exercisable at the effective time of the merger, are
approximately 109,440, 30,000, 30,000, 30,000 and 30,000, respectively. The
aggregate number of Chicago Title shares covered by unvested options held by the
non-employee directors of Chicago Title that will become fully vested and
exercisable as a result of the merger is approximately 37,000.
All restrictions applicable to restricted shares of Chicago Title common
stock held by Chicago Title's officers, directors and employees will lapse
immediately prior to the merger. The number of shares of Chicago Title common
stock underlying awards of restricted stock held by Messrs. Rau, Hodges,
Leemputte, Abbinante and Halvorsen that will become non-forfeitable and
transferable and also are subject to repurchase by Chicago Title in the merger
are approximately 108,684, 30,000, 30,000, 30,000 and 30,000, respectively.
In addition, each participant in Chicago Title's Deferred Compensation Plan
will receive upon the merger full payment of the balance of his or her account.
Amounts held for participants under Chicago Title's Employee Stock Purchase Plan
after the merger, if any, will be used to purchase Fidelity common stock under
the same terms and conditions as were applicable under the Employee Stock
Purchase Plan. Chicago Title intends to terminate new investment in the Employee
Stock Purchase Plan at December 31, 1999 and, accordingly, does not expect any
such amounts to be held for participants after the merger. To the extent the
purchase price for Fidelity common stock under the Employee Stock Purchase Plan
is determined by reference to the price of Chicago Title common stock prior to
the merger, the purchase price for the Fidelity shares shall be determined in
the same manner as for converted Chicago Title stock options.
Chicago Title has agreed, subject to applicable legal and contractual
restraints, to use its good faith efforts to repurchase up to approximately
790,000 outstanding shares of Chicago Title common stock, including restricted
shares held by Chicago Title's officers, directors and employees and shares of
Chicago Title common stock held for participants under the Employee Stock
Purchase Plan, at a cash purchase price equal to the merger consideration paid
to Chicago Title stockholders in the merger. The maximum aggregate cost of the
repurchase to Chicago Title would be $41.1 million, if all 790,000 shares are
tendered and if the merger consideration is $52.00 per
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Chicago Title share. Chicago Title anticipates that any such repurchases would
be made immediately prior to, and contingent upon, the merger.
Indemnification and Insurance. The merger agreement provides that Fidelity
will maintain in effect in accordance with their terms all rights to
indemnification and exculpation from liabilities for acts or omissions occurring
at or prior to the merger now existing in favor of the current or former
directors or officers of Chicago Title and its subsidiaries as provided in their
respective certificates of incorporation or by-laws (or comparable
organizational documents) and any indemnification agreements of Chicago Title.
Directors and officers of Chicago Title who become directors or officers of
Fidelity will be entitled to the same indemnity rights and protections as are
afforded to other directors and officers of Fidelity. The merger agreement
further provides that, immediately prior to the closing, Chicago Title shall
purchase one or more single payment, run-off policies of directors and officers
liability insurance covering acts or omissions occurring prior to the merger
with respect to those persons who are currently covered by the Chicago Title's
directors' and officers' liability insurance policies on terms with respect to
such coverage and amount no less favorable than the terms of the current
policies of Chicago Title, such policy (or policies) to become effective at the
merger and to remain in effect for a period of six years after the merger. If
such coverage is unavailable, for six years after the merger, Fidelity shall
provide to Chicago Title's directors and officers liability insurance covering
acts or omissions occurring prior to the merger with respect to those persons
who are currently covered by Chicago Title's directors' and officers' liability
insurance policies on terms and in amounts no less favorable than those existing
upon the merger, so long as the annual premium therefor is not in excess of 200%
of the current amount expended by Chicago Title to procure such insurance.
APPRAISAL RIGHTS
Pursuant to Section 262 of the Delaware General Corporation Law, Chicago
Title stockholders may dissent from the merger and elect to have the fair value
of their shares judicially determined and paid in cash, but only if the
stockholder complies with the provisions of Section 262. Dissenters' rights of
appraisal are not available to Fidelity stockholders.
The following is a brief summary of the statutory procedures to be followed
by Chicago Title stockholders in order to perfect appraisal rights under
Delaware law. This summary is not intended to be complete and is qualified in
its entirety by reference to Section 262, a copy of which is attached as
Appendix D to this document.
To dissent from the merger and demand appraisal, a Chicago Title
stockholder must satisfy the following conditions:
- deliver a written demand for appraisal to Chicago Title before the vote
on the merger;
- not vote in favor of the merger agreement (the return of a signed proxy
which does not specify a vote against the merger agreement or a direction
to abstain will constitute a waiver of such stockholder's right of
appraisal); and
- continuously hold the Chicago Title shares from the date of the making of
the demand through the effective time of the merger.
If a stockholder fails to comply with any of these conditions and the
merger becomes effective, he or she will be entitled only to receive the
consideration provided in the merger agreement. Failure to vote on the merger
proposal will not constitute a waiver of your appraisal rights. Voting against
the merger will not satisfy the requirement of a written demand for appraisal.
All written demands for appraisal should be addressed to: Chicago Title
Corporation, 171 North Clark Street, Chicago, Illinois 60601, Attention: Paul T.
Sands, Jr., Executive Vice President, General Counsel and Secretary, before the
vote concerning the merger agreement at
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the Chicago Title special meeting, and should be executed by, or on behalf of,
the holder of record. If Chicago Title common stock is owned of record in a
fiduciary capacity, as by a trustee, guardian or custodian, execution of a
demand for appraisal should be made in such capacity. If Chicago Title common
stock is owned of record by more than one person, as in a joint tenancy or
tenancy in common, such demand must be executed by or for all joint owners. An
authorized agent, including one or two or more joint owners, may execute the
demand for appraisal for a stockholder of record; however, the agent must
identify the record owner or owners and expressly disclose the fact that, in
executing the demand, he or she is acting as agent for the record owner. A
record owner, such as a broker, who holds Chicago Title common stock as a
nominee for others may exercise his or her rights of appraisal with respect to
the shares held for one or more beneficial owners, while not exercising such
right for other beneficial owners. In such case, the written demand should set
forth the number of shares as to which the record owner dissents. Where no
number of shares is expressly mentioned, the demand will be presumed to cover
all shares of Chicago Title common stock in the name of such record owner.
Within ten days after the merger, Fidelity must give written notice that
the merger has become effective to each stockholder of Chicago Title who filed a
written demand for appraisal and who did not vote in favor of the merger
agreement. Any stockholder entitled to appraisal rights may, within 20 days
after the date of mailing of the notice, demand in writing from Fidelity the
appraisal of his or her Chicago Title shares. Within 120 days after the merger,
either Fidelity, or any Chicago Title stockholder who has complied with Section
262, may file a petition in the Delaware Court of Chancery demanding a
determination of the value of the Chicago Title shares held by all stockholders
entitled to appraisal. Fidelity does not presently intend to file such a
petition. Inasmuch as Fidelity has no obligation to file such a petition, the
failure of an eligible stockholder to do so within the period specified could
nullify such stockholder's previous written demand for appraisal.
If a petition for appraisal is duly filed by a stockholder and a copy is
delivered to Fidelity, Fidelity will then be obligated within 20 days of receipt
of such copy to provide the Court of Chancery with a duly verified list
containing the names and addresses of all stockholders who have demanded an
appraisal of their shares and with whom agreement as to the value of such shares
has not been reached. After notice to such stockholders, the Court of Chancery
is empowered to conduct a hearing to determine those stockholders who have
complied with Section 262 and who have become entitled to appraisal rights.
The Court of Chancery will then appraise the Chicago Title shares,
determining their fair value exclusive of any element of value arising from the
accomplishment or expectation of the merger. When the value is determined, the
Court will direct the payment by Fidelity of such value, with interest thereon,
simple or compound, if the Court so determines, to the stockholders entitled to
receive the same.
Stockholders who are considering seeking an appraisal should bear in mind
that the fair value of their Chicago Title shares determined under Section 262
could be more than, the same as, or less than the consideration they are to
receive pursuant to the merger agreement if they do not seek appraisal of their
shares.
Costs of the appraisal proceeding may be determined by the Court of
Chancery and assessed upon the parties by the court as the court deems equitable
in the circumstances.
Failure to comply strictly with these procedures will cause the stockholder
to lose his or her appraisal rights. Consequently, any stockholder who desires
to exercise his or her appraisal rights is urged to consult a legal advisor
before attempting to exercise such rights.
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PENDING LITIGATION
In May 1996 Chicago Title filed a lawsuit in California Superior Court
against a subsidiary of Fidelity and four Fidelity employees who were former
employees of Chicago Title. Chicago Title's allegations against Fidelity and the
former Chicago Title employees include claims for breach of contract, breach of
the covenant of good faith and fair dealing, breach of fiduciary duty,
misappropriation of trade secrets, unfair competition, tortious interference
with prospective economic advantage, defamation and civil conspiracy. The facts
underlying all the causes of action relate to Fidelity's opening of offices in
San Luis Obispo County, California and Orange County, California and the
retention, by Fidelity, of certain Chicago Title employees to staff Fidelity's
new offices. Certain of the claims have been dismissed in their entirety and
certain of the claims have been dismissed as to certain individual defendants.
No trial date has been scheduled. Discovery has not been completed. Pursuant to
an agreement between Fidelity and Chicago Title entered into in connection with
the merger agreement, the court has entered an order staying the litigation.
ACCOUNTING TREATMENT
The merger will be accounted for using the "purchase" method in accordance
with Accounting Principles Board Opinion No. 16. Accordingly, the assets and
liabilities of Chicago Title will be recorded on the books of Fidelity at their
respective fair values at the effective time of the merger, with the excess, if
any, allocated to goodwill.
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THE MERGER AGREEMENT
The following describes certain aspects of the proposed merger, including
material provisions of the merger agreement. Because this discussion is a
summary, it may not contain all of the information that is important to you. To
understand the merger fully, and for a more complete description of the legal
terms of the merger, you are urged to read the merger agreement carefully. A
copy of the merger agreement is attached as Appendix A to this document and is
incorporated by reference.
GENERAL
In the merger, shares of Chicago Title common stock will be converted into
the right to receive merger consideration consisting of cash, shares of Fidelity
common stock or a combination of cash and shares having a value of $52.00 per
share of Chicago Title common stock, except in certain circumstances. For
information describing how the merger consideration will be determined and
allocated between cash and shares of Fidelity common stock, as well as a number
of factors which may affect the extent to which Chicago Title stockholders will
receive Fidelity common stock and/or cash in amounts that are consistent with
their elections, see "The Merger -- Merger Consideration."
PROCEDURES FOR ELECTION
Each Chicago Title stockholder will be permitted to indicate its preference
as to the number of shares of Chicago Title common stock it would like to be
converted into Fidelity common stock and the number of shares which it would
like to be converted into cash. Approximately 25 days prior to the anticipated
merger completion date, Harris Bank, the exchange agent selected by Fidelity for
the merger, will mail to each Chicago Title stockholder of record as of five
days prior to such mailing date an election form and other transmittal materials
to be used by the stockholder to elect to receive cash or stock or a combination
of both for his or her Chicago Title shares. For an election form to be
effective, it must be properly completed and executed by the Chicago Title
stockholder and returned, along with the Chicago Title stock certificates as to
which the election is being made, to the exchange agent by the election
deadline, which is the effective time of the merger. Fidelity and Chicago Title
will also attempt to mail or make available the election form and other
transmittal materials to persons who became Chicago Title stockholders after the
record date for the mailing of election forms and other transmittal materials.
Any election form may be revoked or changed by the person submitting it
prior to the election deadline. The exchange agent will have reasonable
discretion to determine whether any election, revocation or change has been
properly or timely made and disregard immaterial defects in the election form,
and any good faith decisions of the exchange agent regarding such matters will
be binding and conclusive.
Any Chicago Title stockholder who does not submit an election form which is
received by the exchange agent prior to the election deadline, or who submits an
election form without the Chicago Title stock certificates or other required
transmittal materials, will be deemed to have not made an election. If any
election form is defective in any manner such that the exchange agent cannot
reasonably determine the election preference, the election set forth therein
will not be effective and the stockholder who submitted it will be deemed to
have not made an election. Neither Fidelity nor the exchange agent will be under
any obligation to notify any person of any defect in an election form.
Although Chicago Title stockholders will be able to elect (subject to
proration) to receive cash for all of their shares, stock for all of their
shares, or a combination of cash and stock for
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their shares, the merger agreement provides that Fidelity can choose to pay a
greater or lesser portion of the merger consideration in the form of Fidelity
common shares, depending upon the price of Fidelity common shares at the time of
the merger. The merger agreement also provides that, in order to satisfy certain
conditions to the merger relating to tax matters, the total amount of cash and
the total amount of shares of Fidelity common stock included in the merger
consideration will be adjusted so that Chicago Title stockholders will own at
least 50.1% of Fidelity's outstanding shares of common stock immediately after
the merger, which percentage may be increased, if necessary, to satisfy certain
conditions to the merger designed to preserve the tax-free nature of the 1998
spin-off of Chicago Title from Alleghany and the related spin-off of Alleghany
Asset Management from Chicago Title and Trust Company, a subsidiary of Chicago
Title, and that not less than 40% of the total value of the merger consideration
paid to all Chicago Title stockholders is paid in shares of Fidelity common
stock. These adjustments to the total amount of cash and the total amount of
shares of Fidelity common stock included in the merger consideration may affect
the extent to which Chicago Title stockholders who make elections may receive
stock and/or cash in amounts that are not consistent with their elections. The
elections made by all other Chicago Title stockholders will also affect the
extent to which the election made by any individual Chicago Title stockholder
can be accommodated.
Fidelity will cause the exchange agent to allocate Fidelity common stock
and cash among the holders of Chicago Title common stock within ten business
days after the election deadline. The exchange agent will effect the allocation
in accordance with the election forms, but subject to the following:
- If stock consideration is oversubscribed, each stockholder's stock
elections will be reduced pro rata and converted into cash elections
until the aggregate stock elections equal the total number of shares of
Fidelity common stock available to be paid as merger consideration.
- If cash consideration is oversubscribed, each stockholder's cash
elections will be reduced pro rata and converted into stock elections
until the total of aggregate cash elections equals the amount of cash
available to be paid as merger consideration.
Harris Bank, as the exchange agent, will mail, together with the election
form, a transmittal form to each Chicago Title stockholder of record as of five
days prior to such mailing date advising him or her of the procedure for
surrendering to the exchange agent outstanding certificates formerly
representing Chicago Title common stock in exchange for new certificates
representing Fidelity common stock and/or cash. The exchange agent will also
send a transmittal form as soon as reasonably practicable after the completion
of the merger to Chicago Title stockholders who did not tender their Chicago
Title certificates with the election form. Upon surrender, each certificate
representing Chicago Title common stock will be canceled.
HOLDERS OF CHICAGO TITLE COMMON STOCK SHOULD NOT SEND THEIR CHICAGO TITLE
STOCK CERTIFICATES TO THE EXCHANGE AGENT UNTIL TRANSMITTAL MATERIALS ARE
RECEIVED FROM THE EXCHANGE AGENT. HOLDERS OF FIDELITY COMMON STOCK WILL NOT
EXCHANGE THEIR CERTIFICATES REPRESENTING SHARES OF FIDELITY COMMON STOCK.
DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES; TRANSFERS
All shares of Fidelity common stock to be issued pursuant to the merger
will be deemed issued and outstanding as of the merger. If a dividend or other
distribution is declared by Fidelity in respect of the Fidelity common stock,
the record date for which is at or after the effective time of the merger, that
declaration will include dividends or other distributions in
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respect of all shares issuable in the merger agreement. No dividends or other
distributions in respect of the Fidelity common stock will be paid to any holder
of any unsurrendered Chicago Title stock certificate until such Chicago Title
stock certificate is surrendered for exchange in accordance with the merger
agreement. Subject to applicable law, following surrender of any such Chicago
Title stock certificate, there will be issued and/or paid to the holder of the
certificates representing whole shares of Fidelity common stock issued in
exchange therefor, without interest, (1) at the time of such surrender, the
dividends or other distributions with a record date after the effective time of
the merger theretofore payable with respect to such shares of Fidelity common
stock and not paid, and (2) at the appropriate payment date, the dividends or
other distributions payable with respect to such whole shares of Fidelity common
stock with a record date after the effective time of the merger but with a
payment date subsequent to surrender. Neither Chicago Title, Fidelity nor the
exchange agent or any other person will be liable to any former holder of shares
of Chicago Title common stock for any amount delivered in good faith to a public
official pursuant to applicable abandoned property, escheat or similar laws.
CORPORATE GOVERNANCE
The merger agreement provides that, subject to the amendments thereto
described below, the Fidelity Certificate of Incorporation and the Fidelity
By-laws as in effect immediately prior to the merger will continue to be the
Certificate of Incorporation and By-laws of Fidelity after the merger. The
Fidelity Certificate of Incorporation will be amended to increase the authorized
number of shares of Fidelity common stock from 50,000,000 to 100,000,000.
Fidelity's By-laws will be amended so that the approval of directors
representing 75% of the Fidelity board of directors shall be required for any
transaction to which Fidelity or any of its subsidiaries is to be a party and in
which any member of the Fidelity board of directors or any executive officer of
Fidelity has an interest, if such transaction is of a type which would be
required to be disclosed in a proxy statement of Fidelity. Additionally, the
Fidelity By-laws will be amended to require approval of directors representing
75% of the Fidelity board of directors for any amendment to the 75% director
approval provision. Fidelity's By-laws also will be amended to increase to 12
the number of Fidelity's directors.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary reciprocal representations and
warranties of Fidelity and Chicago Title as to, among other things:
- due organization and good standing;
- corporate authority to enter into the merger agreement and related
matters;
- absence of conflicts with organizational documents and material
agreements;
- capitalization;
- necessary regulatory approvals;
- reports filed with the SEC and insurance regulatory authorities;
- financial statements;
- undisclosed liabilities;
- absence of certain changes;
- transactions with affiliates;
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- litigation;
- tax matters;
- employee benefit matters;
- compliance with laws, including insurance laws;
- environmental matters;
- financial advisors; and
- Year 2000 compliance.
None of the representations and warranties contained in the merger
agreement will survive the merger.
CONCEPT OF "MATERIAL ADVERSE EFFECT"
Many of the representations and warranties included in the merger agreement
are qualified by the concept of "material adverse effect." The concept of
material adverse effect also applies to some of the covenants and conditions to
the merger described under "-- Certain Covenants" and "-- Conditions to the
Merger" below. For purposes of the merger agreement, the concept of "material
adverse effect" means a material adverse effect on the financial condition,
business or results of operations of Fidelity or Chicago Title, as the case may
be, taken as a whole, other than effects caused by:
- changes in general economic or securities markets conditions;
- changes in interest rate levels;
- changes that affect the title insurance industry;
- in the case of Chicago Title, the identity of Fidelity as the acquiring
company or Fidelity's conduct with respect to the transactions
contemplated by the merger agreement prior to the merger;
- in the case of Fidelity, the identity of Chicago Title as the acquired
company or Chicago Title's conduct with respect to the transactions
contemplated by the merger agreement prior to the merger; or
- the public announcement of the transactions contemplated by the merger
agreement.
The "material adverse effect" concept also excludes developments in,
effects of or circumstances arising from proceedings commenced in May 1999 by
the Attorney General of the State of California and the California Insurance
Commissioner against an alleged class of defendants consisting of the insurance
and escrow companies doing business in California with respect to escrow
services, and from similar proceedings which are currently pending or which may
in the future be asserted by other governmental entities or by private parties.
CERTAIN COVENANTS
Conduct of Chicago Title's Business Prior to the Merger. Chicago Title has
agreed that after the date of the merger agreement and prior to the merger it
will conduct its businesses in all material respects in the ordinary course
consistent with past practice and will use commercially reasonable efforts to
preserve intact, its business organization, maintain in effect all material
licenses, approvals and authorizations, and preserve existing relationships with
its
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key employees, key agents, material customers, lenders, suppliers and others
having material business relationships with Chicago Title.
Specifically, Chicago Title has agreed that without the prior written
consent of Fidelity (which consent cannot be unreasonably withheld or delayed)
and except as otherwise expressly contemplated by the merger agreement, it will
not, and will not permit its subsidiaries to:
- amend or modify their charter documents or by-laws;
- take any action that would prevent or materially impair the ability of
Chicago Title to consummate the merger;
- split, combine or reclassify any shares of capital stock or declare, set
aside or pay any dividend or other distribution in respect of its capital
stock, or redeem, repurchase or otherwise acquire any of its securities,
except for (a) regular quarterly cash dividends not in excess of $0.36
per share of Chicago Title common stock, and (b) a special dividend
payable to holders of record of Chicago Title common stock as of the
close of business on the business day immediately preceding the effective
time of the merger, which special dividend shall be in an amount per
share of Chicago Title common stock equal to $0.36 multiplied by a
fraction, the numerator of which shall be the number of days elapsed from
the record date of the last regular quarterly dividend payment prior to
the effective time of the merger through the date of the effective time
of the merger, and the denominator of which shall be 90;
- issue, deliver or sell any shares of its capital stock or any securities
convertible into or exercisable for any such capital stock other than
upon the exercise of stock options or pursuant to existing employee plans
in accordance with their present terms;
- incur any capital expenditures or any obligations or liabilities in
respect thereof, except for those (a) contemplated by the capital
expenditure budgets for Chicago Title and its subsidiaries, (b) incurred
in the ordinary course of business, or (c) which are not otherwise
described in clause (a) or (b) and which are (x) not in excess of $1
million, (y) in excess of $1 million but less than $2.5 million and as to
which the Transition Committee (a committee composed of six Fidelity
representatives and five Chicago Title representatives, the purpose of
which is to plan matters relating to the integration of the companies
after the merger) has been notified, or (z) otherwise approved by the
Transition Committee;
- except for acquisitions in the ordinary course of the investment
activities of Chicago Title and its subsidiaries consistent with past
practice, acquire any assets of, or equity interests in, any person or
entity having a fair market value in excess of $10 million;
- sell, lease, encumber or otherwise dispose of any assets, other than (a)
in the ordinary course of business consistent with past practice, (b)
equipment and property no longer used in the operation of Chicago Title's
business, and (c) sales or other dispositions of assets related to
discontinued operations;
- incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or rights to acquire
any debt securities, or guarantee any debt securities of others or
request any advances in respect of, or make any drawdowns on, any
existing indebtedness which advance or drawdown exceeds $10 million
individually or $25 million in the aggregate;
- amend, modify or terminate material agreements or arrangements or
otherwise waive, release or assign any of their material rights, claims
or benefits thereunder;
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- other than in the ordinary course of business consistent with past
practice, or as required by law or by an agreement existing on the date
of the merger agreement, or as otherwise contemplated by the merger
agreement, (a) increase the amount of compensation of any director or
executive officer or make any increase in or commitment to increase any
employee benefits, (b) adopt any severance program or grant any material
severance or termination pay to any director, officer or employee of
Chicago Title or any of its subsidiaries, (c) adopt or implement any
employee retention program or other incentive arrangement not in
existence on the date of the merger agreement, (d) adopt any additional
employee benefit plan, or, other than in the ordinary course of business,
make any material contribution to any existing employee benefit plan or
(e) amend in any material respect any existing Chicago Title employee
plan;
- change Chicago Title's methods of accounting in effect at December 31,
1998, except as required by changes in GAAP or by Regulation S-X of the
SEC, as concurred in by its independent public accountants, or change
Chicago Title's fiscal year;
- other than in the ordinary course of business consistent with past
practice, make any tax election or enter into any settlement or
compromise of any tax liability that in either case is material to the
business of Chicago Title;
- pay, discharge, settle or satisfy any claim, liability or obligation
other than (a) for an amount of $5 million or less, (b) an insurance
claim arising in the ordinary course of business, and (c) ordinary course
repayment of indebtedness or payment of contractual obligations when due;
- take any action that would cause any of Chicago Title's representations
and warranties in the merger agreement to become untrue in any material
respect; and
- agree or otherwise commit to do any of the foregoing.
Chicago Title has also agreed, subject to applicable legal and contractual
restraints, to use its good faith efforts to repurchase up to approximately
790,000 outstanding shares of Chicago Title common stock issued to persons other
than Alleghany, its former parent, at a cash purchase price equal to the merger
consideration paid to Chicago Title stockholders in the merger. The maximum
aggregate cost of the repurchase to Chicago Title would be $41.1 million, if all
790,000 shares are tendered and if the merger consideration is $52.00 per
Chicago Title share. Chicago Title anticipates that any such repurchases would
be made immediately prior to, and contingent upon, the merger.
Conduct of Fidelity's Business Prior to the Merger. Fidelity has agreed
that after the date of the merger agreement and prior to the merger it will
conduct its businesses in all material respects in the ordinary course
consistent with past practice, and use commercially reasonable efforts to
preserve intact, its business organization, maintain in effect all material
licenses, approvals and authorizations, and preserve existing relationships with
its material customers, lenders, suppliers and others having material business
relationships with Fidelity.
Specifically, Fidelity has agreed that without the prior written consent of
Chicago Title (which consent cannot be unreasonably withheld or delayed) and
except as otherwise expressly contemplated by the merger agreement, it will not,
and will not permit its subsidiaries to:
- amend or modify their charter documents or by-laws, except as described
above under the heading "-- Corporate Governance;"
- take any action that would prevent or materially impair the ability of
Fidelity to consummate the merger;
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- split, combine or reclassify any shares of capital stock or declare, set
aside or pay any dividend or other distribution in respect of its capital
stock, except for regular quarterly cash dividends not in excess of
$0.084 per share of Fidelity common stock;
- redeem, repurchase or otherwise acquire or offer to redeem, repurchase,
or otherwise acquire any of its securities, except that Fidelity may
repurchase Fidelity common stock if such repurchases (a) are made
pursuant to Fidelity's existing or future publicly announced stock
repurchase program, (b) are made on the NYSE pursuant to Rule 10b-18
under the Securities Exchange Act of 1934, (c) are not made (x) during
the period commencing on the date of this joint proxy
statement/prospectus and ending on the first day after the date that both
the Chicago Title stockholder approval and the Fidelity stockholder
approval have been obtained, (y) during the 30 consecutive trading day
period ending on the second trading day prior to the merger or (z) at a
time when such repurchases are prohibited by Regulation M under the
Securities Exchange Act, and (d) would not prevent or materially impair
the ability of Fidelity to obtain sufficient funds to enable it to
consummate the merger;
- issue, deliver or sell any shares of its capital stock or any securities
convertible into or exercisable for any such capital stock other than
upon the exercise of stock options or pursuant to existing employee plans
in accordance with their present terms;
- incur any capital expenditures or any obligations or liabilities in
respect thereof, except for those (a) contemplated by the capital
expenditure budgets for Fidelity and its subsidiaries, (b) incurred in
the ordinary course of business, or (c) not otherwise described in clause
(a) or (b) and which do not exceed $5 million individually or $25 million
in the aggregate;
- except for acquisitions in the ordinary course of the investment
activities of Fidelity and its subsidiaries consistent with past
practice, acquire any assets of or equity interests in any person or
entity having a fair market value in excess of $10 million;
- sell, lease, encumber or otherwise dispose of any assets, other than (a)
in the ordinary course of business consistent with past practice, (b)
equipment and property no longer used in the operation of Fidelity's
business, and (c) sales or other dispositions of assets related to
discontinued operations;
- incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or rights to acquire
any debt securities, or guarantee any debt securities of others or
request any advances in respect of, or make any drawdowns on, any
existing indebtedness, except for (a) borrowings and guarantees made by
Fidelity and its subsidiaries which are pursuant to or permitted by
Fidelity's existing revolving credit facility or any similar replacement
facility, (b) indebtedness incurred to effect the merger, and (c)
indebtedness incurred in connection with the repurchases of Fidelity
common stock to the extent that incurrence of such indebtedness does not
prevent or materially impair the ability of Fidelity to obtain sufficient
funds to enable it to consummate the merger;
- amend, modify or terminate material agreements or arrangements or
otherwise waive, release or assign any of their material rights, claims
or benefits thereunder;
- other than in the ordinary course of business consistent with past
practice, or as required by law or by an agreement existing on the date
of the merger agreement, (a) increase the amount of compensation of any
director or executive officer or make any increase in or commitment to
increase any employee benefits, (b) grant any material severance or
termination pay to any director, officer or employee of Fidelity or any
of its subsidiaries,
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or amend in any material respect any existing Fidelity employee plan, (c)
adopt any additional employee benefit plan, or, other than in the
ordinary course of business, make any material contribution to any
existing employee benefit plan, or (d) change Fidelity's methods of
accounting in effect at December 31, 1998, except as required by changes
in GAAP or by Regulation S-X of the SEC, as concurred in by its
independent public accountants, or change Fidelity's fiscal year;
- other than in the ordinary course of business consistent with past
practice, make any tax election or enter into any settlement or
compromise of any tax liability that in either case is material to the
business of Fidelity;
- pay, discharge, settle or satisfy any claim, liability or obligation
other than (a) for an amount of $5 million or less, (b) an insurance
claim arising in the ordinary course of business, and (c) ordinary course
repayment of indebtedness or payment of contractual obligations when due;
- take any action that would cause any of Fidelity's representations and
warranties in the merger agreement to become untrue in any material
respect; and
- agree or otherwise commit to do any of the foregoing.
None of the restrictions described above apply to Micro General
Corporation, a Delaware corporation of which Fidelity is the controlling
shareholder, and certain of the restrictions described above do not apply to
Fidelity's subsidiary FNF Capital, Inc. (it being understood that Fidelity will
not take any action as a stockholder of Micro General or permit FNF Capital,
Inc. to take any action that would prevent or materially impair the ability of
Fidelity to complete the merger).
No Solicitation of Transactions. Pursuant to the merger agreement:
(a) Chicago Title has agreed that it will not, nor will it permit any of
its subsidiaries to, nor will it authorize or knowingly permit any officer,
director, employee, investment banker, attorney, accountant, agent or other
advisor or representative of Chicago Title or any Chicago Title subsidiary,
directly or indirectly, to:
1. solicit, initiate or facilitate or encourage the submission of any
acquisition proposal (as defined below);
2. engage in any negotiations regarding, or furnish to any person or entity
any non-public information with respect to, or take any other action
knowingly to facilitate any inquiries or the making of any proposal that
constitutes, or may be reasonably expected to lead to, any acquisition
proposal;
3. grant any waiver or release under any standstill or similar agreement
with respect to any class of Chicago Title's equity securities; or
4. other than in the manner described in (c) below, enter into any
agreement with respect to any acquisition proposal.
However, Chicago Title may take any of the actions described in clauses 1,
2, 3 or 4 above in respect of any person who makes an acquisition proposal, but
only if:
- Chicago Title's board of directors by a majority vote determines in its
good faith judgment that either (x) such acquisition proposal constitutes
a superior proposal, as defined below, and provides written notice of
termination of the merger agreement between Chicago Title and Fidelity in
the manner described in clause (c) below, or (y) such acquisition
proposal could be reasonably expected to lead to a superior proposal; and
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- prior to furnishing any non-public information to any person who makes an
acquisition proposal, such person shall have entered into a
confidentiality agreement with Chicago Title on terms no less favorable
to Chicago Title than the confidentiality agreement between Chicago Title
and Fidelity.
For purposes of the merger agreement, an "acquisition proposal" means any
offer or proposal for, or indication of interest in, a merger, consolidation,
share exchange, business combination, reorganization, recapitalization,
liquidation, dissolution or other similar transaction involving, or any purchase
or acquisition of, 25% or more of:
- any class of equity securities of Chicago Title; or
- the consolidated assets of Chicago Title and its subsidiaries;
other than the transactions contemplated by the merger agreement between Chicago
Title and Fidelity.
(b) Unless Chicago Title's board of directors has previously withdrawn, or
is concurrently therewith withdrawing, its recommendation that Chicago Title
stockholders vote to approve the merger, neither Chicago Title's board of
directors nor any committee of the board of directors may recommend any
acquisition proposal to Chicago Title stockholders. Notwithstanding the
foregoing, nothing contained in the merger agreement will prevent Chicago
Title's board of directors from complying with Rule 14e-2 under the Securities
Exchange Act with respect to any acquisition proposal or making any disclosure
required by applicable law.
Chicago Title will notify Fidelity promptly, but in no event later than 48
hours, after receipt by Chicago Title or any of its subsidiaries (or any of
their respective directors, officers, agents or advisors) of any acquisition
proposal. Similarly, Chicago Title will notify Fidelity of any contacts
concerning, or any request for non-public information or for access to the
properties, books or records of Chicago Title or any Chicago Title subsidiary or
any request for a waiver or release under any standstill or similar agreement,
by any person that has made an acquisition proposal or indicates that it is
considering making an acquisition proposal. This notice to Fidelity will state
the identify of the offeror and, if an acquisition proposal is made, the
material terms of the acquisition proposal. Chicago Title will keep Fidelity
reasonably informed of the status and material terms of any such acquisition
proposal.
(c) Chicago Title may terminate the merger agreement at any time before the
merger agreement has been approved by at least 75% of the shares of Chicago
Title common stock outstanding if:
- Chicago Title's board of directors shall have authorized Chicago Title,
subject to the terms and conditions of the merger agreement to enter into
a binding agreement concerning a transaction that constitutes a superior
proposal;
- Chicago Title notifies Fidelity that it intends to enter into such an
agreement, specifying the material terms and conditions of such
agreement; and
- Chicago Title pays Fidelity a termination fee of $34.1 million.
In connection with the foregoing, Chicago Title has agreed that it will not
terminate the merger agreement (and no termination fee will be paid) if, within
three business days of receiving notice that Chicago Title intends to enter into
an agreement for a superior proposal, Fidelity makes an offer such that the
board of directors of Chicago Title determines that the superior proposal is no
longer a superior proposal. Chicago Title is not permitted to enter into another
agreement during such three business day period.
For purposes of the merger agreement, a superior proposal means a written
proposal made by a person other than Fidelity which is (x) for a merger,
consolidation, share exchange,
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business combination, reorganization, recapitalization, liquidation, dissolution
or other similar transaction involving, or any purchase or acquisition of 49.9%
or more of (i) the Chicago Title common stock or (ii) the consolidated assets of
Chicago Title and its subsidiaries, and (y) otherwise on terms which Chicago
Title's board of directions by a majority vote determines in good faith, after
consultation with its investment advisors and outside legal counsel, would
result in a transaction, if consummated, that is more favorable to Chicago Title
stockholders from a financial point of view, than the transaction contemplated
by the merger agreement between Chicago Title and Fidelity.
In making such determination, the Chicago Title board of directors is
required to take into account, among other things, all legal, financial,
regulatory and other aspects of the proposal, including conditions to
consummation (which shall not include a financing condition).
Employee Matters. Fidelity has agreed to certain employee benefit,
retention and severance matters, which are described under the caption "The
Merger -- Interests of Certain Persons in the Merger."
CONDITIONS TO THE MERGER
Mutual Conditions. The obligation of each of Chicago Title and Fidelity to
effect the merger is subject to, among other things, the satisfaction or waiver
at or prior to the merger of each of the following conditions:
- approval of the merger and the amendment to Fidelity's Certificate of
Incorporation to increase the number of shares of common stock authorized
for issuance from 50,000,000 to 100,000,000 by the holders of more than
50% of the shares of Fidelity common stock;
- approval of the merger by the holders of at least 75% of the shares of
Chicago Title common stock;
- the registration statement filed with the SEC under the Securities Act to
register the shares of Fidelity common stock to be issued in the merger,
of which this joint proxy statement/prospectus is a part, having been
declared effective, and no stop order suspending the effectiveness of the
registration statement having been issued, and no proceedings for that
purpose having been initiated by the SEC and not concluded or withdrawn;
and all state securities or "blue sky" authorizations necessary to carry
out the transactions contemplated by the merger agreement having been
obtained and being in effect;
- the expiration or termination of the waiting period applicable to the
consummation of the merger under the Hart-Scott-Rodino Act without the
imposition of any condition that either Fidelity or Chicago Title sell,
divest or otherwise dispose of any assets or conduct its business in a
manner which would reasonably be expected to have a material adverse
effect on the combined company, taken as a whole, after giving effect to
the merger;
- on the proposed date of the merger no governmental entity having issued
any order, injunction or decree, or taken any other action, that is in
effect and restrains, enjoins or otherwise prohibits the consummation of
the merger;
- Fidelity and Chicago Title having obtained or made all consents,
approvals, actions, orders, authorizations, registrations, declarations,
announcements and filings contemplated by the merger agreement which, if
not obtained or made, would render consummation of the merger illegal or
would be reasonably likely to have a material
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adverse effect on the combined company, taken as a whole, after giving
effect to the merger.
Additional Conditions to the Obligations of Chicago Title. In addition,
the obligations of Chicago Title to consummate the merger are subject to the
satisfaction or waiver of the following conditions:
- Fidelity shall have performed in all material respects all of its
obligations under the merger agreement required to be performed by it at
or prior to the merger, and the representations and warranties of
Fidelity contained in the merger agreement shall be true and correct when
made and at and as of the time of filing of the certificate of merger, as
if made at and as of that time, except for such inaccuracies as would not
be reasonably likely to have a material adverse effect on Fidelity;
- Chicago Title having received a written opinion from Swidler Berlin
Shereff Friedman, LLP, its tax counsel (or other counsel acceptable to
Chicago Title), to the effect that the merger will be treated for federal
income tax purposes as a reorganization within the meaning of Section 368
of the Internal Revenue Code;
- either (a) Chicago Title shall have received (x) a ruling from the IRS
that is reasonably satisfactory to Alleghany or (y) an opinion of Swidler
Berlin Shereff Friedman, LLP (or other counsel acceptable to Chicago
Title and Alleghany), in either case, to the effect that the merger does
not affect the prior tax-free treatment of the distribution by Alleghany
to its stockholders of the shares of common stock of Chicago Title in
June 1998, or the prior tax-free treatment of the distribution by Chicago
Title of the shares of common stock of Alleghany Asset Management in June
1998 or (b) Alleghany shall have consented in writing to the merger and
the other transactions contemplated by the merger agreement; and
- since March 31, 1999 there shall not have occurred any change in the
financial condition, business or operations of Fidelity that would be
reasonably likely to have a material adverse effect on Fidelity.
Additional Conditions to the Obligations of Fidelity. In addition, the
obligations of Fidelity to consummate the merger are subject to the satisfaction
or waiver of the following conditions:
- Chicago Title shall have performed in all material respects all of its
obligations under the merger agreement required to be performed by it at
or prior to the merger, and the representations and warranties of Chicago
Title contained in the merger agreement shall be true and correct when
made and at and as of the time of filing of the certificate of merger, as
if made at and as of that time, except for such inaccuracies as would not
be reasonably likely to have a material adverse effect on Chicago Title;
- Fidelity having received a written opinion from Gibson, Dunn & Crutcher
LLP, its tax counsel (or other counsel acceptable to Fidelity), to the
effect that the merger will be treated for federal income tax purposes as
a reorganization within the meaning of Section 368 of the Internal
Revenue Code;
- either (a) Chicago Title shall have received a ruling from the IRS that
is reasonably satisfactory to Fidelity to the effect that the merger does
not affect the prior tax-free treatment of the distribution by Alleghany
to its stockholders of the shares of common stock of Chicago Title in
June 1998, or the prior tax-free treatment of the distribution by Chicago
Title of the shares of common stock of Alleghany Asset Management in June
1998 or (b) Chicago Title shall have obtained an opinion of Swidler
Berlin Shereff Friedman, LLP (or other counsel acceptable to Fidelity) or
Fidelity shall have obtained
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an opinion of Gibson, Dunn & Crutcher LLP (or other counsel acceptable to
Fidelity) to the effect that the merger does not affect the prior
tax-free treatment of the distribution by Alleghany to its stockholders
of the shares of common stock of Chicago Title in June 1998, or the prior
tax-free treatment of the distribution by Chicago Title of the shares of
common stock of Alleghany Asset Management in June 1998; and
- since March 31, 1999 there shall not have occurred any change in the
financial condition, business or operations of Chicago Title that would
be reasonably likely to have a material adverse effect on Chicago Title.
TERMINATION
The merger agreement may be terminated at any time prior to the merger,
whether before or after approval of the merger agreement by the Chicago Title
stockholders or the Fidelity stockholders:
- by mutual written agreement of Chicago Title and Fidelity;
- by either Chicago Title or Fidelity, if the merger has not been
consummated by March 31, 2000 (which date may be extended by either party
to June 30, 2000 (1) if all regulatory approvals have not been obtained
or the waiting period under the Hart-Scott-Rodino Act has not expired or
been terminated, or (2) if a request has been submitted to the IRS, and
is pending, for a ruling that the merger does not affect the prior
tax-free treatment of either the distribution by Alleghany to its
stockholders of the shares of common stock of Chicago Title in June 1998
or the distribution by Chicago Title of the shares of common stock of
Alleghany Asset Management in June 1998; however, this right to terminate
the merger agreement will not be available to a party whose breach of any
obligations under the merger agreement has been the cause of the failure
of obtaining such regulatory approvals prior to March 31, 2000);
- by either Chicago Title or Fidelity, if there is any law or regulation
that makes consummation of the merger illegal or otherwise prohibited, or
if a court or other governmental entity having competent jurisdiction has
issued a nonappealable final order enjoining Fidelity or Chicago Title
from completing the merger; or
- by either Chicago Title or Fidelity, if the Chicago Title stockholders or
the Fidelity stockholders have not approved the merger agreement as
required.
