<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
COMMISSION FILE NO. 1-9396
FIDELITY NATIONAL FINANCIAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 86-0498599
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
<TABLE>
<S> <C> <C>
17911 VON KARMAN AVENUE, SUITE 300 92614 (949) 622-4333
IRVINE, CALIFORNIA (ZIP CODE) (REGISTRANT'S TELEPHONE NUMBER,
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) INCLUDING AREA CODE)
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<S> <C>
COMMON STOCK, $.0001 PAR VALUE NEW YORK STOCK EXCHANGE
LIQUID YIELD OPTION NOTES, DUE 2009, NEW YORK STOCK EXCHANGE
ZERO COUPON, CONVERTIBLE SUBORDINATED
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K, or any amendment to
this Form 10-K. [X]
As of March 25, 1999, 32,414,000 shares of Common Stock ($.0001 par value)
were outstanding, and the aggregate market value of the shares of the Common
Stock held by non-affiliates of the registrant was $433,580,000. The aggregate
market value was computed with reference to the closing price on the New York
Stock Exchange on such date.
LOCATION OF EXHIBIT INDEX: The index to exhibits is contained in Part IV
herein on page number 76.
The information in Part III hereof is incorporated herein by reference to
the Registrant's Proxy Statement on Schedule 14A for the fiscal year ended
December 31, 1998, to be filed within 120 days after the close of the fiscal
year that is the subject of this Report.
================================================================================
<PAGE> 2
TABLE OF CONTENTS
FORM 10-K
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 13
Item 3. Legal Proceedings........................................... 13
Item 4. Submission of Matters to a Vote of Security Holders......... 13
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder
Matters................................................... 14
Item 6. Selected Financial Data..................................... 14
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 18
Item 7A. Quantitative and Qualitative Disclosures about the Market
Risk of Financial Instruments............................. 29
Item 8. Financial Statements and Supplementary Data................. 31
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 75
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 75
Item 11. Executive Compensation...................................... 75
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 75
Item 13. Certain Relationships and Related Transactions.............. 75
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 76
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS
Fidelity National Financial, Inc., through its principal subsidiaries
(collectively, the "Company"), is one of the largest national underwriters
engaged in the business of issuing title insurance policies and performing other
real estate related services such as escrow, collection and trust activities,
real estate information and technology services, trustee sale guarantees, credit
reporting, attorney services, flood certification, tax monitoring, home warranty
insurance, reconveyances, recordings, foreclosure publishing and posting
services and exchange intermediary services in connection with real estate
transactions. Title insurance services are provided through the Company's direct
operations and otherwise through independent title insurance agents who issue
title policies on behalf of the underwriting subsidiaries. Title insurance is
generally accepted as the most efficient means of determining title to, and the
priority of interests in, real estate in nearly all parts of the United States.
Today, virtually all real property mortgage lenders require their borrowers to
obtain a title insurance policy at the time a mortgage loan is made or to allow
the sale of loans in the secondary market.
The Company's principal subsidiaries consist of Fidelity National Title
Insurance Company ("Fidelity Title"), Fidelity National Title Insurance Company
of New York ("Fidelity New York"), Alamo Title Insurance ("Alamo Title");
(collectively, the "Insurance Subsidiaries"); its wholly-owned underwritten
title companies (collectively, the "UTCs"); and its network of wholly-owned
title-related ancillary service companies known as Fidelity National Lender
Express Network ("FLEXNet"). The Company also originates, funds, purchases,
sells, securitizes and services equipment leases for a broad range of businesses
through its wholly-owned subsidiary Granite Financial, Inc.
Fidelity Title was the parent company of Fidelity National Title Insurance
Company of Tennessee ("Fidelity Tennessee"), Fidelity National Title Insurance
Company of California ("Fidelity California") and Nations Title Insurance
Company ("Nations Title"). Fidelity Tennessee, Fidelity California and Nations
Title were merged into Fidelity Title on December 31, 1998, August 7, 1997 and
December 29, 1997, respectively. Fidelity New York is the parent company of
Nations Title Insurance of New York Inc. ("Nations New York") and National Title
Insurance of New York Inc. ("National"). Fidelity National Title Insurance
Company of Pennsylvania ("Fidelity Pennsylvania") was merged into Fidelity New
York as of April 11, 1997, which in turn, was the parent company of American
Title Insurance Company ("ATIC"), which was merged into Fidelity Pennsylvania as
of November 21, 1996.
Nations Title Insurance Company, Nations Title Insurance of New York Inc.
and National Title Insurance of New York Inc. were acquired, along with Nations
Title Inc. ("NTI," collectively, "Nations Title Inc."), in a transaction which
closed on April 1, 1996. Certain of the ancillary service companies were
acquired in separate transactions during 1996 and 1997. Granite Financial, Inc.
and subsidiaries ("Granite") was acquired in a transaction which closed on
February 26, 1998. Alamo Title was acquired in connection with the Company's
acquisition of Alamo Title Holding Company and subsidiaries ("Alamo") in a
transaction which closed August 20, 1998.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Recent Developments" and Note B of Notes to
Consolidated Financial Statements.
INDUSTRY OVERVIEW
TITLE POLICIES. Title insurance policies state the terms and conditions
upon which a title underwriter will insure title to real estate. The
beneficiaries of title insurance policies are generally buyers of real property
or mortgage lenders. Most mortgage lenders require title insurance as a
condition to making loans secured by real estate.
Title insurance is different from other types of insurance because it
relates to past events which affect title to property at the time of closing and
not unforeseen future events. Prior to issuing policies, underwriters can reduce
or eliminate future losses by accurately performing searches and examinations.
Title insurance policies are issued on the basis of a preliminary title report
or commitment. These reports are prepared after a search
1
<PAGE> 4
of public records, maps and other relevant documents to ascertain title
ownership and the existence of easements, restrictions, rights of way,
conditions, encumbrances or other matters affecting the title to, or use of,
real property. A visual inspection or survey of the property may also be made
prior to the issuance of certain title insurance policies. To facilitate the
preparation of preliminary reports without the necessity of manually searching
public records, copies of public records, maps and other relevant historical
documents are compiled and indexed in a "title plant." Each title plant relates
to a particular county and is kept current on a daily or other periodic basis by
the continual addition of copies of recorded documents which affect real
property in the particular county. Title companies often subscribe to
independent title information services to assist in the updating of their title
plants and the maintenance of title records.
The premium for title insurance is due in full at the closing of the real
estate transaction and is based upon the purchase price of the property insured
or the amount of the mortgage loan. The major expense of a title company is the
search and examination function in preparing preliminary title reports,
commitments and title policies, and not from claim losses associated with the
issuance of said policies. Claim losses generally result from errors or mistakes
made in the title search and examination process, hidden defects such as fraud,
forgery, incapacity, missing heirs or errors made in the escrow process.
Coverage under the policy generally terminates upon resale or refinance of the
property. The terms of coverage have become relatively standardized in
accordance with forms approved by state or national trade associations.
DIRECT AND AGENCY OPERATIONS. The Company's title reports and commitments
are issued either directly, by the Insurance Subsidiaries or UTCs, or by
independent agents working on behalf of the Insurance Subsidiaries. The terms
and conditions upon which the real property will be insured are determined in
accordance with the underwriting standards, policies and procedures of the title
underwriter. In direct operations, the title underwriter issues the title
insurance policy and retains the entire premium paid in connection with the
transaction. In agency operations, the search and examination function is
performed by an independent agent. The majority of the title premium collected
is retained by the agent with the balance remitted to the title underwriter for
bearing the risk of loss in the event that a claim is made under the title
insurance policy. Independent agents may select among several title underwriters
based upon the amount of the premium "split" offered by the underwriter, the
overall terms and conditions of the agency agreement and the scope of services
offered to the agent. Premium splits vary be geographic region.
THE TITLE POLICY PROCESS. A brief description of the process of issuing a
title insurance policy, which usually occurs over a thirty to ninety day period,
is as follows:
(i) The customer, typically a real estate salesperson or broker,
escrow agent or lender, places an order for a title policy.
(ii) The specifics of the order are noted and a request is placed with
the title department for a preliminary report.
(iii) After the relevant historical data on the property is compiled,
the title officer prepares a preliminary title report which documents (a)
the current status of title and conditions affecting the property, (b) any
exclusions, exceptions and/or limitations which the title underwriter might
include in the policy and (c) specific issues which need to be addressed
and resolved by the parties to the transaction before the title policy will
be issued. The preliminary report is circulated to all the parties for
satisfaction of any specific issues.
(iv) After the specific issues identified in the preliminary report
are satisfied, an escrow agent closes the transaction in accordance with
the instructions of the parties and the title underwriter's conditions.
(v) Once the transaction is closed and all monies have been released,
the title underwriter issues the policies (a) to the owner and the lender
on a new home sale or resale transaction or (b) to the lender only, on a
refinance transaction.
LOSSES AND RESERVES. The maximum amount of liability under a title
insurance policy is usually the face amount of the policy plus the cost of
defending the insured's title against an adverse claim. The reserve for claim
losses is based upon known claims, as well as losses the insurer expects to
incur based on historical
2
<PAGE> 5
experience and other factors, including industry averages, claim loss history,
legal environment, geographic considerations, expected recoupments and the types
of policies written. The title underwriter establishes a reserve for each known
claim based on a review and evaluation of potential liability.
ECONOMIC FACTORS AFFECTING INDUSTRY. Title insurance revenue is closely
related to the level of real estate activity and the average price of real
estate sales. Real estate sales are directly affected by the availability of
funds to finance purchases, i.e., mortgage interest rates. Other factors
affecting real estate activity include demand, family income levels and general
economic conditions. While the level of sales activity was relatively depressed
in certain geographical areas during the period 1991 through mid-1993, lower
mortgage interest rates beginning in the latter part of 1991 triggered an
increase in refinancing activity which continued at then record levels through
1993 and into the first quarter of 1994. During 1994 and early 1995, steady
interest rate increases caused by actions taken by the Federal Reserve Board,
resulted in a significant decline in refinancing transactions and a stagnation
in residential resales and new home sales. Since late 1995, decreases in
mortgage interest rates and the resulting improvement in the real estate market
have had a favorable effect on the level of real estate activity, including
refinancing transactions, new home sales and resales. The overall economic
environment, stable mortgage interest rates and strength in the real estate
market, especially in California and on the West Coast, contributed to very
positive conditions for the industry throughout 1996, 1997 and 1998. It is
impossible to predict in what future direction interest rates and the real
estate market may move or fluctuate.
TITLE INSURANCE OPERATIONS
The Insurance Subsidiaries are currently licensed to issue title insurance
policies through direct operations and independent agents in all states (with
the exception of Iowa, where title insurance is not legally permitted) the
District of Columbia, the Virgin Islands and Puerto Rico.
The Company maintains direct operations in Alabama, Arizona, California,
Florida, Georgia, Hawaii, Nevada, New Jersey, New Mexico, New York, North
Carolina, Oregon, Pennsylvania, South Carolina, Tennessee, Texas and Washington.
Direct operations are divided into approximately 90 branches consisting of more
than 410 offices. Each branch processes title insurance transactions within its
geographical area, which is usually a county boundary. Each branch is operated
as a separate profit center.
The Company also transacts title insurance business through a network of
approximately 2,900 agents, primarily in those areas in which agents are the
more accepted title insurance provider.
The following table sets forth for the years 1998, 1997 and 1996,
respectively, the approximate dollars and percentages of title insurance premium
revenue by state according to records maintained by the Company:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1998 1997 1996
---------------- ---------------- ----------------
AMOUNT % AMOUNT % AMOUNT %
-------- ----- -------- ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
California.............................. $301,406 33.1% $202,848 32.9% $183,108 33.1%
Texas................................... 178,407 19.6 128,298 20.8 116,704 21.1
New York................................ 88,899 9.8 60,022 9.7 45,938 8.3
Florida................................. 44,860 4.9 29,457 4.8 25,444 4.6
Pennsylvania............................ 38,893 4.3 26,318 4.3 25,441 4.6
Arizona................................. 32,555 3.6 24,431 4.0 23,865 4.4
All others.............................. 225,258 24.7 144,700 23.5 132,299 23.9
-------- ----- -------- ----- -------- -----
Totals........................ $910,278 100.0% $616,074 100.0% $552,799 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
For the entire title insurance industry, 12 states accounted for 72.4% of
title premiums written in the United States in 1997. California represented the
single largest state with 18.2%. The Company is licensed and has operations in
all 12 of these states.
3
<PAGE> 6
MARKETING. The Company markets and distributes its products and services to
customers in the residential, institutional lender and commercial market sectors
of the real estate industry. The Company attempts to increase the volume of its
title insurance business primarily through customer solicitation by sales
personnel. The Company actively encourages its personnel to develop new business
relationships with persons in the real estate community, such as real estate
sales agents and brokers, financial institutions, independent escrow companies
and title agents, real estate developers, mortgage brokers and attorneys. The
Company's marketing efforts are also assisted by general advertising. The
Company believes customer service is the most important factor in attracting and
retaining customers and measures customer service in terms of quality and
timeliness in the delivery of services.
DIRECT AND AGENCY OPERATIONS. Preliminary title reports and commitments to
issue policies are prepared by title underwriters or wholly-owned underwritten
title companies (direct operations) or by independent agents on behalf of the
underwriters (agency operations). The terms and conditions upon which the real
property will be insured are determined in accordance with the underwriting
standards, policies and procedures of the title underwriter. In direct
operations, the title underwriter issues the title insurance policy and retains
the entire premium paid in connection with the transaction. In agency
operations, the search and examination function is performed by an independent
agent. The majority of the title premium collected is retained by the agent with
the balance remitted to the title underwriter. Independent agents may select
among several title underwriters based upon the amount of the premium "split"
offered by the underwriter, the overall terms and conditions of the agency
agreement and the scope of services offered to the agent. Premium splits vary by
geographic region. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview, Revenue, Expenses and Recent
Developments."
Prior to the acquisition of the Nations Title Inc. group of companies,
which was completed on April 1, 1996, the Company generated the majority of its
revenue from its network of direct operations as opposed to agency
relationships, the latter being more common in the title industry. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview and Recent Developments." The Company's direct operations
generate higher margins than agency operations because the Company retains the
entire premium from each transaction instead of paying commissions to agents and
claim losses are less than in agency based operations because the Company
controls the issuance of the title policy. Direct operations also provide
additional sources of income, such as escrow fees, collection and trust fees,
real estate information and technology service fees, trustee sale guarantee
fees, credit reporting fees, attorney service fees, flood certification fees,
tax monitoring fees, home warranty insurance premiums, reconveyance fees,
recording fees, foreclosure publishing and posting service fees and exchange
intermediary service fees in connection with real estate transactions.
Effective July 1, 1997, the Company sold a majority interest (60%) of its
subsidiary American Title Company ("ATC"), an underwritten title company, to
certain members of ATC's management. ATC functions as an exclusive agent of the
Company. As a result of a tax free reorganization of American National
Financial, Inc. ("ANFI"), the parent company of ATC and its subsidiaries, in
November 1998, the Company's interest in ATC was converted to an ownership
interest of approximately 43% of ANFI. Subsequent to ANFI's initial public
offering in February 1999, the Company's ownership interest in ANFI became
approximately 31.5%. Additionally, on March 18, 1998, the Company announced that
it had entered into an agreement to sell National Title Insurance of New York
Inc. to ATC for $3.25 million, subject to regulatory approval and certain other
conditions. National was acquired in April 1996, as part of the Nations Title
Inc. acquisition, and has not been actively underwriting policies since the
transaction closed. This transaction has not yet received regulatory approval.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Recent Developments" and Notes C and L of Notes to Consolidated
Financial Statements.
The relationship between the Company and each agent is governed by an
agency agreement which states the conditions under which the agent is authorized
to issue a title insurance policy on behalf of the Company. The agency agreement
also prescribes the circumstances under which the agent may be liable to the
Company if a policy loss is attributable to errors made by the agent. The agency
agreement typically is terminable upon 30 days' notice or immediately for cause.
In determining whether to engage or retain an independent agent the
4
<PAGE> 7
Company considers the agent's experience, financial condition and loss history.
Loss history is an important consideration in the Company's decision to initiate
or continue agency relationships. The Company maintains financial and loss
experience records for each agent and conducts periodic audits of its agents.
On April 1, 1996, the Company completed its acquisition of one hundred
percent of Nations Title Inc. and its wholly-owned subsidiaries. The acquisition
positioned the Company as the nation's fourth largest title insurance
underwriter. The combination of the Company's direct operations and Nations
Title Inc.'s strong agency network provides a balance to the Company's title
premium revenue between direct and agency, as well as a hedge against future
market downturns. The acquisition of Nations Title Inc. has also increased the
Company's revenue and positively impacted its balance sheet and margins due to
the operating economies of the combined companies. The acquisition has also
increased market share in areas where the Company has had a limited presence,
particularly in those areas where business is primarily agent driven, as well as
in states where the Company has a strong market position.
The acquisition of Alamo Title Holding Company and subsidiaries, which
closed on August 20, 1998, provided additional balance between the Company's
direct and agency operations with the strength of Alamo's direct and agency
operations in the important Texas market. As a result of its acquisitions of
Nations Title Inc. and Alamo, the Company has significantly expanded the
national scope of its core title operations by expanding its direct operations
in key markets and balancing the mix of its direct and agency operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview, Revenue and Recent Developments."
ESCROW, TRUST AND OTHER TITLE-RELATED SERVICES. The Company holds funds and
documents in real estate transactions for delivery upon closing pursuant to the
instructions of the respective parties to an escrow. The Company derives revenue
from other ancillary services generated from direct operations, such as
collection and trust fees, real estate information and technology service fees,
trustee sale guarantee fees, credit reporting fees, attorney service fees, flood
certification fees, tax monitoring fees, home warranty insurance premiums,
reconveyance fees, recording fees, foreclosure publishing and posting service
fees and exchange intermediary service fees in connection with real estate
transactions.
In a few cases, the Company leases its title plants to independent agents
for their examination of title records for a rental or usage fee.
UNDERWRITING, LOSSES AND RESERVES. The Company believes that the level of
risk undertaken pursuant to its underwriting standards is consistent with that
of the industry. The maximum amount of liability under a title insurance policy
is usually the face amount of the policy plus the cost of defending the
insured's title against an adverse claim. The Company's reserve for claim losses
includes known claims as well as losses the Company expects to incur, net of
recoupments. Each known claim is reserved for on the basis of a review by the
Company as to the estimated amount of the claim and the costs required to settle
the claim. Reserves for claims which are incurred but not reported are provided
for at the time premium revenue is recognized based on historical loss
experience and other factors, including industry averages, claim loss history,
legal environment, geographic considerations and types of policies written. The
occurrence of a significant major claim (those greater than $500,000) in any
given period could have a material adverse effect on the Company's financial
condition and results of operations for such period. See "Reinsurance."
If a loss is related to a policy issued by an independent agent, the
Company may proceed against the independent agent pursuant to the terms of the
agency agreement. In any event, the Company may proceed against third parties
who are responsible for any loss sustained under the title insurance policy
under rights of subrogation.
The Company believes that its quality controls and underwriting standards
have helped minimize its net title claims paid. The Company further reduces its
losses by following aggressive recoupment procedures under rights of subrogation
or warranties and by carefully reviewing all claims. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Expenses." There can be no assurance that the Company's current
paid loss experience will continue at these levels.
5
<PAGE> 8
Courts and juries sometimes award damages against insurance companies,
including title insurance companies, in excess of policy limits. Such awards are
typically based on allegations of fraud, misrepresentation, deceptive trade
practices or other wrongful acts commonly referred to as "bad faith." Although
the Company has not experienced damage awards materially in excess of policy
limits, the possibility of such bad faith damage awards may cause the Company to
experience increased costs and difficulty in settling title claims.
The Company generally pays losses in cash. In some instances claims are
settled by purchasing the interest of the insured in the real property or the
interest of the adverse claimant. Such interests are generally recorded as an
asset on the Company's books at the lower of cost or fair value less selling
costs and any related indebtedness is carried as a liability. At December 31,
1998, the amount of these interests was $8.8 million.
The Company also accrues reserves for losses arising from the escrow,
closing and disbursement functions due to fraud or operational error based on
historical experience.
REINSURANCE. In the ordinary course of business, the Company reinsures
certain risks with other title insurers for the purpose of limiting its maximum
loss exposure and also assumes reinsurance for certain risks of other title
insurers for the purpose of earning additional income. The Company cedes or
assumes a portion of certain policy liabilities under agent fidelity, excess of
loss and case-by-case reinsurance agreements. Reinsurance agreements provide
that the reinsurer is liable for loss and loss adjustment expense payments
exceeding the amount retained by the ceding company. However, the ceding company
remains primarily liable in the event the reinsurer does not meet its
contractual obligations. See Note A of Notes to Consolidated Financial
Statements.
COMPETITION. The title insurance industry is highly competitive. The number
and size of competing companies varies in the different geographic areas in
which the Company conducts its business. In the Company's principal markets,
competitors include other major title underwriters such as Chicago Title
Corporation, First American Financial Corporation, LandAmerica Financial Group,
Inc., Old Republic International Corporation and Stewart Information Services
Corporation, as well as numerous independent agency operations at the regional
and local level. These smaller companies may expand into other markets in which
the Company competes. Also, the removal of regulatory barriers in the future
might result in new competitors entering the title insurance business that have
greater financial resources and other competitive advantages. Competition among
the major title insurance companies, expansion by smaller regional companies and
any new entrants could affect the Company's business operations and financial
condition.
Competition is based primarily on the quality and timeliness of service,
since the parties to a real estate transaction are usually concerned with time
schedules and costs associated with delays in closing the transaction. In those
states where prices are not established by regulatory authorities the price of
the title insurance policy is also a competitive factor. The Company believes
that its competitive position is enhanced by its quality customer service and
pricing.
REGULATION. Title insurance companies, including underwriters, underwritten
title companies and independent agents, are subject to extensive regulation
under applicable state laws. Each insurance underwriter is usually subject to a
holding company act in its state of domicile which regulates, among other
matters, the ability to pay dividends and investment policies. The laws of most
states in which the Company transacts business establish supervisory agencies
with broad administrative powers relating to issuing and revoking licenses to
transact business, regulating trade practices, licensing agents, approving
policy forms, accounting principles, financial practices, establishing reserve
and capital and surplus requirements, defining suitable investments for
reserves, capital and surplus and approving rate schedules. In 1998, the
National Association of Insurance Commissioners approved codified accounting
practices that changed the definition of what constitutes prescribed statutory
accounting practices and will result in changes to the accounting policies that
insurance enterprises use to prepare their statutory financial statements
commencing in 2001. The Company is currently evaluating the impact of the rules.
Pursuant to statutory accounting requirements of the various states in
which the Insurance Subsidiaries are licensed, they must defer a portion of
premiums earned as an unearned premium reserve for the protection
6
<PAGE> 9
of policyholders and must maintain qualified assets in an amount equal to the
statutory requirements. The level of unearned premium reserve required to be
maintained at any time is determined on a quarterly basis by statutory formula
based upon either the age, number of policies and dollar amount of policy
liabilities underwritten or the age and dollar amount of statutory premiums
written. As of December 31, 1998, the combined statutory unearned premium
reserve required and reported for the Insurance Subsidiaries was $207.2 million.
The Insurance Subsidiaries are regulated by the insurance commissioners of
their respective states of domicile. Regulatory examinations usually occur at
three year intervals. Examinations are currently in progress for Fidelity Title
(1998, which was previously scheduled for 1997 but will now be as of 1998),
Fidelity New York (1996), Nations New York (1996) and National (1996). The
Company has not received preliminary reports of examination for Fidelity Title,
Fidelity New York, Nations New York or National, as the examinations are
currently ongoing. Additionally, the Auditor Division of the Controller of the
State of California is currently conducting an audit of the funds due the State
of California under various escheatment regulations for the years ended December
31, 1998 and prior. The Company has not yet received a preliminary report as the
audit is ongoing. The Company does not believe that either the audits performed
by the insurance regulators or the Controller of the State of California will
have a material impact on its financial position, its results of operations or
its combined statutory capital and surplus.
Statutorily calculated net worth determines the maximum insurable amount
under any single title insurance policy. As of January 1, 1999, the Company's
self-imposed single policy maximum insurable amounts, which comply with all
statutory limitations, for Fidelity Title, Fidelity New York and Alamo Title
were $60.0 million, $90.0 million and $17.5 million, respectively. The
self-imposed single policy maximum insurable amounts for Nations New York and
National were $19.0 million and $5.0 million, respectively.
The Insurance Subsidiaries are subject to regulations that restrict their
ability to pay dividends or make other distributions of cash or property to
their immediate parent company without prior approval from the Department of
Insurance of their respective states of domicile. In the case of Fidelity Title,
the total amount of dividends made in any twelve-month period may not exceed the
greater of 10% of the surplus as regards policyholders as of the last day of the
preceding year or net earnings for the twelve-month period ending the last day
of the preceding year. In the case of Fidelity New York, the total amount of
dividends and distributions is limited to surplus as regards policyholders,
excluding capital stock and surplus resulting from unrealized gains on
investments, less fifty percent of statutory premium reserve as of the last day
of the preceding year and capital contributions received in the latest five-year
period. In the case of Alamo Title, the total amount of dividends made in any
twelve-month period may not exceed the greater of 20% of the surplus as regards
policyholders as of the last day of the preceding year or net earnings for the
twelve-month period ending the last day of the preceding year. As of January 1,
1999, Fidelity Title could pay dividends or make other distributions to the
Company of $10,588,000, Fidelity New York could pay dividends or make other
distributions to the Company of $13,325,000 and Alamo Title could pay dividends
or make other distributions to the Company of $9,064,000.
The combined statutory capital and surplus of the Insurance Subsidiaries
was $164,953,000, $122,107,000 and $97,845,000 as of December 31, 1998, 1997 and
1996, respectively. The combined statutory earnings of the Insurance
Subsidiaries were $37,771,000, $26,701,000 and $12,243,000 for the years ended
December 31, 1998, 1997 and 1996, respectively.
As a condition to continued authority to underwrite policies in the states
in which the Insurance Subsidiaries conduct their business, the Insurance
Subsidiaries are required to pay certain fees and file information regarding
their officers, directors and financial condition. In addition, the Company's
escrow and trust business is subject to regulation by various state banking
authorities.
Pursuant to statutory requirements of the various states in which the
Insurance Subsidiaries are domiciled, they must maintain certain levels of
minimum capital and surplus. Each of the Company's title underwriters have
complied with the minimum statutory requirements as of December 31, 1998. See
Note L of Notes to Consolidated Financial Statements.
7
<PAGE> 10
The UTCs are also subject to certain regulation by insurance regulatory or
banking authorities, primarily relating to minimum net worth. Minimum net worth
of $7.5 million and $2.5 million is required for Fidelity National Title Company
("FNTC") and Fidelity National Title Company of California ("FNCAL"),
respectively. FNTC and FNCAL are in compliance with their respective minimum net
worth requirements at December 31, 1998.
RATINGS
The Insurance Subsidiaries are regularly assigned ratings by independent
agencies designed to indicate their financial condition and/or claims paying
ability. Financial data and other information are supplied to the rating
agencies and subjected to quantitative and qualitative analyses from which the
ratings are derived. Ratings of the Company's principal Insurance Subsidiaries,
as assigned during 1998 and 1999, are listed below:
<TABLE>
<CAPTION>
DUFF & PHELPS STANDARD & POOR'S
DEMOTECH, INC. CREDIT RATING CO. RATINGS SERVICES
(FINANCIAL STABILITY RATING) (CLAIMS PAYING ABILITY) (FINANCIAL STRENGTH RATING)
---------------------------- ----------------------- ---------------------------
<S> <C> <C> <C>
Fidelity Title........ A A- A-
Fidelity New York..... A A- A-
Alamo Title........... A' A- A-
</TABLE>
INVESTMENT POLICIES AND INVESTMENT PORTFOLIO
The Company's investment policy is designed to maintain a high quality
portfolio, maximize income, minimize interest rate risk and match the duration
of the portfolio to the Company's liabilities. The Company also makes
investments in certain equity securities in order to take advantage of perceived
value and for strategic purposes. Most of the Company's investment assets
qualify as "admitted assets" and for purposes of capital and surplus and
unearned premium reserves as prescribed by various state insurance regulations.
These investments are restricted by the state insurance regulations of their
domiciliary states and are limited primarily to cash and cash equivalents,
federal and municipal governmental securities, mortgage loans, certain
investment grade debt securities, equity securities and real estate. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
As of December 31, 1998 and 1997, the carrying amount, which approximates
the fair value, of total investments was $510.5 million and $358.4 million,
respectively.
It is the practice of the Company to purchase investment grade fixed
maturity securities, selected non-investment grade fixed maturity securities and
equity securities. The securities in the Company's portfolio are subject to
economic conditions and normal market risks and uncertainties.
8
<PAGE> 11
The following table sets forth certain information regarding the investment
ratings of the Company's fixed maturity portfolio at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------------------------
1998 1997
------------------------------------------ ------------------------------------------
AMORTIZED % FAIR % AMORTIZED % FAIR %
RATINGS(1) COST OF TOTAL VALUE OF TOTAL COST OF TOTAL VALUE OF TOTAL
---------- --------- -------- -------- -------- --------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AAA.................. $154,592 47.9% $158,301 48.0% $113,951 48.3% $115,474 48.2%
AA................... 67,575 20.9 69,366 21.0 40,290 17.1 41,046 17.1
A.................... 74,917 23.2 77,022 23.3 73,123 31.0 73,664 30.7
Other................ 25,867 8.0 25,379 7.7 8,507 3.6 9,634 4.0
-------- ----- -------- ----- -------- ----- -------- -----
$322,951 100.0% $330,068 100.0% $235,871 100.0% $239,818 100.0%
======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
- ---------------
(1) Ratings as assigned by Standard & Poor's Corporation
The following table sets forth certain information regarding the Company's
fixed maturity securities at December 31, 1998. Expected maturities may differ
from contractual maturities because certain borrowers have the right to call or
prepay obligations with or without call or prepayment penalties. Fixed maturity
securities with an amortized cost of $47,491,000 and a fair value of $48,600,000
were callable at December 31, 1998:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------------------------
AMORTIZED % FAIR %
MATURITY COST OF TOTAL VALUE OF TOTAL
-------- --------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
One year or less........................... $ 5,836 1.8% $ 5,696 1.7%
After one year through five years.......... 132,377 41.0 134,866 40.9
After five years through ten years......... 158,156 49.0 162,528 49.2
After ten years............................ 26,582 8.2 26,978 8.2
-------- ----- -------- -----
$322,951 100.0% $330,068 100.0%
======== ===== ======== =====
</TABLE>
Equity securities at December 31, 1998 and 1997 consist of investments in
various industry groups as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1998 1997
------------------ ------------------
FAIR FAIR
COST VALUE COST VALUE
------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Banks, trust and insurance companies........ $ 1,874 $ 1,949 $ 517 $ 950
Industrial, miscellaneous and all other..... 35,878 48,242 41,154 76,603
------- ------- ------- -------
$37,752 $50,191 $41,671 $77,553
======= ======= ======= =======
</TABLE>
The Company's investment results for the years ended December 31, 1998,
1997 and 1996 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net investment income(1)(2)........................ $ 26,665 $ 20,672 $ 17,234
Average invested assets(1)......................... 482,530 375,100 303,910
Effective return on average invested assets(1)..... 5.5% 5.5% 5.7%
</TABLE>
- ---------------
(1) Excludes investments in real estate. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Revenue."
9
<PAGE> 12
(2) Net investment income as reported in the Consolidated Statements of Earnings
has been adjusted in the presentation above to provide the tax equivalent
yield on tax exempt investments and to exclude net realized capital gains on
the sale of investments and other assets. Net realized capital gains
totalled $17,190,000, $16,839,000 and $2,476,000 in 1998, 1997 and 1996,
respectively.
REAL ESTATE AND PROPERTY MANAGEMENT OPERATIONS
The Company, principally through Manchester Development Corporation
("Manchester", currently doing business as Orion Realty Group), a wholly-owned
subsidiary of the Company, previously invested in various real estate projects
directly and through partnerships. Some of these partnerships involve related
parties. See Notes F and G of Notes to Consolidated Financial Statements.
Manchester currently assists in the identification and leasing of space for
operating purposes and manages property owned by the Company. The Company's
investments in real estate and partnerships represented approximately 0.5% of
the Company's assets at December 31, 1998.
EMPLOYEES
As of December 31, 1998, the Company had approximately 7,400 full-time
equivalent employees. The Company believes that its relations with employees are
generally good.
YEAR 2000 ISSUES
Information technology is an integral part of the Company's business. The
Company also recognizes the critical nature of and the technological challenges
associated with the Year 2000 issue. The Year 2000 issue ("Y2K") results from
computer programs and computer hardware that utilize only two digits to identify
a year in the date field, rather than four digits. If such programs or hardware
are not modified or upgraded information systems could fail, lock up, or in
general fail to perform according to normal expectations. The Company has
implemented a program and committed both personnel and other resources to
determine the extent of potential Y2K issues. Included within the scope of this
program are systems used in title plants, title policy processing, escrow
production, claims processing, real estate related services, financial
management, human resources, payroll and infrastructure. In addition to a review
of internal systems, the Company has initiated formal communications with third
parties with which it does business in order to determine whether or not they
are Y2K compliant and the extent to which the Company may be vulnerable to third
parties' failure to become Y2K compliant. The Company is in the process of
identifying Y2K compliant issues in its systems, equipment and processes. The
Company is making changes to such systems, updating or replacing such equipment,
and modifying such processes to make them Y2K compliant.
The Company has developed a four phase program to become Y2K compliant.
Phase I is, "Plan Preparation and Identification of the Problem." This is an
ongoing phase that will continue beyond the year 2000 itself. Phase II is, "Plan
Execution and Remediation." Phase III is, "Testing." Phase IV is, "Maintaining
Y2K Compliance." The Company anticipates that its systems processes will be
substantially Y2K compliant by July 1999. The status of the Y2K compliance
program is monitored by senior management of the Company and by the Audit
Committee of the Company's Board of Directors. The costs of the Y2K related
efforts incurred to date have not been material, and the estimate of remaining
costs to be incurred is not considered to be material. Due to the complexities
of estimating the cost of modifying applications to become Y2K compliant and the
difficulties in assessing third parties', including various local governments
upon which the Company relies upon to provide title-related data, ability to
become Y2K compliant, estimates may be subject to change.
Management of the Company believes that its electronic data processing and
information systems will be Y2K compliant; however, there can be no assurance
that all of the Company's systems will be Y2K compliant, that the costs to be
Y2K compliant will not exceed management's current expectations, or that the
failure of such systems to be Y2K compliant will not have a material adverse
effect on the Company's business. The Company believes that functions currently
performed with the assistance of electronic data processing
10
<PAGE> 13
equipment could be performed manually or outsourced if certain systems were
determined not to be Y2K compliant on or after January 1, 2000.
The Company has not yet completed a contingency plan in the event that any
systems are not Y2K compliant, but will do so once the Phase III process of its
compliance program is begun. We expect this contingency plan to be complete by
July 1999.
This entire section "Year 2000 Issues" is hereby designated a "Year 2000
Readiness Disclosure", as defined in the Year 2000 Information and Readiness
Disclosure Act.
RISK FACTORS
The risk factors listed in this section and other factors noted below could
cause the Company's actual results to differ materially from those contained in
any forward-looking statements. Risk factors include, but are not limited to:
Real Estate Market and Interest Rate Sensitivity
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, particularly in the commercial refinancings as well as the number
of sales), the strength of the national and/or regional economy and family
income levels. 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, no assurance can be
given that historical levels of premiums and fees previously received by the
Company will be available in the future.
Geographic Concentration
Part of the Company's strategy has been to expand its market share and
increase its title insurance premiums and other real estate related revenue in
the key real estate markets of California, Texas, Florida and New York.
Approximately 67.4% of the Company's title insurance premium revenue was
generated from real estate transactions in those states in 1998. This geographic
concentration makes the Company susceptible to the risk that adverse economic
conditions or other factors affecting the real estate markets in these areas,
even with a strong national economy, could have a more pronounced adverse affect
on its premium and fee revenues than if its revenue base were more broadly
dispersed across the country.
Risks Associated With Acquisitions
Part of the Company's strategy is to pursue opportunities to diversify and
expand its operations by acquiring or making investments in other companies.
Acquisitions involve a number of risks that could adversely effect the Company's
operations, including the diversion of management's attention and the
integration of the operations and personnel of the acquired companies. If the
Company acquires other business operations, the Company cannot be certain that
such businesses will be successful, that they will enhance the Company's
existing business or that the Company will not incur significant expenses,
including goodwill, relating to such acquisitions. The Company may be required
to sell additional securities or borrow additional funds to complete any
significant acquisitions. The sale of additional equity or debt securities may
dilute stockholder interests in or increase the leverage of the Company.
11
<PAGE> 14
Risks Associated With New Business Lines
The Company has acquired, and may in the future acquire, businesses in
industries with which management is less familiar than the title insurance
industry. For example, in February 1998, the Company acquired Granite Financial,
Inc., whose primary business is financing equipment leases. Also, in the last
three years, the Company has expanded the range and amount of ancillary title
and real estate related services it provides, began underwriting home warranty
policies, invested in restaurant businesses, expanded its commercial title
insurance business and considered acquiring underwriters of other lines of
insurance products. These activities involve risks that could adversely affect
the Company's operating results, such as diversion of management's attention,
integration of the operations, systems and personnel of the new businesses and
lack of substantial experience in operating such businesses.
Competition
The title insurance and real estate services industries are highly
competitive. 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. Our principal competitors include Chicago Title
Corporation, 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 the Company. The Company also competes 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 the
Company competes. Also, the removal of regulatory barriers in the future might
result in new competitors entering the title insurance business that have
greater financial resources and other competitive advantages. Competition among
the major title insurance companies, expansion by smaller regional companies and
any new entrants could adversely affect the Company's business operations and
financial condition.
Government Regulation
Our title insurance business is subject to extensive regulation by state
insurance authorities in each state in which the Company 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;
- investment practices; and
- rate schedules.
Most states also regulate insurance holding companies, like Fidelity
National Financial, Inc., in a variety of matters such as acquisitions, change
of control and terms of affiliate transactions. These regulations may impede, or
impose burdensome conditions on rate increases or other actions that the Company
may want to take to enhance its operating results, and could affect its ability
to pay dividends on its common stock. In addition, the Company may incur
significant costs to comply with regulatory requirements. No assurance can be
given that future legislative or regulatory changes will not adversely affect
the Company's business operations.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
The Company wishes to caution readers that the forward-looking statements
contained in this Form 10-K under "Item 1. Business," "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this Form 10-K involve known and unknown risks and uncertainties
which may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or achievements
expressed or implied by any forward-looking statements
12
<PAGE> 15
made by or on behalf of the Company. In connection with the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995, the Company
is filing the following cautionary statements identifying important factors that
in some cases have affected, and in the future could cause the Company's actual
results to differ materially from those expressed in any such forward-looking
statements.
The factors that could cause the Company's results to differ materially
include, but are not limited to, general economic and business conditions,
including interest rate fluctuations; the impact of competitive products and
pricing; success of operating initiatives; adverse publicity; changes in
business strategy or development plans; quality of management; availability,
terms, and deployment of capital; the results of financing efforts; the Year
2000 issue; business abilities and judgment of personnel; availability of
qualified personnel; employee benefit costs and changes in, or the failure to
comply with government regulations.
ITEM 2. PROPERTIES
During 1997, the Company sold its corporate home office building in Irvine,
California, which housed the Company's corporate departments and certain
operating subsidiaries, recording a net realized gain of $4.3 million, prior to
applicable income taxes. Also during 1997, a subsidiary of the Company completed
the purchase of a building in Santa Barbara, California, which houses certain of
the Company's corporate departments.
The majority of the branch offices of the Company are leased from third
parties. The remainder are owned by the Company or leased from partnerships in
which the Company has an interest or leased from affiliates.
As of December 31, 1998, the Company leased office and storage spaces as
follows:
<TABLE>
<CAPTION>
NUMBER OF
LOCATIONS
---------
<S> <C>
California.................................................. 202
Texas....................................................... 80
Florida..................................................... 36
Arizona..................................................... 26
Oregon...................................................... 17
Tennessee................................................... 10
Pennsylvania................................................ 9
New York and Washington..................................... 7
New Jersey and North Carolina............................... 6
Georgia, Nevada and New Mexico.............................. 5
Hawaii and Michigan......................................... 4
Alabama, Colorado, Connecticut, Kentucky, Maryland, South
Carolina, Virginia........................................ 2
Illinois, Kansas, Massachusetts, Minnesota, Ohio, Rhode
Island and Washington, D.C. .............................. 1
</TABLE>
See Note K of Notes to Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of business, the Company is involved in various
pending and threatened litigation matters related to its operations, some of
which include claims for punitive or exemplary damages. Management believes that
no actions depart from customary litigation incidental to the business of the
Company and that resolution of all such litigation will not have a material
adverse effect on the Company.
See Note K of Notes to Consolidated Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of security holders in the
fourth quarter of 1998.
13
<PAGE> 16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The following table sets forth the range of high and low closing prices for
the common stock on the New York Stock Exchange. The high and low closing prices
and the amount of dividends declared for the periods indicated have been
retroactively adjusted for stock dividends and splits declared since the
Company's inception.
<TABLE>
<CAPTION>
DIVIDENDS
HIGH LOW DECLARED
------ ------ ---------
<S> <C> <C> <C>
Year ended December 31, 1998
First quarter................................. $33.41 $24.27 $.064
Second quarter................................ 36.31 30.00 .064
Third quarter................................. 39.14 25.17 .064
Fourth quarter................................ 30.50 22.11 .070
Year ended December 31, 1997
First quarter................................. $12.81 $ 9.92 $.058
Second quarter................................ 13.95 9.50 .058
Third quarter................................. 19.63 13.13 .058
Fourth quarter................................ 28.41 16.94 .064
</TABLE>
<TABLE>
<S> <C> <C> <C>
</TABLE>
On March 25, 1999, the last reported sale price of the common stock on the
New York Stock Exchange Composite Tape was $15.44 per share. As of March 25,
1999, the Company had approximately 925 stockholders of record.
DIVIDEND POLICY AND RESTRICTIONS ON DIVIDEND PAYMENTS. Since the last
quarter of 1987, the Company has consistently paid cash dividends on a quarterly
basis, which payments have been made at the discretion of the Company's Board of
Directors. On March 17, 1999, the Company's Board of Directors declared a cash
dividend of $.07 per share which will be payable on May 28, 1999 to stockholders
of record on April 9, 1999. The continued payment of dividends will depend upon
operating results, business requirements, contractual restrictions, regulatory
considerations and other factors. The Company anticipates the continued payment
of dividends. See "Business -- Regulation" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
CONTRACTUAL RESTRICTIONS ON DIVIDEND PAYMENTS. The Company's ability to pay
dividends on its common stock and make certain payments is restricted by
provisions contained in the Company's various debt agreements. The Company
believes that amounts to fund currently anticipated dividends and certain
payments are available pursuant to the terms and conditions of its various debt
agreements. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and Note H of Notes to
Consolidated Financial Statements.
ITEM 6. SELECTED FINANCIAL DATA
The historical operating results data, per share data and balance sheet
data set forth below are derived from the historical financial statements of the
Company, certain of which have been restated to reflect the Granite and Alamo
mergers on the pooling-of-interests method of accounting. Per share data has
been retroactively adjusted for stock dividends and splits since the Company's
inception. Consolidated Balance Sheets at December 31, 1998 and 1997 and
Consolidated Statements of Earnings, Comprehensive Earnings, Stockholders'
Equity and Cash Flows for the years ended December 31, 1998, 1997 and 1996, and
Notes thereto, audited by KPMG LLP, independent certified public accountants,
are included elsewhere herein and
14
<PAGE> 17
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere herein:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1998 1997 1996 1995 1994
(3)(4)(5)(6) (3)(4)(5)(6)(7) (3)(4)(5) (2)(4)(5) (1)(4)(5)
------------ --------------- ---------- ---------- ----------
(RESTATED) (RESTATED) (RESTATED) (RESTATED)
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS DATA:
Revenue:
Title insurance premiums....................... $ 910,278 $616,074 $552,799 $351,510 $442,596
Escrow fees.................................... 130,299 86,033 71,122 53,132 55,622
Other fees and revenue......................... 208,301 125,146 91,647 66,819 69,325
Interest and investment income, including
realized gains (losses)...................... 39,587 35,806 19,227 19,432 13,855
---------- -------- -------- -------- --------
1,288,465 863,059 734,795 490,893 581,398
---------- -------- -------- -------- --------
Expenses:
Personnel costs................................ 394,284 273,221 240,232 190,419 204,968
Other operating expenses....................... 257,080 189,226 176,524 143,494 148,776
Agent commissions.............................. 385,649 261,182 221,948 113,358 169,751
Provision for claim losses..................... 59,294 41,558 36,275 22,003 30,859
Interest expense............................... 17,024 12,269 11,590 10,137 9,078
---------- -------- -------- -------- --------
1,113,331 777,456 686,569 479,411 563,432
---------- -------- -------- -------- --------
Earnings before income taxes and extraordinary
item........................................... 175,134 85,603 48,226 11,482 17,966
Income tax expense............................... 69,442 36,595 18,985 2,716 4,789
---------- -------- -------- -------- --------
Earnings before extraordinary item............. 105,692 49,008 29,241 8,766 13,177
Extraordinary item, net of income taxes.......... -- (1,700) -- (813) 2,400
---------- -------- -------- -------- --------
Net earnings................................... $ 105,692 $ 47,308 $ 29,241 $ 7,953 $ 15,577
========== ======== ======== ======== ========
Diluted net earnings........................... $ 108,155 $ 50,450 $ 32,437 $ 7,953 $ 18,633
========== ======== ======== ======== ========
PER SHARE DATA:
Basic earnings per share before extraordinary
item........................................... $ 3.79 $ 2.10 $ 1.43 $ .47 $ 0.56
Extraordinary item, net of income taxes, basic
basis.......................................... -- (0.07) -- (.04) 0.10
---------- -------- -------- -------- --------
Basic earnings per share....................... $ 3.79 $ 2.03 $ 1.43 $ .43 $ 0.66
========== ======== ======== ======== ========
Weighted average shares outstanding, basic
basis.......................................... 27,921 23,355 20,426 18,732 23,525
Diluted earnings per share before extraordinary
item........................................... $ 3.23 $ 1.76 $ 1.23 $ .45 $ .55
Extraordinary item, net of income taxes, diluted
basis.......................................... -- (.06) -- (.04) .08
---------- -------- -------- -------- --------
Diluted earnings per share..................... $ 3.23 $ 1.70 $ 1.23 $ .41 $ .63
========== ======== ======== ======== ========
Weighted average shares outstanding, diluted
basis.......................................... 33,474 29,599 26,431 19,351 29,439
Dividends per share.............................. $ .26 $ .24 $ .22 $ .20 $ .18
BALANCE SHEET DATA:
Investments...................................... $ 510,515 $358,373 $254,577 $201,810 $235,067
Cash and cash equivalents........................ 51,309 72,887 81,108 58,518 45,289
Total assets..................................... 969,470 747,695 609,658 462,166 470,062
Notes payable.................................... 214,624 163,015 179,508 146,095 150,865
Reserve for claim losses......................... 224,534 201,674 196,527 153,207 158,876
Minority interest................................ 1,532 3,614 1,287 393 616
Stockholders' equity............................. 396,740 274,050 162,645 112,920 106,827
OTHER DATA:
Orders opened by direct operations............... 987,000 621,000 575,000 489,000 N/A
Orders closed by direct operations............... 670,000 436,000 430,000 331,000 N/A
Provision for claim losses to title insurance
premiums....................................... 6.5% 6.7% 6.6% 6.3% 7.0%
Title-related revenue:
Percentage direct operations................... 56.9% 56.9% 58.7% 67.6% 62.6%
Percentage agency operations................... 43.1% 43.1% 41.3% 32.4% 37.4%
Employees at year end............................ 7,400 6,000 5,200 4,700 4,000
Number of licensed states at year end............ 49 49 49 49 49
Return on average equity before extraordinary
item(8)........................................ 31.5% 22.4% 21.2% 8.0% 10.5%
Return on average equity including extraordinary
item(8)........................................ 31.5% 21.7% 21.2% 7.2% 12.4%
</TABLE>
15
<PAGE> 18
- ---------------
(1) During 1994, the Company recognized a $2.4 million extraordinary gain, net
of related income taxes of $1.3 million, related to the early retirement of
$48 million maturity value of the Company's Liquid Yield Option Notes (the
"LYONs").