The merger agreement may be terminated by Chicago Title if:
- at any time prior to the approval of the merger agreement by the Chicago
Title stockholders, Chicago Title's board of directors has determined to
enter into an agreement for a superior proposal (see "Certain
Covenants -- No Solicitation of Transactions" above);
- at any time prior to the effective date of the merger, whether before or
after the approval of the merger agreement by the Chicago Title
stockholders or the Fidelity stockholders:
(1) a breach of or failure to perform any representation, warranty,
covenant or agreement on the part of Fidelity set forth in the
merger agreement has occurred which would cause the conditions to
Chicago Title's obligations to complete the merger not to be
satisfied, and either these conditions are incapable of being
satisfied by March 31, 2000 (or, if the termination date has been
extended as described above, June 30, 2000) or such breach or
failure to perform has not been cured within ten days after notice
of such breach or failure to perform has been given by Chicago Title
to Fidelity; or
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(2) the average Fidelity share price falls below $15.00 and Fidelity
chooses to pay reduced additional merger consideration so that the
total value of the merger consideration is less than $52.00 per
share of Chicago Title common stock.
The merger agreement may be terminated by Fidelity, if:
- the Chicago Title board of directors shall have amended, modified,
withdrawn, conditioned or qualified its recommendation for approval of
the merger by the stockholders of Chicago Title in a manner materially
adverse to Fidelity;
- the Chicago Title board of directors shall have recommended any
acquisition proposal to the Chicago Title stockholders, or failed to
recommend that the Chicago Title stockholders vote to approve the merger;
or
- a breach of or failure to perform any representation, warranty, covenant
or agreement on the part of Chicago Title set forth in the merger
agreement has occurred which would cause the conditions to Fidelity's
obligations to complete the merger not to be satisfied, and either these
conditions are incapable of being satisfied by March 31, 2000 (or, if the
termination date has been extended as described above, June 30, 2000) or
such breach or failure to perform has not been cured within ten days
after notice of such breach or failure to perform has been given by
Fidelity to Chicago Title.
TERMINATION FEE PAYABLE BY CHICAGO TITLE
Chicago Title will become obligated to pay Fidelity a termination fee of
$34.1 million if:
- Chicago Title terminates the merger agreement following a determination
by the Chicago Title board of directors to enter into an agreement for a
superior proposal (see "-- Certain Covenants -- No Solicitation of
Transactions" above);
- either party shall terminate the merger agreement due to the failure to
obtain the Chicago Title stockholder vote, and at any time after the date
of the merger agreement and at or before the date of the Chicago Title
special meeting to vote on the merger, an acquisition proposal shall have
been publicly announced or otherwise communicated to Chicago Title's
board of directors, and within 12 months of the termination of the merger
agreement, Chicago Title enters into a definitive agreement with any
third party with respect to a business combination and a business
combination with respect to Chicago Title is thereafter consummated; or
- Fidelity terminates the merger agreement after the Chicago Title board of
directors shall have amended, modified, withdrawn, conditioned or
qualified its recommendation for approval of the merger by the
stockholders of Chicago Title in a manner materially adverse to Fidelity,
recommended any acquisition proposal to Chicago Title stockholders, or
failed to recommend that the Chicago Title stockholders vote to approve
the merger, except that Fidelity will not have a right to receive the
termination fee if, at the time the merger agreement is terminated by
Fidelity, Fidelity is in material breach of the merger agreement and such
breach either would give rise to a right on the part of Chicago Title to
terminate the merger agreement or is of a magnitude which would have a
material adverse effect on Fidelity and (in either case) has not been
sufficiently cured or improved within ten days after notice thereof so
that the breach would no longer give rise to such right of termination or
have such material adverse effect on Fidelity.
AMENDMENT AND WAIVER
Any provision of the merger agreement may be amended or waived prior to the
merger in the case of an amendment, by Chicago Title and Fidelity, or, in the
case of a waiver, by the party against whom the waiver is to be effective.
However, no such amendment or waiver shall be made after Chicago Title's
stockholders approve the merger, without the further approval of Chicago Title's
stockholders, that would require such approval under applicable law.
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AMENDMENT TO FIDELITY'S CERTIFICATE OF INCORPORATION
Fidelity's board of directors has adopted, subject to stockholder approval,
an amendment to the Fidelity Certificate of Incorporation to increase the number
of authorized shares of Fidelity common stock to 100,000,000 from 50,000,000.
The proposed amendment is necessary to permit Fidelity to issue shares of
Fidelity common stock to Chicago Title stockholders pursuant to the terms of the
merger.
Fidelity's reserve of authorized but unissued shares of common stock has
been significantly reduced in the last two fiscal years as a result of annual
10% stock dividends, a number of business combinations in which Fidelity issued
shares of common stock as consideration, and grants of stock options under
Fidelity's stock option plans. As of December 23, 1999, 27,378,767 shares of
Fidelity common stock were issued and outstanding, and 5,595,556 shares of
common stock were reserved for issuance under Fidelity's stock option plans. As
of the date of this joint proxy statement/prospectus, Fidelity estimates that it
will issue approximately 27,488,647 shares of common stock to Chicago Title
stockholders pursuant to the merger. Accordingly, without an amendment there
would not be a sufficient number of shares of Fidelity common stock available to
complete the merger and the other transactions contemplated by the merger
agreement.
If this amendment proposal is approved by the Fidelity stockholders at the
special meeting, Fidelity will have a sufficient number of authorized shares of
common stock available for issuance to the holders of Chicago Title common stock
pursuant to the terms of the merger. Fidelity will also have additional shares
available for issuance from time to time for such purposes and consideration as
Fidelity's board of directors may approve. Such purposes may include additional
public or private sales of common stock in financing transactions, acquisitions
of other businesses or other corporate purposes, as well as stock dividends,
stock option plans and other stock-based incentive or compensation programs. No
further vote of stockholders of Fidelity will be required to issue such shares
of common stock, except as required by law or stock exchange regulations.
Accordingly, the availability of additional shares of common stock for issuance,
without the delay and expense of obtaining stockholder approval, will afford
Fidelity greater flexibility in acting upon opportunities and transactions, if
any, which may arise in the future. Except for the merger and the other
transactions contemplated by the merger agreement, Fidelity has no immediate
agreements, commitments or understandings with respect to the issuance of any of
the additional shares of common stock which would be authorized by the proposed
amendment to the Fidelity Certificate of Incorporation.
At the present time, Fidelity is not aware of any pending or threatened
efforts by any third party to obtain control of Fidelity, and this amendment
proposal is not being made in response to any such efforts. However, the
availability for issuance of additional shares of common stock could enable the
Fidelity board of directors to make more difficult or discourage an attempt to
obtain control of Fidelity. For example, the issuance of shares of common stock
in a public or private sale, merger or similar transaction would increase the
number of outstanding shares, thereby diluting the interest of a party
attempting to obtain control of Fidelity. See "Description of Fidelity Capital
Stock" for a more detailed description of certain anti-takeover provisions in
the Fidelity Certificate of Incorporation.
If the merger is approved, but the amendment is not approved by Fidelity's
stockholders, Fidelity will not be able to issue a sufficient number of shares
of Fidelity common stock to consummate the merger with Chicago Title. Likewise,
if the amendment is approved, but the merger is not approved by the Fidelity
stockholders, the Fidelity board of directors will likely not implement the
amendment contemplated by this proposal.
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DESCRIPTION OF FIDELITY CAPITAL STOCK
The following description does not purport to be complete and is qualified
in its entirety by reference to Fidelity's Certificate of Incorporation and
By-laws and to the Delaware General Corporation Law.
GENERAL
The authorized capital stock of Fidelity consists of 50,000,000 shares of
Fidelity common stock, par value $0.0001 per share, and 3,000,000 shares of
preferred stock, par value $0.0001 per share. As of December 23, 1999, there
were 27,378,767 shares of Fidelity common stock outstanding, and no shares of
Fidelity preferred stock outstanding.
FIDELITY COMMON STOCK
The holders of Fidelity common stock are entitled to receive dividends as
and when declared by Fidelity's board of directors out of funds legally
available therefor, and may be paid in cash, stock or other property. In certain
cases, holders of Fidelity common stock may not receive dividends until
obligations to the holders of any outstanding shares of Fidelity preferred stock
have been satisfied. In addition, Fidelity's ability to pay dividends may be
restricted by loan agreements, regulatory restrictions, or other transactions
that Fidelity enters into from time to time. In the event of the dissolution of
Fidelity, holders of Fidelity common stock will share ratably in all assets
remaining after payment of liabilities and after providing for any liquidation
preference for any outstanding shares of preferred stock. Each holder of
Fidelity common stock is entitled to one vote for each share held of record on
all matters presented for a vote at a stockholders meeting, including the
election of directors. Holders of Fidelity common stock have no cumulative
voting rights or preemptive rights to purchase or subscribe for any stock or
other securities, and there are no conversion rights or redemption or sinking
fund provisions with respect to such stock. Additional authorized shares of
Fidelity common stock may be issued without stockholder approval.
FIDELITY PREFERRED STOCK
The authorized but unissued shares of Fidelity preferred stock are
available for issuance from time to time at the discretion of Fidelity's board
of directors without stockholder approval. The Fidelity board of directors has
the authority to determine, for each series of Fidelity preferred stock it
establishes, the number, designation, preferences, limitations, and relative
rights of the shares of such series, subject to applicable law and the
provisions of any then-outstanding series of Fidelity preferred stock. The terms
of any series of Fidelity preferred stock, including the dividend rate,
redemption price, liquidation rights, sinking fund provisions, conversion rights
and voting rights, and any corresponding effect on other Fidelity stockholders,
will be dependent largely on factors existing at the time of issuance. Such
terms and effects could include restrictions on the payment of dividends on the
Fidelity common stock if dividends on the Fidelity preferred stock are in
arrears, dilution of the voting power of other Fidelity stockholders to the
extent a series of Fidelity preferred stock has voting rights, and reduction of
amounts available for liquidation as a result of any liquidation preference
granted to any series of Fidelity preferred stock.
ANTI-TAKEOVER PROVISIONS
Certain provisions of Fidelity's Certificate of Incorporation may make it
less likely that Fidelity's management would be changed, or someone would
acquire voting control of Fidelity, without the consent of the Fidelity board of
directors. These provisions may delay, deter or
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prevent tender offers or takeover attempts that Fidelity's stockholders may
believe are in their best interests, including tender offers or takeover
attempts that might allow Fidelity stockholders to receive a premium over the
market price of Fidelity common stock.
Fair Price Provision, Transactions with Interested Stockholders.
Fidelity's Certificate of Incorporation prohibits certain business combinations
between Fidelity and interested stockholders, which include direct and indirect
owners of 10% or more of the voting stock of Fidelity and their affiliates,
unless those transactions are approved by holders of at least 66 2/3% of the
outstanding voting stock not owned by any interested stockholders, voting
together as a single class. This 66 2/3% approval is in addition to any approval
required by law. Business combinations requiring the 66 2/3% approval include:
- any merger or consolidation with an interested stockholder or a
corporation affiliated with an interested stockholder;
- any sale, lease, pledge, exchange, mortgage or other transfer or
disposition of Fidelity assets valued at 10% or more of the fair market
value of Fidelity's consolidated assets to an interested stockholder or
person or entity affiliated with an interested stockholder, other than in
the ordinary course of business;
- the issuance, pledge or transfer by Fidelity of any Fidelity securities,
or the securities of one or more of its subsidiaries, to an interested
stockholder in exchange for consideration with a value of 10% or more of
the fair market value of Fidelity's consolidated assets, unless such
person is acting as an underwriter for such securities;
- any sale, lease, pledge, exchange, mortgage or other transfer or
disposition of the assets of any interested stockholder or any person or
entity affiliated with an interested stockholder with a value of 10% or
more of the fair market value of the consolidated assets of Fidelity to
Fidelity or one or more of its subsidiaries, other than in the ordinary
course of business;
- the adoption of any plan proposed by or on behalf of an interested
stockholder or a person or entity affiliated with an interested
stockholder to liquidate or dissolve Fidelity; and
- any transaction that increases the voting power or proportionate share of
any class of equity or convertible securities of Fidelity owned directly
or indirectly by an interested stockholder or a person or entity
affiliated with an interested stockholder.
However, if 66 2/3% of the "continuing directors" approve the business
combination, the 66 2/3% stockholder approval requirement does not apply.
Continuing directors are those Fidelity directors, excluding directors who are
the interested stockholder or a representative or affiliate of the interested
stockholder, (1) who were members of the board of directors before the
interested stockholder involved in the business combination became an interested
stockholder, or (2) whose election or nomination was approved by a majority of
the directors holding office at the time the interested stockholder involved in
the business combination became an interested stockholder.
This special stockholder approval requirement also does not apply to any
business combination that meets certain conditions specified in the Fidelity
Certificate of Incorporation. These conditions include:
- that each stockholder receives for each of his or her shares a purchase
price at least equal to the greater of (1) the highest price per share
paid by the interested stockholder either in the course of becoming an
interested stockholder or in the two years before the business
combination is announced, (2) the fair market value of Fidelity shares
when
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the interested stockholder became an interested stockholder, and (3) the
fair market value of Fidelity shares when the business combination was
announced;
- that if, during the period after the interested stockholder became an
interested stockholder and prior to completion of the business
combination, Fidelity has failed to declare and pay any regular quarterly
dividend, unless such failure was approved by 66 2/3% of the continuing
directors;
- the interested stockholder has not acquired any additional shares of
Fidelity stock after becoming an interested stockholder;
- after the interested stockholder became an interested stockholder, such
person has not directly or indirectly received the benefit of any loans,
advances, guarantees, pledges or other financial assistance provided by
Fidelity; and
- a proxy or information statement describing the proposed business
combination is mailed to all holders of Fidelity common stock at least 30
days before the business combination is completed.
Holders of at least 66 2/3% of the outstanding voting stock of Fidelity not
owned by any interested stockholders, voting together as one class, must approve
a proposal to amend, repeal, or adopt provisions inconsistent with the
provisions of the Fidelity Certificate of Incorporation described above, unless
such proposal is approved by 66 2/3% of the continuing directors, in which case
holders of at least a majority of the outstanding voting stock entitled to vote
may approve such a proposal.
Preferred Stock May be Issued Without Stockholder Approval. Fidelity's
Certificate of Incorporation permits its board of directors, at any time and
without stockholder approval, to issue one or more new series of preferred
stock. In some cases, the issuance of preferred stock without stockholder
approval could discourage or make more difficult attempts to take control of
Fidelity through a merger, tender offer, proxy contest or otherwise. Preferred
stock with special voting rights or other features issued to persons favoring
Fidelity's then existing management could stop a takeover by preventing the
person trying to take control of Fidelity from acquiring the voting shares
necessary to take control.
Classified Board of Directors. Members of the Fidelity board of directors
are divided into three classes and serve staggered three-year terms. This means
that only approximately one-third of the directors are elected at each annual
meeting of stockholders, and that it would take two years to replace a majority
of the directors by means of such elections. Under Fidelity's Certificate of
Incorporation, directors can be removed from office during their terms only if
holders of at least 50% of the outstanding voting stock, voting together as one
class, approve the removal. Holders of at least 80% of the outstanding voting
stock, voting together as a single class, must approve any proposal to amend,
repeal or adopt any provisions inconsistent with this provision unless such
proposal is approved by 66 2/3% of the continuing directors, in which case
holders of at least a majority of the outstanding voting stock entitled to vote
may approve such a proposal.
Restriction on Stockholder Actions by Written Consent. Fidelity's
Certificate of Incorporation provides that any action required or permitted to
be taken by Fidelity's stockholders must be effected at a duly called annual or
special meeting of stockholders and not by written consent. Special meetings of
stockholders may be called only by the board of directors. Holders of at least
80% of Fidelity's outstanding voting stock, voting together as one class, must
approve any proposal to amend, repeal or adopt any provision inconsistent with
these provisions, unless such proposal is approved by 66 2/3% of the continuing
directors, in which case holders of at least a majority of the outstanding
voting stock entitled to vote may approve such proposal.
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Advance Notice of Requirements for Director Nominations and Stockholder
Proposals. Fidelity's stockholders can nominate candidates for the board of
directors. However, stockholders must follow the advance notice procedures
described in the Fidelity By-laws. In general, a stockholder must submit a
written notice of the nomination to Fidelity's Corporate Secretary at least 90
days before a scheduled annual meeting of stockholders, or within ten days after
stockholders receive notice of a special meeting. The notice must set forth
specific information about the nominee for the board of directors and
stockholder making the nomination.
Stockholders can make proposals relating to other business of Fidelity to
be considered at an annual meeting only pursuant to the advance notice
procedures described in the Fidelity By-laws. In general, a stockholder must
submit a written notice of the proposal and the stockholder's interest in the
proposal at least 60 days before the date set for the annual meeting.
Directors' Ability to Amend By-laws. Under the Fidelity By-laws,
Fidelity's board of directors can adopt, amend or repeal by-laws subject to
limitations imposed by Delaware law. However, pursuant to Fidelity's Certificate
of Incorporation, the board of directors may not amend or repeal by-law
provisions relating to (1) the calling of special meetings of stockholders, (2)
actions by stockholders without a meeting, (3) the agenda for matters to be
presented at stockholders meetings, (4) the election of directors and (5) the
indemnification of officers and directors, without the vote of at least 66 2/3%
of the continuing directors or at least 80% of Fidelity's outstanding voting
stock, voting together as one class. Holders of at least 80% of Fidelity's
outstanding voting stock, voting together as one class, must approve any
proposal to amend, repeal or adopt any provision inconsistent with these
provisions, unless such proposal is approved by 66 2/3% of the continuing
directors, in which case holders of at least a majority of the outstanding
voting stock entitled to vote may approve such proposal. Fidelity stockholders
also have the power to change or repeal provisions of the Fidelity By-laws,
other than those enumerated above requiring a special vote, by majority vote at
an annual or special meeting of stockholders.
Additional Authorized Shares of Capital Stock. Fidelity's board of
directors may issue additional shares of authorized Fidelity common stock
available for issuance, in addition to their ability to issue preferred stock as
discussed above, at such times, under such circumstances and with such terms and
conditions as the board of directors may determine to impede a change in control
of Fidelity.
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COMPARISON OF RIGHTS OF CHICAGO TITLE STOCKHOLDERS
AND FIDELITY STOCKHOLDERS
Upon the exchange of their shares for shares of Fidelity common stock
pursuant to the merger, holders of Chicago Title common stock will become
holders of Fidelity common stock, and their rights will be governed by Delaware
law and by Fidelity's Certificate of Incorporation and By-laws. Because both
Fidelity and Chicago Title are incorporated under the laws of the State of
Delaware, the material differences between the rights of holders of Chicago
Title common stock and the rights of holders of Fidelity common stock result
solely from differences in their governing corporate documents, as summarized
below.
Copies of the Chicago Title Certificate of Incorporation and By-laws and
the Fidelity Certificate of Incorporation and By-laws are incorporated herein by
reference and will be sent to stockholders upon request. See "Where You Can Find
More Information."
AUTHORIZED STOCK
The Chicago Title Certificate of Incorporation provides for authorized
stock consisting of 66,000,000 shares of Chicago Title common stock, par value
$1.00 per share, and 8,000,000 shares of preferred stock, par value $1.00 per
share.
The Fidelity Certificate of Incorporation provides for authorized stock
consisting of 50,000,000 shares of Fidelity common stock, par value $0.0001 per
share, and 3,000,000 shares of Fidelity preferred stock, par value $0.0001 per
share.
ELECTION AND SIZE OF BOARD OF DIRECTORS
The Chicago Title By-laws provide that the number of directors shall be 15
and may be increased or decreased from time to time, but may never be less than
three directors. The Chicago Title Certificate of Incorporation provides that
the number of directors shall be fixed pursuant to a resolution adopted by
greater than 75% of the Chicago Title board of directors. The Chicago Title
board of directors currently has 15 members.
The Fidelity By-laws fix the number of directors at not less than three nor
more than ten directors. The Fidelity By-laws provide that the size of the
Fidelity board of directors may be increased by the vote of a majority of the
entire Fidelity board of directors, or by the affirmative vote of the holders of
a majority of the outstanding shares of all classes of stock entitled to vote
thereon. The current Fidelity board of directors is composed of eight directors.
Pursuant to the merger agreement, Fidelity has agreed to amend its By-laws to
increase the size of the board of directors to 12 and to add a provision
requiring the approval of directors representing 75% of the board of directors
for certain transactions in which Fidelity's directors or executive officers
have material interests.
REMOVAL OF DIRECTORS
The Chicago Title Certificate of Incorporation provides that, subject to
the rights of holders of any series of preferred stock, any director or the
entire Chicago Title board of directors may be removed from office only with
cause and only by the affirmative vote of the holders of at least 75% of the
combined voting power of the then-outstanding shares of stock entitled to vote
in the election of directors, voting together as a single class.
The Fidelity Certificate of Incorporation provides that, subject to the
rights of holders of any series of preferred stock, any director or the entire
Fidelity board of directors may be removed from office only with cause and only
by the affirmative vote of the holders of more
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than 50% of the combined voting power of the outstanding shares of stock
entitled to vote in the election of directors, voting together as a single
class.
AMENDMENTS TO CERTIFICATE OF INCORPORATION
Under Delaware law, unless a higher vote is required by a corporation's
certificate of incorporation, an amendment to the certificate of incorporation
must be approved by a majority of the outstanding shares and a majority of the
outstanding shares of each class entitled to vote upon the proposed amendment.
The Chicago Title Certificate of Incorporation requires the affirmative
vote of the holders of at least 75% of the outstanding voting securities of
Chicago Title to amend, alter, change or repeal any provision thereof.
The Fidelity Certificate of Incorporation requires the holders of at least
80% of the outstanding voting stock, voting together as a single class, to
approve any proposal to amend, repeal or adopt any provisions inconsistent with
those provisions of the Fidelity Certificate of Incorporation governing the
classified board of directors, the prohibition on stockholders acting by written
consent and the advance notice requirements for director nominations and
stockholder proposals, unless such proposal is approved by 66 2/3% of the
members of the Fidelity board of directors who are continuing directors, in
which case holders of at least a majority of the outstanding voting stock
entitled to vote may approve such a proposal. For all other provisions of
Fidelity's Certificate of Incorporation, amendments require the affirmative vote
of the holders of a majority of the outstanding voting securities of Fidelity.
See "Description of Fidelity Capital Stock -- Anti-Takeover Provisions."
AMENDMENTS TO BY-LAWS
Delaware law provides that a corporation's by-laws may be amended by that
corporation's stockholders, or, if so provided in its certificate of
incorporation, the corporation's directors. Chicago Title's Certificate of
Incorporation requires either the affirmative vote of the holders of at least
75% of Chicago Title's outstanding voting securities, or the affirmative vote of
a majority of Chicago Title's board of directors (except for Article II, Section
8, which may be amended only by a vote of greater than 75% of the directors
present at a meeting at which there is a quorum), to amend, alter, change or
repeal any provision of Chicago Title's By-laws.
Under the Fidelity By-laws, Fidelity's board of directors can adopt, amend
or repeal by-laws subject to limitations imposed by Delaware law. However,
pursuant to Fidelity's Certificate of Incorporation, the board of directors may
not amend or repeal by-law provisions relating to:
(1) the calling of special meetings of stockholders;
(2) actions by stockholders without a meeting;
(3) the agenda for matters to be presented at stockholders meetings;
(4) the election of directors; and
(5) the indemnification of officers and directors, without the vote of at
least 66 2/3% of the continuing directors or at least 80% of Fidelity's
outstanding voting stock, voting together as one class.
Holders of at least 80% of Fidelity's outstanding voting stock, voting together
as one class, must approve any proposal to amend, repeal or adopt any provision
inconsistent with these provisions, unless such proposal is approved by 66 2/3%
of the continuing directors, in which case holders of
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at least a majority of the outstanding voting stock entitled to vote may approve
such proposal. Fidelity stockholders also have the power to change or repeal
provisions of the Fidelity By-laws, other than those enumerated above requiring
a special vote, by majority vote at an annual or special meeting of
stockholders.
VOTE ON EXTRAORDINARY CORPORATE TRANSACTIONS
Delaware law provides that, unless otherwise specified in a corporation's
certificate of incorporation, a sale or other disposition of all or
substantially all of the corporation's assets, a merger or consolidation of the
corporation with another corporation or a dissolution of the corporation
requires the affirmative vote of the board of directors (except in certain
limited circumstances) plus, with certain exceptions, the affirmative vote of a
majority of the outstanding stock entitled to vote thereon. The Chicago Title
Certificate of Incorporation provides that the affirmative vote of the holders
of at least 75% of the outstanding voting power of Chicago Title, voting as a
single class, shall be required to approve:
(1) a merger or consolidation of Chicago Title with another corporation;
(2) a dissolution of Chicago Title;
(3) a sale or other disposition of substantially all of the assets of
Chicago Title;
(4) a sale or other disposition of assets with a value greater than $12
million to certain affiliates of Chicago Title; or
(5) a sale of voting securities of Chicago Title to such affiliates.
The Fidelity Certificate of Incorporation does not contain vote requirements for
extraordinary corporate transactions in addition to or different from the
approvals mandated by law, except with respect to business combinations with
interested stockholders, which require the affirmative vote of the holders of
not less than 66 2/3% of the outstanding voting securities of Fidelity not owned
by the interested stockholder or its affiliates. See "Description of Fidelity
Capital Stock -- Anti-Takeover Provisions."
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
In general, Section 203 of the DGCL prevents an "interested stockholder"
(defined generally as a person who owns 15% or more of a corporation's
outstanding voting stock, with the exception of any person who owned and has
continued to own shares in excess of the 15% limitation since December 23, 1987)
from engaging in a "business combination" with a Delaware corporation for three
years following the date such person became an interested stockholder. The term
"business combination" includes mergers or consolidations with an interested
stockholder and certain other transactions with an interested stockholder.
The effects of Section 203 may be avoided if: (1) before such person became
an interested stockholder, the board of directors of the corporation approved
either the business combination or the transaction in which the interested
stockholder became an interested stockholder; (2) upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, the stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced (excluding shares
held by directors who are also officers of the corporation and by employee stock
ownership plans that do not provide employees with the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer); or (3) on or following the date on which such person
became an interested stockholder, the business combination is approved by the
board of directors of the corporation and authorized at an annual or special
meeting of
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stockholders (and not by written consent) by the affirmative vote of the
stockholders of at least 66 2/3% of the outstanding voting stock of the
corporation not owned by the interested stockholder.
Chicago Title is subject to the provisions of Section 203. Fidelity opted
out of, and is not governed by the provisions of, Section 203.
LEGAL MATTERS
The validity of the shares of Fidelity common stock to be issued to Chicago
Title stockholders pursuant to the merger will be passed upon by Stradling Yocca
Carlson & Rauth, a Professional Corporation, Newport Beach, California. Swidler
Berlin Shereff Friedman, LLP and Gibson Dunn & Crutcher LLP will deliver
opinions concerning certain federal income tax consequences of the merger.
EXPERTS
The consolidated financial statements and financial statement schedules of
Fidelity at December 31, 1998 and 1997 and for each of the years in the
three-year period ended December 31, 1998 incorporated by reference in this
joint proxy statement/prospectus have been audited by KPMG LLP, independent
auditors, as set forth in their reports thereon included in Fidelity's Annual
Report on Form 10-K for the year ended December 31, 1998 and incorporated herein
by reference. Such consolidated financial statements and schedules are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements and financial statement schedules of
Chicago Title at December 31, 1998 and 1997 and for each of the years in the
three-year period ended December 31, 1998 incorporated by reference in this
joint proxy statement/prospectus have been audited by KPMG LLP, independent
auditors, as set forth in their reports thereon included in Chicago Title's
Annual Report on Form 10-K for the fiscal year ended December 31, 1998 and
incorporated herein by reference. Such consolidated financial statements and
schedules are incorporated herein by reference in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
Representatives of KPMG LLP are expected to be present at both the Fidelity
special meeting and the Chicago Title special meeting. The representatives will
have the opportunity to make a statement if they so desire and will be available
to respond to appropriate questions.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the 2000 annual meeting
of stockholders of Fidelity must be received by the corporate secretary of
Fidelity by January 6, 2000 for inclusion in the proxy materials for that
meeting.
Any Fidelity stockholder who intends to present a proposal at Fidelity's
next annual meeting of stockholders must deliver or mail a notice to Fidelity's
corporate secretary, together with a brief description of the business desired
to be brought before the meeting. If the stockholder's notice is not timely
given, Fidelity may exercise discretionary voting with respect to the proxies to
be solicited by Fidelity's board of directors and delivered to Fidelity in
connection with that meeting. To be timely, this notice must be received at
Fidelity's principal executive offices not less than 60 days nor more than 90
days prior to the meeting, if at least
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70 days notice or prior public disclosure of the date of the meeting is given or
made to Fidelity's stockholders. Otherwise, the stockholder's notice will be
timely if received not later than the close of business on the tenth day
following the date on which notice of the date of the next annual meeting is
mailed or such public disclosure was made.
Because of the special meeting of stockholders being held to consider the
merger, and because after the merger Chicago Title stockholders will become
Fidelity stockholders, Chicago Title does not intend to hold an annual meeting
of stockholders in 2000. If the merger does not occur, however, the board of
directors of Chicago Title will call for an annual meeting of stockholders to
conduct regular business, and stockholder proposals intended to be presented at
the 2000 annual meeting of stockholders of Chicago Title must have been received
by the corporate secretary of Chicago Title by November 30, 1999 for inclusion
in the proxy materials for that meeting.
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WHERE YOU CAN FIND MORE INFORMATION
Fidelity has filed with the SEC a registration statement on Form S-4 to
register under the Securities Act the shares of Fidelity common stock to be
issued to Chicago Title stockholders pursuant to the merger. The registration
statement, including the exhibits and schedules attached thereto, contains
additional relevant information about Fidelity and Fidelity common stock. The
rules and regulations of the SEC allow us to omit certain information included
in the registration statement from this joint proxy statement/prospectus.
Fidelity and Chicago Title file reports, proxy statements and other
information with the SEC. You may read and copy any reports, proxy statements
and other information we file at the following locations of the SEC:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661-2511
</TABLE>
You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, at prescribed rates. Further information on the operation of the
SEC's Public Reference Room in Washington, D.C. can be obtained by calling the
SEC at 1-800-SEC-0330. The SEC also maintains an internet world wide web site
that contains reports, proxy statements and other information about issuers,
such as Fidelity and Chicago Title, who file electronically with the SEC. The
address of that site is http://www.sec.gov.
You can also inspect reports, proxy statements and other information about
Fidelity and Chicago Title at the offices of the NYSE, 20 Broad Street, New
York, New York 10005.
The SEC allows us to "incorporate by reference" information into this joint
proxy statement/prospectus, which means that we can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is deemed to be part of this
joint proxy statement/prospectus, except for any information superseded by
information in this joint proxy statement/prospectus. This joint proxy
statement/prospectus incorporates by reference the documents set forth below,
and any amendments to those documents, that we have previously filed with the
SEC. These documents contain important information about our companies:
<TABLE>
<CAPTION>
FIDELITY SEC FILINGS PERIOD OR DATE FILED
- -------------------- --------------------
(FILE NO. 1-9396)
<S> <C>
Annual Report on Form 10-K, as Year ended December 31, 1998
amended
Quarterly Reports on Form 10-Q, as Quarters ended March 31, 1999, June 30, 1999
amended and September 30, 1999
Current Reports on Form 8-K Filed on March 22, 1999 and August 4, 1999
Description of Fidelity common stock Filed on February 4, 1992
in the Fidelity registration
statement on Form 8-A, including any
amendment or report filed with the
SEC for the purpose of updating such
description
</TABLE>
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<TABLE>
<CAPTION>
CHICAGO TITLE SEC FILINGS PERIOD OR DATE FILED
------------------------- --------------------
(FILE NO. 1-13995)
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1998
Quarterly Reports on Form 10-Q Quarters ended March 31, 1999, June 30, 1999
and September 30, 1999
Current Reports on Form 8-K Filed on August 4, 1999
Description of Chicago Title common Filed on March 27, 1998
stock in the Chicago Title
registration statement on Form 10,
including any amendment or report
filed with the SEC for the purpose of
updating such description
</TABLE>
Fidelity and Chicago Title also incorporate herein by reference additional
documents that either company may file with the SEC between the date of this
joint proxy statement/ prospectus and the date of the Fidelity special meeting
or the Chicago Title special meeting, as applicable. These documents include
periodic reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form
10-Q and Current Reports on Form 8-K, as well as proxy statements.
Fidelity has supplied all information contained or incorporated by
reference in this document relating to Fidelity, and Chicago Title has supplied
all such information relating to Chicago Title.
You can obtain any of the documents incorporated by reference in this
document from Fidelity or Chicago Title, as the case may be, or from the SEC
through the SEC's web site at the address provided above. Documents incorporated
by reference are available from the companies without charge, excluding any
exhibits to those documents unless the exhibit is specifically incorporated by
reference as an exhibit in this joint proxy statement/prospectus. You can obtain
documents incorporated by reference in this joint proxy statement/prospectus by
requesting them in writing or by telephone from the appropriate company at the
following addresses:
<TABLE>
<S> <C>
Fidelity National Financial, Inc. Chicago Title Corporation
17911 Von Karman Avenue, Suite 300 171 North Clark Street
Irvine, California 92614 Chicago, Illinois 60601
Attention: Peter T. Sadowski Attention: Paul T. Sands, Jr.
Phone number: (949) 622-5000 Phone number: (888) 431-4288
</TABLE>
If you would like to request documents from Fidelity, please do so by
February 2, 2000 to receive them before the Fidelity special meeting. If you
would like to request documents from Chicago Title, please do so by February 4,
2000 to receive them before the Chicago Title special meeting.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS TO VOTE ON THE MERGER. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT
FROM WHAT IS CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS. THIS JOINT
PROXY STATEMENT/PROSPECTUS IS DATED DECEMBER , 1999. YOU SHOULD NOT
ASSUME THAT THE INFORMATION CONTAINED IN THE JOINT PROXY STATEMENT/ PROSPECTUS
IS ACCURATE AS OF ANY DATE OTHER THAN SUCH DATE, AND NEITHER THE MAILING OF THE
JOINT PROXY STATEMENT/PROSPECTUS TO STOCKHOLDERS NOR THE ISSUANCE OF FIDELITY
COMMON STOCK IN THE MERGER SHALL CREATE ANY IMPLICATION TO THE CONTRARY.
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF AUGUST 1, 1999
BY AND BETWEEN
FIDELITY NATIONAL FINANCIAL, INC.
AND
CHICAGO TITLE CORPORATION
AND AMENDED AS OF OCTOBER 13, 1999
<PAGE> 107
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I DEFINITIONS...................................... A-1
Section 1.1 Definitions................................... A-1
ARTICLE II THE MERGER...................................... A-6
Section 2.1 The Merger.................................... A-6
Section 2.2 Certificate of Incorporation and By-laws of
the Surviving Corporation.............................. A-7
Section 2.3 Board of Directors of the Surviving
Corporation............................................ A-7
Section 2.4 Headquarters.................................. A-7
Section 2.5 Transition Committee.......................... A-7
ARTICLE III CONVERSION OF SECURITIES AND RELATED MATTERS... A-8
Section 3.1 Conversion of Capital Stock................... A-8
Section 3.2 Fractional Shares; Adjustments................ A-13
Section 3.3 Exchange of Certificates...................... A-13
Section 3.4 Company Stock Options......................... A-15
Section 3.5 Shares of Dissenting Stockholders............. A-16
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
THE COMPANY............................................... A-16
Section 4.1 Corporate Existence and Power................. A-16
Section 4.2 Corporate Authorization....................... A-16
Section 4.3 Governmental Authorization.................... A-17
Section 4.4 Non-Contravention............................. A-17
Section 4.5 Capitalization................................ A-17
Section 4.6 Subsidiaries.................................. A-18
Section 4.7 The Company SEC Documents..................... A-18
Section 4.8 Financial Statements; Reserves................ A-19
Section 4.9 No Material Undisclosed Liabilities........... A-20
Section 4.10 Information to Be Supplied................... A-20
Section 4.11 Absence of Certain Changes................... A-21
Section 4.12 Transactions with Affiliates................. A-21
Section 4.13 Litigation................................... A-21
Section 4.14 Taxes........................................ A-21
Section 4.15 Employees and Employee Benefits.............. A-22
Section 4.16 Investment Securities........................ A-23
Section 4.17 Compliance with Laws......................... A-23
Section 4.18 Forms of Contract............................ A-24
Section 4.19 Directors' and Officers' Insurance
Policies............................................... A-24
Section 4.20 Environmental Matters........................ A-24
Section 4.21 Finders' Fees; Opinion of Financial
Advisor................................................ A-24
Section 4.22 Required Vote; Board Approval................ A-25
Section 4.23 State Takeover Statutes...................... A-25
Section 4.24 Year 2000 Compliance......................... A-25
</TABLE>
i
<PAGE> 108
TABLE OF CONTENTS (CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE V REPRESENTATIONS AND WARRANTIES OF FIDELITY....... A-25
Section 5.1 Corporate Existence and Power................. A-25
Section 5.2 Corporate Authorization....................... A-26
Section 5.3 Governmental Authorization.................... A-26
Section 5.4 Non-Contravention............................. A-26
Section 5.5 Capitalization of Fidelity.................... A-26
Section 5.6 Subsidiaries.................................. A-27
Section 5.7 Fidelity SEC Documents........................ A-28
Section 5.8 Financial Statements; Reserves................ A-28
Section 5.9 No Material Undisclosed Liabilities........... A-29
Section 5.10 Information to Be Supplied................... A-29
Section 5.11 Absence of Certain Changes................... A-30
Section 5.12 Transactions with Affiliates................. A-30
Section 5.13 Litigation................................... A-30
Section 5.14 Taxes........................................ A-31
Section 5.15 Employees and Employee Benefits.............. A-31
Section 5.16 Investment Securities........................ A-32
Section 5.17 Compliance with Laws......................... A-32
Section 5.18 Forms of Contract............................ A-33
Section 5.19 Directors' and Officers' Insurance
Policies............................................... A-33
Section 5.20 Environmental Matters........................ A-33
Section 5.21 Finders' Fees; Opinion of Financial
Advisor................................................ A-33
Section 5.22 Required Vote; Board Approval................ A-33
Section 5.23 Ownership of Company Common Shares........... A-34
Section 5.24 Year 2000 Compliance......................... A-34
Section 5.25 Financing.................................... A-34
ARTICLE VI COVENANTS OF THE COMPANY........................ A-34
Section 6.1 The Company Interim Operations................ A-34
Section 6.2 Stockholder Meeting........................... A-36
Section 6.3 Acquisition Proposals; Board Recommendation... A-37
Section 6.4 Purchases of Company Common Shares............ A-38
ARTICLE VII COVENANTS OF FIDELITY.......................... A-38
Section 7.1 Fidelity Interim Operations................... A-38
Section 7.2 Executive Management.......................... A-40
Section 7.3 Stockholder Meeting........................... A-40
Section 7.4 Indemnification, Exculpation and Insurance.... A-41
Section 7.5 Employee Benefits............................. A-41
Section 7.6 Stock Exchange Listing........................ A-42
</TABLE>
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TABLE OF CONTENTS (CONTINUED)
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PAGE
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ARTICLE VIII COVENANTS OF FIDELITY AND THE COMPANY......... A-42
Section 8.1 Reasonable Best Efforts....................... A-42
Section 8.2 Certain Filings; Cooperation in Receipt of
Consents............................................... A-42
Section 8.3 Public Announcements.......................... A-44
Section 8.4 Access to Information; Notification of Certain
Matters................................................ A-44
Section 8.5 Payment of Special Dividend................... A-44
Section 8.6 Further Assurances............................ A-44
Section 8.7 Tax Matters................................... A-45
Section 8.8 Control of Other Party's Business............. A-45
Section 8.9 Affiliate Letters............................. A-45
Section 8.10 Financing.................................... A-45
ARTICLE IX CONDITIONS TO THE MERGER........................ A-45
Section 9.1 Conditions to the Obligations of Each Party... A-45
Section 9.2 Conditions to the Obligations of the
Company................................................ A-46
Section 9.3 Conditions to the Obligations of Fidelity..... A-47
ARTICLE X TERMINATION...................................... A-48
Section 10.1 Termination.................................. A-48
Section 10.2 Effect of Termination........................ A-49
Section 10.3 Termination Fee and Expenses................. A-49
ARTICLE XI MISCELLANEOUS................................... A-50
Section 11.1 Notices...................................... A-50
Section 11.2 Survival of Representations, Warranties and
Covenants after the Effective Time........... A-51
Section 11.3 Amendments; No Waivers....................... A-51
Section 11.4 Successors and Assigns....................... A-51
Section 11.5 Governing Law................................ A-51
Section 11.6 Counterparts; Effectiveness; Third Party
Beneficiaries.......................................... A-52
Section 11.7 Jurisdiction................................. A-52
Section 11.8 Waiver of Jury Trial......................... A-52
Section 11.9 Enforcement.................................. A-52
Section 11.10 Entire Agreement............................ A-52
</TABLE>
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of August 1, 1999, and amended as of
October 13, 1999, by and between Chicago Title Corporation, a Delaware
corporation (the "Company"), and Fidelity National Financial, Inc., a Delaware
corporation ("Fidelity") (the "Agreement").