(2) During 1995, the Company recognized an $813,000 extraordinary loss, net of
related income taxes of $437,000, related to the early retirement of its
Senior Secured Notes.
(3) The Company acquired Nations Title Inc. and its wholly-owned subsidiaries
Nations Title, Nations New York and National on April 1, 1996. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations. The selected financial data above includes the balance sheet
accounts of Nations Title Inc. and subsidiaries at December 31, 1998, 1997
and 1996 and the results of its operations for the years ended December 31,
1998, 1997 and for the nine-month period ended December 31, 1996.
(4) The selected financial data above includes the balance sheet accounts and
results of operations of ATC as a wholly-owned subsidiary as of December 31,
1996, 1995 and 1994 and for the six-month period ended June 30, 1997 and for
the years ended December 31, 1996, 1995 and 1994, and ATC's activities as an
agent for the six-month period ended December 31, 1997 and for the year
ended December 31, 1998.
On July 3, 1997, the Company converted an outstanding note balance in
conjunction with the exercise of warrants into a 51% ownership interest of
National Alliance Marketing Group ("National Alliance"). The Company
acquired the outstanding minority interest in National Alliance on August
14, 1998. The selected financial data above includes the Company's interest
in the balance sheet accounts of National Alliance at December 31, 1998 and
1997 and the Company's interest in the results of operations for the year
ended December 31, 1998 and for the period from July 3, 1997 through
December 31, 1997.
(5) The Company acquired Granite Financial, Inc. and subsidiaries ("Granite") on
February 26, 1998. This acquisition has been accounted for as a
pooling-of-interests. The selected financial data above includes the balance
sheet accounts of Granite at December 31, 1998, 1997 and 1996 and the
results of its operations for the years ended December 31, 1998, 1997 and
1996. Granite's financial position and results of operations for the years
ended December 31, 1995 and prior were insignificant, and as such, the
selected financial data above has not been restated for prior years.
The Company acquired Alamo Title Holding Company and subsidiaries ("Alamo")
on August 20, 1998. This acquisition has been accounted for as a
pooling-of-interests. The selected financial data above includes the balance
sheet accounts of Alamo at December 31, 1998, 1997, 1996, 1995 and 1994 and
the results of its operations for the years ended December 31, 1998, 1997,
1996, 1995 and 1994.
(6) The Company completed the sale of its wholly-owned subsidiary ACS Systems,
Inc. ("ACS") to Micro General Corporation (OTCBB:MGEN) ("Micro General") on
May 14, 1998. This transaction has been accounted for as a reverse merger of
Micro General into the Company. The selected financial data above includes
the balance sheet accounts of Micro General at December 31, 1998 and the
results of its operations for the period from May 14, 1998 through December
31, 1998.
The Company acquired Lexington Capital Corporation ("Lexington") effective
September 1, 1998. The selected financial data above includes the balance
sheet accounts of Lexington as of December 31, 1998 and the results of its
operations for the four-month period September 1, 1998 through December 31,
1998.
(7) During 1997, the Company recognized an extraordinary loss of $1.7 million,
net of related income taxes of $1.1 million, related to the early retirement
of $45 million maturity value of the Company's LYONs. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations-
Extraordinary Item and Recent Developments."
(8) Percentage return on average equity is net earnings for the period divided
by the simple average of total stockholders' equity as of the beginning and
end of each year presented.
N/A Meaningful information not available.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Recent Developments" and Note B of Notes to
Consolidated Financial Statements.
16
<PAGE> 19
QUARTERLY FINANCIAL DATA
Selected quarterly financial data is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------- -------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1998
Revenue..................................... $262,213 $321,441 $329,416 $375,395
Earnings before income taxes................ 28,799 57,451 46,210 42,674
Net earnings, basic basis................... 16,680 33,439 26,801 28,772
Net earnings, diluted basis................. 17,304 34,038 27,461 29,352
Basic earnings per share.................... .62 1.21 .94 1.00
Diluted earnings per share.................. .53 1.02 .81 .87
Dividends paid per share.................... .06 .06 .06 .07
1997
Revenue..................................... $175,312 $206,096 $228,448 $253,203
Earnings before income taxes and
extraordinary loss........................ 5,101 17,394 31,422 31,686
Earnings before extraordinary loss.......... 2,997 10,378 18,495 17,138
Extraordinary loss, net of income taxes..... -- -- -- (1,700)
Net earnings, basic basis................... 2,997 10,378 18,495 15,438
Net earnings, diluted basis................. 3,805 11,185 19,313 16,147
Earnings per share before extraordinary
item, basic basis......................... .14 .48 .79 .65
Extraordinary loss, net of income taxes,
basic basis............................... -- -- -- (.06)
Basic earnings per share.................... .14 .48 .79 .59
Earnings per share before extraordinary
item, diluted basis....................... .14 .40 .64 .55
Extraordinary loss net of income taxes,
diluted basis............................. -- -- -- (.05)
Diluted earnings per share.................. .14 .40 .64 .50
Dividends paid per share.................... .06 .06 .06 .06
</TABLE>
17
<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion is intended to provide information to facilitate
the understanding and assessment of significant changes and trends related to
the financial condition and results of operations of the Company. The discussion
and analysis below includes the results of operations of Granite Financial, Inc.
(acquired February 26, 1998) and Alamo Title Holding Company (acquired August
20, 1998) for each of the years ended December 31, 1998, 1997 and 1996, as the
acquisitions of Granite and Alamo have been accounted for as
poolings-of-interests. This discussion and analysis should be read in
conjunction with the Company's Consolidated Financial Statements and the Notes
thereto appearing elsewhere herein.
OVERVIEW
The following table sets forth certain financial and other data for the
years indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
---------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Total revenue......................................... $1,288,465 $863,059 $734,795
========== ======== ========
Total expenses........................................ $1,113,331 $777,456 $686,569
========== ======== ========
Earnings before extraordinary item.................... $ 105,692 $ 49,008 $ 29,241
Extraordinary item -- loss on early retirement of
debt, net of income taxes........................... -- (1,700) --
---------- -------- --------
Net earnings................................ $ 105,692 $ 47,308 $ 29,241
========== ======== ========
Return on average equity before extraordinary
item(1)............................................. 31.5% 22.4% 21.2%
Return on average equity including extraordinary
item(1)............................................. 31.5% 21.7% 21.2%
</TABLE>
- ---------------
(1) Percentage return on average equity is net earnings for the period divided
by the simple average of total stockholders' equity as of the beginning and
end of each year presented.
Title insurance revenue is closely related to the level of real estate
activity and the average price of real estate sales. Real estate sales are
directly affected by the availability of funds to finance purchases, i.e.,
mortgage interest rates. Other factors affecting real estate activity include
demand, family income levels and general economic conditions. While the level of
sales activity was relatively depressed in certain geographical areas during the
period 1991 through mid-1993, lower mortgage interest rates beginning in the
latter part of 1991 triggered an increase in refinancing activity which
continued at then record levels through 1993 and into the first quarter of 1994.
During 1994 and early 1995, steady interest rate increases caused by actions
taken by the Federal Reserve Board resulted in a significant decline in
refinancing transactions and a stagnation in residential resales and new home
sales. Since late 1995, decreases in mortgage interest rates and the resulting
improvement in the real estate market have had a favorable effect on the level
of real estate activity, including refinancing transactions, new home sales and
resales. The overall economic environment, stable mortgage interest rates and
strength in the real estate market, especially in California and on the West
Coast, contributed to very positive conditions for the industry throughout 1996,
1997 and 1998. It is impossible to predict in what future direction interest
rates and the real estate market may move or fluctuate.
During 1995 and prior, the majority of the Company's total title-related
revenue was generated from direct operations. The Company traditionally focused
on direct operations because it retains the entire premium from each transaction
and is better able to generate additional revenues by promoting and cross-
selling other title-related services. In 1996, the Company continued the
implementation of its strategy to become a leading national title underwriter by
expanding into other markets and diversifying its premium revenue base to a more
balanced mix of direct and agency operations.
On April 1, 1996, the Company completed its acquisition of the Nations
Title Inc. group of companies. The acquisition positioned Fidelity National
Financial, Inc. as the nation's fourth largest title insurance underwriter.
Nations Title Inc. and its three wholly-owned underwriting subsidiaries, Nations
Title Insurance
18
<PAGE> 21
Company (which was subsequently merged into Fidelity Title), Nations Title
Insurance of New York Inc. and National Title Insurance of New York Inc.,
expanded the Company's national agency network and increased its market share in
the more traditional agency driven states. The Nations Title Inc. acquisition
resulted in additional agency business and a shift in the mix of business from
direct to agency during 1996. The revenue and expense information presented in
Management's Discussion and Analysis of Financial Condition and Results of
Operations includes the Nations Title Inc. group's results of operations for the
nine-month period ended December 31, 1996 and for the years ended December 31,
1997 and 1998. In 1996, the total title-related revenue (excluding interest and
investment income and non-title-related other fees and revenue) generated by
agency operations increased to 41.3% from 32.4% in 1995.
During 1997 the Company sold a majority interest of its subsidiary American
Title Company ("ATC"), an underwritten title company, to certain members of
ATC's management. See "Recent Developments" and Note B of Notes to Consolidated
Financial Statements. ATC functions as an exclusive agent of the Company, and
represents one of the Company's largest agents.
Also, during 1996 and 1997, the Company acquired certain ancillary service
companies in various separate transactions. See "Recent Developments" and Note B
of Notes to Consolidated Financial Statements. The acquired ancillary service
companies have been bundled with other existing lender services to form Fidelity
National Lender Express Network ("FLEXNet"). FLEXNet provides a complete range
of real estate transactional services, leading to a broader base of services
provided and increased other fees and revenue.
The acquisition of Alamo Title Holding Company and subsidiaries, which
closed on August 20, 1998, provided additional balance between the Company's
direct and agency operations with the strength of Alamo's direct and agency
operations in the important Texas market. See "Recent Developments" and Note B
of Notes to Consolidated Financial Statements. As a result of its acquisitions
of Nations and Alamo, the Company has significantly expanded the national scope
of its core title operations by expanding its direct operations in key markets
and balancing the mix of its direct and agency operations.
The Company also earns income from its non-title related operations and
from its investment portfolio.
The following table sets forth information regarding title-related revenue
derived from direct and agency operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
% % %
OF OF OF
1998 TOTAL 1997 TOTAL 1996 TOTAL
---------- -------- -------- -------- -------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenue from direct operations:
Title insurance premiums.......... $ 425,551 37.9% $286,487 37.5% $272,132 40.0%
Escrow fees....................... 130,299 11.6 86,033 11.3 71,122 10.5
Other title-related fees and
revenue........................ 83,724 7.4 62,227 8.1 55,607 8.2
---------- ----- -------- ----- -------- -----
Total..................... 639,574 56.9 434,747 56.9 398,861 58.7
Revenue from agency operations:
Title insurance premiums.......... 484,727 43.1 329,587 43.1 280,667 41.3
---------- ----- -------- ----- -------- -----
Total title-related
revenue................. $1,124,301 100.0% $764,334 100.0% $679,528 100.0%
========== ===== ======== ===== ======== =====
</TABLE>
The Company's strategies are to (i) maximize operating profits by
increasing its share of the title insurance business in the markets it serves;
(ii) effectively manage operating expenses through the real estate cycle; (iii)
minimize net claim payments and (iv) continue to implement a value-added
acquisition and diversification strategy. The Company intends to execute these
strategies by continuing to implement the following elements:
- expand into the commercial title insurance market while maintaining its
strong position in the residential and institutional lender markets;
19
<PAGE> 22
- generate an increasing portion of its revenue from the sale of ancillary
services;
- develop and integrate advanced proprietary technologies that respond to
the needs of customers in each of its markets;
- adhere to quality controls and strict monitoring of direct and agency
operations to minimize title claims paid;
- maintain a balance between direct and agency distribution to enable it to
compete profitably on a national basis;
- explore opportunities that are less interest rate sensitive; and
- deliver quality customer service and provide its employees with extensive
training and incentive and equity based compensation programs.
RESULTS OF OPERATIONS
REVENUE. The following table presents information regarding the components
of the Company's revenue:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
---------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Title insurance premiums.................. $ 910,278 $616,074 $552,799
Escrow fees............................... 130,299 86,033 71,122
Other fees and revenue.................... 208,301 125,146 91,647
Interest and investment income, including
realized gains (losses)................. 39,587 35,806 19,227
---------- -------- --------
Total revenue................... $1,288,465 $863,059 $734,795
========== ======== ========
Orders opened by direct operations........ 987,000 621,000 575,000
Orders closed by direct operations........ 670,000 436,000 430,000
</TABLE>
Favorable mortgage interest rates in the latter part of 1991 through early
1994 triggered refinancing activity at then record levels. Beginning in early
1994 through mid-1995, steady interest rate increases caused by actions taken by
the Federal Reserve Board resulted in a significant decline in refinancing
transactions and a stagnation in residential resales and new home sales. Title
orders and requests for title-related services followed the market trend as
expected. Since late 1995, decreases in mortgage interest rates and the
resulting improvement in the real estate market have had a positive impact on
the level of real estate activity, order counts and closed orders. The overall
economic environment, stable mortgage interest rates in the seven percent range
and strength in the real estate market, especially in California, the Company's
strongest market, and on the West Coast, were positive factors through 1996,
1997 and 1998.
Total revenue in 1998 increased 49.3% to $1,288.5 million from $863.1
million in 1997. Revenue in 1997 of $863.1 million reflected a 17.5% increase
from 1996 revenue of $734.8. The increases in total revenue are primarily the
result of strength in the Company's core title and real estate related
operations, which were positively impacted by favorable market conditions
leading to an increase in real estate activity. The increased real estate
activity, combined with acquisitions of ancillary service companies and the
integration of those service operations into the Company's core businesses, also
contributed to the increased revenues. Results of operations in 1997 also
include a full year of operations of Nations, which was acquired in April 1996.
Title insurance premiums, increased by 47.8% to $910.3 million in 1998 from
$616.1 million in 1997. In 1997, title premiums increased by 11.4% to $616.1
million from $552.8 million in 1996. The increases in title premiums reflect the
favorable real estate market and a significant increase in title premiums from
agency operations resulting primarily from the Nations Title Inc. acquisition in
1996. Prior to the acquisition of the Nations Title Inc. group of companies,
which was completed on April 1, 1996, the Company generated the majority of its
title premiums from its network of direct operations as opposed to agency
relationships, the latter being more common in the title industry. The
acquisition of the Nations group of companies increased
20
<PAGE> 23
the Company's agency force to 2,000 at the end of 1996 from 1,100 at the end of
1995. The percentage of title insurance premiums generated by agency operations
was 53.3%, 53.5% and 50.8% in 1998, 1997 and 1996, respectively.
The Company's direct operations generate escrow fees from holding funds and
documents in connection with the closing of real estate transactions, as well as
real estate information and technology service fees, trustee sale guarantee
fees, credit reporting fees, attorney service fees, flood certification fees,
tax monitoring fees, home warranty insurance premiums, reconveyance fees,
recording fees, foreclosure publishing and posting service fees and exchange
intermediary service fees in connection with real estate transactions.
The trends in escrow fees are primarily related to the title insurance
activity generated by the Company's direct operations. Escrow fees have
fluctuated during the 1998, 1997 and 1996 years in a pattern generally
consistent with the fluctuation in title insurance premiums. Escrow fees
increased $44.3 million to $130.3 million in 1998, a 51.5% increase from $86.0
million in 1997. This increase is consistent with the trend in title premiums,
but is also due to the Company's focused efforts to expand its escrow market
presence in certain areas, such as Southern California. Escrow fees increased
$14.9 million to $86.0 million in 1997, a 21.0% increase from $71.1 million in
1996. See "Overview."
Other fees and revenue trend closely with the level and mix of business, as
well as the performance of certain of the Company's title-related subsidiaries.
During 1996 and 1997, the Company acquired certain ancillary service companies
in various separate transactions. See "Recent Developments" and Note B of Notes
to Consolidated Financial Statements. The Company's strategy in making the
ancillary service company acquisitions was to acquire previously existing
entities in businesses it believed to be complementary to its core title and
escrow businesses. Further, the Company sought to acquire companies with strong
management and efficient operations in order to provide for a seamless
transition from their being stand-alone operations to being subsidiaries of the
Company and to prevent any disruption of the acquired companies' businesses,
while minimizing integration costs. The integration of the ancillary service
companies continues as expected and integration related costs have been
negligible. The acquired ancillary service companies have been bundled with
other existing lender services to form Fidelity National Lender Express Network
("FLEXNet"). Utilizing its extensive network of direct operations as its primary
distribution channel and FLEXNet as the platform to provide a comprehensive
network of real estate related services, the Company has made a concerted effort
to develop the ancillary service contribution to title and real estate related
revenue. The Company has been able to leverage its core title and escrow
businesses, national presence and proprietary technology in successfully
expanding the market presence of its ancillary service businesses. FLEXNet
provides a complete range of real estate transactional services, leading to
increased other fees and revenues in 1998 as compared to 1997 and in 1997
compared to 1996. 1998 other fees and revenue were $208.3 million, an increase
of $83.2 million, or 66.4%, over 1997 other fees and revenue of $125.1 million.
In 1997, other fees and revenue increased $33.5 million, or 36.6%, to $125.1
million from $91.6 million in 1996. The year over year increases are primarily
attributable to the growth of the ancillary service businesses.
Interest and investment income levels are primarily a function of
securities markets, interest rates and the amount of cash available for
investment. 1998 investment income increased $3.8 million, or 10.6%, to $39.6
million compared to $35.8 million in 1997. Average invested assets, excluding
real estate, increased 28.6% to $482.5 million in 1998 from $375.1 million in
1997, while the tax equivalent yield remained at 5.5%. The increase in
investment income in 1998 over 1997 is primarily the result of an increase in
interest and dividend income generated by the increased invested asset base. Net
realized gains from the sale of investment securities and other assets in 1998
were $17.2 million compared to $16.8 million in 1997. Included in 1998 net
realized gains is a gain from the conversion of the Company's investment in Data
Tree Corporation of approximately $9.7 million. The Company shifted the emphasis
in its fixed income portfolio from taxable to non-taxable securities during
1997. During 1997, interest and investment income increased 86.2% to $35.8
million from $19.2 million in 1996. Average invested assets, excluding real
estate, increased $71.2 million, or 23.4%, to $375.1 million in 1997 from $303.9
million in 1996. The difference in investment income is primarily attributable
to increased capital gains in 1997 compared to 1996. During 1997, the Company
recognized $16.8 million of capital gains compared to $2.5 million of capital
gains recorded in 1996. The primary components of 1997 capital gains, prior to
applicable income taxes, are the following: $10.4 million in
21
<PAGE> 24
capital gains from the sale of investment securities and other assets, $4.3
million in capital gain from the sale of the Company's former home office
building, $1.3 million from the sale of a majority interest in American Title
Company and approximately $800,000 in capital gain from the sale of the
Company's former small business investment company subsidiary, FNF Ventures,
Inc. See "Recent Developments."
EXPENSES. The following table presents the components of the Company's
expenses:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
---------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Personnel costs........................... $ 394,284 $273,221 $240,232
Other operating expenses.................. 257,080 189,226 176,524
Agent commissions......................... 385,649 261,182 221,948
Provision for claim losses................ 59,294 41,558 36,275
Interest expense.......................... 17,024 12,269 11,590
---------- -------- --------
Total expenses.................. $1,113,331 $777,456 $686,569
========== ======== ========
</TABLE>
The Company's operating expenses primarily consist of personnel costs and
other operating expenses which are incurred as orders are received and
processed. Title insurance premiums, escrow fees and other fees and revenue are
generally recognized as income at the time the underlying transaction closes.
Certain other fees and revenue are recognized over the period the related
services are provided. As a result, revenue lags approximately 60-90 days behind
expenses and therefore gross margins may fluctuate.
Personnel costs include base salaries, commissions and bonuses paid to
employees and are the most significant operating expense incurred by the
Company. These costs generally fluctuate with the level of orders opened and
closed and with the mix of revenue. Personnel costs totalled $394.3 million,
$273.2 million and $240.2 million for the years ended December 31, 1998, 1997
and 1996, respectively. See "Overview" and "Revenue." Personnel costs, as a
percentage of total revenue, have decreased to 30.6% in 1998 from 31.7% in 1997,
which had previously decreased from 32.7% in 1996. The Company has taken
significant measures to maintain appropriate personnel levels and costs relative
to the volume and mix of business and revenues. These fluctuations reflect a
continuing emphasis on expense control and an increase in productivity resulting
from the Company's automation and electronic commerce. The Company will not,
however, compromise its customer service standards or quality controls in
responding to market conditions. The Company continues to monitor the prevailing
market conditions and will adjust personnel costs in accordance with activity.
Other operating expenses consist of facilities expenses, title plant
maintenance, premium taxes (which insurance underwriters are required to pay on
title premiums and title-related revenue in lieu of franchise and other state
taxes), escrow losses, postage and courier services, computer services,
professional services, advertising expenses, general insurance, trade and notes
receivable allowances and depreciation. In response to market conditions, the
Company implemented aggressive cost control programs in order to maintain
operating expenses at levels consistent with the levels of revenue; however,
certain fixed costs are incurred regardless of revenue levels, resulting in year
over year percentage fluctuations. Other operating expenses decreased as a
percentage of total revenue to 20.0% in 1998 from 21.9% in 1997, which had
previously decreased from 24.0% in 1996. The Company continues to be committed
to cost control measures. The Company's cost control programs are designed to
evaluate expenses, both current and budgeted, relative to existing and projected
market conditions. Items considered include, but are not limited to, capital
expenditures, service contracts, property requirements (e.g.,
renewal/termination of leases and relocation of offices), expected fluctuations
in the number of personnel, the impact of technology and profitability.
Additionally, the Company has centralized its purchasing function in order to
obtain the most favorable prices/rates available for vendor provided services
and products which also facilitates a highly structured requisition/approval
process and cost analysis program. Total other operating expenses totalled
$257.1 million, $189.2 million and $176.5 million in 1998, 1997 and 1996,
respectively. See "Overview."
The 1996 addition of Nations Title Inc. title premiums, which are primarily
agency-related, has provided a balance between direct operation and agency
revenue. In previous periods the majority of title premiums and
22
<PAGE> 25
total revenue were generated by direct operations, which resulted in higher
personnel costs and other operating expenses.
Agent commissions represent the portion of premiums retained by agents
pursuant to the terms of their respective agency contracts. The following table
illustrates the relationship of agent premiums and agent commissions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1998 1997 1996
----------------- ----------------- -----------------
AMOUNT % AMOUNT % AMOUNT %
-------- ----- -------- ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Agent premiums.................... $484,727 100.0% $329,587 100.0% $280,667 100.0%
Agent commissions................. 385,649 79.6 261,182 79.2 221,948 79.1
-------- ----- -------- ----- -------- -----
Premiums retained by the
Company...................... $ 99,078 20.4% $ 68,405 20.8% $ 58,719 20.9%
======== ===== ======== ===== ======== =====
</TABLE>
Agent commissions and the resulting percentage of agent premiums retained
by the Company vary according to regional differences in real estate closing
practices and state regulations. During 1997, the Company sold a majority
interest in its underwritten title company subsidiary ATC, resulting in the
transfer of premiums from direct operations to agency operations and increased
commission expense in 1997 compared to 1996, as well as a decrease in premiums
retained by the Company on a year over year basis. Commission rates paid to ATC
are higher than average commission rates paid to the 1996 agent base. The
combination of higher agency commission rates and the significant agency revenue
generated since the sale of ATC and by the Nations Title Inc. acquisition has
resulted in higher overall commissions.
The provision for claim losses includes an estimate of anticipated title
claims and major claims. The estimate of anticipated title claims is accrued as
a percentage of title premium revenue based on the Company's historical loss
experience and other relevant factors. The Company monitors its claims
experience on a continual basis and adjusts the provision for claim losses
accordingly. Based on Company loss development studies, the Company believes
that as a result of its underwriting and claims handling practices, as well as
the refinancing business of prior years, the Company will maintain the trend of
favorable claim loss experience. Based on this information, in 1998, 1997 and
1996, the Company recorded a provision for claim losses of 7.0% of title
insurance premiums prior to major claim expense, net of recoupments and prior to
the impact of premium rates and Company loss experience in the state of Texas.
Premiums in Texas are all-inclusive and include a closing fee in addition to a
risk-related premium, which differs from similar coverage in other states, while
loss experience is comparable. As a result, the provision for claim losses in
Texas is much lower than in states that do not have all-inclusive premiums.
These factors resulted in a net provision for claim losses of 6.5%, 6.7% and
6.6% in 1998, 1997 and 1996, respectively.
23
<PAGE> 26
A summary of the reserve for claim losses follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Beginning balance.......................................... $201,674 $196,527 $153,207
Reserves assumed from First Title Corp................... -- 284 --
Reserves transferred due to the sale of American Title
Company............................................... -- (160) --
Reserves assumed from Nations Title Inc. ................ -- -- 45,171
Title claim loss provision related to:
Current year........................................ 59,294 39,301 35,478
Prior years......................................... -- 2,257 797
-------- -------- --------
Total title claim loss provision................. 59,294 41,558 36,275
Title claims paid, net of recoupments related to:
Current year.......................................... (1,045) (3,385) (2,749)
Prior years........................................... (35,389) (33,150) (35,377)
-------- -------- --------
Total title claims paid, net of recoupments...... (36,434) (36,535) (38,126)
-------- -------- --------
Ending balance............................................. $224,534 $201,674 $196,527
======== ======== ========
Provision for title claim losses to title insurance
premiums................................................. 6.5% 6.7% 6.6%
</TABLE>
Interest expense is incurred by the Company in financing its capital asset
purchases, lease originations, certain acquisitions and certain general
corporate purposes. Interest expense consists of interest related to the
Company's outstanding debt and the amortization of original issue discount and
debt issuance costs related to the Liquid Yield Option Notes due 2009 ("LYONs")
issued in February 1994. Interest expense on non-LYONs debt totalled $12.8
million, $7.0 million and $6.4 million for the years 1998, 1997 and 1996,
respectively. The LYONs-related component of interest expense amounted to $4.2
million, $5.3 million and $5.2 million for 1998, 1997 and 1996, respectively.
Included in 1998 interest expense is $4.7 million of interest relating to the
settlement of an Internal Revenue Service examination for the tax years 1990
through 1994. Excluding the interest expense related to the tax examination, the
fluctuation in interest expense can be attributed to an increase in non-LYONs
debt outstanding offset by more favorable interest rates in 1998 than 1997, and
improved rates in 1997 compared to 1996. See "Extraordinary Item" and "Recent
Developments."
Income tax expense for 1998, 1997 and 1996, as a percentage of earnings
before income taxes, including the extraordinary losses in 1997 was 39.7%, 42.8%
and 39.4%, respectively. See "Extraordinary Item." The fluctuations in income
tax expense as a percentage of earnings before income taxes, including the
extraordinary item, are attributable to the effect of state income taxes on the
Company's wholly-owned underwritten title companies and ancillary service
companies; a change in the amount and characteristics of net income, operating
income versus investment income; and the tax treatment of certain items. See
Note I of Notes to Consolidated Financial Statements for additional information
regarding income taxes.
EXTRAORDINARY ITEM. In an effort to reduce the leverage of the Company
while taking advantage of the favorable environment relative to the Company's
common stock, on October 17, 1997, the Company, in a private transaction,
purchased $45 million aggregate principal amount at maturity of its outstanding
Liquid Yield Option Notes due 2009 from Merrill Lynch, Pierce, Fenner & Smith
Incorporated for an aggregate purchase price of $27.2 million (or $605 per
$1,000 principal amount at maturity of LYONs), which exceeded the accreted value
recorded by the Company pursuant to the LYONs Indenture at that date. The
purchase price was paid in the form of 1,394,381 shares, $26.4 million, of the
Company's common stock and $790,000 in cash. The purchase of the LYONs increased
stockholders' equity by approximately $24.7 million while reducing outstanding
debt by approximately $24.3 million. An extraordinary loss due to the early
retirement of debt of approximately $1.7 million, net of applicable income
taxes, related to this transaction has been recorded in the Consolidated
Statement of Earnings for the year ended December 31, 1997. See "Recent
Developments."
24
<PAGE> 27
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements include debt service, operating expenses,
lease fundings, lease securitizations, taxes and dividends on its common stock.
The Company believes that all anticipated cash requirements for current
operations will be met from internally generated funds, through cash received
from subsidiaries, cash generated by investment securities and bank borrowings
through existing credit facilities.
Two of the significant sources of the Company's funds are dividends and
distributions from its subsidiaries. As a holding company, the Company receives
cash from its subsidiaries in the form of dividends and as reimbursement for
operating and other administrative expenses it incurs. The reimbursements are
executed within the guidelines of various management agreements among the
Company and its subsidiaries. Fluctuations in operating cash flows are primarily
the result of increases or decreases in revenue. See "Overview." The Company's
Insurance Subsidiaries and UTCs collect premiums and pay claims and operating
expenses. The Insurance Subsidiaries also have cash flow sources derived from
investment income, repayments of principal and proceeds from sales and
maturities of investments and dividends from subsidiaries. Positive cash flow
from the Insurance Subsidiaries is invested primarily in short-term investments
and medium-term bonds. Short-term investments held by the Company's Insurance
Subsidiaries provide liquidity for projected claims and operating expenses. The
Insurance Subsidiaries are restricted by state regulations in their ability to
pay dividends and make distributions. Each state of domicile regulates the
extent to which the Company's title underwriters can pay dividends or make other
distributions to the Company. The UTCs are also regulated by insurance
regulatory or banking authorities. The Company's ancillary service and leasing
subsidiaries collect revenue and pay operating expenses; however, they are not
regulated by insurance regulatory or banking authorities. Positive cash flow
from the UTCs and ancillary service subsidiaries is invested primarily in cash
and cash equivalents.
The short- and long-term liquidity requirements of the Company, Insurance
Subsidiaries, UTCs, ancillary service and leasing subsidiaries are monitored
regularly to match cash inflows with cash requirements. The Company, Insurance
Subsidiaries, UTCs and ancillary service subsidiaries forecast their daily cash
needs and periodically review their short- and long-term projected sources and
uses of funds, as well as the asset, liability, investment and cash flow
assumptions underlying these projections.
For purposes of satisfying insurance regulatory requirements, the Company
is required to maintain certain levels of readily marketable securities and
other liquid assets. At December 31, 1998, the fair value of the Company's total
investment securities was approximately $510.5 million, approximately $207.2
million of which have been designated to support statutory liabilities,
primarily the combined unearned premium reserve. These investments consist of
securities which the Company believes are readily marketable and could be
liquidated if necessary. See "Business -- Investment Policies and Investment
Portfolio."
Effective August 1, 1998, the Company closed a $100 million credit
agreement. Certain of the proceeds were utilized to refinance previously
existing credit facilities. Additional amounts available under the new credit
agreement are available for general corporate purposes. The Company believes
that the terms and conditions of the $100 million credit agreement are
significantly more favorable than those that existed previously. See Note H of
Notes to Consolidated Financial Statements.
The Company must comply with certain affirmative and negative covenants
related to its bank revolving lines of credit and other debt facilities, which
require, among other things, that the Company maintain certain financial ratios
related to liquidity, net worth, capitalization, investments, acquisitions,
restricted payments and certain dividend restrictions. The Company is in
compliance with all of its debt covenants at December 31, 1998.
In February 1994, the Company issued zero coupon, convertible subordinated
Liquid Yield Option Notes due February 2009 at an interest rate of 5.5% with a
principal amount at maturity of $235,750,000. Net proceeds to the Company were
approximately $101,000,000. The proceeds were used for investment and general
corporate purposes, including the repurchase of treasury shares. The amount of
LYONs outstanding on December 31, 1998 was $124,113,000 of maturity value. On
January 13, 1999, the Company announced that it was going to redeem, pursuant to
the terms of the indenture, its outstanding Liquid Yield Option Notes
25
<PAGE> 28
due 2009 for $581.25 per $1,000 maturity value on February 15, 1999.
Additionally, the LYONs holders had the right to convert the outstanding LYONs
to 28.077 shares of Company common stock per $1,000 maturity value of LYONs at
any time. As of February 15, 1999, $123,681,000 maturity value of LYONs had
converted to 3,473,000 shares of common stock, adding approximately $70 million
to equity while reducing outstanding notes payable by a like amount. The
remaining $432,000 of maturity value was redeemed for cash of approximately
$251,000. See Note H of Notes to Consolidated Financial Statements.
In the normal course of business certain of the Company's subsidiaries
enter into off-balance sheet credit risk associated with certain aspects of its
title insurance policies and Manchester's real estate activities. This credit
risk is in the form of standby letters of credit and general partnership
guarantees. The Company believes that this credit risk is adequately secured by
either legal remedies associated with settlement procedures or the underlying
real estate assets. See Note K of Notes to Consolidated Financial Statements.
SEASONALITY. Historically, the greatest volume of residential resale
activity has occurred in the spring and summer months. However, events during
the past five years, including numerous actions taken by the Federal Reserve
Board, have caused unusual fluctuations in real estate activity, particularly in
the seasonal pattern of resale and refinance activity. The Company cannot
predict whether the historical pattern of resale and refinance activity will
continue to be affected by such outside factors.
INFLATION. To the extent real estate prices or mortgage interest rates
increase due to inflationary factors, the Company's title insurance premium
revenue generally increases because premiums are determined in part by the value
of property or the amount of the mortgage loan. The Company's personnel costs
and other operating expenses are also sensitive to inflation.
RECENT DEVELOPMENTS. On April 4, 1996, the Company purchased 17% of the
outstanding common stock of National Alliance Marketing Group, Inc. ("National
Alliance"), a California corporation, for $566,667; together with a warrant to
acquire an additional 14% of National Alliance common stock. In addition, the
Company loaned $1,200,000 to National Alliance at closing at a rate of Prime
plus one percent. Subsequently, the Company agreed to increase the credit
facility from $1,200,000 to $1,700,000. In consideration for the increase in the
credit facility National Alliance agreed to increase the warrant shares which
the Company could purchase. If the entire $1,700,000 was borrowed the Company
could purchase an additional 34% of the outstanding shares of National Alliance.
After receiving approval of the transaction from the California Department of
Insurance, the transaction closed on July 12, 1996. National Alliance is the
parent company of Alliance Home Warranty Company ("Alliance"), a California
insurance company. Alliance sells home warranty plans to buyers of resale homes,
primarily in the Central and Southern California markets. A home warranty
contract generally promises the repair or replacement of major operating systems
and built-in appliances inside a home for a period of one year. On July 3, 1997,
the Company converted the outstanding note balance in conjunction with the
exercise of the warrants and then owned 51% of the outstanding common stock of
National Alliance. The outstanding balance of the note receivable due from
National Alliance at conversion was approximately $1.6 million. On August 14,
1998, the Company acquired the outstanding minority interest in National
Alliance, 49%, for a purchase price of $3,320,000. The Company now owns 100% of
National Alliance, which is now known as Fidelity National Home Warranty. The
acquisition of National Alliance has been accounted for as a purchase. See Note
B of Notes to Consolidated Financial Statements.
Effective July 1, 1997, the Company sold a majority interest (60%) of its
subsidiary American Title Company ("ATC"), an underwritten title company, to
certain members of ATC's management. ATC functions as an exclusive agent of the
Company. The sale price of the 60% interest was $6.0 million resulting in a
realized gain of approximately $1.3 million before applicable income taxes. As a
result of a tax free reorganization of American National Financial, Inc.
("ANFI"), the parent company of ATC and its subsidiaries, in November 1998, the
Company's interest in ATC was converted to an ownership interest of
approximately 43% of ANFI. Subsequent to ANFI's initial public offering in
February 1999, the Company's ownership interest in ANFI became approximately
31.5%. The Company's investment in ANFI is accounted for under the equity
method. Additionally, on March 18, 1998, the Company announced that it had
entered into an agreement to sell National Title Insurance of New York Inc. to
ATC for $3.25 million, subject to regulatory approval and certain other
conditions. The purchase price is structured at a premium to book value.
26
<PAGE> 29
National was acquired in April 1996, as part of the Nations Title Inc.
acquisition, and has not been actively underwriting policies since the
transaction closed. This transaction has not yet received regulatory approval.
See Notes C and L of Notes to Consolidated Financial Statements.
On July 22, 1997, the Company purchased 1,000,000 shares of common stock of
GB Foods Corporation, now known as Santa Barbara Restaurant Group ("SBRG"),
which represented approximately 15.5% of the outstanding common stock of SBRG
for a purchase price of $5.0 million. Additionally, the Company purchased
warrants to acquire an additional 3,500,000 shares of SBRG at various prices
ranging from $5.00 - $7.50 for a purchase price of $800,000; 1,500,000 warrants
exercisable at $5.00 per share, 1,000,000 warrants exercisable at $7.00 per
share and 1,000,000 warrants exercisable at $7.50 per share. In conjunction with
the common stock purchase, the Company gained control of three seats on the SBRG
Board of Directors. During 1998, the Company exercised 1,000,000 of the $5.00
warrants in conjunction with an acquisition by SBRG in order to provide SBRG
additional capital. In addition, on December 31, 1998, the Company exchanged
certain investments in restaurant common stocks with a combined value of $9.45
million for an additional 2,478,000 shares of SBRG. The Company now owns
approximately 31.1% of SBRG. The Company's investment in SBRG is accounted for
under the equity method. See Note C of Notes to Consolidated Financial
Statements.
On October 17, 1997, the Company in a private transaction, purchased $45
million aggregate principal amount at maturity of its outstanding Liquid Yield
Option Notes due 2009 from Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") for an aggregate purchase price of $27.2 million (or $605 per
$1,000 principal amount at maturity of LYONs). The purchase price was paid in
the form of 1,394,381 shares, $26.4 million, of the Company's common stock (the
"Exchange Shares"). The Company also paid Merrill Lynch the excess of a base
price of $19.53 per Exchange Share over the actual sales price (less $0.05 per
share in commissions) realized by Merrill Lynch for sales of up to 607,881
Exchange Shares. The Company also paid Merrill Lynch, for each day, an amount in
cash to be determined by multiplying the Net Carry Amount (number of Exchange
Shares multiplied by $19.53) by the Applicable Rate (LIBOR plus 2.50%). The
Company's payment obligations were subject to reduction for dividends on
Exchange Shares received by Merrill Lynch during the period. The Company paid
the foregoing amounts to Merrill Lynch in cash of approximately $790,000 on
November 7, 1997. The purchase of the LYONs increased stockholders' equity by
approximately $24.7 million while reducing outstanding debt by approximately
$24.3 million. Additionally, an extraordinary loss due to the early retirement
of debt of approximately $1.7 million, net of applicable income taxes, was
recorded in the fourth quarter of 1997. The maturity value of LYONs outstanding
at December 31, 1998 was approximately $124,113,000.
On January 13, 1999, the Company announced that it was going to redeem,
pursuant to the terms of the indenture, its outstanding Liquid Yield Option
Notes due 2009 for $581.25 per $1,000 maturity value on February 15, 1999.
Additionally, the LYONs holders had the right to convert the outstanding LYONs
to 28.077 shares of Company common stock per $1,000 maturity value of LYONs at
any time. As of February 15, 1999, $123,681,000 maturity value of LYONs had
converted to 3,473,000 shares of common stock, adding approximately $70 million
to equity while reducing outstanding note payable by a like amount. The
remaining $432,000 of maturity value was redeemed for cash of approximately
$251,000.
On April 17, 1998, the Company announced it had acquired an approximate
19.9% interest in Cruttenden Roth, a privately held investment banking firm
located in Newport Beach, California, for a purchase price of $5,800,000,
payable $3,750,000 in Company common stock (117,857 shares) and $2,050,000 in
cash. The Company also acquired an option to increase its ownership to 25.6%. In
connection with the acquisition, the Company also provided Cruttenden Roth
working capital in the amount of $3,500,000 in exchange for a note.
Effective August 1, 1998, the Company closed a $100 million credit
agreement. Certain of the proceeds were utilized to refinance previously
existing credit facilities. Additional amounts available under the new credit
agreement are available for general corporate purposes. The Company believes
that the terms and conditions of the $100 million credit agreement are
significantly more favorable than those that existed previously. See Note H of
Notes to Consolidated Financial Statements.
27
<PAGE> 30
The Company completed the sale of its wholly-owned subsidiary ACS Systems,
Inc. ("ACS") to Micro General Corporation (OTCBB:MGEN) ("Micro General") for 4.6
million shares of Micro General common stock, valued at $1,297,000, on May 14,
1998. ACS provides small to medium size businesses within the real estate
industry with software, systems integration and communication services including
telecommunications hardware, long distance reselling, computer hardware and
system software reselling, consulting services, technical services, internet
services, electronic commerce and title and escrow software applications. ACS
will continue to provide the above listed services to the Company at preferred
customer rates. This transaction has been accounted for as a reverse merger of
Micro General into the Company. The Company currently owns 70.6% of Micro
General Corporation. See Note B of Notes to Consolidated Financial Statements.
Additionally, on November 17, 1998, Micro General acquired LDExchange.com,
Inc. ("LDX"), for a purchase price of $3.1 million, payable $1.1 million in cash
and $2.0 million in Micro General common stock (1,000,000 shares). LDX is a
facilities based, wholesale carrier providing international telecommunication
services.
On June 3, 1998, the Company announced that as a result of the closing of
the merger of Data Tree Corporation ("Data Tree") with Image Acquisition
Corporation, a wholly-owned subsidiary of First American Financial Corporation
(NYSE:FAF), the Company's 27.9% ownership position in Data Tree was converted
into approximately 176,600 shares of First American Financial Corporation common
stock, resulting in a gain of $9.7 million, before applicable income taxes. The
Company's investment in Data Tree was approximately $3.0 million, including its
percentage equity in Data Tree's earnings. The gain on conversion has been
reflected in the Consolidated Statements of Earnings for the year ended December
31, 1998.
Effective September 1, 1998, the Company acquired 100% of Lexington Capital
Corporation ("Lexington"), a financial services company specializing in
financing national and regional franchisee accounts, headquartered in Deerfield,
Illinois, for a purchase price of $3.5 million, payable in $3.0 million in cash
and $500,000 in restricted common stock of the Company (15,129 shares). This
transaction has been accounted for as a purchase. See Note B of Notes to
Consolidated Financial Statements.
The Company's Board of Directors declared a cash dividend of $.07 per share
on March 17, 1999, which will be payable on May 28, 1999 to stockholders of
record on April 9, 1999.
On March 17, 1999, the Company's Board of Directors approved an increase to
the number of shares of outstanding Company common stock authorized for purchase
under the Company's previously announced purchase program. The new authorization
will permit the Company to purchase up to 4.0 million shares. Through March 25,
1999, the Company has purchased 1,202,050 shares at an average purchase price of
$16.61 per share totalling $19,960,000. Purchases may be made from time to time
by the Company in the open market or in block purchases or in privately
negotiated transactions depending on market conditions and other factors.
Also on March 17, 1999, the Company's Board of Directors approved the
adoption of the Fidelity National Financial, Inc. Employee Stock Purchase Loan
Plan ("Loan Plan"). The purpose of the Loan Plan is to provide key employees
with further incentive to maximize shareholder value. The Company intends to
offer an aggregate of $7,750,000 in loans. Loan Plan funds must be used to make
private or open market purchases of Company common stock through a broker-dealer
designated by the Company. All loans will be full recourse and unsecured, and
will have a five year term. Interest will accrue on the loans at a rate of 5%
per annum due at maturity. Loans may be prepaid at any time without penalty.
Through March 25, 1999, loans have been made in the amount of $5,700,000 to
purchase 382,650 shares of Company common stock at an average purchase price of
$14.90 per share.
RECENT ACCOUNTING PRONOUNCEMENTS. In June 1997, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes
standards for the reporting and display of comprehensive income and its
components (revenue, expenses, gains and losses) in a full set of
general-purpose financial statements. SFAS 130 requires all items that are
necessary to be recognized under accounting standards as components of
comprehensive income to be reported in a financial statement that is displayed
with the same prominence as other financial statements. SFAS 130 does not
require a specific format for that financial
28
<PAGE> 31
statement, but requires that an enterprise display an amount representing total
comprehensive earnings for the period covered by that financial statement. SFAS
130 requires an enterprise to (a) classify items of other comprehensive earnings
by their nature in a financial statement and (b) display the accumulated balance
of other comprehensive earnings separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position. SFAS
130 became effective for fiscal years beginning after December 15, 1997. The
adoption of SFAS 130 has not had a material impact on the Company's financial
reporting.
Also in June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures About Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 establishes standards for public business
enterprises to report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to stockholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. This statement supersedes FASB Statement
No. 14, "Financial Reporting for Segments of a Business Enterprise," but retains
the requirement to report information about major customers. It amends FASB
Statement No. 94, "Consolidation of All Majority-Owned Subsidiaries," to remove
the special disclosure requirements for previously unconsolidated subsidiaries.
SFAS 131 requires, among other items, that a public business enterprise report a
measure of segment profit or loss, certain specific revenue and expense items,
segment assets, information about the revenues derived from the enterprise's
products or services and major customers. SFAS 131 also requires that the
enterprise report descriptive information about the way that the operating
segments were determined and the products and services provided by the operating
segments. SFAS 131 became effective for financial statements for periods
beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years is to be restated. SFAS 131 need not
be applied to interim financial statements in the initial year of its
application, but comparative information for interim periods in the initial year
of application is to be reported in financial statements for interim periods in
the second year of application. The adoption of SFAS 131 has not had a material
impact on the Company's financial reporting.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, (collectively, "derivatives") and for hedging activities. SFAS 133
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (b) a hedge of
the exposure to variable cash flows of a forecasted transaction, or (c) a hedge
of the foreign currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. It requires changes in the
fair value of a derivative instrument and the changes in fair value of assets or
liabilities hedged by that instrument to be included in earnings. To the extent
that the hedge transaction is effective, earnings are equally offset by both
investments. Currently the changes in fair value of derivative instruments and
hedged items are reported in net unrealized gain (loss) on securities.
SFAS 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Initial application of this Statement should be as of the
beginning of an entity's fiscal quarter; on that date, hedging relationships
must be designated anew and documented pursuant to the provisions of this
Statement. Earlier application of all of the provisions of SFAS 133 is
encouraged, but it is permitted only as of the beginning of any fiscal quarter
that begins after issuance of this statement. The Company does not believe the
adoption of SFAS 133 will have a material impact on its financial reporting.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT THE MARKET RISK OF
FINANCIAL INSTRUMENTS
The Company's Consolidated Balance Sheet includes a substantial amount of
assets and liabilities whose fair values are subject to market risks. See
"Business -- Investment Policies and Investment Portfolio." The
29
<PAGE> 32
following sections address the significant market risks associated with the
Company's financial activities as of year end 1998.
Interest Rate Risk
The Company's fixed maturity investments and borrowings are subject to
interest rate risk. Increases and decreases in prevailing interest rates
generally translate into decreases and increases in fair values of those
instruments. Additionally, fair values of interest rate sensitive instruments
may be affected by the creditworthiness of the issuer, prepayment options,
relative values of alternative investments, the liquidity of the instrument and
other general market conditions.
Equity Price Risk
The carrying values of investments subject to equity price risks are based
on quoted market prices or management's estimates of fair value as of the
balance sheet date. Market prices are subject to fluctuation and, consequently,
the amount realized in the subsequent sale of an investment may significantly
differ from the reported market value. Fluctuation in the market price of a
security may result from perceived changes in the underlying economic
characteristics of the investee, the relative price of alternative investments
and general market conditions. Furthermore, amounts realized in the sale of a
particular security may be affected by the relative quantity of the security
being sold.
Caution should be used in evaluating the Company's overall market risk from
the information below, since actual results could differ materially because the
information was developed using estimates and assumptions as described below,
and because insurance liabilities (representing 39.3% of total liabilities) are
not included in the hypothetical effects. The LYONs are also excluded as they
have been converted or redeemed. See "Recent Developments" and Note H of Notes
to Consolidated Financial Statements.
The hypothetical effects of changes in market rates or prices on the fair
values of financial instruments would have been as follows as of December 31,
1998:
a. An approximate $12.1 million net increase (decrease) in the fair
value of fixed maturity securities would have occurred if interest rates
had (decreased) increased by 100 basis points. The change in fair values
was determined by estimating the present value of future cash flows using
various models, primarily duration modeling.
b. An approximate $10.0 million net increase (decrease) in the fair
value of equity securities would have occurred if there was a 20% price
increase (decrease) in market prices.
c. It is not anticipated that there would be a significant change in
the fair value of other long-term investments or short-term investments if
there was a change in market conditions, based on the nature and duration
of the financial instruments involved.
d. Interest expense on outstanding debt would have increased
(decreased) approximately $1.0 million, if interest rates increased
(decreased) 100 basis points.
30
<PAGE> 33
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Independent Auditors' Report................................ 32
Consolidated Balance Sheets as of December 31, 1998 and
1997...................................................... 33
Consolidated Statements of Earnings for the years ended
December 31, 1998, 1997 and 1996.......................... 34
Consolidated Statements of Comprehensive Earnings for the
years ended December 31, 1998, 1997 and 1996.............. 35
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1998, 1997 and 1996.............. 36
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996.......................... 37
Notes to Consolidated Financial Statements.................. 38
</TABLE>
31
<PAGE> 34
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Fidelity National Financial, Inc.:
We have audited the Consolidated Balance Sheets of Fidelity National
Financial, Inc. and subsidiaries as of December 31, 1998 and 1997 and the
related Consolidated Statements of Earnings, Comprehensive Earnings,
Stockholders' Equity and Cash Flows for each of the years in the three-year
period ended December 31, 1998. These Consolidated Financial Statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these Consolidated Financial Statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the Consolidated Financial Statements referred to above
present fairly, in all material respects, the consolidated financial position of
Fidelity National Financial, Inc. and subsidiaries as of December 31, 1998 and
1997, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1998 in conformity with
generally accepted accounting principles.
KPMG LLP
Los Angeles, California
February 17, 1999, except as to
Note Q to the Consolidated Financial Statements,
which is as of March 25, 1999
32
<PAGE> 35
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1997
-------- ----------
(RESTATED)
<S> <C> <C>
Investments:
Fixed maturities available for sale, at fair value........ $330,068 $239,818
Equity securities, at fair value.......................... 50,191 77,553
Other long-term investments, at cost, which approximates
fair value............................................. 40,278 18,008
Short-term investments, at cost, which approximates fair
value.................................................. 85,305 17,793
Investments in real estate and partnerships, net.......... 4,673 5,201
-------- --------
Total investments...................................... 510,515 358,373
Cash and cash equivalents................................... 51,309 72,887
Leases and residual interests in securitizations............ 93,507 53,782
Trade receivables (less allowance of $6,733 in 1998 and
$5,153 in 1997)........................................... 75,940 53,454
Notes receivable, net (including $1,798 in 1998 and $1,421
in 1997
with affiliated parties).................................. 10,761 10,163
Prepaid expenses and other assets........................... 111,471 96,352
Title plants................................................ 58,932 57,971
Property and equipment, net................................. 46,070 44,713
Deferred tax asset.......................................... 10,965 --
-------- --------
$969,470 $747,695
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued liabilities.................. $123,357 $ 78,023
Notes payable............................................. 214,624 163,015
Reserve for claim losses.................................. 224,534 201,674
Deferred income taxes..................................... -- 16,510
Income taxes payable...................................... 8,683 10,809
-------- --------
571,198 470,031
Minority interests........................................ 1,532 3,614
Stockholders' equity:
Preferred stock, $.0001 par value; authorized, 3,000,000
shares;
issued and outstanding, none........................... -- --
Common stock, $.0001 par value; authorized, 50,000,000
shares
in 1998 and 1997; issued, 35,540,036 in 1998 and
33,362,204 in 1997..................................... 3 3
Additional paid-in capital................................ 173,888 137,569
Retained earnings......................................... 265,567 167,222
-------- --------
439,458 304,794
Accumulated other comprehensive earnings.................. 11,657 23,631
Less treasury stock, 6,645,487 shares in 1998 and 1997, at
cost................................................... 54,375 54,375
-------- --------
396,740 274,050
Commitments and contingencies.............................
Subsequent events.........................................
-------- --------
$969,470 $747,695
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
33
<PAGE> 36
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1998 1997 1996
---------- ---------- ----------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
REVENUE:
Title insurance premiums.................................. $ 910,278 $616,074 $552,799
Escrow fees............................................... 130,299 86,033 71,122
Other fees and revenue.................................... 208,301 125,146 91,647
Interest and investment income, including realized gains
(losses)............................................... 39,587 35,806 19,227
---------- -------- --------
1,288,465 863,059 734,795
---------- -------- --------
EXPENSES:
Personnel costs........................................... 394,284 273,221 240,232
Other operating expenses.................................. 257,080 189,226 176,524
Agent commissions......................................... 385,649 261,182 221,948
Provision for claim losses................................ 59,294 41,558 36,275
Interest expense.......................................... 17,024 12,269 11,590
---------- -------- --------
1,113,331 777,456 686,569
---------- -------- --------
Earnings before income taxes and extraordinary item....... 175,134 85,603 48,226
Income tax expense........................................ 69,442 36,595 18,985
---------- -------- --------
Earnings before extraordinary item..................... 105,692 49,008 29,241
Extraordinary item -- loss on early retirement of debt,
net of applicable income tax benefit of $1,180......... -- (1,700) --
---------- -------- --------
Net earnings........................................... $ 105,692 $ 47,308 $ 29,241
========== ======== ========
Basic net earnings........................................ $ 105,692 $ 47,308 $ 29,241
========== ======== ========
Basic earnings per share before extraordinary item........ $ 3.79 $ 2.10 $ 1.43
Extraordinary item -- loss on early retirement of debt,
net of applicable income tax benefit, basic basis...... -- (0.07) --
---------- -------- --------
Basic net earnings per share.............................. $ 3.79 $ 2.03 $ 1.43
========== ======== ========
Weighted average shares outstanding, basic basis.......... 27,921 23,355 20,426
========== ======== ========
Diluted net earnings...................................... $ 108,155 $ 50,450 $ 32,437
========== ======== ========
Diluted net earnings per share before extraordinary
item................................................... $ 3.23 $ 1.76 $ 1.23
Extraordinary item -- loss on early retirement of debt,
net of applicable income tax benefit, diluted basis.... -- (0.06) --
---------- -------- --------
Diluted net earnings per share............................ $ 3.23 $ 1.70 $ 1.23
========== ======== ========
Weighted average shares, diluted basis.................... 33,474 29,599 26,431
========== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
34
<PAGE> 37
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1998 1997 1996
-------- ---------- ----------
<S> <C> <C> <C>
Net earnings............................................... $105,692 $47,308 $29,241
-------- ------- -------
Other comprehensive earnings (loss):
Unrealized gains (losses) on investments, net(1)......... (1,608) 20,333 7,798
Reclassification adjustments for gains included in net
earnings(2)........................................... (10,366) (9,632) (1,501)
-------- ------- -------
Other comprehensive earnings (loss)........................ (11,974) 10,701 6,297
-------- ------- -------
Comprehensive earnings..................................... $ 93,718 $58,009 $35,538
======== ======= =======
</TABLE>
- ---------------
(1) Net of income tax expense (benefit) of ($1,059), $15,214, and $5,070 for
1998, 1997 and 1996, respectively.
(2) Net of income tax expense of $6,824, $7,207, and $975 for 1998, 1997 and
1996, respectively.
See Notes to Consolidated Financial Statements.
35
<PAGE> 38
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL ACCUMULATED TREASURY STOCK
--------------- PAID-IN RETAINED COMPREHENSIVE -----------------------
SHARES AMOUNT CAPITAL EARNINGS EARNINGS SHARES AMOUNT
------ ------ ---------- -------- ------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 (Restated).... 25,302 $2 $ 62,413 $100,164 $ 6,633 6,880 $(56,292)
Exercise of stock options.............. 118 -- 720 -- -- -- --
Common stock awards.................... 11 -- 135 --
Other comprehensive earnings --
unrealized gain on investments...... -- -- -- -- 6,297 -- --
Acquisitions........................... 210 -- 2,733 -- -- (235) 1,917
Incorporation of Granite Financial,
Inc................................. 1,544 -- 2,260 -- -- -- --
Issuance of common stock pursuant to
Granite Financial, Inc. initial
public offering, net of offering
costs............................... 1,331 1 10,734 -- -- -- --
Cash dividends......................... -- -- -- (4,313) -- -- --
Net earnings........................... -- -- -- 29,241 -- -- --
------ -- -------- -------- -------- ----- --------
Balance, December 31, 1996 (Restated).... 28,516 3 78,995 125,092 12,930 6,645 (54,375)
------ -- -------- -------- -------- ----- --------
Exercise of stock options.............. 161 -- 1,424 -- -- -- --
Common stock awards.................... 6 -- 109 --
Other comprehensive earnings --
unrealized gain on investments...... -- -- -- -- 10,701 -- --
Acquisitions........................... 1,386 -- 12,450 -- -- -- --
Retirement and conversion of LYONs..... 1,455 -- 27,351 -- -- -- --
Nations Title Inc. purchase price
adjustment.......................... (29) -- (749) -- -- -- --
Issuance of common stock pursuant to
Granite Financial, Inc. secondary
public offering, net of offering
costs............................... 1,867 -- 17,989 -- -- -- --
Cash dividends......................... -- -- -- (5,178) -- -- --
Net earnings........................... -- -- -- 47,308 -- -- --
------ -- -------- -------- -------- ----- --------
Balance, December 31, 1997 (Restated).... 33,362 3 137,569 167,222 23,631 6,645 (54,375)
------ -- -------- -------- -------- ----- --------
Exercise of stock options.............. 1,583 -- 22,868 -- -- -- --
Other comprehensive loss -- unrealized
loss on investments................. -- -- -- -- (11,974) -- --
Acquisitions........................... 133 -- 4,250 -- -- -- --
Conversion of LYONs.................... 462 -- 9,201 -- -- -- --
Cash dividends......................... -- -- -- (7,347) -- -- --
Net earnings........................... -- -- -- 105,692 -- -- --
------ -- -------- -------- -------- ----- --------
Balance, December 31, 1998............... 35,540 $3 $173,888 $265,567 $ 11,657 6,645 $(54,375)
====== == ======== ======== ======== ===== ========
</TABLE>
See Notes to Consolidated Financial Statements.
36
<PAGE> 39
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1998 1997 1996
--------- ---------- ----------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings.............................................. $ 105,692 $ 47,308 $ 29,241
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Extraordinary item: loss on early retirement of
LYONs............................................... -- 2,880 --
Depreciation and amortization........................ 21,373 18,175 15,255
Net increase (decrease) in reserve for claim
losses.............................................. 22,860 5,028 (1,852)
Amortization of LYONs original issue discount and
other debt issuance costs........................... 4,432 5,939 5,295
Provision for losses on real estate and notes
receivable.......................................... 582 2,714 999
Equity in (gains) losses of unconsolidated
partnerships........................................ (4,361) (488) 520
Gain on sales of investments......................... (19,679) (10,801) (3,828)
(Gain) loss on sale of real estate and other
assets.............................................. 2,489 (6,038) 1,352
Changes in assets and liabilities, net of effects from
acquisitions:
Net increase in lease and lease securitization
residual interest................................... (39,725) (22,540) --
Net (increase) decrease in trade receivables......... (22,486) 2,177 (7,369)
Net increase in prepaid expenses and other assets.... (17,703) (17,601) (14,400)
Net increase in accounts payable and accrued
liabilities......................................... 39,568 12,336 2,553
Net increase (decrease) in income taxes.............. (21,280) 19,820 2,092
--------- --------- ---------
Net cash provided by operating activities......... 71,762 58,909 29,858
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from investment securities available for sale.... 179,668 263,179 188,375
Proceeds from sales of other assets....................... 6,848 17,673 3,731
Proceeds from sales of real estate........................ -- 6,407 917
Collections of notes receivable........................... 9,372 14,094 18,934
Additions to title plants................................. (1,480) (1,792) (777)
Additions to property and equipment....................... (22,393) (23,174) (16,197)
Additions to notes receivable............................. (11,717) (3,868) (9,403)
Purchases of investment securities available for sale..... (324,540) (344,709) (194,560)
Leases assigned to lender................................. -- -- (24,793)
Investments in real estate and partnerships............... -- (1,048) --
Sale of subsidiary, net of cash........................... -- 5,934 --
Acquisitions of businesses, net of cash acquired.......... (1,036) (10,866) (10,138)
--------- --------- ---------
Net cash used in investing activities............. (165,278) (78,170) (43,911)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings................................................ 84,287 21,570 53,705
Debt service payments..................................... (28,877) (25,241) (26,793)
Dividends paid............................................ (6,340) (4,703) (3,738)
Stock offering proceeds, net.............................. -- 17,990 10,832
Exercise of stock options................................. 22,868 1,424 720
Issuance of treasury stock, net........................... -- -- 1,917
--------- --------- ---------
Net cash provided by financing activities......... 71,938 11,040 36,643
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents...... (21,578) (8,221) 22,590
Cash and cash equivalents at beginning of year............ 72,887 81,108 58,518
--------- --------- ---------
Cash and cash equivalents at end of year.................. $ 51,309 $ 72,887 $ 81,108
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
37
<PAGE> 40
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 (RESTATED) AND 1996
(RESTATED)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following describes the significant accounting policies of Fidelity
National Financial, Inc. ("Fidelity Financial") and its subsidiaries
(collectively, the "Company") which have been followed in preparing the
accompanying Consolidated Financial Statements.
Description of business
Fidelity National Financial, Inc., through its principal subsidiaries
(collectively, the "Company"), is one of the largest national underwriters
engaged in the business of issuing title insurance policies and performing other
real estate related services such as escrow, collection and trust activities,
real estate information and technology services, trustee sale guarantees, credit
reporting, attorney services, flood certification, tax monitoring, home warranty
insurance, reconveyances, recordings, foreclosure publishing and posting
services and exchange intermediary services in connection with real estate
transactions. Title insurance services are provided through the Company's direct
operations and otherwise through independent title insurance agents who issue
title policies on behalf of the underwriting subsidiaries. Title insurance is
generally accepted as the most efficient means of determining title to, and the
priority of interests in, real estate in nearly all parts of the United States.
Today, virtually all real property mortgage lenders require their borrowers to
obtain a title insurance policy at the time a mortgage loan is made or to allow
the sale of loans in the secondary market.
The Company's principal subsidiaries consist of Fidelity National Title
Insurance Company ("Fidelity Title"), Fidelity National Title Insurance Company
of New York ("Fidelity New York"), Alamo Title Insurance ("Alamo Title");
(collectively, the "Insurance Subsidiaries"); its wholly-owned underwritten
title companies (collectively, the "UTCs"); and its network of wholly-owned
title-related ancillary service companies known as Fidelity National Lender
Express Network ("FLEXNet"). The Company also originates, funds, purchases,
sells, securitizes and services equipment leases for a broad range of businesses
through its wholly-owned subsidiary Granite Financial, Inc.
Fidelity Title was the parent company of Fidelity National Title Insurance
Company of Tennessee ("Fidelity Tennessee"), Fidelity National Title Insurance
Company of California ("Fidelity California") and Nations Title Insurance
Company ("Nations Title"). Fidelity Tennessee, Fidelity California and Nations
Title were merged into Fidelity Title on December 31, 1998, August 7, 1997 and
December 29, 1997, respectively. Fidelity New York is the parent company of
Nations Title Insurance of New York Inc. ("Nations New York") and National Title
Insurance of New York Inc. ("National"). Fidelity National Title Insurance
Company of Pennsylvania ("Fidelity Pennsylvania") was merged into Fidelity New
York as of April 11, 1997, which in turn, was the parent company of American
Title Insurance Company ("ATIC"), which was merged into Fidelity Pennsylvania as
of November 21, 1996.
Nations Title Insurance Company, Nations Title Insurance of New York Inc.
and National Title Insurance of New York Inc. were acquired, along with Nations
Title Inc. ("NTI," collectively, "Nations Title Inc."), in a transaction which
closed on April 1, 1996. Certain of the ancillary service companies were
acquired in separate transactions during 1996 and 1997. Granite Financial, Inc.
and subsidiaries ("Granite") was acquired in a transaction which closed on
February 26, 1998. Alamo Title was acquired in connection with the Company's
acquisition of Alamo Title Holding Company and subsidiaries ("Alamo") in a
transaction which closed August 20, 1998.
Principles of consolidation and basis of presentation
The accompanying Consolidated Financial Statements include the accounts of
the Company and its wholly-owned and majority-owned subsidiaries. All material
intercompany profits, transactions and balances
38
<PAGE> 41
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 (RESTATED) AND 1996
(RESTATED)
have been eliminated. The Company's investments in non-majority-owned
partnerships and subsidiaries are accounted for on the equity method.
On February 26, 1998, the Company, in exchange for approximately 5.0
million shares of Company common stock plus cash in lieu of fractional shares,
acquired the common stock of Granite Financial, Inc. and subsidiaries. Fidelity
National Financial, Inc. common stock, as reported by the New York Stock
Exchange, closed at $26.08 on February 26, 1998. The transaction has been
accounted for as a pooling-of-interests. Accordingly, the Consolidated Balance
Sheet as of December 31, 1997 and the related Consolidated Statements of
Earnings, Stockholders' Equity and Cash Flows for each of the years in the
two-year period ended December 31, 1997 and the related Notes to Consolidated
Financial Statements, have been restated to reflect the inclusion of Granite.
The Company acquired the common stock of Alamo Title Holding Company and
subsidiaries on August 20, 1998, in exchange for approximately 2.2 million
shares of Company common stock plus cash in lieu of fractional shares. Fidelity
National Financial, Inc. common stock, as reported by the New York Stock
Exchange, closed at $33.13 on August 20, 1998. The transaction has been
accounted for as a pooling-of-interests. Accordingly, the Consolidated Balance
Sheet as of December 31, 1997 and the related Consolidated Statements of
Earnings, Stockholders' Equity and Cash Flows for each of the years in the
two-year period ended December 31, 1997 and the related Notes to Consolidated
Financial Statements, have been restated to reflect the inclusion of Alamo.
The results of operations of Fidelity, Granite and Alamo separately and the
combined amounts presented in the Consolidated Financial Statements for the two
years prior to the consummation of the poolings-of-interests are summarized
below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Revenue:
Fidelity.......................................... $746,712 $636,913
Granite........................................... 16,469 5,464
Alamo............................................. 99,878 92,418
-------- --------
Combined.......................................... $863,059 $734,795
======== ========
Earnings:
Fidelity Earnings before extraordinary item....... $ 41,471 $ 24,337
Extraordinary item.............................. (1,700) --
-------- --------
Earnings after extraordinary item............... 39,771 24,337
Granite........................................... 3,326 1,190
Alamo............................................. 4,211 3,714
-------- --------
Combined.......................................... $ 47,308 $ 29,241
======== ========
</TABLE>
Effective as of October 1, 1997, the Company acquired Bron Research, Inc.
("BRON"), a flood certification company headquartered in Austin, Texas. The
purchase price paid by the Company for the acquisition was $9.85 million, paid
in 575,599 shares of Company common stock. BRON now operates as Fidelity
National Flood, Inc. This transaction has been accounted for as a
pooling-of-interests. Prior to 1997, BRON's financial position and results of
operations were insignificant, and as such, the 1996 Consolidated Statement of
Earnings and Related Notes to Consolidated Financial Statements have not been
restated to reflect the inclusion of BRON.
39
<PAGE> 42
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 (RESTATED) AND 1996
(RESTATED)
There have been no adjustments to the total net assets or stockholders'
equity of the combining companies as a result of the poolings-of-interests.
Certain reclassifications have been made to conform the financial statements of
the combining companies to the Consolidated Financial Statements of the Company.
Granite previously reported its results of operations based on a fiscal
year ended June 30. Granite's fiscal year has been converted to a calendar year
in order to conform to that of the Company.
Cash and cash equivalents
For purposes of reporting cash flows, highly liquid instruments purchased
with original maturities of three months or less are considered cash
equivalents. The carrying amounts reported in the Consolidated Balance Sheets
for these instruments approximate their fair value.
Investments
Fixed maturity securities are purchased to support the investment
strategies of the Company, which are developed based on many factors including
rate of return, maturity, credit risk, tax considerations and regulatory
requirements. Fixed maturity securities which may be sold prior to maturity to
support the Company's investment strategies are carried at fair value and are
classified as available for sale as of the balance sheet dates. Fair values for
fixed maturity securities are principally a function of current interest rates
and are based on quoted market prices.
Equity securities are considered to be available for sale and carried at
fair value as of the balance sheet dates. Fair values are based on quoted market
prices.
Other long-term investments, which consist of a limited partnership
investment in an investment fund, as well as certain other debt instruments and
equity investments, are carried at cost or on the equity method, as appropriate,
which approximates fair value.
Short-term investments, which consist primarily of securities purchased
under agreements to resell, commercial paper and money market instruments, which
have an original maturity of one year or less, are carried at amortized cost,
which approximates fair value.
Investments in real estate and partnerships are generally held for
investment purposes and are carried at cost in the absence of any other than
temporary impairment in value. Investments in real estate which are held for
sale, including real estate acquired through foreclosure of properties in
satisfaction of commercial and real estate loans, are carried at the lower of
cost or fair value less estimated costs to sell.
Realized gains and losses on the sale of investments are determined on the
basis of the cost of the specific investments sold and are credited or charged
to income on a trade date basis. Unrealized gains or losses on bonds and common
stocks which are classified as available for sale, net of applicable deferred
income taxes (benefits), are excluded from income and credited or charged
directly to a separate component of stockholders' equity. If any unrealized
losses on bond or common stocks are deemed other than temporary, such unrealized
losses are recognized as realized losses.
Leases and Residual Interests in Securitizations
Leases and residual interests in securitizations includes direct financing
leases, direct financing leases assigned to lender and residual interests in
securitizations. See Note D.
40
<PAGE> 43
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 (RESTATED) AND 1996
(RESTATED)
Direct Financing Leases
Granite has entered into various lease agreements which, in accordance with
Financial Accounting Standards Board ("FASB") Statement of Financial Accounting
Standards No. 13, "Accounting for Leases," meet the criteria of capitalization
and are accounted for as direct financing leases. Under this method, the amount
by which gross lease rentals exceed the cost of the related assets, less the
estimated recoverable residual value at the expiration of the lease, is
recognized as income from direct financing leases over the life of the lease
using the interest method. Any permanent reduction in the estimated residual
equipment value of leased property is charged to operations in the period it
occurs. See Note D.
Sales of Leases
Gains or losses resulting from sales of leases are recognized in the
accompanying Consolidated Statements of Earnings at the date of sale and are
based on the difference between the selling price of the sales and the carrying
value of the related leases sold. Nonrefundable fees and direct costs associated
with the origination of leases are deferred and recognized when the leases are
sold.
On January 1, 1997, the Company adopted Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities"
("SFAS 125"). Under SFAS 125, a transfer of financial assets in which control is
surrendered is accounted for as a sale to the extent that consideration other
than beneficial interests in the transferred assets is received in the exchange.
Liabilities and derivatives incurred or obtained by the transfer of financial
assets are required to be measured at fair value, if practicable. Also,
servicing assets and other retained interests in the transferred assets must be
measured by allocating the previous carrying value between the asset sold and
the interest retained, if any, based on their relative fair values at the date
of transfer.
Direct Financing Leases Assigned to Lender
SFAS 125 prohibits early application. Prior to January 1, 1997, direct
financing leases sold prior to that date as part of a securitization to a
special-purpose entity that issued debt securities were accounted for as
collateralized borrowings. The leases collateralizing the debt are recorded as
direct financing leases assigned to lender. The leases and related debt are
reflected in the Consolidated Balance Sheets. See Notes D and H.
Residual Interests in Securitizations
Residual interests in securitizations ("Residuals") of lease receivables in
trust are recorded as a result of the sale of lease receivables through
securitization. The securitizations are generally structured as follows: First,
the Company sells a portfolio of lease receivables to a special purpose entity
("SPE") which has been established for the limited purpose of buying and
reselling the Company's lease receivables. Next, the SPE transfers the same
lease receivables to a Trust (the "Trust"), and the Trust in turn issues
interest-bearing asset-backed securities (the "Bonds and Certificates")
generally in an amount equal to the aggregate initial principal balance of the
lease receivables, multiplied by an advance rate. The Company typically sells
these lease receivables at face value and with limited recourse relating to
defaulted loans, prepayments and certain representations and warranties provided
by the Company to the Trust. One or more investors purchase these Bonds and
Certificates and the proceeds from the sale of the Bonds and Certificates are
used as consideration to purchase the lease receivables from the Company.
At the closing of each securitization which is accounted for as a sale the
Company removes from its balance sheet the lease receivables held for sale and
adds to its balance sheet (i) the cash received and (ii) the allocated cost of
the Residuals which consists of (a) cash collateral account and (b) net excess
cash flows.
41
<PAGE> 44
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 (RESTATED) AND 1996
(RESTATED)
The excess of the cash received by the Company over the allocated cost of the
lease receivables sold less transaction costs, equals the net gain on sale
recorded by the Company.
The Company allocates its basis in the lease receivables between the
portion of the lease receivables sold (the Bonds and Certificates) and the
portion retained (the Residuals) based on the relative fair values of those
portions on the date of the sale.
The Company may recognize unrealized gains or losses through stockholders'
equity attributable to the change in the fair value of the Residuals, which are
recorded at estimated fair value and accounted for as available for sale
securities. The Company is not aware of an active market for the purchase or
sale of Residuals at this time. Accordingly, the Company estimates the fair
value of the Residuals by calculating the present value of the estimated
expected future excess cash flows received by the Company after being released
by the Trust (cash out method) using a discount rate of 12%, which management
believes is commensurate with the risks involved.
The Company is entitled to the cash flows from the Residuals that represent
collections on the lease receivables in excess of the amounts required to pay
the Bonds and Certificate principal and interest, the base servicing fees and
certain other fees such as trustee and custodial fees. At the end of each
collection period, the aggregate cash collections from the lease receivables are
allocated first to the servicing fees and certain other fees such as trustee and
custodial fees for the period, then to the Bond and Certificate holders for
interest at the pass-through rate on the Bonds and Certificates plus principal
as defined in the Trust and Security Agreements. If the amount of cash required
for the above allocations exceeds the amount collected during the collection
period, the shortfall is drawn from the Cash Collateral Account. If the cash
collected during the period exceeds the amount necessary for the above
allocations, and there is no shortfall in the related Cash Collateral Account,
the excess is released to the Company. If the Cash Collateral Account balance is
not at the required credit enhancement level, the excess cash collected is used
to build the cash collateral account until the credit enhancement level is
achieved. The specified credit enhancement levels are defined in the applicable
Trust and Security Agreement which are expressed generally as a percentage of
either the original or current collateral principal balance.
The implicit interest rate on the lease receivables is relatively high in
comparison to the pass through rate on the Bonds and Certificates. In
determining the value of the Residuals described above, the Company estimates
the future rates of prepayments, delinquencies, defaults and default loss
severity as they impact the amount and timing of the estimated cash flows. The
Company has used a zero prepayment estimate because the lease contracts
generally require the lessee to pay all or a majority of the lease payments due
under the remaining lease term. The Company estimates the timing of the receipt
of such prepayments in its estimate of cash flows. The Company's loss estimate
is 1.5% to 2.0% of the gross lease payment, which is based on historical loss
data for comparable leases and the specific characteristics of the leases
originated by the Company. The Company's prepayment and default estimates
resulted in a weighted average life of the pool of leases of between
approximately 1.5 and 2.0 years.
In future periods, the Company may increase the estimated fair value of the
Residuals if the actual performance of the lease receivables is higher than the
original estimate. If the actual performance of the lease receivables is lower
than the original estimate, then an adjustment to the carrying value of the
Residuals may be required if the estimated fair value of the Residuals is less
than its carrying value.
The Bond and Certificate holders and their securitization trusts have no
recourse to the Company's other assets for failure of lessees to pay when due.
The Company's Residuals are subordinate to the Bonds and Certificates until the
Bond and Certificate holders are fully paid.
42
<PAGE> 45
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 (RESTATED) AND 1996
(RESTATED)
Allowance for Losses on Leases
The Company establishes an allowance for losses to provide for expected
losses in the Company's existing portfolio of leases and leases transferred on a
recourse basis. The allowance for losses is based on the Company's historical
and expected loss experience, industry knowledge and other economic factors. The
ultimate obligation for defaults and delinquencies related to leases transferred
on a recourse basis is measured and recorded at the time of transfer.
Leases are collateralized by the equipment under lease, and lessees
generally are required to personally guarantee lease payments. The Company's
risk of loss is partially mitigated by recovering collateral and enforcing
guarantees. However, the resale value of leased equipment generally declines at
a rate greater than the principal of the lease. As a result, full recovery on
defaulted leases is not usually possible.
Lease Acquisition Costs and Broker Commissions
Lease acquisition costs consist of broker bonuses and commissions paid upon
the origination of the lease contracts. The costs are included in direct
financing leases and are amortized to expense over the life of the related lease
contracts on the interest method.
Trade receivables
The carrying values reported in the Consolidated Balance Sheets for trade
receivables approximate their fair value.
Fair value of financial instruments
The fair values of financial instruments presented in the applicable notes
to the Company's Consolidated Financial Statements are estimates of the fair
values at a specific point in time using available market information and
appropriate valuation methodologies. These estimates are subjective in nature
and involve uncertainties and significant judgment in the interpretation of
current market data. Therefore, the fair values presented are not necessarily
indicative of amounts the Company could realize or settle currently. The Company
does not necessarily intend to dispose of or liquidate such instruments prior to
maturity. See Notes C, D, E and H.
Title plants
Title plants are recorded at the cost incurred to construct or obtain and
organize historical title information to the point it can be used to perform
title searches. Costs incurred to maintain, update and operate title plants are
expensed as incurred. Title plants are not amortized as they are considered to
have an indefinite life if maintained. Sales of title plants are reported at the
amount received net of the adjusted costs of the title plant sold. Sales of
title plant copies are reported at the amount received. No cost is allocated to
the sale of copies of title plants unless the carrying value of the title plant
is diminished or impaired.
Property and equipment
Property and equipment are recorded at cost, less depreciation.
Depreciation is computed primarily using the straight-line method based on the
estimated useful lives of the related assets which range from three to thirty
years. Leasehold improvements are amortized on a straight-line basis over the
lesser of the term of the applicable lease or the estimated useful lives of such
assets.
43
<PAGE> 46
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 (RESTATED) AND 1996
(RESTATED)
Cost in excess of net assets acquired and other intangible assets
Intangible assets include cost in excess of net assets acquired,
capitalized software costs, capitalized licensing costs and capitalized debt
offering costs and are amortized on a straight line basis over three to forty
years. Intangible assets at December 31, 1998 consist of cost in excess of net
assets acquired of $60,830,000 less accumulated amortization of $6,916,000,
capitalized licensing costs of $2,500,000 less accumulated amortization of
$221,000, capitalized software of $13,515,000 less accumulated amortization of
$7,085,000 and capitalized debt offering costs of $4,536,000 less accumulated
amortization of $2,500,000. At December 31, 1997, intangible assets consist of
cost in excess of net assets acquired of $48,026,000 less accumulated
amortization of $4,608,000, capitalized licensing costs of $2,500,000 less
accumulated amortization of $159,000, capitalized software of $12,326,000 less
accumulated amortization of $4,636,000 and capitalized debt offering costs of
$6,883,000 less accumulated amortization of $3,625,000.
Impairment of intangible assets is monitored on a continual basis, and is
assessed based on an analysis of the cash flows generated by the underlying
assets. No impairment of intangible assets has been noted.
Income taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 provides that deferred tax assets and liabilities be recognized
for temporary differences between the financial reporting basis and the tax
basis of the Company's assets and liabilities and expected benefits of utilizing
net operating loss and credit carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The impact on deferred taxes of changes in tax rates and laws, if any,
are applied to the years during which temporary differences are expected to be
settled and reflected in the financial statements in the period enacted.
Reserve for claim losses
The Company's reserve for claim losses includes known claims as well as
losses the Company expects to incur, net of recoupments. Each known claim is
reserved for on the basis of a review by the Company as to the estimated amount
of the claim and the costs required to settle the claim. Reserves for claims
which are incurred but not reported are provided for at the time premium revenue
is recognized based on historical loss experience and other factors, including
industry averages, claim loss history, current legal environment, geographic
considerations and type of policy written. The occurrence of a significant major
claim (those greater than $500,000) in any given period could have a material
adverse effect on the Company's financial condition and results of operations
for such period. See Note J.
If a loss is related to a policy issued by an independent agent, the
Company may proceed against the independent agent pursuant to the terms of the
agency agreement. In any event, the Company may proceed against third parties
who are responsible for any loss under the title insurance policy under rights
of subrogation.
The Company also accrues reserves for losses arising from the escrow,
closing and disbursement functions due to fraud or operational error based on
historical experience.
Reinsurance
In the ordinary course of business, the Company reinsures certain risks
with other insurers for the purpose of limiting its maximum loss exposure and
also assumes reinsurance for certain risks of other insurers for the purpose of
earning additional revenue. The Company cedes or assumes a portion of certain
policy liabilities
44
<PAGE> 47
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 (RESTATED) AND 1996
(RESTATED)
under agent fidelity, excess of loss and case-by-case reinsurance agreements.
Reinsurance agreements provide that in the event of a loss (including costs,
attorneys' fees and expenses) exceeding the retained amounts, the reinsurer is
liable for the excess amount assumed. However, the ceding company remains
primarily liable in the event the reinsurer does not meet its contractual
obligations. Reinsurance activity is not considered significant.
Title premiums, escrow fees, other fees and revenue and agent commissions
Title insurance premiums, escrow fees and certain other fees and revenue
are recognized as revenue at the time of closing of the related transaction as
the earnings process is considered complete. Certain other fees and revenue are
recognized over the period the related services are provided. Title insurance
commissions earned by the Company's agents are recognized as an expense
concurrently with premium recognition. Other fees and revenue includes revenue
derived from Granite's operations, as well as non-title related revenue from
other subsidiaries and other title-related revenue not included in title
insurance premiums or escrow fees.
Share and per share restatement
On December 11, 1996, the Company declared a 10% stock dividend to
shareholders of record on December 23, 1996, distributed January 7, 1997. The
Company declared a 10% stock dividend on December 17, 1997 to shareholders of
record on December 29, 1997, distributed January 14, 1998. On December 13, 1998,
the Company declared a 10% stock dividend to shareholders of record on December
28, 1998, distributed January 12, 1999. The par value of the additional shares
of common stock issued in connection with the stock dividends was credited to
common stock and a like amount charged to retained earnings as of December 31,
1998, 1997 and 1996, respectively. Fractional shares were paid in cash.
All data with respect to earnings per share, dividends per share and share
information, including price per share where applicable, in the Consolidated
Financial Statements and Notes thereto have been retroactively adjusted to
reflect all stock dividends and splits. Additionally, all data impacted has been
restated to reflect the acquisitions of Granite, Alamo and BRON.
Earnings per share
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"),
effective for fiscal years ending after December 15, 1997. The Company
retroactively adopted SFAS 128 in 1997.
Basic earnings per share is computed by dividing net earnings available to
common shareholders by the weighted average number of common shares outstanding
during the period. Dilutive earnings per share is calculated by dividing net
earnings available to common shareholders plus the impact of assumed conversions
of dilutive potential securities. The Company has granted certain options and
warrants which have been treated as common share equivalents for purposes of
calculating diluted earnings per share. The Liquid Yield Option Notes ("LYONs")
are considered other dilutive securities for purposes of calculating diluted
earnings per share to the extent that they are not antidilutive.
45
<PAGE> 48
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 (RESTATED) AND 1996
(RESTATED)
The following table sets forth the calculation of basic and diluted
earnings per share for each of the years in the three-year period ended December
31, 1998:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Basic earnings per share calculation:
Earnings before extraordinary loss................. $105,692 $49,008 $29,241
Extraordinary loss, net of applicable income tax
benefit of $1,180............................... -- (1,700) --
-------- ------- -------
Net earnings....................................... $105,692 $47,308 $29,241
======== ======= =======
Weighted average shares.................... 27,921 23,355 20,426
======== ======= =======
Basic earnings per share
Earnings before extraordinary loss................. $ 3.79 $ 2.10 $ 1.43
Extraordinary loss................................. -- (.07) --
-------- ------- -------
Net earnings....................................... $ 3.79 $ 2.03 $ 1.43
======== ======= =======
Diluted earnings per share calculation:
Earnings before extraordinary loss................. $105,692 $49,008 $29,241
Plus: Impact of assumed conversion of LYONs........ 2,463 3,142 3,196
-------- ------- -------
Earnings before extraordinary loss plus assumed
conversion...................................... 108,155 52,150 32,437
Extraordinary loss, net of applicable income tax
benefit of $1,180............................... -- (1,700) --
-------- ------- -------
Net earnings plus assumed conversions.............. $108,155 $50,450 $32,437
======== ======= =======
Weighted average shares............................ 27,921 23,355 20,426
Plus: Incremental shares from assumed conversions
LYONs...................................... 3,694 5,008 5,272
Options.................................... 1,859 1,236 733
-------- ------- -------
Dilutive potential shares.......................... 33,474 29,599 26,431
======== ======= =======
Diluted earnings per share
Earnings before extraordinary loss plus assumed
conversions..................................... $ 3.23 $ 1.76 $ 1.23
Extraordinary loss................................. -- (0.06) --
-------- ------- -------
Net earnings....................................... $ 3.23 $ 1.70 $ 1.23
======== ======= =======
</TABLE>
Management estimates
The preparation of these Consolidated Financial Statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the Consolidated Financial Statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
46
<PAGE> 49
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 (RESTATED) AND 1996
(RESTATED)
Certain reclassifications
Certain reclassifications have been made in the 1997 and 1996 Consolidated
Financial Statements to conform to the classifications used in 1998.
B. ACQUISITIONS
On April 4, 1996, the Company purchased 17% of the outstanding common stock
of National Alliance Marketing Group, Inc. ("National Alliance"), a California
corporation, for $567,000; together with a warrant to acquire an additional 14%
of National Alliance common stock. In addition, the Company loaned $1,200,000 to
National Alliance at closing at a rate of Prime plus one percent. Subsequently,
the Company agreed to increase the credit facility from $1,200,000 to
$1,700,000. In consideration for the increase in the credit facility National
Alliance agreed to increase the warrant shares which the Company could purchase.
If the entire $1,700,000 was borrowed the Company could purchase an additional
34% of the outstanding shares of National Alliance. After receiving approval of
the transaction from the California Department of Insurance, the transaction
closed on July 12, 1996. National Alliance is the parent company of Alliance
Home Warranty Company ("Alliance"), a California insurance company. Alliance
sells home warranty plans to buyers of resale homes, primarily in the Central
and Southern California markets. A home warranty contract generally promises the
repair or replacement of major operating systems and built-in appliances inside
a home for a period of one year. On July 3, 1997, the Company converted the
outstanding note balance in conjunction with the exercise of the warrants and
then owned 51% of the outstanding common stock of National Alliance. The
outstanding balance of the note receivable due from National Alliance at
conversion was approximately $1.6 million. On August 14, 1998, the Company
acquired the outstanding minority interest in National Alliance, 49%, for a
purchase price of $3,320,000. The Company now owns 100% of National Alliance,
which is now known as Fidelity National Home Warranty. Prior to the conversion
of the convertible note in July 1997, the Company accounted for its investment
in National Alliance on the equity method. Since that time the Company has
accounted for National Alliance as a purchase and has consolidated its interest
in National Alliance's financial position and results of operations with those
of the Company.
The assets acquired, including cost in excess of net assets acquired, and
liabilities assumed in the National Alliance acquisition were as follows
(dollars in thousands):
<TABLE>
<S> <C>
Tangible assets acquired at fair value..................... $ 4,467
Cost in excess of net assets acquired...................... 4,553
Liabilities assumed at fair value.......................... (3,383)
-------
Total purchase price............................. $ 5,637
=======
</TABLE>
Alamo acquired substantially all of the assets of Southwest Land Title
Company of Angleton effective January 31, 1997 for $1.1 million cash, and
created a new corporation, Alamo Title Company of Brazoria, Inc. ("Brazoria")
into which the acquired assets were placed. This transaction has been accounted
for as a purchase.
The assets acquired, including cost in excess of assets acquired, in the
Brazoria acquisition were as follows (dollars in thousands):
<TABLE>
<S> <C>
Tangible assets acquired at fair value...................... $ 850
Cost in excess of net assets acquired....................... 250
------
Total purchase price.............................. $1,100
======
</TABLE>
On March 31, 1997, Granite acquired the assets and liabilities of Global
Finance & Leasing, Inc. ("Global"), a micro-ticket leasing company, for a
purchase price of $2.3 million in cash. The acquisition
47
<PAGE> 50
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 (RESTATED) AND 1996
(RESTATED)
agreement provides for additional contingent consideration of $916,000 based on
the collection of certain receivables. Granite believes the collection of these
receivables is remote. Therefore, no liability has been recorded in the
Company's Consolidated Financial Statements. This transaction has been accounted
for as a purchase.
The assets acquired, including cost in excess of net assets acquired, and
liabilities assumed in the Global acquisition were as follows (dollars in
thousands):
<TABLE>
<S> <C>
Tangible assets acquired at fair value..................... $ 3,545
Cost in excess of net assets acquired...................... 3,297
Liabilities assumed at fair value.......................... (4,508)
-------
Total purchase price............................. $ 2,334
=======
</TABLE>
On June 20, 1997, Granite acquired certain assets and liabilities of SFR
Funding, Inc. ("SFR"), a small ticket equipment leasing company, for cash of
$300,000, a note payable of $250,000 and the assumption of certain liabilities.
The SFR transaction resulted in cost in excess of net assets acquired of
$681,000. Neither the financial position nor the results of operations of SFR
have been significant to the Company or Granite since acquisition. This
transaction has been accounted for as a purchase.
On August 22, 1997, the Company acquired the common stock of First Title
Corporation ("First Title"), a title company with fourteen offices throughout
the southeastern United States. First Title has been merged into a subsidiary of
the Company. First Title was acquired for $4.7 million; payable in 80% common
stock of the Company (278,738 shares or $3.8 million) and 20% cash
(approximately $900,000). This transaction has been accounted for as a purchase.
The assets acquired, including cost in excess of net assets acquired, and
liabilities assumed in the First Title Corporation acquisition were as follows
(dollars in thousands):
<TABLE>
<S> <C>
Tangible assets acquired at fair value...................... $1,294
Cost in excess of net assets acquired....................... 4,033
Liabilities assumed at fair value........................... (627)
------
Total purchase price.............................. $4,700
======
</TABLE>
On September 18, 1997, the Company acquired the common stock of Ifland
Credit Services ("ICS"), a credit reporting company headquartered in Lexington,
Kentucky, for a purchase price of $3.75 million. ICS has been merged with Credit
Reports, Inc. ("CRI") and Classified Credit Data, Inc. ("CCD") in order to form
Fidelity National Credit Services. The purchase price was payable 80% in common
stock of the Company (187,170 shares or $3.0 million) and 20% cash ($750,000).
This transaction has been accounted for as a purchase.
The assets acquired, including cost in excess of net assets acquired, and
liabilities assumed in the Ifland Credit Services acquisition were as follows
(dollars in thousands):
<TABLE>
<S> <C>
Tangible assets acquired at fair value...................... $ 618
Cost in excess of net assets acquired....................... 3,517
Liabilities assumed at fair value........................... (385)
------
Total purchase price.............................. $3,750
======
</TABLE>
On October 9, 1997, the Company acquired the common stock of Credit
Reports, Inc., a credit reporting company headquartered in Scottsdale, Arizona,
with operations in California, Colorado, Nevada and Oregon.
48
<PAGE> 51
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 (RESTATED) AND 1996
(RESTATED)
CRI has been merged with ICS and CCD in order to form Fidelity National Credit
Services. The purchase price for CRI was $200,000, subject to certain purchase
price adjustments based on the combined equity of CRI and Express Network, Inc.,
its affiliate, payable in 12,601 shares of Company common stock. This
transaction has been accounted for as a purchase.
The assets acquired, including cost in excess of net assets acquired, and
liabilities assumed in the Credit Reports, Inc. acquisition were as follows
(dollars in thousands):
<TABLE>
<S> <C>
Tangible assets acquired at fair value..................... $ 2,559
Cost in excess of net assets acquired...................... 139
Liabilities assumed at fair value.......................... (2,498)
-------
Total purchase price............................. $ 200
=======
</TABLE>
Also on October 9, 1997, the Company acquired the common stock of Express
Network, Inc. ("ENI"), a provider of attorney services such as courier,
messenger, courthouse filing, process serving, investigation and reprographics.
ENI provides services to legal firms in Los Angeles, Orange County, San Diego,
Riverside and San Francisco, California. The purchase price for ENI was $10.55
million; subject to certain purchase price adjustments based on the combined
equity of ENI and CRI, its affiliate, payable in 50% common stock of the Company
(332,374 shares or $5.275 million) and 50% cash (approximately $5.275 million).
Approximately $2.8 million of the cash portion of the purchase price will be
paid in equal installments over a four-year period. This transaction has been
accounted for as a purchase.
The assets acquired, including cost in excess of net assets acquired, and
liabilities assumed in the Express Network, Inc. acquisition were as follows
(dollars in thousands):
<TABLE>
<S> <C>
Tangible assets acquired at fair value..................... $ 3,018
Cost in excess of net assets acquired...................... 9,640
Liabilities assumed at fair value.......................... (2,108)
-------
Total purchase price............................. $10,550
=======
</TABLE>
On October 21, 1997, the Company acquired 100% of the common stock of
Classified Credit Data, Inc., a credit reporting company headquartered in Orange
County, California, for a purchase price of $300,000, which was paid in cash.
CCD was merged with ICS and CRI in order to form Fidelity National Credit
Services. This transaction has been accounted for as a purchase.
The assets acquired, including cost in excess of net assets acquired, and
liabilities assumed in the Classified Credit Data acquisition were as follows
(dollars in thousands):
<TABLE>
<S> <C>
Tangible assets acquired at fair value...................... $ 385
Cost in excess of net assets acquired....................... 386
Liabilities assumed at fair value........................... (471)
-----
Total purchase price.............................. $ 300
=====
</TABLE>
On December 30, 1997, Granite completed the acquisition of 84% of the
common stock of North Pacific Funding, Inc. dba C&W Leasing and its wholly-owned
subsidiary CKC Corporation dba US Funding (collectively, "C&W Leasing"). The
purchase price for this transaction was $5.1 million, in the form of notes
payable to the former stockholders. This transaction has been accounted for as a
purchase. The remaining 16% of the common stock of C&W Leasing was purchased on
January 5, 1998 for additional consideration of $900,000 in promissory notes
payable.