RECITALS
WHEREAS, the Boards of Directors of the Company and Fidelity each have
determined that a business combination between the Company and Fidelity is
advisable and in the best interests of their respective companies and
stockholders and presents an opportunity for their respective companies to
achieve long-term strategic and financial benefits, and accordingly have agreed
to effect the merger provided for herein upon the terms and subject to the
conditions set forth herein; and
WHEREAS, the parties hereto intend that the merger provided for herein
shall qualify for U.S. federal income tax purposes as a reorganization within
the meaning of Section 368 of the U.S. Internal Revenue Code of 1986, as amended
(together with the rules and regulations promulgated thereunder, the "Code") (a
"368 Reorganization"); and
WHEREAS, by resolutions duly adopted, the respective Boards of Directors of
the Company and Fidelity have approved and adopted this Agreement and the
transactions contemplated hereby.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, and
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions.
(a) As used herein, the following terms have the following meanings:
"AAM" means Alleghany Asset Management, a Delaware corporation.
"AAM Distribution" means the distribution of Alleghany Asset Management to
Alleghany by Chicago Title & Trust Company, a wholly-owned subsidiary of the
Company, in June 1998.
"Acquisition Proposal" means any offer or proposal for, or indication of
interest in, a merger, consolidation, share exchange, business combination,
reorganization, recapitalization, liquidation, dissolution or other similar
transaction involving, or any purchase or acquisition of, 25% or more of (i) any
class of equity securities of the Company or (ii) the consolidated assets of the
Company and its Subsidiaries, other than the transactions contemplated by this
Agreement.
"Affiliate" means, with respect to any Person, any other Person, directly
or indirectly, controlling, controlled by, or under common control with, such
Person. For purposes of this definition, the term "Control" (including the
correlative terms "Controlling", "Controlled By" and "Under Common Control
With") means the possession, direct or indirect, of the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract, or otherwise.
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"Alleghany" means Alleghany Corporation, a Delaware corporation of which
the Company was a wholly-owned subsidiary prior to the distribution of the
Company to stockholders of Alleghany in June 1998.
"Business Combination" means, with respect to the Company, (i) a merger,
reorganization, consolidation, share exchange, business combination,
recapitalization, liquidation, dissolution or similar transaction involving the
Company as a result of which either (A) the Company's stockholders prior to such
transaction (by virtue of their ownership of Company Common Shares) in the
aggregate cease to own at least 50.1% of the voting securities of the entity
surviving or resulting from such transaction (or the ultimate parent entity
thereof), or (B) the individuals comprising the board of directors of the
Company prior to such transaction do not constitute a majority of the board of
directors of the ultimate parent entity after such transaction, or (ii) a sale,
lease, exchange, transfer or other disposition of at least 49.9% of the assets
of the Company and its Subsidiaries, taken as a whole, in a single transaction
or a series of related transactions.
"Business Day" means any day other than a Saturday, Sunday or one on which
banks are authorized by law to close in New York, New York.
"Company Balance Sheet" means the Company's consolidated balance sheet
included in the Company 10-K relating to its fiscal year ended on December 31,
1998.
"Company Common Share" means one share of common stock of the Company,
$1.00 par value per share.
"Company Proceedings" means the litigation and other proceedings identified
as such on Section 4.13 of the Company Disclosure Schedule.
"Company SEC Documents" means (i) the annual report on Form 10-K of the
Company (the "Company 10-K") for the fiscal year ended December 31, 1998, (ii)
the quarterly report on Form 10-Q of the Company (the "Company 10-Q") for the
fiscal quarter ended March 31, 1999, (iii) the Company's proxy statement dated
March 29, 1999 relating to the 1999 Annual Meeting of Stockholders (the "Company
Proxy Statement"), and (iv) all other reports, filings, registration statements
and other documents filed by the Company with the SEC since June 17, 1998.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Exchange Ratio" means a fraction the numerator of which is the product of
1.004 and the number of outstanding Fidelity Common Shares immediately prior to
the Effective Time, and the denominator of which is the number of Merger Shares
(calculated to the nearest 0.0001).
"Fidelity Balance Sheet" means Fidelity's consolidated balance sheet
included in the Fidelity 10-K relating to its fiscal year ended on December 31,
1998.
"Fidelity Common Share" means one share of common stock of Fidelity, $.0001
par value per share.
"Fidelity Proceedings" means the litigation and other proceedings
identified as such on Section 5.13 of the Fidelity Disclosure Schedule.
"Fidelity SEC Documents" means (i) Fidelity's annual reports on Form 10-K
for its fiscal years ended December 31, 1997 and December 31, 1998 (the
"Fidelity 10-Ks"), (ii) Fidelity's quarterly report on Form 10-Q (the "Fidelity
10-Q") for its fiscal quarter ended March 31, 1999, (iii) Fidelity's proxy
statement dated May 10, 1999 relating to the 1999 Annual Meeting
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of Stockholders (the "Fidelity Proxy Statement"), and (iv) all other reports,
filings, registration statements and other documents filed by Fidelity with the
SEC since December 31, 1997.
"Governmental Entity" means any federal, state, municipal or local
governmental authority, any foreign or international governmental authority, or
any court, administrative or regulatory agency or commission or other
governmental agency.
"Joint Proxy Statement/Prospectus" means the joint proxy
statement/prospectus including the Registration Statement and the proxy
statement for the Company Stockholders Meeting and the Fidelity Stockholders
Meeting, together with any amendments or supplements thereto.
"knowledge" (and all correlative terms) as to any party means to the
knowledge of such party's executive officers or senior management identified on
Section 1.1 of that party's Disclosure Schedule.
"Law" means all laws, statutes and ordinances and all regulations, rules
and other pronouncements of Governmental Entities having the effect of law of
the United States, any foreign country or any foreign or domestic state,
province, commonwealth, city, country, municipality, territory, protectorate,
possession or similar instrumentality or any Governmental Entity thereof.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset;
provided, however, that the term "Lien" shall not include (i) liens for water
and sewer charges and taxes not yet due and payable or being contested in good
faith (and for which adequate accruals or reserves have been established by the
Company or Fidelity, as the case may be) and (ii) mechanics', carriers',
workers', repairers', materialmen's, warehousemen's and other similar liens
arising or incurred in the ordinary course of business.
"Material Adverse Effect" means a material adverse effect on the financial
condition, business or results of operations of a Person and its Subsidiaries,
taken as a whole, other than (x) effects caused by (i) changes in general
economic or securities markets conditions, (ii) changes in interest rate levels,
(iii) changes that affect the title insurance industry, (iv) (A) in the case of
the Company, the identity of Fidelity as acquiror of the Company or the conduct
of Fidelity with respect to the transactions contemplated by this Agreement
prior to the Effective Time, or (B) in the case of Fidelity, the identity of the
Company as the acquired party or the conduct of the Company with respect to the
transactions contemplated by this Agreement prior to the Effective Time, or (v)
the public announcement of the transactions contemplated by this Agreement, or
(y) developments in, effects of, or circumstances arising from, in the case of
the Company, the Company Proceedings or, in the case of Fidelity, the Fidelity
Proceedings. "Fidelity Material Adverse Effect" means a Material Adverse Effect
in respect of Fidelity and its Subsidiaries, taken as a whole, and "Company
Material Adverse Effect" means a Material Adverse Effect in respect of the
Company and its Subsidiaries, taken as a whole.
"Merger Shares" means each Company Common Share outstanding immediately
prior to the Effective Time (other than Dissenting Shares (as hereinafter
defined) and other than shares to be cancelled in accordance with Section 3.1(a)
hereof).
"Micro General" means Micro General Corporation, a Delaware corporation of
which Fidelity is a controlling stockholder.
"NYSE" means the New York Stock Exchange.
"Person" means an individual, a corporation, a limited liability company, a
partnership, an association, a trust or any other entity or organization,
including any Governmental Entity.
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"Registration Statement" means the Registration Statement on Form S-4
registering under the Securities Act the Fidelity Common Shares issuable in
connection with the Merger.
"Revolving Credit Facility" means the Credit Agreement, dated as of August
1, 1998, by and among Fidelity, Sanwa Bank California and the Lenders from time
to time party thereto, or any similar replacement facility.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Subsidiary" when used with respect to any Person, means any other Person,
whether incorporated or unincorporated, of which (i) more than fifty percent of
the securities or other ownership interests or (ii) securities or other
interests having by their terms ordinary voting power to elect more than fifty
percent of the board of directors or others performing similar functions with
respect to such corporation or other organization, is directly owned or
controlled by such Person or by any one or more of its Subsidiaries.
"Superior Proposal" means a written proposal made by a Person other than
Fidelity which is (A) for a merger, consolidation, share exchange, business
combination, reorganization, recapitalization, liquidation, dissolution or other
similar transaction involving, or any purchase or acquisition of, that
percentage equal to 100% less the Minimum Percentage (as hereinafter defined) or
more of (i) any class of equity securities of the Company or (ii) the
consolidated assets of the Company and its Subsidiaries, and which is (B)
otherwise on terms which the Company's Board of Directors by a majority vote
determines in good faith (after consultation with its investment advisors and
outside legal counsel) would result in a transaction, if consummated, that is
more favorable to the Company's stockholders, from a financial point of view
(taking into account, among other things, all legal, financial, regulatory and
other aspects of the proposal, including conditions to consummation (which shall
not include a financing condition)) than the transactions contemplated hereby.
"Tax Sharing Agreement" means the Tax Sharing Agreement between the Company
and Alleghany dated as of June 17, 1998.
(b) Each of the following terms is defined in the Section set forth
opposite such term:
<TABLE>
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TERMS SECTION
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368 Reorganization Recitals
Aggregate Cash Share Fraction Section 3.1(e)
Allocation of Merger Consideration Section 3.1(c)
Average Fidelity Common Share Price Section 3.1(b)(iv)
Burdensome Condition Section 8.1
By-law Amendment Section 2.2
Cash Election Section 3.1(d)
Cash Election Shares Section 3.1(d)
Cash Fraction Section 3.1(f)(iii)
Cash Portion Section 3.1(b)(ii)
Certificate Section 3.1(d)
Certificate Amendment Section 2.2
Certificate of Merger Section 2.1(b)
Closing Section 2.1(d)
Code Recitals
</TABLE>
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<TABLE>
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TERMS SECTION
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Company Preamble
Company 10-K Section 1.1
Company 10-Q Section 1.1
Company Employee Plans Section 4.15(a)
Company GAAP Financial Statements Section 4.8(a)
Company Insurance Subsidiaries Section 4.6(b)
Company Option Section 3.4(a)
Company Proxy Statement Section 1.1
Company Recommendation Section 6.2
Company Returns Section 4.14
Company Securities Section 4.5(b)
Company Statutory Financial Statements Section 4.8(b)
Company Stockholder Approval Section 4.22(a)
Company Stockholders Meeting Section 6.2
Company Systems Section 4.24
Confidentiality Agreement Section 6.3(a)
Determination Date Section 3.1(b)
DGCL Section 2.1(a)
Differential Section 3.1(b)(iii)
Dissenting Shares Section 3.5(a)
Effective Time Section 2.1(b)
Election Section 3.1(d)
Election Deadline Section 3.1(i)
End Date Section 10.1(b)(i)
Environmental Laws Section 4.20(b)
ERISA Section 4.15(a)
Exchange Agent Section 3.3(a)
Exchange Fund Section 3.3(a)
Extended End Date Section 10.1(b)(i)
Fidelity Preamble
Fidelity 10-Ks Section 1.1
Fidelity 10-Q Section 1.1
Fidelity Employee Plans Section 5.15(a)
Fidelity GAAP Financial Statements Section 5.8(a)
Fidelity Insurance Subsidiaries Section 5.6(b)
Fidelity Option Section 3.4(a)
Fidelity Proxy Statement Section 1.1
Fidelity Returns Section 5.14
Fidelity Securities Section 5.5(b)
Fidelity Statutory Financial Statements Section 5.8(b)
Fidelity Stockholder Approval Section 5.22(a)
Fidelity Stockholders Meeting Section 7.3
Fidelity Systems Section 5.24
Form of Election Section 3.1(d)
</TABLE>
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TERMS SECTION
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GAAP Section 4.8(a)
Guarantee of Delivery Section 3.1(i)
HSR Act Section 4.3
Maximum Cash Section 3.1(c)
Maximum Shares Section 3.1(c)
Merger Section 2.1(a)
Merger Consideration Section 3.1(c)
Minimum Percentage Section 3.1(c)(i)
Non-Election Section 3.1(d)
Non-Election Shares Section 3.1(d)
Non-Election Fraction Section 3.1(h)(iii)
Per Share Cash Amount Section 3.1(e)
Per Share Stock Amount Section 3.1(e)
Reduced Supplemental Consideration Section 3.1(b)(iii)
Reduced Differential Section 3.1(b)(iv)
Restated By-laws Section 2.2
Restated Certificate Section 2.2
Stock Election Section 3.1(d)
Stock Election Shares Section 3.1(d)
Stock Fraction Section 3.1(g)(iii)
Stock Portion Section 3.1(b)(i)
Supplemental Consideration Section 3.1(b)(iii)
Supplemental Cash Portion Section 3.1(b)(iii)
Supplemental Exchange Ratio Section 3.1(b)(iv)
Supplemental Stock Portion Section 3.1(b)(iii)
Surviving Corporation Section 2.1(a)
Termination Fee Section 10.3(c)
Transition Committee Section 2.5
Year 2000 Compliant Section 4.24
</TABLE>
ARTICLE II
THE MERGER
Section 2.1 The Merger.
(a) At the Effective Time, the Company shall be merged (the "Merger") with
and into Fidelity in accordance with the terms and conditions of this Agreement
and of the General Corporation Law of the State of Delaware (the "DGCL").
Following the Effective Time, Fidelity shall be the surviving corporation (the
"Surviving Corporation"), and shall succeed to and assume all the rights and
obligations of the Company in accordance with the DGCL.
(b) Not later than the second Business Day after satisfaction or, to the
extent permitted hereby, waiver of the conditions set forth in Article IX (other
than conditions that by their nature are to be satisfied at the Closing, but
subject to those conditions), the Company and Fidelity will file a certificate
of merger (the "Certificate of Merger") with the Secretary of State of the State
of Delaware and make all other filings or recordings required by the DGCL in
connection with the Merger. The Merger shall become effective upon the filing of
the
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Certificate of Merger with the Secretary of State of the State of Delaware in
accordance with the DGCL or at such later time which the parties hereto shall
have agreed upon and designated in such Certificate of Merger as the effective
time of the Merger (the "Effective Time").
(c) From and after the Effective Time, the Merger shall have the effects
set forth in the DGCL.
(d) The closing of the Merger (the "Closing") shall be held at the offices
of Dewey Ballantine LLP, 1301 Avenue of the Americas, New York, NY (or such
other place as agreed by the parties) at 10:00 a.m. New York City time on a date
to be specified by the parties, which shall be no later than the second Business
Day after satisfaction or, to the extent permitted hereby, waiver of the
conditions set forth in Article IX (other than conditions that by their nature
are to be satisfied at the Closing, but subject to those conditions), unless the
parties hereto agree to another date or time.
Section 2.2 Certificate of Incorporation and By-laws of the Surviving
Corporation. The restated certificate of incorporation of Fidelity, as in effect
immediately prior to the Effective Time, shall be amended as of the Effective
Time as described in Exhibit A-1 hereto and, as so amended, such restated
certificate of incorporation shall be the restated certificate of incorporation
of the Surviving Corporation until thereafter changed or amended as provided
therein or by applicable law (as so amended, the "Restated Certificate"). The
by-laws of Fidelity, as in effect immediately prior to the Effective Time, shall
be amended as of the Effective Time as described in Exhibit A-2 hereto and, as
so amended, such by-laws shall be the by-laws of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law (as so
amended, the "Restated By-laws"). Such amendment and restatement of Fidelity's
certificate of incorporation and by-laws are referred to herein as the
"Certificate Amendment" and the "By-law Amendment," respectively.
Section 2.3 Board of Directors of the Surviving Corporation. Prior to the
Effective Time, Fidelity shall adopt resolutions to constitute the Board of
Directors of Fidelity and committees thereof from and after the Effective Time
in the manner described in Exhibit B hereto. From and after the Effective Time,
the members of the Board of Directors, the committees of the Board of Directors
and the composition of such committees shall be as set forth on or designated in
accordance with the Restated Certificate, the Restated By-laws and Exhibit B
hereto until the earlier of the resignation or removal of any individual set
forth on or designated in accordance with the Restated Certificate, the Restated
By-laws and Exhibit B or until their respective successors are duly elected and
qualified, as the case may be, or until as otherwise provided in the Restated
Certificate, the Restated By-laws and Exhibit B.
Section 2.4 Headquarters. Fidelity and the Company agree that the
headquarters of the Surviving Corporation shall be located in Irvine,
California; provided, however, that the Chicago Title and Trust Company
Foundation and the headquarters of certain business segments of the Surviving
Corporation to be mutually agreed by the parties prior to the Effective Time
will be located in Chicago, Illinois.
Section 2.5 Transition Committee. The parties agree to establish a
Transition Committee (the "Transition Committee") which will have a consultative
role and which will be in effect from the date hereof until the earlier of the
termination hereof or the Effective Time. The Transition Committee shall be
comprised of eleven persons, six of whom shall be designated by Fidelity
(including Patrick F. Stone, who shall serve as Chairman of the Transition
Committee), and five of whom shall be designated by the Company. The Transition
Committee will coordinate contacts between officers and employees of Fidelity
and the Company and will plan matters relating to the integration after the
Effective Time of Fidelity
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and the Company, including organization and staffing. The Transition Committee
will draw upon the resources of Fidelity and the Company as necessary or
appropriate.
ARTICLE III
CONVERSION OF SECURITIES AND RELATED MATTERS
Section 3.1 Conversion of Capital Stock. At the Effective Time, by virtue
of the Merger:
(a) Each Company Common Share held by the Company as treasury stock or
owned by Fidelity or any of its Subsidiaries immediately prior to the Effective
Time shall be cancelled, and no payment shall be made in respect thereof.
(b) Subject to Section 3.5 hereof, each Merger Share shall be cancelled
and, at the Effective Time, shall be converted into the right to receive
consideration having a value of $52.00 (unless Fidelity elects to pay the
Reduced Supplemental Consideration (as defined below), in which case the Company
shall have the right to terminate this Agreement as provided in Section
10.1(c)(iii) below), consisting of:
(i) a number of Fidelity Common Shares (the "Stock Portion") equal to
the Exchange Ratio;
(ii) an amount in cash equal to the lesser of (x) $26.00 or (y)(1)
$52.00 less (2) the Stock Portion multiplied by the Average Fidelity Common
Share Price (the "Cash Portion"); and
(iii) to the extent that the sum of (1) the product of the Stock
Portion multiplied by the Average Fidelity Common Share Price plus (2) the
Cash Portion is less than $52.00 (the "Differential"), then Fidelity shall
add an additional amount (the "Supplemental Consideration") to make up the
Differential; provided, however, that if the Average Fidelity Common Share
Price is less than $15.00, then Fidelity shall elect either (i) to pay the
Supplemental Consideration or (ii) to pay a reduced amount of Supplemental
Consideration (the "Reduced Supplemental Consideration") equal to the
product of the Average Fidelity Common Share Price multiplied by the lesser
of (x) a fraction (1) the numerator of which is the sum of (A) the product
of 0.50 multiplied by the Reduced Differential plus (B) the product of the
Average Fidelity Common Share Price multiplied by a fraction, the numerator
of which is the product of 0.50 multiplied by the Reduced Differential and
the denominator of which is $15.00 and (2) the denominator of which is the
Average Fidelity Common Share Price, or (y) a fraction, the numerator of
which is the Reduced Differential and the denominator of which is $13.00.
Any payment of the Supplemental Consideration or the Reduced
Supplemental Consideration, as the case may be, shall be made, at the
election of Fidelity, in the form of cash, Fidelity Common Shares or a
combination thereof. If Fidelity elects to pay all or any portion of the
Supplemental Consideration or the Reduced Supplemental Consideration, as
the case may be, in Fidelity Common Shares, the number of Fidelity Common
Shares to be issued as Supplemental Consideration or Reduced Supplemental
Consideration (the "Supplemental Stock Portion") shall be equal to the
Supplemental Exchange Ratio. If Fidelity elects to pay all or any portion
of the Supplemental Consideration or the Reduced Supplemental
Consideration, as the case may be, in cash, the amount of cash to be paid
as Supplemental Consideration or Reduced Supplemental Consideration shall
be the "Supplemental Cash Portion."
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(iv) For purposes of this Agreement, (1) the "Average Fidelity Common
Share Price" shall be determined on the second trading day immediately
prior to the date of the Effective Time (the "Determination Date") and
shall mean the average of the daily averages of the high and low sales
prices of a Fidelity Common Share (calculated to the nearest 0.0001) on the
NYSE Composite Transactions Tape for the 30 consecutive trading days
immediately preceding and including the Determination Date (or, in the
event that there is no trading of Fidelity Common Share on any day during
the 30-trading-day period, for such lesser number of days within such
30-trading-day period when Fidelity Common Shares are traded); (2) the
"Reduced Differential" shall be determined if the Average Fidelity Common
Share Price on the Determination Date is less than $15.00 and Fidelity
elects to pay the Reduced Supplemental Consideration, and shall be an
amount equal to the difference between (A) $52.00 and (B) the sum of (x)
$26.00 and (y) the product of the Stock Portion and $15.00; and (3) the
"Supplemental Exchange Ratio" shall be a fraction (calculated to the
nearest 0.0001), the numerator of which is the portion of the Supplemental
Consideration or the Reduced Supplemental Consideration, as the case may
be, to be paid in Fidelity Common Shares and the denominator of which is
the Average Fidelity Common Share Price.
(v) Schedule I hereto illustrates the application of this Section
3.1(b) at various assumed Average Fidelity Common Share Prices.
(c) The amount of merger consideration payable pursuant to Section 3.1(b)
(which shall consist of the Stock Portion, the Cash Portion, the Supplemental
Stock Portion (if any), and the Supplemental Cash Portion (if any), and which
shall have an aggregate value equal to $52.00 or, if Fidelity has elected to pay
the Reduced Supplemental Consideration, an aggregate value equal to $52.00 less
the difference between the Supplemental Consideration and the Reduced
Supplemental Consideration) shall be referred to herein as the "Merger
Consideration." After determining the aggregate amount of Merger Consideration
in accordance with the provisions of Section 3.1(b) (and giving effect to any
determination by Fidelity to pay any Supplemental Consideration (or Reduced
Supplemental Consideration) in the form of cash, Fidelity Common Shares or a
combination thereof), a determination shall be made (the "Allocation of Merger
Consideration") as to the total number of Fidelity Common Shares to be paid as
Merger Consideration (the "Maximum Shares") and the total amount of cash to be
paid as Merger Consideration (the "Maximum Cash"), taking into account the
following adjustments:
(i) in the event that the Allocation of Merger Consideration would
result in holders of Merger Shares owning less than that percentage (the
"Minimum Percentage") of whole outstanding Fidelity Common Shares
immediately after the Effective Time as is equal to the sum of (A) 50.1%,
plus (B) that percentage as is equal to (x) the Company Common Shares
issued by the Company (regardless of the consideration, if any, received by
the Company) to any person other than Alleghany, and not repurchased by the
Company directly from such person prior to the Effective Time, divided by
(y) the number of shares of Company Common Shares outstanding immediately
prior to the Effective Time, then if necessary to satisfy the conditions in
Section 9.2(c) or Section 9.3(c) hereof, the foregoing allocation shall be
adjusted (i.e., the Maximum Cash shall be reduced, and the Maximum Shares
shall be increased) such that the holders of the Merger Shares immediately
prior to the Effective Time will acquire at the Effective Time whole
Fidelity Common Shares equal to the Minimum Percentage of the Fidelity
Common Shares outstanding immediately after the Effective Time;
(ii) after giving effect to any adjustment required pursuant to the
immediately preceding clause (i), if the product of (A) the number of
Fidelity Common Shares to be issued in the Merger and (B) the mean of the
highest and lowest quoted trading price of
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Fidelity Common Shares on the date of the Effective Time (such product
referred to as "Value of Stock Consideration") is less than 40% of the sum
of the Value of Stock Consideration and the amount of cash consideration to
be issued in the Merger (such sum referred to as "Value of Merger
Consideration"), then the amount of cash to be issued in the Merger shall
be reduced and the amount of Fidelity Common Shares to be issued in the
Merger shall be increased such that the Value of Stock Consideration is at
least equal to 40% of the Value of Merger Consideration. For purposes of
the preceding sentence, Dissenting Shares, Company Common Shares exchanged
for cash in lieu of fractional shares of Fidelity Common Shares, Company
Common Shares owned by Fidelity or any of its Subsidiaries that will be
cancelled in accordance with Section 3.1(a), and Company Common Shares
repurchased by the Company since January 1, 1999, shall be treated as
Company Common Shares exchanged in the Merger for an amount of cash equal
to the purchase price therefor. The adjustments referred to in this
subparagraph (ii) shall be made in a manner so as to ensure that the Merger
qualifies as a reorganization under Section 368(a) of the Code and that the
conditions in Section 9.2(b) and Section 9.3(b) are satisfied.
(iii) The foregoing adjustments in subparagraphs (i) and (ii) shall be
applied in a manner such that the sum of (x) the total cash payable in
exchange for each Company Common Share and (y) the product of the number of
Fidelity Common Shares to be issued in exchange for each Company Common
Share multiplied by the Average Fidelity Common Share Price, shall be equal
to the amount of such sum in the absence of any adjustments under
subparagraphs (i) and (ii). For this purpose, the Average Fidelity Common
Share Price shall be equal to $15 if under Section 3.1(b)(iii) Fidelity has
elected to pay the Reduced Supplemental Consideration.
(d) Subject to the allocation and election procedures set forth in this
Section 3.1, each record holder (or beneficial owner through appropriate and
customary documentation and instructions) of Company Common Shares immediately
prior to the Effective Time shall be entitled to designate the number of such
holder's Company Common Shares with respect to which the holder elects to
receive the Merger Consideration entirely in cash ("Cash Election Shares"), and
to designate the number of such holder's Company Common Shares with respect to
which the holder elects to receive the Merger Consideration entirely in Fidelity
Common Shares ("Stock Election Shares"). Any Company Common Shares (other than
Dissenting Shares) with respect to which the holder (or the beneficial owner, as
the case may be) shall not have submitted to the Exchange Agent (as hereinafter
defined) an effective, properly completed Form of Election at or prior to the
Election Deadline (as hereinafter defined) shall be deemed to be "Non-Election
Shares." Any election to receive the Merger Consideration in cash (a "Cash
Election"), any election to receive the Merger Consideration in Fidelity Common
Shares (a "Stock Election") and any failure to indicate a preference as to the
receipt of cash, Fidelity Common Shares or a combination thereof (a
"Non-Election") shall be herein referred to as an "Election;" provided, however,
that no holder of Dissenting Shares shall be entitled to make an Election. All
such Elections shall be made on a form furnished by Fidelity for that purpose (a
"Form of Election") and reasonably satisfactory to the Company. If more than one
certificate which immediately prior to the Effective Time represented
outstanding Company Common Shares (a "Certificate") shall be surrendered for the
account of the same holder, the number of Fidelity Common Shares, if any, to be
issued to such holder in exchange for the Certificates which have been
surrendered shall be computed on the basis of the aggregate number of Company
Common Shares represented by all of the Certificates surrendered for the account
of such holder. Holders of record of Company Common Shares who hold such Company
Common Shares as nominees, trustees or in other representative capacities may
submit multiple Forms of Election, provided that such nominee, trustee or
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representative certifies that each such Form of Election covers all Company
Common Shares held for a particular beneficial owner.
(e) For purposes of this Agreement (including without limitation the
election procedures set forth in this Section 3.1), the following terms shall
have the following meanings (after giving effect to Section 3.1(b) and Section
3.1(c)): (i) the "Aggregate Cash Shares" shall mean the aggregate number of
Company Common Shares which may be converted into the right to receive the
Merger Consideration in the form of cash, and shall be equal to the product of
(A) a fraction (the "Aggregate Cash Share Fraction"), the numerator of which
shall be equal to the amount of cash to be issued in the Merger and the
denominator of which shall be equal to the sum of (x) the amount of cash to be
issued in the Merger and (y) the product of (1) the number of Fidelity Common
Shares to be issued in the Merger and (2) the Average Fidelity Common Share
Price, and (B) the number of Merger Shares; (ii) the "Aggregate Stock Shares"
shall mean the aggregate number of Company Common Shares which may be converted
into the right to receive the Merger Consideration in the form of Fidelity
Common Shares, and shall be equal to the product of (A) one minus the Aggregate
Cash Share Fraction and (B) the number of Merger Shares; (iii) the "Per Share
Stock Amount" shall mean a number of Fidelity Common Shares equal to (A) the
Merger Consideration divided by (B) the Average Fidelity Common Share Price; and
(iv) the "Per Share Cash Amount" shall mean an amount of cash equal to the
Merger Consideration.
(f) If the aggregate number of Cash Election Shares exceeds the Aggregate
Cash Shares, then:
(i) each Stock Election Share shall be converted into the right to
receive the Per Share Stock Amount;
(ii) each Non-Election Share shall be converted into the right to
receive the Per Share Stock Amount; and
(iii) each Cash Election Share shall be converted into the right to
receive: (x) the amount in cash, without interest, equal to the product of
(A) the Per Share Cash Amount and (B) a fraction (the "Cash Fraction"), the
numerator of which shall be the Aggregate Cash Shares, and the denominator
of which shall be the aggregate number of Cash Election Shares, and (y) the
number of Fidelity Common Shares equal to the product of (A) the Per Share
Stock Amount and (B) a fraction equal to one minus the Cash Fraction.
(g) If the aggregate number of Stock Election Shares exceeds the Aggregate
Stock Shares, then:
(i) each Cash Election Share shall be converted into the right to
receive the Per Share Cash Amount;
(ii) each Non-Election Share shall be converted into the right to
receive the Per Share Cash Amount; and
(iii) each Stock Election Share shall be converted into the right to
receive: (x) the number of Fidelity Common Shares equal to the product of
(A) the Per Share Stock Amount and (B) a fraction (the "Stock Fraction"),
the numerator of which shall be the Aggregate Stock Shares, and the
denominator of which shall be the aggregate number of Stock Election
Shares, and (y) the amount in cash, without interest, equal to the product
of (A) the Per Share Cash Amount and (B) a fraction equal to one minus the
Stock Fraction.
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(h) In the event that neither Section 3.1(f) nor Section 3.1(g) is
applicable, then:
(i) Each Cash Election Share shall be converted into the right to
receive the Per Share Cash Amount;
(ii) Each Stock Election Share shall be converted into the right to
receive the Per Share Stock Amount; and
(iii) Each Non-Election Share, if any, shall be converted into the
right to receive: (x) an amount in cash, without interest, equal to the
product of (A) the Merger Consideration and (B) a fraction (the
"Non-Election Fraction"), the numerator of which shall be the excess of (1)
the Aggregate Cash Shares over (2) the aggregate number of Cash Election
Shares, and the denominator of which shall be the number of Non-Election
Shares, and (y) the number of Fidelity Common Shares equal to the product
of (a) the Per Share Stock Amount and (B) a fraction equal to one minus the
Non-Election Fraction.
(i) Elections shall be made by holders of Company Common Shares by
delivering the Form of Election to the Exchange Agent (as hereinafter defined).
To be effective, a Form of Election must be properly completed, signed and
submitted to the Exchange Agent by no later than 5:00 p.m. (New York City time)
on the date of the Effective Time (the "Election Deadline"), and accompanied by
(1)(x) the Certificates representing the Company Common Shares as to which the
election is being made or (y) an appropriate guarantee of delivery of such
Certificates as set forth in such Form of Election from a firm which is a member
of a registered national securities exchange or of the National Association of
Securities Dealers, Inc. or a commercial bank or trust company having an office
or correspondent in the United States, provided such Certificates are in fact
delivered to the Exchange Agent within three NYSE trading days after the date of
execution of such guarantee of delivery (a "Guarantee of Delivery"), and (2) a
properly completed and signed letter of transmittal. Failure to deliver
Certificates covered by any Guarantee of Delivery within three NYSE trading days
after the date of execution of such Guarantee of Delivery shall be deemed to
invalidate any otherwise properly made Cash Election or Stock Election. Fidelity
will have the discretion, which it may delegate in whole or in part to the
Exchange Agent, to determine whether Forms of Election have been properly
completed, signed and submitted or revoked and to disregard immaterial defects
in Forms of Election. The good faith decision of Fidelity (or the Exchange
Agent) in such matters shall be conclusive and binding. Neither Fidelity nor the
Exchange Agent will be under any obligation to notify any person of any defect
in a Form of Election submitted to the Exchange Agent. A Form of Election with
respect to Dissenting Shares shall not be valid. The Exchange Agent shall also
make all computations contemplated by Sections 3.1(f), 3.1(g) and 3.1(h) above
and all such computations shall be conclusive and binding on the holders of
Company Common Shares in the absence of manifest error. Any Form of Election may
be changed or revoked prior to the Election Deadline. In the event a Form of
Election is revoked prior to the Election Deadline, Fidelity shall, or shall
cause the Exchange Agent to, cause the Certificates representing the Company
Common Shares covered by such Form of Election to be promptly returned without
charge to the Person submitting the Form of Election upon written request to
that effect from such Person.
(j) For the purposes hereof, a holder of Company Common Shares who does not
submit a Form of Election which is received by the Exchange Agent prior to the
Election Deadline (including a holder who submits and then revokes his or her
Form of Election and does not resubmit a Form of Election which is timely
received by the Exchange Agent), or who submits a Form of Election without the
corresponding Certificates or a Guarantee of Delivery, shall be deemed to have
made a Non-Election. Holders of Dissenting Shares shall not be entitled to make
an Election and shall not be deemed to have made a Non-Election; the rights of
such
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holders of Dissenting Shares shall be determined in accordance with Section 262
of the DGCL and as provided in Section 3.5 hereof. If any Form of Election is
defective in any manner such that the Exchange Agent cannot reasonably determine
the election preference of the stockholder submitting such Form of Election, the
purported Cash Election or Stock Election set forth therein shall be deemed to
be of no force and effect and the stockholder making such purported Cash
Election or Stock Election shall, for purposes hereof, be deemed to have made a
Non-Election.
(k) A Form of Election and a letter of transmittal shall be included with
or mailed contemporaneously with each copy of the Joint Proxy
Statement/Prospectus mailed to stockholders of the Company in connection with
the Company Stockholders Meeting (as hereinafter defined). Fidelity and the
Company shall each use its reasonable best efforts to mail or otherwise make
available the Form of Election and a letter of transmittal to all persons who
become holders of Company Common Shares during the period between the record
date for the Company Stockholders Meeting and the Election Deadline.
Section 3.2 Fractional Shares; Adjustments.
(a) No certificate or scrip representing fractional Fidelity Common Shares
shall be issued upon the surrender for exchange of Certificates, and such
fractional share interests will not entitle the owner thereof to vote or to any
other rights of a stockholder of Fidelity. Notwithstanding any other provision
of this Agreement, each holder of Company Common Shares exchanged pursuant to
the Merger who would otherwise have been entitled to receive a fraction of a
Fidelity Common Share (after taking into account all Certificates delivered by
such holder) shall receive, in lieu thereof, cash (without interest) in an
amount equal to such fractional part of a Fidelity Common Share multiplied by
the Average Fidelity Common Share Price.
(b) If at any time during the period between the Determination Date and the
Effective Time, any change in the outstanding shares of capital stock of
Fidelity or securities convertible or exchangeable into capital stock of
Fidelity shall occur, including by reason of any reclassification,
recapitalization, stock split or combination, exchange or readjustment of
shares, or any dividend or distribution thereon (other than regular quarterly
cash dividends, not in excess of $0.084 per Fidelity Common Share) or a record
date with respect to any of the foregoing shall occur during such period, the
number of Fidelity Common Shares constituting part of the Merger Consideration
shall be appropriately adjusted to provide to the holders of the Fidelity Common
Shares and the Company Common Shares the same economic effect as contemplated by
this Agreement prior to the consummation of such event.
Section 3.3 Exchange of Certificates.
(a) Exchange Agent. Promptly after the date hereof, Fidelity shall appoint
a commercial bank or trust company reasonably acceptable to the Company, having
net capital of not less than $100,000,000, or a subsidiary thereof, as an
exchange agent (the "Exchange Agent") for the benefit of holders of Company
Common Shares. At or immediately prior to the Effective Time, Fidelity shall
deposit with the Exchange Agent, for exchange or payment in accordance with this
Section 3.3, through the Exchange Agent, (i) certificates evidencing the total
number of Fidelity Common Shares to be issued in the Merger, and (ii) (1) cash
in an amount equal to (x) the Per Share Cash Amount multiplied by (y) the
Aggregate Cash Shares, and (2) any cash necessary to pay amounts due pursuant to
Section 3.2(a) and Section 3.5 (such certificates for Fidelity Common Shares and
such cash being hereinafter referred to as the "Exchange Fund"). The Exchange
Agent shall, pursuant to irrevocable instructions in accordance with this
Article III, deliver the Fidelity Common Shares and cash contemplated to be
issued pursuant to this Article III out of the Exchange Fund. Except as
contemplated by
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Section 3.3(e), Section 3.3(f) or Section 3.3(g) hereof, the Exchange Fund shall
not be used for any other purpose.
(b) Exchange Procedures. As promptly as practicable after the Effective
Time, Fidelity shall send, or will cause the Exchange Agent to send, to each
holder of record of a Certificate or Certificates that were converted into the
right to receive Fidelity Common Shares and/or cash pursuant Section 3.1, a
letter of transmittal and instructions (which shall be in customary form and
specify that delivery shall be effected, and risk of loss and title shall pass,
only upon delivery of the Certificates to the Exchange Agent), for use in the
exchange contemplated by this Section 3.3. Upon surrender of a Certificate to
the Exchange Agent, together with a duly executed letter of transmittal, the
holder of such Certificate shall be entitled to receive in exchange therefor a
certificate representing that number of whole Fidelity Common Shares and/or cash
which such holder has the right to receive pursuant to the provisions of this
Article III (after giving effect to any required withholding tax). Until
surrendered as contemplated by this Section 3.3, each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive the Merger Consideration and unpaid dividends and distributions thereon,
if any, as provided in this Article III. If any portion of the Merger
Consideration is to be paid to a Person other than the Person in whose name the
Certificate is registered, it shall be a condition to such payment that the
Certificate 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 Certificate or establish to
the satisfaction of the Exchange Agent that such tax has been paid or is not
payable. If any Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the Person claiming such Certificate to
be lost, stolen or destroyed and, if required by Fidelity, the posting by such
Person of a bond, in such reasonable amount as Fidelity may direct, as indemnity
against any claim that may be made against it with respect to such Certificate,
the Exchange Agent will deliver, in exchange for such lost, stolen or destroyed
Certificate, the proper amount of the Merger Consideration, together with any
unpaid dividends and distributions on any such Fidelity Common Shares, as
contemplated by this Article III.
(c) Distributions with Respect to Unexchanged Shares. Whenever a dividend
or other distribution is declared by Fidelity in respect of the Fidelity Common
Shares, the record date for which is at or after the Effective Time, that
declaration shall include dividends or other distributions in respect of all
Fidelity Common Shares issuable pursuant to this Agreement. No dividends or
other distributions declared or made after the Effective Time with respect to
Fidelity Common Shares constituting part of the Merger Consideration shall be
paid to the holder of any unsurrendered Certificate, and no cash payment in lieu
of fractional shares shall be paid to any such holder, until such Certificate is
surrendered as provided in this Section 3.3. Following such surrender, there
shall be paid, without interest, to the Person in whose name the Fidelity Common
Shares have been registered (i) at the time of such surrender, the amount of
dividends or other distributions with a record date at or after the Effective
Time previously paid or payable on the date of such surrender with respect to
such whole Fidelity Common Shares, less the amount of any withholding taxes that
may be required thereon, and (ii) at the appropriate payment date subsequent to
surrender, the amount of dividends or other distributions with a record date at
or after the Effective Time but prior to surrender and a payment date subsequent
to surrender payable with respect to such whole Fidelity Common Shares, less the
amount of any withholding taxes which may be required thereon.