49
<PAGE> 52
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 (RESTATED) AND 1996
(RESTATED)
The assets acquired, including cost in excess of net assets acquired, and
liabilities assumed in the C&W Leasing acquisition were as follows (dollars in
thousands):
<TABLE>
<S> <C>
Tangible assets acquired at fair value..................... $ 1,003
Cost in excess of net assets acquired...................... 5,821
Liabilities assumed at fair value.......................... (1,724)
-------
Total purchase price............................. $ 5,100
=======
</TABLE>
The Company completed the sale of its wholly-owned subsidiary ACS Systems,
Inc. ("ACS") to Micro General Corporation (OTCBB:MGEN) ("Micro General") for 4.6
million shares of Micro General common stock, valued at $1,297,000, on May 14,
1998. ACS provides small to medium size businesses within the real estate
industry with software, systems integration and communication services including
telecommunications hardware, long distance reselling, computer hardware and
system software reselling, consulting services, technical services, internet
services, electronic commerce and title and escrow software applications. ACS
will continue to provide the above listed services to the Company at preferred
customer rates. The Company currently owns 70.6% of Micro General Corporation.
This transaction has been accounted for as a reverse merger of Micro General
into the Company.
The assets acquired, including cost in excess of net assets acquired, and
liabilities assumed in the Micro General acquisition were as follows (dollars in
thousands):
<TABLE>
<S> <C>
Tangible assets acquired at fair value..................... $ 1,484
Cost in excess of net assets acquired...................... 5,161
Liabilities assumed at fair value.......................... (4,812)
Minority interest.......................................... (536)
-------
Total purchase price............................. $ 1,297
=======
</TABLE>
Additionally, on November 17, 1998, Micro General acquired LDExchange.com,
Inc. ("LDX"), for a purchase price of $3.1 million, payable $1.1 million in cash
and $2.0 million in Micro General common stock (1,000,000 shares). LDX is a
facilities based, wholesale carrier providing international telecommunication
services.
The assets acquired, including cost in excess of net assets acquired, and
liabilities assumed in the LDX acquisition were as follows (dollars in
thousands):
<TABLE>
<S> <C>
Tangible assets acquired at fair value..................... $ 2,325
Cost in excess of net assets acquired...................... 2,739
Liabilities assumed at fair value.......................... (1,964)
-------
Total purchase price............................. $ 3,100
=======
</TABLE>
Effective September 1, 1998, the Company acquired 100% of Lexington Capital
Corporation ("Lexington"), a financial services company specializing in
financing national and regional franchisee accounts, for a purchase price of
$3.5 million, payable in $3.0 million in cash and $500,000 in restricted common
stock of the Company (15,129 shares). The acquisition of Lexington resulted in
$3,500,000 of cost in excess of net assets acquired. Neither the financial
position or the results of operations of Lexington have been material to the
Company since acquisition. This transaction has been accounted for as a
purchase.
Selected unaudited pro forma combined results of operations for the years
ended December 31, 1998, 1997 and 1996, assuming the National Alliance (51%),
Brazoria, Global, SFR, First Title, ICS, CRI, ENI, CCD and C&W Leasing
acquisitions occurred on January 1, 1997 and 1996, and assuming the Micro
General,
50
<PAGE> 53
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 (RESTATED) AND 1996
(RESTATED)
LDX, National Alliance (49%) and Lexington acquisitions occurred January 1, 1998
and 1997, are presented as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
---------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Total revenue..................................... $1,315,624 $908,244 $826,060
Basic earnings before extraordinary item.......... 106,055 49,558 27,699
Basic net earnings................................ 106,055 47,858 27,699
Basic earnings per share.......................... 3.80 2.00 1.30
Diluted earnings before extraordinary item........ 108,518 52,700 30,895
Diluted net earnings.............................. 108,518 51,000 30,895
Diluted earnings per share........................ 3.24 1.69 1.13
</TABLE>
C. INVESTMENTS
The carrying amounts and fair values of the Company's fixed maturity
securities at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------------------------------------
GROSS GROSS
CARRYING AMORTIZED UNREALIZED UNREALIZED FAIR
VALUE COST GAINS LOSSES VALUE
-------- --------- ---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Fixed maturity investments (available for
sale):
U.S. government and agencies.............. $ 50,699 $ 49,949 $ 932 $(182) $ 50,699
States and political subdivisions......... 188,703 183,299 5,405 (1) 188,703
Corporate securities...................... 86,027 85,179 1,491 (643) 86,027
Foreign government bonds.................. 75 75 -- -- 75
Mortgage-backed securities................ 4,564 4,449 115 -- 4,564
-------- -------- ------ ----- --------
$330,068 $322,951 $7,943 $(826) $330,068
======== ======== ====== ===== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------------------------------
GROSS GROSS
CARRYING AMORTIZED UNREALIZED UNREALIZED FAIR
VALUE COST GAINS LOSSES VALUE
-------- --------- ---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Fixed maturity investments (available for
sale):
U.S. government and agencies.............. $ 39,106 $ 38,720 $ 429 $ (43) $ 39,106
States and political subdivisions......... 142,655 139,635 3,028 (8) 142,655
Corporate securities...................... 52,810 52,308 532 (30) 52,810
Foreign government bonds.................. 89 90 -- (1) 89
Mortgage-backed securities................ 5,158 5,118 60 (20) 5,158
-------- -------- ------ ----- --------
$239,818 $235,871 $4,049 $(102) $239,818
======== ======== ====== ===== ========
</TABLE>
The change in unrealized gains (losses) on fixed maturities for the years
ended December 31, 1998, 1997, and 1996 was $3,170,000, $5,263,000 and
($3,482,000), respectively.
The amortized cost and estimated fair value of fixed maturity securities,
which are classified as available for sale at December 31, 1998, by contractual
maturity, are shown as follows. Expected maturities may differ
51
<PAGE> 54
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 (RESTATED) AND 1996
(RESTATED)
from contractual maturities because certain borrowers have the right to call or
prepay obligations with or without call or prepayment penalties:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------------------------
AMORTIZED % FAIR %
COST OF TOTAL VALUE OF TOTAL
--------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Maturity
One year or less......................... $ 5,836 1.8% $ 5,696 1.7%
After one year through five years........ 132,377 41.0 134,866 40.9
After five years through ten years....... 158,156 49.0 162,528 49.2
After ten years.......................... 26,582 8.2 26,978 8.2
-------- ----- -------- -----
$322,951 100.0% $330,068 100.0%
======== ===== ======== =====
Subject to call............................ $ 47,491 14.7% $ 48,600 14.7%
</TABLE>
Fixed maturity securities valued at approximately $18,041,000 and
$19,125,000 were on deposit with various governmental authorities at December
31, 1998 and 1997, respectively, as required by law.
Equity securities at December 31, 1998 and 1997 consist of investments in
various industry groups as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1998 1997
------------------ ------------------
FAIR FAIR
COST VALUE COST VALUE
------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Banks, trust and insurance companies........ $ 1,874 $ 1,949 $ 517 $ 950
Industrial, miscellaneous and all other..... 35,878 48,242 41,154 76,603
------- ------- ------- -------
$37,752 $50,191 $41,671 $77,553
======= ======= ======= =======
</TABLE>
The carrying value of the Company's investment in equity securities is fair
value. As of December 31, 1998, gross unrealized gains and gross unrealized
losses on equity securities were $22,464,000 and $10,025,000, respectively.
Gross unrealized gains and gross unrealized losses on equity securities were
$38,464,000 and $2,582,000, respectively, as of December 31, 1997.
The change in unrealized gains and losses on equity securities for the
years ended December 31, 1998, 1997 and 1996 was ($23,443,000), $12,756,000 and
$15,214,000, respectively.
Included in equity securities is an investment in a certain equity
security, CKE Restaurants, Inc., with a cost basis of $2,341,000 and a fair
value of $18,462,000 at December 31, 1998 and a cost basis of $3,366,000 and a
fair value of $31,404,000 at December 31, 1997.
On July 22, 1997, the Company purchased 1,000,000 shares of common stock of
GB Foods Corporation, now known as Santa Barbara Restaurant Group ("SBRG"),
which represented approximately 15.5% of the outstanding common stock of SBRG
for a purchase price of $5.0 million. Additionally, the Company purchased
warrants to acquire an additional 3,500,000 shares of SBRG at various prices
ranging from $5.00 -- $7.50 for a purchase price of $800,000; 1,500,000 warrants
exercisable at $5.00 per share, 1,000,000 warrants exercisable at $7.00 per
share and 1,000,000 warrants exercisable at $7.50 per share. In conjunction with
the common stock purchase, the Company gained control of three seats on the SBRG
Board of Directors. During 1998, the Company exercised 1,000,000 of the $5.00
warrants in conjunction with an acquisition by SBRG in order to provide SBRG
additional capital. In addition, on December 31, 1998, the Company exchanged
certain investments in restaurant common stocks with a combined value of $9.45
million for an additional
52
<PAGE> 55
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 (RESTATED) AND 1996
(RESTATED)
2,478,000 shares of SBRG. The Company now owns approximately 31.1% of SBRG. The
Company's investment in SBRG is accounted for under the equity method.
Effective July 1, 1997, the Company sold a majority interest (60%) of its
subsidiary American Title Company ("ATC"), an underwritten title company, to
certain members of ATC's management. ATC functions as an exclusive agent of the
Company. The sale price of the 60% interest was $6.0 million resulting in a
realized gain of approximately $1.3 million before applicable income taxes. As a
result of a tax free reorganization of American National Financial, Inc.
("ANFI"), the parent company of ATC and its subsidiaries, in November 1998, the
Company's interest in ATC was converted to an ownership interest of
approximately 43% of ANFI. Subsequent to ANFI's initial public offering in
February 1999, the Company's ownership interest in ANFI became approximately
31.5%. The Company's investment in ANFI is accounted for under the equity
method.
Interest and investment income, including realized gains (losses), consists
of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents..................... $ 2,798 $ 1,370 $ 1,967
Fixed maturity securities..................... 13,014 11,256 10,384
Equity securities............................. 22,867 12,062 5,094
Short-term investments........................ 1,483 1,891 165
Notes receivable.............................. 1,913 2,486 2,801
Other......................................... (2,488) 6,741 (1,184)
------- ------- -------
$39,587 $35,806 $19,227
======= ======= =======
</TABLE>
Net realized gains included in interest and investment income amounted to
$17,190,000, $16,839,000 and $2,476,000 for the years ended December 31, 1998,
1997 and 1996, respectively. 1998 net realized gains include a gain of
approximately $9,700,000 related to the conversion of the Company's investment
in Data Tree Corporation common stock to common stock of First American
Financial Corporation. Included in net realized gains for the year ended
December 31, 1997, are net realized gains from the sales of investments of
approximately $10,500,000, a net realized gain from the sale of the Company's
former home office building of approximately $4,300,000, and net realized gains
on the sale of 60% of American Title Company, a former wholly-owned underwritten
title company subsidiary, and the sale of FNF Ventures, Inc., a small business
investment company subsidiary of approximately $1,300,000 and $800,000,
respectively. All amounts are before applicable income taxes.
During the years ended December 31, 1998, 1997 and 1996, gross realized
gains on sales of fixed maturity securities considered available for sale were
$700,000, $798,000 and $453,000, respectively; and gross realized losses were
$268,000, $468,000 and $719,000, respectively. Gross proceeds from the sale of
fixed maturity securities considered available for sale amounted to $71,114,000,
$143,085,000 and $94,214,000, during the years ended December 31, 1998, 1997 and
1996, respectively.
During the years ended December 31, 1998, 1997 and 1996, gross realized
gains on sales of equity securities considered available for sale were
$32,603,000, $12,986,000 and $6,186,000, respectively; and gross realized losses
were $10,999,000, $2,515,000 and $2,091,000, respectively. Gross proceeds from
the sale of equity securities amounted to $108,554,000, $120,094,000 and
$94,161,000 during the years ended December 31, 1998, 1997 and 1996,
respectively.
53
<PAGE> 56
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 (RESTATED) AND 1996
(RESTATED)
D. LEASES AND RESIDUAL INTERESTS IN SECURITIZATIONS
Direct Financing Leases
Granite's direct financing leases at December 31, 1998 and 1997 consist of
the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------
DIRECT
FINANCING
DIRECT LEASES
FINANCING ASSIGNED TO
LEASES LENDER
--------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Minimum lease payments receivable....................... $ 57,501 $ 6,398
Estimated residual values of leased property............ 5,424 518
Lease acquisition costs and broker commissions.......... 3,046 45
Unearned income......................................... (16,300) (818)
Allowance for credit losses............................. (10,221) (261)
Security deposits....................................... (393) (64)
-------- -------
$ 39,057 $ 5,818
======== =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------
DIRECT
FINANCING
DIRECT LEASES
FINANCING ASSIGNED TO
LEASES LENDER
--------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Minimum lease payments receivable....................... $ 25,832 $13,525
Estimated residual values of leased property............ 3,480 709
Lease acquisition costs and broker commissions.......... 2,194 215
Unearned income......................................... (9,451) (2,232)
Allowance for credit losses............................. (2,440) (200)
Security deposits....................................... (275) (115)
-------- -------
$ 19,340 $11,902
======== =======
</TABLE>
Scheduled collections of minimum lease payments receivable are as follows:
<TABLE>
<CAPTION>
DIRECT
FINANCING
DIRECT LEASES
FINANCING ASSIGNED TO
LEASES LENDER
--------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Year Ending December 31,
1999.................................................. $ 15,782 $ 3,659
2000.................................................. 14,212 2,371
2001.................................................. 12,048 284
2002.................................................. 8,677 80
2003.................................................. 5,150 4
Thereafter............................................ 1,632 --
-------- -------
$ 57,501 $ 6,398
======== =======
</TABLE>
At December 31, 1998, the weighted average implicit rate of interest is
approximately 13.0%.
54
<PAGE> 57
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 (RESTATED) AND 1996
(RESTATED)
The carrying value of the direct financing leases at December 31, 1998 and
1997 approximated fair value because of the short-term period that these leases
are held before sale or securitization or, in certain cases, because the
interest rate approximates current market rates. The fair value of the direct
financing leases assigned to lender at December 31, 1998 and 1997 approximated
the carrying value because the interest rate on the related Class A Term Note
approximates current market rates.
Asset Securitization
The Company has completed six securitization facilities that provide for
aggregate funding limits of approximately $354,000,000. Two of the
securitization facilities, GF Funding IV and GF Funding V, are revolving
facilities.
In April 1996, the Company's wholly-owned subsidiary, GF Funding I, issued
$21,689,000 of 6.33% Class A Lease-Backed Term Note ("GFI Note") due November
20, 2001 in a private placement. The GFI Note is collateralized by (i) payments
to be made under leases contributed by Granite Financial, LLC to GF Funding I,
(ii) all of GF Funding I's rights and interest in the leased equipment, (iii) a
cash collateral account (which generally does not increase the overall level of
credit enhancement, but rather accommodates changes that may occur from time to
time in the form of credit enhancement from excess implicit principal balance of
lease receivables to cash) and (iv) a financial guaranty insurance policy. Under
the terms of the insurance policy, the monthly payments of interest and final
payment of principal and maturity are unconditionally guaranteed. As this
securitization was completed through the issuance of a debt security prior to
the adoption of SFAS 125, the transaction is accounted for as a collateralized
borrowing. Accordingly, the underlying lease assets, recorded as direct
financing leases assigned to lender, and the related limited recourse note
payable are reflected in the consolidated balance sheet. The underlying assets
are comprised of the Company's net investment in the leases of $5,818,000 and
$11,902,000 as of December 31, 1998 and 1997, respectively. The related limited
recourse note payable was $5,930,000 and $11,719,000 as of December 31, 1998 and
1997, respectively. See Note H.
In November 1996, GF Funding II was formed to establish the Company's
second securitization facility. The facility provided for the issuance of up to
$65 million in aggregate principal amount of Class A Lease-Backed Certificates
due June 20, 2003 (the "1996 Certificates") in a private placement. For purposes
of computing interest, the 1996 Certificates are issued in two tranches,
consisting of the Floating Rate Tranche and the Fixed Rate Tranche. The
principal amount of the Floating Rate Tranche will generally convert to the
Fixed Rate Tranche on a quarterly basis. The Floating Rate Tranche bears
interest at an annual rate equal to the LIBOR Rate, as adjusted from time to
time, plus .50%. The Fixed Rate Tranche bears interest at an annual rate equal
to the Treasury Rate, as adjusted form time to time, plus .70%. The annual
interest rate on each tranche is subject to a maximum annual rate of 10%. The
1996 Certificates represent an undivided interest in a trust estate created by
GF Funding II comprised of (i) payments to be made under leases contributed to
GF Funding II, (ii) all of GF Funding II's right and interest in the leased
equipment, (iii) a cash collateral account and (iv) a financial guaranty
insurance policy. The securitization was fully funded in December 1997. The
Company has recorded gains from the sales of leases with respect to this
securitization of $5,656,000 and $864,000, respectively, during the years ended
December 31, 1997 and 1996.
In March 1997, GF Funding III was formed to establish the Company's third
securitization facility. The facility provides for the issuance of up to
$27,500,000 in the aggregate principal amount of 6.82% Class A Lease-Backed
Certificates due December 20, 2002 (the "1997 Certificates") in a private
placement. The 1997 Certificates represent an undivided interest in a trust
estate created by GF Funding III comprised of (i) payments to be made under
leases contributed to GF Funding III, (ii) all of GF Funding III's right and
interest in the leased equipment, (iii) a cash collateral account, a capitalized
interest account, a prefunding account and a collection account and (iv) a
financial guaranty insurance policy. This securitization was fully
55
<PAGE> 58
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 (RESTATED) AND 1996
(RESTATED)
funded in June 1997. The Company has recorded gains from the sales of leases
with respect to this securitization of $1,670,000 during the year ended December
31, 1997.
In December 1997, GF Funding IV was formed to establish the Company's
fourth securitization facility. The facility provides for the issuance of up to
$150 million in aggregate principal amount of Class A Lease-Backed Certificates
due September 2004 (the "GFIV Certificates") in a private placement. For
purposes of computing interest, the GFIV Certificates are issued in two
tranches, consisting of the Floating Rate Tranche and the Fixed Rate Tranche.
The principal amount of the Floating Rate Tranche will generally convert to the
Fixed Rate Tranche on a quarterly basis. The Floating Rate Tranche bears
interest at an annual rate equal to the LIBOR Rate, as adjusted from time to
time, plus .50%. The Fixed Rate Tranche bears interest at an annual rate equal
to the Treasury Rate, as adjusted from time to time, plus .35%. The GFIV
Certificates represent an undivided interest in a trust estate created by GF
Funding IV comprised of (i) payments to be made under leases contributed to GF
Funding IV, (ii) all of GF Funding IV's rights and interests in the lease
equipment and (iii) a financial guaranty insurance policy. The Company is
required to sell a minimum of $10,000,000 in leases to the securitization
facility per quarter. The Company has recorded gains from the sales of leases
with respect to this securitization of $6,456,000 and $1,418,000 during the
years ended December 31, 1998 and 1997, respectively.
In March 1998, GF Funding V was formed to establish the Company's fifth
securitization facility. The facility provides for the issuance of up to $65
million in aggregate principal amount of Class A Lease-Backed Certificates due
April 2005 (the "GFV Certificates") in a private placement. For purposes of
computing interest, the GFV Certificates are issued in Fixed Rate Tranches which
bear interest at an annual rate equal to the Treasury Rate, as adjusted form
time to time, plus 1.20%. The GFV Certificates represent an undivided interest
in a trust estate created by GF Funding V comprised of (i) payments to be made
under leases contributed to GF Funding V and (ii) all of GF V's rights and
interest in the leased equipment. The Company is required to sell a minimum of
$15,000,000 in leases to the securitization facility per quarter. The Company
has recorded gains from the sales of leases with respect to this securitization
of $2,817,000 during the year ended December 31, 1998.
In October 1998, GF Funding VI was formed to establish the Company's sixth
securitization facility. The facility provides for the issuance of $30.3 million
in Lease-Backed Certificates (the "GFVI Certificates"). The GFVI Certificates
represent an undivided interest in a trust estate created by GFVI which is
comprised of (i) all rights, title and interest in the subordinated interest in
GF Funding I, GF Funding II, GF Funding III, GF Funding IV and GF Funding V, and
the related purchase agreements, (ii) a cash collection account and (iii) a cash
reserve account. The issuance of the GFVI Class A and Class B Certificates is
accounted for as a collateralized borrowing. Accordingly, the subordinated
interest, recorded as a residual interest in securitization, and the related
Class A and B are reflected in the Company's Consolidated Balance Sheet. The
outstanding Class A and B Certificates were $16,006,000 at December 31, 1998.
The amounts due related to the Lease-Backed Notes and Certificates
approximate fair value at December 31, 1998 and 1997 due to the fact that the
interest rate paid on the Lease-Backed Notes and Certificates approximates
market rates.
Sale of Leases
The Company entered into agreements with certain financial institutions to
sell, on an ongoing basis, certain leases either on a recourse or non-recourse
basis. The purchase price of the leases is determined on a transaction by
transaction basis. A gain on sale is recognized on the date of sale based upon
the present value of the payments to be received under the lease. The Company
retains servicing of all leases under the agreements. During the years ended
December 31, 1998, 1997 and 1996, the Company recognized a net gain on sale of
leases of $857,000, $1,559,000 and $1,483,000, respectively.
56
<PAGE> 59
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 (RESTATED) AND 1996
(RESTATED)
Servicing Asset
The Company has not established any servicing asset or liability, although
the Company retained the servicing rights on the leases securitized because
management has determined that revenues from contractually specified servicing
fees and ancillary services are just adequate to compensate the Company for its
servicing responsibilities
E. NOTES RECEIVABLE
Notes receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Mortgage notes, secured by various deeds of trust,
installments due monthly including interest at rates
ranging from 7.0% to 10.0%, due through 2022........... $ 1,316 $ 426
Promissory notes, secured by various assets and
unsecured, installments due monthly including interest
at rates ranging from 6.0% to 13.0%, due through
2014................................................... 9,711 10,074
Officer and employee secured and unsecured notes
receivable at rates ranging from 7.0% to 10.0%, due
through 2004........................................... 1,798 1,421
------- -------
12,825 11,921
Allowance for doubtful receivables....................... (2,064) (1,758)
------- -------
$10,761 $10,163
======= =======
</TABLE>
The allowance for doubtful receivables is primarily related to certain
promissory notes at December 31, 1998 and 1997. Interest income is not
recognized on the Company's non-performing notes receivable. There were no
non-performing notes receivable at December 31, 1998.
The carrying value and estimated fair values of the Company's notes
receivable were as follows at December 31, 1998 and 1997 (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1998 1997
------------------- -------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Mortgage notes.............................. $ 1,199 $ 1,199 $ 426 $ 426
Other promissory notes...................... 7,999 7,999 8,563 8,563
Affiliated notes............................ 1,563 1,563 1,174 1,174
------- ------- ------- -------
$10,761 $10,761 $10,163 $10,163
======= ======= ======= =======
</TABLE>
The fair values of significant notes receivable are established using
discounted cash flow analyses based on current market interest rates and
comparison of rates being received to interest rates currently being offered for
similar loans to borrowers with similar credit ratings. Loans with similar
characteristics are aggregated for purposes of the calculations. All other notes
receivable are not significant individually or in the aggregate, or are current
and at market rates, and their carrying value approximates fair value.
57
<PAGE> 60
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 (RESTATED) AND 1996
(RESTATED)
F. INVESTMENTS IN REAL ESTATE AND PARTNERSHIPS
At December 31, 1998 and 1997, the Company had financial interests ranging
from 22% to 50% in three real estate partnerships which were accounted for under
the equity method. These partnerships are involved in the ownership and
management of commercial office buildings, retail facilities and have acquired
specific parcels of real property for investment purposes. The Company, through
Manchester Development Corporation ("Manchester"), a wholly-owned subsidiary,
had a general partnership interest in one of the three real estate partnerships
at December 31, 1998 and 1997.
Two of these partnerships, representing raw land investments, also have
officers and directors of the Company as partners with ownership interests that
are based on cash contributions. These two partnerships require that all of the
partners, including the Company, make pro-rata capital contributions should the
partnerships require additional funds to pay liabilities. The carrying value of
the Company's interests in these partnerships totalled $1,214,000 and $1,208,000
at December 31, 1998 and 1997, respectively.
Summarized combined financial information of the unconsolidated
partnerships is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997 1996
------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Total assets, primarily land, development and improvement
costs.................................................. $4,127 $3,922 $3,960
Total liabilities, primarily notes and mortgages
payable................................................ 6 819 841
------ ------ ------
Partners' equity......................................... $4,121 $3,103 $3,119
====== ====== ======
Revenue.................................................. $1,094 $ 47 $ 378
====== ====== ======
Net income (loss)........................................ $ 205 $ 22 $ (73)
====== ====== ======
</TABLE>
At December 31, 1998, the Company had a 92.5% interest in a real estate
partnership which is consolidated with the Company. At December 31, 1997, the
Company had a 92.5% and 76.3% interest in real estate partnerships consolidated
with the Company.
Manchester is also presently a partner with Sussex Holdings, Ltd. (an
affiliate of Folco) in Folco Mission Valley Partners Limited Partnership, a
California limited partnership. Manchester owns a 22% limited partnership
interest and Sussex Holdings, Ltd. owns a 78% general partnership interest.
Fidelity Title is the sole tenant in the building and received an approximate
30% decrease in its annual rental rate based upon its lease with Folco Mission
Valley. Manchester's carrying value of this partnership interest was $224,000
and $3,000 at December 31, 1998 and 1997, respectively.
58
<PAGE> 61
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 (RESTATED) AND 1996
(RESTATED)
Investments in real estate and partnerships consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1998 1997
------ ------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Investments in real estate:
Land..................................................... $4,337 $4,337
Commercial buildings, net of accumulated depreciation of
$18 and $67........................................... 653 664
Investments in unconsolidated partnerships................. 1,435 1,714
------ ------
6,425 6,715
Valuation allowance........................................ (1,752) (1,514)
------ ------
$4,673 $5,201
====== ======
</TABLE>
During 1997 and 1996, the Company sold investments in real estate to third
parties at an aggregate purchase price of $6.4 million and $917,000,
respectively, which approximated the carrying value of the investments sold.
There were no sales in 1998.
G. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Land................................................... $ 1,724 $ 4,897
Buildings.............................................. 3,754 7,230
Leasehold improvements................................. 14,596 12,729
Furniture, fixtures and equipment...................... 121,272 102,517
-------- --------
141,346 127,373
Accumulated depreciation and amortization.............. (95,276) (82,660)
-------- --------
$ 46,070 $ 44,713
======== ========
</TABLE>
H. NOTES PAYABLE
Notes payable consist of the following (dollars in descriptions in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Bank revolving credit facility secured by common stock of
certain Insurance Subsidiaries and a certain UTC, interest
due monthly at LIBOR plus 1.15% (6.21% at December 31,
1998), unused portion of $53,698 at December 31, 1998, due
September 2001............................................ $ 46,302 $ --
Bank revolving line of credit, warehouse line, secured by
security interest in certain leases and the underlying
equipment, interest due monthly at LIBOR plus 1.75% (6.81%
at December 31, 1998), unused portion of $27,700 at
December 31, 1998, due March 2000......................... 7,300 --
Bank revolving credit facility, unsecured, interest due
monthly at LIBOR plus 1.15% (6.21% at December 31, 1998),
no unused portion at December 31, 1998, due May 1999...... 25,000 --
</TABLE>
59
<PAGE> 62
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 (RESTATED) AND 1996
(RESTATED)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Credit agreement, secured by common stock of certain
Insurance Subsidiaries, principal due quarterly, interest
due monthly at LIBOR plus 2.0%, due September 2001, paid
and terminated in March 1998.............................. $ -- $ 15,250
Bank revolving credit facility, secured by common stock of
certain Insurance Subsidiaries, interest due quarterly at
LIBOR plus 2.0%, principal due quarterly beginning April
1998, due September 2001, paid and terminated in March
1998...................................................... -- 5,000
Bank revolving line of credit, warehouse line, secured by
security interest in certain leases and the underlying
equipment, interest due monthly at Prime plus .625%,
unused portion of $33,200 at December 31, 1997, subsequent
to year end line of credit increased to $46,000 and
maturity date extended, paid and terminated in October
1998...................................................... -- 2,784
Equipment line of credit, secured by equipment, interest due
monthly at LIBOR plus 1.40% (6.46% at December 31, 1998),
unused portion of $143 and $3,970 at December 31, 1998 and
1997, due May 1999........................................ 9,857 4,030
Bank revolving credit facility, secured by common stock of
certain UTCs, semi-annual principal installments of $750
and interest due quarterly at LIBOR plus 1.0%, due June
2000, paid and terminated in December 1998................ -- 3,750
Bank revolving credit facility, secured by common stock of
certain UTCs, principal installments of $35 and interest
due quarterly at LIBOR plus 1%, due December 2001, paid
and terminated in December 1998........................... -- 560
Bank line of credit, unsecured, interest due monthly at
Bank's Reference Rate plus .75% (8.50% at December 31,
1998), no unused portion at December 31, 1998, paid and
terminated January 1999................................... 3,000 3,000
Bank promissory note, secured by equipment, principal and
interest due monthly at LIBOR plus 1.77% (6.83% at
December 31, 1998) due July 2002.......................... 8,903 --
Bank promissory note, secured by equipment, principal and
interest due monthly at LIBOR plus 1.77%, paid in
September 1998............................................ -- 2,134
Bank promissory note, secured by equipment, principal and
interest due monthly at LIBOR plus 2.10% (7.16% at
December 31, 1998), due June 1999......................... 718 2,052
Bank promissory note, secured by equipment, principal and
interest due monthly at 30 day commercial paper rate plus
2.44% (6.61% at December 31, 1998), due September 2000.... 3,281 5,000
Bank promissory note, secured by equipment, principal and
interest due monthly at LIBOR plus 1.84% (6.90% at
December 31, 1998), due May 2001.......................... 2,902 4,042
Bank promissory note, secured by equipment, principal and
interest due monthly at LIBOR plus 1.84% (6.90% at
December 31, 1998), due September 2001.................... 4,337 5,784
Promissory note, secured by real estate, principal and
interest due monthly at 9.875%, paid in June 1998......... -- 1,693
</TABLE>
60
<PAGE> 63
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 (RESTATED) AND 1996
(RESTATED)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Note payable to bank, secured by common stock of certain
subsidiaries, principal and interest due monthly at LIBOR
plus 3.50% (9.468% at December 31, 1997), due within 30
days of change in control or April 1998................... $ -- $ 8,000
Note payable secured by certain leases and a security
interest in underlying equipment, principal and interest
due monthly at 9.80%, due January 2000.................... 347 638
Note payable to bank, secured by all tangible and intangible
property of a certain subsidiary, principal and interest
due monthly at 8.72%, due May 1999........................ 926 1,292
Promissory notes, unsecured, interest due quarterly at
8.00%, principal due at various dates through July 1999... 2,982 5,100
Convertible notes, secured by assets of a subsidiary, with
interest of 9.5%; principal and interest due quarterly,
due July 2001............................................. 2,900 --
Liquid Yield Option Notes, zero coupon, convertible
subordinated notes due 2009 with interest at 5.5%,
converted or redeemed in February 1999.................... 71,307 76,635
Other promissory notes with various interest rates and
maturities................................................ 2,626 4,552
-------- --------
$192,688 $151,296
======== ========
</TABLE>
Principal maturities, including accretion of original issue discount, are
as follows (dollars in thousands):
<TABLE>
<S> <C>
1999...................................................... $ 51,174
2000...................................................... 15,864
2001...................................................... 51,477
2002...................................................... 1,877
2003...................................................... 323
Thereafter................................................ 71,973
--------
$192,688
========
</TABLE>
Also included in notes payable in the Consolidated Balance Sheets as of
December 31, 1998 and 1997 is the Class A Lease-Backed Term Note due 2001. See
Note D. The amount due related to the GFI Class A Lease-Backed Term Note was
$5,930,000 and $11,719,000 at December 31, 1998 and 1997, respectively. The GFI
note bears interest at 6.33% and is due November 2001. The carrying value of the
GFI Class A Lease-Backed term note approximates fair value at December 31, 1998
and 1997 due to the fact that the interest rate paid on the GFI Class A
Lease-Backed Note approximates market rates.
Notes payable in the Consolidated Balance Sheet as of December 31, 1998
also includes the GFVI Class A Certificates in the amount of $7,878,000 and the
Class B Certificates in the amount of $8,128,000. See Note D. The Class A and
Class B Certificates bear interest at 6.20%, and are due in September 2005 and
December 2005, respectively. The carrying value of the Class A and Class B
Certificates approximates fair value at December 31, 1998 due to the fact that
the interest rate paid on the Class A and Class B Certificates approximates
market rates.
61
<PAGE> 64
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 (RESTATED) AND 1996
(RESTATED)
The carrying value and estimated fair values of the Company's notes payable
were as follows at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1998 1997
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Short-term borrowings................... $ 13,400 $ 13,400 $ 19,483 $ 19,483
Long-term borrowings, variable rate..... 99,900 99,900 44,456 44,456
Long-term borrowings, fixed rate........ 79,388 97,443 87,357 122,477
-------- -------- -------- --------
$192,688 $210,743 $151,296 $186,416
======== ======== ======== ========
</TABLE>
Short-term borrowings approximate their fair value. The fair value of the
Company's fixed rate and variable rate notes payable is estimated using
discounted cash flow analyses based on current market interest rates and
comparison of interest rates being paid to the Company's current incremental
borrowing rates for similar types of borrowing arrangements. The LYON's fair
value is calculated based on quoted market prices.
The Company's credit agreement, dated as of September 21, 1995, included a
$22 million term loan and a $13 million revolving credit facility, was secured
by the common stock of certain Insurance Subsidiaries. This credit facility was
terminated and paid in 1998 with the proceeds from a new revolving credit
facility secured by the common stock of certain Insurance Subsidiaries and a
certain UTC. Additionally, the Company must comply with certain affirmative and
negative covenants related to its bank revolving lines of credit and other debt
facilities, which require, among other things, that the Company maintain certain
financial ratios related to liquidity, net worth, capitalization, investments,
acquisitions, restricted payments and certain dividend restrictions.
In February 1994, the Company issued zero coupon, convertible subordinated
Liquid Yield Options Notes due February 2009 ("LYONs") at an interest rate of
5.5% with a principal amount at maturity of $235,750,000. Net proceeds to the
Company were approximately $101,000,000. The proceeds were used for investment
and general corporate purposes, including the repurchase of treasury shares. The
conversion rate of the LYONs is 28.077 shares of common stock per $1,000
maturity value of LYONs. Conversion is at the option of the holder, at any time
on or prior to maturity. Each holder, at its option, may put the LYONs to the
Company as of February 15, 1999 and February 15, 2004 for a purchase price per
LYON of $581.25 and $762.40, respectively. The Company at its option, may elect
to pay the put in cash or shares of its common stock. The LYONs are redeemable
by the Company for cash on or after February 15, 1999 at a price equal to the
issue price of $441.31 plus accrued original issue discount through the date of
redemption. The maturity value of LYONs outstanding at December 31, 1998 was
approximately $124,113,000.
On October 17, 1997, the Company in a private transaction, purchased $45
million aggregate principal amount at maturity of its outstanding Liquid Yield
Option Notes due 2009 from Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") for an aggregate purchase price of $27.2 million (or $605 per
$1,000 principal amount at maturity of LYONs). The purchase price was paid in
the form of 1,394,381 shares, $26.4 million, of the Company's common stock (the
"Exchange Shares"). The Company also paid Merrill Lynch the excess of a base
price of $19.53 per Exchange Share over the actual sales price (less $0.05 per
share in commissions) realized by Merrill Lynch for sales of up to 607,881
Exchange Shares. The Company also paid Merrill Lynch, for each day, an amount in
cash to be determined by multiplying the Net Carry Amount (number of Exchange
Shares multiplied by $19.53) by the Applicable Rate (LIBOR plus 2.50%). The
Company's payment obligations were subject to reduction for dividends on
Exchange Shares received by Merrill Lynch during the period. The Company paid
the foregoing amounts to Merrill Lynch in cash of approximately $790,000 on
November 7, 1997. The purchase of the LYONs increased stockholders'
62
<PAGE> 65
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 (RESTATED) AND 1996
(RESTATED)
equity by approximately $24.7 million while reducing outstanding debt by
approximately $24.3 million. Additionally, an extraordinary loss due to the
early retirement of debt of approximately $1.7 million, net of applicable income
taxes, was recorded in the fourth quarter of 1997.
On January 13, 1999, the Company announced that it was going to redeem,
pursuant to the terms of the indenture, its outstanding Liquid Yield Option
Notes due 2009 for $581.25 per $1,000 maturity value on February 15, 1999.
Additionally, the LYONs holders had the right to convert the outstanding LYONs
to 28.077 shares of Company common stock per $1,000 maturity value of LYONs at
any time. As of February 15, 1999, $123,681,000 maturity value of LYONs had
converted to 3,473,000 shares of common stock, adding approximately $70 million
to equity while reducing outstanding note payable by a like amount. The
remaining $432,000 of maturity value was redeemed for cash of approximately
$251,000.
I. INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current.............................................. $ 82,267 $33,729 $10,373
Deferred............................................. (12,825) 1,686 8,612
-------- ------- -------
$ 69,442 $35,415 $18,985
======== ======= =======
</TABLE>
Total income tax expense (benefit) for the years ended December 31, 1998,
1997 and 1996 was allocated as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Income from continuing operations..................... $69,442 $36,595 $18,985
Extraordinary gain (loss)............................. -- (1,180) --
------- ------- -------
$69,442 $35,415 $18,985
======= ======= =======
</TABLE>
The effective tax rate differs from the statutory income tax rate as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Statutory income tax rate................................... 35.0% 35.0% 35.0%
Tax exempt interest income.................................. (1.6) (1.7) (1.1)
Non-deductible expenses..................................... 1.7 5.8 2.4
State taxes, net of Federal deduction....................... 3.6 3.1 2.3
Other....................................................... 1.0 .6 .8
---- ---- ----
39.7% 42.8% 39.4%
==== ==== ====
</TABLE>
63
<PAGE> 66
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 (RESTATED) AND 1996
(RESTATED)
The deferred tax assets and liabilities at December 31, 1998 consist of the
following:
<TABLE>
<CAPTION>
DEFERRED DEFERRED TAX
TAX ASSETS LIABILITIES
---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Provision for claim losses in excess of statutory
amounts.......................................... $65,191 $ --
Employee benefit accruals.......................... 11,339 --
Excess book over tax provision for bad debts....... 4,511 --
Accrued liabilities................................ 8,264 --
Deferred state income taxes........................ 5,423 --
Other assets....................................... 112 --
Statutory unearned premium reserve................. -- 60,024
Accelerated depreciation........................... -- 3,433
Investment securities.............................. -- 8,101
Investments in partnerships........................ -- 389
Investments in real estate......................... -- 153
Section 338(h)(10) gain deferral................... -- 1,670
Other acquisition accruals......................... -- 5,563
Lease accounting................................... -- 1,786
Other liabilities.................................. -- 4,995
Net operating loss available for carryovers........ 4,539 --
------- -------
99,379 86,114
Less: valuation allowance.......................... 2,300 --
------- -------
Total deferred taxes..................... $97,079 $86,114
======= =======
</TABLE>
The deferred tax assets and liabilities at December 31, 1997 consist of the
following:
<TABLE>
<CAPTION>
DEFERRED DEFERRED TAX
TAX ASSETS LIABILITIES
---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Provision for claim losses in excess of statutory
amounts.......................................... $50,275 $ --
Employee benefit accruals.......................... 8,365 --
Excess book over tax provision for bad debts....... 4,217 --
Other assets....................................... 2,301 --
Statutory unearned premium reserve................. -- 52,411
Accelerated depreciation........................... -- 875
Investment securities.............................. -- 16,156
Investments in partnerships........................ -- 392
Investments in real estate......................... -- 154
Section 338(h)(10) gain deferral................... -- 2,046
Other acquisition accruals......................... -- 5,509
Lease accounting................................... -- 3,214
Other liabilities.................................. -- 2,012
Net operating loss available for carryover......... 1,812 --
------- -------
66,970 82,769
Less: valuation allowance.......................... 711 --
------- -------
Total deferred taxes..................... $66,259 $82,769
======= =======
</TABLE>
64
<PAGE> 67
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 (RESTATED) AND 1996
(RESTATED)
Based upon the Company's current and historical pretax earnings, management
believes it is more likely than not that the Company will realize the benefit of
its existing deferred tax assets, net of the recorded valuation allowance.
Management believes the existing net deductible temporary differences will
reverse during periods in which the Company generates net taxable income.
However, there can be no assurance that the Company will generate any earnings
or any specific level of continuing earnings in future years. Certain tax
planning or other strategies could be implemented, if necessary, to supplement
income from operations to fully realize recorded tax benefits.
The Company's 1995 and 1996 Federal income tax returns are currently under
examination by the Internal Revenue Service. Based on information currently
available, management does not believe the outcome of these examinations will
have a material impact on the financial condition or results of operations of
the Company.
J. SUMMARY OF RESERVE FOR CLAIM LOSSES
A summary of the reserve for claim losses follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Beginning balance.................................. $201,674 $196,527 $153,207
Reserves assumed from First Title Corp. ......... -- 284 --
Reserves transferred due to the sale of American
Title Company................................. -- (160) --
Reserves assumed from Nations Title Inc.......... -- -- 45,171
Title claim loss provision related to:
Current year.................................. 59,294 39,301 35,478
Prior years................................... -- 2,257 797
-------- -------- --------
Total title claim loss provision................. 59,294 41,558 36,275
Title claims paid, net of recoupments related to:
Current year.................................. (1,045) (3,385) (2,749)
Prior years................................... (35,389) (33,150) (35,377)
-------- -------- --------
Total title claims paid, net of recoupments...... (36,434) (36,535) (38,126)
-------- -------- --------
Ending balance..................................... $224,534 $201,674 $196,527
======== ======== ========
</TABLE>
The provision for claim losses includes an estimate of anticipated title
claims and major claims. The estimate of anticipated title claims is accrued as
a percentage of title premium revenue based on the Company's historical loss
experience and other relevant factors. The Company monitors its claims
experience on a continual basis and adjusts the provision for claim losses
accordingly.
K. COMMITMENTS AND CONTINGENCIES
The Company's title insurance underwriting subsidiaries are, in the
ordinary course of business, subject to claims made under, and from time-to-time
are named as defendants in legal proceedings relating to, policies of insurance
they have issued or other services performed on behalf of insured policyholders
and other customers. The Company believes that the reserves reflected in its
Consolidated Financial Statements are adequate to pay losses and loss adjustment
expenses which may result from such claims and proceedings; however, such
estimates may be more or less than the amount ultimately paid when the claims
are settled.
The Company has entered into various employment agreements with officers of
the Company. These agreements provide for a specified salary to be paid to the
officers and include incentive compensation
65
<PAGE> 68
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 (RESTATED) AND 1996
(RESTATED)
arrangements. The agreements contain non-compete provisions. The terms of the
agreements range from three to five years and normally contain extension
provisions.
In the ordinary course of business, the Company is involved in various
pending and threatened litigation matters related to its operations, some of
which include claims for punitive or exemplary damages. Management believes that
no actions depart from customary litigation incidental to the business of the
Company and that resolution of all such litigation will not have a material
adverse effect on the Company.
In conducting its operations, the Company routinely holds customers' assets
in trust, pending completion of real estate transactions. Such amounts are
maintained in segregated bank accounts and have not been included in the
accompanying Consolidated Balance Sheets. The Company has a contingent liability
relating to proper disposition of these balances for its customers which
amounted to $532.2 million at December 31, 1998.
The Company leases certain of its premises and equipment under leases which
expire at various dates. Several of these agreements include escalation clauses
and provide for purchases and renewal options for periods ranging from one to
five years.
Future minimum operating lease payments are as follows (dollars in
thousands):
<TABLE>
<S> <C>
1999...................................................... $ 29,999
2000...................................................... 24,776
2001...................................................... 20,418
2002...................................................... 14,856
2003...................................................... 9,992
Thereafter................................................ 24,590
--------
Total future minimum operating lease payments... $124,631
========
</TABLE>
Rent expense incurred under operating leases during the years ended
December 31, 1998, 1997 and 1996 was $32,609,000, $29,730,000 and $28,117,000,
respectively. Included in rent expense for 1998, 1997 and 1996 is $485,000,
$523,000 and $523,000, respectively paid to related parties.
L. STOCKHOLDERS' EQUITY
Title insurance companies, including underwriters, underwritten title
companies and independent agents, are subject to extensive regulation under
applicable state laws. Each insurance underwriter is usually subject to a
holding company act in its state of domicile which regulates, among other
matters, the ability to pay dividends and investment policies. The laws of most
states in which the Company transacts business establish supervisory agencies
with broad administrative powers relating to issuing and revoking licenses to
transact business, regulating trade practices, licensing agents, approving
policy forms, accounting principles, financial practices, establishing reserve
and capital and surplus requirements, defining suitable investments for
reserves, capital and surplus and approving rate schedules. In 1998, the
National Association of Insurance Commissioners approved codified accounting
practices that changed the definition of what constitutes prescribed statutory
accounting practices and will result in changes to the accounting policies that
insurance enterprises use to prepare their statutory financial statements
commencing in 2001. The Company is currently evaluating the impact of the rules.
Pursuant to statutory accounting requirements of the various states in
which the Insurance Subsidiaries are licensed, they must defer a portion of
premiums earned as an unearned premium reserve for the protection of
policyholders and must maintain qualified assets in an amount equal to the
statutory requirements. The level of unearned premium reserve required to be
maintained at any time is determined on a quarterly basis by
66
<PAGE> 69
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 (RESTATED) AND 1996
(RESTATED)
statutory formula based upon either the age, number of policies and dollar
amount of policy liabilities underwritten or the age and dollar amount of
statutory premiums written. As of December 31, 1998, the combined statutory
unearned premium reserve required and reported for the Insurance Subsidiaries
was $207.2 million.
The Insurance Subsidiaries are regulated by the insurance commissioners of
their respective states of domicile. Regulatory examinations usually occur at
three year intervals. Examinations are currently in progress for Fidelity Title
(1998, which was previously scheduled for 1997 but will now be as of 1998),
Fidelity New York (1996), Nations New York (1996) and National (1996). The
Company has not received preliminary reports of examination for Fidelity Title,
Fidelity New York, Nations New York or National, as the examinations are
currently ongoing. Additionally, the Auditor Division of the Controller of the
State of California is currently conducting an audit of the funds due the State
of California under various escheatment regulations for the years ended December
31, 1998 and prior. The Company does not believe that either the audits
performed by the insurance regulators or the Controller of the State of
California will have a material impact on its financial position, its results of
operations or its combined statutory capital and surplus.
Statutorily calculated net worth determines the maximum insurable amount
under any single title insurance policy. As of January 1, 1999, the Company's
self-imposed single policy maximum insurable amounts, which comply with all
statutory limitations, for Fidelity Title, Fidelity New York and Alamo Title
were $60.0 million, $90.0 million and $17.5 million, respectively. The
self-imposed single policy maximum insurable amounts for Nations New York and
National were $19.0 million and $5.0 million, respectively.
The Insurance Subsidiaries are subject to regulations that restrict their
ability to pay dividends or make other distributions of cash or property to
their immediate parent company without prior approval from the Department of
Insurance of their respective states of domicile. In the case of Fidelity Title,
the total amount of dividends made in any twelve-month period may not exceed the
greater of 10% of the surplus as regards policyholders as of the last day of the
preceding year or net earnings for the twelve-month period ending the last day
of the preceding year. In the case of Fidelity New York, the total amount of
dividends and distributions is limited to surplus as regards policyholders,
excluding capital stock and surplus resulting from unrealized gains on
investments, less fifty percent of statutory premium reserve as of the last day
of the preceding year and capital contributions received in the latest five-year
period. In the case of Alamo Title, the total amount of dividends made in any
twelve-month period may not exceed the greater of 20% of the surplus as regards
policyholders as of the last day of the preceding year or net earnings for the
twelve-month period ending the last day of the preceding year. As of January 1,
1999, Fidelity Title could pay dividends or make other distributions to the
Company of $10,588,000, Fidelity New York could pay dividends or make other
distributions to the Company of $13,325,000 and Alamo Title could pay dividends
or make other distributions to the Company of $9,064,000.
The combined statutory capital and surplus of the Insurance Subsidiaries
was $164,953,000, $122,107,000 and $97,845,000 as of December 31, 1998, 1997 and
1996, respectively. The combined statutory earnings of the Insurance
Subsidiaries were $37,771,000, $26,701,000 and $12,243,000 for the years ended
December 31, 1998, 1997 and 1996, respectively.
As a condition to continued authority to underwrite policies in the states
in which the Insurance Subsidiaries conduct their business, the Insurance
Subsidiaries are required to pay certain fees and file information regarding
their officers, directors and financial condition. In addition, the Company's
escrow and trust business is subject to regulation by various state banking
authorities.
Pursuant to statutory requirements of the various states in which the
Insurance Subsidiaries are domiciled, they must maintain certain levels of
minimum capital and surplus. Each of the Company's title underwriters have
complied with the minimum statutory requirements as of December 31, 1998.
67
<PAGE> 70
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 (RESTATED) AND 1996
(RESTATED)
On March 18, 1998, the Company announced that it had entered into an
agreement to sell National Title Insurance of New York Inc. to ATC for $3.25
million, subject to regulatory approval and certain other conditions. The
purchase price is structured at a premium to book value. National was acquired
in April 1996, as part of the Nations Title Inc. acquisition, and has not been
actively underwriting policies since the transaction closed. This transaction
has not yet received regulatory approval. See also Note C.
The UTCs are also subject to certain regulation by insurance regulatory or
banking authorities, primarily relating to minimum net worth. Minimum net worth
of $7.5 million and $2.5 million is required for Fidelity National Title Company
("FNTC") and Fidelity National Title Company of California ("FNCAL"),
respectively. FNTC and FNCAL are in compliance with their respective minimum net
worth requirements at December 31, 1998.
M. EMPLOYEE BENEFIT PLANS
Employee benefits include an employee stock purchase plan, three stock
option plans and a 401(k) plan.
In 1987, stockholders approved the adoption of an Employee Stock Purchase
Plan ("ESPP"). Under the terms of the ESPP and subsequent amendments, there are
8,785,000 shares of the Company's common stock available for purchase at current
market prices by Company employees who meet certain vesting requirements.
Pursuant to the ESPP, Company employees may contribute an amount between 5% and
15% of their base salary and certain commissions. The Company contributes
varying amounts as specified in the ESPP. During the years ended December 31,
1998, 1997 and 1996, 282,216, 353,594 and 371,852 shares, respectively, were
purchased and allocated to employees, based upon their contributions, at an
average price of $29.42, $13.73 and $11.32 per share, respectively. The Company
contributed $2.0 million or the equivalent of 67,407 shares for the year ended
December 31, 1998, $1.7 million or the equivalent of 122,740 shares for the year
ended December 31, 1997 and $1.2 million or the equivalent of 107,218 shares for
the year ended December 31, 1996 in accordance with the employer's matching
contribution. A total of 7,526,473 shares have been purchased by both the ESPP
and employees since the adoption of the ESPP.
In 1987, stockholders also approved the adoption of a Stock Option Plan
("1987 Option Plan"). Under the terms of the 1987 Option Plan, the Company may
grant stock options to certain key employees and non-employee directors or
officers. The number of shares issuable under the 1987 Option Plan is 1,812,000
shares of common stock at not less than fair market value on the date of grant.
Employees are eligible to receive incentive stock options or non-qualified stock
options and non-employee directors are eligible to receive non-qualified stock
options. Options available to directors or officers may not exceed one-half of
the aggregate number of shares available for grant. All options granted become
exercisable at the discretion of the Board of Directors and expire five to
eleven years from the date of grant. Options that lapse or are cancelled prior
to exercise are added to the shares authorized for future grants. The 1987
Option Plan expired December 31, 1997.
In 1992, stockholders approved the adoption of the 1991 Stock Option Plan
("1991 Option Plan"). Under the terms of the 1991 Option Plan, options may be
granted to officers and key employees of the Company or any or all of its
present or future subsidiaries. The number of shares reserved for issuance under
the 1991 Option Plan and subsequent amendments is 1,953,000 shares of common
stock, which may be newly issued or treasury shares. The per share option price
is determined at the date of grant. The option price may be less than the fair
market value of the common stock at the date of grant to reflect the application
of the optionee's deferred bonus, if applicable. Options granted under the 1991
Option Plan shall be exercisable in such installments and for such periods as
may be fixed at the time of grant, but in no event shall any stock options
extend for a period in excess of 12 years from the date of grant.
68
<PAGE> 71
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 (RESTATED) AND 1996
(RESTATED)
This plan allows for exercise prices with a fixed discount from the quoted
market price. 115,169 options were granted in 1996 at an exercise price of $9.39
to key employees of the Company who applied deferred bonuses expensed in 1995
amounting to $433,000 to the exercise price, reducing it to $5.64 if exercised
within the first year of the grant. The exercise price of these options
decreases approximately 5.0% per year through 2001 and $.16 per share from 2002
through 2007, at which time the exercise price will be $3.31. In 1997, 201,169
options were granted at an exercise price of $10.44 to key employees of the
Company who applied deferred bonuses expensed in 1996 amounting to $876,000 to
the exercise price, reducing it to $6.30 if exercised within the first year of
the grant. The exercise price of these options decreases approximately 7% per
year through 2002 and $.18 per share from 2003 through 2008, at which time the
exercise price will be $3.74. In 1998, 388,123 options were granted at an
exercise price of $24.26 to key employees of the Company who applied deferred
bonuses expensed in 1997 amounting to $1,764,000 to the exercise price, reducing
it to $19.72 if exercised within the first year of the grant. The exercise price
of these options decreases approximately 7% per year through 2003 and $.20 per
share from 2004 through 2009, at which time the exercise price will be $16.90.
Additionally, the Company recorded compensation expense relating to the price
decrease of $282,000, 194,000 and $111,000, for the years ended December 31,
1998, 1997 and 1996, respectively.
In 1994, stockholders approved the adoption of the 1993 Stock Plan ("1993
Plan"). Under the terms of the 1993 Plan, options may be granted to officers,
key employees and non-employee directors of the Company. The number of shares of
common stock reserved for issuance under the 1993 Plan is 1,098,000. The per
share option price is determined at the date of grant, provided that the price
for incentive stock options shall not be less than 100% of their market value or
award stock shares. The 1993 Plan also contains an automatic grant of
non-qualified stock options to non-employee directors at an exercise price equal
to 100% of fair value at date of grant, and the right to exercise such options
shall vest equally over three years. Stock options granted under the 1993 plan
are exercisable subject to the terms and conditions set by the Board of
Directors, however, options shall be exercisable no earlier than six months nor
later than ten years following the grant date.
In 1996, Granite adopted a Stock Option Plan ("Granite Plan", now issuable
in Company common stock) allowing for the issuance of qualified and
non-qualified stock options to purchase an aggregate of 347,000 shares of common
stock to directors, officers, employees, agents and consultants of Granite. The
Granite Plan is administered by the Board of Directors. The Granite Plan
provides that qualified stock options be granted at an exercise price equal to
fair market value of the common shares of Granite on the date of the grant, and
must be at least 110% of fair market value when granted to a 10% or more
shareholder. The term of all qualified stock options granted under the Granite
Plan may not exceed ten years, except the term of qualified stock options
granted to a 10% or more shareholder, which may not exceed five years. The
Granite Plan provides that non-qualified stock options be granted at an exercise
price not less than 85% of the fair market value of the common shares of Granite
on the date of grant. The term of all non-qualified stock options granted under
the Granite Plan may not exceed ten years, except the term of non-qualified
stock options granted to a 10% or more shareholder, which may not exceed five
years. In April 1997, the Granite Plan was amended and restated in order to make
certain technical modifications thereto and was further amended in June 1997 to
increase the shares of common stock reserved for issuance to 695,000.
During 1998, stockholders approved the adoption of the 1998 Stock Incentive
Plan ("1998 Plan"). The 1998 Plan authorizes up to 1,100,000 shares of common
stock, plus an additional 220,000 shares of common stock on the date of each
annual meeting of the stockholders of the Company, for issuance under the terms
of the 1998 Plan. The authorized number of shares is subject to adjustment in
the event of stock splits, stock dividends or certain other similar changes in
the capital structure of the Company. The 1998 Plan provides for grants of
"incentive stock options" as defined in Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), non-qualified stock options and rights to
purchase shares of common stock ("Purchase Rights"). Incentive stock options,
non-qualified stock options and Purchase Rights may be granted to employees of
the Company and its subsidiaries and affiliates. Non-qualified stock options and
69
<PAGE> 72
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 (RESTATED) AND 1996
(RESTATED)
Purchase Rights may be granted to employees of the Company and its subsidiaries
and affiliates, non-employee directors and officers, consultants and other
service providers.
The Board of Directors, or a committee consisting of two or more members of
the Board of Directors, will administer the 1998 Plan (the "Administrator"). The
Administrator will have the full power and authority to interpret the 1998 Plan,
select the recipients of options and Purchase Rights, determine and authorize
the type, terms and conditions of, including vesting provisions, and the number
of shares subject to, grants under the 1998 Plan, and adopt, amend and rescind
rules relating to the 1998 Plan. The term of options may not exceed 10 years
from the date of grant (5 years in the case of a person who owns or is deemed to
own more than 10% of the total combined voting power of all classes of stock of
the Company). The option exercise price for each share granted pursuant to an
incentive stock option may not be less than 100% of the fair market value of a
share of common stock at the time such options is granted (110% of fair market
value in the case of an incentive stock option granted to a person who owns more
than 10% of the combined voting power of all classes of stock of the Company).
There is no minimum purchase price for shares of common stock purchased pursuant
to a Purchase Right, and any such purchase price shall be determined by the
Administrator. The maximum number of shares for which options or Purchase Rights
may be granted to any one person during any one calendar year under the 1998
Plan is 300,000 and in no event shall the aggregate number of shares subject to
incentive stock options exceed 1,000,000. The aggregate fair market value of the
common stock (determined as of the date of grant) with respect to incentive
stock options granted under the 1998 Plan or any other stock option plan of the
Company that become exercisable for the first time by any optionee during any
calendar year may not exceed $100,000.
A summary of the Company's stock option activity, and related information
for the years ended December 31, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------- --------------------- ---------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE OF SHARES PRICE
---------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Stock options outstanding,
beginning of year.............. 4,089,410 $ 7.49 3,254,645 $ 6.77 2,710,202 $ 6.25
Stock options granted............ 1,730,043 23.46 993,867 9.90 725,651 8.64
Stock options exercised.......... (1,290,640) 7.12 (159,101) 7.85 (67,412) 3.87
Stock options cancelled.......... -- -- (1) 5.31 (113,796) 8.11
---------- ------ --------- ------ --------- ------
Stock options outstanding,
end of year.................... 4,528,813 $13.72 4,089,410 $ 7.49 3,254,645 $ 6.77
Exercisable at end of year....... 3,180,984 9.31 3,451,363 6.98 2,831,914 6.37
Weighted-average fair value of
options granted during the
year........................... -- $26.63 -- $10.73 -- $10.11
</TABLE>
The weighted average remaining contractual life of the options outstanding
at December 31, 1998 is 7.68 years.
70
<PAGE> 73
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 (RESTATED) AND 1996
(RESTATED)
The following table sets forth options outstanding and exercisable by price
range as of December 31, 1998:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
- -----------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ----------------------------------------------------- ---------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OF SHARES LIFE PRICE OF SHARES PRICE
- --------------- --------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$ 0.48 - 5.31 472,159 7.24 $ 4.19 472,159 $ 4.19
6.01 - 6.49 524,269 7.18 6.34 524,269 6.34
6.83 - 9.48 687,834 6.00 7.88 687,834 7.88
9.58 - 10.02 485,973 7.60 9.72 385,140 9.64
10.13 - 10.43 646,840 6.44 10.41 646,840 10.41
10.85 - 19.40 475,042 9.13 17.96 454,742 17.98
24.26 - 24.26 706,200 9.03 24.26 -- --
25.97 - 28.64 461,746 9.19 26.24 10,000 28.64
29.43 - 31.53 63,250 9.65 31.26 -- --
34.77 - 34.77 5,500 9.30 34.77 -- --
- -------------- --------- ---- ------ --------- ------
$ 0.48 - 34.77 4,528,813 7.68 $13.72 3,180,984 $ 9.31
</TABLE>
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("Opinion 25") and related
Interpretations in accounting for its employee stock options. As discussed
below, in management's opinion, the alternative fair value accounting provided
for under Statement of Accounting Standards No. 123, "Accounting for Stock Based
Compensation" ("SFAS 123") requires use of option valuation models that were not
developed for use in valuing employee stock options. Under Opinion 25, because
the exercise price of the Company's employee stock options equals the market
price of the underlying stock on the date of the grant, no compensation expense
is recognized.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that do not have vesting
restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions including the expected stock
price volatility. Because the Company's stock options have characteristics
significantly different from those of traded options and because changes in the
subjective input assumptions can materially affect the value of an estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
Pro forma information regarding net earnings and earnings per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method of that statement.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions. The risk free interest rates used in the calculation is the rate on
the date the options were granted. The risk free interest rate used for options
granted during 1998, 1997 and 1996 were 5.7%, 6.0% and 6.5%, respectively. A
volatility factor for the expected market price of the common stock of 50% was
used for options granted in 1998, 1997 and 1996. The expected dividend yield
used for 1998, 1997 and 1996 was 1.0%, 1.0% and 2.0%, respectively. A weighted
average expected life of seven years was used in all years as the Company has
little history of options being exercised.
71
<PAGE> 74
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 (RESTATED) AND 1996
(RESTATED)
For purpose of pro forma disclosures, the estimated fair value of the
options is amortized into expense over the options' vesting period. The
Company's pro forma information follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
------- ------- -------
(IN THOUSANDS, EXCEPT
PER SHARE INFORMATION)
<S> <C> <C> <C>
Pro forma basic net earnings.................. $94,982 $44,056 $26,334
Pro forma diluted net earnings................ 97,445 47,198 29,530
Pro forma earnings per share
Basic....................................... $ 3.40 $ 1.89 $ 1.29
Diluted..................................... 2.91 1.59 1.12
</TABLE>
The Company also offers the Fidelity National Financial, Inc. 401(k) Profit
Sharing Plan, a qualified voluntary contributory savings plan, available to
substantially all employees. Eligible employees may contribute up to 15% of
their pretax annual compensation, up to the amount allowed pursuant to the
Internal Revenue Code. The Company may elect to make matching contributions. The
Company has historically not made matching contributions.
N. SUPPLEMENTARY CASH FLOW INFORMATION
The following supplemental cash flow information is provided with respect
to interest and tax payments, as well as certain non-cash investing and
financing activities. See Notes B, H and I.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash paid during the year:
Interest.................................... $ 8,153 $ 6,923 $ 6,887
======= ======= =======
Income taxes................................ $77,277 $17,325 $18,403
======= ======= =======
Non-cash investing and financing activities:
Dividends declared and unpaid............... $ 2,270 $ 1,254 $ 975
======= ======= =======
Acquisitions................................ $ 6,250 $24,377 $ 4,650
======= ======= =======
Retirement of LYONs......................... $ -- $26,422 $ --
======= ======= =======
Conversion of LYONs......................... $ 9,202 $ 888 $ --
======= ======= =======
</TABLE>
O. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF RISK
The Company generates a significant amount of title insurance premiums in
California and Texas, 33.1% and 19.6% in 1998, 32.9% and 20.8% in 1997, and
33.1% and 21.1% in 1996, respectively.
Granite's leases are originated through a network of approximately 73
independent lease originators located throughout the United States. No single
lease originator accounted for more than 10% of the leases funded by the Company
during the years ended December 31, 1998 and 1997. Transactions generated by the
Company's ten largest independent lease originators accounted for approximately
26.0% and 53.9% of leases funded during the years ended December 31, 1998 and
1997.
Granite approved contingent fundings of approximately $67,900,000 and
$73,200,000 in leases at December 31, 1998 and 1997, respectively.
72
<PAGE> 75
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 (RESTATED) AND 1996
(RESTATED)
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash equivalents, short-term
investments, leases, residual interests in securitizations, trade receivables
and notes receivable.
The Company places its cash equivalents and short-term investments with
high credit quality financial institutions and, by policy, limits the amount of
credit exposure with any one financial institution. Investments in commercial
paper of industrial firms and financial institutions are rated A1, P1 or better.
Concentrations of credit risk with respect to trade receivables are limited
because a large number of geographically diverse customers make up the Company's
customer base, thus spreading the trade receivables credit risk. The Company
controls credit risk through monitoring procedures.
Concentrations of credit risk with respect to notes receivable are limited
because a number of diverse entities make up the Company's notes receivable
base, thus spreading the credit risk. The Company controls credit risk through
credit approvals, credit limits and monitoring procedures. The Company performs
in-depth credit evaluations for all notes and requires guarantees and/or
collateral, if deemed necessary.
P. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). SFAS 130 establishes standards for the reporting and
display of comprehensive income and its components (revenue, expenses, gains and
losses) in a full set of general-purpose financial statements. SFAS 130 requires
all items that are necessary to be recognized under accounting standards as
components of comprehensive earnings to be reported in a financial statement
that is displayed with the same prominence as other financial statements. SFAS
130 does not require a specific format for that financial statement, but
requires that an enterprise display an amount representing total comprehensive
earnings for the period covered by that financial statement. SFAS 130 requires
an enterprise to (a) classify items of other comprehensive earnings by their
nature in a financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position. SFAS 130
became effective for fiscal years beginning after December 15, 1997. The
adoption of SFAS 130 has not had a material impact on the Company's financial
reporting.
Also in June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures About Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 establishes standards for public business
enterprises to report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to stockholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. This statement supersedes FASB Statement
No. 14, "Financial Reporting for Segments of a Business Enterprise," but retains
the requirement to report information about major customers. It amends FASB
Statement No. 94, "Consolidation of All Majority-Owned Subsidiaries," to remove
the special disclosure requirements for previously unconsolidated subsidiaries.
SFAS 131 requires, among other items, that a public business enterprise report a
measure of segment profit or loss, certain specific revenue and expense items,
segment assets, information about the revenues derived from the enterprise's
products or services and major customers. SFAS 131 also requires that the
enterprise report descriptive information about the way that the operating
segments were determined and the products and services provided by the operating
segments. SFAS 131 became effective for financial statements for periods
beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years is to be restated. SFAS 131 need not
be applied to interim financial statements in the initial year of its
application, but comparative information for interim periods in the initial year
of application is to be reported in financial
73
<PAGE> 76
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 (RESTATED) AND 1996
(RESTATED)
statements for interim periods in the second year of application. The adoption
of SFAS 131 has not had a material impact on the Company's financial reporting.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, (collectively, "derivatives") and for hedging activities. SFAS 133
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (b) a hedge of
the exposure to variable cash flows of a forecasted transaction, or (c) a hedge
of the foreign currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. It requires changes in the
fair value of a derivative instrument and the changes in fair value of assets or
liabilities hedged by that instrument to be included in earnings. To the extent
that the hedge transaction is effective, earnings are equally offset by both
investments. Currently the changes in fair value of derivative instruments and
hedged items are reported in net unrealized gain (loss) on securities.
SFAS 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Initial application of this Statement should be as of the
beginning of an entity's fiscal quarter; on that date, hedging relationships
must be designated anew and documented pursuant to the provisions of this
Statement. Earlier application of all of the provisions of SFAS 133 is
encouraged, but it is permitted only as of the beginning of any fiscal quarter
that begins after issuance of this statement. The Company does not believe the
adoption of SFAS 133 will have a material impact on its financial reporting.
Q. SUBSEQUENT EVENTS
The Company's Board of Directors declared a cash dividend of $.07 per share
on March 17, 1999, which will be payable on May 28, 1999 to stockholders of
record on April 9, 1999.
On March 17, 1999, the Company's Board of Directors approved an increase to
the number of shares of outstanding Company common stock authorized for purchase
under the Company's previously announced purchase program. The new authorization
will permit the Company to purchase up to 4.0 million shares. Through March 25,
1999, the Company has purchased 1,202,050 shares at an average purchase price of
$16.61 per share totalling $19,960,000. Purchases may be made from time to time
by the Company in the open market or in block purchases or in privately
negotiated transactions depending on market conditions and other factors.
Also on March 17, 1999, the Company's Board of Directors approved the
adoption of the Fidelity National Financial, Inc. Employee Stock Purchase Loan
Plan ("Loan Plan"). The purpose of the Loan Plan is to provide key employees
with further incentive to maximize shareholder value. The Company intends to
offer an aggregate of $7,750,000 in loans. Loan Plan funds must be used to make
private or open market purchases of Company common stock through a broker-dealer
designated by the Company. All loans will be full recourse and unsecured, and
will have a five year term. Interest will accrue on the loans at a rate of 5%
per annum due at maturity. Loans may be prepaid at any time without penalty.
Through March 25, 1999, loans have been made in the amount of $5,700,000 to
purchase 382,650 shares of Company common stock at an average purchase price of
$14.90 per share.
74
<PAGE> 77
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. THROUGH 13.
Within 120 days after the close of its fiscal year, the Company intends to
file with the Securities and Exchange Commission a definitive proxy statement
pursuant to Regulation 14A of the Securities Exchange Act of 1934 as amended,
which will include the election of directors, the report of compensation
committee on annual compensation, certain relationships and related transactions
and other business.
75
<PAGE> 78
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS. The following is a list of the Consolidated
Financial Statements of Fidelity National Financial, Inc. and its subsidiaries
included in Item 8 of Part II.
Independent Auditors' Report.
Consolidated Balance Sheets as of December 31, 1998 and 1997 (Restated).
Consolidated Statements of Earnings for the years ended December 31,
1998, 1997 (Restated) and 1996 (Restated).
Consolidated Statements of Comprehensive Earnings for the year ended
December 31, 1998, 1997, and 1996.
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1998, 1997 (Restated) and 1996 (Restated)
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 (Restated) and 1996 (Restated)
Notes to Consolidated Financial Statements.
(a)(2) FINANCIAL STATEMENT SCHEDULES. The following is a list of financial
statement schedules filed as part of this annual report on Form 10-K.
Schedule II: Fidelity National Financial, Inc. (Parent Company Financial
Statements).
Schedule V: Valuation and Qualifying Accounts.
All other schedules are omitted because they are not applicable or not
required, or because the required information is included in the Consolidated
Financial Statements or notes thereto.
(a)(3) The following exhibits are incorporated by reference or are set
forth on pages to this Form 10-K:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
3 Charter and Bylaws of the Issuer.
3.1 Certificate of Incorporation of Registrant, with Amendments,
incorporated by reference from Form S-1, Registration No.
33-11321.
3.1.1 Amendment to Article FOURTH of Certificate of Incorporation
of Registrant dated February 2, 1989 and approved by the
stockholders of the Company on March 24, 1989, incorporated
by reference from Form 10-K filed January 29, 1990.
3.1.2 Amendment to Article FOURTH of Certificate of Incorporation
of Registrant dated June 10, 1992 and approved by the
stockholders of the Company on July 15, 1992, incorporated
by reference from Proxy Statement on Schedule 14A dated June
17, 1992.
3.1.3 Amendment to Article FOURTH of Certificate of Incorporation
of Registrant dated June 15, 1993 and approved by the
stockholders of the Company on June 15, 1993, incorporated
by reference from Proxy Statement on Schedule 14A dated May
5, 1993.
3.1.4 Amendment to Article FOURTH of Certificate of Incorporation
of Registrant dated June 14, 1994 and approved by the
stockholders of the Company on June 14, 1994, incorporated
by reference from Proxy Statement on Schedule 14A dated May
11, 1994.
3.2 Bylaws of Registrant with Amendments, incorporated by
reference from Form S-1, Registration No. 33-11321.
</TABLE>
76
<PAGE> 79
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
3.2.1 Amendment to Article VII, Section 7 of the Bylaws of
Registrant dated April 22, 1988, incorporated by reference
from Form 10-K filed January 29, 1990.
3.2.2 Amendment to Article III, Section 3(d) of the Bylaws of
Registrant dated September 14, 1991, incorporated by
reference from Form 10-K filed March 29, 1993.
3.2.3 Amendment to Article II, Section 1(b) of the Bylaws of
Registrant dated October 29, 1991, incorporated by reference
from Form 10-K filed March 29, 1993.
3.2.4 Amendment to Article II, Section 1(b) of the Bylaws of
Registrant dated December 10, 1991, incorporated by
reference from Form 10-K filed March 29, 1993.
3.2.5 Amendment to Article IV, Sections 1(a) and (b) and Section 4
of the Bylaws of Registrant dated June 9, 1992, incorporated
by reference from Form 10-K filed March 29, 1993.
4 Instruments Defining Rights of Security Holders.
4.1 Specimen Certificate, incorporated by reference from Form
S-1, Registration No. 33-11321.
4.2 Articles FOURTH and EIGHTH of Certificate of Incorporation
of Registrant, with Amendments, incorporated by reference
from Form S-1, Registration No. 33-11321.
4.2.1 Amendment to Article FOURTH of Certificate of Incorporation
of Registrant dated February 2, 1989 and approved by the
stockholders of the Company on March 24, 1989, incorporated
by reference from Form 10-K filed January 29, 1990.
4.2.2 Amendment to Article FOURTH of Certificate of Incorporation
of Registrant dated June 10, 1992 and approved by the
stockholders of the Company on July 15, 1992, incorporated
by reference from Proxy Statement on Schedule 14A dated June
17, 1992.
4.2.3 Amendment to Article FOURTH of Certificate of Incorporation
of Registrant dated June 14, 1994 and approved by the
stockholders of the Company on June 14, 1994, incorporated
by reference from Proxy Statement on Schedule 14A dated May
11, 1994.
4.3 Articles II and IV of the Bylaws of the Registrant with
Amendments, incorporated by reference from Form S-1,
Registration No. 33-11321.
4.4 Subscription Documents, incorporated by reference from Form
S-1, Registration No. 33-11321.
10 Material Contracts.
10.1 Employment Agreement effective as of April 1, 1991, between
William P. Foley, II and Fidelity National Financial, Inc.,
incorporated by reference from Form 10-K filed March 23,
1992.
10.1.1 First amendment to Employment Agreement between William P.
Foley, II and Fidelity National Financial, Inc., effective
as of January 1, 1996, incorporated by reference from Form
10-K filed March 31, 1997.
10.1.2 Employment Agreements effective as of January 1, 1996
between four key executives and Fidelity National Financial,
Inc., incorporated by reference from Form 10-K filed March
31, 1997.
10.1.2.1 First amendments and revisions to Employment Agreements
between four key executives and Fidelity National Financial,
Inc., effective January 1, 1997 and April 1, 1997,
incorporated by reference from Form 10-K filed March 30,
1998.
</TABLE>
77
<PAGE> 80
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.1.3 Employment Agreement effective as of September 15, 1997
between a key executive and Fidelity National Financial,
Inc., incorporated by reference from Form 10-K filed March
30, 1998.
10.1.4 Employment Agreement effective as of October 1, 1998 between
a key executive and Fidelity National Financial, Inc.
10.4 Fidelity National Financial, Inc. 1987 Stock Option Plan,
incorporated by reference from Form S-1, Registration No.
33-11321.
10.4.1 Amendments to Fidelity National Financial, Inc. 1987 Stock
Option Plan approved by the stockholders of the Company on
March 24, 1989, incorporated by reference from Form S-8,
Registration No. 33-34300.
10.5 Fidelity National Financial, Inc. 1987 Employee Stock
Purchase Plan, incorporated by reference from Form S-1,
Registration No. 33-11321.
10.5.1 Amendments to Fidelity National Financial, Inc. 1987
Employee Stock Purchase Plan approved by the stockholders of
the Company on March 24, 1989, incorporated by reference
from Form S-8, Registration No. 33-15027.
10.5.2 Amendments to Fidelity National Financial, Inc. 1987
Employee Stock Purchase Plan, incorporated by reference from
Form S-8, Registration No. 33-45709.
10.5.3 Amendments to Fidelity National Financial, Inc. 1987
Employee Stock Purchase Plan approved by the stockholders of
the Company on June 15, 1993, incorporated by reference from
Form S-8, Registration No. 33-64836.
10.5.4 Amendments to Fidelity National Financial, Inc. 1987 Stock
Purchase Plan approved by the stockholders of the Company on
June 20, 1995, incorporated by reference from Form S-8,
Registration No. 33-61983.
10.6 Fidelity National Financial, Inc. 401(k) Profit Sharing
Defined Contribution Plan and Trust adopted January 1, 1990,
incorporated by reference from Form 10-K filed January 29,
1991.
10.6.1 Amendments to Fidelity National Financial, Inc. 401(k)
Profit Sharing Plan, incorporated by reference from Form
S-8, Registration No. 33-56514.
10.7 Fidelity National Financial, Inc. 1991 Stock Option Plan,
approved by the stockholders of the Company on July 15,
1992, incorporated by reference from Form S-8, Registration
No. 33-45272.
10.7.1 Amendments to Fidelity National Financial, Inc. 1991 Stock
Option Plan approved by the stockholders of the Company on
June 15, 1993, incorporated by reference from Form S-8,
Registration No. 33-64834.
10.7.2 Amendment to Fidelity National Financial, Inc. 1991 Stock
Plan, approved by the stockholders of the Company on June
14, 1994, incorporated by reference from Form S-8,
Registration No. 33-83026.
10.7.3 Amendment to Fidelity National Financial, Inc. 1991 Stock
Option Plan and the 1998 Stock Option Plan, approved by the
stockholders of the Company on June 17, 1998, incorporated
by reference from Form S-8, registration No. 333-61111.
</TABLE>
78
<PAGE> 81
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.10 Agreement of Limited Partnership of Folco Mission Valley
Partners Limited Partnership, a California limited
partnership, dated August 8, 1991, by Folco Development
Corporation, an Arizona corporation, as general partner, and
Fidelity National Title Insurance Company, an Arizona
corporation, as limited partner, incorporated by reference
from Form 10-K filed March 23, 1992.
10.10.2 Office Building Lease dated October 1, 1991 between Folco
Mission Valley Partners Limited Partnership, a California
limited partnership, as Landlord, and Fidelity National
Title Insurance Company, an Arizona corporation, as Tenant,
incorporated by reference from Form 10-K filed March 23,
1992.
10.12 Form of First Amendment to Office Building Lease between
Folco Development Corporation, an Arizona corporation, as
Landlord, and Fidelity National Title Insurance Company, an
Arizona corporation, as Tenant, with respect to nine office
buildings, and the schedule of such buildings, incorporated
by reference from Form 10-K filed March 23, 1992.
10.14 Goodyear Investors Number II Partnership Agreement dated
October 7, 1986 among Manchester Development Corporation,
Folco Development Corporation Defined Benefit Pension Plan,
Enfield Construction Company, et al., incorporated by
reference from Form S-1, Registration No. 33-11321.
10.16 Agreement of Limited Partnership of Prospect Office
Partners, a California limited partnership, dated September
1, 1988 by and among William P. Foley, II, Frank P. Willey,
Max F. Hickman, Manchester Development Corporation, and
James G. Watt Partnership, incorporated by reference from
Form 10-K filed January 29, 1989.
10.16.1 Promissory Note dated October 1, 1988 in the original
principal amount of $850,000 to Manchester Development
Corporation by Prospect Office Partners, incorporated by
reference from Form 10-K filed March 29, 1993.
10.16.2 Modification Agreement dated November 30, 1992 between
Manchester Development Corporation and Prospect Office
Partners, incorporated by reference from Form 10-K filed
March 29, 1993.
10.18 Wilmac III Limited Partnership Certificate and Agreement of
Limited Partnership, dated December 31, 1987 by and among
Manchester Development Corporation, Stephen L. McCartney,
Frank P. Willey and Robert P. Coluccio, incorporated by
reference from Form 10-K filed January 29, 1989.
10.19 Agreement of Limited Partnership of Tustin Retail, a
California limited partnership, dated April 1988 by and
among Manchester Development Corporation and Vistar
Financial Inc., incorporated by reference from Form 10-K
filed January 29, 1989.
10.19.1 Amendment to Agreement of Limited Partnership of Tustin
Retail by and among Manchester Development Corporation,
Vistar Financial, Inc., William P. Foley, II, Frank P.
Willey, John E. Hock, Robert A. Diemer, Gerald S. Misurek
and Stuart R. Boesche, incorporated by reference from Form
10-K filed March 29, 1993.
10.19.2 Promissory Note dated May 1, 1988 in the original principal
amount of $700,000 to Manchester Development Corporation by
Tustin Retail, incorporated by reference from Form 10-K
filed March 29, 1993.
10.19.3 Fixed Rate Promissory Note dated March 1, 1992 in the
original principal amount of $303,500 to Manchester
Development Corporation by Tustin Retail, incorporated by
reference from Form 10-K filed March 29, 1993.
</TABLE>
79
<PAGE> 82
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.19.4 Modification Agreement dated November 30, 1992 between
Manchester Development Corporation and Tustin Retail,
incorporated by reference from Form 10-K filed March 29,
1993.
10.35 Fidelity National Financial, Inc. 1993 Stock Plan, approved
by stockholders of the Company on June 14, 1994,
incorporated by reference from Form S-8, Registration No.
33-83026.
10.43 Stock Purchase Agreement dated as of August 18, 1995 by and
among William D. Rothenberg, Marshall D. Wexler, Southern
California Title Company and Fidelity National Financial,
Inc., incorporated by reference from Form 10-K filed March
25, 1996.
10.44 Acquisition Agreement dated September 13, 1995 by and among
Fidelity National Financial, Inc. and Nations Holding Group,
Inc. and its wholly-owned subsidiary Nations Title Inc. to
acquire all of the issued and outstanding shares of Nations
Title Inc., incorporated by reference from Form 10-K filed
March 25, 1996.
10.45 Agreement for purchase and sale of stock dated November 4,
1996 by and between Fidelity National Financial, Inc. and
the stockholders of CRM, Inc., incorporated by reference
from Form 10-K filed March 31, 1997.
10.46 Stock Purchase and Loan Agreement by and among ATC Holdings,
Inc., Fidelity National Financial, Inc. and American Title
Company, incorporated by reference from Form 10-K filed
March 30, 1998.
10.47 Agreement and Plan of Reorganization dated as of August 15,
1997 by and among Fidelity National Financial, Inc., First
Title Corporation, Ernest N. Moore, Jeanene S. Moore and T.
Frank Jordan and First Title Acquisition Corporation,
incorporated by reference from Form 10-K filed March 30,
1998.
10.48 Agreement and Plan of Reorganization dated September 1997 by
and among Fidelity National Financial, Inc., ICS Ifland
Credit Services, Inc., Rick W. Ifland and ICS Acquisition
Corporation, incorporated by reference from Form 10-K filed
March 30, 1998.
10.49 Agreement and Plan of Reorganization by and among Fidelity
National Financial, Inc.; Bron Acquisition Corporation, Bron
Research, Inc., and the Shareholders of Bron Research, Inc.,
dated as of September 24, 1997, incorporated by reference
from Form 10-K filed March 30, 1998.
10.50 Agreement and Plan of Reorganization dated as of September
12, 1997, by and among Fidelity National Financial, Inc.,
Credit Reports, Inc., Colin Howard Friedman and Hedy Kramer
Friedman, as trustees of the Friedman Family Trust UDT,
dated July 23, 1987, Colin H. Friedman, Farid Meshkatai and
CRI Acquisition Corporation, incorporated by reference from
Form 10-K filed March 30, 1998,
10.51 Agreement and Plan of Reorganization dated as of September
12, 1997 by and among Fidelity National, Inc., Express
Network, Inc., Colin Howard Friedman and Hedy Kramer
Friedman, as trustees of the Friedman Family Trust UDT,
dated July 23, 1987, Farid Meshkatai, and Anita Kramer
Meshkatai, as Trustee of the Anita Kramer Living Trust,
dated July 23, 1987, Colin H. Friedman, and ENI Acquisition
Corporation, incorporated by reference from Form 10-K filed
March 30, 1998.
</TABLE>
80
<PAGE> 83
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.52 Fidelity National Financial, Inc. Liquid Yield Option Notes,
due 2009 (zero coupon-subordinated) Exchange Agreement dated
October 17, 1997, incorporated by reference from Form 10-K
filed March 30, 1998.
10.53 Stock and Asset Purchase Agreement dated as of May 22, 1997,
by and between Randall F. Zurbach and John C. Wilbur, Jr.
and Fidelity National Financial, Inc., incorporated by
reference from Form 10-K filed March 30, 1998.
10.54 Agreement and Plan of Merger, dated November 17, 1997 by and
among Fidelity National Financial, Inc.; Granite Acquisition
Corporation and Granite Financial, Inc., incorporated by
reference from Form S-4, Registration No. 333-44153.
10.55 Securities Purchase Agreement, dated April 8, 1998, by and
among Walter W. Cruttenden, III, Cruttenden Roth
Incorporated, and Fidelity National Financial, Inc.
10.56 Agreement and Plan of Merger, dated May 6, 1998 by and among
Fidelity National Financial, Inc.; AT Merger, Inc. and Alamo
Title Holding Company, incorporated by reference from Form
S-4, Registration No. 333-58573.
10.57 Agreement and Plan of Reorganization, dated May 14, 1998, by
and among ACS Systems, Inc., a California Corporation, ACS
Merger, Inc., a Delaware Corporation, Micro General
Corporation, a Delaware Corporation, and Fidelity National
Financial, Inc., a Delaware Corporation.
10.57.1 Agreement of Merger, dated May 14, 1998, by and among ACS
Systems, Inc., a California Corporation, ACS Merger, Inc., a
Delaware Corporation, Micro General Corporation, a Delaware
Corporation, and Fidelity National Financial, Inc., a
Delaware Corporation.
10.58 Credit Agreement, dated as of August 1, 1998, by and among
Fidelity National Financial, Inc., Sanwa Bank California as
the Agent and the Lenders from time to time party thereto.
10.58.1 First Amendment, dated as of December 31, 1998, to the
Credit Agreement, dated as of August 1, 1998, by and among
Fidelity National Financial, Inc., Sanwa Bank California as
the Agent and the Lenders from time to time party thereto.
10.59 Stock Purchase Agreement, dated as of August 31, 1998, by
and among Granite Financial, Inc., Fidelity National
Financial, Inc., Lexington Capital Corporation, and the
Shareholders of Lexington Capital Corporation.
11 Computation of Basic and Diluted Earnings per Share.
21 List of Subsidiaries.
23 Independent Auditors' Consent.
27 Financial Data Schedule -- December 31, 1998.
27.1 Financial Data Schedule -- September 30, 1998 (Restated).
27.2 Financial Data Schedule -- June 30, 1998 (Restated).
27.3 Financial Data Schedule -- March 31, 1998 (Restated).
27.4 Financial Data Schedule -- December 31, 1997 (Restated).
27.5 Financial Data Schedule -- September 30, 1997 (Restated).
27.6 Financial Data Schedule -- June 30, 1997 (Restated).
</TABLE>
81
<PAGE> 84
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27.7 Financial Data Schedule -- March 31, 1997 (Restated).
27.8 Financial Data Schedule -- December 31, 1996 (Restated).
</TABLE>
(b) REPORTS ON FORM 8-K. The Company filed reports on Form 8-K during the
fourth quarter ending December 31, 1998 as follows:
Current report on Form 8-K dated October 22, 1998, relating to the
combined financial results of Fidelity National Financial, Inc. and Alamo
Title Holding Company for the quarter ended September 30, 1998.
82
<PAGE> 85
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
FIDELITY NATIONAL FINANCIAL, INC.
By: /s/ WILLIAM P. FOLEY, II
------------------------------------
William P. Foley, II
Chief Executive Officer
Date: March 17, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ WILLIAM P. FOLEY, II Chairman of the Board and March 17, 1999
- ----------------------------------------------------- Chief Executive Officer
William P. Foley, II (Principal Executive Officer)
/s/ FRANK P. WILLEY President and Director March 17, 1999
- -----------------------------------------------------
Frank P. Willey
/s/ ALLEN D. MEADOWS Executive Vice President and March 17, 1999
- ----------------------------------------------------- Chief Financial Officer
Allen D. Meadows
/s/ ALAN L. STINSON Executive Vice President, March 17, 1999
- ----------------------------------------------------- Financial Operations (Chief
Alan L. Stinson Accounting Officer)
/s/ WILLIAM A. IMPARATO Director March 17, 1999
- -----------------------------------------------------
William A. Imparato
/s/ DONALD M. KOLL Director March 17, 1999
- -----------------------------------------------------
Donald M. Koll
/s/ DANIEL D. (RON) LANE Director March 17, 1999
- -----------------------------------------------------
Daniel D. (Ron) Lane
/s/ GENERAL WILLIAM LYON Director March 17, 1999
- -----------------------------------------------------
General William Lyon
/s/ J. THOMAS TALBOT Director March 17, 1999
- -----------------------------------------------------
J. Thomas Talbot
/s/ CARY H. THOMPSON Director March 17, 1999
- -----------------------------------------------------
Cary H. Thompson
</TABLE>
83
<PAGE> 86
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Fidelity National Financial, Inc.:
Under date of February 17, 1999, we reported on the Consolidated Balance
Sheets of Fidelity National Financial, Inc. and subsidiaries as of December 31,
1998 and 1997, and the related Consolidated Statements of Earnings,
Comprehensive Earnings, Stockholders' Equity and Cash Flows for each of the
years in the three-year period ended December 31, 1998 which are included in the
Annual Report on Form 10-K. In connection with our audits of the aforementioned
Consolidated Financial Statements, we also audited the related financial
statement schedules in the Annual Report on Form 10-K. These financial statement
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statement schedules based on our
audits.
In our opinion, such schedules, when considered in relation to the basic
Consolidated Financial Statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
KPMG LLP
Los Angeles, California
February 17, 1999, except as to
Note Q to the Consolidated Financial
Statements, which is as of
March 29, 1999.
84
<PAGE> 87
SCHEDULE II
FIDELITY NATIONAL FINANCIAL, INC.
(PARENT COMPANY)
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
-------- ----------
(RESTATED)
<S> <C> <C>
Cash........................................................ $ 2,751 $ --
Investment securities available for sale, at fair value..... 51,950 46,811
Trade receivables, net...................................... -- 20
Leases receivable, net...................................... 14,265 --
Notes receivable, net....................................... 1,770 2,500
Investment in subsidiaries.................................. 458,975 357,799
Investments in real estate and partnerships, net............ 1,435 1,435
Deferred income taxes....................................... 10,965 --
Prepaid expenses and other assets........................... 5,063 4,290
-------- --------
$547,174 $412,855
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued liabilities.................. $ 19,858 $ 7,466
Notes payable............................................. 117,609 96,885
Accounts payable to subsidiaries.......................... 4,284 7,135
Deferred income taxes..................................... -- 16,510
Income taxes payable...................................... 8,683 10,809
-------- --------
150,434 138,805
-------- --------
Stockholders' Equity:
Preferred stock, $.0001 par value; authorized 3,000,000
shares; issued and outstanding, none................... -- --
Common stock, $.0001 par value; authorized, 50,000,000
shares in 1998 and 1997; issued 35,540,036 in 1998 and
33,362,204 in 1997..................................... 3 3
Additional paid-in capital................................ 173,888 137,569
Retained earnings......................................... 265,567 167,222
-------- --------
439,458 304,794
Accumulated other comprehensive earnings.................. 11,657 23,631
Less treasury stock, 6,645,487 shares in 1998 and 1997, at
cost................................................... 54,375 54,375
-------- --------
396,740 274,050
Commitments and contingencies.............................
Subsequent events.........................................
-------- --------
$547,174 $412,855
======== ========
</TABLE>
See Notes to Financial Statements.
(Schedule continued on following page.)
85
<PAGE> 88
FIDELITY NATIONAL FINANCIAL, INC.
(PARENT COMPANY)
STATEMENTS OF EARNINGS AND RETAINED EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1998 1997 1996
-------- ---------- ----------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
REVENUE:
Other fees and revenue................................... $ 2 $ 13 $ 1,617
Interest and investment income........................... 13,315 1,868 227
-------- -------- --------
13,317 1,881 1,844
-------- -------- --------
EXPENSES:
Other operating expenses................................. 7,866 9,645 2,288
Interest expense......................................... 7,556 7,163 7,177
-------- -------- --------
15,422 16,808 9,465
-------- -------- --------
Losses before income tax benefit, equity in earnings of
subsidiaries and extraordinary item...................... (2,105) (14,927) (7,621)
Income tax benefit......................................... 835 6,493 3,048
-------- -------- --------
Losses before equity in earnings of subsidiaries and
extraordinary item....................................... (1,270) (8,434) (4,573)
Equity in earnings of subsidiaries......................... 106,962 57,442 33,814
-------- -------- --------
Earnings before extraordinary item......................... 105,692 49,008 29,241
Extraordinary item -- loss on early retirement of debt, net
of applicable income tax benefit of $1,180 in 1997....... -- (1,700) --
-------- -------- --------
Net earnings............................................... $105,692 $ 47,308 $ 29,241
======== ======== ========
Basic net earnings......................................... $105,692 $ 47,308 $ 29,241
======== ======== ========
Basic earnings per share before extraordinary item......... $ 3.79 $ 2.10 $ 1.43
Extraordinary item -- loss on early retirement of debt, net
of applicable income tax benefit......................... -- (.07) --
-------- -------- --------
Basic net earnings per share............................... $ 3.79 $ 2.03 $ 1.43
======== ======== ========
Weighted average shares outstanding, basic basis........... 27,921 23,355 20,426
======== ======== ========
Diluted net earnings....................................... $108,155 $ 50,540 $ 32,437
======== ======== ========
Diluted net earnings per share before extraordinary item... $ 3.23 $ 1.76 $ 1.23
Extraordinary item -- loss on early retirement of debt, net
of applicable income tax benefit......................... -- (.06) --
-------- -------- --------
Diluted net earnings per share............................. $ 3.23 $ 1.70 $ 1.23
======== ======== ========
Weighted average shares, diluted basis..................... 33,474 29,599 26,431
======== ======== ========
Retained earnings, beginning of year....................... $167,222 $125,092 $100,164
Dividends declared....................................... (7,347) (5,178) (4,313)
Net earnings............................................. 105,692 47,308 29,241
-------- -------- --------
Retained earnings, end of year............................. $265,567 $167,222 $125,092
======== ======== ========
</TABLE>
See Notes to Financial Statements.
(Schedule continued on following page.)
86
<PAGE> 89
FIDELITY NATIONAL FINANCIAL, INC.
(PARENT COMPANY)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1998 1997 1996
--------- ---------- ----------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings............................................ $ 105,692 $ 47,308 $ 29,241
Adjustments to reconcile net earnings to net cash (used
in) provided by operating activities:
Extraordinary item: Loss on early retirement of
LYONs.............................................. -- 2,880 --
Depreciation and amortization........................ -- -- 90
Amortization of LYONs original issue discount and
issuance costs..................................... 4,432 5,939 5,295
Provision for losses on notes receivable............. 240 195 240
Net equity in earnings of subsidiaries............... (106,962) (57,442) (33,814)
(Gain) loss on sale of investments................... (8,381) (746) 1,625
Net increase (decrease) in income taxes.............. (21,280) 19,820 2,092
Net (increase) decrease in prepaid expenses and other
assets............................................. (1,245) (99) (1,470)
Net increase (decrease) in accounts payable and
accrued liabilities................................ 6,769 1,748 (381)
--------- -------- --------
Net cash (used in) provided by operating
activities.................................... (20,735) 19,603 2,918
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments...................... 6,645 7,491 8,699
Purchase of investments................................. (21,930) (12,217) (8,814)
Additions to notes receivable........................... -- -- (4,350)
Collections on notes receivable......................... 490 1,590 393
Additions to investment in subsidiaries................. (5,050) (7,055) (10,699)
--------- -------- --------
Net cash used in investing activities........... (19,845) (10,191) (14,771)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings.............................................. 46,236 -- 5,000
Debt service payments................................... (20,250) (3,000) (3,000)
Dividends paid.......................................... (6,340) (4,703) (3,738)
Issuance of treasury stock, net......................... -- -- 1,917
Exercise of stock options............................... 22,868 1,424 720
Net borrowings from (payments to) subsidiaries.......... 817 (6,055) 12,498
--------- -------- --------
Net cash (used in) provided by financing
activities.................................... 43,331 (12,334) 13,397
--------- -------- --------
Net increase (decrease) in cash and cash equivalents...... 2,751 (2,922) 1,544
Cash and cash equivalents at beginning of year............ -- 2,922 1,378
--------- -------- --------
Cash and cash equivalents at end of year.................. $ 2,751 $ -- $ 2,922
========= ======== ========
</TABLE>
See Notes to Financial Statements.