(d) No Further Ownership Rights in the Company Common Shares. As of the
Effective Time, all Company Common Shares shall automatically be cancelled and
retired and shall cease to exist, and each holder of a Certificate representing
any such Company Common Shares shall cease to have any rights with respect
thereto, except the right to receive, upon
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surrender of such Certificate, the Merger Consideration. As of the Effective
Time, the stock transfer books of the Company shall be closed and there shall be
no further registration of transfers on the Company's stock transfer books of
Company Common Shares outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be cancelled and exchanged as provided in
this Section 3.3.
(e) Return of Merger Consideration. Upon demand by Fidelity, the Exchange
Agent shall deliver to Fidelity any portion of the Merger Consideration
deposited with the Exchange Agent pursuant to this Section 3.3 that remains
undistributed to holders of Company Common Shares one year after the Effective
Time. Holders of Certificates who have not complied with this Section 3.3 prior
to such demand shall thereafter look only to Fidelity for payment of any claim
to the Merger Consideration and dividends or distributions, if any, in respect
thereof.
(f) No Liability. Neither Fidelity nor the Exchange Agent shall be liable
to any Person in respect of any Company Common Shares (or dividends or
distributions with respect thereto) for any amounts paid to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(g) Withholding Rights. Fidelity shall be entitled to deduct and withhold
from the Merger Consideration (and any dividends or distributions thereon)
otherwise payable hereunder to any Person such amounts as it is required to
deduct and withhold with respect to the making of such payment under any
provision of federal, state, local or foreign income tax law. To the extent that
Fidelity so withholds those amounts, such withheld amounts shall be treated for
all purposes of this Agreement as having been paid to the holder of Company
Common Shares in respect of which such deduction and withholding was made by
Fidelity.
Section 3.4 Company Stock Options.
(a) At the Effective Time, each option to purchase Company Common Shares
(each, a "Company Option") outstanding under any stock option or compensation
plan or arrangement of the Company, whether or not vested or exercisable, shall
cease to represent a right to acquire Company Common Shares and shall be
converted into an option (each, a "Fidelity Option") to acquire, on the same
terms and conditions as were applicable under such Company Option except that
such Fidelity Option shall be vested and immediately exercisable, that number of
Fidelity Common Shares determined by multiplying the number of Company Common
Shares subject to such Company Option by the Per Share Stock Amount, with any
fractional shares of Fidelity Common Shares resulting from such calculation
being rounded down to the nearest whole share, at a price per share (rounded up
to the nearest whole cent) equal to (x) the aggregate exercise price for the
Company Common Shares covered by such Company Option divided by (y) the number
of full Fidelity Common Shares covered by such Company Option in accordance with
the foregoing.
(b) Prior to the Effective Time, the Company and Fidelity shall take all
actions (including, if appropriate, amending the terms of the Company's stock
option plan, employee purchase plan and other compensation plans or
arrangements) that are necessary to give effect to the transactions contemplated
by Section 3.4(a).
(c) At or prior to the Effective Time, Fidelity shall take all corporate
action necessary to reserve for issuance a sufficient number of Fidelity Common
Shares for delivery upon exercise of the Fidelity Options. At the Effective
Time, Fidelity shall file a registration statement on Form S-8 (or any successor
form), with respect to the Fidelity Common Shares subject to such Fidelity
Options, and shall use its reasonable best efforts to maintain the effectiveness
of such registration statement(s), maintain the current status of the
prospectus(es) contained
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therein and comply with all applicable state securities or "blue sky" laws for
so long as such Fidelity Options remain outstanding.
Section 3.5 Shares of Dissenting Stockholders.
(a) Notwithstanding anything in this Agreement to the contrary, any Company
Common Shares that are outstanding immediately prior to the Effective Time and
that are held by stockholders who shall not have voted in favor of the Merger
and who shall have demanded properly in writing appraisal of such shares in
accordance with Section 262 of the DGCL and who object to the Merger and comply
with all provisions of the DGCL concerning the right of such person to dissent
from the Merger and demand appraisal of such shares (collectively, the
"Dissenting Shares") shall not be converted into or represent the right to
receive the Merger Consideration. Such stockholders shall be entitled to receive
the amounts determined in accordance with the provisions of such Section 262.
If, after the Effective Time, any such holder effectively withdraws the demand
for appraisal or fails to preserve such right to appraisal, in either case
pursuant to the DGCL, such Dissenting Shares shall thereupon be deemed to have
been converted into and to have become exchangeable for, as of the Effective
Time, the right to receive, without any interest thereon, the Per Share Cash
Amount.
(b) Any payments relating to Dissenting Shares shall be made solely by the
Surviving Corporation, and the Company shall not make any payment with respect
to, or settle or offer to settle with, the holders of Dissenting Shares without
the prior consent of Fidelity. The Company shall give Fidelity prompt notice of
any demands received by the Company for the payment of fair value for Dissenting
Shares, and Fidelity shall have the right to direct all negotiations and
proceedings with respect to Dissenting Shares.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as disclosed in (i) the Company Disclosure Schedule attached hereto
or (ii) the Company SEC Documents filed prior to the date hereof, the Company
represents and warrants to Fidelity that:
Section 4.1 Corporate Existence and Power. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware, and has all corporate powers required to carry on its
business as now conducted. The Company is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except where the failure to be so qualified
would not, individually or in the aggregate, have a Company Material Adverse
Effect. The Company has heretofore made available to Fidelity true and complete
copies of the Company's certificate of incorporation and by-laws as currently in
effect.
Section 4.2 Corporate Authorization. The execution, delivery and
performance by the Company of this Agreement and the consummation by the Company
of the transactions contemplated hereby are within the Company's corporate
powers and, except for the Company Stockholder Approval (as hereinafter
defined), have been duly authorized by all necessary corporate action. Assuming
that this Agreement constitutes the valid and binding obligation of Fidelity,
this Agreement constitutes a valid and binding agreement of the Company,
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium and similar laws, now or hereafter in effect,
relating to or affecting creditors' rights and remedies and to general
principles of equity.
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Section 4.3 Governmental Authorization. The execution, delivery and
performance by the Company of this Agreement and the consummation by the Company
of the transactions contemplated hereby require no action by or in respect of,
or filing with, any Governmental Entity other than (a) the filing of the
Certificate of Merger in accordance with the DGCL; (b) compliance with any
applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "HSR Act") or decrees thereunder applicable to the Company; (c)
compliance with any applicable requirements of the Securities Act and the
Exchange Act; (d) such as may be required under any applicable state securities
or "blue sky" laws; (e) filings with and approval of the Commissioners of
Insurance of the jurisdictions listed on Section 4.3(e) of the Company
Disclosure Schedule; (f) compliance with any applicable Environmental Laws or
state environmental property transfer laws; and (g) such other consents,
approvals, actions, orders, authorizations, registrations, declarations and
filings which, if not obtained or made, would not, individually or in the
aggregate, (x) be reasonably likely to have a Company Material Adverse Effect,
or (y) prevent or materially impair the ability of the Company to consummate the
transactions contemplated by this Agreement.
Section 4.4 Non-Contravention. Except as set forth on Section 4.4 of the
Company Disclosure Schedule, the execution, delivery and performance by the
Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby do not and will not (a) contravene or conflict
with the Company's certificate of incorporation or by-laws, (b) assuming
compliance with the matters referred to in Section 4.3, contravene or conflict
with or constitute a violation of any provision of any law, regulation,
judgment, injunction, order or decree binding upon or applicable to the Company
or any of its Subsidiaries, (c) constitute a breach or default under or give
rise to a right of termination, cancellation or acceleration of any right or
obligation of the Company or any of its Subsidiaries or to a loss of any benefit
or status to which the Company or any of its Subsidiaries is entitled under any
provision of any agreement, contract or other instrument binding upon the
Company or any of its Subsidiaries or any license, franchise, permit or other
similar authorization held by the Company or any of its Subsidiaries, or (d)
result in the creation or imposition of any Lien on any asset of the Company or
any of its Subsidiaries other than, in the case of each of (b), (c) and (d), any
such items that would not, individually or in the aggregate (x) be reasonably
likely to have a Company Material Adverse Effect or (y) prevent or materially
impair the ability of the Company to consummate the transactions contemplated by
this Agreement.
Section 4.5 Capitalization.
(a) The authorized capital stock of the Company consists of 66,000,000
Company Common Shares and 8,000,000 shares of preferred stock, $1.00 par value
per share. As of July 31, 1999, there were outstanding (i) 21,807,531 Company
Common Shares, (ii) no shares of Company preferred stock, (iii) stock options
(or binding obligations to issue stock options) to purchase an aggregate of up
to 891,440 Company Common Shares (of which options to purchase an aggregate of
4,000 Company Common Shares were vested and exercisable), and (iv) stock options
to purchase Company Common Shares pursuant to the Chicago Title Corporation
Employee's Stock Purchase Plan. All outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable.
(b) As of the date hereof, except (i) as set forth in this Section 4.5,
(ii) for issuances of Company Common Shares since July 31, 1999 pursuant to the
Company's Employee Stock Purchase Plan in accordance with its present terms,
(iii) for changes since July 31, 1999 resulting from the exercise of stock
options, and (iv) for the rights of directors and employees of the Company and
its Subsidiaries pursuant to Company Employee Plans (as hereinafter defined) as
in effect on the date hereof and giving effect to the modifications described on
Exhibit C hereto, there are no outstanding (x) shares of capital stock or other
voting securities of the Company, (y) securities of the Company convertible into
or exchangeable for shares of
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capital stock or voting securities of the Company, and (z) options or other
rights to acquire from the Company, and there is no obligation of the Company to
issue, any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of the Company (the items in
clauses (x), (y) and (z) being referred to collectively as the "Company
Securities"). There are no outstanding obligations of the Company or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any Company Securities.
Section 4.6 Subsidiaries.
(a) Each Subsidiary of the Company is a corporation duly incorporated or an
entity duly organized, and is validly existing and in good standing, under the
laws of its jurisdiction of incorporation or organization, has all powers and
authority and all material governmental licenses, authorizations, consents and
approvals required to carry on its business as now conducted and is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction where the character of the property owned or leased by it or
the nature of its activities makes such qualification necessary, in each case
with such exceptions as, individually or in the aggregate, would not be
reasonably likely to have a Company Material Adverse Effect.
(b) The Company conducts its insurance operations through the Subsidiaries
listed in Section 4.6(b) of the Company Disclosure Schedule (collectively, the
"Company Insurance Subsidiaries"). Each of the Company Insurance Subsidiaries
is, where required, (i) duly licensed or authorized as an insurance company in
its jurisdiction of incorporation, (ii) duly licensed or authorized as an
insurance company in each other jurisdiction where it is required to be so
licensed, authorized or eligible, and (iii) duly authorized or eligible in its
jurisdiction of incorporation and each other applicable jurisdiction to write
each line of business reported as being written in the Company Statutory
Financial Statements (as hereinafter defined), except where the failure to be so
licensed, authorized or eligible, individually or in the aggregate, would not be
reasonably likely to have a Company Material Adverse Effect. The Company has
made all required filings under applicable insurance holding company statutes
except where the failure to file, individually or in the aggregate, would not be
reasonably likely to have a Company Material Adverse Effect.
(c) All of the outstanding shares of capital stock of, or other ownership
interest in, each Subsidiary of the Company has been validly issued and is fully
paid and nonassessable. All of the outstanding capital stock of, or other
ownership interest, which is owned, directly or indirectly, by the Company in,
each of its Subsidiaries is owned free and clear of any Lien and free of any
other limitation or restriction (including any limitation or restriction on the
right to vote, sell or otherwise dispose of such capital stock or other
ownership interests) with such exceptions as, individually or in the aggregate,
would not be reasonably likely to have a Company Material Adverse Effect. There
are no outstanding (i) securities of the Company or any of its Subsidiaries
convertible into or exchangeable or exercisable for shares of capital stock or
other voting securities or ownership interests in any of its Subsidiaries, (ii)
options, warrants or other rights to acquire from the Company or any of its
Subsidiaries, and no other obligation of the Company or any of its Subsidiaries
to issue, any capital stock, voting securities or other ownership interests in,
or any securities convertible into or exchangeable or exercisable for any
capital stock, voting securities or ownership interests in, any of its
Subsidiaries or (iii) obligations of the Company or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any outstanding securities of any of its
Subsidiaries or any capital stock of, or other ownership interests in, any of
its Subsidiaries.
Section 4.7 The Company SEC Documents.
(a) The Company has made available to Fidelity the Company SEC Documents.
The Company has filed all reports, filings, registration statements and other
documents required to
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be filed by it with the SEC since June 17, 1998. No Subsidiary of the Company is
required to file any form, report, registration statement or prospectus or other
document with the SEC.
(b) As of its filing date, each Company SEC Document complied as to form in
all material respects with the applicable requirements of the Securities Act
and/or the Exchange Act, as the case may be.
(c) No Company SEC Document filed pursuant to the Exchange Act contained,
as of its filing date or mailing date, as applicable, any untrue statement of a
material fact or omitted 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. No Company SEC Document filed pursuant to the
Securities Act, as amended or supplemented, if applicable, contained, as of the
date such document or amendment became effective, any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading.
Section 4.8 Financial Statements; Reserves.
(a) The audited consolidated financial statements and unaudited
consolidated interim financial statements of the Company included in the Company
10-K and the Company 10-Q (the "Company GAAP Financial Statements") fairly
present in all material respects, in conformity with generally accepted
accounting principles applied on a consistent basis ("GAAP") (except as may be
indicated in the notes thereto), the consolidated financial position of the
Company and its consolidated Subsidiaries as of the dates thereof and their
consolidated results of operations and cash flows for the periods then ended
(subject to normal year-end adjustments in the case of any unaudited interim
financial statements).
(b) The Company has made available to Fidelity true and complete copies of
the Annual Convention Statement on NAIC Form 9 for the year ended December 31,
1998 and the Quarterly Convention Statement for the quarterly period ended March
31, 1999 of each of the Company Insurance Subsidiaries as filed with the
applicable insurance regulatory authorities, including all exhibits,
interrogatories, notes, schedules and any actuarial opinions, affirmations or
certifications or other supporting documents filed in connection therewith
(collectively, the "Company Statutory Financial Statements"). The Company
Statutory Financial Statements fairly present in all material respects, in
conformity with statutory accounting practices prescribed or permitted by the
applicable insurance regulatory authority applied on a consistent basis, the
statutory financial position of such Company Insurance Subsidiaries as at the
respective dates thereof and the results of operations of such Subsidiaries for
the respective periods then ended. The Company Statutory Financial Statements
complied in all material respects with all applicable laws, rules and
regulations when filed, and no material deficiency has been asserted with
respect to any Company Statutory Financial Statements by the applicable
insurance regulatory body or any other governmental agency or body. The annual
statutory balance sheets and income statements included in the Company Statutory
Financial Statements have been audited by KPMG LLP, and the Company has
delivered or made available to Fidelity true and complete copies of all audit
opinions related thereto.
(c) Section 4.8(c) of the Company Disclosure Schedule sets forth a
description of the Company's method or methods for providing title insurance
loss reserves on the Company GAAP Financial Statements and on the Company
Statutory Financial Statements.
(d) (i) The reserves carried on the Company Statutory Financial Statements
of each Company Insurance Subsidiary for the year ended December 31, 1998 and
the three-month period ended March 31, 1999 for unearned premiums, losses, loss
adjustment expenses, claims and similar purposes (including claims litigation)
are in compliance in all material respects with the requirements for reserves
established by the insurance departments of the jurisdiction
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of domicile of such Company Insurance Subsidiary, were determined in all
material respects in accordance with published actuarial standards of practice
and principles consistently applied throughout the periods presented in such
Company Statutory Financial Statements, and are fairly stated in all material
respects in accordance with accepted actuarial and statutory accounting
principles; (ii) such reserves were adequate in the aggregate to cover the total
amount of all reasonably anticipated liabilities of the Company and each Company
Insurance Subsidiary under all outstanding insurance, reinsurance and other
applicable agreements as of the respective dates of such Company Statutory
Financial Statements, and the admitted assets of the Company and each Company
Insurance Subsidiary as determined under applicable laws are in an amount at
least equal to the minimum amounts required by applicable laws; and (iii) there
are no agreements between the Company or any of the Company Insurance
Subsidiaries concerning the maintenance of any reserves by any of the Company
Insurance Subsidiaries that go beyond normal legal requirements.
Section 4.9 No Material Undisclosed Liabilities. Except as set forth in
Section 4.9 of the Company Disclosure Schedule and except for the Company
Proceedings, there are no liabilities of the Company or of any Subsidiary of the
Company of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, in each case, that are required by GAAP
to be set forth on a consolidated balance sheet of the Company, other than:
(i) liabilities or obligations disclosed or provided for in the
Company Balance Sheet or disclosed in the notes thereto;
(ii) liabilities or obligations incurred or arising after December 31,
1998 and disclosed in the Company 10-Q or provided for in the Company
balance sheet (or notes thereto) included in the Company 10-Q;
(iii) liabilities or obligations incurred or arising in the ordinary
course of business after the date of the Company balance sheet included in
the Company 10-Q or arising under this Agreement or incurred in connection
with the transactions contemplated hereby; and
(iv) other liabilities or obligations, which, individually or in the
aggregate, would not be reasonably likely to exceed $17.5 million.
Section 4.10 Information to Be Supplied.
(a) The information to be supplied in writing by the Company expressly for
inclusion or incorporation by reference in the Joint Proxy Statement/Prospectus
will (i) in the case of the Registration Statement, at the time it becomes
effective, not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein not misleading and (ii) in the case of the remainder of
the Joint Proxy Statement/Prospectus, at the time of the mailing thereof and at
the time of the Company Stockholders Meeting and the Fidelity Stockholders
Meeting (as hereinafter defined), not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading. The Joint Proxy Statement/ Prospectus
will comply (with respect to information relating to the Company) as to form in
all material respects with the provisions of the Securities Act and the Exchange
Act.
(b) Notwithstanding the foregoing, the Company makes no representation or
warranty with respect to any statements made or incorporated by reference in the
Joint Proxy Statement/Prospectus based on information supplied in writing by
Fidelity expressly for use therein.
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Section 4.11 Absence of Certain Changes. Since December 31, 1998, except
as disclosed in the Company 10-Q, provided for in the financial statements (or
notes thereto) included in the Company 10-Q, disclosed on Section 4.11 of the
Company Disclosure Schedule, or as contemplated by this Agreement, the Company
and its Subsidiaries have conducted their business in the ordinary course
consistent with past practice and there has not been:
(a) any action, event, occurrence, development, change in method of doing
business, or state of circumstances or facts that, individually or in the
aggregate, has had or would be reasonably likely to have a Company Material
Adverse Effect;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any Company Common Shares (other than (i) regular
quarterly cash dividends, not in excess of $0.36 per Company Common Share, and
(ii) as contemplated by Section 8.5 hereof) 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, or other ownership interests in,
the Company or any of its Subsidiaries (other than any repurchases of the
Company Common Shares made prior to the date hereof pursuant to the Company's
publicly announced stock repurchase programs);
(c) any transaction or commitment made by, or any contract, agreement or
settlement entered into by, or any judgment, order or decree affecting, the
Company or any of its Subsidiaries relating to its assets or business (including
without limitation the acquisition or disposition of any assets) or 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, commitments, contracts, agreements or
settlements (including, without limitation, settlements of litigation and tax
proceedings) in the ordinary course of business consistent with past practice,
contemplated by this Agreement, or agreed to in writing by Fidelity; or
(d) any change by the Company in accounting principles or methods (other
than as required by GAAP or Regulation S-X of the Exchange Act).
Section 4.12 Transactions with Affiliates. Except as disclosed in the
Company Proxy Statement and except as contemplated hereby (including the Company
Disclosure Schedule and the Exhibits hereto), none of the Company nor any of its
Affiliates is an officer, director, employee, consultant, distributor, supplier
or vendor of, or is party to any contract with, the Company or any of its
Subsidiaries that would be required to be disclosed in a proxy statement filed
by the Company pursuant to the Exchange Act.
Section 4.13 Litigation. Except for title insurance claims made in the
ordinary course of business and except as disclosed in Section 4.13 of the
Company Disclosure Schedule, there is no action, suit, investigation,
arbitration or proceeding pending against, or to the knowledge of the Company
threatened against, the Company or any of its Subsidiaries or any of their
respective assets or properties before any arbitrator or Governmental Entity
that, individually or in the aggregate, would be reasonably likely to result in
liability to the Company or such Subsidiaries in excess of $10 million.
Section 4.14 Taxes. (a) All material tax returns, statements, reports and
forms (collectively, the "Company Returns") required to be filed with any taxing
authority by, or with respect to, the Company and its Subsidiaries were filed on
a timely basis and were true, complete and correct except to the extent that the
failure to file or be true, complete and correct would not, individually or in
the aggregate, have a Company Material Adverse Effect; (b) the Company and its
Subsidiaries have timely paid all material taxes (which for purposes of this
Section 4.14 shall include interest, penalties and additions to tax with respect
thereto) shown as due and payable on the Company Returns (other than taxes which
are being
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contested in good faith and for which adequate reserves are reflected on the
Company Balance Sheet) except to the extent that the failure to pay would not,
individually or in the aggregate, have a Company Material Adverse Effect; (c)
the Company and its Subsidiaries have made provision for all material taxes
payable by them for which no Company Return has yet been filed except for
inadequately reserved taxes that would not, individually or in the aggregate,
have a Company Material Adverse Effect; (d) no taxing authority has asserted or
initiated (or threatened to assert or initiate) in writing any action, suit,
proceeding or claim against the Company or any of its Subsidiaries that,
individually or in the aggregate, would have a Company Material Adverse Effect;
(e) there is no application pending for approval of a change in accounting
methods; (f) except for the Alleghany affiliated group or any year for which the
statute of limitations has expired, neither the Company nor any of its
Subsidiaries has been a member of an affiliated, consolidated, combined or
unitary group other than one of which the Company was the common parent; and (g)
except for the Tax Sharing Agreement, neither the Company nor any of its
Subsidiaries is obligated by any contract, agreement or other arrangement to
indemnify any other person with respect to taxes or to compensate any third
party for any tax payment or tax liability under a tax sharing or similar
agreement.
Section 4.15 Employees and Employee Benefits.
(a) Section 4.15(a) of the Company Disclosure Schedule contains a correct
and complete list identifying each material "employee benefit plan," as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974
("ERISA"), each material employment, severance or similar contract, plan,
arrangement or policy and each other material plan or arrangement providing for
compensation, bonuses, profit-sharing, stock option or other stock related
rights or other forms of incentive or deferred compensation or insurance
coverage (including any self-insured arrangements) which is maintained,
administered or contributed to by the Company or any of its Subsidiaries and
covers any employee or former employee of the Company or any of its
Subsidiaries. Copies of such plans (and, if applicable, related trust
agreements) and all amendments thereto and the most recent written summary
descriptions thereof have been provided to Fidelity, together with the most
recent annual report (Form 5500 including, if applicable, Schedule B thereto)
prepared in connection with any such plan. Such plans are referred to
collectively herein as the "Company Employee Plans."
(b) Each Company Employee Plan which is intended to be qualified under
Section 401(a) of the Code is so qualified and has received a favorable
determination letter from the Internal Revenue Service stating that it is so
qualified and, to the knowledge of the Company, nothing has occurred since the
date of such letter that would cause it to be revoked, whether prospectively or
retroactively. The Company will make available upon request to Fidelity copies
of the most recent Internal Revenue Service determination letters with respect
to each such Company Employee Plan. Each Company Employee Plan has been
administered in compliance with its terms and with the requirements prescribed
by any and all statutes, orders, rules and regulations, including but not
limited to ERISA and the Code, which are applicable to such Company Employee
Plan except as would not be reasonably likely to have a Company Material Adverse
Effect.
(c) Except as described on Section 4.15(c) of the Company Disclosure
Schedule and except as contemplated by the plans and arrangements described on
Exhibit C hereto, the execution of, and performance of the transactions
contemplated in, this Agreement will not (either alone or upon the occurrence of
any additional or subsequent events) constitute an event under any Company
Employee Plan, trust or loan that will or may result in any material payment
(whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any current or former employee, executive or director
of the Company or any of its Subsidiaries.
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(d) Except as set forth on Section 4.15(a) of the Company Disclosure
Schedule, neither the Company nor any of its Subsidiaries maintains or
contributes to any Company Employee Plan which provides, or has any liability to
provide, life insurance, medical or other welfare benefits to any employee(s)
upon their retirement or termination of employment, except as required by
Section 601 of ERISA and Section 4980B of the Code.
(e) There has been no amendment to, written interpretation or announcement
(whether or not written) relating to any Company Employee Plan which would
increase materially the expense of maintaining such Company Employee Plans in
the aggregate above the level of the expense incurred in respect thereof for the
fiscal year ended December 31, 1998.
(f) The Company and each of its Subsidiaries is in compliance with all
applicable federal, state and local laws, rules and regulations respecting
employment, employment practices, terms and conditions of employment, wages,
hours and withholding except as would not be reasonably likely to have a Company
Material Adverse Affect.
Section 4.16 Investment Securities. The ownership by the Company and its
Subsidiaries of stocks, bonds and other securities complies in all material
respects with all applicable insurance, trust and other Laws. The Company has
good and valid title to all such investment securities shown as assets in the
Company Balance Sheet (unless disposed of in the ordinary course of business
thereafter), free and clear of all material Liens except for restrictions in
respect of deposits, statutory premium reserve requirements and statutory
pledges with state regulatory authorities disclosed in the Company SEC
Documents. The Annual Convention Statements on NAIC Form 9 of the Company
Insurance Subsidiaries contain a complete description of all securities of the
Company Insurance Subsidiaries on deposit with each state insurance department
as of December 31, 1998.
Section 4.17 Compliance with Laws. The Company and its Subsidiaries have
all licenses, permits and qualifications necessary to conduct their businesses
and own their properties in each jurisdiction in which the Company or its
Subsidiaries currently do business or own property, or in which such license,
permit or qualification is otherwise required. Except for the Company
Proceedings, since July 1, 1994, (a) neither the Company nor any of its
Insurance Subsidiaries has had its license or qualification to conduct title
insurance business in any jurisdiction revoked or suspended or been involved in
a proceeding to revoke or suspend such license or qualification, nor to the best
knowledge of the Company has any investigation been conducted, or is pending, in
any such jurisdiction with a view to revocation or suspension of any such
license, (b) the Company and its Subsidiaries have complied in all material
respects with all laws, regulations and orders applicable to their businesses
and the present use by the Company and its Subsidiaries of their respective
properties, and the business conducted by the Company and its Subsidiaries, does
not violate in any material respect any such laws, regulations or orders and (c)
the Company and its Subsidiaries have timely filed all reports and returns
required by law, rule, regulation or policy of any regulatory authority and all
such returns and reports are true and correct in all material respects, and
there are no material deficiencies with respect to such filings or submissions.
Section 4.17 of the Company Disclosure Schedule indicates the most recent date
of the last completed insurance regulatory examination and audit, regular or
special, as the case may be, as to the Company and its Insurance Subsidiaries
for the jurisdictions listed therein, and a copy of the most recent report of
such examination has heretofore been made available or delivered to Fidelity.
There is no agreement or understanding between the Company or any of its
Insurance Subsidiaries, on the one hand, and any regulatory authority, on the
other hand, concerning the payment of dividends by the Company or such Insurance
Subsidiary or the maintenance of any NAIC Insurance Regulatory Information
System Ratio or adequacy of reserves.
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Section 4.18 Forms of Contract. Except as disclosed on Section 4.18 of the
Company Disclosure Schedule, each form of material insurance policy, policy
endorsement or amendment, reinsurance contract, application form and sales
material now in use by the Company Insurance Subsidiaries in any jurisdiction
has been approved (or has been submitted for approval, which is pending), where
required by the appropriate insurance regulatory authorities of such
jurisdiction.
Section 4.19 Directors' and Officers' Insurance Policies. Section 4.19 of
the Company Disclosure Schedule describes the Company's directors' and officers'
insurance policies as in effect on the date hereof. The Company has not received
any notice of cancellation or termination of such directors' and officers'
insurance policy and such insurance policy is valid and enforceable.
Section 4.20 Environmental Matters.
(a) With such exceptions as, individually or in the aggregate, would not be
reasonably likely to have a Company Material Adverse Effect, (i) no written
notice, notification, demand, request for information, citation, summons,
complaint or order has been received or made by, and no investigation, action,
claim, suit, proceeding or review is pending or threatened by any Person
against, the Company or any of its Subsidiaries, with respect to any applicable
Environmental Law, (ii) the Company and its Subsidiaries are and have been in
compliance with all applicable Environmental Laws and (iii) there are no
liabilities or obligations of the Company or any of its Subsidiaries of any kind
whatsoever, whether accrued, contingent, absolute, direct or indirect,
determined, determinable or otherwise, arising under or relating to any
Environmental Law (including, without limitation, liabilities or obligations
relating to divested properties or businesses or predecessor entities), and
there are no facts, conditions, situations or set of circumstances that have
resulted or could reasonably be expected to result in or be the basis for any
such liabilities or obligations.
(b) For purposes of this Agreement, the term "Environmental Laws" means any
international, national, provincial, regional, federal, state, local, municipal
and foreign statutes, laws (including, without limitation, common law), judicial
decisions, decrees, regulations, ordinances, rules, judgments, orders, codes,
injunctions, permits or governmental agreements or other requirements relating
to human health and safety, to the environment, including, without limitation,
natural resources, or to pollutants, contaminants, wastes, or chemicals,
petroleum products, by-products or additives, asbestos, asbestos-containing
material, polychlorinated biphenyls, radioactive material, hazardous substances
or wastes, or any other substance (including any product) regulated as harmful
or potentially harmful to human health or the environment.
Section 4.21 Finders' Fees; Opinion of Financial Advisor.
(a) Except for Merrill Lynch & Co., Inc. and Delano & Kopperl, Inc., there
is no investment banker, broker, finder or other intermediary who might be
entitled to any fee or commission from the Company, the Surviving Corporation or
any of their respective Affiliates in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Company. Prior to the date hereof, the Company has provided to Fidelity true
and correct information regarding fees payable to Merrill Lynch & Co., Inc. and
Delano & Kopperl, Inc.
(b) The Company has received the opinion dated August 1, 1999 of Merrill
Lynch & Co., Inc. to the effect that, as of such date and subject to the
exceptions stated therein, the Merger Consideration was fair from a financial
point of view to the holders of Company Common Shares (other than Fidelity and
its affiliates), a copy of which opinion has been made available to Fidelity.
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Section 4.22 Required Vote; Board Approval.
(a) The only vote of the holders of any class or series of capital stock of
the Company required by law, rule or regulation to approve this Agreement, the
Merger and/or any of the other transactions contemplated hereby is the
affirmative vote (the "Company Stockholder Approval") of the holders of 75
percent of the outstanding Company Common Shares in favor of the adoption and
approval of this Agreement and the Merger.
(b) The Company's Board of Directors has (a) determined that this Agreement
and the transactions contemplated hereby, including the Merger, are in the best
interests of the Company and its stockholders, (b) approved this Agreement and
the transactions contemplated hereby and (c) resolved (subject to Section 6.2)
to recommend to such stockholders that they vote in favor of adopting and
approving this Agreement and the Merger in accordance with the terms hereof.
Section 4.23 State Takeover Statutes. Assuming the accuracy of the
representations contained in Section 5.23 hereof (without giving effect to the
knowledge qualification therein), the provisions of Section 203 of the DGCL do
not apply to this Agreement or any of the transactions contemplated hereby.
Section 4.24 Year 2000 Compliance. The Company has (i) completed a review
and assessment of all areas within the business and operations of the Company
and its Subsidiaries (including those areas affected by suppliers and vendors)
that could be adversely affected by the "Year 2000 Problem" (that is, the risk
that computer software and systems used by the Company or any of its
Subsidiaries (or their respective suppliers and vendors) may be unable to
recognize and perform properly date-sensitive functions involving certain dates
prior to and any date after December 31, 1999) and (ii) developed a plan and
timeline for addressing the Year 2000 Problem on a timely basis, which plan and
timeline have been made available to Fidelity. The Company reasonably believes
that all computer software and systems (including those of vendors and
suppliers) that are used in the business or operations of the Company or its
Subsidiaries as presently conducted (the "Company Systems") will on a timely
basis be able to perform properly date-sensitive functions for all dates before
and from and after January 1, 2000 ("Year 2000 Compliant") except for such
failures to perform which would not, individually or in the aggregate, be
reasonably likely to have a Company Material Adverse Effect.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF FIDELITY
Except as disclosed in (i) the Fidelity Disclosure Schedule attached hereto
or (ii) the Fidelity SEC Documents filed prior to the date hereof, Fidelity
represents and warrants to the Company that:
Section 5.1 Corporate Existence and Power. Fidelity is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and has all corporate powers required to carry on its business as
now conducted. Fidelity is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualification necessary, except where the failure to be so qualified would not,
individually or in the aggregate, have a Fidelity Material Adverse Effect.
Fidelity has heretofore made available to the Company true and complete copies
of Fidelity's restated certificate of incorporation and by-laws as currently in
effect.
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Section 5.2 Corporate Authorization. The execution, delivery and
performance by Fidelity of this Agreement and the consummation by Fidelity of
the transactions contemplated hereby are within the corporate powers of Fidelity
and, except for the Fidelity Stockholder Approval, have been duly authorized by
all necessary corporate action. Assuming that this Agreement constitutes the
valid and binding obligation of the Company, this Agreement constitutes a valid
and binding agreement of Fidelity, enforceable in accordance with its terms,
subject to bankruptcy, insolvency, reorganization, moratorium and similar laws,
now or hereafter in effect, relating to or affecting creditors' rights and
remedies and to general principles of equity.
Section 5.3 Governmental Authorization. The execution, delivery and
performance by Fidelity of this Agreement, and the consummation by Fidelity of
the transactions contemplated hereby require no action by or in respect of, or
filing with, any Governmental Entity other than (a) the filing of the
Certificate of Merger in accordance with the DGCL; (b) compliance with any
applicable requirements of the HSR Act; (c) compliance with any applicable
requirements of the Securities Act and the Exchange Act; (d) such as may be
required under any applicable state securities or "blue sky" laws; (e) filings
with and approval of the Commissioners of Insurance of the jurisdictions listed
on Section 5.3(e) of the Fidelity Disclosure Schedule; (f) compliance with any
applicable Environmental Laws or state environmental property transfer laws; and
(g) such other consents, approvals, actions, orders, authorizations,
registrations, declarations and filings which, if not obtained or made, would
not, individually or in the aggregate, (i) be reasonably likely to have a
Fidelity Material Adverse Effect, or (ii) prevent or materially impair the
ability of Fidelity to consummate the transactions contemplated by this
Agreement.
Section 5.4 Non-Contravention. Except as set forth on Section 5.4 of the
Fidelity Disclosure Schedule, the execution, delivery and performance by
Fidelity of this Agreement and the consummation by Fidelity of the transactions
contemplated hereby do not and will not (a) contravene or conflict with the
restated certificate of incorporation or by-laws of Fidelity, (b) assuming
compliance with the matters referred to in Section 5.3, contravene or conflict
with or constitute a violation of any provision of any law, regulation,
judgment, injunction, order or decree binding upon or applicable to Fidelity or
any of its Subsidiaries, (c) constitute a breach or default under or give rise
to a right of termination, cancellation or acceleration of any right or
obligation of Fidelity or any of its Subsidiaries or to a loss of any benefit or
status to which Fidelity or any of its Subsidiaries is entitled under any
provision of any agreement, contract or other instrument binding upon Fidelity
or any of its Subsidiaries or any license, franchise, permit or other similar
authorization held by Fidelity or any of its Subsidiaries, or (d) result in the
creation or imposition of any Lien on any asset of Fidelity or any of its
Subsidiaries other than, in the case of each of (b), (c) and (d), any such items
that would not, individually or in the aggregate, (x) be reasonably likely to
have a Fidelity Material Adverse Effect or (y) prevent or materially impair the
ability of Fidelity to consummate the transactions contemplated by this
Agreement.
Section 5.5 Capitalization of Fidelity.
(a) The authorized capital stock of Fidelity consists of 50,000,000
Fidelity Common Shares, and 3,000,000 shares of preferred stock, $.0001 par
value per share. As of July 28, 1999, there were outstanding (i) 30,439,000
Fidelity Common Shares, (ii) no shares of Fidelity preferred stock, (iii) stock
options to purchase an aggregate of 5,452,005 Fidelity Common Shares (of which
options to purchase an aggregate of 4,568,525 Fidelity Common Shares were vested
and exercisable), and (iv) stock options to purchase Fidelity Common Shares
pursuant to the Fidelity National Financial, Inc. Employee Stock Purchase Plan.
All outstanding shares of capital stock of Fidelity have been duly authorized
and validly issued and are fully paid and nonassessable.
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(b) As of the date hereof, except (i) as set forth in this Section 5.5,
(ii) for changes since July 28, 1999 resulting from the grant of stock options
under Fidelity Employee Plans (as hereinafter defined) in the ordinary course of
business consistent with past practice and the exercise of stock options
outstanding on such date and (iii) for issuances of Fidelity Common Shares since
July 28, 1999 pursuant to Fidelity's Employee Stock Purchase Plan in accordance
with its present terms, there are no outstanding (x) shares of capital stock or
other voting securities of Fidelity, (y) securities of Fidelity convertible into
or exchangeable for shares of capital stock or voting securities of Fidelity,
and (z) options or other rights to acquire from Fidelity, and no obligation of
Fidelity to issue, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of
Fidelity (the items in clauses (x), (y) and (z) being referred to collectively
as the "Fidelity Securities"). There are no outstanding obligations of Fidelity
or any of its Subsidiaries to repurchase, redeem or otherwise acquire any
Fidelity Securities.
(c) The Fidelity Common Shares to be issued as part of the Merger
Consideration have been duly authorized and, when issued and delivered in
accordance with the terms of this Agreement, will have been validly issued,
fully paid and nonassessable and free of any preemptive or other similar right.
Section 5.6 Subsidiaries.
(a) Each Subsidiary of Fidelity is a corporation duly incorporated or an
entity duly organized, and is validly existing and in good standing, under the
laws of its jurisdiction of incorporation or organization, has all powers and
authority and all material governmental licenses, authorizations, consents and
approvals required to carry on its business as now conducted and is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction where the character of the property owned or leased by it or
the nature of its activities makes such qualification necessary, in each case
with such exceptions as, individually or in the aggregate, would not be
reasonably likely to have a Fidelity Material Adverse Effect.
(b) Fidelity conducts its insurance operations through the Subsidiaries
listed in Section 5.6(b) of Fidelity Disclosure Schedule (collectively, the
"Fidelity Insurance Subsidiaries"). Each of Fidelity Insurance Subsidiaries is,
where required, (i) duly licensed or authorized as an insurance company in its
jurisdiction of incorporation, (ii) duly licensed or authorized as an insurance
company in each other jurisdiction where it is required to be so licensed,
authorized or eligible, and (iii) duly authorized or eligible in its
jurisdiction of incorporation and each other applicable jurisdiction to write
each line of business reported as being written in the Fidelity Statutory
Financial Statements (as hereinafter defined), except where the failure to be so
licensed, authorized or eligible, individually or in the aggregate, would not be
reasonably likely to have a Fidelity Material Adverse Effect. Fidelity has made
all required filings under applicable insurance holding company statutes except
where the failure to file, individually or in the aggregate, would not be
reasonably likely to have a Fidelity Material Adverse Effect.
(c) All of the outstanding shares of capital stock of, or other ownership
interest in, each Subsidiary of Fidelity has been validly issued and is fully
paid and nonassessable. Except as disclosed in Section 5.6(c) of the Fidelity
Disclosure Schedule, all of the outstanding capital stock of, or other ownership
interest, which is owned, directly or indirectly, by Fidelity in, each of its
Subsidiaries is owned free and clear of any Lien and free of any other
limitation or restriction (including any limitation or restriction on the right
to vote, sell or otherwise dispose of such capital stock or other ownership
interests) with such exceptions as, individually or in the aggregate, would not
be reasonably likely to have a Fidelity Material Adverse Effect. Except as
disclosed in Section 5.6(c) of the Fidelity Disclosure Schedule, there are no
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outstanding (i) securities of Fidelity or any of its Subsidiaries convertible
into or exchangeable or exercisable for shares of capital stock or other voting
securities or ownership interests in any of its Subsidiaries, (ii) options,
warrants or other rights to acquire from Fidelity or any of its Subsidiaries,
and no other obligation of Fidelity or any of its Subsidiaries to issue, any
capital stock, voting securities or other ownership interests in, or any
securities convertible into or exchangeable or exercisable for any capital
stock, voting securities or ownership interests in, any of its Subsidiaries or
(iii) obligations of Fidelity or any of its Subsidiaries to repurchase, redeem
or otherwise acquire any outstanding securities of any of its Subsidiaries or
any capital stock of, or other ownership interests in, any of its Subsidiaries.
Section 5.7 Fidelity SEC Documents.
(a) Fidelity has made available to the Company the Fidelity SEC Documents.
Fidelity has filed all reports, filings, registration statements and other
documents required to be filed by it with the SEC since December 31, 1996. No
Subsidiary of Fidelity other than Micro General is required to file any form,
report, registration statement or prospectus or other document with the SEC.
(b) As of its filing date, each Fidelity SEC Document complied as to form
in all material respects with the applicable requirements of the Securities Act
and/or the Exchange Act, as the case may be.
(c) No Fidelity SEC Document filed pursuant to the Exchange Act contained,
as of its filing date or mailing date, as applicable, any untrue statement of a
material fact or omitted 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. No Fidelity SEC Document filed pursuant to the
Securities Act, as amended or supplemented, if applicable, contained, as of the
date such document or amendment became effective, any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading.
Section 5.8 Financial Statements; Reserves.
(a) The audited consolidated financial statements and unaudited
consolidated interim financial statements of Fidelity included in the Fidelity
10-Ks and the Fidelity 10-Q (the "Fidelity GAAP Financial Statements") fairly
present in all material respects, in conformity with GAAP (except as may be
indicated in the notes thereto), the consolidated financial position of Fidelity
and its consolidated Subsidiaries as of the dates thereof and their consolidated
results of operations and cash flows for the periods then ended (subject to
normal year-end adjustments in the case of any unaudited interim financial
statements).
(b) Fidelity has made available to the Company true and complete copies of
the Annual Convention Statement on NAIC Form 9 for the year ended December 31,
1998 and the Quarterly Convention Statement for the quarterly period ended March
31, 1999 of each of the Fidelity Insurance Subsidiaries as filed with the
applicable insurance regulatory authorities, including all exhibits,
interrogatories, notes, schedules and any actuarial opinions, affirmations or
certifications or other supporting documents filed in connection therewith
(collectively, the "Fidelity Statutory Financial Statements"). The Fidelity
Statutory Financial Statements fairly present in all material respects, in
conformity with statutory accounting practices prescribed or permitted by the
applicable insurance regulatory authority applied on a consistent basis, the
statutory financial position of such Fidelity Insurance Subsidiaries as at the
respective dates thereof and the results of operations of such Subsidiaries for
the respective periods then ended. The Fidelity Statutory Financial Statements
complied in all material respects with all applicable laws, rules and
regulations when filed, and no material deficiency has been asserted with
respect to any Fidelity Statutory Financial Statements by the applicable
insurance
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regulatory body or any other governmental agency or body. The annual statutory
balance sheets and income statements included in the Fidelity Statutory
Financial Statements have been audited by KPMG LLP, and Fidelity has delivered
or made available to the Company true and complete copies of all audit opinions
related thereto.
(c) Section 5.8(c) of the Fidelity Disclosure Schedule sets forth a
description of Fidelity's method or methods for providing title insurance loss
reserves on the Fidelity GAAP Financial Statements and on the Fidelity Statutory
Financial Statements.
(d) Except as disclosed on Section 5.8(d) of the Fidelity Disclosure
Schedule, (i) the reserves carried on the Fidelity Statutory Financial
Statements of each Fidelity Insurance Subsidiary for the year ended December 31,
1998 and the three-month period ended March 31, 1999 for unearned premiums,
losses, loss adjustment expenses, claims and similar purposes (including claims
litigation) are in compliance in all material respects with the requirements for
reserves established by the insurance departments of the jurisdiction of
domicile of such Fidelity Insurance Subsidiary, were determined in all material
respects in accordance with published actuarial standards of practice and
principles consistently applied throughout the periods presented in such
Fidelity Statutory Financial Statements, and are fairly stated in all material
respects in accordance with accepted actuarial and statutory accounting
principles; (ii) such reserves were adequate in the aggregate to cover the total
amount of all reasonably anticipated liabilities of Fidelity and each Fidelity
Insurance Subsidiary under all outstanding insurance, reinsurance and other
applicable agreements as of the respective dates of such Fidelity Statutory
Financial Statements, and the admitted assets of Fidelity and each Fidelity
Insurance Subsidiary as determined under applicable laws are in an amount at
least equal to the minimum amounts required by applicable laws; and (iii) there
are no agreements between Fidelity or any of the Fidelity Insurance Subsidiaries
concerning the maintenance of any reserves by any of the Fidelity Insurance
Subsidiaries that go beyond normal legal requirements.
Section 5.9 No Material Undisclosed Liabilities. Except as set forth in
Section 5.9 of the Fidelity Disclosure Schedule and except for the Fidelity
Proceedings, there are no liabilities of Fidelity or of any Subsidiary of
Fidelity of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, in each case, that are required by GAAP
to be set forth on a consolidated balance sheet of Fidelity, other than:
(i) liabilities or obligations disclosed or provided for in the
Fidelity Balance Sheet or disclosed in the notes thereto;
(ii) liabilities or obligations incurred or arising after December 31,
1998 and disclosed in the Fidelity 10-Q or provided for in the Fidelity
balance sheet (or notes thereto) included in the Fidelity 10-Q;
(iii) liabilities or obligations incurred or arising in the ordinary
course of business after the date of the Fidelity balance sheet included in
the Fidelity 10-Q or arising under this Agreement or incurred in connection
with the transactions contemplated hereby; and
(iv) other liabilities or obligations, which, individually or in the
aggregate, would not be reasonably likely to exceed $17.5 million.
Section 5.10 Information to Be Supplied.
(a) The information to be supplied in writing by Fidelity expressly for
inclusion or incorporation by reference in the Joint Proxy Statement/Prospectus
will (i) in the case of the Registration Statement, at the time it becomes
effective, not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein not misleading and (ii) in the case of the remainder of
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the Joint Proxy Statement/Prospectus, at the time of the mailing thereof and at
the time of the Company Stockholders Meeting and the Fidelity Stockholders
Meeting, not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading. The Joint Proxy Statement/Prospectus will comply (with respect
to information relating to Fidelity) as to form in all material respects with
the provisions of the Securities Act and the Exchange Act.
(b) Notwithstanding the foregoing, Fidelity makes no representation or
warranty with respect to any statements made or incorporated by reference in the
Joint Proxy Statement/ Prospectus based on information supplied in writing by
the Company expressly for use therein.
Section 5.11 Absence of Certain Changes. Since December 31, 1998, except
as disclosed in the Fidelity 10-Q, provided for in the financial statements (or
notes thereto) included in the Fidelity 10-Q, disclosed on Section 5.11 of the
Fidelity Disclosure Schedule, or as contemplated by this Agreement, Fidelity and
its Subsidiaries have conducted their business in the ordinary course consistent
with past practice and there has not been:
(a) any action, event, occurrence, development, change in method of doing
business, or state of circumstances or facts that, individually or in the
aggregate, has had or would be reasonably likely to have a Fidelity Material
Adverse Effect;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of Fidelity (other than
regular quarterly cash dividends, not in excess of $0.084 per Fidelity Common
Share) 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, or other ownership interests in, the Company or any of its
Subsidiaries (other than any repurchases of Fidelity Common Shares made prior to
the date hereof pursuant to Fidelity's existing or future publicly announced
stock repurchase program);
(c) any transaction or commitment made by, or any contract, agreement or
settlement entered into by, or any judgment, order or decree affecting, Fidelity
or any of its Subsidiaries relating to its assets or business (including,
without limitation, the acquisition or disposition of any assets) or any
relinquishment by Fidelity or any of its Subsidiaries of any contract or other
right, in either case, material to Fidelity and its Subsidiaries taken as a
whole, other than transactions, commitments, contracts, agreements or
settlements (including, without limitation, settlements of litigation and tax
proceedings) in the ordinary course of business consistent with past practice,
contemplated by this Agreement, or agreed to in writing by the Company; or
(d) any change by Fidelity in accounting principles or methods (other than
as required by GAAP or Regulation S-X of the Exchange Act).
Section 5.12 Transactions with Affiliates. Except as disclosed in the
Fidelity Proxy Statement, none of Fidelity or any of its Affiliates is an
officer, director, employee, consultant, distributor, supplier or vendor of, or
is party to any contract with, Fidelity or any of its Subsidiaries that would be
required to be disclosed in a proxy statement filed by Fidelity pursuant to the
Exchange Act.
Section 5.13 Litigation. Except for title insurance claims made in the
ordinary course of business and except as disclosed in Section 5.13 of the
Fidelity Disclosure Schedule, there is no action, suit, investigation,
arbitration or proceeding pending against, or to the knowledge of Fidelity
threatened against, Fidelity or any of its Subsidiaries or any of their
respective assets or properties before any arbitrator or Governmental Entity
that, individually or in the aggregate, would be reasonably likely to result in
liability to Fidelity or such Subsidiaries in excess of $10 million.
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Section 5.14 Taxes. (a) All material tax returns, statements, reports and
forms (collectively, the "Fidelity Returns") required to be filed with any
taxing authority by, or with respect to, Fidelity and its Subsidiaries were
filed on a timely basis and were true, complete and correct except to the extent
that the failure to file or be true, complete and correct would not,
individually or in the aggregate, have a Fidelity Material Adverse Effect; (b)
Fidelity and its Subsidiaries have timely paid all material taxes (which for
purposes of this Section 5.14 shall include interest, penalties and additions to
tax with respect thereto) shown as due and payable on Fidelity Returns (other
than taxes which are being contested in good faith and for which adequate
reserves are reflected on Fidelity Balance Sheet) except to the extent that the
failure to pay would not, individually or in the aggregate, have a Fidelity
Material Adverse Effect; (c) Fidelity and its Subsidiaries have made provision
for all material taxes payable by them for which no Fidelity Return has yet been
filed except for inadequately reserved taxes that would not, individually or in
the aggregate, have a Fidelity Material Adverse Effect; (d) no taxing authority
has asserted or initiated (or threatened to assert or initiate) in writing any
action, suit, proceeding or claim against Fidelity or any of its Subsidiaries
that, individually or in the aggregate, would have a Fidelity Material Adverse
Effect; (e) there is no application pending for approval of a change in
accounting methods; (f) except as set forth on Section 5.14 of the Fidelity
Disclosure Schedule and for any year for which the statute of limitations has
expired neither Fidelity nor any of its Subsidiaries has been a member of an
affiliated, consolidated, combined or unitary group other than one of which
Fidelity was the common parent and other than for which Fidelity or any of its
subsidiaries has contractual rights to indemnification for all liabilities for
taxes for each other person who was a member of such affiliated, consolidated,
combined or unitary group; and (g) except as set forth on Section 5.14 of the
Fidelity Disclosure Schedule and for any year for which the statute of
limitations has expired neither Fidelity nor any of its Subsidiaries is
obligated by any contract, agreement or other arrangement to indemnify any other
person with respect to taxes or to compensate any third party for any tax
payment or tax liability under a tax sharing or similar agreement.
Section 5.15 Employees and Employee Benefits.
(a) Section 5.15(a) of Fidelity Disclosure Schedule contains a correct and
complete list identifying each material "employee benefit plan", as defined in
Section 3(3) of ERISA, each material employment, severance or similar contract,
plan, arrangement or policy and each other material plan or arrangement
providing for compensation, bonuses, profit-sharing, stock option or other stock
related rights or other forms of incentive or deferred compensation or insurance
coverage (including any self-insured arrangements) which is maintained,
administered or contributed to by Fidelity or any of its Subsidiaries and covers
any employee or former employee of Fidelity or any of its Subsidiaries. Copies
of such plans (and, if applicable, related trust agreements) and all amendments
thereto and the most recent written summary descriptions thereof have been
provided to the Company, together with the most recent annual report (Form 5500
including, if applicable, Schedule B thereto) prepared in connection with any
such plan. Such plans are referred to collectively herein as the "Fidelity
Employee Plans."
(b) Each Fidelity Employee Plan which is intended to be qualified under
Section 401(a) of the Code is so qualified and has received a favorable
determination letter from the Internal Revenue Service stating that it is so
qualified and, to the knowledge of Fidelity, nothing has occurred since the date
of such letter that would cause it to be revoked, whether prospectively or
retroactively. Fidelity will make available upon request to the Company copies
of the most recent Internal Revenue Service determination letters with respect
to each such Fidelity Employee Plan. Each Fidelity Employee Plan has been
administered in compliance with its terms and with the requirements prescribed
by any and all statutes, orders, rules and regulations, including but not
limited to ERISA and the Code, which are applicable to such
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Fidelity Employee Plan except as would not be reasonably likely to have a
Fidelity Material Adverse Effect.
(c) Except as described on Section 5.15(c) of the Fidelity Disclosure
Schedule, the execution of, and performance of the transactions contemplated in,
this Agreement will not (either alone or upon the occurrence of any additional
or subsequent events) constitute an event under any Fidelity Employee Plan,
trust or loan that will or may result in any material payment (whether of
severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligation to fund benefits with respect
to any current or former employee, executive or director of Fidelity or any of
its Subsidiaries.
(d) Neither Fidelity nor any of its Subsidiaries maintains or contributes
to any Fidelity Employee Plan which provides, or has any liability to provide,
life insurance, medical or other welfare benefits to any employee(s) upon their
retirement or termination of employment, except as required by Section 601 of
ERISA and Section 4980B of the Code.
(e) There has been no amendment to, written interpretation or announcement
(whether or not written) relating to any Fidelity Employee Plan which would
increase materially the expense of maintaining such Fidelity Employee Plans in
the aggregate above the level of the expense incurred in respect thereof for the
fiscal year ended December 31, 1998.
(f) Fidelity and each of its Subsidiaries is in compliance with all
applicable federal, state and local laws, rules and regulations respecting
employment, employment practices, terms and conditions of employment, wages,
hours and withholding except as would not be reasonably likely to have a
Fidelity Material Adverse Affect.
Section 5.16 Investment Securities. The ownership by Fidelity and its
Subsidiaries of stocks, bonds and other securities complies in all material
respects with all applicable insurance, trust and other Laws. Fidelity has good
and valid title to all such investment securities shown as assets in the
Fidelity Balance Sheet (unless disposed of in the ordinary course of business
thereafter), free and clear of all material Liens except for restrictions in
respect of deposits, statutory premium reserve requirements and statutory
pledges with state regulatory authorities disclosed in the Fidelity SEC
Documents. The Annual Convention Statements on NAIC Form 9 of the Fidelity
Insurance Subsidiaries contain a complete description of all securities of the
Fidelity Insurance Subsidiaries on deposit with each state insurance department
as of December 31, 1998.
Section 5.17 Compliance with Laws. Fidelity and its Subsidiaries have all
licenses, permits and qualifications necessary to conduct their businesses or
own their properties in each jurisdiction in which Fidelity or its Subsidiaries
currently do business or own property, or in which such license, permit or
qualification is otherwise required. Except as disclosed on Section 5.17 of the
Fidelity Disclosure Schedule and except for the Fidelity Proceedings, since July
1, 1994, (a) neither Fidelity nor any of its Insurance Subsidiaries has had its
license or qualification to conduct title insurance business in any jurisdiction
revoked or suspended or been involved in a proceeding to revoke or suspend such
license or qualification, nor to the best knowledge of Fidelity has any
investigation been conducted, or is pending, in any such jurisdiction with a
view to revocation or suspension of any such license, (b) Fidelity and its
Subsidiaries have complied in all material respects with all laws, regulations
and orders applicable to their businesses and the present use by Fidelity and
its Subsidiaries of their respective properties, and the business conducted by
Fidelity and its Subsidiaries, does not violate in any material respect any such
laws, regulations or orders and (c) Fidelity and its Subsidiaries have timely
filed all reports and returns required by law, rule, regulation or policy of any
regulatory authority and all such returns and reports are true and correct in
all material respects, and there are no material deficiencies with respect to
such filings or submissions. Section 5.17 of the Fidelity Disclosure Schedule
indicates the most recent date of the last
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completed insurance regulatory examination and audit, regular or special, as the
case may be, as to Fidelity and its Insurance Subsidiaries for the jurisdictions
listed therein, and a copy of the most recent report of such examination has
heretofore been made available or delivered to the Company. There is no
agreement or understanding between Fidelity or any of its Insurance
Subsidiaries, on the one hand, and any regulatory authority, on the other hand,
concerning the payment of dividends by Fidelity or such Insurance Subsidiary or
the maintenance of any NAIC Insurance Regulatory Information System Ratio or
adequacy of reserves.
Section 5.18 Forms of Contract. Except as disclosed on Section 5.18 of the
Fidelity Disclosure Schedule, each form of material insurance policy, policy
endorsement or amendment, reinsurance contract, application form and sales
material now in use by the Fidelity Insurance Subsidiaries in any jurisdiction
has been approved (or has been submitted for approval, which is pending), where
required by the appropriate insurance regulatory authorities of such
jurisdiction.
Section 5.19 Directors' and Officers' Insurance Policies. Section 5.19 of
the Fidelity Disclosure Schedule describes Fidelity's directors' and officers'
insurance policy as in effect on the date hereof. Fidelity has not received any
notice of cancellation or termination of such directors' and officers' insurance
policy, and such insurance policy is valid and enforceable.
Section 5.20 Environmental Matters. With such exceptions as, individually
or in the aggregate, would not be reasonably likely to have a Fidelity Material
Adverse Effect, (i) no written notice, notification, demand, request for
information, citation, summons, complaint or order has been received or made by,
and no investigation, action, claim, suit, proceeding or review is pending or
threatened by any Person against, Fidelity or any of its Subsidiaries, with
respect to any applicable Environmental Law, (ii) Fidelity and its Subsidiaries
are and have been in compliance with all applicable Environmental Laws and (iii)
there are no liabilities or obligations of Fidelity or any of its Subsidiaries
of any kind whatsoever, whether accrued, contingent, absolute, direct or
indirect, determined, determinable or otherwise, arising under or relating to
any Environmental Law (including, without limitation, liabilities or obligations
relating to divested properties or businesses or predecessor entities), and
there are no facts, conditions, situations or set of circumstances that have
resulted or could reasonably be expected to result in or be the basis for any
such liabilities or obligations.
Section 5.21 Finders' Fees; Opinion of Financial Advisor.
(a) Except for Morgan Stanley & Co. Incorporated, whose fees will be paid
by Fidelity, there is no investment banker, broker, finder or other intermediary
who might be entitled to any fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Fidelity.
(b) Fidelity has received the opinion of Morgan Stanley & Co. Incorporated,
dated the date of this Agreement, to the effect that, as of such date, the
Merger Consideration to be paid by Fidelity is fair to Fidelity from a financial
point of view, a copy of which opinion has been made available to the Company.
Section 5.22 Required Vote; Board Approval.
(a) The only vote of the holders of any class or series of capital stock of
Fidelity required by law, rule or regulation to approve this Agreement, the
Merger and/or any of the other transactions contemplated hereby is (i) the
affirmative vote of the holders of Fidelity Common Shares representing a
majority of the outstanding Fidelity Common Shares to approve the Merger and the
Certificate Amendment and (ii) the affirmative vote of the holders of a majority
of the votes cast at the Fidelity Stockholder Meeting (as hereafter defined),
provided that the total votes cast represent over 50% of the outstanding
Fidelity Common Shares, to
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approve the issuance of Fidelity Common Stock in connection with the Merger
(clauses (i) and (ii) constituting the "Fidelity Stockholder Approval").
(b) Fidelity's Board of Directors has (a) determined that this Agreement
and the transactions contemplated hereby, including the Merger, are in the best
interests of Fidelity and its stockholders, (b) approved this Agreement and the
transactions contemplated hereby and (c) resolved to recommend to such
stockholders that they vote in favor of adopting and approving this Agreement
and the Merger in accordance with the terms hereof.
Section 5.23 Ownership of Company Common Shares. As of the date hereof,
neither Fidelity nor, to Fidelity's knowledge, any of its affiliates or
associates (as such terms are defined in the Exchange Act), (a)(i) beneficially
owns, directly or indirectly, or (ii) is a party to any agreement, arrangement
or understanding for the purpose of acquiring, holding, voting or disposing of,
in each case, Company Common Shares which in the aggregate represent five
percent (5%) or more of the outstanding Company Common Shares, nor (b) is an
"interested stockholder" of the Company within the meaning of Section 203 of the
DGCL.
Section 5.24 Year 2000 Compliance. Fidelity has (i) completed a review and
assessment of all areas within the business and operations of Fidelity and its
Subsidiaries (including those areas affected by suppliers and vendors) that
could be adversely affected by the "Year 2000 Problem" (that is, the risk that
computer software and systems used by Fidelity or any of its Subsidiaries (or
their respective suppliers and vendors) may be unable to recognize and perform
properly date-sensitive functions involving certain dates prior to and any date
after December 31, 1999) and (ii) developed a plan and timeline for addressing
the Year 2000 Problem on a timely basis, which plan and timeline have been made
available to the Company. Fidelity reasonably believes that all computer
software and systems (including those of vendors and suppliers) that are used in
the business or operations of Fidelity or its Subsidiaries as presently
conducted (the "Fidelity Systems") will on a timely basis be Year 2000
Compliant, except for such failures to perform which would not, individually or
in the aggregate, be reasonably likely to have a Fidelity Material Adverse
Effect.
Section 5.25 Financing. At the Effective Time, Fidelity will have
sufficient funds to enable it to consummate the transactions contemplated by
this Agreement.
ARTICLE VI
COVENANTS OF THE COMPANY
The Company agrees that:
Section 6.1 The Company Interim Operations. Except as set forth in the
Company Disclosure Schedule or as otherwise expressly contemplated hereby,
without the prior consent of Fidelity (which consent shall not be unreasonably
withheld or delayed), from the date hereof until the Effective Time, the Company
shall, and shall cause each of its Subsidiaries to, conduct their business in
all material respects in the ordinary course consistent with past practice and
shall use commercially reasonable efforts to (i) preserve intact its present
business organization, (ii) maintain in effect all material licenses, approvals
and authorizations, including, without limitation, all material licenses and
permits that are required by applicable Laws and Environmental Laws for the
Company or any of its Subsidiaries to carry on its business and (iii) preserve
existing relationships with its key employees, its key agents, and its material
customers, lenders, suppliers and others having material business relationships
with it. Without limiting the generality of the foregoing, except as set forth
in Section 6.1 of the Company Disclosure Schedule or as otherwise expressly
contemplated by this Agreement (including the Exhibits hereto), from the date
hereof until the Effective Time, without the
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prior consent of Fidelity (which consent shall not be unreasonably withheld or
delayed), the Company shall not, nor shall it permit any of its Subsidiaries to:
(a) amend its certificate of incorporation or by-laws;
(b) take any action that would prevent or materially impair the ability of
the Company to consummate the transactions contemplated by this Agreement,
including actions that would be reasonably likely to prevent or materially
impair the ability of the Company, Fidelity or any of their Subsidiaries to
obtain any consent, registration, approval, permit or authorization required to
be obtained from any Governmental Entity prior to the Effective Time in
connection with the execution and delivery of this Agreement and the
consummation of the Merger and the other transactions contemplated by this
Agreement;
(c) split, combine or reclassify any shares of capital stock of the Company
or any less-than-wholly-owned Subsidiary of the Company or declare, set aside or
pay any dividend or other distribution (whether in cash, stock or property or
any combination thereof) in respect of its capital stock, or redeem, repurchase
or otherwise acquire or offer to redeem, repurchase, or otherwise acquire any of
its securities or any securities of any of its Subsidiaries, except for regular
quarterly cash dividends (having customary record and payment dates, not in
excess of $0.36 per Company Common Share) and as contemplated by Section 8.5
hereof;
(d) (i) issue, deliver or sell, or authorize the issuance, delivery or sale
of, any shares of its capital stock of any class or any securities convertible
into or exercisable for, or any rights, warrants or options to acquire, any such
capital stock or any such convertible securities, other than (A) the issuance of
Company Common Shares upon the exercise of stock options or pursuant to a
Company Employee Plan in accordance with its present terms and (B) the granting
of options to acquire Company Common Shares to the extent contemplated by the
plans and arrangements described on Exhibit C hereto; (ii) amend in any material
respect any material term of any outstanding security of the Company or any of
its Subsidiaries or (iii) consent, including consent by the applicable
committee, to any transfer of a Company Option;
(e) other than in connection with transactions permitted by Section 6.1(f),
incur any capital expenditures or any obligations or liabilities in respect
thereof, except for those (i) contemplated by the capital expenditure budgets
for the Company and its Subsidiaries, (ii) incurred in the ordinary course of
business of the Company and its Subsidiaries, or (iii) not otherwise described
in clauses (i) and/or (ii) which are (x) not in excess of $1 million, (y) in
excess of $1 million but less than $2.5 million and as to which the Transition
Committee has been notified, or (z) approved by the Transition Committee;
(f) except for acquisitions in the ordinary course of the investment
activities of the Company and its Subsidiaries consistent with past practice,
acquire (whether pursuant to merger, stock or asset purchase or otherwise) in
one transaction or series of related transactions any assets of or equity
interests in any Person having a fair market value in excess of $10 million;
(g) sell, lease, encumber or otherwise dispose of any assets, other than
(i) in the ordinary course of business consistent with past practice, (ii)
equipment and property no longer used in the operation of the Company's business
and (iii) sales or other dispositions of assets related to discontinued
operations of the Company or any of its Subsidiaries;
(h) incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities of the Company or any of its Subsidiaries or
guarantee any debt securities of others or request any
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advances in respect of, or make any drawdowns on, any existing indebtedness
which advance or drawdown exceeds $10 million individually or $25 million in the
aggregate;
(i) amend, modify or terminate any material contract, agreement or
arrangement of the Company or any of its Subsidiaries or otherwise waive,
release or assign any material rights, claims or benefits of the Company or any
of its Subsidiaries thereunder;
(j) (i) except in the ordinary course of business consistent with past
practice, or as required by law or by an agreement existing on the date hereof,
or as contemplated by Exhibit C hereto, increase the amount of compensation of
any director or executive officer or make any increase in or commitment to
increase any employee benefits, (ii) except as required by law or by an
agreement existing on the date hereof or as contemplated by Exhibit C hereto,
adopt any severance program or grant any material severance or termination pay
to any director, officer or employee of the Company or any of its Subsidiaries,
(iii) except as contemplated by Exhibit C hereto, adopt or implement any
employee retention program or other incentive arrangement not in existence on
the date hereof, (iv) except as contemplated by Exhibit C hereto, adopt any
additional employee benefit plan or, except in the ordinary course of business,
make any material contribution to any existing such plan, or (v) except as may
be required by law or pursuant to any agreement existing on the date hereof,
amend in any material respect any Company Employee Plan;
(k) change the Company's (x) methods of accounting in effect at December
31, 1998, except as required by changes in GAAP or by Regulation S-X of the
Exchange Act, as concurred in by its independent public accountants or (y)
fiscal year;
(l) other than in the ordinary course of business consistent with past
practice, make any tax election or enter into any settlement or compromise of
any tax liability that in either case is material to the business of the Company
and its Subsidiaries, taken as a whole;
(m) pay, discharge, settle or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise) other than
(x) for an amount of $5 million or less, (y) an insurance claim arising in the
ordinary course of business, and (z) ordinary course repayment of indebtedness
or payment of contractual obligations when due;
(n) take any action that would cause any of its representations and
warranties herein to become untrue in any material respect; and
(o) agree, resolve or otherwise commit to do any of the foregoing;
provided, however, that the provisions of this Section 6.1 shall not limit the
Company's ability to repurchase Company Common Shares issued by the Company to
persons other than Alleghany as contemplated by the provisions of Section 6.4
below. Notwithstanding anything to the contrary in this Agreement, the Company
shall use its commercially reasonable efforts to complete the plan referred to
in Section 4.24 on a timely basis.
Section 6.2 Stockholder Meeting. The Company shall cause a meeting of its
stockholders (the "Company Stockholders Meeting") to be duly called and held for
the purpose of obtaining the Company Stockholder Approval as soon as reasonably
practicable after the Registration Statement is declared effective under the
Securities Act. Except as provided in the next sentence, (a) the Company's Board
of Directors shall recommend approval and adoption by its stockholders of this
Agreement (the "Company Recommendation"), and (b) the Company shall use its
reasonable best efforts to solicit the Company Stockholder Approval. Without
limiting the generality of the foregoing, the Company agrees that its
obligations under this Section 6.2 shall not be affected by the commencement,
public proposal, public disclosure or communication to the Company of any
Acquisition Proposal. The Board of Directors of the Company shall be permitted
to (i) not recommend to the Company's stockholders that they
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give the Company Stockholder Approval or (ii) withdraw or modify in a manner
materially adverse to Fidelity the Company Recommendation, only if the Board of
Directors of the Company by a majority vote determines in its good faith
judgment (after consultation with its outside legal counsel) that it is
necessary to so withdraw or modify the Company Recommendation to comply with its
fiduciary duties under applicable law.
Section 6.3 Acquisition Proposals; Board Recommendation.
(a) The Company agrees that it shall not, nor shall it permit any of its
Subsidiaries to, nor shall it authorize or knowingly permit any officer,
director, employee, investment banker, attorney, accountant, agent or other
advisor or representative of the Company or any of its Subsidiaries, directly or
indirectly, to (i) take any action to solicit, initiate or facilitate or
encourage the submission of any Acquisition Proposal, (ii) engage in any
negotiations regarding, or furnish to any Person any non-public information with
respect to, or take any other action knowingly to facilitate any inquiries or
the making of any proposal that constitutes, or may be reasonably expected to
lead to, any Acquisition Proposal, (iii) grant any waiver or release under any
standstill or similar agreement with respect to any class of the Company's
equity securities or (iv) other than in the manner contemplated by Section
6.3(d), enter into any agreement with respect to any Acquisition Proposal;
provided, however, that the Company may take any actions described in the
foregoing clauses (i), (ii), (iii), or (iv) in respect of any Person who makes
an Acquisition Proposal, but only if (x) the Board of Directors of the Company
by a majority vote determines in its good faith judgment that either (A) such
Acquisition Proposal constitutes a Superior Proposal and provides written notice
of termination of this Agreement in accordance with Section 6.3(d) and Section
10.1, or (B) such Acquisition Proposal could reasonably be expected to result in
a Superior Proposal, and (y) prior to furnishing any non-public information to
such Person, such Person shall have entered into a confidentiality agreement
with the Company on terms no less favorable to the Company than the
Confidentiality Agreement between the Company and Fidelity dated as of June 24,
1999 (the "Confidentiality Agreement").
(b) Unless the Company's Board of Directors has previously withdrawn, or is
concurrently therewith withdrawing, the Company Recommendation, neither the
Company's Board of Directors nor any committee thereof shall recommend any
Acquisition Proposal to the Company stockholders. Notwithstanding the foregoing,
nothing contained in this Section 6.3(b) or elsewhere in this Agreement shall
prevent the Company's Board of Directors from complying with Rule 14e-2 under
the Exchange Act with respect to any Acquisition Proposal or making any
disclosure required by applicable law.
(c) Promptly (but in no event later than 48 hours) after receipt by the
Company or any of its Subsidiaries (or any of their respective directors,
officers, agents or advisors) of any Acquisition Proposal, any contacts
concerning, or any request for non-public information or for access to the
properties, books or records of the Company or any of its Subsidiaries or any
request for a waiver or release under any standstill or similar agreement, by
any Person that has made an Acquisition Proposal or indicates that it is
considering making an Acquisition Proposal, the Company shall notify Fidelity
(x) that a Person may be considering making an Acquisition Proposal, and (y) of
the identity of such Person and, if an Acquisition Proposal is made, of the
material terms of such Acquisition Proposal. The Company shall keep Fidelity
reasonably informed of the status and material terms of any such Acquisition
Proposal.
(d) Upon notice and in accordance with the terms of Section 10.1, the
Company may terminate this Agreement at any time before the Company Stockholder
Approval is obtained if (w) the Company's Board of Directors shall have
authorized the Company, subject to the terms and conditions of this Agreement,
to enter into a binding agreement concerning a transaction that constitutes a
Superior Proposal, (x) the Company notifies Fidelity that it
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intends to enter into such agreement, specifying the material terms and
conditions of such agreement, (y) within three Business Days of receiving the
notice described in (x) above, Fidelity fails to propose and agree to enter into
a modification of this Agreement such that the Board of Directors of the Company
determines by a majority vote in its good faith judgment that such Superior
Proposal is no longer a Superior Proposal and (z) the Company pays Fidelity the
fee contemplated by Section 10.3(b).
Section 6.4 Purchases of Company Common Shares. Subject to applicable
legal requirements and to the contractual obligations of the Company, the
Company agrees to use its good faith efforts to repurchase Company Common Shares
issued by the Company to persons other than Alleghany; provided, that unless
consented to by Fidelity, the purchase price paid by the Company for such
Company Common Shares shall not exceed $52.00.
ARTICLE VII
COVENANTS OF FIDELITY
Fidelity agrees that:
Section 7.1 Fidelity Interim Operations. Except as set forth in the
Fidelity Disclosure Schedule or as otherwise expressly contemplated hereby,
without the prior consent of the Company (which consent shall not be
unreasonably withheld or delayed), from the date hereof until the Effective
Time, Fidelity shall, and shall cause each of its Subsidiaries to, conduct their
business in all material respects in the ordinary course consistent with past
practice and shall use commercially reasonable efforts to (i) preserve intact
its present business organization, (ii) maintain in effect all material
licenses, approvals and authorizations, including, without limitation, all
material licenses and permits that are required by applicable Laws or
Environmental Laws for Fidelity or any of its Subsidiaries to carry on its
business and (iii) preserve existing relationships with its material customers,
lenders, suppliers and others having material business relationships with it.
Without limiting the generality of the foregoing, except as set forth in Section
7.1 of the Fidelity Disclosure Schedule or otherwise expressly contemplated by
this Agreement (including the Exhibits hereto), from the date hereof until the
Effective Time, without the prior consent of the Company (which consent shall
not be unreasonably withheld or delayed), Fidelity shall not, not shall it
permit any of its Subsidiaries to:
(a) amend its certificate of incorporation or by-laws (other than as
contemplated by Section 2.2 hereof);
(b) take any action that would prevent or materially impair the ability of
Fidelity to consummate the transactions contemplated by this Agreement,
including actions that would be reasonably likely to prevent or materially
impair the ability of Fidelity, the Company or any of their Subsidiaries to
obtain any consent, registration, approval, permit or authorization required to
be obtained from any Governmental Entity prior to the Effective Time in
connection with the execution and delivery of this Agreement and the
consummation of the Merger and the other transactions contemplated by this
Agreement;
(c) split, combine or reclassify any shares of capital stock of Fidelity or
any less-than-wholly-owned Subsidiary of Fidelity or declare, set aside or pay
any dividend or other distribution (whether in cash, stock or property or any
combination thereof) in respect of its capital stock, except for regular
quarterly cash dividends (having customary record and payment dates, not in
excess of $0.084 per Fidelity Common Share);
(d) redeem, repurchase or otherwise acquire or offer to redeem, repurchase,
or otherwise acquire any of its securities or any securities of, or other
ownership interests in, any of its
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Subsidiaries; provided, however, that Fidelity shall be permitted to repurchase
Fidelity Common Shares if such repurchases (i) are made pursuant to Fidelity's
existing or future publicly announced stock repurchase program, (ii) are made on
the NYSE pursuant to Rule 10b-18 under the Exchange Act, (iii) are not made (x)
during the period commencing on the date the Joint Proxy Statement/Prospectus is
first disseminated to the stockholders of the Company or Fidelity and ending on
the first day after the date that both the Company Stockholder Approval and the
Fidelity Stockholder Approval have been obtained, (y) during the 30 consecutive
trading day period ending on the Determination Date, or (z) at a time when such
repurchases are prohibited by Regulation M under the Exchange Act, and (iv)
would not prevent or materially impair the ability of Fidelity to obtain
sufficient funds to enable it to consummate the transactions contemplated by
this Agreement;
(e) (i) issue, deliver or sell, or authorize the issuance, delivery or sale
of, any shares of its capital stock of any class or any securities convertible
into or exercisable for, or any rights, warrants or options to acquire, any such
capital stock or any such convertible securities, other than (A) the issuance of
Fidelity Common Shares upon the exercise of stock options or pursuant to a
Fidelity Employee Plan in accordance with its present terms and (B) the granting
of options to acquire Fidelity Common Shares in the ordinary course of business
consistent with past practice; (ii) amend in any material respect any material
term of any outstanding security of Fidelity or any of its Subsidiaries, or
(iii) consent, including consent by the applicable committee, to any transfer of
a Fidelity Option;
(f) other than in connection with transactions permitted by Section 7.1(g),
incur any capital expenditures or any obligations or liabilities in respect
thereof, except for those (i) contemplated by the capital expenditure budgets
for Fidelity and its Subsidiaries made available to the Company, (ii) incurred
in the ordinary course of business of Fidelity and its Subsidiaries or (iii) not
otherwise described in clauses (i) and/or (ii) which do not exceed $5 million
individually or $25 million in the aggregate;
(g) except for acquisitions in the ordinary course of the investment
activities of Fidelity and its Subsidiaries consistent with past practice,
acquire (whether pursuant to merger, stock or asset purchase or otherwise) in
one transaction or series of related transactions any assets of or equity
interests in any Person having a fair market value in excess of $10 million;
(h) sell, lease, encumber or otherwise dispose of any assets, other than
(i) in the ordinary course of business consistent with past practice, (ii)
equipment and property no longer used in the operation of Fidelity's business
and (iii) sales or other dispositions of assets related to discontinued
operations of Fidelity or any of its Subsidiaries;
(i) incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities of Fidelity or any of its Subsidiaries or guarantee
any debt securities of others or request any advances in respect of, or make any
drawdowns on, any existing indebtedness, except for (i) borrowings and
guarantees made by Fidelity and its Subsidiaries which are pursuant to or
permitted by the Revolving Credit Facility in accordance with the terms of the
Revolving Credit Facility, (ii) indebtedness incurred to effect the transactions
contemplated by this Agreement and (iii) indebtedness incurred in connection
with repurchases of Fidelity Common Shares permitted under Section 7.1(d), to
the extent that incurrence of such indebtedness does not prevent or materially
impair the ability of Fidelity to obtain sufficient funds to enable it to
consummate the transactions contemplated by this Agreement;
(j) amend, modify or terminate any material contract, agreement or
arrangement of Fidelity or any of its Subsidiaries or otherwise waive, release
or assign any material rights, claims or benefits of Fidelity or any of its
Subsidiaries thereunder;
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(k) (i) except in the ordinary course of business consistent with past
practice, or as required by law or by an agreement existing on the date hereof,
increase the amount of compensation of any director or executive officer or make
any increase in or commitment to increase any employee benefits, (ii) except as
required by law or by an agreement existing on the date hereof grant any
material severance or termination pay to any director, officer or employee of
Fidelity or any of its Subsidiaries, (iii) adopt any additional employee benefit
plan or, except in the ordinary course of business, make any material
contribution to any existing such plan or (iv) except as may be required by law
or pursuant to any agreement existing on the date hereof, amend in any material
respect any Fidelity Employee Plan;
(l) change Fidelity's (x) methods of accounting in effect at December 31,
1998, except as required by changes in GAAP or by Regulation S-X of the Exchange
Act, as concurred in by its independent public accountants or (y) fiscal year;
(m) other than in the ordinary course of business consistent with past
practice, make any tax election or enter into any settlement or compromise of
any tax liability that in either case is material to the business of Fidelity
and its Subsidiaries, taken as a whole;
(n) pay, discharge, settle or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise) other than
(x) for an amount of $5 million or less, (y) an insurance claim arising in the
ordinary course of business, and (z) ordinary course repayment of indebtedness
or payment of contractual obligations when due;
(o) take any action that would cause any of its representations and
warranties herein to become untrue in any material respect; and
(p) agree, resolve or otherwise commit to do any of the foregoing;
provided, however, that the provisions of this Section 7.1 shall not apply in
respect of Micro General (it being understood that Fidelity will not take any
action as a stockholder of Micro General that would prevent or materially impair
the ability of Fidelity to consummate the transactions contemplated by this
Agreement); and further provided, that the provisions of Section 7.1(g), Section
7.1(h) and Section 7.1(i) above shall not apply to Fidelity National Leasing
Inc. (it being understood that Fidelity will not permit Fidelity National
Leasing Inc. to take any action that would prevent or materially impair the
ability of Fidelity to consummate the transactions contemplated by this
Agreement). Notwithstanding anything to the contrary in this Agreement, Fidelity
shall use its commercially reasonable efforts to complete the plan referred to
in Section 5.24 on a timely basis.
Section 7.2 Executive Management. Effective at the later of December 31,
1999 or the Effective Time, William P. Foley, II, Chief Executive Officer of
Fidelity, shall have resigned from all executive management positions other than
positions with Fidelity and its Subsidiaries; provided, however, that nothing in
this Section 7.2 shall require that Mr. Foley resign as Chairman of the Board
of, or from any other non-executive position he may hold with, entities other
than Fidelity or its Subsidiaries. At the Effective Time, Mr. Foley will be
appointed Vice Chairman of the Chicago Title and Trust Company Foundation.