(Schedule continued on following page.)
87
<PAGE> 90
FIDELITY NATIONAL FINANCIAL, INC.
(PARENT COMPANY)
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1998, 1997 (RESTATED) AND 1996
(RESTATED)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fidelity National Financial, Inc. (the "Company") transacts substantially
all of its business through its subsidiaries. The Parent Company Financial
Statements should be read in connection with the aforementioned Consolidated
Financial Statements and Notes thereto included elsewhere herein.
On February 26, 1998, the Company, in exchange for approximately 5.0
million shares of Company common stock plus cash in lieu of fractional shares,
acquired the common stock of Granite Financial, Inc. and subsidiaries. Fidelity
National Financial, Inc. common stock, as reported by the New York Stock
Exchange, closed at $26.08 on February 26, 1998. The transaction has been
accounted for as a pooling-of-interests. Accordingly, the Consolidated Balance
Sheet as of December 31, 1997 and the related Consolidated Statements of
Earnings, Stockholders' Equity and Cash Flows for each of the years in the
two-year period ended December 31, 1997 and the related Notes to Consolidated
Financial Statements, have been restated to reflect the inclusion of Granite.
The Company acquired the common stock of Alamo Title Holding Company and
subsidiaries on August 20, 1998, in exchange for approximately 2.2 million
shares of Company common stock plus cash in lieu of fractional shares. Fidelity
National Financial, Inc. common stock, as reported by the New York Stock
Exchange, closed at $33.13 on August 20, 1998. The transaction has been
accounted for as a pooling-of-interests. Accordingly, the Consolidated Balance
Sheet as of December 31, 1997 and the related Consolidated Statements of
Earnings, Stockholders' Equity and Cash Flows for each of the years in the
two-year period ended December 31, 1997 and the related Notes to Consolidated
Financial Statements, have been restated to reflect the inclusion of Alamo.
B. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1997
---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Credit agreement, bank revolving credit facility ($100
million), secured by common stock of certain Insurance
Subsidiaries and a certain UTC, interest due monthly at
LIBOR plus 1.15% (6.21% at December 31, 1998), due July
2001...................................................... $ 46,302 $ --
Credit agreement ($35 million), secured by common stock of
certain Insurance Subsidiaries, principal due quarterly
and interest due monthly at LIBOR rate plus 2.0%, due
September 2001, paid and terminated in 1998............... -- 15,250
Bank revolving credit facility, secured by common stock of
certain Insurance Subsidiaries, interest due quarterly at
LIBOR plus 2.0%, principal due quarterly beginning April
1998, due September 2001, unused portion of $8 million at
December 31, 1997, paid and terminated in 1998............ -- 5,000
Liquid Yield Option Notes, zero coupon, convertible
subordinated notes due 2009 with interest at 5.5%,
converted or redeemed in February 1999.................... 71,307 76,635
-------- -------
$117,609 $96,885
======== =======
</TABLE>
The Company guarantees the bank revolving line of credit of a certain
subsidiary in the amount of $25.0 million.
88
<PAGE> 91
FIDELITY NATIONAL FINANCIAL, INC.
(PARENT COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1998, 1997 (RESTATED) AND 1996
(RESTATED)
Principal maturities, including accretion of original issue discount, are
as follows (dollars in thousands):
<TABLE>
<S> <C>
1999.................................................... $ --
2000.................................................... --
2001.................................................... 46,302
2002.................................................... --
2003.................................................... --
Thereafter.............................................. 71,307
--------
$117,609
========
</TABLE>
C. SUPPLEMENTARY CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash paid (refunded) during the year:
Interest............................................ $ 1,691 $ 1,931 $ 1,953
======= ======= =======
Income taxes........................................ $77,277 $17,325 $18,403
======= ======= =======
Non-cash investing and financing activities:
Dividends declared and unpaid....................... $ 2,270 $ 1,254 $ 975
======= ======= =======
Acquisitions........................................ $ 6,250 $24,377 $ 4,650
======= ======= =======
Retirement of LYONs................................. $ -- $26,422 $ --
======= ======= =======
Conversion of LYONs................................. $ 9,202 $ 888 $ --
======= ======= =======
</TABLE>
89
<PAGE> 92
SCHEDULE V
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1998, 1997 (RESTATED) AND 1996 (RESTATED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
------ ------ ------ ------ ------
ADDITIONS
-----------------------
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND OTHER DEDUCTIONS AT END
DESCRIPTION OF PERIOD EXPENSES (DESCRIBE) (DESCRIBE) OF PERIOD
----------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998:
Reserve for claim losses..................... $201,674 $59,294 $ -- $36,434(2) $224,534
Allowance on:
Leases and lease securitization residual
interests............................... 2,640 19,111 -- 10,971(3) 10,780
Trade receivables......................... 5,153 3,287 -- 1,707(3) 6,733
Notes receivable.......................... 1,758 344 -- 38(3) 2,064
Real estate allowance........................ 1,514 238 -- -- 1,752
Amortization of cost in excess of net assets
acquired and other intangible assets...... 13,028 3,693 -- -- 16,721
Year ended December 31, 1997:
Reserve for claim losses..................... $196,527 $41,558 $ 124(1) $36,535(2) $201,674
Allowance on:
Leases and lease securitization residual
interests............................... 355 2,114 3,130(1) 2,959(3) 2,640
Trade receivables......................... 6,831 1,920 204(1) 3,802(3) 5,153
Notes receivable.......................... 2,662 2,384 (153)(1) 3,135(3) 1,758
Real estate allowance........................ 4,467 330 -- 3,283(4) 1,514
Amortization of cost in excess of net assets
acquired and other intangible assets...... 8,322 4,706 -- -- 13,028
Year ended December 31, 1996:
Reserve for claim losses..................... $153,207 $36,275 $45,171 $38,126(2) $196,527
Allowance on:
Leases and lease securitization residual
interests............................... 20 224 660(1) 549(3) 355
Trade Receivables......................... 3,480 2,644 3,091(1) 2,384(3) 6,831
Notes Receivable.......................... 2,941 999 153(1) 1,431(3) 2,662
Real estate allowance........................ 3,467 -- 1,000(1) -- 4,467
Amortization of cost in excess of net assets
acquired and other intangible assets...... 5,232 3,090 -- -- 8,322
</TABLE>
- ---------------
(1) Represents net reserve for claim losses and other allowances assumed from
sales and acquisitions during the year.
(2) Represents payments of claim losses, net of recoupments.
(3) Represents uncollectible accounts written off, change in reserve due to
reevaluation of specific items and change in reserve due to sale of certain
assets.
(4) Represents reduction in the reserve balance due to the sale of a real estate
property.
90
<PAGE> 93
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- -------------
<S> <C> <C>
3 Charter and Bylaws of the Issuer............................
3.1 Certificate of Incorporation of Registrant, with Amendments,
incorporated by reference from Form S-1, Registration No.
33-11321....................................................
3.1.1 Amendment to Article FOURTH of Certificate of Incorporation
of Registrant dated February 2, 1989 and approved by the
stockholders of the Company on March 24, 1989, incorporated
by reference from Form 10-K filed January 29, 1990..........
3.1.2 Amendment to Article FOURTH of Certificate of Incorporation
of Registrant dated June 10, 1992 and approved by the
stockholders of the Company on July 15, 1992, incorporated
by reference from Proxy Statement on Schedule 14A dated June
17, 1992....................................................
3.1.3 Amendment to Article FOURTH of Certificate of Incorporation
of Registrant dated June 15, 1993 and approved by the
stockholders of the Company on June 15, 1993, incorporated
by reference from Proxy Statement on Schedule 14A dated May
5, 1993.....................................................
3.1.4 Amendment to Article FOURTH of Certificate of Incorporation
of Registrant dated June 14, 1994 and approved by the
stockholders of the Company on June 14, 1994, incorporated
by reference from Proxy Statement on Schedule 14A dated May
11, 1994....................................................
3.2 Bylaws of Registrant with Amendments, incorporated by
reference from Form S-1, Registration No. 33-11321..........
3.2.1 Amendment to Article VII, Section 7 of the Bylaws of
Registrant dated April 22, 1988, incorporated by reference
from Form 10-K filed January 29, 1990.......................
3.2.2 Amendment to Article III, Section 3(d) of the Bylaws of
Registrant dated September 14, 1991, incorporated by
reference from Form 10-K filed March 29, 1993...............
3.2.3 Amendment to Article II, Section 1(b) of the Bylaws of
Registrant dated October 29, 1991, incorporated by reference
from Form 10-K filed March 29, 1993.........................
3.2.4 Amendment to Article II, Section 1(b) of the Bylaws of
Registrant dated December 10, 1991, incorporated by
reference from Form 10-K filed March 29, 1993...............
3.2.5 Amendment to Article IV, Sections 1(a) and (b) and Section 4
of the Bylaws of Registrant dated June 9, 1992, incorporated
by reference from Form 10-K filed March 29, 1993............
4 Instruments Defining Rights of Security Holders.............
4.1 Specimen Certificate, incorporated by reference from Form
S-1, Registration No. 33-11321..............................
4.2 Articles FOURTH and EIGHTH of Certificate of Incorporation
of Registrant, with Amendments, incorporated by reference
from Form S-1, Registration No. 33-11321....................
</TABLE>
<PAGE> 94
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- -------------
<S> <C> <C>
4.2.1 Amendment to Article FOURTH of Certificate of Incorporation
of Registrant dated February 2, 1989 and approved by the
stockholders of the Company on March 24, 1989, incorporated
by reference from Form 10-K filed January 29, 1990..........
4.2.2 Amendment to Article FOURTH of Certificate of Incorporation
of Registrant dated June 10, 1992 and approved by the
stockholders of the Company on July 15, 1992, incorporated
by reference from Proxy Statement on Schedule 14A dated June
17, 1992....................................................
4.2.3 Amendment to Article FOURTH of Certificate of Incorporation
of Registrant dated June 14, 1994 and approved by the
stockholders of the Company on June 14, 1994, incorporated
by reference from Proxy Statement on Schedule 14A dated May
11, 1994....................................................
4.3 Articles II and IV of the Bylaws of the Registrant with
Amendments, incorporated by reference from Form S-1,
Registration No. 33-11321...................................
4.4 Subscription Documents, incorporated by reference from Form
S-1, Registration No. 33-11321..............................
10 Material Contracts..........................................
10.1 Employment Agreement effective as of April 1, 1991, between
William P. Foley, II and Fidelity National Financial, Inc.,
incorporated by reference from Form 10-K filed March 23,
1992........................................................
10.1.1 First amendment to Employment Agreement between William P.
Foley, II and Fidelity National Financial, Inc., effective
as of January 1, 1996, incorporated by reference from Form
10-K filed March 31, 1997...................................
10.1.2 Employment Agreements effective as of January 1, 1996
between four key executives and Fidelity National Financial,
Inc., incorporated by reference from Form 10-K filed March
31, 1997....................................................
10.1.2.1 First amendments and revisions to Employment Agreements
between four key executives and Fidelity National Financial,
Inc., effective January 1, 1997 and April 1, 1997,
incorporated by reference from Form 10-K filed March 30,
1998........................................................
10.1.3 Employment Agreement effective as of September 15, 1997
between a key executive and Fidelity National Financial,
Inc., incorporated by reference from Form 10-K filed March
30, 1998....................................................
10.1.4 Employment Agreement effective as of October 1, 1998 between
a key executive and Fidelity National Financial, Inc. ......
10.4 Fidelity National Financial, Inc. 1987 Stock Option Plan,
incorporated by reference from Form S-1, Registration No.
33-11321....................................................
10.4.1 Amendments to Fidelity National Financial, Inc. 1987 Stock
Option Plan approved by the stockholders of the Company on
March 24, 1989, incorporated by reference from Form S-8,
Registration No. 33-34300...................................
10.5 Fidelity National Financial, Inc. 1987 Employee Stock
Purchase Plan, incorporated by reference from Form S-1,
Registration No. 33-11321...................................
10.5.1 Amendments to Fidelity National Financial, Inc. 1987
Employee Stock Purchase Plan approved by the stockholders of
the Company on March 24, 1989, incorporated by reference
from Form S-8, Registration No. 33-15027....................
</TABLE>
<PAGE> 95
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- -------------
<S> <C> <C>
10.5.2 Amendments to Fidelity National Financial, Inc. 1987
Employee Stock Purchase Plan, incorporated by reference from
Form S-8, Registration No. 33-45709.........................
10.5.3 Amendments to Fidelity National Financial, Inc. 1987
Employee Stock Purchase Plan approved by the stockholders of
the Company on June 15, 1993, incorporated by reference from
Form S-8, Registration No. 33-64836.........................
10.5.4 Amendments to Fidelity National Financial, Inc. 1987 Stock
Purchase Plan approved by the stockholders of the Company on
June 20, 1995, incorporated by reference from Form S-8,
Registration No. 33-61983...................................
10.6 Fidelity National Financial, Inc. 401(k) Profit Sharing
Defined Contribution Plan and Trust adopted January 1, 1990,
incorporated by reference from Form 10-K filed January 29,
1991........................................................
10.6.1 Amendments to Fidelity National Financial, Inc. 401(k)
Profit Sharing Plan, incorporated by reference from Form
S-8, Registration No. 33-56514..............................
10.7 Fidelity National Financial, Inc. 1991 Stock Option Plan,
approved by the stockholders of the Company on July 15,
1992, incorporated by reference from Form S-8, Registration
No. 33-45272................................................
10.7.1 Amendments to Fidelity National Financial, Inc. 1991 Stock
Option Plan approved by the stockholders of the Company on
June 15, 1993, incorporated by reference from Form S-8,
Registration No. 33-64834...................................
10.7.2 Amendment to Fidelity National Financial, Inc. 1991 Stock
Plan, approved by the stockholders of the Company on June
14, 1994, incorporated by reference from Form S-8,
Registration No. 33-83026...................................
10.7.3 Amendment to Fidelity National Financial, Inc. 1991 Stock
Option Plan and the 1998 Stock Option Plan, approved by the
stockholders of the Company on June 17, 1998, incorporated
by reference from Form S-8, registration No. 333-61111......
10.10 Agreement of Limited Partnership of Folco Mission Valley
Partners Limited Partnership, a California limited
partnership, dated August 8, 1991, by Folco Development
Corporation, an Arizona corporation, as general partner, and
Fidelity National Title Insurance Company, an Arizona
corporation, as limited partner, incorporated by reference
from Form 10-K filed March 23, 1992.........................
10.10.2 Office Building Lease dated October 1, 1991 between Folco
Mission Valley Partners Limited Partnership, a California
limited partnership, as Landlord, and Fidelity National
Title Insurance Company, an Arizona corporation, as Tenant,
incorporated by reference from Form 10-K filed March 23,
1992........................................................
10.12 Form of First Amendment to Office Building Lease between
Folco Development Corporation, an Arizona corporation, as
Landlord, and Fidelity National Title Insurance Company, an
Arizona corporation, as Tenant, with respect to nine office
buildings, and the schedule of such buildings, incorporated
by reference from Form 10-K filed March 23, 1992............
10.14 Goodyear Investors Number II Partnership Agreement dated
October 7, 1986 among Manchester Development Corporation,
Folco Development Corporation Defined Benefit Pension Plan,
Enfield Construction Company, et al., incorporated by
reference from Form S-1, Registration No. 33-11321..........
</TABLE>
<PAGE> 96
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- -------------
<S> <C> <C>
10.16 Agreement of Limited Partnership of Prospect Office
Partners, a California limited partnership, dated September
1, 1988 by and among William P. Foley, II, Frank P. Willey,
Max F. Hickman, Manchester Development Corporation, and
James G. Watt Partnership, incorporated by reference from
Form 10-K filed January 29, 1989............................
10.16.1 Promissory Note dated October 1, 1988 in the original
principal amount of $850,000 to Manchester Development
Corporation by Prospect Office Partners, incorporated by
reference from Form 10-K filed March 29, 1993...............
10.16.2 Modification Agreement dated November 30, 1992 between
Manchester Development Corporation and Prospect Office
Partners, incorporated by reference from Form 10-K filed
March 29, 1993..............................................
10.18 Wilmac III Limited Partnership Certificate and Agreement of
Limited Partnership, dated December 31, 1987 by and among
Manchester Development Corporation, Stephen L. McCartney,
Frank P. Willey and Robert P. Coluccio, incorporated by
reference from Form 10-K filed January 29, 1989.............
10.19 Agreement of Limited Partnership of Tustin Retail, a
California limited partnership, dated April 1988 by and
among Manchester Development Corporation and Vistar
Financial Inc., incorporated by reference from Form 10-K
filed January 29, 1989......................................
10.19.1 Amendment to Agreement of Limited Partnership of Tustin
Retail by and among Manchester Development Corporation,
Vistar Financial, Inc., William P. Foley, II, Frank P.
Willey, John E. Hock, Robert A. Diemer, Gerald S. Misurek
and Stuart R. Boesche, incorporated by reference from Form
10-K filed March 29, 1993...................................
10.19.2 Promissory Note dated May 1, 1988 in the original principal
amount of $700,000 to Manchester Development Corporation by
Tustin Retail, incorporated by reference from Form 10-K
filed March 29, 1993........................................
10.19.3 Fixed Rate Promissory Note dated March 1, 1992 in the
original principal amount of $303,500 to Manchester
Development Corporation by Tustin Retail, incorporated by
reference from Form 10-K filed March 29, 1993...............
10.19.4 Modification Agreement dated November 30, 1992 between
Manchester Development Corporation and Tustin Retail,
incorporated by reference from Form 10-K filed March 29,
1993........................................................
10.35 Fidelity National Financial, Inc. 1993 Stock Plan, approved
by stockholders of the Company on June 14, 1994,
incorporated by reference from Form S-8, Registration No.
33-83026....................................................
10.43 Stock Purchase Agreement dated as of August 18, 1995 by and
among William D. Rothenberg, Marshall D. Wexler, Southern
California Title Company and Fidelity National Financial,
Inc., incorporated by reference from Form 10-K filed March
25, 1996....................................................
10.44 Acquisition Agreement dated September 13, 1995 by and among
Fidelity National Financial, Inc. and Nations Holding Group,
Inc. and its wholly-owned subsidiary Nations Title Inc. to
acquire all of the issued and outstanding shares of Nations
Title Inc., incorporated by reference from Form 10-K filed
March 25, 1996..............................................
</TABLE>
<PAGE> 97
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- -------------
<S> <C> <C>
10.45 Agreement for purchase and sale of stock dated November 4,
1996 by and between Fidelity National Financial, Inc. and
the stockholders of CRM, Inc., incorporated by reference
from Form 10-K filed March 31, 1997.........................
10.46 Stock Purchase and Loan Agreement by and among ATC Holdings,
Inc., Fidelity National Financial, Inc. and American Title
Company, incorporated by reference from Form 10-K filed
March 30, 1998..............................................
10.47 Agreement and Plan of Reorganization dated as of August 15,
1997 by and among Fidelity National Financial, Inc., First
Title Corporation, Ernest N. Moore, Jeanene S. Moore and T.
Frank Jordan and First Title Acquisition Corporation,
incorporated by reference from Form 10-K filed March 30,
1998........................................................
10.48 Agreement and Plan of Reorganization dated September 1997 by
and among Fidelity National Financial, Inc., ICS Ifland
Credit Services, Inc., Rick W. Ifland and ICS Acquisition
Corporation, incorporated by reference from Form 10-K filed
March 30, 1998..............................................
10.49 Agreement and Plan of Reorganization by and among Fidelity
National Financial, Inc.; Bron Acquisition Corporation, Bron
Research, Inc., and the Shareholders of Bron Research, Inc.,
dated as of September 24, 1997, incorporated by reference
from Form 10-K filed March 30, 1998.........................
10.50 Agreement and Plan of Reorganization dated as of September
12, 1997, by and among Fidelity National Financial, Inc.,
Credit Reports, Inc., Colin Howard Friedman and Hedy Kramer
Friedman, as trustees of the Friedman Family Trust UDT,
dated July 23, 1987, Colin H. Friedman, Farid Meshkatai and
CRI Acquisition Corporation, incorporated by reference from
Form 10-K filed March 30, 1998..............................
10.51 Agreement and Plan of Reorganization dated as of September
12, 1997 by and among Fidelity National, Inc., Express
Network, Inc., Colin Howard Friedman and Hedy Kramer
Friedman, as trustees of the Friedman Family Trust UDT,
dated July 23, 1987, Farid Meshkatai, and Anita Kramer
Meshkatai, as Trustee of the Anita Kramer Living Trust,
dated July 23, 1987, Colin H. Friedman, and ENI Acquisition
Corporation, incorporated by reference from Form 10-K filed
March 30, 1998..............................................
10.52 Fidelity National Financial, Inc. Liquid Yield Option Notes,
due 2009 (zero coupon-subordinated) Exchange Agreement dated
October 17, 1997, incorporated by reference from Form 10-K
filed March 30, 1998........................................
10.53 Stock and Asset Purchase Agreement dated as of May 22, 1997,
by and between Randall F. Zurbach and John C. Wilbur, Jr.
and Fidelity National Financial, Inc., incorporated by
reference from Form 10-K filed March 30, 1998...............
10.54 Agreement and Plan of Merger, dated November 17, 1997 by and
among Fidelity National Financial, Inc.; Granite Acquisition
Corporation and Granite Financial, Inc., incorporated by
reference from Form S-4, Registration No. 333-44153.........
10.55 Securities Purchase Agreement, dated April 8, 1998, by and
among Walter W. Cruttenden, III, Cruttenden Roth
Incorporated, and Fidelity National Financial, Inc. ........
10.56 Agreement and Plan of Merger, dated May 6, 1998 by and among
Fidelity National Financial, Inc.; AT Merger, Inc. and Alamo
Title Holding Company, incorporated by reference from Form
S-4, Registration No. 333-58573.............................
</TABLE>
<PAGE> 98
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- -------------
<S> <C> <C>
10.57 Agreement and Plan of Reorganization, dated May 14, 1998, by
and among ACS Systems, Inc., a California Corporation, ACS
Merger, Inc., a Delaware Corporation, Micro General
Corporation, a Delaware Corporation, and Fidelity National
Financial, Inc., a Delaware Corporation.....................
10.57.1 Agreement of Merger, dated May 14, 1998, by and among ACS
Systems, Inc., a California Corporation, ACS Merger, Inc., a
Delaware Corporation, Micro General Corporation, a Delaware
Corporation, and Fidelity National Financial, Inc., a
Delaware Corporation........................................
10.58 Credit Agreement, dated as of August 1, 1998, by and among
Fidelity National Financial, Inc., Sanwa Bank California as
the Agent and the Lenders from time to time party thereto...
10.58.1 First Amendment, dated as of December 31, 1998, to the
Credit Agreement, dated as of August 1, 1998, by and among
Fidelity National Financial, Inc., Sanwa Bank California as
the Agent and the Lenders from time to time party thereto...
10.59 Stock Purchase Agreement, dated as of August 31, 1998, by
and among Granite Financial, Inc., Fidelity National
Financial, Inc., Lexington Capital Corporation, and the
Shareholders of Lexington Capital Corporation...............
11 Computation of Basic and Diluted Earnings per Share.........
21 List of Subsidiaries........................................
23 Independent Auditors' Consent...............................
27 Financial Data Schedule -- December 31, 1998................
27.1 Financial Data Schedule -- September 30, 1998 (Restated)....
27.2 Financial Data Schedule -- June 30, 1998 (Restated).........
27.3 Financial Data Schedule -- March 31, 1998 (Restated)........
27.4 Financial Data Schedule -- December 31, 1997 (Restated).....
27.5 Financial Data Schedule -- September 30, 1997 (Restated)....
27.6 Financial Data Schedule -- June 30, 1997 (Restated).........
27.7 Financial Data Schedule -- March 31, 1997 (Restated)........
27.8 Financial Data Schedule -- December 31, 1996 (Restated).....
</TABLE>
<PAGE> 1
Exhibit 10.1.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is effective as of October
1, 1998 (the "Effective Date"), by and between FIDELITY NATIONAL FINANCIAL,
INC., a Delaware corporation (the "Company"), and ALAN L. STINSON (the
"Employee"), and supersedes any and all prior employment agreements or
understandings entered into between the parties and/or Alamo Title Holding
Company, a Texas corporation ("Alamo"). In consideration of the mutual covenants
and agreements set forth herein, the parties agree as follows:
1. Employment and Duties. Subject to the terms and conditions of this
Agreement, the Company employs the Employee to serve in an executive and
managerial capacity as Executive Vice President -- Financial Operations of the
Company (or such other title as the Company may designate), and the Employee
accepts such employment and agrees to perform such reasonable responsibilities
and duties commensurate with the aforesaid positions as directed by the
Company's Board of Directors, its Chief Executive Officer or its President, or
as set forth in the Articles of Incorporation and the Bylaws of the Company.
2. Term. The term of this Agreement shall commence on the Effective Date
and shall continue for a period of three (3) years ending September 30, 2001,
subject to prior termination as set forth in Section 7, below (the "Term"). The
Term may be extended at any time upon mutual agreement of the parties.
3. Salary. During the Term, the Company shall pay the Employee a minimum
base annual salary, before deducting all applicable withholdings, of $225,000
per year, payable at the times and in the manner dictated by the Company's
standard payroll policies. Such minimum base annual salary may be periodically
reviewed and increased at the discretion of the Chief Executive Officer and/or
the Compensation Committee of the Board of Directors to reflect, among other
matters, cost of living increases and performance results.
4. Other Compensation and Fringe Benefits. In addition to any executive
bonus, pension, deferred compensation and stock option plans which the Company
may from time to time make available to the Employee upon mutual agreement, the
Employee shall be entitled to the following:
(a) The standard Company benefits enjoyed by the Company's other
top executives;
(b) Payment by the Company of the Employee's initiation and
membership dues in a social and/or recreational club as deemed necessary and
appropriate by the Employee (and pre-
<PAGE> 2
Stinson Employment Agreement (page 2)
approved by the Company) to maintain various business relationships on behalf of
the Company; provided, however, that the Company shall not be obligated to pay
for any of the Employee's personal purchases and expenses at such club;
(c) Provision by the Company during the Term and any extensions
thereof to the Employee and his dependents of the medical and other insurance
coverage provided by the Company to its other executives;
(d) Provision by the Company of supplemental disability insurance
sufficient to provide two-thirds of the Employee's pre-disability minimum base
annual salary;
(e) An annual bonus equal to $9,000 for each full percentage
point the Company's return on equity exceeds 10%. Return on equity shall be
determined by dividing net income before extraordinary items by stockholders'
equity as of the beginning of the year being measured. Any fractional percentage
point increase shall be applied to $9,000 to determine the amount of such bonus
(for example, an 11.5% return on equity would result in a $13,500 bonus). The
annual bonus shall be paid no later than March 31st of the following year and is
fully vested in the event of a non-renewal of this Agreement by the Company.
Subject to Section 7 below, the annual bonus shall be pro-rated for any partial
employment year (for example, the Employee shall only be entitled to 1/4 of the
1998 annual bonus he would otherwise have received if he had been employed by
the Company for the entire calendar year 1998). The Employee shall also be
entitled to receive his pro-rated bonus for the period commencing January 1,
1998 through September 30, 1998, under the terms and conditions of his prior
Employment Agreement with Alamo. In addition to the above, the Board of
Directors of the Company may, in its sole discretion, grant to the Employee an
annual merit bonus based upon the Employee's performance during the preceding
year and any other factors the Board deems relevant;
(f) A grant under the Company's Executive Stock Option Plan of
options to purchase 30,000 shares of the Company's Common Stock. The exercise
price for such options shall be the closing price on the Effective Date of the
Company's Common Stock traded on the New York Stock Exchange, as reported by the
Wall Street Journal. Such options shall vest as follows: (i) 10,000 shares on
the Effective Date; (ii) 10,000 shares on the first anniversary of the Effective
Date; and (iii) 10,000 shares on the second anniversary of the Effective Date;
(g) Payment by the Company of the expenses of moving the
Employee's personal belongings from San Antonio, Texas to Santa Barbara,
California, charged by a moving company selected by the Company; and
(h) Reimbursement by the Company of the Employee's (i) rental
payments on his apartment in San Antonio, Texas, for the months of October,
November, and December, 1998; and (ii) reasonable personal travel expenses for a
reasonable number of trips back and forth between
<PAGE> 3
Stinson Employment Agreement (page 3)
Santa Barbara, California and San Antonio, Texas during the months of October,
November and December, 1998; provided, however, that the Employee shall use good
faith efforts to schedule such personal trips at such times as the Company's
corporate aircraft are traveling to and from Santa Barbara and San Antonio, and
to utilize such aircraft at such times.
The Company shall deduct from all compensation payable under this Agreement to
the Employee any taxes or withholdings the Company is required to deduct
pursuant to state and federal laws or by mutual agreement between the parties.
5. Vacation. For and during each year of the Term and any extensions
thereof, the Employee shall be entitled to reasonable paid vacation periods
consistent with his positions with the Company and in accordance with the
Company's standard policies, or as the Company's Board of Directors may approve.
In addition, the Employee shall be entitled to such holidays consistent with the
Company's standard policies or as the Company's Board of Directors may approve.
6. Expense Reimbursement. In addition to the compensation and benefits
provided herein, the Company shall, upon receipt of appropriate documentation,
reimburse the Employee each month for his reasonable travel, lodging,
entertainment, promotion and other ordinary and necessary business expenses.
7. Termination.
(a) For Cause. The Company may terminate this Agreement
immediately for cause upon written notice to the Employee, in which event the
Company shall be obligated to pay the Employee that portion of the minimum base
annual salary due him through the date of termination. Cause shall be limited to
(i) the failure to perform duties consistent with a commercially reasonable
standard of care; (ii) the willful neglect of duties; or (iii) criminal or other
illegal activities as determined by a court of competent jurisdiction.
(b) Without Cause. Either party may terminate this Agreement
immediately without cause by giving written notice to the other. If the Company
terminates under this Section 7(b), then it shall continue to pay to the
Employee an amount equal to the product of (i) the Employee's minimum annual
base salary in effect as of the date of termination, plus the total annual bonus
paid or payable to the Employee for the most recently ended calendar year,
multiplied by (ii) the number of years (including partial years) remaining in
the Term. Such payment to be made in a lump sum on or before the fifth day
following the date of termination, or as otherwise directed by the Employee. In
addition, the Company shall maintain in full force and effect for the continued
benefit of the Employee for the number of years (including partial years)
remaining in the Term, all employee benefit plans and programs in which the
Employee was entitled to participate immediately prior to the date of
termination, provided that the Employee's continued participation is possible
under the general terms and provisions of such plans and programs. In the event
that the Employee's
<PAGE> 4
Stinson Employment Agreement (page 4)
participation in any such plan or program is prohibited, the Company shall, at
its expense, arrange to provide the Employee with benefits substantially similar
to those which the Employee would otherwise have been entitled to receive under
such plans and programs from which his continued participation is prohibited. If
the Employee terminates under this Section 7(b), then the Company shall be
obligated to pay the Employee the minimum annual base salary due him through the
date of termination.
(c) Disability. If the Employee fails to perform his duties
hereunder on account of illness or other incapacity for a period of six
consecutive months, then the Company shall have the right upon written notice to
the Employee to terminate this Agreement without further obligation by paying
the Employee the minimum base annual salary, without offset, for the remainder
of the Term in a lump sum or as otherwise directed by the Employee.
(d) Death. If the Employee dies during the Term, then this
Agreement shall terminate immediately and the Employee's legal representatives
shall be entitled to receive the minimum annual base salary for the remainder of
the Term in a lump sum or as otherwise directed by the Employee's legal
representative.
(e) Effect of Termination. Termination for any reason or for no
reason shall not constitute a waiver of the Company's rights under this
Agreement nor a release of the Employee from any obligation hereunder except his
obligation to perform his day-to-day duties as an employee.
8. Severance payment.
(a) The Employee may terminate his employment hereunder for "Good
Reason,"which for purposes of this Agreement shall mean a "change in control of
the Company." A "change in control of the Company" shall, for purposes of this
Agreement, be deemed to have occurred if (i) there shall be consummated (x) any
consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation, or pursuant to which shares of the
Company's Common Stock would be converted into cash, securities or other
property, other than a merger of the Company in which the holders of the
Company's Common Stock immediately prior to the merger have the same
proportionate ownership of Common Stock of the surviving corporation immediately
after the merger, or (y) any sale, lease exchange or other transfer (in one
transaction or a series of related transactions) of all, or substantially all,
of the assets of the Company, or (ii) the stockholders of the Company approve
any plan or proposal for the liquidation or dissolution of the Company, or (iii)
any "person" (such as that term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934 (the "Exchange Act")), other than the Company or
any "person" who, on the date hereof, is a director or officer of the Company,
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), of securities of the Company representing 30% or more of the
combined voting power of the Company's then outstanding securities, or (iv)
during any period of two (2) consecutive years during the Term or any extensions
<PAGE> 5
Stinson Employment Agreement (page 5)
thereof, individuals, who, at the beginning of such period, constitute the Board
of Directors, cease for any reason to constitute at least a majority thereof,
unless the election of each director who was not a director at the beginning of
such period has been approved in advance by directors representing at least
two-thirds of the directors then in office who were directors at the beginning
of the period. The Employee may only terminate this Agreement due to a change in
control of the Company during the period commencing 60 days and expiring 365
days after such change in control.
(b) If the Employee terminates his employment for Good Reason,
or, if after a change in control of the Company, the Company shall terminate the
Employee's employment in breach of this Agreement or pursuant to Section 7(b),
then:
(i) the Company shall pay the Employee his minimum base
annual salary due him through the date of termination:
(ii) in lieu of any further salary and bonus payments or
other payments due to the Employee for periods subsequent to the date of
termination, the Company shall pay, as severance to the Employee, an amount
equal to the product of (A) the Employee's minimum base annual salary in effect
as of the date of termination plus the total bonus paid or payable to the
employee for the most recently ended calendar year, multiplied by (B) the number
2, such payment to be made in a lump sum on or before the fifth day following
the date of termination; and
(iii) the Company shall maintain in full force and effect,
for the continued benefit of the Employee for the number of years (including
partial years) remaining in the Term, all employee benefit plans and programs in
which the Employee was entitled to participate immediately prior to the date of
termination, provided that the Employee's continued participation is possible
under the general terms and provisions of such plans and programs. In the event
that the Employee's participation in any such plan or program is prohibited, the
Company shall, at it's expense, arrange to provide the Employee with benefits
substantially similar to those which the Employee would otherwise have been
entitled to receive under such plans and programs from which his continued
participation is prohibited.
(c) The Employee shall not be required to mitigate the amount of
any payment provided for in this Section 8 or Section 7(b), above, by seeking
other employment or otherwise, nor shall any compensation or other payments
received by the Employee after the date of termination reduce any payments due
under this Section 8 or Section 7(b), above.
(d) Notwithstanding anything to the contrary herein, if any
payment pursuant to this Section 8 would be a "parachute payment" (as defined in
Section 280G of the Internal Revenue Code of 1986, as amended), such payment
shall be limited to the largest portion of such payment as can be paid without
being deemed a "parachute payment."
<PAGE> 6
Stinson Employment Agreement (page 6)
9. Non-Delegation of Employee's Rights. The obligations, rights and
benefits of the Employee hereunder are personal and may not be delegated,
assigned or transferred in any manner whatsoever, nor are such obligations,
rights or benefits subject to involuntary alienation, assignment or transfer.
10. Confidential Information. The Employee acknowledges that in his
capacity as an employee of the Company he will occupy a position of trust and
confidence and he further acknowledges that he will have access to and learn
substantial information about the Company and its operations that is
confidential or not generally known in the industry including, without
limitation, information that relates to purchasing, sales, customers, marketing,
and the Company's financial position and financing arrangements. The Employee
agrees that all such information is proprietary or confidential, or constitutes
trade secrets and is the sole property of the Company. The Employee will keep
confidential, and will not reproduce, copy or disclose to any other person or
firm, any such information or any documents or information relating to the
Company's methods, processes, customers, accounts, analyses, systems, charts,
programs, procedures, correspondence or records, or any other documents used or
owned by the Company, nor will the Employee advise, discuss with or in any way
assist any other person, firm or entity in obtaining or learning about any of
the items described in this Section 10. Accordingly, the Employee agrees that
during the Term and at all times thereafter he will not disclose, or permit or
encourage anyone else to disclose, any such information, nor will he utilize any
such information, either alone or with others, outside the scope of his duties
and responsibilities with the Company.
11. Non-Competition During Employment Term. The Employee agrees that,
during the Term and any extensions thereof, he will devote substantially all his
business time and effort, and give undivided loyalty, to the Company. He will
not engage in any way whatsoever, directly or indirectly, in any business that
is competitive with the Company or its affiliates, nor solicit, or in any other
manner work for or assist any business which is competitive with the Company or
its affiliates. In addition, during the Term and any extensions thereof, the
Employee will undertake no planning for or organization of any business activity
competitive with the work he performs as an employee of the Company, and the
Employee will not combine or conspire with any other employee of the Company or
any other person for the purpose of organizing any such competitive business
activity.
12. Non-Competition After Employment Term. The parties acknowledge that
the Employee will acquire substantial knowledge and information concerning the
business of the Company and its affiliates as a result of his employment. The
parties further acknowledge that the scope of business in which the Company is
engaged as of the Effective Date is national and very competitive and one in
which few companies can successfully compete. Competition by the Employee in
that business after this Agreement is terminated would severely injure the
Company. Accordingly, for a period of two years after this Agreement is
terminated or the Employee leaves the employment of the Company for any reason
whatsoever, except as otherwise stated hereinbelow,
<PAGE> 7
Stinson Employment Agreement (page 7)
the Employee agrees (i) not to become an employee, consultant, advisor,
principal, partner or substantial shareholder of any firm or business that in
any way competes with the Company or its affiliates in any of their
presently-existing or then-existing products and markets; and (ii) not to
solicit any person or business that was at the time of such termination and
remains a customer or prospective customer, or an employee of the Company or any
of its affiliates. Notwithstanding any of the foregoing provisions to the
contrary, the Employee shall not be subject to the restrictions set forth in
this Section 12 under the following circumstances:
(a) If the Employee's employment with the Company is terminated
by the Company without cause;
(b) If the Employee's employment with the Company is terminated
as a result of the Company's unwillingness to extend the Term of this Agreement;
or
(c) If the Employee leaves the employment of the Company for Good
Reason pursuant to Section 8, above.
13. Return of Company Documents. Upon termination of this Agreement,
Employee shall return immediately to the Company all records and documents of or
pertaining to the Company and shall not make or retain any copy or extract of
any such record or document.
14. Location. Prior to October 1, 1998, the Employee shall move to Santa
Barbara County, California, to perform his duties hereunder. The Employee shall
not be required to move from Santa Barbara County, California, to perform his
duties hereunder during the Term without his written consent.
15. Improvements and Inventions. Any and all improvements or inventions
which the Employee may conceive, make or participate in during the period of his
employment shall be the sole and exclusive property of the Company. The Employee
will, whenever requested by the Company, execute and deliver any and all
documents which the Company shall deem appropriate in order to apply for and
obtain patents for improvements or inventions or in order to assign and convey
to the Company the sole and exclusive right, title and interest in and to such
improvements, inventions, patents or applications.
16. Actions. The parties agree and acknowledge that the rights conveyed
by this Agreement are of a unique and special nature and that the Company will
not have an adequate remedy at law in the event of a failure by the Employee to
abide by its terms and conditions nor will money damages adequately compensate
for such injury. It is therefore agreed between the parties that, in the event
of a breach by the Employee of any of his obligations contained in this
Agreement, the Company shall have the right, among other rights, to damages
sustained thereby and to obtain an injunction or decree of specific performance
from any court of competent jurisdiction to restrain
<PAGE> 8
Stinson Employment Agreement (page 8)
or compel the Employee to perform as agreed herein. The Employee agrees that
this Section 16 shall survive the termination of his employment and he shall be
bound by its terms at all time subsequent to the termination of his employment
for so long a period as Company continues to conduct the same business or
businesses as conducted during the Term or any extensions thereof. Nothing
herein contained shall in any way limit or exclude any other right granted by
law or equity to the Company.
17. Amendment. This Agreement contains, and its terms constitute, the
entire agreement of the parties, and it may be amended only by a written
document signed by both parties to this Agreement.
18. Governing Law. California law shall govern the construction and
enforcement of this Agreement and the parties agree that any litigation
pertaining to this Agreement shall be adjudicated in courts located in
California.
19. Attorneys' Fees. If any party finds it necessary to employ legal
counsel or to bring an action at law or other proceedings against the other
party to enforce any of the terms hereof, the party prevailing in any such
action or other proceeding shall be paid by the other party its reasonable
attorneys' fees as well as court costs, all as determined by the court and not a
jury.
20. Severability. If any section, subsection or provision hereof is
found for any reason whatsoever, to be invalid or inoperative, that section,
subsection or provision shall be deemed severable and shall not affect the force
and validity of any other provision of this Agreement. If any covenant herein is
determined by a court to be overly broad thereby making the covenant
unenforceable, the parties agree and it is their desire that such court shall
substitute a reasonable judicially enforceable limitation in place of the
offensive part of the covenant and that as so modified the covenant shall be as
fully enforceable as if set forth herein by the parties themselves in the
modified form. The covenants of the Employee in this Agreement shall each be
construed as an agreement independent of any other provision in this Agreement,
and the existence of any claim or cause of action of the Employee against the
Company, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement by the Company of the covenants in this Agreement.
21. Notices. Any notice, request, or instruction to be given hereunder
shall be in writing and shall be deemed given when personally delivered or three
(3) days after being sent by United States certified mail, postage prepaid, with
return receipt requested, to the parties at their respective addresses set for
the below:
<PAGE> 9
Stinson Employment Agreement (page 9)
To the Company:
Fidelity National Financial, Inc.
3916 State Street
Santa Barbara, CA 93105
Attention: Frank P. Willey, President
To the Employee:
Alan L. Stinson
1133 Nirvana Road
Santa Barbara, California
22. Waiver of Breach. The waiver by any party of any provisions of this
Agreement shall not operate or be construed as a waiver of any prior or
subsequent breach by the other party.
IN WITNESS WHEREOF the parties have executed this Agreement to be
effective as of the date first set forth above.
FIDELITY NATIONAL FINANCIAL, INC.
By: William P. Foley, II
Its: Chairman and Chief Executive
Officer
ALAN L. STINSON
/s/ Alan L. Stinson
<PAGE> 1
Exhibit 10.55
SECURITIES PURCHASE AGREEMENT
By and Among:
WALTER W. CRUTTENDEN III (the "Seller"),
CRUTTENDEN ROTH INCORPORATED (the "Company"), and
FIDELITY NATIONAL FINANCIAL, INC. (the "Purchaser").
April 8, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. DEFINITIONS..........................................................................1
2. PURCHASE AND SALE OF THE SHARES AND OPTION...........................................3
2.1 Authorization.................................................................3
2.2 Purchase of Securities; Purchase Price........................................3
3. CLOSING..............................................................................4
3.1 Time and Place................................................................4
3.2 Deliveries....................................................................4
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SELLER.............................4
4.1 Organization and Good Standing................................................4
4.2 Capitalization................................................................4
4.3 Authorization.................................................................5
4.4 Due Execution and Delivery; Binding Obligations...............................5
4.5 No Violation..................................................................5
4.6 Governmental Consents.........................................................5
4.7 Financial Statements..........................................................5
4.8 Material Liabilities..........................................................5
4.9 Changes.......................................................................5
4.10 Labor Agreements and Actions..................................................6
4.11 Employee Benefit Plans; ERISA.................................................6
4.12 Taxes.........................................................................6
4.13 Compliance with Charter, Applicable Laws and Material Contracts...............7
4.14 Litigation; Adverse Facts.....................................................7
4.15 Licenses, Permits and Authorizations..........................................7
4.16 Leases........................................................................7
4.17 Powers of Attorney............................................................8
4.18 Insurance.....................................................................8
4.19 Books and Records.............................................................8
4.20 Outstanding Indebtedness......................................................8
4.21 Employment and Agency Agreements..............................................8
4.22 Net Capital...................................................................8
4.23 Disclosure....................................................................9
5. REPRESENTATIONS AND WARRANTIES OF THE SELLER.........................................9
5.1 Ownership.....................................................................9
5.2 Authorization.................................................................9
5.3 Due Execution and Delivery; Binding Obligations...............................9
5.4 No Violation..................................................................9
5.5 Governmental Consents.........................................................9
5.6 Investment Representations....................................................9
5.7 Disclosure...................................................................11
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
6. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.....................................11
6.1 Organization and Good Standing...............................................11
6.2 Authorization................................................................11
6.3 Due Execution and Delivery; Binding Obligations..............................11
6.4 No Violation.................................................................11
6.5 Investment Intent............................................................11
6.6 Accredited Investor Status; No Reliance......................................11
6.7 Governmental Consents........................................................12
6.8 Litigation; Adverse Facts....................................................12
6.9 Brokers......................................................................12
6.10 Issuance of Fidelity Shares..................................................12
6.11 Reports......................................................................12
6.12 Disclosure...................................................................12
7. CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER......................................13
7.1 Representations and Warranties...............................................13
7.2 Purchase Permitted by Applicable Laws........................................13
7.3 No Material Adverse Changes..................................................13
7.4 No Material Judgment or Order................................................13
7.5 Securities...................................................................13
7.6 Shareholders' Agreement......................................................13
7.7 CRI Registration Rights Agreement............................................13
7.8 Payment of Taxes.............................................................14
7.9 Escrow Instructions..........................................................14
7.10 Financial Statements.........................................................14
7.11 Third Party Consents.........................................................14
8. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE SELLER.........................14
8.1 Representations and Warranties...............................................14
8.2 Purchase Permitted by Applicable Laws........................................14
8.3 No Material Judgment or Order................................................14
8.4 Third Party Consents.........................................................15
8.5 Fidelity Registration Rights Agreement.......................................15
8.6 Escrow Instructions..........................................................15
9. TERMINATION.........................................................................15
9.1 Failure of Condition.........................................................15
9.2 Effect of Termination........................................................15
10. POST-CLOSING OBLIGATIONS............................................................15
10.1 Use of Proceeds..............................................................15
10.2 Disclosure of Subsequent Events..............................................16
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
11. MISCELLANEOUS.......................................................................16
11.1 Indemnification..............................................................16
11.2 Attorneys' Fees..............................................................17
11.3 Entire Agreement.............................................................17
11.4 Headings.....................................................................17
11.5 Successors and Assigns.......................................................17
11.6 Parties in Interest..........................................................17
11.7 Amendments, Waivers and Consents.............................................17
11.8 Notice.......................................................................17
11.9 Transaction Fees and Expenses................................................18
11.10 Severability.................................................................19
11.11 Counterparts.................................................................19
11.12 Waiver of Jury Trial.........................................................19
</TABLE>
-iii-
<PAGE> 5
Exhibits PAGE
Exhibit A - Form of Option
Exhibit B - Form of Escrow Instructions
Exhibit C - Form of Shareholders' Agreement
Exhibit D - Form of CRI Registration Rights Agreement
Exhibit E - Form of Fidelity Registration Rights Agreement
Schedules
Schedule 4.2 - Capitalization
Schedule 4.9 - Changes
Schedule 4.13 - Compliance with Charters, Applicable Laws and Material Contracts
Schedule 4.14 - Litigation; Adverse Facts
Schedule 4.20 - Outstanding Indebtedness
Schedule 4.21 - Employment and Agency Agreements
<PAGE> 6
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is made and entered
into this 8th day of April, 1998, by and among WALTER W. CRUTTENDEN III (the
"Seller"), CRUTTENDEN ROTH INCORPORATED, a California corporation (the
"Company"), and FIDELITY NATIONAL FINANCIAL, INC., a Delaware corporation (the
"Purchaser").