Section 7.3 Stockholder Meeting. Fidelity shall cause a meeting of its
stockholders (the "Fidelity Stockholders Meeting") to be duly called and held
for the purpose of approving the matters constituting the Fidelity Stockholder
Approval as soon as reasonably practicable after the Registration Statement is
declared effective under the Securities Act. Fidelity's Board of Directors shall
recommend approval and adoption by its stockholders of this Agreement, and
Fidelity shall use its reasonable best efforts to solicit the Fidelity
Stockholder Approval.
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Section 7.4 Indemnification, Exculpation and Insurance.
(a) Fidelity agrees to maintain in effect in accordance with their terms
all rights to indemnification and exculpation from liabilities for acts or
omissions occurring at or prior to the Effective Time now existing in favor of
the current or former directors or officers of the Company and its Subsidiaries
as provided in their respective certificates of incorporation or by-laws (or
comparable organizational documents) and any indemnification agreements of the
Company. In addition, from and after the Effective Time, directors and officers
of the Company who become directors or officers of Fidelity will be entitled to
the same indemnity rights and protections as are afforded to other directors and
officers of Fidelity.
(b) In the event that Fidelity or any of its successors or assigns (i)
consolidates with or merges into any other person and is not the continuing or
surviving corporation or entity of such consolidation or merger or (ii) except
as required by applicable law in connection with the Merger, transfers or
conveys all or substantially all of its properties and assets to any person,
then, and in each such case, proper provision will be made so that the
successors and assigns of Fidelity assume the obligations set forth in this
Section 7.4.
(c) Immediately prior to the Closing, the Company shall purchase, from an
insurer or insurers chosen by the Company, one or more single payment, run-off
policies of directors and officers liability insurance covering acts or
omissions occurring prior to the Effective Time with respect to those persons
who are currently covered by the Company's directors' and officers' liability
insurance policies on terms with respect to such coverage and amount no less
favorable than the terms of the current policies of the Company which policies
are described on Section 4.19 of the Company Disclosure Schedule, such policy
(or policies) to become effective at the Effective Time and to remain in effect
for a period of six years after the Effective Time. If such coverage is
unavailable, for six years after the Effective Time, Fidelity shall provide to
the Company's directors and officers liability insurance covering acts or
omissions occurring prior to the Effective Time with respect to those persons
who are currently covered by the Company's directors' and officers' liability
insurance policies with insurance companies who are rated at least as highly as
the insurance companies who currently provide the Company's directors' and
officers' liability insurance as described on Section 4.19 of the Company
Disclosure Schedule and on terms with respect to such coverage and amount no
less favorable than those described on Section 4.19 of the Company Disclosure
Schedule; provided, however, that if the aggregate annual premiums for such
insurance at any time during such period shall exceed 200% of the per annum rate
of premium paid by the Company as of the date hereof for such insurance, then
Fidelity shall provide only such coverage as shall then be available at an
annual premium equal to 200% of such rate.
(d) The provisions of this Section 7.4 are intended to be for the benefit
of, and will be enforceable by, each indemnified party, his or her heirs and his
or her representatives and are in addition to, and not in substitution for, any
other rights to indemnification or contribution that any such person may have by
contract or otherwise.
Section 7.5 Employee Benefits. Fidelity agrees to cause the Surviving
Corporation to perform all of the obligations of the Company pursuant to the
Company severance plan and Company employee retention program and other
arrangements with regard to officers and employees of the Company described in
Exhibit C hereto. Prior to the Effective Time, the Company Board of Directors
will make any determinations required by the plans and arrangements described on
Exhibit C hereto, and Fidelity agrees that the Surviving Corporation will
implement such plans and arrangements in accordance with the determinations made
by the Company Board of Directors.
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Section 7.6 Stock Exchange Listing. Fidelity shall use its reasonable best
efforts to cause the Fidelity Common Shares to be issued in connection with the
Merger or upon exercise of Fidelity Options to be listed on the NYSE, subject to
official notice of issuance.
ARTICLE VIII
COVENANTS OF FIDELITY AND THE COMPANY
The parties hereto agree that:
Section 8.1 Reasonable Best Efforts. Subject to the terms and conditions
hereof, each party will use reasonable best efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate the
transactions contemplated by this Agreement as promptly as practicable after the
date hereof, including (i) preparing and filing as promptly as practicable all
documentation to effect all necessary applications, notices, petitions, filings,
tax ruling requests and other documents and to obtain as promptly as practicable
all consents, waivers, licenses, orders, registrations, approvals, permits, tax
rulings and authorizations necessary or advisable to be obtained from any third
party and/or any Governmental Entity in order to consummate the Merger or any of
the other transactions contemplated by this Agreement and (ii) taking all
reasonable steps as may be necessary to obtain all such material consents,
waivers, licenses, registrations, permits, authorizations, tax rulings, orders
and approvals. In furtherance and not in limitation of the foregoing, each party
hereto agrees to make an appropriate filing of a Notification and Report Form
pursuant to the HSR Act with respect to the transactions contemplated hereby as
promptly as practicable after the date hereof and to supply as promptly as
practicable any additional information and documentary material that may be
requested pursuant to the HSR Act and to take all other actions necessary to
cause the expiration or termination of the applicable waiting periods under the
HSR Act as soon as practicable, and the defending of any lawsuits or other legal
proceedings, whether judicial or administrative, challenging this Agreement or
the transactions contemplated hereby, including seeking to have any stay or
temporary restraining order entered by any Governmental Entity vacated or
reversed. Nothing in this Section 8.1 shall require any of the Company and its
Subsidiaries or Fidelity and its Subsidiaries to sell, hold separate or
otherwise dispose of or conduct their business in a specified manner, or agree
to sell, hold separate or otherwise dispose of or conduct their business in a
specified manner, or permit the sale, holding separate or other disposition of,
any assets of the Company, Fidelity or their respective Subsidiaries or the
conduct of their business in a specified manner, whether as a condition to
obtaining any approval from a Governmental Entity or any other Person or for any
other reason, if such sale, holding separate or other disposition or the conduct
of their business in a specified manner either (x) is not conditioned on the
Closing or (y) would reasonably be expected to have a Material Adverse Effect on
the Surviving Corporation, taken as a whole, after giving effect to the Merger
(any such sale, holding separate or other disposition or conduct of business
referred to (x) or (y) shall be referred to herein as a "Burdensome Condition").
Section 8.2 Certain Filings; Cooperation in Receipt of Consents.
(a) As promptly as practicable after the date hereof, Fidelity and the
Company shall prepare and file with the SEC the Joint Proxy Statement/Prospectus
and, as soon as practicable following the period of any review thereof by the
SEC staff, Fidelity shall prepare and file the Registration Statement, in which
the Joint Proxy Statement/Prospectus will be included. Each of the Company and
Fidelity shall use its reasonable best efforts to have the Registration
Statement declared effective under the Securities Act as promptly as practicable
after such filing and to keep the Registration Statement effective as long as is
necessary to consummate the Merger. Each of the Company and Fidelity shall mail
the Joint Proxy
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Statement/Prospectus to its stockholders as promptly as practicable after the
Registration Statement is declared effective under the Securities Act and, if
necessary, after the Joint Proxy Statement/Prospectus shall have been so mailed,
promptly circulate amended, supplemental or supplemented proxy material and, if
required in connection therewith, resolicit proxies. Fidelity shall also take
any action (except to qualify to do business or to file a general consent to
service of process) required to be taken under any applicable state securities
or "blue sky" laws in connection with the issuance of Fidelity Common Shares in
the Merger, and the Company shall use its reasonable best efforts to furnish all
information concerning its directors, officers, stockholders and business as may
be reasonably requested by Fidelity in connection with any such action.
(b) No filing of, or any amendment or supplement to, the Joint Proxy
Statement/ Prospectus will be made by the Company or Fidelity without providing
the other party the opportunity to review and comment thereon. Each party will
advise the other party, promptly after it receives notice thereof, of the time
when the Registration Statement has become effective or any supplement or
amendment has been filed, the issuance of any stop order, the suspension of the
qualification of the Fidelity Common Shares issuable in connection with the
Merger for offering or sale in any jurisdiction, or any request by the SEC for
amendment of the Joint Proxy Statement/Prospectus or comments thereon and
responses thereto or requests by the SEC for additional information. If at any
time prior to the Effective Time any information relating to either party, or
any of their respective Affiliates, officers or directors should be discovered
by the Company or Fidelity, that should be set forth in an amendment or
supplement to the Registration Statement or the Joint Proxy
Statement/Prospectus, so that either of such documents would not include any
misstatement of a material fact or omit to state any material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, the party that discovers such information shall promptly
notify the other party hereto and an appropriate amendment or supplement
describing such information shall be promptly filed with the SEC and, to the
extent required by law or regulation, disseminated to the stockholders of the
Company and Fidelity.
(c) The Company shall use its reasonable best efforts to cause to be
delivered to Fidelity two letters from the Company's independent public
accountants, one dated the date on which the Registration Statement shall become
effective and one dated the date of the Effective Time, each addressed to the
Company and Fidelity, in form and substance reasonably satisfactory to Fidelity
and customary in scope and substance for comfort letters delivered by
independent public accountants in connection with registration statements
similar to the Registration Statement. Fidelity shall use its reasonable best
efforts to cause to be delivered to the Company two letters from Fidelity's
independent public accountants, one dated the date on which the Registration
Statement shall become effective and one dated the date of the Effective Time,
each addressed to the Company and Fidelity, in form and substance reasonably
satisfactory to the Company and customary in scope and substance for comfort
letters delivered by independent public accountants in connection with
registration statements similar to the Registration Statement.
(d) The Company and Fidelity shall cooperate with one another in (i)
determining whether any other action by or in respect of, or filing with, any
Governmental Entity is required, or any actions, consents, approvals or waivers
are required to be obtained from parties to any material contracts, in
connection with the consummation of the transactions contemplated hereby and
(ii) seeking any such other actions, consents, approvals or waivers or making
any such filings, furnishing information required in connection therewith and
seeking promptly to obtain any such actions, consents, approvals or waivers.
Each party shall permit the other party to review any communication given by it
to, and shall consult with each other in advance of any meeting or conference
with, any Governmental Entity or, in connection with any proceeding by a private
party, with any other Person, and to the extent permitted by the
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applicable Governmental Entity or other Person, give the other party the
opportunity to attend and participate in such meetings and conferences, in each
case in connection with the transactions contemplated hereby.
Section 8.3 Public Announcements. The parties shall consult with each
other before issuing, and provide each other a reasonable opportunity to review
and comment upon, any press release or public statement with respect to this
Agreement and the transactions contemplated hereby and, except as may be
required by applicable law or any listing agreement with any national securities
exchange, will not issue any such press release or make any such public
statement prior to such consultation.
Section 8.4 Access to Information; Notification of Certain Matters.
(a) From the date hereof until the Effective Time and subject to applicable
law, the Company and Fidelity shall (i) give to the other party, its counsel,
financial advisors, auditors and other authorized representatives reasonable
access to the offices, properties, books and records of such party, (ii) furnish
or make available to the other party, its counsel, financial advisors, auditors
and other authorized representatives such financial and operating data and other
information as such Persons may reasonably request and (iii) instruct its
employees, counsel, financial advisors, auditors and other authorized
representatives to cooperate with the reasonable requests of the other party in
its investigation. Any investigation pursuant to this Section 8.4(a) shall be
conducted in such manner as not to interfere unreasonably with the conduct of
the business of the other party. All such information shall be governed by the
terms of the Confidentiality Agreement. No information or knowledge obtained in
any investigation pursuant to this Section 8.4(a) shall affect or be deemed to
modify any representation or warranty made by any party hereunder.
(b) Each party hereto shall give notice to each other party hereto, as
promptly as practicable after the event giving rise to the requirement of such
notice, of:
(i) any communication received by such party from, or given by such
party to, any Governmental Entity in connection with any of the
transactions contemplated hereby;
(ii) 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; and
(iii) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge, threatened against, relating to or
involving or otherwise affecting such party or any of its Subsidiaries
that, if pending on the date of this Agreement, would have been required to
have been disclosed, or that relate to the consummation of the transactions
contemplated by this Agreement; provided, however, that the delivery of any
notice pursuant to this Section 8.4(b) shall not limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
Section 8.5 Payment of Special Dividend. Fidelity and the Company agree
that, prior to the Effective Time, the Company Board of Directors shall declare
a special dividend payable to holders of record of Company Common Shares as of
the close of business on the Business Day immediately preceding the Effective
Time. The amount of such special dividend shall be an amount per Company Common
Share equal to $0.36 multiplied by a fraction the numerator of which shall be
the number of days elapsed from the record date of the last regular quarterly
dividend payment prior to the Effective Time through the date of the Effective
Time, and the denominator of which shall be ninety.
Section 8.6 Further Assurances. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name
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and on behalf of the Company, any deeds, bills of sale, assignments or
assurances and to take and do, in the name and on behalf of the Company, any
other actions and things to vest, perfect or confirm of record or otherwise in
the Surviving Corporation any and all right, title and interest in, to and under
any of the rights, properties or assets of the Company acquired or to be
acquired by the Surviving Corporation as a result of, or in connection with, the
Merger.
Section 8.7 Tax Matters.
(a) Prior to and following the Effective Time, each party shall use its
reasonable best efforts to cause the Merger to qualify as a 368 Reorganization
and will not take any action or fail to take any action reasonably likely to
cause the Merger not so to qualify.
(b) Each party shall use its reasonable best efforts (i) to obtain the
opinions referred to in Section 9.2(b) and Section 9.3(b), (ii) to obtain the
rulings, opinions or consent referred to in Section 9.2(c), and (iii) to obtain
the ruling or opinion referred to in Section 9.3(c).
(c) From and after the Effective Time, Fidelity agrees to cause the
Surviving Corporation to perform all of the obligations of the Company under the
agreements entered into between the Company and Alleghany in connection with the
distribution of the Company from Alleghany in June 1998, including without
limitation, the Tax Sharing Agreement.
Section 8.8 Control of Other Party's Business. Nothing contained in this
Agreement shall give Fidelity, directly or indirectly, the right to control or
direct the Company's operations prior to the Effective Time. Nothing contained
in this Agreement shall give the Company, directly or indirectly, the right to
control or direct Fidelity's operations prior to the Effective Time. Prior to
the Effective Time, each of Fidelity and the Company shall exercise, consistent
with the terms and conditions of this Agreement, complete control and
supervision over its respective operations.
Section 8.9 Affiliate Letters. Within 30 days following the date hereof,
the Company shall cause to be delivered to Fidelity a letter identifying, to the
Company's reasonable judgment, the names and addresses of all Persons who may be
deemed to be "affiliates" of the Company for purposes of Rule 145(c) under the
Securities Act. The Company shall use commercially reasonable efforts to cause
each such Person who is so identified to deliver to Fidelity on or prior to the
30th day prior to the Effective Time a letter agreement substantially in the
form of Exhibit D to this Agreement.
Section 8.10 Financing. Prior to March 31, 2000, Fidelity will take such
action as may be necessary to obtain, and will obtain, sufficient funds to
enable it to consummate the transactions contemplated by this Agreement.
ARTICLE IX
CONDITIONS TO THE MERGER
Section 9.1 Conditions to the Obligations of Each Party. The obligations
of the Company and Fidelity to consummate the Merger are subject to the
satisfaction of the following conditions:
(a) each of the Company Stockholder Approval and the Fidelity Stockholder
Approval shall have been obtained;
(b) the Fidelity Common Shares to be issued in the Merger shall have been
authorized for listing on the NYSE, subject to official notice of issuance;
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(c) (i) the Registration Statement shall have become effective in
accordance with the provisions of the Securities Act, no stop order suspending
the effectiveness of the Registration Statement shall have been issued by the
SEC and no proceedings for that purpose shall have been initiated by the SEC and
not concluded or withdrawn and (ii) all state securities or "blue sky"
authorizations necessary to carry out the transactions contemplated hereby shall
have been obtained and be in effect;
(d) any applicable waiting period under the HSR Act relating to the Merger
shall have expired or been earlier terminated without the imposition of any
Burdensome Condition;
(e) no Governmental Entity of competent authority or jurisdiction shall
have issued any order, injunction or decree, or taken any other action, that is
in effect and restrains, enjoins or otherwise prohibits the consummation of the
Merger; and
(f) the parties shall have obtained or made all consent, approvals,
actions, orders, authorizations, registrations, declarations, announcements and
filings contemplated by Section 4.3 and Section 5.3 which if not obtained or
made (i) would render consummation of the Merger illegal or (ii) would be
reasonably likely to have a Material Adverse Effect on the Surviving
Corporation, taken as a whole, after giving effect to the Merger.
Section 9.2 Conditions to the Obligations of the Company. The obligations
of the Company to consummate the Merger are subject to the satisfaction of the
following further conditions:
(a) (i) Fidelity shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the time of
the filing of the Certificate of Merger, (ii) the representations and warranties
of Fidelity contained in this Agreement (without giving effect to any
materiality, Material Adverse Effect or similar qualifications included therein)
shall have been true and correct when made and at and as of the time of the
filing of the Certificate of Merger as if made at and as of such time (except to
the extent any such representation or warranty expressly speaks as of an earlier
date, in which case it shall be true and correct as of such date), except for
such inaccuracies as would not be reasonably likely, individually or in the
aggregate, to have a Fidelity Material Adverse Effect, and (iii) the Company
shall have received a certificate signed by the Chief Executive Officer or Chief
Financial Officer of Fidelity to the foregoing effect;
(b) The Company shall have received an opinion of Swidler Berlin Shereff
Friedman, LLP (or other counsel acceptable to the Company) in form and substance
reasonably satisfactory to the Company, on the basis of certain facts,
representations and reasonable assumptions set forth in such opinion, dated as
of the date of the filing of the Certificate of Merger, to the effect that the
Merger will be treated for federal income tax purposes as a 368 Reorganization.
In rendering such opinion, such counsel shall be entitled to rely upon customary
representations of officers of the Company and Fidelity in form and substance
reasonably satisfactory to such counsel and other reasonable assumptions set
forth therein;
(c) Either (i) the Company shall have (x) received a ruling from the
Internal Revenue Service that is reasonably satisfactory to Alleghany to the
effect that (A) the Merger will not affect the qualification of the distribution
of the Company from Alleghany as a transaction in which no gain or loss is
recognized under Section 355 of the Code and (B) the Merger will not affect the
qualification of the AAM Distribution as a transaction in which no gain or loss
is recognized under Section 355 of the Code (except that the Company shall not
submit any such ruling request to the Internal Revenue Service if Alleghany
determines in good faith that filing such request might have a materially
adverse effect upon Alleghany) or (y) obtained an opinion of Swidler Berlin
Shereff Friedman, LLP (or other counsel acceptable to the Company
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and to Alleghany) in form and substance reasonably satisfactory to the Company
and to Alleghany, on the basis of certain facts, representations and reasonable
assumptions set forth in such opinion, dated as of the date of the filing of the
Certificate of Merger, to the effect that (A) the Merger will not affect the
qualification of the distribution of the Company from Alleghany as a transaction
in which no gain or loss is recognized under Section 355 of the Code and (B) the
Merger will not affect the qualification of the AAM Distribution as a
transaction in which no gain or loss is recognized under Section 355 of the
Code, or (ii) Alleghany shall have consented in writing to the Merger and the
other transactions contemplated hereby; and
(d) Since the date of the Fidelity balance sheet included in the Fidelity
10-Q, there shall not have occurred any change in the financial condition,
business or operations of Fidelity and its Subsidiaries, taken as a whole, that
would be reasonably likely to have a Fidelity Material Adverse Effect.
Section 9.3 Conditions to the Obligations of Fidelity. The obligations of
Fidelity to consummate the Merger are subject to the satisfaction of the
following further conditions:
(a) (i) The Company shall have performed in all material respects all of
its obligations hereunder required to be performed by it at or prior to the time
of filing of the Certificate of Merger, (ii) the representations and warranties
of the Company contained in this Agreement (without giving effect to any
materiality, Material Adverse Effect or similar qualifications included therein)
shall have been true and correct when made and at and as of the time of the
filing of the Certificate of Merger as if made at and as of such time (except to
the extent any such representation or warranty expressly speaks as of an earlier
date, in which case it shall be true and correct as of such date), except for
such inaccuracies as would not be reasonably likely, individually or in the
aggregate, to have a Company Material Adverse Effect, and (iii) Fidelity shall
have received a certificate signed by the Chief Executive Officer or Chief
Financial Officer of the Company to the foregoing effect;
(b) Fidelity shall have received an opinion of Gibson, Dunn & Crutcher LLP
(or other counsel acceptable to Fidelity) in form and substance reasonably
satisfactory to Fidelity, on the basis of certain facts, representations and
reasonable assumptions set forth in such opinion, dated as of the date of the
filing of the Certificate of Merger, to the effect that the Merger will be
treated for federal income tax purposes as a 368 Reorganization. In rendering
such opinion, such counsel shall be entitled to rely upon customary
representations of officers of the Company and Fidelity in form and substance
reasonably satisfactory to such counsel and other reasonable assumptions set
forth therein;
(c) Either (x) the Company has received a ruling from the Internal Revenue
Service that is reasonably satisfactory to Fidelity to the effect that (A) the
Merger will not affect the qualification of the distribution of the Company from
Alleghany as a transaction in which no gain or loss is recognized under Section
355 of the Code and (B) the Merger will not affect the qualification of the AAM
Distribution as a transaction in which no gain or loss is recognized under
Section 355 of the Code, or (y) the Company has obtained an opinion of Swidler
Berlin Shereff Friedman, LLP (or other counsel acceptable to Fidelity) or
Fidelity has obtained an opinion of Gibson, Dunn & Crutcher LLP (or other
counsel acceptable to Fidelity), in either case such opinion to be in form and
substance reasonably acceptable to Fidelity, on the basis of certain facts,
representations and reasonable assumptions set forth in such opinion, dated as
of the date of the filing of the Certificate of Merger, to the effect that (A)
the Merger will not affect the qualification of the distribution of the Company
from Alleghany as a transaction in which no gain or loss is recognized under
Section 355 of the Code and (B) the Merger will not affect the qualification of
the AAM Distribution as a transaction in which no gain or loss is recognized
under Section 355 of the Code; and
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(d) Since the date of the Company balance sheet included in the Company
10-Q, there shall not have occurred any change in the financial condition,
business or operations of the Company and its Subsidiaries, taken as a whole,
that would be reasonably likely to have a Company Material Adverse Effect.
ARTICLE X
TERMINATION
Section 10.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time by written notice by the terminating party to the
other party (except if such termination is pursuant to Section 10.1(a)), whether
before or after the Company Stockholder Approval shall have been obtained:
(a) by mutual written agreement of Fidelity and the Company;
(b) by either Fidelity or the Company, if
(i) the Merger shall not have been consummated by March 31, 2000 (the
"End Date"); provided, however, that the End Date may be extended by the
Company or Fidelity until June 30, 2000 (the "Extended End Date") in the
event that, as of March 31, 2000, all conditions to the Merger have been
satisfied other than the conditions set forth in Section 9.1(d), Section
9.1(f), Section 9.2(c) or Section 9.3(c) above, except that (x) any party
whose breach of any provision of or whose failure to perform any obligation
under this Agreement has been the cause of, or has resulted in, the failure
to obtain any consent or approval which has not been obtained by March 31,
2000 shall not be permitted to extend the End Date to the Extended End Date
due to a failure of the conditions set forth in Section 9.1(d) and/or
Section 9.1(f) above, and (y) neither party shall be permitted to extend
the End Date to the Extended End Date due to a failure of the conditions
set forth in Section 9.2(c) and/or Section 9.3(c) above unless an
application for the ruling described in such Sections shall have been
submitted to the Internal Revenue Service and be pending; and provided
further, that the right to terminate this Agreement under this Section
10.1(b)(i) shall not be available to any party whose breach of any
provision of or whose failure to perform any obligation under this
Agreement has been the cause of, or has resulted in, the failure of the
Merger to occur on or before the End Date or the Extended End Date, as the
case may be;
(ii) there shall be any law or regulation that makes consummation of
the Merger illegal or otherwise prohibited or any judgment, injunction,
order or decree of any Governmental Entity having competent jurisdiction
enjoining the Company or Fidelity from consummating the Merger is entered
and such judgment, injunction, judgment or order shall have become final
and nonappealable and, prior to such termination, the parties shall have
used their respective reasonable best efforts to resist, resolve or lift,
as applicable, such law, regulation, judgment, injunction, order or decree;
provided, however, that the right to terminate this Agreement under this
Section 10.1(b)(ii) shall not be available to any party whose breach of any
provision of or whose failure to perform any obligation under this
Agreement has been the cause of such law, regulation, judgment, injunction,
order or decree; or
(iii) at the Company Stockholders Meeting (including any adjournment
or postponement thereof), the Company Stockholder Approval shall not have
been obtained, or at the Fidelity Stockholders Meeting (including any
adjournment or postponement thereof), the Fidelity Stockholder Approval
shall not have been obtained;
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(c) by the Company, (i) if a breach of any representation, warranty,
covenant or agreement on the part of Fidelity set forth in this Agreement shall
have occurred which would cause the condition set forth in Section 9.2(a) not to
be satisfied, and either such condition shall be incapable of being satisfied by
the End Date or the Extended End Date or such breach or failure to perform has
not been cured within 10 days after notice of such breach or failure to perform
has been given by the Company to Fidelity, (ii) as contemplated by Section
6.3(d), or (iii) if Fidelity shall have elected to pay the Reduced Supplemental
Consideration; or
(d) by Fidelity, (i) if the Company's Board of Directors shall have (A)
amended, modified, withdrawn, conditioned or qualified the Company
Recommendation in a manner materially adverse to Fidelity, (B) recommended any
Acquisition Proposal to the Company's stockholders, and/or (C) failed to make
the Company Recommendation; or (ii) if a breach of or failure to perform any
representation, warranty, covenant or agreement on the part of the Company set
forth in this Agreement shall have occurred which would cause the condition set
forth in Section 9.3(a) not to be satisfied, and either such condition is
incapable of being satisfied by the End Date or the Extended End Date or such
breach or failure to perform has not been cured within 10 days after notice of
such breach or failure to perform has been given by Fidelity to the Company.
Section 10.2 Effect of Termination. If this Agreement is terminated
pursuant to Section 10.1 (including any such termination by way of Section
6.3(d)), there shall be no liability or obligation on the part of Fidelity or
the Company, or any of their respective officers, directors, stockholders,
agents or Affiliates, except as set forth in Section 10.3, except that the
provisions of Sections 10.2, 10.3, 11.1, 11.3, 11.4, 11.5, 11.6, 11.7, 11.8,
11.9 and 11.10 of this Agreement shall remain in full force and effect and
survive any termination of this Agreement and except that, notwithstanding
anything to the contrary contained in this Agreement, neither the Company nor
Fidelity shall be relieved of or released from any liabilities or damages
arising out of its material breach of or material failure to perform its
obligations under this Agreement; provided, however, that the Company shall have
no further liability or obligation under this Agreement if it shall have paid
the Termination Fee (as hereinafter defined).
Section 10.3 Termination Fee and Expenses.
(a) Whether or not the Merger is consummated, all fees and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses, except that (i) each
of the Company and Fidelity shall bear and pay one-half of the costs and
expenses incurred in connection with the printing of the Registration Statement
and the Joint Proxy Statement/Prospectus, as well as the SEC filing fees related
thereto, and (ii) if the Merger is consummated, the Surviving Corporation shall
pay, or cause to be paid, all state, local, foreign or provincial sales, use,
real property, transfer, stock transfer or similar taxes (including any interest
or penalties with respect thereto) attributable to the Merger.
(b) The Company shall pay Fidelity the Termination Fee (as hereinafter
defined) if this Agreement is terminated solely as follows:
(i) if the Company shall terminate this Agreement pursuant to Section
10.1(c)(ii); (ii) if (w) either party shall terminate this Agreement
pursuant to Section 10.1(b)(iii) due to the failure to obtain the Company
Stockholder Approval, (x) at any time after the date of this Agreement and
at or before the date of the Company Stockholders Meeting an Acquisition
Proposal shall have been publicly announced or otherwise communicated to
the Company Board of Directors, (y) within twelve months of the termination
of this Agreement, the Company enters into a definitive agreement with any
third party with respect to a Business Combination, and (z) a Business
Combination with respect to the Company is thereafter consummated; or
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(iii) if Fidelity shall terminate this Agreement pursuant to Section
10.1(d)(i); provided, however, that no Termination Fee shall be payable
upon termination of this Agreement pursuant to Section 10.1(d)(i)(A) or
Section 10.1(d)(i)(C) if such termination follows an adverse change in the
Company Recommendation or failure to make the Company Recommendation
occurring at a time when Fidelity is in material breach of this Agreement
or has materially failed to perform its obligations under this Agreement
and such breach or failure to perform either would give rise to a right on
the part of the Company to terminate this Agreement or is of a magnitude
which would have a Fidelity Material Adverse Effect and (in either case)
has not been sufficiently cured or improved within 10 days after notice of
such breach or failure to perform that the breach or failure to perform
would no longer give rise to a right of termination or have a Fidelity
Material Adverse Effect.
(c) "Termination Fee" means $34,100,000.
(d) The Termination Fee required to be paid pursuant to Section 10.3(b)
shall be paid prior to, and shall be a pre-condition to the effectiveness of,
termination of this Agreement pursuant to Section 10.1(c)(ii). Any other payment
of the Termination Fee required to be made pursuant to Section 10.3(b) shall be
made not later than two Business Days after (i) the consummation of a Business
Combination with the Company, in the case of a termination of this Agreement
pursuant to Section 10.1(b)(iii), or (ii) the termination of this Agreement
pursuant to Section 10.1(d)(i).
(e) Notwithstanding anything to the contrary contained in this Agreement,
the Company shall not be required to pay a Termination Fee to Fidelity if at the
time of termination of this Agreement Fidelity is in material breach of this
Agreement or has materially failed to perform its obligations under this
Agreement and such breach or failure to perform either would give rise to a
right on the part of the Company to terminate this Agreement or is of a
magnitude which would have a Fidelity Material Adverse Effect and (in either
case) has not been sufficiently cured within 10 days after notice of such breach
or failure to perform that the breach or failure to perform would no longer give
rise to a right of termination or have a Material Adverse Effect.
ARTICLE XI
MISCELLANEOUS
Section 11.1 Notices. Except as otherwise expressly set forth in Section
6.3(c), all notices, requests and other communications to any party hereunder
shall be in writing (including facsimile or similar writing) and shall be given,
if to Fidelity, to:
Fidelity National Financial, Inc.
3916 State Street, Suite 300
Santa Barbara, California 93105
Attention: Mr. William P. Foley, II
Chairman of the Board
and Chief Executive Officer
Facsimile: (805) 563-4141
with a copy to:
Stradling Yocca Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, California 92660
Attention: C. Craig Carlson, Esq.
Facsimile: (949) 725-4100
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if to the Company, to:
Chicago Title Corporation
171 North Clark Street
Chicago, Illinois 60601
Attention: Mr. John Rau
President and Chief Executive Officer
Facsimile: (312) 223-3092
with a copy to:
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019
Attention: Aileen C. Meehan, Esq.
Facsimile: (212) 259-6333
or such other address or facsimile number as such party may hereafter specify
for the purpose by notice to the other party hereto. Each such notice, request
or other communication shall be effective upon receipt.
Section 11.2 Survival of Representations, Warranties and Covenants after
the Effective Time. The representations and warranties contained herein and in
any certificate or other writing delivered pursuant hereto shall not survive the
Effective Time or the termination of this Agreement. The covenants contained in
Articles II and III and Sections 7.4, 7.5, 8.5, 8.6, 8.7, 11.2, 11.4, 11.5,
11.6, 11.7, 11.8, 11.9 and 11.10 shall survive the Effective Time.
Section 11.3 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 and Fidelity or in the case
of a waiver, by the party against whom the waiver is to be effective; provided,
however, that after the Company Stockholder Approval, no such amendment or
waiver shall, without the further approval of such stockholders, be made that
would require such approval under any applicable law, rule or regulation.
(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.
Section 11.4 Successors and Assigns. 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 party hereto. Any purported assignment in
violation hereof shall be null and void.
Section 11.5 Governing Law. This Agreement shall be construed in
accordance with and governed by the internal laws of the State of Delaware
without reference to its principles of conflicts of laws.
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Section 11.6 Counterparts; Effectiveness; Third Party Beneficiaries. This
Agreement may be signed in 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 the other party hereto. Except as
set forth in Section 7.4, no provision of this Agreement is intended to confer
upon any Person other than the parties hereto any rights or remedies hereunder.
Section 11.7 Jurisdiction. Except as otherwise expressly provided in this
Agreement, the parties hereto agree that any suit, action or proceeding seeking
to enforce any provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated hereby shall be
brought in the United States District Court for the Southern District of New
York or any New York State court sitting in Manhattan, and each of the parties
hereby consents to the exclusive jurisdiction of such courts (and of the
appropriate appellate courts therefrom) in any such suit, action or proceeding
and irrevocably waives, to the fullest extent permitted by law, any objection
which it may now or hereafter have to the laying of the venue of any such suit,
action or proceeding in any such court or that any such suit, action or
proceeding which is brought in any such court has been brought in an
inconvenient forum. Process in any such suit, action or proceeding may be served
on any party anywhere in the world, whether within or without the jurisdiction
of any such court. Without limiting the foregoing, each party agrees that
service of process on such party as provided in Section 11.1 shall be deemed
effective service of process on such party.
Section 11.8 Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
Section 11.9 Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms. It is accordingly agreed that
the parties shall be entitled to specific performance of the terms hereof, this
being in addition to any other remedy to which they are entitled at law or in
equity.
Section 11.10 Entire Agreement. This Agreement dated as of August 1, 1999,
and amended as of October 13, 1999 (together with the Exhibits and Schedules
hereto), and the Confidentiality Agreement constitute the entire agreement
between the parties with respect to the subject matter hereof and supersede all
prior agreements and understandings, both oral and written, between the parties
with respect to the subject matter hereof. All references to "the date hereof"
or words of like import referring to this Agreement shall mean and be a
reference to August 1, 1999, and all representations and warranties of the
Company and Fidelity contained in this Agreement shall be deemed made as of
August 1, 1999 (except to the extent any such representation or warranty
expressly speaks as of an earlier date).
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IN WITNESS WHEREOF, 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.
<TABLE>
<S> <C>
CHICAGO TITLE CORPORATION
Attest:
/s/ PAUL T. SANDS, JR. By: /s/ JOHN RAU
- --------------------------------------------------- --------------------------------------------
Paul T. Sands, Jr. John Rau
President and Chief Executive Officer
Attest: FIDELITY NATIONAL FINANCIAL, INC.
/s/ ANDREW F. PUZDER By: /s/ WILLIAM P. FOLEY, II
- --------------------------------------------------- ----------------------------------------------
Andrew F. Puzder William P. Foley, II
Chairman of the Board
and Chief Executive Officer
</TABLE>
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APPENDIX B
MORGAN STANLEY DEAN WITTER
1999 AVENUE OF THE STARS
LOS ANGELES, CA 90067
(310) 788-2000
August 1, 1999
Board of Directors
Fidelity National Financial, Inc.
17911 Von Karman Avenue
Irvine, CA 92614
Gentlemen:
We understand that Chicago Title Corporation (the "Company") and Fidelity
National Financial, Inc. ("Buyer") propose to enter into an Agreement and Plan
of Merger dated August 1, 1999 (the "Merger Agreement"), which provides for,
among other things, the merger (the "Merger") of the Company with and into
Buyer. Pursuant to the Merger, each outstanding share of common stock, par value
$1.00 per share, of the Company (the "Company Common Stock"), other than shares
held in treasury or held by Buyer or any affiliate of Buyer or as to which
dissenters' rights have been perfected, will be converted into the right to
receive $52.00 per share, comprised of cash and shares of common stock, par
value $.0001 per share, of Buyer (the "Buyer Common Stock") in the proportions
specified in the Merger Agreement and subject to downward adjustment in certain
circumstances described therein. The terms and conditions of the Merger are more
fully set forth in the Merger Agreement and are incorporated herein by
reference.
You have asked for our opinion as to whether the consideration to be paid
by Buyer pursuant to the Merger Agreement is fair from a financial point of view
to Buyer.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of the Company and Buyer;
(ii) reviewed certain internal financial statements and other
financial and operating data concerning the Company prepared by the
management of the Company;
(iii) reviewed certain financial projections prepared by the
management of the Company;
(iv) discussed the past and current operations and financial condition
and the prospects of the Company, including information relating to certain
strategic, financial and operational benefits anticipated from the Merger,
with senior executives of the Company;
(v) discussed the past and current operations and financial condition
and the prospects of the Company with senior executives of Buyer;
(vi) reviewed certain internal financial statements and other
financial and operating data concerning Buyer prepared by the management of
Buyer;
(vii) reviewed certain financial projections prepared by the
management of Buyer;
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(viii) discussed the past and current operations and financial
condition and the prospects of Buyer, including information relating to
certain strategic, financial and operational benefits anticipated from the
Merger, with senior executives of Buyer;
(ix) reviewed with senior executives of Buyer the pro forma impact of
the Merger on Buyer's earnings per share, consolidated capitalization and
financial ratios;
(x) reviewed the reported prices and trading activity for the Company
Common Stock and the Buyer Common Stock;
(xi) compared the financial performance of the Company and the prices
and trading activity of the Company Common Stock with those of certain
other comparable publicly traded companies and their securities;
(xii) compared the financial performance of Buyer and the prices and
trading activity of the Buyer Common Stock with those of certain other
comparable publicly traded companies and their securities;
(xiii) reviewed the financial terms, to the extent publicly available,
of certain comparable acquisition transactions;
(xiv) participated in discussions and negotiations among
representatives of the Company and Buyer and their financial and legal
advisors;
(xv) reviewed the draft Merger Agreement and certain related
documents; and
(xvi) performed such other analyses and considered such other factors
as we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections, including information
relating to certain strategic, financial and operational benefits anticipated
from the Merger, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
future financial performance of the Company and Buyer. We have also relied upon,
without independent verification, the assessment of Buyer of the strategic,
financial and operational benefits expected to result from the Merger. In
addition, we have assumed that the Merger will be consummated in accordance with
the terms set forth in the Merger Agreement, including, among other things, that
the Merger will be treated as a tax-free reorganization and/or exchange pursuant
to the Internal Revenue Code of 1986, as amended, and that the Merger will not
be effected in a manner that would cause Buyer to incur any material obligations
to Alleghany Corporation pursuant to the Tax Sharing Agreement between the
Company and Alleghany Corporation dated as of June 17, 1998. We have not made
any independent valuation or appraisal of the assets or liabilities of the
Company, nor have we been furnished with any such appraisals. Our opinion is
necessarily based on financial, economic, market and other conditions as in
effect on, and the information made available to us as of, the date hereof.
We have acted as financial advisor to the Board of Directors of Buyer in
connection with this transaction and will receive a fee for our services,
including possibly fees for providing financing services in connection with this
transaction. In addition, Morgan Stanley may have provided advisory services to
Buyer or the Company in the past and may have received fees for providing such
services.
It is understood that this letter is for the information of the Board of
Directors of Buyer and may not be used for any other purpose without our prior
written consent, except that this letter may be included in its entirety in any
filing with the Securities and Exchange
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Commission in connection with the Merger. In addition, this opinion does not in
any manner address the prices at which the Buyer Common Stock will trade
following consummation of the Merger, and Morgan Stanley expresses no opinion or
recommendation as to how shareholders of the Company and Buyer should vote at
the shareholders meetings to be held in connection with the Merger.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the consideration to be paid by Buyer pursuant to the Merger
Agreement is fair from a financial point of view to Buyer.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
/s/ Neil Morganbesser
Neil B. Morganbesser
Principal
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APPENDIX C
MERRILL LYNCH
INVESTMENT BANKING
CORPORATE AND INSTITUTIONAL CLIENT GROUP
WORLD FINANCIAL CENTER
NORTH TOWER
NEW YORK, NEW YORK 10281-1325
(212) 449-1000
August 1, 1999
Board of Directors
Chicago Title Corporation
171 North Clark Street
Chicago, IL 60601
Members of the Board:
Chicago Title Corporation ("Chicago Title") and Fidelity National
Financial, Inc. ("Fidelity") propose to enter into an Agreement and Plan of
Merger (the "Agreement") to be dated as of August 1, 1999, pursuant to which
Chicago Title will be merged with and into Fidelity in a transaction (the
"Merger") in which each outstanding share of Chicago Title's common stock, par
value $1.00 per share (the "Chicago Title Shares"), will be converted into the
right to receive consideration having a value of $52.00 (unless Fidelity elects
to pay the "Reduced Supplemental Consideration" as such term is defined in the
Agreement, in which case the Company shall have the right to terminate the
Agreement), consisting of (i) a number of shares (the "Stock Portion") of the
common stock of Fidelity, par value $0.0001 per share (the "Fidelity Shares"),
equal to the "Exchange Ratio," as such term is defined in the Agreement, (ii)
cash in an amount equal to the lesser of (x) $26.00 or (y) (1) $52.00 less (2)
the Stock Portion multiplied by the Average Fidelity Common Share Price, as such
term is defined in the Agreement (the "Cash Portion"), and (iii) to the extent
that the sum of (x) the product of the Stock Portion and the Average Fidelity
Common Share Price and (y) the Cash Portion is less than $52.00 (the
"Differential"), then an additional amount which, at the election of Fidelity,
may be in the form of cash, Fidelity Shares (valued at the Average Fidelity
Common Share Price), or a combination thereof, to make up the Differential (the
"Supplemental Consideration"); provided, however, that if the Average Fidelity
Common Share Price is less than $15.00, Fidelity may elect to pay either the
Supplemental Consideration or the Reduced Supplemental Consideration. The
aggregate amount of cash and Fidelity Shares to be received by the holders of
Chicago Title Shares is referred to herein as the "Merger Consideration." The
Merger Consideration is subject to adjustment, both as to amount and allocation
between cash and the number of Fidelity Shares, as set forth in the Agreement.