R E C I T A L S
A. Seller owns and holds of record in excess of 750,000 shares of the
Company's Common Stock, no par value (the "Common Stock").
B. The Purchaser has agreed to purchase from Seller, and Seller has
agreed to offer for sale and sell to the Purchaser, on the terms set forth in
this Agreement, (i) an aggregate of 580,000 shares (the "Shares") of Common
Stock, (ii) an Option to purchase an aggregate of 170,000 shares of the Common
Stock, at an exercise price of Ten Dollars ($10.00) per share (subject to
adjustment as provided in the Option), which Option shall be in the form of
Exhibit A attached hereto (as it may be amended, modified, restated,
supplemented, extended or reduced, the "Option"), and (iii) the Common Stock
issuable upon exercise of the Option.
AGREEMENT
In consideration of the mutual covenants and agreements set forth
herein, and for good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. DEFINITIONS. For purposes of this Agreement, the following terms
shall have the meanings specified with respect thereto below:
"Applicable Laws" means any Federal, state or local statute, law, rule,
regulation or ordinance applicable to the Company or its business, including,
without limitation, the Securities Act of 1933, the Securities Exchange Act of
1934, the rules and regulations under those acts or of any self-regulatory
organization given regulatory authority under those acts, the California
Corporate Securities Law of 1968, Federal Reserve Board Regulation T and any
other laws or regulations applicable to the Company, including laws relating to
the operation of securities brokerages and laws relating to franchise, building,
zoning, health, sanitation, safety or labor relations, and any order, ruling,
judgment or decree of any court, governmental agency or authority or
self-regulatory agency which is binding on the Company or its properties.
"Board of Directors" means the board of directors of any Person.
"Business Day" means any day except Saturday, Sunday and any day which
either is a legal holiday under the laws of the State of California or is a day
on which banking institutions located in such state are authorized or required
by law or other governmental action to close.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder, all as the same
shall be in effect at the time.
<PAGE> 7
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC promulgated thereunder, all as the same
shall be in effect at the time.
"Financial Statements" shall have the meaning set forth in Section 4.7
below.
"GAAP" means generally accepted accounting principles and practices set
forth in the opinions and pronouncements of the Accounting Principles Board and
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession that are applicable to the circumstances as of the
date hereof, applied on a consistent basis.
"Indebtedness" means (without duplication), when used with reference to
any Person, (i) any indebtedness, contingent or otherwise, in respect of
borrowed money (whether or not the recourse of the lender is to the whole of the
assets of such Person or only to a portion thereof), or evidenced by bonds,
note, debentures or similar instruments or letters of credit or representing the
unpaid balance of the purchase price of any property, but not including any
other indebtedness, amount or obligation incurred in the ordinary course of the
broker-dealer business consistent with past practice (e.g., unsettled trades),
(ii) the principal component of any capital lease obligations of such Person,
(iii) the maximum fixed repurchase price of any redeemable stock of such Person,
(iv) the maximum amount payable under any earnout agreement, contingent payment
obligation, deferred financing fee or similar deferred or contingent obligation,
and (v) obligations secured by a Lien to which any property or asset, including
leasehold interests and any other tangible or intangible property rights, owned
by such Person is subject, whether or not the obligations secured thereby have
been assumed by such Person.
"Licenses and Permits" means all licenses, franchises, certificates,
permits, consents, registrations, certificates, memberships and other approvals
of all governmental or regulatory agencies or self-regulatory organizations,
whether Federal, state or local, necessary to the conduct of its business,
including, without limitation, licenses or certificates issued under Sections
25210 and 25211 of the California Corporate Securities Law of 1968 or similar
laws in each of the states where the Company's activities would require such
licensing, compliance with all bonding requirements of any state or municipality
and any licenses, permits, registrations or approvals required to comply with or
obtain exemptions from the usury laws of any state.
"Lien" means any lien, pledge, mortgage, claim, covenant, restriction,
security interest, charge or encumbrance of any kind, including the interest of
a lessor under a capital lease obligation having substantially the same economic
effect.
"Material Adverse Effect" means, with respect to any Person, a material
adverse effect on the condition (financial or otherwise), business, results of
operations, prospects or properties of such Person.
"Net Capital" shall have the meaning assigned to that term in clause (c)
of Rule 15c3-1 under the Exchange Act.
"Person" means any individual, trustee, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, limited liability company, limited liability partnership, public
benefit corporation, institution, entity or government (whether Federal, state,
-2-
<PAGE> 8
county, city or otherwise, including without limitation, any instrumentality,
political subdivision, agency, body or department thereof).
"Related Agreements" means the Option, the Shareholders' Agreement, the
CRI Registration Rights Agreement, the Fidelity Registration Rights Agreement
and any and all other documents contemplated herein or therein.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder, all as the same shall
be in effect at the time.
"Taxes" means any income, excise, sales, use, stamp or franchise taxes
and any other taxes, fees, duties, levies, withholdings or other charges of any
nature whatsoever imposed by any taxing authority, whether Federal, state, local
or foreign, together with any interest and penalties and additions to tax.
"Transferee" means any direct or indirect transferee of all or any part
of the Option.
2. PURCHASE AND SALE OF THE SHARES AND OPTION.
2.1 Authorization. Seller is fully authorized and is not subject
to any restrictions effecting (i) the sale and transfer to the Purchaser of the
Shares, (ii) the sale and delivery to the Purchaser of the Option, and (iii) the
reservation for issuance of the Common Stock issuable upon exercise of the
Option. The Shares and the Option, and the certificates and other instruments
from time to time evidencing the same, are herein sometimes collectively
referred to as the "Securities."
2.2 Purchase of Securities; Purchase Price. Subject to the terms
and conditions contained herein, and in reliance upon the representations,
warranties and agreements contained herein, the Seller shall sell, transfer
and/or deliver to the Purchaser, the Securities. At the Closing (as defined
below), Purchaser shall pay Seller an aggregate combined purchase price for the
Securities equal to $5,800,000 (the "Purchase Price"), as follows: (i) an
aggregate of $2,050,000 shall be paid to Seller by delivery of cashier's
check(s) or wire transfer(s) to the accounts designated by Seller (the "Cash
Payment"), and (ii) an additional aggregate of $3,750,000 of the Purchase Price
shall be paid by delivery of certificate(s) in such name(s) designated by Seller
and representing an aggregate of One Hundred Seven Thousand One Hundred
Forty-Three (107,143) shares of Common Stock of the Purchaser ("Fidelity
Shares"), based on a per share value of $35.00.
-3-
<PAGE> 9
3. CLOSING.
3.1 Time and Place. The sale of the Securities shall be
consummated at a closing (the "Closing") to be held at the offices of Stradling
Yocca Carlson & Rauth (SYC&R), 660 Newport Center Drive, Suite 1600, Newport
Beach, California 92660, at 10:00 a.m. on the first business day immediately
following the waiver or satisfaction of all of the conditions precedent to the
obligations of the respective parties to the Agreement, or at such other time
and date as shall be agreed upon by the parties in writing (the "Closing Date").
3.2 Deliveries. At the Closing, Seller shall deliver (i) to the
Purchaser (A) his certificate or certificates representing the Shares, together
with a duly executed assignment separate from certificate with respect to each
such certificate, and (B) the Option, duly executed by Seller; and (ii) to
SYC&R, executed escrow instructions, substantially in the form of Exhibit B
hereto (the "Escrow Instructions"), appointing SYC&R as escrow agent with
respect to the Option, and his certificate representing the shares of Common
Stock initially issuable upon exercise of the Option, together with a duly
executed assignment separate from certificate with respect to such certificate.
At the Closing, the Purchaser shall deliver (i) to the Seller the Purchase Price
(in the manner set forth in Section 2 hereof); and (ii) to SYC&R, the Escrow
Instructions, duly executed by or on behalf of Purchaser. Thereafter, each
party, at the request of any other party, shall execute and deliver such
additional or confirmatory instruments, documents of conveyance, and
acknowledgements and shall take all such other actions and execute such other
documents as such requesting party may reasonably require to effect the
transactions contemplated hereunder.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SELLER. The Company
and Seller, to his best knowledge, hereby jointly and severally represent and
warrant to the Purchaser that, except as set forth in the disclosure schedules
attached hereto (the "Disclosure Schedules"), the following statements are true
and correct as of the date hereof (it being understood that wherever, in this
Agreement, reference is made to a matter being to the "knowledge" of the
Company, the term "knowledge" shall mean that the officer(s) of the Company
negotiating and entering into this Agreement on its behalf actually knew or,
with reasonable inquiry, should have known, about the matter in question):
4.1 Organization and Good Standing. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated, and has all requisite corporate power
and authority to own (or hold under lease) and operate its properties, to carry
on its business as now conducted, to enter into this Agreement and each Related
Agreement, and to consummate the transactions contemplated hereby and thereby.
The Company is duly qualified as a foreign corporation to do business and is in
good standing wherever necessary to carry on its present business and
operations, except where the failure to so qualify would not have a Material
Adverse Effect.
4.2 Capitalization. The authorized capital stock of the Company
consists of 20,000,000 shares of Common Stock, par value no par value per share,
of which 2,933,372 shares are issued and outstanding, and 10,000,000 shares of
Preferred Stock, par value $10 per share, of which 79,630 shares are designated
Series C Preferred Stock, of which 79,630 shares are issued and outstanding. All
presently outstanding shares of the Company's capital stock are duly authorized,
validly issued and outstanding, fully paid and nonassessable, and are not
subject to any preemptive
-4-
<PAGE> 10
rights in respect thereof. Except for outstanding options to purchase 706,500
shares of Common Stock, there are no outstanding options, warrants, or other
rights to subscribe for or purchase, from the Company, any securities or
obligations that are convertible into or exchangeable for, or any contracts or
commitments providing for the issuance of or the granting of rights to acquire,
any Common Stock or any other capital stock, or other ownership interest, in the
Company. Schedule 4.2 attached hereto sets forth the names of the holders of the
Company's Common Stock, and the number of shares of Common Stock held by each
such holder.
4.3 Authorization. The execution, delivery and performance of
this Agreement and of each of the Related Agreements, and the consummation of
the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action on the part of the Company.
4.4 Due Execution and Delivery; Binding Obligations. This
Agreement has been duly executed and delivered by the Company. This Agreement
is, and at the time of the Closing each of the Related Agreements will be,
legal, valid and binding obligations of the Company enforceable against the
Company in accordance with their respective terms except as enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer or conveyance or similar law, relating to or limiting creditors' rights
generally or by equitable principles relating to enforceability and except as
rights of indemnity or contribution may be limited by Federal or state
securities or other law, or the public policy underlying such laws.
4.5 No Violation. The execution, delivery and performance by the
Company of this Agreement and of each of the Related Agreements, and the
consummation of the transactions contemplated hereby and thereby do not violate
(i) the charter or bylaws of the Company, (ii) to the knowledge of the Company,
any material law, rule, regulation or ordinance applicable to the Company, (iii)
any order, ruling, judgment or decree of any court or other governmental agency
binding on the Company, (iv) any material term of any indenture or mortgage to
which the Company is a party, or (v) any term of any material lease, agreement
or instrument to which the Company is a party.
4.6 Governmental Consents. The execution and delivery by the
Company of this Agreement and of each of the Related Agreements, and the
consummation of the transactions contemplated hereby and thereby, do not and
will not require as of the Closing any authorization, registration or filing
with, or consent or approval of, any Federal, state or other governmental
authority or regulatory body.
4.7 Financial Statements. The Company has delivered to the
Purchaser copies of (i) the audited balance sheets of the Company as of June 30,
1995, 1996 and 1997 and the related audited statements of operations,
shareholders' equity, and cash flows for the years ended June 30, 1995, 1996 and
1997, together with the unqualified report thereon of the Company's auditors and
(ii) the unaudited balance sheet of the Company as of December 31, 1997 and the
related unaudited income statements for the six-month period then ended
(collectively, the "Financial Statements"). The Financial Statements (i) were
prepared in accordance with the books and records of the Company, (ii) present
fairly the financial position of the Company as of the dates indicated and its
results of operations for the periods indicated, and (iii) have been prepared in
conformity with GAAP. Since June 30, 1997, there has been no material adverse
change in the financial condition, assets, liabilities, earnings, business or
prospects of the Company.
-5-
<PAGE> 11
4.8 Material Liabilities. The Company has no material liabilities
or obligations, absolute or contingent (individually or in the aggregate),
except (i) liabilities and obligations reflected in the Financial Statements and
the related Notes thereto, (ii) liabilities and obligations which have been
incurred subsequent to June 30, 1997 in the ordinary course of business and
(iii) liabilities and obligations which would not have a Material Adverse Effect
on the Company.
4.9 Changes. Except in the ordinary course of the Company's
business or as set forth on Schedule 4.9, since June 30, 1997 there has not been
(a) any material damage, destruction or loss to any material asset of the
Company, whether or not covered by insurance; (b) any waiver by the Company of a
valuable right or of a debt owed to it; (c) any satisfaction or discharge of any
Lien or payment of any material obligation by the Company; (d) any change or
amendment to any material contract or arrangement by which the Company or any of
its properties or assets is bound or subject; (e) any material adverse change in
the assets, liabilities, financial condition or operations of the Company; (f)
any declaration or payment of any dividend or other distribution of assets of
the Company to its shareholders as a group, or the adoption or consideration of
any plan or arrangement with respect thereto; (g) any resignation or termination
of employment of any director or key employee of the Company or any notice or
indication that any resignation or termination is anticipated; (h) any
investment by the Company in the capital stock of a Person, except as a result
of underwriting, investment banking and market making activities in the ordinary
course of business and consistent with past practice; (i) any offer, issuance or
sale of shares of capital stock; (j) any material change in the Company's
accounting methods, procedures or policies; (k) any incurrence of Indebtedness;
(l) any other event or condition of any character which has or could reasonably
be expected to have a Material Adverse Effect; or (m) any agreement or
commitment to do any of the foregoing.
4.10 Labor Agreements and Actions. The Company is not bound by or
subject to any written or oral, express or implied, contract, commitment or
arrangement with any labor union, and no labor union has requested or sought to
represent any of the employees, representatives or agents of the Company. There
is no strike or other labor dispute, including, but not limited to, any unfair
labor practice, charge or other proceeding before the National Labor Relations
Board, involving the Company pending or, to the Company's knowledge, threatened.
To the Company's knowledge, there is no labor organization activity involving
the employees of the Company and no officer or key employee, or any group of
officers or key employees, intends to terminate his or her or their employment
with the Company. Except as disclosed in Schedule 4.14, the Company is not aware
of any claims, actions, proceedings or threats relating to sexual harassment,
wrongful termination, discrimination or any other employment related matter. To
the Company's knowledge there is no fact or circumstance which is reasonably
expected to, with the passage of time or otherwise, cause this representation
and warranty to be no longer true and correct. To the Company's knowledge, the
Company is in compliance with all provisions of the Fair Labor Standards Act,
all state wage and hour laws and all workers' compensation laws.
4.11 Employee Benefit Plans; ERISA. All pension, retirement,
bonus, profit sharing, stock option, employee and other benefit or welfare plans
or arrangements maintained by the Company, or to which the Company contributes
or is required to contribute, to the extent required, materially comply with the
provisions of and have been administered and maintained in material compliance
with the provisions of ERISA and all other applicable laws. The Company does not
currently maintain any, nor in the past has ever maintained any, "employee
pension benefit plan" within the meaning of Section 3(2) of ERISA, and the
Company does not currently contributes to, nor
-6-
<PAGE> 12
in the past has ever contributed to, any "Multiemployer Plan," as defined in
Section 4001(a)(3) of ERISA. All unpaid liabilities of the Company with respect
to, and all unfunded benefits (whether vested or not) under, each employee
welfare benefit plan as defined in Section 3(1) of ERISA maintained by the
Company have been calculated and are reflected in the Company's financial
statements in accordance with GAAP, and any such liabilities incurred after the
date of such financial statements will be incurred in the ordinary course of
business, determined in a manner substantially similar to that used in such
financial statements.
4.12 Taxes. The Company has timely filed within required time
periods, including permitted extensions, all Federal, state and other Tax
returns required to have been filed and has paid all Taxes which have become due
and payable except (i) such as are being contested in good faith by appropriate
proceedings (to the extent that any such proceedings are required) and (ii) as
may be determined to be owed upon completion of any Tax return not yet filed
based upon an extension of time to file provided all periodic estimated Tax
payments have been made. The Company has withheld and paid all Taxes required to
be withheld and paid in connection with amounts paid or owing to any employee,
creditor, shareholder or other third party. The Company has not been advised
that any Tax returns, Federal, state or other, have been or are being audited.
There are no agreements, waivers or other arrangements providing for an
extension of time with respect to the assessment of any Taxes or deficiency
against the Company, nor are there any actions, suits, proceedings or claims now
pending against the Company in respect of any Taxes or assessments. There is no
pending or threatened investigation of the Company by any Federal, state,
foreign or local authority relating to any Taxes or assessments, or any claims
for additional taxes or assessments asserted by any such authority. The Company
is not a party to or bound by any tax sharing, tax indemnity or tax allocation
agreement or other similar arrangement.
4.13 Compliance with Charter, Applicable Laws and Material
Contracts. Except as set forth on Schedule 4.13, the Company has been, and is,
in compliance with, and is not in violation of the terms of: (i) its charter or
bylaws as in effect on the date hereof, (ii) to the Company's knowledge, any
Applicable Law, the noncompliance with which would have a Material Adverse
Effect on the Company, or (iii) any material indenture, mortgage, deed of trust,
bank loan, credit agreement, lease, agreement or instrument to which the Company
is a party and, in each case, there does not exist any event or circumstance,
that, individually or in the aggregate, with the giving of notice or the lapse
of time or both, would constitute any such noncompliance or violation and would
have a Material Adverse Effect.
4.14 Litigation; Adverse Facts. To the Company's knowledge,
except as set forth on Schedule 4.14 or disclosed in the Financial Statements
and the related Notes thereto, there are no actions, suits, proceedings or
investigations at law or in equity of which the Company has received notice or
otherwise has knowledge pending before or by any Federal, state, municipal,
governmental or self-regulatory department, court, board, bureau, agency,
instrumentality or organization or, to the Company's knowledge, threatened
against or affecting the Company, nor is there any judgment, decree, injunction,
ruling or order of any public body against the Company. To the Company's
knowledge, there is no fact or circumstance which could give rise to any action,
suit, proceeding or investigation which could, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
-7-
<PAGE> 13
4.15 Licenses, Permits and Authorizations. The Company has all
Licenses and Permits necessary to the conduct of its business, except where the
failure to have such Licenses and Permits, individually or in the aggregate,
would not have a Material Adverse Effect. All such Licenses and Permits are in
full force and effect. The properties, assets, operations and business of the
Company are, and at all times have been maintained and conducted, in compliance
with all Licenses and Permits.
4.16 Leases. With respect to each lease and sublease necessary in
any material respect for the operation of the Company's business, (a) each such
lease or sublease is legal, valid, binding, enforceable and in full force and
effect; (b) to the Company's knowledge, no party to the lease or sublease is in
breach or default, and no event has occurred which, with notice or lapse of
time, would constitute a breach or default or permit termination, modification
or acceleration thereunder; (c) there are no disputes, oral agreements or
forbearance programs in effect as to the lease or sublease; (d) the Company has
not assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered
any interest in the leasehold or subleasehold; and (e) there are no restrictions
in the lease or sublease which prohibit the sale, transfer and delivery of the
Securities, prohibit or restrict any merger, sale of assets or other event which
could cause a change in control of the Company, or otherwise restrict or
prohibit any other financings by the Company, including, without limitation, any
public or private debt or equity financings.
4.17 Powers of Attorney. There are no outstanding powers of
attorney executed on behalf of the Company.
4.18 Insurance. The Company is covered by insurance in scope and
amount customary and reasonable for the businesses in which it is engaged and
will be so covered after consummation of the transactions contemplated hereby.
All such policies are in full force and effect.
4.19 Books and Records. The minute books and other similar
records of the Company contain true and complete records, in all material
respects, of all actions taken at any meetings of its shareholders, Board of
Directors or any committees thereof and of all written consents executed in lieu
of the holding of any such meeting. The books and records of the Company
accurately reflect the assets, liabilities, business, financial condition and
results of operations of the Company, in all material respects, and have been
maintained in accordance with good business, accounting and bookkeeping
practices.
4.20 Outstanding Indebtedness. Except as otherwise disclosed on
Schedule 4.20, the Company is not in monetary or other material default in the
performance or observance of any of the terms, covenants or conditions contained
in any instrument or agreement evidencing the Indebtedness of the Company or
pursuant to which such Indebtedness was issued or secured and has not requested
any waiver in respect of any default and no event has occurred and is continuing
which, with notice or the lapse of time or both, would constitute such a
default.
4.21 Employment and Agency Agreements. Schedule 4.21 attached
hereto sets forth a summary description of the current terms of employment for
each of the Company's executive officers. To the Company's knowledge, each
material employment, agency, independent contractor and sales representative
agreement and each noncompetition, nondisclosure and confidentiality agreement
to which the Company is a party constitutes a valid and binding agreement
enforceable in accordance with its terms, and, to the Company's knowledge, no
party to any such agreement is in
-8-
<PAGE> 14
breach of, or in default with respect to, its obligations under such agreement
nor is the Company aware of any facts or circumstances which might reasonably be
expected to give rise to a breach or default thereunder.
4.22 Net Capital. The Company is now, and has at all times since
January 1, 1992 been, in compliance with applicable Net Capital and other
regulatory requirements as they pertain to the Company's operations.
4.23 Disclosure. No representation, warranty or other statement
of the Company to the Purchaser included in this Agreement or any Related
Agreement or in any Exhibit or other Schedule thereto is, or will be at the
Closing, untrue with respect to any material fact or omits, or will omit, to
state a material fact necessary in order to make the statement made herein or
therein in light of the circumstances in which such statement was made, not
misleading.
5. REPRESENTATIONS AND WARRANTIES OF THE SELLER. Seller hereby
represents and warrants to the Purchaser that the following statements are true
and correct as of the date hereof:
5.1 Ownership. Seller is the record and beneficial owner of the
Shares. All of such Shares and held free and clear of all liens, encumbrances,
claims, security interests, options and charges of any kind created by or under
the Seller. Upon the Closing, the Purchaser shall receive the Securities free
and clear of all liens, encumbrances, claims, security interests, options and
charges of any kind.
5.2 Authorization. Seller has the full right, power and authority
to sell, transfer and deliver the Securities and has duly authorized the
execution, delivery and performance of this Agreement and of each of the Related
Agreements, the sale, transfer and delivery of the Securities, and the
consummation of the transactions contemplated hereby and thereby.
5.3 Due Execution and Delivery; Binding Obligations. This
Agreement has been duly executed and delivered by Seller. This Agreement is, and
at the time of the Closing each of the Related Agreements will be, legal, valid
and binding obligations of Seller enforceable against Seller in accordance with
their respective terms except as enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer or conveyance or
similar law, relating to or limiting creditors' rights generally or by equitable
principles relating to enforceability and except as rights of indemnity or
contribution may be limited by Federal or state securities or other law, or the
public policy underlying such laws.
5.4 No Violation. The execution, delivery and performance by
Seller of this Agreement and of each of the Related Agreements, the sale,
transfer and delivery of the Securities, and the consummation of the
transactions contemplated hereby and thereby do not violate (i) to the knowledge
of Seller, any material law, rule, regulation or ordinance applicable to Seller,
(ii) any order, ruling, judgment or decree of any court or other governmental
agency binding on Seller, (iii) any material term of any agreement or instrument
to which Seller is a party.
5.5 Governmental Consents. The execution and delivery by Seller
of this Agreement and of each of the Related Agreements, the sale, transfer and
delivery of the Securities, and the consummation of the transactions
contemplated hereby and thereby, do not and will not require as
-9-
<PAGE> 15
of the Closing any authorization, registration or filing with, or consent or
approval of, any Federal, state or other governmental authority or regulatory
body.
5.6 Investment Representations.
5.6.1 Seller is acquiring the Fidelity Shares for his own
account, not as nominee or agent, for investment and not with a view to, or for
resale in connection with, any distribution or public offering thereof within
the meaning of the Securities Act.
5.6.2 Seller understands that (A) the Fidelity Shares have
not been registered under the Securities Act by reason of a specific exemption
therefrom, that they must be held by it indefinitely, and that it must,
therefore, bear the economic risk of such investment indefinitely, unless a
subsequent disposition thereof is registered under the Securities Act or is
exempt from such registration; (B) each certificate representing the Fidelity
Shares will be endorsed with the following legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, (THE "SECURITIES ACT") AND
MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT COVERING
SUCH SECURITIES OR IF THE PURCHASER RECEIVES AN OPINION OF COUNSEL FOR
THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO PURCHASER,
STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT
FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE
SECURITIES ACT."
and (C) Purchaser will instruct any transfer agent not to register the transfer
of any of the Fidelity Shares unless the conditions specified in the foregoing
legend are satisfied; provided, however, that no such opinion of counsel shall
be necessary if the sale, transfer or assignment is made pursuant to Rule 144 of
the Securities Act and such Seller provides Purchaser with evidence reasonably
satisfactory to Purchaser and its counsel that the proposed transaction
satisfies the requirements of Rule 144. Purchaser agrees to remove the foregoing
legend from any securities if the requirements of Rule 144(k) of the Securities
Act (or any successor rule or regulation) apply with respect to such securities
and Purchaser and its counsel are provided with reasonably satisfactory evidence
that the requirements of Rule 144(k) apply.
5.6.3 Seller can bear the economic risk of its investment
and has such knowledge and experience in financial or business matters that it
is capable of evaluating the merits and risks of the investment in the Fidelity
Shares.
5.6.4 Seller is an "accredited investor" within the
meaning of Rule 501 of Regulation D of the Securities Act, as presently in
effect.
5.6.5 Seller understands that the Fidelity Shares are
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from Purchaser in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the Securities Act,
only in certain
-10-
<PAGE> 16
limited circumstances, and such Seller represents that he is familiar with Rule
144, as presently in effect, and understands the resale limitations imposed
thereby and by the Securities Act.
5.6.6 Seller's principal address is as set forth in
Section 11.8 hereof, and Seller does not reside in any state of the United
States other than the state specified in its address thereon.
5.7 Disclosure. No representation, warranty or other statement of
Seller included in this Agreement or any Related Agreement or in any Exhibit or
other Schedule thereto is, or will be at the Closing, untrue with respect to any
material fact or omits, or will omit, to state a material fact necessary in
order to make the statement made herein or therein in light of the circumstances
in which such statement was made, not misleading.
6. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser hereby
represents and warrants to the Company and to Seller that the following
statements are true and correct as of the date hereof:
6.1 Organization and Good Standing. The Purchaser is a
corporation, duly organized, validly existing and in good standing under the
laws of the State of Delaware, and has all requisite power and authority to
enter into this Agreement and each Related Agreement to which it is a party and
to consummate the transactions contemplated hereby and thereby.
6.2 Authorization. The execution, delivery and performance of
this Agreement and of each of the Related Agreements to which the Purchaser is a
party, and the consummation of the transactions contemplated hereby and thereby,
have been duly authorized by all necessary action on the part of the Purchaser.
6.3 Due Execution and Delivery; Binding Obligations. This
Agreement has been duly executed and delivered by the Purchaser. This Agreement
is, and at the time of the Closing the Related Agreements to which the Purchaser
is a party will be, legal, valid and binding obligations of the Purchaser
enforceable against the Purchaser in accordance with their respective terms,
except as enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or conveyance or similar laws relating to or
limiting creditors' rights generally or by equitable principles relating to
enforceability and except as rights of indemnity or contribution may be limited
to Federal or state securities or other laws or the public policy underlying
such laws.
6.4 No Violation. The execution, delivery and performance by the
Purchaser of this Agreement, and of each of the Related Agreements to which the
Purchaser is a party, and the consummation of the transactions contemplated
hereby and thereby do not violate (i) the charter and bylaws of the Purchaser as
in effect on the date hereof, (ii) any law, rule, regulation or ordinance
applicable to the Purchaser, (iii) any order, ruling, judgment or decree of any
court or other governmental agency binding on the Purchaser, or (iv) any term of
any material indenture, mortgage, lease, agreement or instrument to which the
Purchaser is a party.
6.5 Investment Intent. The Purchaser is acquiring the Securities
for its own account, for investment purposes, and not with a view to or for sale
in connection with any distribution thereof. The foregoing notwithstanding, the
disposition of the Securities shall at all times be and
-11-
<PAGE> 17
remain within the Purchaser's control, so long as such disposition complies with
applicable laws and regulations.
6.6 Accredited Investor Status; No Reliance. The Purchaser is an
"accredited investor" (as such term is defined in Rule 501 of Regulation D under
the Securities Act). By reason of its business and financial experience, the
Purchaser has such knowledge, sophistication and experience in business and
financial matters so as to be capable of evaluating the merits and risks of the
investment in the Securities and is able to bear the economic risk of such
investment. The Purchaser confirms that the Company has made available to the
Purchaser the opportunity to ask questions of the officers and management of the
Company and to acquire additional information about the business, assets and
financial condition of the Company. Notwithstanding the foregoing, the Purchaser
confirms that in entering into this Agreement and in consummating the
transactions contemplated hereby it has not relied upon any representation,
warranty or other statement, whether written or oral and whether included in any
materials, documents, instruments or financial or other projections provided to
the Purchaser, relating to the Company's business, financial condition or
results of operations, other than those representations and warranties expressly
made by the Company in this Agreement or any Related Agreement or in any Exhibit
or Schedule hereto or thereto.
6.7 Governmental Consents. The execution and delivery by the
Purchaser of this Agreement and each of the Related Agreements to which it is a
party, and the consummation of the transactions contemplated hereby, do not and
will not require any authorization, registration or filing with, or consent or
approval of, any Federal, state or other governmental authority or regulatory
body.
6.8 Litigation; Adverse Facts. There are no actions, suits,
proceedings or investigations at law or in equity pending before or by any
Federal, state, municipal, governmental or self regulatory department, court,
board, bureau, agency, instrumentality or organization threatened against or
affecting the Purchaser which could reasonably be expected to adversely affect
the Purchaser's ability to perform its obligations under this Agreement or
consummate any of the transactions contemplated hereby. The Purchaser is not
aware of any fact or circumstance which could give rise to any action, suit,
proceeding or investigation which could reasonably be expected to adversely
affect the Purchaser's ability to perform its obligations under this Agreement
or consummate any of the transactions contemplated hereby.
6.9 Brokers. The Purchaser has not paid or become obligated to
pay any fee or commission to any broker, finder, investment banker or other
intermediary in connection with this Agreement or any Related Agreement.
6.10 Issuance of Fidelity Shares. The Fidelity Shares will be
fully paid and non-assessable and issued to the Seller free and clear of all
liens, encumbrances, claims, security interests, options and charges of any
kind.
6.11 Reports. No reports, schedules, forms, statements, exhibits
and other documents filed by the Purchaser with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended (copies
of which have been made available by the Purchaser to the Seller prior to the
date hereof) contains any untrue statement of a material fact, nor omits nor
misstates any material fact, except as qualified or modified by subsequent
reports filed by the Purchaser with the Securities and Exchange Commission or by
other public disclosures.
-12-
<PAGE> 18
6.12 Disclosure. No representation, warranty or other statement
of the Purchaser to the Company included in this Agreement or any Related
Agreement or in any Exhibit or Schedule hereto or thereto or in any other
document or instrument delivered at any time prior to the Closing in connection
herewith or therewith is, or will be at the Closing, untrue with respect to any
material fact or omits, or will omit, to state a material fact necessary in
order to make the statement made herein or therein in light of the circumstances
in which such statement was made, not misleading.
7. CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER. The obligation of the
Purchaser to consummate the transactions contemplated hereby is subject to the
satisfaction, prior to or at the Closing, of the following conditions; provided,
however, that any or all of the following conditions may be waived, in whole or
in part, by the Purchaser in its sole and absolute discretion:
7.1 Representations and Warranties. The representations and
warranties of the Company and the Seller, respectively, contained in this
Agreement and the Related Agreements shall be true and correct in all material
respects at and as of the Closing Date, as if made on and as of such date; the
Company and the Seller shall have performed or satisfied, in all material
respects, all of their respective covenants and agreements hereunder and
thereunder to be performed or satisfied on or prior to the Closing Date. The
Company and the Seller shall each have delivered to the Purchaser a certificate
signed, in the case of the Company, by the President and the Chief Financial
Officer of the Company, and, in the case of the Seller, by the Seller, each
dated the Closing Date, to such effect and to the effect that each of the
conditions set forth in Section 7 has been fulfilled.
7.2 Purchase Permitted by Applicable Laws. The consummation of
the transactions contemplated hereby and by the Related Agreements shall not be
prohibited by or violate any law, governmental or self-regulatory rule or
regulation or similar constraint and shall not subject any party to any Tax,
penalty or liability, under or pursuant to any, applicable law or governmental
regulation, and shall not be enjoined (temporarily or permanently) under, or
prohibited by or contrary to, any injunction, order or decree. Without limiting
the generality of the foregoing, the consummation of the transactions
contemplated hereby and by the Related Agreements shall otherwise comply with
all applicable requirements of Federal and state securities laws.
7.3 No Material Adverse Changes. There shall not have occurred
any material adverse change in the condition (financial or otherwise), business,
results of operations, prospects, assets or properties of the Company.
7.4 No Material Judgment or Order. There shall not be any
judgment or order of a court of competent jurisdiction or any ruling of any
agency of the Federal or any state or local government or self-regulatory
organization which, in the judgment of the Purchaser, would prohibit the
delivery of the Securities or subject the Purchaser to any penalty if the
Securities were to be delivered hereunder.
7.5 Securities. The Company shall have duly authorized, executed
and delivered to the Purchaser the Securities in favor of the Purchaser.
7.6 Shareholders' Agreement. The Company, the Purchaser and
certain other holders of the Company's Common Stock shall have duly entered into
the Shareholders' Agreement in substantially the form attached as Exhibit C
hereto (the "Shareholders' Agreement").
-13-
<PAGE> 19
7.7 CRI Registration Rights Agreement. The Company, the Purchaser
and certain other holders of the Company's Common Stock shall have duly entered
into the Cruttenden Roth Incorporated Registration Rights Agreement in
substantially the form attached as Exhibit D hereto (the "CRI Registration
Rights Agreement").
7.8 Payment of Taxes. The Company shall have paid all Taxes due
and payable by the Company prior to the Closing, except such as are being
contested in good faith by appropriate proceedings (to the extent that any such
proceedings are required) and such Taxes as the failure to pay would not have a
Material Adverse Effect.
7.9 Escrow Instructions. The Company shall have duly authorized,
executed and delivered to SYC&R the Escrow Instructions.
7.10 Financial Statements. The Company shall have furnished to
the Purchaser a copy of the Company's audited financial statements as of and for
the fiscal year ended June 30, 1997, accompanied by a copy of an unqualified
audit report of the Company's independent certified public accounts and a copy
of the Company's unaudited financial statements as of and for the six-month
period ended December 31, 1997.
7.11 Third Party Consents. The Company shall have obtained from
third parties such material consents, approvals and authorizations which the
Company is required to obtain under the provisions of any agreement, contract or
undertaking to which the Company is a party or by which its assets and
properties are bound in order to consummate each of the transactions
contemplated by this Agreement and the Related Agreements, including, without
limitation, appropriate waivers of all lessors under real property leases and
consents of lessors under personal property leases, to the extent required.
8. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE SELLER. The
respective obligations of the Company and the Seller to consummate the
transactions contemplated hereby is subject to the satisfaction, prior to or at
the Closing, of the following conditions; provided, however, that any or all of
the following conditions may be waived, in whole or in part, by the Company in
its sole and absolute discretion:
8.1 Representations and Warranties. The representations and
warranties of the Purchaser contained in this Agreement shall be true in all
material respects at and as of the Closing Date after giving effect to the
transactions contemplated by this Agreement, as if made on and as of such date,
and the Purchaser shall have performed or satisfied all of its covenants and
agreements hereunder to be performed or satisfied on or prior to the Closing
Date.
8.2 Purchase Permitted by Applicable Laws. The consummation of
the transaction contemplated hereby shall not be prohibited by or violate any
law, governmental regulation or similar constraint and shall not subject any
party to any Tax, penalty or liability, under or pursuant to any applicable law
or governmental regulation, and shall not be enjoined (temporarily or
permanently) under, or prohibited by or contrary to, any injunction, order or
decree. Without limiting the generality of the foregoing, the consummation of
the transactions contemplated hereby shall otherwise comply with all applicable
requirements of Federal and state securities laws.
-14-
<PAGE> 20
8.3 No Material Judgment or Order. There shall not be any
judgment or order of a court of competent jurisdiction or any ruling of any
agency of the Federal or any state or local government or self-regulatory
organization which, in the reasonable judgment of the Company, would prohibit
the delivery of the Securities or subject the Company to any material penalty if
the Securities were to be delivered hereunder.
8.4 Third Party Consents. The Purchaser shall have obtained from
third parties such material consents, approvals and authorizations which the
Purchaser is required to obtain under the provisions of any agreement, contract
or undertaking to which the Purchaser is a party or by which its assets and
properties are bound in order to consummate each of the transactions
contemplated by this Agreement and the Related Agreements, including, without
limitation, appropriate waivers of all lessors under real property leases and
consents of lessors under personal property leases, to the extent required.
8.5 Fidelity Registration Rights Agreement. The Purchaser and the
Seller shall have duly entered into the Fidelity National Financial, Inc.
Registration Rights Agreement in substantially the form attached as Exhibit E
hereto (the "Fidelity Registration Rights Agreement").
8.6 Escrow Instructions. The Purchaser shall have duly
authorized, executed and delivered to SYC&R the Escrow Instructions.
9. TERMINATION.
9.1 Failure of Condition. If any of the conditions precedent to
the parties respective obligations hereunder is not met and is not waived on or
prior to the Closing Date, the Purchaser or the Company and the Seller, as the
case may be, at their respective options, without prejudice to any rights they
may have to recover damages for breach of this Agreement, may terminate this
Agreement by delivering written notice of termination to the other party.
9.2 Effect of Termination. Upon the termination of this Agreement
pursuant to this Section 9, all further obligations of the parties to this
Agreement and the other agreements contemplated hereby shall terminate without
further liability of any party to any other party hereto, provided that (i)
termination of this Agreement shall not relieve any party of any liability for a
breach of this Agreement or for any intentional misrepresentation or intentional
failure to comply with any agreement or covenant hereunder, and (ii) such
termination shall not be deemed a waiver of any available remedy for any such
breach, intentional misrepresentation or intentional failure to comply with any
agreement or covenant.
10. POST-CLOSING OBLIGATIONS.
10.1 Use of Proceeds. Seller covenants that, as soon as
practicable after the Closing and receipt of the Purchase Price, Seller shall
disburse or cause to be disbursed to the Company from the proceeds of the sale
of Securities hereunder the following amounts:
10.1.1 approximately $93,000, to discharge Seller's
obligations for principal and interest due on the Promissory Note dated January
30, 1996 issued by Seller in favor of the Company;
-15-
<PAGE> 21
10.1.2 approximately $205,000, to discharge Seller's
obligations for the unpaid balance of the amount due under the Subscription and
Security Agreement dated March 29, 1996; and
10.1.3 approximately $563,500, representing the aggregate
purchase price in connection with the exercise by Seller of his outstanding
options (the "Outstanding Options") to acquire 230,000 shares of the Company's
Common Stock, in accordance with the terms and conditions applicable thereto, at
the original exercise price of $2.63 for 200,000 of the Outstanding Options and
$1.25 for 30,000 of the Outstanding Options, plus an amount equal to the
withholding taxes due on the 200,000 Outstanding Options constituting
nonqualified options under the Internal Revenue Code. The Company represents
that the Outstanding Options shall be fully vested at the Closing Date and, upon
exercise of the Outstanding Options and payment therefor by Seller, the Company
shall issue shares of Common Stock underlying the Outstanding Options to Seller,
all of which shares shall be duly and validly issued, fully paid and
nonassessable shares, free and clear of any claims, mortgages, pledges, liens,
charges or other encumbrances caused or created by the Company.
10.2 Disclosure of Subsequent Events. Subsequent to the execution
and delivery of this Agreement and prior to the exercise in full of the Option,
the Company shall notify the Purchaser in writing in the event that that any of
the representations and warranties contained in this Agreement or made in
connection herewith is no longer accurate or complete as a result of a new fact
or changed circumstance.
11. MISCELLANEOUS.
11.1 Indemnification. Each party hereto (the "Indemnifying Party"
herein) agrees to defend (with counsel reasonably satisfactory to such party),
protect, indemnify and hold harmless the other party, each affiliate or
subsidiary of such other party, and each of its respective officers, directors,
employees, attorneys and agents (each an "Indemnified Party" herein) from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, expenses and disbursements of any kind
or nature (including, without limitation, the disbursements and the reasonable
fees of counsel for each Indemnified Party in connection with any investigative,
administrative or judicial proceeding, whether or not the Indemnified Party
shall be designated a party thereto), which may be imposed on, incurred by, or
asserted against, any Indemnified Party (whether direct, indirect or
consequential and whether based on any federal, state or local laws or
regulations including, without limitation, securities, environmental and
commercial laws and regulations, under common law or in equity, or based on
contract or otherwise) in any manner relating to or arising out of this
Agreement, the Related Agreements, or any other agreement, act, event or
transaction related or attendant hereto or thereto; provided, however, that the
Indemnifying Party shall have no obligation hereunder to any Indemnified Party
with respect to matters caused by or resulting from the willful misconduct or
gross negligence of such Indemnified Party. To the extent that the undertaking
to indemnify set forth in the preceding sentence may be unenforceable because it
is violative of any law or public policy, the Indemnifying Party shall satisfy
such undertaking to the maximum extent permitted by applicable law. Any
liability, obligation, loss, damage, penalty, cost or expense covered by this
indemnity shall be paid to each Indemnified Party on demand, and, failing prompt
payment, shall accrue interest thereon from the date incurred by each
Indemnified Party until paid. The provisions of this Section 11.1 shall survive
the satisfaction of the other obligations herein and the termination of this
Agreement.
-16-
<PAGE> 22
11.2 Attorneys' Fees. In the event of any litigation between the
parties hereto arising out of or relating to this Agreement, or the breach
thereof, the prevailing party shall be entitled to recover from the other party,
in addition to whatever other remedies such prevailing party may be entitled,
reasonable attorneys' fees, expenses and costs.
11.3 Entire Agreement. Except as otherwise set forth herein, this
Agreement embodies the entire agreement and understanding of the parties hereto
with respect to the subject matter contained herein. There are no restrictions,
promises, warranties, covenants, or undertakings, other than those expressly set
forth or referred to herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
11.4 Headings. The subject headings of the sections and
subsections of this Agreement are included for purposes of convenience only and
shall not affect the construction or interpretation of any of its provisions.
11.5 Successors and Assigns. All covenants and agreements
contained in this Agreement by or on behalf of any of the parties hereto will
bind and inure to the benefit of the respective successors and assigns of the
parties hereto whether so expressed or not.
11.6 Parties in Interest. Nothing in this Agreement is intended
to confer any rights or remedies under or by reason of this Agreement on any
persons other than the parties to it and their respective successors and
permitted assigns. Nothing in this Agreement is intended to relieve or discharge
the obligation or liability of any third persons into any party to this
Agreement. No provision of this Agreement shall give any third person any right
of subrogation or action over or against any party to this Agreement.
11.7 Amendments, Waivers and Consents. This Agreement shall not
be amended except in a writing signed by the parties hereto. No waiver or
consent shall be binding except in a writing signed by the party making the
waiver or giving the consent. No waiver of any provision or consent of any
action shall constitute a waiver of any other provision or consent of any other
action, whether or not similar. No waiver or consent shall constitute a
continuing waiver or consent except to the extent specifically set forth in
writing.
11.8 Notice. Any notice, instruction or communication required or
permitted to be given under this Agreement to any party shall be in writing
(which may include telex, telegram, telecopier or other similar form of
reproduction) and shall be deemed given when actually received by the applicable
party at the addresses indicated below:
If to the Company:
Cruttenden Roth Incorporated
18301 Von Karman, Suite 100
Irvine, California 92715
Attention: Byron C. Roth, President
Telecopy: (714) 852-9719
-17-
<PAGE> 23
with a copy to:
Stradling Yocca Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, California 92660-6441
Attention: Nick E. Yocca, Esq.
Telecopy: (714) 725-4100
If to the Seller:
Walter W. Cruttenden III
3 Bodega Bay Drive
Corona Del Mar, California 92625
with a copy to:
David L. Keligian, Esq.
The Busch Firm
2532 Dupont Drive
Irvine, California 92612
Telecopy: (714) 474-7732
If to the Purchaser:
Fidelity National Financial, Inc.
3916 State Street, Suite 300
Santa Barbara, California 93105
Attention: Andrew F. Puzder,
Executive Vice President
Telecopy: (805) 898-7149
with a copy to:
Stradling Yocca Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, California 92660-6441
Attention: C. Craig Carlson, Esq.
Telecopy: (714) 725-4100
A party may change his or its address for purposes of this
section by giving the other party written notice of the new address in the
manner set forth above.
11.9 Transaction Fees and Expenses. Except as stated herein, each
party hereto agrees to pay its own costs and expenses in connection with the
preparation, execution and delivery of this Agreement and the transactions
contemplated hereby. Notwithstanding the foregoing, the Company will pay
directly (in accordance with statements delivered on or prior to the Closing by
third party service providers who have represented the Sellers in connection
with this transaction) or reimburse the Sellers upon demand for all
out-of-pocket costs and expenses (including fees and expenses of counsel) in
connection with the preparation, execution and delivery of this Agreement and
-18-
<PAGE> 24
the consummation of the transactions contemplated hereby; provided that, the
amounts paid and reimbursed shall not, in the aggregate, exceed $5,000.
11.10 Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
11.11 Counterparts. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
11.12 Waiver of Jury Trial. BECAUSE DISPUTES ARISING IN
CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY
RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE
STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES
DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS.
THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL
SYSTEM AND OF ARBITRATION AND UNDERSTANDING THEY ARE WAIVING A CONSTITUTIONAL
RIGHT, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT,
OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER IN CONTRACT, TORT OR
OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO, THIS
AGREEMENT, THE SECURITIES AND/OR ANY RELATED AGREEMENT OR THE TRANSACTIONS
COMPLETED HEREBY OR THEREBY.
-19-
<PAGE> 25
IN WITNESS WHEREOF, the parties to this Agreement have duly executed it
on the day and year first above written.