You have asked us whether, in our opinion, the Merger Consideration is fair
from a financial point of view to the holders of Chicago Title Shares, other
than Fidelity and its affiliates.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial
information relating to Chicago Title and Fidelity that we deemed
to be relevant;
(2) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets, liabilities
and prospects of Chicago Title
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and Fidelity, as well as the amount and timing of the cost savings
and related expenses and synergies expected to result from the
Merger (the "Expected Synergies") furnished to us by Chicago Title
and Fidelity, respectively;
(3) Conducted discussions with members of senior management and
representatives of Chicago Title and Fidelity concerning the
matters described in clauses 1 and 2 above, as well as their
respective businesses and prospects before and after giving effect
to the Merger and the Expected Synergies;
(4) Reviewed the market prices and valuation multiples for Chicago
Title Shares and Fidelity Shares and compared them with those of
certain publicly traded companies that we deemed to be relevant;
(5) Reviewed the results of operations of Chicago Title and Fidelity
and compared them with those of certain publicly traded companies
that we deemed to be relevant;
(6) Compared the proposed financial terms of the Merger with the
financial terms of certain other transactions that we deemed to be
relevant;
(7) Participated in certain discussions and negotiations among
representatives of Chicago Title and Fidelity and their financial
and legal advisors;
(8) Reviewed the potential pro forma impact of the Merger;
(9) Reviewed a draft dated July 31, 1999 of the Agreement; and
(10) 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 assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of Chicago Title or Fidelity or been furnished with any such
evaluation or appraisal. In addition, we have not assumed any obligation to
conduct any physical inspection of the properties or facilities of Chicago Title
or Fidelity. With respect to the financial forecasts and the information
regarding the Expected Synergies furnished to or discussed with us by Chicago
Title and Fidelity, we have assumed that they have been reasonably prepared and
reflect the best currently available estimates and judgment of Chicago Title's
or Fidelity's management as to the expected future financial performance of
Chicago Title or Fidelity, as the case may be, and as to the Expected Synergies.
We have further assumed that the Merger will be accounted for as a purchase
under generally accepted accounting principles, that it will qualify as a
tax-free reorganization for U.S. federal income tax purposes and that it will
not adversely affect the treatment for U.S. federal income tax purposes of the
distribution of Chicago Title Shares by Alleghany Corporation in 1998. We have
also assumed that the final form of the Agreement will be substantially similar
to the last draft reviewed by us.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available to,
discussed with or reviewed by or for us as of the date hereof. For the purposes
of rendering this opinion, we have assumed that the Merger will be consummated
substantially in accordance with the terms set forth in the Agreement, including
in all respects material to our analysis, that the representations and
warranties of each party contained in the Agreement and all related documents
and instruments (the "Documents") are true and correct, that each party to the
Documents will perform all of
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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 regularly or other consents or approvals (contractual or
otherwise) for the Merger, no restrictions, including any divestiture
requirements or amendments or modifications, will be imposed that will have a
material adverse effect on the contemplated benefits of the Merger.
In connection with the preparation of this opinion, we have not been
authorized by the Company to solicit, nor have we solicited, third-party
indications of interest for the acquisition of all or any part of Chicago Title.
We are acting as financial advisor to Chicago Title in connection with the
Merger and will receive a fee from Chicago Title for our services, a significant
portion of which is contingent upon the consummation of the Merger. In addition,
Chicago Title 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 Chicago Title and Fidelity may continue to do so
and have received, and may receive, fees for the rendering of such services. In
addition, in the ordinary course of our business, we may actively trade Chicago
Title Shares and other securities of Chicago Title, as well as Fidelity Shares
and other securities of Fidelity, for our own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
This opinion is for the use and benefit of the Board of Directors of
Chicago Title. Our opinion does not address the merits of the underlying
decision by Chicago Title to engage in the Merger and does not constitute a
recommendation to any shareholder as to how such shareholder should vote on the
proposed Merger.
We note that, under certain circumstances, the Agreement would allow
Fidelity to elect to pay Reduced Supplemental Consideration. We are not
expressing any opinion herein as to the fairness, from a financial point of
view, of the Merger Consideration if Fidelity makes such an election. We are
also not expressing any opinion herein as to the prices at which the Chicago
Title Shares or the Fidelity Shares will trade following the announcement of the
Merger or the prices at which the Fidelity Shares will trade following
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 Merger Consideration is fair from a financial point
of view to the holders of Chicago Title Shares, other than Fidelity and its
affiliates.
Very truly yours,
/s/ MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
---------------------------------------------
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
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APPENDIX D
The following is the text of Section 262 of the Delaware General
Corporation Law:
sec. 262 APPRAISAL RIGHTS -- (a) Any stockholder of a corporation of this
State who holds shares of stock on the date of the making of a demand pursuant
to subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger of consolidation nor consented thereto in writing
pursuant to sec. 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of the stockholder's shares of stock under
the circumstances described in subsections (b) and (c) of this section. As used
in this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251 (other than a merger effected pursuant to sec.
251(g) of this title), sec. 252, sec. 254, sec. 257, sec. 258, sec. 263 or sec.
264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec. 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
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d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to sec. 228
or sec. 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall
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send a second notice before the effective date of the merger or
consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of
the effective date of the merger or consolidation or (ii) the surviving or
resulting corporation shall send such a second notice to all such holders
on or within 10 days after such effective date; provided, however, that if
such second notice is sent more than 20 days following the sending of the
first notice, such second notice need only be sent to each stockholder who
is entitled to appraisal rights and who has demanded appraisal of such
holder's shares in accordance with this subsection. An affidavit of the
secretary or assistant secretary or of the transfer agent of the
corporation that is required to give either notice that such notice has
been given shall, in the absence of fraud, be prima facie evidence of the
facts stated therein. For purposes of determining the stockholders entitled
to receive either notice, each constituent corporation may fix, in advance,
a record date that shall not be more than 10 days prior to the date the
notice is given, provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be
such effective date. If no record date is fixed and the notice is given
prior to the effective date, the record date shall be the close of business
on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement will be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for
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notation thereon of the pendency of the appraisal proceedings; and if any
stockholder fails to comply with such direction, the Court may dismiss the
proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Fidelity'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. Fidelity's By-laws
provide that it 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 Delaware General Corporation Law 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.
Fidelity's directors and officers are covered by insurance policies
indemnifying against certain liabilities, including certain liabilities arising
under the Securities Act of 1933, which might be incurred by them in such
capacities and against which they cannot be indemnified by Fidelity.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following exhibits are filed as part of this Registration Statement.
(a) Exhibits. The following exhibits are filed in connection with the
Registration Statement of Fidelity National Financial, Inc., on Form S-4,
pursuant to the requirements of Item 601 of Regulation S-K:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of August 1, 1999, by
and between Fidelity and Chicago Title and amended as of
October 13, 1999 (included as Appendix A to the joint proxy
statement/prospectus filed herewith)
3.1 Restated Certificate of Incorporation of Registrant
(incorporated by reference from Exhibit 3.1 to Fidelity's
Registration Statement on Form S-3, SEC Registration No.
333-65837)
3.2 Form of Certificate of Amendment to the Restated Certificate
of Incorporation of the Registrant
3.3 Restated Bylaws of the Registrant (incorporated by reference
from Exhibit 3.2 to Fidelity's Registration Statement on
Form S-3, SEC Registration No. 333-65837)
3.4 Form of Amendment to the Restated Bylaws of the Registrant
5.1 Opinion and Consent of Stradling Yocca Carlson & Rauth, a
Professional Corporation, regarding the validity of the
shares being registered*
8.1 Opinion and Consent of Gibson, Dunn & Crutcher LLP,
regarding certain U.S. federal income tax consequences of
the merger
8.2 Opinion and Consent of Swidler Berlin Shereff Friedman, LLP,
regarding certain U.S. federal income tax consequences of
the merger
</TABLE>
II-1
<PAGE> 174
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
23.1 Consent of Morgan Stanley & Co. Incorporated*
23.2 Consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated*
23.3 Consent of KPMG LLP with respect to Fidelity
23.4 Consent of KPMG LLP with respect to Chicago Title
23.5 Consent of Stradling Yocca Carlson & Rauth, a Professional
Corporation (included in Exhibit 5.1)*
23.6 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit
8.1)
23.7 Consent of Swidler Berlin Shereff Friedman, LLP (included in
Exhibit 8.2)
24.1 Power of Attorney*
99.1 Form of Proxy Card of Fidelity
99.2 Form of Proxy Card of Chicago Title
99.3 Form of Election by Chicago Title stockholders
</TABLE>
- -------------------------
* Previously filed.
(b) Financial Statement Schedules. Not Applicable
(c) Reports, Opinions or Appraisals. Not Applicable
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(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. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(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 of 1933, 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.
II-2
<PAGE> 175
(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.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
Fidelity's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) 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.
(c) (1) The undersigned registrant hereby undertakes as follows: That prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that 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.
(2) Fidelity undertakes that every prospectus (i) that is filed
pursuant to paragraph (c)(1) immediately preceding, or (ii) that purports
to meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as 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 of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities and at that time shall be deemed to be the
initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
Fidelity pursuant to the foregoing provisions, or otherwise, Fidelity has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Fidelity of expenses incurred or
paid by a director, officer or controlling person of Fidelity 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,
Fidelity 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 Act and will be governed by the final adjudication of such
issue.
(e) (1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrants pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 176
(f) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, 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 the Registration Statement through the
date of responding to the request.
(g) The undersigned registrant hereby undertakes 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 the Registration Statement when it became effective.
II-4
<PAGE> 177
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 1 to Registration Statement to be signed on its behalf
of the undersigned, thereunto duly authorized, in the City of Irvine, State of
California, on December 27, 1999.
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. 1 to Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ WILLIAM P. FOLEY, II Chairman of the Board and December 27, 1999
- --------------------------------------------------- Chief Executive Officer
William P. Foley, II (Principal Executive
Officer)
/s/ FRANK P. WILLEY President and Director December 27, 1999
- ---------------------------------------------------
Frank P. Willey
/s/ ALAN L. STINSON Executive Vice President and December 27, 1999
- --------------------------------------------------- Chief Financial Officer
Alan L. Stinson (Principal Financial
Officer and Accounting
Officer)
* Director December 27, 1999
- ---------------------------------------------------
William A. Imparato
* Director December 27, 1999
- ---------------------------------------------------
Donald M. Koll
* Director December 27, 1999
- ---------------------------------------------------
Daniel D. Lane
* Director December 27, 1999
- ---------------------------------------------------
General William Lyon
* Director December 27, 1999
- ---------------------------------------------------
J. Thomas Talbot
* Director December 27, 1999
- ---------------------------------------------------
Cary H. Thompson
</TABLE>
*By: /s/ WILLIAM P. FOLEY, II
- -----------------------------------
William P. Foley, II
Attorney-in-fact
II-5
<PAGE> 178
INDEX TO EXHIBITS
The following exhibits are filed in connection with the Registration
Statement of Fidelity National Financial, Inc., on Form S-4, pursuant to the
requirements of Item 601 of Regulation S-K:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of August 1, 1999, by
and between Fidelity and Chicago Title and amended as of
October 13, 1999 (included as Appendix A to the joint proxy
statement/prospectus filed herewith)
3.1 Restated Certificate of Incorporation of Registrant
(incorporated by reference from Exhibit 3.1 to Fidelity's
Registration Statement on Form S-3, SEC Registration No.
333-65837)
3.2 Form of Certificate of Amendment to the Restated Certificate
of Incorporation of the Registrant
3.3 Restated Bylaws of the Registrant (incorporated by reference
from Exhibit 3.2 to Fidelity's Registration Statement on
Form S-3, SEC Registration No. 333-65837)
3.4 Form of Amendment to the Restated Bylaws of the Registrant
5.1 Opinion and Consent of Stradling Yocca Carlson & Rauth, a
Professional Corporation, regarding the validity of the
shares being registered*
8.1 Opinion and Consent of Gibson, Dunn & Crutcher LLP,
regarding certain U.S. federal income tax consequences of
the merger
8.2 Opinion and Consent of Swidler Berlin Shereff Friedman, LLP,
regarding certain U.S. federal income tax consequences of
the merger
23.1 Consent of Morgan Stanley & Co. Incorporated*
23.2 Consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated*
23.3 Consent of KPMG LLP with respect to Fidelity
23.4 Consent of KPMG LLP with respect to Chicago Title
23.5 Consent of Stradling Yocca Carlson & Rauth, a Professional
Corporation (included in Exhibit 5.1)*
23.6 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit
8.1)
23.7 Consent of Swidler Berlin Shereff Friedman, LLP (included in
Exhibit 8.2)
24.1 Power of Attorney*
99.1 Form of Proxy Card of Fidelity
99.2 Form of Proxy Card of Chicago Title
99.3 Form of Election by Chicago Title stockholders
</TABLE>
- -------------------------
* Previously filed.
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
FIDELITY NATIONAL FINANCIAL, INC.
(Pursuant to Section 242 of the Delaware General Corporation Law)
FIDELITY NATIONAL FINANCIAL, INC., a corporation organized and existing
under and by virtue of the Delaware General Corporation Law (the "Corporation"),
does hereby certify:
FIRST: That in accordance with the provisions of Sections 242 of the
General Corporation Law of the State of Delaware, the Board of Directors of the
Corporation duly adopted resolutions setting forth a proposed amendment to the
Certificate of Incorporation of the Corporation, declaring said amendment to be
advisable and calling a special meeting of the stockholders entitled to vote in
respect thereof for the consideration of such amendment. The resolution setting
forth the proposed amendment is as follows:
"RESOLVED, that Article FOURTH, paragraph (a) of the Certificate of
Incorporation of the Corporation be amended to read, in its entirety,
as follows:
(a) General. The aggregate number of shares which the
Corporation is authorized to issue is 103,000,000 shares, of which
3,000,000 shall be shares of preferred stock, $.0001 par value per
share (the "Preferred Stock") and 100,000,000 shall be shares of
common stock, $.0001 par value per share (the "Common Stock")."
SECOND: That thereafter, pursuant to a resolution of its Board of
Directors, a special meeting of the stockholders entitled to vote thereon was
held to consider and vote upon the proposed amendment, at which meeting the
necessary number of shares were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, FIDELITY NATIONAL FINANCIAL, INC. has caused this
Certificate of Amendment to be signed by its duly authorized officer, this ____
day of ________, 2000.
FIDELITY NATIONAL FINANCIAL, INC.,
a Delaware corporation
By:
-------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 3.4
CERTIFICATE OF AMENDMENT
TO
RESTATED BYLAWS
OF
FIDELITY NATIONAL FINANCIAL, INC.
The undersigned, M'Liss Jones Kane, being the Secretary of FIDELITY
NATIONAL FINANCIAL, Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Corporation"), does hereby
certify as follows:
1. On December 22, 1999, the Board of Directors of the Corporation duly
adopted resolutions adopting the following amendments to the Restated
Bylaws of the Corporation:
A. Effective as of the effective time of the merger of the Corporation
and Chicago Title Corporation pursuant to that certain Agreement and Plan of
Merger, dated as of August 1, 1999 and amended as of October 13, 1999, by and
between the Corporation and Chicago Title Corporation (the "Effective Time"),
Article III, Section 1 of the Corporation's Restated Bylaws is hereby amended in
its entirety to read as follows:
"ARTICLE III
BOARD OF DIRECTORS
SECTION 1. General Powers; Restriction.
(a) Unless otherwise restricted by law, the Certificate of
Incorporation or these Bylaws (including the limitation set forth in
paragraph (b) of this Section 1) as to action which shall be authorized
or approved by the stockholders, and subject to the duties of directors
as prescribed by these Bylaws, all corporate powers shall be exercised
by or under the authority of, and the business and affairs of the
Corporation shall be controlled by, the Board of Directors. Without
prejudice to such general powers, but subject to the same limitations,
the directors shall have the following powers:
(i) To select and remove all the other officers, agents
and employees of the Corporation; prescribe such
powers and duties for them as may not be inconsistent
with law, the Certificate of Incorporation or these
Bylaws, fix their compensation and require from them
security for faithful service.
(ii) To conduct, manage, and control the affairs and
business of the Corporation and to make such rules
and regulations therefor not inconsistent with law,
the Certificate of Incorporation or these Bylaws, as
they may deem best.
<PAGE> 2
(iii) To change the principal office for the transaction of
the business of the Corporation from one location to
another as provided in Article I, Section 2, hereof;
to designate any place within or without the State of
Delaware for the holding of any stockholders' meeting
or meetings and to adopt, make and use a corporate
seal, and to prescribe the forms of certificates of
stock, and to alter the form of such seal and of such
certificates from time to time, as in their judgment
they may deem best, provided such seal and such
certificates shall at all times comply with the
provisions of law.
(iv) To authorize the issue of shares of stock of the
Corporation from time to time, upon such terms as may
be lawful, in consideration of money paid, labor done
or services actually rendered, debts or securities
cancelled, or tangible or intangible property
actually received or, in the case of shares issued as
a dividend, against amounts transferred from surplus
to stated capital.
(v) To borrow money and incur indebtedness for the
purposes of the Corporation, and to cause to be
executed and delivered therefor, in the corporate
name, promissory notes, bonds, debentures, deeds of
trust, mortgages, pledges, hypothecations or other
evidences of debt and securities therefor.
(vi) To adopt and put into effect such stock purchase
plans and stock option plans, both of general and
restricted stock option plan character, as they may
deem advisable for the benefit of employees of the
Corporation, and to issue stock in accordance with
and pursuant to any such plan.
(b) Restriction. The approval of directors representing
seventy five percent (75%) of the Board of Directors of the Corporation
shall be required for (i) any transaction, or series of related
transactions, to which the Corporation or any of its subsidiaries is to
be a party, in which any member of the Board of Directors or any
executive officer of the Corporation has an interest, if such
transaction would be required to be disclosed pursuant to Item 404 of
Regulation S-K under the Securities Act of 1933, as amended, in a proxy
statement of the Corporation for a meeting of the Corporation's
stockholders, and (ii) any amendment to this paragraph (b) of this
Section 1."
B. Effective as of the Effective Time, Article III, Section 2(a) of the
Corporation's Restated Bylaws is hereby amended in its entirety to read as
follows:
"SECTION 2. Election of Directors.
(a) Number, Qualification and Term of Office. The
authorized number of directors of the Corporation
shall be fixed from time to time by the Board of
Directors, but shall not be less than three (3) nor
more than fifteen (15). The exact number of directors
shall be twelve (12), and may be increased or
decreased from time to time within the limits set
forth herein, either by a resolution or a Bylaw
provision duly adopted by a majority of the whole
Board of Directors. Directors need not be
stockholders."
2
<PAGE> 3
2. Except as amended hereby, the Restated Bylaws of the Corporation
continue in full force and effect.
IN WITNESS WHEREOF, the has executed this certificate on this ____ day
of _________________.
FIDELITY NATIONAL FINANCIAL, INC.
By: /s/ M'LISS JONES KANE
----------------------------------------
M'Liss Jones Kane,
Senior Vice President, Corporate Counsel
and Secretary
3
<PAGE> 1
EXHIBIT 8.1
GIBSON, DUNN & CRUTCHER LLP
333 South Grand Avenue
Los Angeles, California 90071-3197
(213) 229-7000
December 27, 1999
C 30736-00001
Fidelity National Financial, Inc.
17911 Von Karman Avenue, Suite 300
Irvine, California 92614
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as special tax counsel to Fidelity National Financial,
Inc., a Delaware corporation ("Fidelity"), in connection with the preparation
and execution of the Agreement and Plan of Merger (the "Merger Agreement"),
dated as of August 1, 1999 and amended as of October 13, 1999, by and between
Fidelity and Chicago Title Corporation ("Chicago Title"), a Delaware
corporation. Pursuant to the Merger Agreement, Chicago Title will merge with and
into Fidelity (the "Merger"). At your request, we have examined the form of
Registration Statement on Form S-4 (Registration Number 333-89163) filed by
Fidelity with the U.S. Securities and Exchange Commission under the Securities
Act of 1933, as amended (the "Securities Act") on October 15, 1999 (as amended,
the "Registration Statement"), in connection with the registration under the
Securities Act of shares of Fidelity's common stock to be issued to the
stockholders of Chicago Title upon consummation of the Merger.
You have requested our opinion regarding the accuracy of the federal
income tax matters described in the Registration Statement under the caption
"Certain U.S. Federal Income Tax Consequences of the Merger--Material Federal
Income Tax Consequences to Chicago Title Stockholders".
In rendering this opinion, we have reviewed the Merger Agreement, the
Registration Statement and such other documents as we have deemed necessary or
appropriate. We have relied upon the truth and accuracy at all relevant times of
the facts, statements, covenants, representations and warranties contained in
the Merger Agreement and the Registration Statement. We have also assumed the
authenticity of original documents submitted to us, the conformity to the
originals of documents submitted to us as copies, and the due and valid
execution and delivery of all such documents where due execution and delivery
are a prerequisite to the effectiveness thereof.
<PAGE> 2
Fidelity National Financial, Inc.
December 27, 1999
Page 2
Based upon the foregoing, it is our opinion that the discussion in the
form of Joint Proxy Statement/Prospectus, which forms part of the Registration
Statement, under the caption "Certain U.S. Federal Income Tax Consequences of
the Merger--Material Federal Income Tax Consequences to Chicago Title
Stockholders," to the extent it constitutes descriptions of legal matters or
legal conclusions regarding the federal income tax laws of the United States, is
accurate in all material respects.
This opinion represents our best judgment regarding the application of
federal income tax laws 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. We undertake no responsibility to advise you of any new
developments in the application or interpretation of the federal income tax
laws. Furthermore, 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 addresses only the matters described above, and does not
address any other federal, state, local or foreign tax consequences that may
result from the Merger or any other transaction undertaken in connection with
the Merger.
We hereby consent to the use of this opinion as an Exhibit to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Joint Proxy Statement/Prospectus, which forms a part of the
Registration Statement.
Very truly yours,
/s/ Gibson, Dunn & Crutcher LLP
<PAGE> 1
EXHIBIT 8.2
[SWIDLER BERLIN SHEREFF FRIEDMAN, LLP LETTERHEAD]
December 15, 1999
Chicago Title Corporation
171 North Clark Street
Chicago, Illinois 60601
Re: Registration Statement on Form S-4
----------------------------------
Ladies and Gentlemen:
We have acted as tax counsel to Chicago Title Corporation ("Chicago
Title"), a Delaware corporation, in connection with the preparation of the
Agreement and Plan of Merger, dated as of August 1, 1999 and amended as of
October 13, 1999 (as amended, the "Merger Agreement"), by and between Chicago
Title and Fidelity National Financial, Inc., a Delaware corporation
("Fidelity"). At your request, we have examined the form of Registration
Statement on Form S-4 (the "Registration Statement") filed by Fidelity with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Securities Act"), on October 15, 1999, in connection
with the registration of shares of its common stock to be issued by Fidelity to
the stockholders of Chicago Title upon consummation of the merger of Chicago
Title with and into Fidelity pursuant to the Merger Agreement (the "Merger").
You have requested our opinion regarding the accuracy of the federal income tax
matters described in the Registration Statement under the caption "Certain U.S.
Federal Income Tax Consequences of the Merger -- Material Federal Income Tax
Consequences to Chicago Title Stockholders."
In rendering this opinion, we have reviewed the Merger Agreement, the
Registration Statement and such other documents as we have deemed necessary or
appropriate. We have relied upon the truth and accuracy at all relevant times
of the facts, statements, covenants, representations and warranties contained
in the Merger Agreement and the Registration Statement. In our examination of
the foregoing documents, we have assumed the due execution and delivery of all
documents by all parties, the authenticity of all agreements, documents,
certificates and instruments submitted to us as originals, and the conformity to
the original of documents submitted to us as copies, and the due and valid
execution and delivery of all such documents where due execution and delivery
are a prerequisite to the effectiveness thereof.
Based upon such examination, it is our opinion that the description in
the joint proxy/prospectus, which is a part of the Registration Statement,
under the heading "Certain U.S. Federal Income Tax Consequences of the Merger
- -- Material Federal Income Tax Consequences to Chicago Title Stockholders," to
the extent it constitutes descriptions of legal matters or legal conclusions
regarding the
<PAGE> 2
Chicago Title Corporation
December 15, 1999
Page 2
federal income tax laws of the United States, is a complete and accurate
summary of the material federal income tax consequences of the Merger to a
stockholder of Chicago Title, subject to the limitations and qualifications set
forth therein.
Our opinion is based on current provisions of the Internal Revenue
Code of 1986, as amended, the Treasury Regulations promulgated thereunder,
published pronouncements of the Internal Revenue Service and case law, all to
the date hereof, any of which may be changed at any time with retroactive
effect. Any change in applicable laws or facts and circumstances surrounding
the Merger, or any inaccuracy in the statements, facts, assumptions and
representations on which we have relied, may affect the continuing validity of
the opinion set forth herein. We assume no responsibility to inform you of any
such change or inaccuracy that may occur or come to our attention.
This opinion addresses only the matters described above, and we
express no opinion at this time as to any other tax consequences under
federal, state, local, foreign or other tax law of the Merger or of any other
transaction undertaken in connection therewith.
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. 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 or the rules and regulations of the Commission thereunder.
Very truly yours,
Swidler Berlin Shereff Friedman LLP
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Fidelity National Financial, Inc.:
We consent to the use of our reports incorporated herein by reference and
to the references to our firm under the headings "Selected Consolidated
Financial Data -- Fidelity National Financial, Inc. and Subsidiaries" and
"Experts" in the registration statement.
KPMG LLP
Los Angeles, California
December 27, 1999
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Chicago Title Corporation:
We consent to the use of our reports dated February 5, 1999 on the
consolidated financial statements and financial statement schedules of Chicago
Title Corporation incorporated by reference in this Amendment No. 1 to the
Registration Statement on Form S-4 of Fidelity National Financial, Inc. and to
the references to our firm under the headings "Experts" and "Selected
Consolidated Financial Data" in the joint proxy statement/prospectus which is
part of this Registration Statement.
KPMG LLP
Chicago, Illinois
December 27, 1999
<PAGE> 1
EXHIBIT 99.1
PROXY FIDELITY NATIONAL FINANCIAL, INC.
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 9, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints William P. Foley, II, Frank P. Willey, and
Alan L. Stinson, and each of them, with full power of substitution, to act as
proxies for the undersigned to represent and vote all shares of capital stock of
Fidelity National Financial, Inc. ("Fidelity") which the undersigned is entitled
to vote at the special meeting of stockholders of Fidelity to be held at Fess
Parker's Doubletree Resort, located at 633 East Cabrillo Boulevard, Santa
Barbara, California 93103 on Wednesday, February 9, 2000, at 10:00 a.m. local
time, and at any and all adjournments and postponements thereof, as follows:
1. Approval and adoption of an Agreement and Plan of Merger, dated as of
August 1, 1999, by and between Fidelity and Chicago Title Corporation, and
amended as of October 13, 1999, and the transactions contemplated thereby,
including the issuance of shares of Fidelity common stock pursuant to the
merger of Chicago Title with and into Fidelity in accordance with the
merger agreement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Approval of an amendment to Fidelity's Certificate of Incorporation to
increase the number of shares of Fidelity common stock authorized for
issuance to 100,000,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
In their discretion, each of the proxies is authorized to vote upon such
other business as may properly come before the special meeting or any
adjournment or postponement thereof.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED,
THIS PROXY WILL BE VOTED FOR THE PROPOSALS LISTED ABOVE. IF ANY OTHER BUSINESS
IS PRESENTED AT THE SPECIAL MEETING, THIS PROXY WILL BE VOTED AS DIRECTED BY A
MAJORITY OF THE BOARD OF DIRECTORS IN THEIR BEST JUDGMENT. AT THE PRESENT TIME,
THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE SPECIAL
MEETING.
(continued on reverse side)
<PAGE> 2
The Board of Directors recommends a vote "FOR" the proposals.
This proxy may be revoked at any time before it is voted by: (i) filing with
the Secretary of Fidelity at or before the special meeting a written notice of
revocation bearing a later date than this proxy; (ii) duly executing a
subsequent proxy relating to the same shares and delivering it to the Secretary
of Fidelity at or before the special meeting; or (iii) attending the special
meeting and voting in person (although attendance at the special meeting will
not in and of itself constitute revocation of this proxy).
The undersigned acknowledges receipt from Fidelity, prior to the execution of
this proxy, of notice of the special meeting and a joint proxy
statement/prospectus.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
Dated:
By:
Its:
-------------------------------
Type or Print Name
-------------------------------
Common Shares
-------------------------------
Signature if held jointly:
Please sign exactly as name
appears hereon. When shares are
held by more than one owner,
all should sign. When signing
as attorney, as executor,
administrator, trustee or
guardian, please give full
title as such. If a
corporation, please sign in
full corporate name by
President or other authorized
officer. If a partnership,
please sign in partnership name
by authorized person.
<PAGE> 1
EXHIBIT 99.2
PROXY PROXY
CHICAGO TITLE CORPORATION
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 11, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Richard P. Toft, John Rau, and Paul T.
Sands, Jr. proxies, each with the power to appoint his substitute and with
authority in each to act in the absence of the other, to represent and to vote
all shares of stock of Chicago Title Corporation which the undersigned is
entitled to vote at the Special Meeting of Stockholders of Chicago Title
Corporation to be held at Chicago Title Corporation, 171 North Clark Street,
Fifth Floor, Chicago, Illinois 60601, on the Renaissance Chicago Hotel, located
at One West Wacker Drive, Chicago, Illinois 60601, on Friday, February 11, 2000
at local time, and at any adjournments or postponements thereof, as indicated on
the proposal described in the Joint Proxy Statement/Prospectus, and all other
matters properly coming before the meeting.
IMPORTANT -- THIS PROXY MUST BE SIGNED AND DATED ON THE REVERSE SIDE.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE> 2
CHICAGO TITLE CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [ ]
A vote FOR Item 1 is recommended by the Board of Directors
1. Approval and adoption of an Agreement and Plan of Merger, dated as of
August 1, 1999, by and between Fidelity National Financial, Inc. and Chicago
Title Corporation and amended as of October 13, 1999, pursuant to which
Chicago Title Corporation will merge with and into Fidelity National
Financial, Inc. in accordance with the merger agreement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Dated: ___________________, 2000
________________________________
Signature
________________________________
Signature (if held jointly)
THIS PROXY WILL BE VOTED IN ACCORDANCE Please sign exactly as your name or
WITH SPECIFICATIONS MADE. THE BOARD OF names appear hereon. For joint
DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" accounts, both owners should sign.
ITEM 1. IF NO CHOICE IS INDICATED, THIS When signing as executor,
PROXY WILL BE VOTED FOR ITEM 1. administrator, attorney, trustee or
guardian, etc., please give your
full title.
- --------------------------------------------------------------------------------
CONTROL NUMBER
FOLD AND DETACH HERE
NOW YOU CAN VOTE YOUR SHARES BY TELEPHONE OR INTERNET!
QUICK * EASY * IMMEDIATE * AVAILABLE 24 HOURS A DAY * 7 DAYS A WEEK
CHICAGO TITLE CORPORATION encourages you to take advantage of the new and
convenient ways to vote your shares. If voting by proxy, you may vote by mail,
or choose one of the two methods described below. Your telephone or Internet
vote authorizes the named proxies to vote your shares in the same manner as if
you marked, signed, and returned your proxy card. To vote by telephone or
Internet, read the accompanying proxy statement and then follow these easy
steps:
TO VOTE BY PHONE Call toll free 1-800-542-1061 any time on a touch tone
telephone. There is NO CHARGE to you for the call.
Enter the 6-digit CONTROL NUMBER located above.
Option #1: To vote on the proposed merger, press 1 and
follow the simple recorded instructions.
TO VOTE BY INTERNET Go to the following website: www.harrisbank.com/wproxy
Enter the information requested on your computer screen,
including your 6-digit CONTROL NUMBER located above.
Follow the simple instructions on the screen.
IF YOU VOTE BY TELEPHONE OR THE INTERNET, DO NOT MAIL BACK THE PROXY CARD.
THANK YOU FOR VOTING!
<PAGE> 1
EXHIBIT 99.3
This form is not a proxy. Please do not send this form in with your proxy card.
Instead, please return the completed form to the Exchange Agent in the enclosed
envelope.
ELECTION FORM AND LETTER OF TRANSMITTAL
TO ACCOMPANY CERTIFICATES
REPRESENTING SHARES OF COMMON STOCK,
PAR VALUE $1.00 PER SHARE
("CHICAGO TITLE COMMON STOCK" OR "SHARES")
OF
CHICAGO TITLE CORPORATION
SUBMITTED PURSUANT TO AN ELECTION IN CONNECTION WITH THE MERGER (THE "MERGER")
WITH AND INTO
FIDELITY NATIONAL FINANCIAL, INC.
Pursuant to the Agreement and Plan of Merger, dated as of August 1, 1999, by and
between Fidelity National Financial, Inc. and Chicago Title Corporation and
amended as of October 13, 1999 (as amended, the "Merger Agreement").
THE INSTRUCTIONS ACCOMPANYING THIS ELECTION FORM AND LETTER OF TRANSMITTAL
("ELECTION FORM") SHOULD BE READ CAREFULLY BEFORE THIS ELECTION FORM IS
COMPLETED.
------------------------
THE EXCHANGE AGENT FOR THE MERGER IS:
HARRIS TRUST AND SAVINGS BANK
For Information (call toll free):
(800) 245-7630
<TABLE>
<S> <C> <C>
By Mail: Facsimile Transmission By Hand or Overnight Courier:
(for Eligible Institutions
Only):
Harris Trust and Savings Bank Harris Trust and Savings Bank
c/o Harris Trust Company (212) 701-7636 c/o Harris Trust Company
of New York of New York
Wall Street Station Receive Window
P. O. Box 1023 Wall Street Plaza
New York, NY 10268-1023 88 Pine Street, 19th Floor
New York, NY 10005
</TABLE>
It is recommended that Certificates and Election Forms be sent via
registered mail, appropriately insured, with return receipt requested.
------------------------
THE INFORMATION AGENT FOR THE MERGER IS:
GEORGESON SHAREHOLDER COMMUNICATIONS, INC.
17 State Street
New York, NY 10004
Banks and Brokers Call: (212) 440-9800 (Collect)
All Others Call: (800) 223-2064 (Toll-Free)
<PAGE> 2
PLEASE READ THE SPECIAL ELECTION INSTRUCTIONS AND THE GENERAL INSTRUCTIONS IN
THIS ELECTION FORM CAREFULLY BEFORE COMPLETING THIS ELECTION FORM
BOX A-1
(For Stockholders who hold their shares in registered form or whose shares are
held in an account with the
Chicago Title Corporation Employee Stock Purchase Plan ("ESPP"))
DESCRIPTION OF SHARES OF CHICAGO TITLE COMMON STOCK ENCLOSED*
(If the space provided in this Box A-1 is inadequate, please provide the
information on a separate sheet of paper and attach it to this Form)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES
NAME AND ADDRESS OF CERTIFICATE NUMBER(S) REPRESENTED BY EACH CERTIFICATE
REGISTERED HOLDER(1)(2) OR ESPP ACCOUNT NUMBER OR HELD IN AN ESPP ACCOUNT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
TOTAL:
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Please state name(s) of registered holder(s) exactly as name(s) appear(s)
on certificates or on your ESPP Account.
(2) If any Chicago Title Shares covered by this Election Form are not
represented by certificates and are held in an account with the ESPP,
please provide your ESPP Account Number.
*You cannot submit an effective Election Form without enclosing your
Chicago Title Common Stock Certificates with this Election Form or providing a
Guarantee of Delivery followed within three New York Stock Exchange, Inc.
("NYSE") trading days thereafter by the Chicago Title Common Stock
Certificates. If your Chicago Title Common Stock Certificate(s) have been
lost, stolen or destroyed, call Harris Trust and Savings Bank, the Exchange
Agent, at (800) 245-7630 immediately to receive instructions regarding
replacement. See also General Instruction 13 below.
TO MAKE A VALID ELECTION AS DESCRIBED HEREIN, THIS ELECTION FORM OR A
NOTICE OF GUARANTEED DELIVERY, PROPERLY COMPLETED AS DESCRIBED HEREIN, MUST
ACTUALLY BE RECEIVED BY THE EXCHANGE AGENT BY 5:00 P.M., NEW YORK CITY TIME,
ON THE DATE THAT THE MERGER TAKES PLACE (THE "ELECTION DEADLINE"), WHICH IS
CURRENTLY EXPECTED TO BE FEBRUARY , 2000.
You must elect to receive in exchange for each share of Chicago Title
Common Stock either (i) shares of Fidelity National Financial, Inc.
("Fidelity") common stock, par value $0.0001 per share ("Fidelity Common
Stock") (a "Stock Election"), or (ii) cash without interest (a "Cash
Election"). In addition, cash will be paid in lieu of the issuance of any
fractional shares. You may elect to receive Fidelity Common Stock with respect
to all of your Chicago Title Shares, cash with respect to all of your Chicago
Title Shares, or a combination of stock and cash with respect to your Chicago
Title Shares. If you otherwise properly complete and return these materials
but make no election with respect to your Chicago Title Shares or if you did
not return properly completed materials by the Election Deadline, you will be
deemed to have made a "Non-Election."
In determining whether to make a Stock Election or a Cash Election,
stockholders should consult their own financial and tax advisors. NO
RECOMMENDATION IS MADE WITH RESPECT TO WHETHER A STOCK ELECTION OR CASH
ELECTION SHOULD BE MADE.
Stockholders who hold their shares in nominee name (i.e. through a
broker, bank, custodian, trustee or any other person who holds Chicago Title
Shares in any capacity whatsoever on behalf of another person or entity) are
directed to General Instruction 9.
For information as to the federal income tax consequences of receiving
shares of Fidelity Common Stock or cash in exchange for your shares of Chicago
Title Common Stock see "The Merger -- Certain U.S. Federal Income Tax
Consequences of the Merger" in the Joint Proxy Statement/Prospectus of
Fidelity and Chicago Title, dated December , 1999, relating to the Merger
(the "Joint Proxy Statement/Prospectus"). You are urged, in addition, to
consult with your tax advisor. This Election Form should be promptly (i)
completed and signed in the space provided and on the substitute Form W-9 and
(ii) mailed or delivered with your certificate(s) representing shares of
Chicago Title Common Stock, or a Guarantee of Delivery, to Harris Trust and
Savings Bank, which is acting as exchange agent (the "Exchange Agent"), at any
of the addresses set forth above.
BOX A-2
ELECTION
<TABLE>
<CAPTION>
TOTAL NUMBER OF CHICAGO TITLE SHARES NUMBER OF SHARES -- STOCK ELECTION NUMBER OF SHARES -- CASH ELECTION
- ------------------------------------ ---------------------------------- ---------------------------------
<S> <C> <C>
</TABLE>
2
<PAGE> 3
A COMPLETED ELECTION FORM, TOGETHER WITH YOUR CHICAGO TITLE COMMON STOCK
CERTIFICATES OR A GUARANTEE OF DELIVERY, MUST BE RECEIVED BY THE EXCHANGE AGENT
PRIOR TO THE ELECTION DEADLINE IN ORDER FOR ANY ELECTION MADE HEREBY TO BE
EFFECTIVE. IF A PROPERLY COMPLETED ELECTION FORM, TOGETHER WITH YOUR CHICAGO
TITLE COMMON STOCK CERTIFICATES OR A GUARANTEE OF DELIVERY, IS NOT RECEIVED BY
THE EXCHANGE AGENT PRIOR TO THE ELECTION DEADLINE, OF IF YOU FAIL TO INDICATE AN
ELECTION IN THE BOX ABOVE, YOU WILL BE DEEMED TO HAVE MADE A NON-ELECTION WITH
RESPECT TO YOUR CHICAGO TITLE SHARES, AND THE FORM OF MERGER CONSIDERATION WHICH
YOU WILL BE ENTITLED TO RECEIVE AS A RESULT OF THE MERGER WILL BE DETERMINED BY
THE PROVISIONS OF THE MERGER AGREEMENT. IF YOUR CHICAGO TITLE COMMON STOCK
CERTIFICATES ARE NOT AVAILABLE AT THE TIME YOU SEND AN ELECTION FORM TO THE
EXCHANGE AGENT, YOU MAY INSTEAD PROVIDE A GUARANTEE OF DELIVERY OF YOUR CHICAGO
TITLE COMMON STOCK CERTIFICATES AS SET FORTH IN GENERAL INSTRUCTION 8, IN WHICH
CASE YOU MUST, WITHIN THREE TRADING DAYS ON THE NYSE THEREAFTER, DELIVER TO THE
EXCHANGE AGENT THE CHICAGO TITLE COMMON STOCK CERTIFICATES REPRESENTING THE
SHARES IN RESPECT OF WHICH YOUR ELECTION IS BEING MADE.
Your election will not be valid if (a) before the shareholder vote is taken
on the Merger, Chicago Title receives written notice of your intent to demand
appraisal of the Chicago Title Shares if the Merger takes place and (b) you did
not vote in favor of the Merger and took such other actions as may be required
prior to the effective time of the Merger to perfect dissenters' rights under
applicable law.
The Joint Proxy Statement/Prospectus was first mailed to shareholders of
Chicago Title on or about January , 2000. Copies of the Joint Proxy
Statement/Prospectus, as well as extra copies of this Election Form, may be
requested from Georgeson Shareholder Communications, Inc., the Information Agent
for the Merger, at the toll-free phone number shown on the cover, or from the
Exchange Agent at the addresses or the toll-free number shown on the cover. The
return of this Election Form to the Exchange Agent is an acknowledgement of the
receipt of the Joint Proxy Statement/ Prospectus.
COMPLETING AND RETURNING THIS ELECTION FORM DOES NOT HAVE THE EFFECT OF
CASTING A VOTE WITH RESPECT TO THE MERGER OR THE MERGER AGREEMENT AT THE CHICAGO
TITLE SPECIAL MEETING OF STOCKHOLDERS. TO VOTE AT THE CHICAGO TITLE SPECIAL
MEETING, YOU MUST COMPLETE, SIGN AND RETURN THE PROXY CARD THAT ACCOMPANIED THE
JOINT PROXY STATEMENT/PROSPECTUS AND RETURN IT IN THE ENVELOPE DELIVERED
THEREWITH, OR YOU MUST ATTEND THE CHICAGO TITLE SPECIAL MEETING IN PERSON AND
VOTE YOUR SHARES. IF YOU HAVE ANY QUESTIONS CONCERNING THE VOTING OF YOUR
CHICAGO TITLE SHARES, PLEASE CALL THE INFORMATION AGENT TOLL-FREE AT (800)
223-2064.
3
<PAGE> 4
Ladies and Gentlemen:
Pursuant to the Merger Agreement and subject to the proration procedures
included therein and described in the Joint Proxy Statement/Prospectus, the
undersigned hereby surrenders to Harris Trust and Savings Bank, as Exchange
Agent, certificate(s) representing all of the Chicago Title Shares identified in
Box A-1 above, and (A) hereby elects, in the manner indicated in Box A-2 above,
to have each Chicago Title Share represented by such Chicago Title Common Stock
Certificates converted into the right to receive the Merger Consideration either
(1) in shares of Fidelity Common Stock (a "Stock Election"), (2) in cash,
without interest (a "Cash Election") or (3) in a combination of cash, without
interest, and shares of Fidelity Common Stock, or (B) hereby states that the
undersigned has no preference as between a Cash Election or a Stock Election or
any combination thereof (a "Non-Election"). In addition, it is understood that
the Exchange Agent will pay cash in lieu of any fractional shares of Fidelity
Common Stock otherwise issuable in connection with the Merger, as provided in
the Merger Agreement. Any cash (excluding cash in lieu of fractional shares) and
any shares of Fidelity Common Stock received by holders of Chicago Title Shares
in the Merger are hereinafter referred to as "Cash Consideration" and "Stock
Consideration," respectively. The Cash Consideration, Stock Consideration and
cash paid in lieu of fractional shares are collectively referred to as the
"Merger Consideration."
The undersigned understands that each Election is subject to certain terms,
conditions and limitations that are set forth in the Merger Agreement. These
terms, conditions and limitations include, but are not limited to, the
following: (1) the amount of the Merger Consideration and the specific amounts
of the Stock Consideration, the Cash Consideration and, as applicable, the
Supplemental Consideration or the Reduced Supplemental Consideration (as such
terms are defined in the Merger Agreement and described in the Joint Proxy
Statement/Prospectus) will not be determined until the effective time of the
Merger (the "Effective Time"), (2) although the Stock Consideration and the Cash
Consideration components of the Merger Consideration will be determined in
accordance with the terms of the Merger Agreement and the amount of the
Supplemental Consideration or Reduced Supplemental Consideration, if any, which
Fidelity will be obligated to pay will be determined in accordance with the
terms of the Merger Agreement, Fidelity will have the right to determine whether
to pay any Supplemental Consideration or Reduced Supplemental Consideration in
the form of cash or shares of Fidelity Common Stock or a combination thereof and
such determination may not be made until the Effective Time of the Merger, (3)
the number of shares of Fidelity Common Stock to be received in the Merger by
holders of Chicago Title Shares must represent at least 50.1% of the number of
shares of Fidelity Common Stock which are issued and outstanding immediately
after the Merger, and (4) the value of the Stock Consideration must represent at
least 40% of the total value of the Merger Consideration. Pursuant to the terms
of the Merger Agreement, these factors will determine the aggregate number of
shares of Fidelity Common Stock and the aggregate amount of cash which Fidelity
will be obligated to issue and pay to the holders of Chicago Title Shares at the
Effective Time of the Merger. The determination of the total number of shares of
Fidelity Common Stock and the total amount of cash included in the Merger
Consideration as described above and the Elections made by all other holders of
Chicago Title Shares will affect the extent to which the Election made by any
individual holder of Chicago Title Shares can be accommodated. THE UNDERSIGNED
ACKNOWLEDGES THAT THE UNDERSIGNED'S ELECTION MAY BE SUBJECT TO PRORATION AND, AS
A RESULT, THE UNDERSIGNED MAY NOT RECEIVE THE FORM OF MERGER CONSIDERATION, OR
THE ALLOCATION OF MERGER CONSIDERATION BETWEEN CASH AND SHARES OF FIDELITY
COMMON STOCK THAT THE UNDERSIGNED ELECTS TO RECEIVE. IF CHICAGO TITLE
SHAREHOLDERS, AS A GROUP, ELECT TO RECEIVE MORE CASH OR MORE SHARES OF FIDELITY
COMMON STOCK THAN THE AMOUNT AVAILABLE, SHAREHOLDERS WHO MAKE ELECTIONS IN THE
OVERSUBSCRIBED CATEGORY WILL NOT RECEIVE THE MERGER CONSIDERATION ENTIRELY IN
THE FORM THAT THEY ELECT. INSTEAD, THEIR ELECTIONS WILL BE PRORATED SO THAT, ON
AN AGGREGATE BASIS, FIDELITY WILL PAY THE AGGREGATE MERGER CONSIDERATION IN THE
COMBINATION OF CASH AND SHARES OF FIDELITY COMMON STOCK TO BE DETERMINED AT THE
EFFECTIVE TIME OF THE MERGER IN ACCORDANCE WITH THE MERGER AGREEMENT.
The undersigned also understands that the undersigned's election will not
be valid if (a) before the shareholder vote is taken on the Merger, Chicago
Title receives written notice of the undersigned's intent to demand appraisal of
the Chicago Title Shares if the Merger takes place and (b) the undersigned does
not vote in favor of the Merger and takes other actions as may be required prior
to the Effective Time to perfect dissenters' rights under applicable law.
The undersigned hereby represents and warrants that the undersigned is as
of the date hereof, and will be as of the Effective Time of the Merger, the
registered holder of Chicago Title Shares represented by the Chicago Title Share
Certificate(s) surrendered herewith, with good title to such Chicago Title
Shares and full power and authority (1) to sell, assign and transfer such
Chicago Title Shares, free and clear of all liens, restrictions, charges and
encumbrances, and not subject to any adverse claims, and (2) to make the
Election indicated herein. The undersigned will, upon request, execute any
additional documents necessary or desirable to complete the surrender,
conversion, cancellation and retirement of such Chicago Title Shares. The
undersigned hereby irrevocably appoints the Exchange Agent as agent of the
undersigned to effect the conversion of the Chicago Title Shares into Merger
Consideration pursuant to the terms of the Merger
4
<PAGE> 5
Agreement and the procedures set forth herein. All authority conferred or agreed
to be conferred in this Election Form shall be binding upon the successors,
assigns, heirs, executors, administrators and legal representatives of the
undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned.
The undersigned understands and acknowledges that the method of delivery of
the Chicago Title Common Stock Certificate(s) and all other required documents
is at the option and risk of the undersigned and that the risk of loss of such
certificate(s) shall pass only after the Exchange Agent has actually received
such certificate(s). All questions as to the validity, form and eligibility of
any election and surrender of certificate(s) hereunder shall be determined by
the Exchange Agent, and such determination shall be final and binding.
The Exchange Agent reserves the right to deem that you have made a
Non-Election if:
A. No Election choice is indicated in Box A-2 above;
B. You fail to follow the instructions on this Election Form (including
failure to submit your Chicago Title Common Stock Certificate(s) or a Guarantee
of Delivery) or otherwise fail to properly make an Election;
C. A completed Election Form (including submission of your Chicago Title
Common Stock Certificate(s) or a Guarantee of Delivery) is not actually received
by the Exchange Agent prior to the Election Deadline; or
D. You return this Election Form with a Guarantee of Delivery but do not
deliver the Chicago Title Common Stock Certificates representing the shares in
respect of which an Election is being made within three NYSE trading days
thereafter.
Notwithstanding anything to the contrary in this Election Form, Fidelity or
the Exchange Agent reserves the right to waive any defects or irregularities in
a completed Election Form, but shall be under no obligation to do so.
In order to receive the applicable Merger Consideration, this Election Form
must be (1) completed and signed in the space provided below and on the
Substitute Form W-9 and (2) mailed or delivered with your Chicago Title Common
Stock Certificate(s) or a Guarantee of Delivery to the Exchange Agent at one of
the addresses set forth above. In order to properly make an Election, these
actions must be taken in a timely fashion such that the Election Form and other
required documents are received by the Exchange Agent prior to the Election
Deadline.
The effectiveness of Elections received on the Election Deadline and
accompanied by a Guarantee of Delivery will not be finally determined until four
NYSE trading days after the Election Deadline. As a result, the Merger
Consideration to which a holder of Chicago Title Shares is entitled (and a
determination as to whether any proration is necessary) may be delayed for up to
four NYSE trading days. The Merger Consideration is expected to be mailed
promptly following such determination. Fidelity intends to issue a press release
announcing the results of the elections and proration, if any, promptly after
the final determination thereof.
Unless otherwise indicated in Box B entitled "Special Issuance and Payment
Instructions," the applicable Merger Consideration will be issued in exchange
for the enclosed Chicago Title Common Stock Certificates in the name of the
undersigned. Similarly, unless otherwise indicated in Box C entitled "Special
Delivery Instructions," the applicable Merger Consideration will be mailed to
the undersigned at the addresses of the registered holder(s) appearing above in
Box A-1. In the event that Box B and/or Box C are completed, the applicable
Merger Consideration will be issued in the name(s) of, and/or will be mailed to,
the person or entity at the address so indicated, but only after the Exchange
Agent has been provided with satisfactory evidence of the payment of, or
exemption from payment of, any applicable share transfer taxes payable on
account of the transfer to such person or entity prior to the delivery of the
applicable Merger Consideration. In addition, appropriate signature guarantees
must be included with respect to Chicago Title Shares for which Special Issuance
and Payment Instructions are given.
5
<PAGE> 6
BOX B:
SPECIAL ISSUANCE AND PAYMENT INSTRUCTIONS
To be completed ONLY if the applicable Merger Consideration is to be paid or
issued in the name of someone other than the person(s) in whose name(s) the
Certificate(s) representing the Chicago Title Shares listed in this Election
Form are registered. (Unless otherwise indicated in Box C, the applicable Merger
Consideration will be mailed to the address indicated in this Box B.)
ISSUE THE APPLICABLE MERGER CONSIDERATION TO:
Name: -------------------------------------------------------------------------
(PLEASE PRINT)
Address:
------------------------------------------------------------------------
------------------------------------------------------------------------
(INCLUDE ZIP CODE)
------------------------------------------------------------------------
(TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NO.)
(SEE SUBSTITUTE FORM W-9)
BOX C:
SPECIAL DELIVERY INSTRUCTIONS
[ ] CHECK HERE IF CHANGE OF ADDRESS
To be completed ONLY if the applicable Merger Consideration is to be mailed to
an address other than that indicated in Box A-1 or Box B.
MAIL THE APPLICABLE MERGER CONSIDERATION TO:
Name: -------------------------------------------------------------------------
(PLEASE PRINT)
Address:
------------------------------------------------------------------------
------------------------------------------------------------------------
(INCLUDE ZIP CODE)
6
<PAGE> 7
THE UNDERSIGNED UNDERSTANDS AND AGREES THAT THE ACCEPTANCE AND DELIVERY OF
ANY ELECTION FORM BY OR TO THE EXCHANGE AGENT WILL NOT OF ITSELF CREATE ANY
RIGHT TO RECEIVE MERGER CONSIDERATION IN EXCHANGE FOR CHICAGO TITLE SHARES
LISTED IN THIS LETTER OF TRANSMITTAL, AND THAT SUCH RIGHT WILL ARISE ONLY TO THE
EXTENT PROVIDED IN THE MERGER AGREEMENT.
PLEASE SIGN HERE
(COMPLETE SUBSTITUTE FORM W-9 ATTACHED HERETO)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SIGNATURE(S) OF OWNER(S)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Name(s):
------------------------------------------------------------------------
(PLEASE PRINT)
Capacity (full title):
----------------------------------------------------------
Address:
------------------------------------------------------------------------
------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number:
------------------------------------------------
Tax Identification or Social Security Number:
-----------------------
(SEE SUBSTITUTE FORM W-9)
Dated:
-----------------------, 2000
(Must be signed by registered holder(s) EXACTLY as name(s) appear(s) on stock
certificate(s) or by the person(s) authorized to become registered holder(s) by
certificates and documents transmitted herewith. If signature is by an agent,
attorney, administrator, executor, guardian, trustee, officer of a corporation
or any other person acting in a fiduciary or representative capacity, please set
forth full title and see General Instruction 9.)
7
<PAGE> 8
SIGNATURE GUARANTEE
(REQUIRED ONLY IN CASES SPECIFIED IN GENERAL INSTRUCTION 7)
The undersigned hereby guarantees the signature(s) which appear(s) on this
Election Form.
Authorized Signature(s):
-------------------------------------------------------
Name:
--------------------------------------------------------------------------
Name of Eligible Institution Issuing Guarantee:
--------------------------------
Address:
-----------------------------------------------------------------------
-----------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number:
------------------------------------------------
Dated:
-------------------------------------------------------------------------
PLACE MEDALLION GUARANTEE IN SPACE BELOW
NOTE: A SIGNATURE GUARANTEE IS REQUIRED ONLY IF THE APPLICABLE MERGER
CONSIDERATION IS TO BE PAYABLE TO THE ORDER OF AND/OR REGISTERED IN NAMES OTHER
THAN ON THE SURRENDERED CERTIFICATES.
8
<PAGE> 9
GUARANTEE OF DELIVERY
(TO BE USED IF CHICAGO TITLE SHARE CERTIFICATES ARE NOT
SURRENDERED HEREWITH)
(See General Instruction 8)
The undersigned (check appropriate box below) guarantees to deliver to the
Exchange Agent at the appropriate address set forth above the certificates for
Chicago Title Shares covered by this Election Form no later than 5:00 p.m., New
York City time, on the third NYSE trading day after the date of execution of
this Guarantee of Delivery.
[ ] A member of a registered national securities exchange.
[ ] A member of the National Association of Securities Dealers, Inc.
[ ] A commercial bank or trust company in the United States
----------------------------------------------------------------------
FIRM (PLEASE PRINT OR TYPE)
----------------------------------------------------------------------
AUTHORIZED SIGNATURE
--------------------- -----------------------------------------
DATED ADDRESS
-----------------------------------------
AREA CODE AND TELEPHONE NUMBER
FACSIMILE TRANSMISSION:
(for Eligible Institutions only)
(212) 701-7636
FOR CONFIRMATION TELEPHONE:
(800) 245-7630
9
<PAGE> 10
GENERAL INSTRUCTIONS
This Election Form is to be completed and submitted to the Exchange Agent
prior to the Election Deadline by those holders of Chicago Title Shares desiring
to make an Election with respect to the receipt of Merger Consideration in the
form of cash, shares of Fidelity Common Stock ("Fidelity Shares") or a
combination of cash and Fidelity Shares for their Chicago Title Shares pursuant
to the Merger. It may also be used as a letter of transmittal for holders of
Chicago Title Shares who do not complete and submit the Election Form prior to
the Election Deadline or at any time by any holders of Chicago Title Shares who
wish to make a Non-Election. Until a record holder's Chicago Title Common Stock
Certificates are received by the Exchange Agent at one of the addresses set
forth on the cover, together with such documents as the Exchange Agent may
require, and until the same are processed for exchange by the Exchange Agent,
such holders will not receive any certificates representing Stock Consideration
or the check for Cash Consideration or cash in lieu of fractional shares (if
any) in exchange for their Chicago Title Common Stock Certificates. THE RETURN
ENVELOPE ADDRESSED TO THE EXCHANGE AGENT DELIVERED WITH THIS ELECTION FORM
SHOULD BE USED TO RETURN THIS ELECTION FORM. YOU SHOULD NOT USE THE ENVELOPE
THAT HAS BEEN SENT IN CONNECTION WITH THE SOLICITATION OF PROXY CARDS TO RETURN
THE ELECTION FORM. No interest will accrue on the Cash Consideration or any cash
in lieu of fractional shares. Holders of Chicago Title Shares receiving Stock
Consideration will be entitled to any dividends or other distributions paid on
Fidelity Shares after the Effective Time. If your share certificate(s) are lost,
stolen or destroyed, please refer to General Instruction 13 below.
A HOLDER OF CHICAGO TITLE SHARES DESIRING TO MAKE AN ELECTION MUST INDICATE
ITS ELECTION IN BOX A-2 ABOVE.
Your election is subject to certain terms, conditions and limitations which
are set forth in the Merger Agreement and described in the Joint Proxy
Statement/Prospectus. The Merger Agreement is included as Appendix A to the
Joint Proxy Statement/Prospectus. Copies of the Joint Proxy Statement/Prospectus
may be requested from the Information Agent or from the Exchange Agent at the
addresses or toll-free numbers shown on the cover. The delivery of this Election
Form to the Exchange Agent is an acknowledgment of the receipt of the Joint
Proxy Statement/Prospectus.
1. Election Deadline. THE ELECTION DEADLINE IS 5:00 P.M. NEW YORK CITY
TIME, ON THE DATE THAT THE MERGER TAKES PLACE, WHICH IS CURRENTLY EXPECTED TO BE
FEBRUARY , 2000. For any Election contained herein to be effective, this
Election Form, properly completed, and the related Chicago Title Common Stock
Certificate(s) (or a Guarantee of Delivery) must be received by the Exchange
Agent at one of the addresses shown above on this Election Form at or prior to
the Election Deadline. ANY CHICAGO TITLE COMMON STOCK CERTIFICATES FOR WHICH A
GUARANTEE OF DELIVERY IS PROVIDED MUST IN FACT BE DELIVERED WITHIN THREE NYSE
TRADING DAYS AFTER THE DATE SUCH GUARANTEE OF DELIVERY IS EXECUTED OR A
NON-ELECTION WILL BE DEEMED TO HAVE BEEN MADE IN RESPECT OF THE CHICAGO TITLE
SHARES COVERED THEREBY. The Exchange Agent will determine whether any Election
Form or any Chicago Title Common Stock Certificates in respect of a Guarantee of
Delivery are received on a timely basis. Any such determinations made in good
faith shall be conclusive and binding.
2. Effect of Asserting Dissenters' Rights. An Election Form will not be
valid and will be ignored if completed by a shareholder that provides Chicago
Title with written notice of intent to assert dissenters' rights (which written
notice is actually received by Chicago Title) and does not vote in favor of the
Merger and takes such other actions as may be required prior to the Effective
Time to perfect dissenters' rights under applicable law. Any such shareholder
that provides Chicago Title with written notice of intent to assert dissenters'
rights (which written notice is actually received by Chicago Title) and does not
vote in favor of the Merger but that subsequently fails to perfect dissenters'
rights will receive the form of Merger Consideration receivable by shareholders
making a Non-Election.
3. Revocation or Change of Election Form. An Election Form may be revoked
if the Exchange Agent receives written notice prior to the Election Deadline
from the record holder of the shares covered by such Election who signed the
related Election Form. Any person who has effectively revoked an Election Form
may, by signed and written notice to the Exchange Agent, request the return of
the Chicago Title Common Stock Certificates submitted to the Exchange Agent and
such Chicago Title Common Stock Certificates will be returned without charge to
such person promptly after receipt of such request. An Election Form may be
changed if the record holder effectively revokes such holder's Election Form in
accordance with the procedures described herein and a new Election Form and the
related Chicago Title Common Stock Certificate(s) (or a Guarantee of Delivery)
for such record holder is received by the Exchange Agent at or prior to the
Election Deadline. Chicago Title shareholders who do wish to revoke and resubmit
should take into account the time required to receive returned Common Stock
Certificates and resubmit Common Stock Certificates, which may or may not be
possible by the applicable deadline.
4. Election Procedures/Proration. The extent to which your Election can
be accommodated will depend upon the total number of Fidelity Shares and the
total amount of cash included in the Merger Consideration, as determined in
10
<PAGE> 11
accordance with the provisions set forth in the Merger Agreement and described
in the Joint Proxy Statement/Prospectus and upon the respective numbers of Stock
Elections, Cash Elections and Non-Elections made by all holders of Chicago Title
Shares. A holder of Chicago Title Shares who makes an all-Stock Election may
receive some cash, and a holder of Chicago Title Shares who makes an all-Cash
Election may receive some Fidelity Shares. Thus, an Election made by you may not
be honored in certain circumstances. Allocations will be made by the Exchange
Agent in accordance with the procedures set forth in the Merger Agreement and
described in the Joint Proxy Statement/Prospectus, and will be conclusive and
binding upon every holder of Chicago Title Shares. The effectiveness of
Elections that are accompanied by Guarantees of Delivery may not be finally
determined until four NYSE trading days after the Election Deadline. The Merger
Consideration is expected to be mailed promptly after the determination of any
proration in the Merger. Such determination will occur promptly after the
Effective Time.
5. Termination of Merger Agreement. Consummation of the Merger is subject
to the required approval of the shareholders of Fidelity and Chicago Title and
to the satisfaction of certain other conditions. No payments related to any
surrender of Chicago Title Common Stock Certificates will be made prior to the
consummation of the Merger, and no payments will be made if the Merger Agreement
is terminated. If the Merger Agreement is terminated, all Elections will be void
and of no effect and the Exchange Agent will promptly return all Chicago Title
Common Stock Certificates previously received by it. In such event, Chicago
Title Shares held through The Depository Trust Company are expected to be
available for sale or transfer promptly following such termination. Certificates
representing Chicago Title Shares held of record directly by the beneficial
owners of such Chicago Title Shares will be returned by the Exchange Agent
without charge to the holder as promptly as practicable by first class, insured
mail.
6. No Fractional Interests. No certificate representing a fraction of a
Fidelity Share will be issued. In lieu thereof, the Exchange Agent will remit on
Fidelity's behalf cash, without interest, in an amount equal to (a) the fraction
of a Fidelity Share, if any, to which any Chicago Title Stockholder would
otherwise be entitled multiplied by (b) the Average Fidelity Common Share Price
(as defined in the Merger Agreement and described in the Joint Proxy Statement/
Prospectus). No such holder of Chicago Title Shares shall be entitled to
dividends, voting rights or any other rights in respect of any fractional share.
7. Guarantee of Signatures. If the Merger Consideration is to be issued
in the name of the registered holder(s) as inscribed on the surrendered Chicago
Title Common Stock Certificate(s), the signatures on this Election Form need not
be guaranteed. If the "Special Issuance and Payment Instructions" box has been
completed so that payment is to be made to someone other than the registered
holder(s) of Chicago Title Shares with respect to the surrendered Chicago Title
Common Stock Certificate(s), signatures on this Election Form must be guaranteed
by a financial institution (including most commercial banks, savings and loan
associations and brokerage houses) that is a participant in the Security
Transfer Agent's Medallion Program, the New York Share Exchange Medallion
Program or the Share Exchange Medallion Program. Public notaries cannot execute
acceptable guarantees of signatures.
8. Delivery of Election Form and Chicago Title Common Stock Certificates;
Guarantee of Delivery. This Election Form, properly completed and duly
executed, together with your Chicago Title Common Stock Certificate(s) or a
Guarantee of Delivery, should be delivered to the Exchange Agent at one of the
addresses set forth above. All Elections with respect to Chicago Title Common
Stock Certificates held by a single shareholder and not by a nominee, trustee or
other representative (as set forth in General Instruction 9) must be made on a
single Election Form. A Guarantee of Delivery of such Chicago Title Common Stock
Certificates must be made by a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.
or a commercial bank or trust company having an office or correspondent in the
United States, and ANY CHICAGO TITLE COMMON STOCK CERTIFICATES COVERED BY A
GUARANTEE OF DELIVERY MUST IN FACT BE DELIVERED TO THE EXCHANGE AGENT WITHIN
THREE NYSE TRADING DAYS AFTER THE DATE OF EXECUTION OF SUCH GUARANTEE OF
DELIVERY. Failure to deliver such Chicago Title Common Stock Certificates shall
invalidate any Election, and a Non-Election shall be deemed to have been made
with respect to the Chicago Title Shares covered thereby. THE METHOD OF DELIVERY
OF THE ELECTION FORM, THE CHICAGO TITLE COMMON STOCK CERTIFICATES AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER OF CHICAGO TITLE
SHARES. IF YOU CHOOSE TO SEND THE MATERIALS BY MAIL, IT IS RECOMMENDED THAT THEY
BE SENT BY REGISTERED MAIL, APPROPRIATELY INSURED, WITH RETURN RECEIPT
REQUESTED. Delivery of the materials will be deemed effective, and risk of loss
with respect thereto will pass, only when such materials are actually received
by the Exchange Agent.
9. Shares Held by Nominees, Trustees or other Representatives;
Non-Elections. Each holder of record is entitled to make an Election and submit
an Election Form covering all Chicago Title Shares actually held of record by
such holder. A holder of record of Chicago Title Shares who hold such shares as
nominee, trustee or in any other representative or fiduciary capacity (a
"Representative") is entitled to make an Election on behalf of such
Representative as well as an Election on behalf of each beneficial owner of
Chicago Title Shares held through such Representative, but such Elections must
be made on one Election Form. Beneficial owners who are not record holders are
not entitled to submit Election
11
<PAGE> 12
Forms. Any Representative that makes an Election or a Non-Election may be
required to provide the Exchange Agent with such documents and/or additional
certifications, if requested, in order to satisfy the Exchange Agent that such
Representative holds such Chicago Title Shares for a particular beneficial
owner. If any Chicago Title Shares are not covered by an effective Election
Form, they will be deemed to be covered by a Non-Election.
10. Inadequate Space. If the space provided herein is inadequate, the
share certificate numbers and the numbers of Chicago Title Shares represented
thereby should be listed on additional sheets and attached hereto.
11. Signatures on Election Form, Share Powers and Endorsements.
(a) All signatures must correspond exactly with the name written on
the face of the Chicago Title Common Stock Certificate(s) without
alteration, variation or any change whatsoever.
(b) If the Chicago Title Common Stock Certificates surrendered are
held of record by two or more joint owners, all such owners must sign this
Election Form.
(c) If any surrendered Chicago Title Shares are registered in
different names on several Chicago Title Common Stock Certificate(s), it
will be necessary to complete, sign and submit as many separate Election
Forms as there are different registrations of Chicago Title Common Stock
Certificates.
(d) If this Election Form is signed by a person(s) other than the
record holder(s) of the Chicago Title Common Stock Certificate(s) listed
(other than as set forth in paragraph (e) below), such certificates must be
endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name(s) of the record holder(s) appears on such
certificate(s).
(e) If this Election Form is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or
other person acting in a fiduciary or representative capacity and such
person is not the record holder of the accompanying Chicago Title Common
Stock Certificates, he or she must indicate the capacity when signing and
must submit proper evidence of his or her authority to act.
12. Special Issuance and Delivery Instructions. In the "Special Issuance
and Payment Instructions" box (Box B), indicate the name and/or address of the
person(s) to whom the Merger Consideration is to be issued and mailed only if
the Merger Consideration (whether cash or Fidelity Shares) is to be issued in
the name of someone other than the person(s) signing this Election Form. If the
"Special Issuance and Payment Instructions" box is completed, the Exchange Agent
will issue the Merger Consideration in the name of, and will mail the Merger
Consideration to, the person or entity so indicated at the address so indicated,
but only after the Exchange Agent has been provided with satisfactory evidence
of the payment of, or exemption from payment of, any applicable share transfer
taxes payable on account of the transfer to such person or entity prior to the
delivery of the Merger Consideration.
In the "Special Delivery Instructions" box (Box C), indicate the address to
which the Merger Consideration is to be mailed in the name of the undersigned
only if different from the address set forth in Box A-1.
13. Lost, Stolen or Destroyed Certificates. You cannot submit an
effective Election Form without enclosing your Chicago Title Share Certificates
with this Election Form or providing a Guarantee of Delivery followed within
three NYSE trading days thereafter by the Chicago Title Common Stock
Certificates. If your Chicago Title Common Stock Certificate(s) have been lost,
stolen or destroyed, you are urged to call the Exchange Agent at (800) 245-7630.
The Exchange Agent will forward additional documentation which you must complete
in order to obtain a replacement share certificate. You may be required to post
an indemnity bond if so required by Chicago Title, Fidelity or the Exchange
Agent.
14. Miscellaneous. Fidelity and the Exchange Agent have the discretion to
determine whether an Election Form has been properly completed, signed and
submitted or revoked and to disregard immaterial defects in any Election Form.
The good faith decision of Fidelity or the Exchange Agent in such matters shall
be conclusive and binding. Fidelity and the Exchange Agent are not under any
duty to give notification of defects in any Election Form nor will either incur
any liability for failure to give such notification.
15. Information and Additional Copies. Information and additional copies
of this Election Form may be obtained from Georgeson Shareholder Communications,
Inc. by telephoning toll-free at (800) 223-2064 or from Harris Trust and Savings
Bank by telephoning toll-free at (800) 245-7630.
12
<PAGE> 13
IMPORTANT TAX INFORMATION
Under federal income tax law, the Exchange Agent is required to file a
report with the Internal Revenue Service ("IRS") disclosing any payments made to
a holder of Chicago Title Shares pursuant to the Merger Agreement and to impose
31% backup withholding if required. If the correct certifications on Substitute
Form W-9 are not provided, a $50 penalty may be imposed on the holder by the IRS
and payments made for Chicago Title Shares may be subject to backup withholding
of 31%. Backup withholding is also required if the IRS notifies the recipient
that the recipient is subject to backup withholding as a result of a failure to
report all interest and dividends.
In order to avoid backup withholding resulting from a failure to provide a
correct certification, a holder of Chicago Title Shares must, unless an
exemption applies, provide the Exchange Agent with his correct taxpayer
identification number ("TIN") on Substitute Form W-9 as set forth on this
Election Form. Such person must certify under penalties of perjury that such
number is correct and that such holder is not otherwise subject to backup
withholding. The TIN that must be provided is that of the holder of the Chicago
Title Shares. If the Chicago Title Shares are held in more than one name or are
not registered in the name of the actual holder or if the Merger Consideration
is to be delivered to another person as provided in the box entitled "Special
Issuance and Payment Instructions," consult the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 and your
tax advisor for additional guidance on which number to report. The Certificate
of Awaiting Taxpayer Identification Number should be completed if the
surrendering holder of Chicago Title Shares has not been issued a TIN and has
applied for a TIN or intends to apply for a TIN in the near future. If the
Certificate of Awaiting Taxpayer Identification Number is completed and the
Exchange Agent is not provided with a TIN, Fidelity and the Exchange Agent will
withhold 31% of all such payments made for Chicago Title Shares and all payments
of dividends. A foreign person may qualify as an exempt recipient by submitting
to the Exchange Agent a properly completed IRS Form W-8, signed under penalties
of perjury, attesting to that person's exempt status. Foreign investors should
consult their tax advisors regarding the need to complete IRS Form W-8 and any
other forms that may be required.
Backup withholding is not an additional federal income tax. Rather, the
federal income tax liability of a person subject to backup withholding will be
reduced by the amount of tax withheld. If backup withholding results in an
overpayment of taxes, a refund may be obtained from the IRS.
Please read the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional important
information on how to complete the Substitute Form W-9.
For a summary of the federal income tax consequences of the receipt of the
Merger Consideration, see "The Merger -- Certain U.S. Federal Income Tax
Consequences of the Merger" in the Joint Proxy Statement/Prospectus.
13
<PAGE> 14
PAYOR'S NAME: HARRIS TRUST AND SAVINGS BANK
<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
SUBSTITUTE Part I -- PLEASE PROVIDE YOUR TIN IN THE BOX TIN: ----------------------------
FORM W-9 AT THE RIGHT AND CERTIFY BY SIGNING AND Social security number
Department of the DATING BELOW OR
Treasury -----------------------------------
Internal Revenue Service Employer Identification Number
----------------------------------------------------------------------------------------
Part II -- For Payees exempt from Backup
Withholding, see the enclosed "Guidelines
for Certification of Taxpayer Identification
Number on Substitute Form W-9" and complete
Payor's Request for Taxpayer as instructed therein.
Identification Number ("TIN") and
Certification
</TABLE>
- --------------------------------------------------------------------------------
CERTIFICATION -- Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct TIN (or I am waiting for
a number to be issued to me, in which case I have written "APPLIED
FOR" in Part I above); and
(2) I am not subject to backup withholding because:
(a) I am exempt from backup withholding, or
(b) I have not been notified by the Internal Revenue Service ("IRS")
that I am subject to backup withholding as a result of a failure
to report interest or dividends, or
(c) the IRS has notified me that I am no longer subject to backup
withholding.
CERTIFICATION INSTRUCTIONS -- You must cross out item (2) above if you
have been notified by the IRS that you are subject to backup withholding
because of underreporting interest or dividends on your tax return.
However, if after being notified by the IRS that you were subject to
backup withholding, you received another notification from the IRS that
you were no longer subject to backup withholding, do not cross out item
(2). (Also see instructions in the enclosed Guidelines.)
Payee's Name and Address
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Signature Date
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT
IN BACKUP WITHHOLDING OF 31% OF ANY REPORTABLE PAYMENTS MADE TO YOU
PURSUANT TO THE MERGER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM
W-9 FOR ADDITIONAL DETAILS.
--------------------------------------------------------------------------
14
<PAGE> 15
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU WROTE "APPLIED FOR" IN
PART 1 OF THE SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a TIN has not been issued to me, and
either (1) I have mailed or delivered an application to receive a TIN to the
appropriate IRS Center or Social Security Administration Office or (2) I intend
to mail or deliver an application in the near future. I understand that if I do
not provide a TIN by the time of payment, 31% of all reportable payments made to
me pursuant to the Merger will be withheld.
- --------------------------------------------------------------------------------
SIGNATURE DATE
15
<PAGE> 16
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER FOR THE PAYEE (YOU)
TO GIVE THE PAYER. -- Social Security numbers have nine digits separated by two
hyphens: i.e. 000-00-0000. Employer identification numbers have nine digits
separated by only one hyphen: i.e. 00-0000000. The table below will help
determine the number to give the payer. All "Section" references are to the
Internal Revenue Code of 1986, as amended. "IRS" is the Internal Revenue
Service.
<TABLE>
<CAPTION>
- ---------------------------------------------------------
GIVE THE SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF --
- -----------------------------
<C> <S> <C>
1. Individual The individual
2. Two or more individuals The actual owner of the
(joint account) account or, if combined
funds, the first
individual on the
account(1)
3. Custodian account of a The minor(2)
minor (Uniform Gift to
Minors Act)
4. a. The usual revocable The grantor- trustee(1)
savings trust account
(grantor is also
trustee)
b. So-called trust The actual owner(1)
account that is not a
legal or valid trust
under state law
5. Sole proprietorship The owner(3)
6. A valid trust, estate, The legal entity(4)
or pension trust
</TABLE>
<TABLE>
GIVE THE SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF --
- -----------------------------
<CAPTION>
- ---------------------------------------------------------
<C> <S> <C>
7. Corporate The corporation
8. Association, club, The organization
religious, charitable,
educational or other
tax-exempt organization
9. Partnership The partnership
10. A broker or registered The broker or nominee
nominee
11. Account with the The public entity
Department of
Agriculture in the name
of a public entity (such
as a state or local
government, school
district, or prison)
that receives
agricultural program
payments
</TABLE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish. If
only one person on a joint account has a social security number, that
person's number must be furnished.
(2) Circle the minor's name and furnish the minor's social security number.
(3) You must show your individual name, but you may also enter your business or
"doing business as" name. You may use either your social security number or
your employer identification number (if you have one).
(4) List first and circle the name of the legal trust, estate, or pension trust.
(Do not furnish the taxpayer identification number of the personal
representative or trustee unless the legal entity itself is not designated
in the account title.)
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE> 17
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number, obtain Form SS-5,
Application for a Social Security Card, at the local Social Security
Administration office, or Form SS-4, Application for Employer Identification
Number, by calling 1 (800) TAX-FORM, and apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from withholding include:
- - An organization exempt from tax under Section 501(a), an individual retirement
account (IRA), or a custodial account under Section 403(b)(7), if the account
satisfies the requirements of Section 401(f)(2).
- - The United States or a state thereof, the District of Columbia, a possession
of the United States, or a political subdivision or wholly-owned agency or
instrumentality of any one or more of the foregoing.
- - An international organization or any agency or instrumentality thereof.
- - A foreign government and any political subdivision, agency or instrumentality
thereof.
Payees that may be exempt from backup withholding include:
- - A corporation.
- - A financial institution.
- - A dealer in securities or commodities required to register in the United
States, the District of Columbia, or a possession of the United States.
- - A real estate investment trust.
- - A common trust fund operated by a bank under Section 584(a).
- - An entity registered at all times during the tax year under the Investment
Company Act of 1940.
- - A middleman known in the investment community as a nominee or who is listed in
the most recent publication of the American Society of Corporate Secretaries,
Inc., Nominee List.
- - A future commission merchant registered with the Commodity Futures Trading
Commission.
- - A foreign central bank of issue.
Payments of dividends and patronage dividends generally exempt from backup
withholding include:
- - Payments to nonresident aliens subject to withholding under Section 1441.
- - Payments to partnerships not engaged in a trade or business in the United
States and that have at least one nonresident alien partner.
- - Payments of patronage dividends not paid in money.
- - Payments made by certain foreign organizations.
- - Section 404(k) payments made by an ESOP.
Payments of interest generally exempt from backup withholding include:
- - Payments of tax-exempt interest (including exempt-interest dividends under
Section 852).
- - Payments described in Section 6049(b)(5) to nonresident aliens.
- - Payments on tax-free covenant bonds under Section 1451.
- - Payments made by certain foreign organizations.
Certain payments, other than payments of interest, dividends, and patronage
dividends, that are exempt from information reporting are also exempt from
backup withholding. For details, see Sections 6041, 6041A, 6042, 6044, 6045,
6049, 6050A and 6050N and the regulations thereunder.
EXEMPT PAYEES SHOULD COMPLETE A SUBSTITUTE FORM W-9 TO AVOID POSSIBLE ERRONEOUS
BACKUP WITHHOLDING. Furnish your taxpayer identification number, write "EXEMPT"
in the box containing the words "SUBSTITUTE FORM W-9" on the Substitute Form
W-9, sign and date the form and return it to the payer.
PRIVACY ACT NOTICE. -- Section 6109 requires you to provide your correct
taxpayer identification number to payers who must report the payments to the
IRS. The IRS uses the numbers for identification purposes and to help verify the
accuracy of your return and may also provide this information to various
government agencies for tax enforcement or litigation purposes. Payers must be
given the numbers whether or not recipients are required to file tax returns.
Payers must generally withhold 31% of taxable interest, dividend, and certain
other payments to a payee who does not furnish a taxpayer identification number
to a payer. Certain penalties may also apply.
PENALTIES
(1) FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. -- If you fail to furnish
your taxpayer identification number to a payer, you are subject to a penalty of
$50 for each such failure unless your failure is due to reasonable cause and not
to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you
make a false statement with no reasonable basis that results in no backup
withholding, you are subject to a $500 penalty.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT
YOUR TAX CONSULTANT OR THE
INTERNAL REVENUE SERVICE.