"SELLER"
/s/ Walter W. Cruttenden III
-------------------------------------------
Walter W. Cruttenden III
"COMPANY"
CRUTTENDEN ROTH, INCORPORATED,
a California corporation
By: /s/ Byron C. Roth
--------------------------------------
Byron C. Roth, President
"PURCHASER"
FIDELITY NATIONAL FINANCIAL, INC.
a Delaware corporation
By: /s/ Andrew F. Puzder
--------------------------------------
Andrew F. Puzder,
Executive Vice President
-20-
<PAGE> 1
EXHIBIT 10.57
AGREEMENT AND PLAN OF REORGANIZATION
dated as of
May 14, 1998
among
MICRO GENERAL CORPORATION,
ACS MERGER, INC.,
ACS SYSTEMS, INC.
and
FIDELITY NATIONAL FINANCIAL, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
ARTICLE I
THE MERGER
<S> <C> <C>
1.1 The Merger...........................................................................1
1.2 Closing..............................................................................1
1.3 Effective Time of the Merger.........................................................2
1.4 Effects of the Merger................................................................2
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS
2.1 Conversion of Shares.................................................................2
2.2 Surrender and Payment................................................................2
ARTICLE III
THE SURVIVING CORPORATION
3.1 Articles of Incorporation............................................................3
3.2 Bylaws...............................................................................3
3.3 Directors; Officers..................................................................3
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of the Company........................................3
(a) Organization, Standing and Corporate Power.............................3
(b) Subsidiaries...........................................................3
(c) Capital Structure......................................................3
(d) Authority; Noncontravention............................................4
(e) SEC Documents; Financial Statements; No Undisclosed Liabilities........4
(f) Licenses, Approvals, etc...............................................5
(g) Absence of Certain Changes or Events...................................5
(h) Litigation.............................................................5
(i) Regulatory Matters; Compliance with Laws...............................5
(j) Taxes..................................................................6
(k) Contracts; Debt Instruments............................................6
(l) Proprietary Rights.....................................................7
(m) Insurance..............................................................7
(n) Brokers................................................................8
(o) Disclosure.............................................................8
4.2 Representations and Warranties of Parent and Merger Subsidiary.......................8
</TABLE>
-i-
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C>
(a) Organization, Standing and Corporate Power.............................8
(b) Authority; Noncontravention............................................8
(c) SEC Documents; Financial Statements; No Undisclosed Liabilities........9
(d) Brokers...............................................................10
(e) Insurance.............................................................10
(f) Licenses, Approvals, etc..............................................10
(g) Proprietary Rights....................................................10
(h) Disclosure............................................................11
ARTICLE V
COVENANTS OF THE COMPANY
5.1 Conduct of Business.................................................................11
5.2 Access to Information...............................................................12
5.3 Pooling of Interests; Tax Treatment.................................................12
5.4 Confidentiality.....................................................................12
ARTICLE VI
COVENANTS OF PARENT
6.1 Confidentiality.....................................................................13
6.2 Obligations of Merger Subsidiary....................................................13
6.3 Access to Information...............................................................13
6.4 Tax Treatment.......................................................................14
6.5 Securities Reports..................................................................14
6.6 Implement Employee Benefits.........................................................14
ARTICLE VII
COVENANTS OF PARENT AND THE COMPANY
7.1 Regulatory Applications; Reasonable Efforts; Notification...........................14
7.2 Press Releases......................................................................15
7.3 Due Diligence.......................................................................15
7.4 Indemnification.....................................................................16
(a) Indemnification of Parent.............................................16
(b) Limitations...........................................................16
(c) Indemnification of Fidelity...........................................16
(d) Claims Procedure......................................................16
</TABLE>
-ii-
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE VIII
CONDITIONS TO THE MERGER
8.1 Conditions to the Obligations of Each Party.........................................17
8.2 Conditions to the Obligations of Parent and Merger Subsidiary.......................18
8.3 Conditions to the Obligations of the Company........................................18
ARTICLE IX
CONDITIONS FOLLOWING THE CLOSING
9.1 Increase Stock Option Plan..........................................................19
9.2 Fidelity Financing..................................................................20
ARTICLE X
TERMINATION
10.1 Termination.........................................................................20
10.2 Effect of Termination...............................................................20
ARTICLE XI
MISCELLANEOUS
11.1 Notices.............................................................................21
11.2 Survival of Representations and Warranties..........................................22
11.3 Amendments; No Waivers..............................................................22
11.4 Fees and Expenses...................................................................22
11.5 Successors and Assigns; Parties in Interest.........................................22
11.6 Severability........................................................................22
11.7 Governing Law.......................................................................23
11.8 Entire Agreement....................................................................23
11.9 Counterparts; Effectiveness; Interpretation.........................................23
11.10 Effect of Disclosure Schedule.......................................................23
</TABLE>
-iii-
<PAGE> 5
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement"), is entered
into as of May 14, 1998, among ACS SYSTEMS, INC., a California corporation (the
"Company"), MICRO GENERAL CORPORATION, a Delaware corporation ("Parent"), ACS
MERGER, INC., a Delaware corporation and a wholly-owned subsidiary of Parent
("Merger Subsidiary") and FIDELITY NATIONAL FINANCIAL, INC., a Delaware
corporation and the indirect parent corporation of the Company ("Fidelity").
WHEREAS, the respective Boards of Directors of Parent, Merger
Subsidiary, the Company and Fidelity have approved the merger of Merger
Subsidiary into the Company as set forth below (the "Merger"), upon the terms
and subject to the conditions set forth in this Agreement and the California
General Corporation Law (the "CGCL"), whereby each issued and outstanding share
of common stock, no par value, of the Company (the "Shares"), all of which
Shares are held by Fidelity, shall be converted into the Merger Consideration
(as defined herein);
WHEREAS, the Board of Directors of Parent has unanimously (i)
determined that this Agreement and the transactions contemplated hereby,
including the Merger, are fair to and in the best interests of the stockholders
of Parent and (ii) approved this Agreement and the transactions contemplated
hereby, including the Merger;
WHEREAS, it is intended that the Merger be (i) treated as a tax-free
reorganization pursuant to the provisions of Section 368(a)(1) of the Internal
Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, Parent, Merger Subsidiary, the Company and Fidelity desire to
make certain representations, warranties, covenants and agreements in connection
with the Merger and also to prescribe various conditions to consummation
thereof.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises, representations, warranties, covenants and agreements herein
contained, the parties hereto, intending to be legally bound, hereby agree as
follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions set forth
in this Agreement, and in accordance with the CGCL, Merger Subsidiary shall be
merged with and into the Company at the Effective Time (as defined herein). At
the Effective Time, (i) the separate corporate existence of Merger Subsidiary
shall cease, and (ii) the Company shall continue as the surviving corporation as
a direct wholly-owned subsidiary of Parent (Merger Subsidiary and the Company
are sometimes hereinafter referred to as "Constituent Corporations" and, as the
context requires, the Company, after giving effect to the Merger, is sometimes
hereinafter referred to as the "Surviving Corporation").
<PAGE> 6
1.2 Closing. The closing of the Merger (the "Closing") shall take place
as soon as practicable, but in any case on or prior to the third business day
after which all of the conditions set forth in Article VIII hereof shall be
fulfilled or waived in accordance with this Agreement (the "Closing Date"). At
the time of the Closing, the Company and Merger Subsidiary will file an
agreement of merger and required officers certificates with the Secretary of
State of the State of California (the "Agreement of Merger") and make all other
filings or recordings required by the CGCL in connection with the Merger.
1.3 Effective Time of the Merger. The Merger shall, subject to the
CGCL, become effective as of such time as the Agreement of Merger is duly filed
with the Secretary of State of the State of California or at such later time as
is specified in the Agreement of Merger (the "Effective Time").
1.4 Effects of the Merger. From and after the Effective Time, the
Surviving Corporation shall possess all the rights, privileges, powers and
franchises and be subject to all of the restrictions, disabilities, duties and
liabilities of the Company and Merger Subsidiary, all as provided under the
CGCL.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL
STOCK OF THE CONSTITUENT CORPORATIONS
2.1 Conversion of Shares. At the Effective Time, by virtue of the
Merger and without any action on the part of Fidelity or Parent:
(a) each share of common stock of Merger Subsidiary outstanding
immediately prior to the Effective Time shall be converted into and become one
fully paid and nonassessable share of common stock of the Surviving Corporation
and such share shall constitute the only outstanding shares of capital stock of
the Surviving Corporation; and
(b) all Shares outstanding immediately prior to the Effective
Time shall be converted into the right to receive an aggregate of 4,600,000
shares of Parent's common stock, par value $.05 per share, (the "Parent Common
Stock"), without interest (the "Merger Consideration"). The parties hereby
expressly agree that the aggregate Merger Consideration is valued at $6,900,000
and the number of shares of Parent Common Stock to be converted in accordance
with this Section 2.1(b) is calculated by dividing such aggregate value by $1.50
per share. The parties hereby further expressly agree that the Closing is
subject to the satisfaction of all closing conditions set forth in Article VIII
hereof including, without limitation, the delivery of each of the Fairness
Opinions (as defined in Article VIII below).
2.2 Closing; Surrender and Delivery. On the day of the Closing, the
Company shall surrender to Parent a certificate representing the Shares in
exchange for delivery by Parent to the Company of the Merger Consideration. The
Closing shall take place at a time mutually agreed upon by the Company and
Parent, and shall be located at the offices of Stradling Yocca Carlson & Rauth,
660 Newport Center Drive, Suite 1600, Newport Beach, California, 92660, or such
other location as the Company and Parent shall mutually agree upon prior to the
Closing.
-2-
<PAGE> 7
ARTICLE III
THE SURVIVING CORPORATION
3.1 Articles of Incorporation. The Articles of Incorporation of the
Company in effect at the Effective Time shall be the Articles of Incorporation
of the Surviving Corporation until amended in accordance with applicable law.
3.2 Bylaws. The Bylaws of the Company in effect at the Effective Time
shall be the Bylaws of the Surviving Corporation until amended in accordance
with applicable law.
3.3 Directors; Officers. Upon the Effective Time, the Board of
Directors of the Surviving Corporation shall consist of two (2) members, and the
initial directors of the Surviving Corporation shall, until successors are duly
elected and qualified in accordance with applicable law, include the following
individuals: William P. Foley, II and Carl A Strunk.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of the Company. The Company and
Fidelity represent and warrant to Parent and Merger Subsidiary, subject to the
exceptions and qualifications set forth in the disclosure schedule ("Disclosure
Schedule") attached hereto, as follows (whenever the representations or
warranties of the Company and Fidelity are qualified by the knowledge of the
Company and Fidelity, knowledge shall mean knowledge of the executive officers
of the Company and Fidelity):
(a) Organization, Standing and Corporate Power. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of California and has the requisite corporate power and
authority to carry on its business as now being conducted. The Company is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or licensing necessary, other than in
such jurisdictions where the failure to be so qualified or licensed
(individually or in the aggregate) could not reasonably be expected to (i) have
a material adverse effect on the value, condition (financial or otherwise),
prospects, business, or results of operations of the Company as a whole, (ii)
impair the ability of any party hereto to perform its obligations under this
Agreement or (iii) prevent or materially delay consummation of any of the
transactions contemplated by this Agreement (a "Material Adverse Effect"). The
Company will deliver to Parent with the Disclosure Schedule complete and correct
copies of its Articles of Incorporation and Bylaws.
(b) Subsidiaries. The Company does not own, directly or
indirectly, any capital stock or other equity interest in any other Corporation,
joint venture, partnership, limited liability company or other entity or person.
(c) Capital Structure. The authorized capital stock of the
Company consists of 300,000 Shares of Common Stock, no par value per share. As
of the date of this Agreement, (i) 3,000 Shares of Common Stock were issued and
outstanding and (ii) no Shares were held by the
-3-
<PAGE> 8
Company. Except as set forth above, no shares of capital stock or other equity
or voting securities of the Company are issued, reserved for issuance or
outstanding. All outstanding shares of capital stock of the Company are, and all
Shares which may be issued pursuant to the Company Options (as defined below)
will, when issued, be duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights. There are no bonds,
debentures, notes or other indebtedness or securities of the Company having the
right to vote (or convertible into, or exchangeable for, securities having the
right to vote) on any matters on which stockholders of the Company may vote.
There are no securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which the Company is a
party or by which the Company is bound obligating it to issue, deliver or sell,
or cause to be issued, delivered or sold, additional shares of capital stock or
other equity or voting securities of the Company or obligating the Company to
issue, grant, extend or enter into any such security, option, warrant, call,
right, commitment, agreement, arrangement or undertaking.
(d) Authority; Noncontravention. The Company has the requisite
corporate power and authority to enter into this Agreement required in
connection with the consummation of the Merger, to consummate the transactions
contemplated by this Agreement. The execution and delivery of this Agreement by
the Company and the consummation by the Company of the transactions contemplated
by this Agreement have been duly authorized by all necessary corporate action on
the part of the Company. This Agreement has been duly executed and delivered by
the Company and constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms. The execution and
delivery of this Agreement does not, and the consummation of the transactions
contemplated by this Agreement and compliance with the provisions of this
Agreement will not, conflict with, or result in any violation of, or default
under, or give rise to a right of termination, cancellation of any obligation or
to a loss of a material benefit under, (i) the Articles of Incorporation or
Bylaws of the Company, (ii) except as disclosed in Section 4.1(d) of the
Disclosure Schedule, any loan or credit agreement, note, instrument of debt,
lien, lease or any other contract, agreement, instrument, permit or license
applicable to the Company or its respective properties or assets, except for
conflicts, violations, or defaults individually or in the aggregate which would
not have a Material Adverse Effect, or (iii) subject to the governmental filings
and other matters referred to in the following sentence, any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to the Company or
its properties or assets. No consent, approval, order, license, permit, waiver
or authorization of, or registration, declaration or filing with or exemption,
notice, certification or application by or to (collectively, "Consents") any
federal, state or local government or any arbitrable panel or any court,
administrative or regulatory agency or other governmental authority (a
"Governmental Entity"), is required by or with respect to the Company in
connection with the execution and delivery of this Agreement by the Company or
the consummation by the Company of the transactions contemplated by this
Agreement, except for (A) the required consents listed on Section 4.1(d) of the
Disclosure Schedule, (B) the filing of the Agreement of Merger in accordance
with the CGCL and similar documents with the relevant authorities of other
states in which the Company is qualified to do business, and (C) such other
Consents as to which the failure to obtain or make, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
(e) Financial Statements; No Undisclosed Liabilities. The
Company's audited balance sheets as of December 31, 1997 and December 31, 1996
and the Company's audited statements of income, cash flow and shareholders'
equity for the periods then ended which are
-4-
<PAGE> 9
attached to Section 4.1(e) of the Disclosure Schedule, have been prepared in
accordance with United States generally accepted accounting principles applied
on a consistent basis throughout the periods involved ("GAAP") (except as may be
indicated in the notes thereto) and fairly present the consolidated financial
position of the Company as of the dates thereof and the results of its
operations and cash flow for the periods then ended. Except as set forth in
Section 4.1(e) of the Disclosure Schedule, the Company has no liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise),
except for liabilities and obligations which, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect.
(f) Licenses, Approvals, etc. The Company possesses or has been
granted all registrations, filings, applications, certifications, notices,
consents, licenses, permits, approvals, certificates, franchises, orders,
qualifications, authorizations and waivers of any Governmental Entity (federal,
state and local) necessary to entitle it to conduct its business in the manner
in which it is presently being conducted (the "Licenses"), except for Licenses
as to which the failure to possess, individually or in the aggregate, would not
have a Material Adverse Effect. Except as described in Section 4.1(f) of the
Disclosure Schedule, no Action (as defined herein) is pending or, to the
knowledge of the Company, threatened seeking the revocation or limitation of any
of the Licenses.
(g) Absence of Certain Changes or Events. Except as contemplated
by this Agreement or disclosed in Section 4.1(g) of the Disclosure Schedule,
since March 31, 1998, the Company has conducted its business only in the
ordinary course consistent with past practice, and there has not been (i) any
event, occurrence or development which, individually or in the aggregate, has
had or could reasonably be expected to have a Material Adverse Effect, (ii) any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to any of the Company's
capital stock or any repurchase, redemption or other acquisition by the Company
of any outstanding shares of capital stock or other securities of the Company,
(iii) any damage, destruction or loss, whether or not covered by insurance, that
has had or could have a Material Adverse Effect, (iv) any amendment, waiver or
modification of any material term of any outstanding security of the Company,
(v) any incurrence, assumption or guarantee by the Company of any material
indebtedness for borrowed money or other material obligations, other than in the
ordinary course of business consistent with past practice, (vi) any creation or
assumption by the Company of any lien on any asset, other than in the ordinary
course of business consistent with past practice, or (vii) any making of any
lease, loan, advance or capital contributions to or investment in any person
other than in the ordinary course of business consistent with past practice and
other than investments in cash equivalents made in the ordinary course of
business consistent with past practice.
(h) Litigation. Except as disclosed in Section 4.1(h) of the
Disclosure Schedule, there are no Actions or proceedings pending or, to the
knowledge of the Company, threatened against the Company which, if determined
adversely, would have a Material Adverse Effect.
(i) Regulatory Matters; Compliance with Laws. Neither the Company
nor any of its properties is a party to or is subject to any order, decree,
agreement, memorandum of understanding or similar arrangement with, or a
commitment letter or similar submission to, or extraordinary supervisory letter
from, any Governmental Entity. The conduct by the Company of its business is and
has been in compliance with all applicable federal, state, local and foreign
statutes,
-5-
<PAGE> 10
laws, regulations, ordinances, rules, and judgments, orders or decrees, except
for violations or failures to so comply, if any, that, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
(j) Taxes. For purposes of this Agreement, (A) the term "Returns"
shall mean all returns, declarations, reports, statements, and other documents
required to be filed with respect to federal, state, local and foreign Taxes (as
defined below) or for information purposes, and the term "Return" means any one
of the foregoing Returns, and (B) the term "Taxes" shall mean all federal,
state, local and foreign net income, gross income, gross receipts, sales, use,
ad valorem, transfer, franchise, profits, license, lease, service, service use,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property, windfall profits, customs, duties, or other taxes, together with any
interest and any penalties, additions to tax, or additional amounts with respect
thereto, and the term "Tax" means any one of the foregoing Taxes.
(i) The Company does not file individual Returns. All of
its properties, income and operations are aggregated with Fidelity for tax
purposes. Except as set forth in Section 4.1(j)(i) of the Disclosure Schedule,
all federal, state, local and foreign Returns which were required to be filed
with respect to the Company or any of its properties, income and/or operations
were duly prepared and filed by Fidelity. As of the time they were filed, such
Returns accurately reflected the material facts regarding the income, business,
assets, operations, activities and status of the Company, and any other
information required to be shown thereon.
(ii) Except as disclosed in Section 4.1(j)(ii) of the
Disclosure Schedule, with respect to all amounts in respect of Taxes imposed on
the Company or for which the Company is or could be liable, whether to taxing
authorities or to other Persons, all amounts required to be paid by or on behalf
of the Company to taxing authorities or others have been paid.
(iii) Except as disclosed in Section 4.1(j)(iii) of the
Disclosure Schedule, there is no review or audit by any taxing authority of any
Tax liability of the Company currently in progress. Except as disclosed in
Section 4.1(j)(iii) of the Disclosure Schedule, the Company has not received any
written notice of any pending or threatened audit by the Internal Revenue
Service or any state, local or foreign agency of any Returns or Tax liability of
the Company for any period. The Company currently has no unpaid deficiencies
assessed by the Internal Revenue Service or any state, local or foreign taxing
authority arising out of any examination of any of the Returns of the Company,
nor, to the knowledge of the Company, is there reason to believe that any
material deficiency will be assessed.
(k) Contracts; Debt Instruments.
(i) Except as otherwise disclosed in Section 4.1(k)(i) of
the Disclosure Schedule or otherwise disclosed to Parent during the Disclosure
Period, the Company is not a party to or subject to:
(A) any collective bargaining or other agreements with
labor unions, trade unions, employee representatives, work committees,
guilds or associations representing employees of the Company;
-6-
<PAGE> 11
(B) any employment, consulting, severance, termination,
or indemnification agreement, contract or arrangement, including any
oral agreement, contract or arrangement which requires the payment of
over $25,000, with any current or former officer, consultant, director
or employee;
(C) except as imposed by applicable regulators, any
agreement, contract, policy, License, document, instrument, arrangement
or commitment that materially limits the freedom of the Company to
compete in any line of business or with any person or in any geographic
area or which would so materially limit the freedom of the Company
after the Effective Time, or by virtue of the transaction contemplated
by this Agreement, Parent, Merger Subsidiary or any of their
subsidiaries after the Effective Time; or
(D) any agreement or contract relating to any
outstanding commitment for capital expenditures, or any partially or
fully executory agreement or contract relating to the acquisition or
disposition of rights or assets other than those entered into in the
ordinary course consistent with past practices.
(ii) Neither the Company nor, to the knowledge of the
Company, any of the other parties to any of the contracts and agreements
identified in Section 4.1(k)(i) of the Disclosure Schedule is in default under
or has terminated any such contract or agreement, or in any way expressed to the
Company an intent to materially reduce or terminate the amount of its business
with the Company in the future.
(l) Proprietary Rights.
(i) "Company Proprietary Rights" shall be defined as all
copyrights, copyright registrations, copyrights applications, trade and division
or other names used in the operation of the Company, and all other material
intellectual properties derived from or used in the conduct of operations of the
Company; and permits, licenses or other agreements to or from third parties
regarding the foregoing or that are related to the Company's products or
business.
(ii) All of the Company Proprietary Rights are listed in
Schedule 4.1(l). Except as disclosed therein, the Company owns and possesses all
right, title and interest in the Company Proprietary Rights. The Company has
taken all necessary action to protect the Company Proprietary Rights and the
transactions contemplated by this Agreement will have no Material Adverse
Effect.
(iii) No claim by any third party contesting the validity,
enforceability, use or ownership of any Company Proprietary Right has been made,
is currently pending or, to the best knowledge of Fidelity and the Company, is
threatened. The Company has not received any notice of, nor is it aware of any
fact which indicates a likelihood of any infringement or misappropriation by any
third party with respect to any of the Company Proprietary Rights. The Company
has not infringed or misappropriated any rights of any third parties, nor is it
aware of any infringement or misappropriation which will occur as a result of
the continued operation of the Company as now conducted.
-7-
<PAGE> 12
(m) Insurance. The Company is covered by valid and currently
effective insurance policies that are customary for companies of similar size
and financial condition which conduct similar businesses. All such policies are
in full force and effect, all premiums due thereon have been paid and the
Company has complied with the provisions of such policies. The Company has not
received any written notice from or on behalf of any insurance carrier issuing
policies or binders relating to or covering the Company that there will be a
cancellation or non-renewal of existing policies or binders, or material
modification of any of the methods of doing business, will be required.
(n) Brokers. No broker, investment banker, financial advisor or
other person is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of the Company.
(o) Disclosure. The representations and warranties of the Company
contained in this Agreement are true and correct in all material respects and do
not omit any material fact necessary to make the statements contained therein,
in light of the circumstances under which they were made, not misleading. There
is no fact known to the Company which has not been disclosed to Parent in the
Disclosure Schedule which, if taken as a whole, has had, or would reasonably be
expected to have, a Material Adverse Effect.
(p) Title to the Shares. Fidelity is, and at the Closing will be,
the sole owner, beneficially and of record, of the Shares. The Shares are and
will be transferred free and clear of all liens, claims, encumbrances, security
interests, pledges, equities, options, charges, restrictions and defects in
title of any nature whatsoever, other than restrictions imposed by federal and
applicable state securities laws which do not constitute an impediment to the
transactions described in this Agreement.
4.2 Representations and Warranties of Parent and Merger Subsidiary.
Parent and Merger Subsidiary represent and warrant to Fidelity subject to the
exceptions and qualifications set forth in the disclosure schedule attached
hereto (the "Parent Disclosure Schedule") as follows (whenever the
representations or warranties of Parent and Merger Subsidiary are qualified by
the knowledge of Parent and Merger Subsidiary, knowledge shall mean knowledge of
the executive officers of Parent and Merger Subsidiary):
(a) Organization, Standing and Corporate Power. Each of Parent
and Merger Subsidiary is a corporation duly organized, validly existing and in
good standing under the laws of its respective state of incorporation and has
the requisite corporate power and authority to carry on its business as now
being conducted. Each of the Parent and its subsidiaries is duly qualified or
licensed to do business and is in good standing in each jurisdiction in which
the nature of its business or the ownership or leasing of its properties makes
such qualification or licensing necessary, other than in such jurisdictions
where the failure to be so qualified or licensed (individually or in the
aggregate) could not reasonably be expected to have a material adverse effect on
the value, condition (financial or otherwise), prospects, business, or results
of operations of the Parent and its subsidiaries as a whole, (ii) impair the
ability of any party hereto to perform its obligations under this Agreement or
(iii) prevent or materially delay consummation of any of he transactions
contemplated by this Agreement (a "Parent Material Adverse Effect"). Parent will
deliver to the Company with the Parent
-8-
<PAGE> 13
Disclosure Schedule complete and correct copies of the Certificate of
Incorporation and Bylaws of Parent and Merger Subsidiary, as amended to the date
of this Agreement.
(b) Authority; Noncontravention. Parent and Merger Subsidiary
have all requisite corporate power and authority to enter into this Agreement
and to consummate the transactions contemplated by this Agreement. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate action on the part of Parent and Merger Subsidiary. This Agreement has
been duly executed and delivered by Parent and Merger Subsidiary and constitutes
a valid and binding obligation of such party, enforceable against such party in
accordance with its terms. The execution and delivery of this Agreement do not,
and the consummation of the transactions contemplated by this Agreement and
compliance with the provisions of this Agreement will not, conflict with, or
result in any violation of, or default under, or give rise to a right of
termination, cancellation, modification or acceleration of any obligation or to
a loss of a material benefit under, (i) the Certificate of Incorporation or
Bylaws of Parent or Merger Subsidiary, (ii) except as disclosed in Section
4.2(b) of the Parent's Disclosure Schedule, any loan or credit agreement, note,
instrument of debt, lien, lease or any other contract, agreement, instrument,
permit or license applicable to Parent or Merger Subsidiary or their respective
properties or assets or (iii) subject to the governmental filings and other
matters referred to in the following sentence, any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Parent, Merger
Subsidiary or any other subsidiary of Parent or their respective properties or
assets, other than, in the case of clause (ii) or (iii), any such conflicts,
violations, defaults, rights, losses or liens that individually or in the
aggregate would not impair the ability of Parent and Merger Subsidiary to
perform their respective obligations under this Agreement or prevent the
consummation of any of the transactions contemplated by this Agreement (a
"Parent Material Adverse Effect"). Other than those Consents referred to in the
Disclosure Schedule on the part of the Company, no Consent of any Governmental
Entity is required by or with respect to Parent, Merger Subsidiary or any other
subsidiary of Parent in connection with the execution and delivery of this
Agreement or the consummation by Parent or Merger Subsidiary, as the case may
be, of any of the transactions contemplated by this Agreement, except for (i)
the consents disclosed in Section 4.2(b) of the Parent Disclosure Schedule, (ii)
the filing of the Agreement of Merger in accordance with the CGCL and similar
documents with the relevant authorities of other states in which the Company is
qualified to do business, (iii) compliance with applicable requirements of the
Securities Act of 1933, as amended, and the rules and regulations thereunder
(the "Securities Act"), and applicable state blue sky laws and (iv) such other
Consents as to which the failure to obtain or make, individually or in the
aggregate, could not reasonably be expected to have a Parent Material Adverse
Effect.
(c) SEC Documents; Financial Statements; No Undisclosed
Liabilities. Parent has provided or made available to the Company true and
correct copies of all reports, schedules, forms, statements, exhibits and other
documents filed with the Securities and Exchange Commission (the "SEC") by
Parent under or pursuant to the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder (the "Exchange Act") since January 1, 1996
(the "Parent SEC Documents"), all of which were timely filed with the SEC. As of
their respective dates, or as subsequently amended prior to the date of this
Agreement, the Parent SEC Documents complied in all material respects with the
requirements of the Exchange Act applicable to such Parent SEC Documents, and
none of the Parent SEC Documents contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the
-9-
<PAGE> 14
statements therein, in light of the circumstances under which they were made,
not misleading. The Parent SEC Documents include all contracts and other
documents which are required by the Securities Act or the Exchange Act to be
filed as exhibits thereto. The financial statements of the Parent included in
the Parent SEC Documents comply in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with GAAP (except as may be
indicated in the notes thereto) and fairly present the consolidated financial
position of the Parent and its consolidated subsidiaries as of the dates thereof
and the consolidated results of their operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal year-end
audit adjustments). Except as set forth in the Parent SEC Documents, neither the
Parent nor any of its subsidiaries has any liabilities or obligations of any
nature (whether accrued, absolute, contingent or otherwise), except for
liabilities and obligations which, individually or in the aggregate, could not
reasonably be expected to have a Parent Material Adverse Effect.
(d) Brokers. No broker, investment banker, financial advisor or
other person is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of the Parent or any
of its subsidiaries.
(e) Insurance. The Parent and its subsidiaries are covered by
valid and currently effective insurance policies in favor of the Parent that are
customary for companies of similar size and financial condition which conduct
similar businesses. All such policies are in full force and effect, all premiums
due thereon have been paid and the Parent has complied with the provisions of
such policies with respect to which the failure to comply with would result in a
cancellation of such policies. The Parent has not received any written notice
from or on behalf of any insurance carrier issuing policies or binders relating
to or covering the Parent and its subsidiaries that there will be a cancellation
or non-renewal of existing policies or binders, or material modification of any
of the methods of doing business, will be required.
(f) Licenses, Approvals, etc. Each of the Parent and its
subsidiaries possesses or has been granted all Licenses, except for Licenses as
to which the failure to possess, individually or in the aggregate, would not
have a Parent Material Adverse Effect. Except as described in Section 4.2(f) of
the Parent Disclosure Schedule, no Action (as defined herein) is pending or, to
the knowledge of the Company, threatened seeking the revocation or limitation of
any of the Licenses.
(g) Proprietary Rights.
(i) "Parent Proprietary Rights" shall be defined as all
patents, patent registrations, patent applications, copyrights, copyright
registrations, copyrights applications, trade and division or other names used
in the operation of Parent, and all other material intellectual properties
derived from or used in the conduct of operations of Parent; and permits,
licenses or other agreements to or from third parties regarding the foregoing or
that are related to Parent's products or business.
(ii) All of the Parent Proprietary Rights are listed in
Schedule 4.2(g). Except as disclosed therein, Parent owns and possesses all
right, title and interest in the Parent Proprietary Rights. Parent has taken all
necessary action to protect the Parent Proprietary Rights
-10-
<PAGE> 15
and the transactions contemplated by this Agreement will have no Parent Material
Adverse Effect on Parent's right, title and interest in the Parent Proprietary
Rights.
(iii) No claim by any third party contesting the validity,
enforceability, use or ownership of any Parent Proprietary Right has been made,
is currently pending or, to the best knowledge of Parent, is threatened. Parent
has not received any notice of, nor is it aware of any fact which indicates a
likelihood of any infringement or misappropriation by any third party with
respect to any of the Parent Proprietary Rights. Parent has not infringed or
misappropriated any rights of any third parties, nor is it aware of any
infringement or misappropriation which will occur as a result of the continued
operation of Parent as now conducted.
(h) Disclosure. The representations and warranties of the Parent
contained in this Agreement are true and correct in all material respects, and
do not omit any material fact necessary to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading. There is no fact known to the Parent which has not been disclosed to
the Company in the Parent Disclosure Schedule and the Parent SEC Documents,
taken as a whole, which has had, or would reasonably be expected to have, a
Parent Material Adverse Effect.
ARTICLE V
COVENANTS OF THE COMPANY
The Company agrees that:
5.1 Conduct of Business. During the period from the date of this
Agreement to the Effective Time, the Company shall carry on its businesses in
the ordinary course of business in substantially the same manner as heretofore
conducted and, to the extent consistent therewith, use all reasonable efforts to
preserve intact its current business organizations, keep available the services
of its current officers and employees (as a group) and preserve its
relationships with customers, suppliers, licensors, licensees, distributors and
others having business dealings with them. Without limiting the generality of
the foregoing, during the period from the date of this Agreement to the
Effective Time, except as contemplated by this Agreement the Company shall not,
and shall not permit any of its subsidiaries to, without the prior written
approval of Parent (which approval will not be unreasonably withheld):
(a) (i) declare, set aside or pay any dividends on, or make any
other distributions (whether in cash, stock or property) in respect of, any of
its capital stock; (ii) adjust, split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of its capital stock or (iii) purchase,
redeem or otherwise acquire any shares of capital stock of the Company or any
other securities thereof or any rights, warrants or options to acquire any such
shares or other securities;
(b) issue, deliver, sell, pledge or otherwise encumber any shares
of its capital stock, any other voting securities or any securities convertible
into, or any rights, warrants or options, to acquire, any such shares, voting
securities or convertible securities (other than the issuance of Shares upon the
exercise of Company Options outstanding as of the date hereof in each case in
accordance with the terms and provisions thereof);
-11-
<PAGE> 16
(c) Amend its Articles of Incorporation, Bylaws or other
comparable charter or organizational documents;
(d) mortgage or otherwise encumber or subject to any lien or
sell, lease, license, transfer or otherwise dispose of any material properties
or assets, except in the ordinary course of business consistent with past
practice or pursuant to existing contracts or commitments;
(e) amend, modify or waive any material term of any outstanding
security of the Company;
(f) incur, assume, guarantee or become obligated with respect to
any indebtedness other than in the ordinary course of business, consistent with
past practice and in accordance with the terms thereof, or incur, assume,
guarantee or become obligated with respect to any other material obligations
other than in the ordinary course of business and consistent with past practice;
(g) make any material tax election or take any material tax
position (unless required by law) or change its fiscal year or accounting
methods, policies or practices (except as required by changes in GAAP) or settle
or compromise any material income tax liability;
(h) enter into any, or commit to enter into, any lease, loan,
advance or capital contributions to or investment in any person other than in
the ordinary course of business consistent with past practice;
(i) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction thereof, in the
ordinary course of business consistent with past practice and in accordance with
their terms or the settlement or other disposition of litigation matters by a
payment or payments not exceeding $10,000, or release or waive any material
rights or claims, or waive the benefits of, or agree to modify in any manner,
any confidentiality, standstill or similar agreement to which the Company is a
party;
(j) authorize any of, or commit or agree to take any of, the
foregoing actions.
5.2 Access to Information. From the date hereof until the Effective
Time, the Company will give Parent, its counsel, financial advisors, auditors
and other authorized representatives full access (during normal business hours
and upon reasonable notice) to the offices, properties, officers, employees,
accountants, auditors, counsel and other representatives, books and records of
the Company (including to perform any environmental studies), will furnish to
Parent, its counsel, financial advisors, auditors and other authorized
representatives such financial, operating and property related data and other
information as such persons may reasonably request, and will instruct the
Company's employees, counsel and financial advisors to cooperate with Parent in
its investigation of the business of the Company.
5.3 Tax Treatment. The Company shall not take any action which would
disqualify the Merger as a "reorganization" that would be tax free to Parent
pursuant to Section 368(a) of the Code.
-12-
<PAGE> 17
5.4 Confidentiality. Prior to the Effective Time and after any
termination of this Agreement, the Company will hold, and will use its
reasonable best efforts to cause its officers, directors, employees,
accountants, counsel, consultants, advisors and agents to hold, in confidence,
unless compelled to disclose by judicial or administrative process or by other
requirements of law, all confidential documents and information concerning
Parent and its subsidiaries furnished to the Company in connection with the
transactions contemplated by this Agreement except to the extent that such
information can be shown to have been (i) previously known on a nonconfidential
basis by the Company, (ii) in the public domain through no fault of the Company
or (iii) later lawfully acquired by the Company from sources other than Parent;
provided that the Company may disclose such information to its officers,
directors, employees, accountants, counsel, consultants, advisors and agents in
connection with the transactions contemplated by this Agreement so long as such
persons have a need to know such information, are informed by the Company of the
confidential nature of such information and are directed by the Company to treat
such information confidentially. The Company's obligation to hold any such
information in confidence shall be satisfied if it exercises the same care with
respect to such information as it would take to preserve the confidentiality of
its own similar information. If this Agreement is terminated, the Company will,
and will use its best efforts to cause its officers, directors, employees,
accountants, counsel, consultants, advisors and agents to, deliver to Parent,
upon request, or, at the election of the Company, destroy, all documents and
other materials and all copies thereof, obtained by the Company or on its behalf
from Parent in connection with this Agreement that are subject to such
confidentiality.
ARTICLE VI
COVENANTS OF PARENT
Parent agrees that:
6.1 Confidentiality. Prior to the Effective Time and after any
termination of this Agreement, Parent will hold, and will use its reasonable
best efforts to cause its officers, directors, employees, accountants, counsel,
consultants, advisors and agents to hold, in confidence, unless compelled to
disclose by judicial or administrative process or by other requirements of law,
all confidential documents and information concerning the Company furnished to
Parent in connection with the transactions contemplated by this Agreement except
to the extent that such information can be shown to have been (i) previously
known on a nonconfidential basis by Parent, (ii) in the public domain through no
fault of Parent or (iii) later lawfully acquired by Parent from sources other
than the Company; provided that Parent may disclose such information to its
officers, directors, employees, accountants, counsel, consultants, advisors and
agents in connection with the transactions contemplated by this Agreement so
long as such persons have a need to know such information, are informed by
Parent of the confidential nature of such information and are directed by Parent
to treat such information confidentially. Parent's obligation to hold any such
information in confidence shall be satisfied if it exercises the same care with
respect to such information as it would take to preserve the confidentiality of
its own similar information. If this Agreement is terminated, Parent will, and
will use its best efforts to cause its officers, directors, employees,
accountants, counsel, consultants, advisors and agents to, deliver to the
Company, upon request, or, at the election of Parent, destroy, all documents and
other materials and all copies thereof, obtained by Parent or on its behalf from
the Company in connection with this Agreement that are subject to such
confidentiality.
-13-
<PAGE> 18
6.2 Obligations of Merger Subsidiary. Parent will take all action
necessary to cause Merger Subsidiary to perform its obligations under this
Agreement and to consummate the Merger on the terms and conditions set forth in
this Agreement.
6.3 Access to Information. From the date hereof until the Effective
Time, the Parent will give the Company, its counsel, financial advisors,
auditors and other authorized representatives full access (during normal
business hours and upon reasonable notice) to the offices, properties, officers,
employees, accountants, auditors, counsel and other representatives, books and
records of the Parent and its subsidiaries, will furnish to the Company, its
counsel, financial advisors, auditors and other authorized representatives such
financial, operating and property related data and other information as such
persons may reasonably request, and will instruct the Parent's and its
subsidiaries' employees, counsel and financial advisors to cooperate with the
Company in its investigation of the business of the Parent and its subsidiaries;
provided that no investigation pursuant to this Section 6.3 shall affect any
representation or warranty given by the Parent hereunder.
6.4 Tax Treatment. The Parent shall not take any action which would
disqualify the Merger as a "reorganization" that would be tax free to Fidelity
pursuant to Section 368(a) of the Code.
6.5 Securities Reports. Parent agrees to timely file all reports
required to be filed by it pursuant to the Exchange Act. Parent agrees to
provide to the Company copies of all reports and other documents filed under the
Securities Act or Exchange Act with the SEC by it between the date hereof and
the Effective Time within five days after the date such reports or other
documents are filed with the SEC.
6.6 Implement Employee Benefits. Parent shall, as of the Effective
Time, provide all employees of the Company with comparable employee benefits to
those which such Company employees receive from the Company as of the date
hereof, including, without limitation, comparable medical, dental, vision,
chiropractic, psychiatric, psychological and any other health care plans,
cafeteria or flexible credit plans, profit-sharing plans and any plan providing
for the purchase of equity securities by the employees of the Company.
ARTICLE VII
COVENANTS OF PARENT AND THE COMPANY
The parties hereto agree that:
7.1 Approvals; Reasonable Efforts; Notification.
(a) Each of Parent and the Company shall (i) promptly prepare and
make or cause to be made all filings required of such party or any of its
subsidiaries and obtain all permits, consents, approvals, and authorizations of
all third parties, Regulatory Authorities and Governmental Entities necessary to
consummate the transactions contemplated by this Agreement, (ii) comply at the
earliest practicable date with any request for additional information,
documents, or other material received by such party or any of its subsidiaries
from any Regulatory Authority or other Governmental Entity in respect of such
filings or such transactions, and (iii) cooperate with the other party in
connection with any such filing, and in connection with resolving any
investigation or other
-14-
<PAGE> 19
inquiry of any such Regulatory Authority or other Governmental Entity. Each
party shall promptly inform the other party of any communication with, and any
proposed understanding, undertaking, or agreement with, any Regulatory Authority
or Governmental Entity regarding any such filings or any such transaction.
Neither party shall participate in any meeting, with any Regulatory Authority or
Governmental Entity in respect of any such filings, investigation, or other
inquiry without giving the other party notice of the meeting and, to the extent
permitted by such Regulatory Authority or Governmental Entity, the opportunity
to attend and participate.
(b) Each of the parties agrees to use all reasonable efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, and to
assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the Merger and the other transactions contemplated by this
Agreement, including (i) the obtaining of all other necessary actions or
nonactions, waivers, consents and approvals from Regulatory Authorities or
Governmental Entities and the making of all other necessary registrations and
filings (including other filings with Regulatory Authorities or Governmental
Entities, if any), (ii) the obtaining of all necessary consents, approvals or
waivers from third parties and (iii) the execution and delivery of any
additional instruments necessary to consummate the transactions contemplated by,
and to fully carry out the purposes of, this Agreement.
(c) Each party shall give prompt notice to the other party of (i)
any representation or warranty made by it contained in this Agreement becoming
untrue or inaccurate in any respect or (ii) the failure by it to comply with or
satisfy in any respect any covenant, condition or agreement to be compiled with
or satisfied by it under this Agreement; provided, however, that no such
notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement.
(d) The Company shall give prompt notice to Parent, and Parent or
Merger Subsidiary shall give prompt notice to the Company, of:
(i) any notice or other communication from any person
alleging that the consent of such person is or may be required in connection
with the transactions contemplated by this Agreement;
(ii) any notice or other communication from any
Governmental Entity in connection with the transactions contemplated by this
Agreement; and
(iii) any actions, suits, claims, investigations or
proceedings commenced or, to the best of its knowledge threatened against,
relating to or involving or otherwise affecting it or, in the case of Parent,
any of its subsidiaries which, if pending on the date of this Agreement would
have been required to have been disclosed pursuant to Section 4.1(h), 4.1(i),
4.1(j), 4.1(k) or 4.1(l) or Section 4.2(g) or which relate to the consummation
of the transactions contemplated by this Agreement.
7.2 Press Releases. Parent and Fidelity shall agree with each other as
to the form and substance of any press release related to this Agreement or the
transactions contemplated hereby, and shall consult with each other as to the
form and substance of other public disclosures which may
-15-
<PAGE> 20
relate to the transactions contemplated by this Agreement; provided, however,
that nothing contained herein shall prohibit either party, following
notification to the other party and reasonable opportunity to comment, from
making any disclosure which is required by law, regulation or stock exchange
requirements.
7.3 Due Diligence.
(a) The Company shall permit Parent to conduct a due diligence
investigation of the Company and its assets, liabilities, businesses, books,
records and prospects.
(b) Parent shall permit the Company to conduct a due diligence
investigation of the Parent and its subsidiaries and their respective assets,
liabilities, businesses, books, records and prospects.
7.4 Indemnification.
(a) Indemnification of Parent. Subject to the limitations
contained in this section, Fidelity shall, for one year following the Effective
Time, defend, indemnify and hold harmless Parent, its officers, directors,
stockholders, employees and agents from and against any and all losses, claims,
judgments, liabilities, demands, charges, suits, penalties, costs or expenses,
including court costs and attorneys' fees ("Claims and Liabilities") with
respect to or arising from (i) the breach of any warranty or any inaccuracy of
any representation made by the Company or Fidelity in this Agreement, or (ii)
the breach of any covenant or agreement made by the Company or Fidelity in this
Agreement.
(b) Indemnification of Fidelity. Parent shall, for one year
following the Effective Time, defend, indemnify and hold harmless Fidelity, and
its officers, directors, stockholders, employees and agents against and in
respect to all Claims and Liabilities with respect to or arising from (i) breach
of any warranty or any inaccuracy of any representation made by Parent or Merger
Subsidiary, (ii) breach of any covenant or agreement made by Parent or Merger
Subsidiary in this Agreement.
(c) Limitations. Anything to the contrary notwithstanding, Parent
and Fidelity shall not be indemnified and held harmless in respect of any Claims
and Liabilities which are covered by insurance owned by the Company to the
extent that any net loss is reduced by such insurance.
(d) Claims Procedure. Promptly after the receipt by any
indemnified party (the "Indemnitee") of notice of the commencement of any action
or proceeding against such Indemnitee, such Indemnitee shall, if a claim with
respect thereto is or may be made against any indemnifying party (the
"Indemnifying Party") pursuant to this Section 7.4, give such Indemnifying Party
written notice of the commencement of such action or proceeding and give such
Indemnifying Party a copy of such claim and/or process and all legal pleadings
in connection therewith. The failure to give such notice shall not relieve any
Indemnifying Party of any of his or its indemnification obligations contained in
this Section 7.4, except where, and solely to the extent that, such failure
actually and materially prejudices the rights of such Indemnifying Party. Such
Indemnifying Party shall have, upon request within sixty (60) days after receipt
of such notice, but not in any event after the settlement or compromise of such
claim, the right to defend, at his or its own expense and by his or
-16-
<PAGE> 21
its own counsel, any such matter involving the asserted liability of the
Indemnitee; provided, however, that if the Indemnitee determines that, as a
result of an existing or prospective business relationship between Parent or any
of its subsidiaries on the one hand and any other party or parties to such claim
on the other hand, or as a result of other reasonable circumstances, there is a
reasonable probability that a claim may materially and adversely affect him or
it, other than solely as a result of money payments required to be reimbursed in
full by such Indemnifying Party under this Section 7.4, the Indemnitee shall
have the right to defend, compromise or settle such claim or suit; and,
provided, further, that such settlement or compromise shall not, unless
consented to in writing by such Indemnifying Party, be conclusive as to the
liability of such Indemnifying Party to the Indemnitee. In any event, the
Indemnitee, such Indemnifying Party and his or its counsel shall cooperate in
the defense against, or compromise of, any such asserted liability, and in cases
where the Indemnifying Party shall have assumed the defense, the Indemnitee
shall have the right to participate in the defense of such asserted liability at
the Indemnitee's own expense. In the event that such Indemnifying Party shall
decline to participate in or assume the defense of such action, prior to paying
or settling any claim against which such Indemnifying Party is, or may be,
obligated under this Section 7.4 to indemnify an Indemnitee, the Indemnitee
shall first supply such Indemnifying Party with a copy of a final court judgment
or decree holding the Indemnitee liable on such claim or, failing such judgment
or decree, the terms and conditions of the settlement or compromise of such
claim. An Indemnitee's failure to supply such final court judgment or decree or
the terms and conditions of a settlement or compromise to such Indemnifying
Party shall not relieve such Indemnifying Party of any of his or its
indemnification obligations contained in this Section 7.4, except where, and
solely to the extent that, such failure actually and materially prejudices the
rights of such Indemnifying Party. If the Indemnifying Party is defending the
claim as set forth above, the Indemnifying Party shall have the right to settle
the claim only with the consent of the Indemnitee; provided, however, that if
the Indemnitee shall fail to consent to the settlement of such a claim by the
Indemnifying Party, which settlement (i) the claimant has indicated it will
accept, and (ii) includes an unconditional release of the Indemnitee and its
affiliates by the claimant and imposes no material restrictions on the future
activities of the Indemnitee and its affiliates, the Indemnifying Party shall
have no liability with respect to any payment required to be made to such
claimant in respect of such claim in excess of the proposed amount of
settlement. If the Indemnitee is defending the claim as set forth above, the
Indemnitee shall have the right to settle or compromise any claim against it
after consultation with, but without the prior approval of, any Indemnifying
Party; provided, however, that such settlement or compromise shall not, unless
consented to in writing by such Indemnifying Party, be conclusive as to the
liability of such Indemnifying Party to the Indemnitee.
ARTICLE VIII
CONDITIONS TO THE MERGER
8.1 Conditions to the Obligations of Each Party. The obligations of the
Company, Parent and Merger Subsidiary to consummate the Merger are subject to
the satisfaction of the following conditions:
(a) any consents, waivers, clearances, approvals and
authorizations of Regulatory Authorities or other Governmental Entities that are
necessary to permit consummation of the Merger shall have been obtained and
shall remain in full force and effect in each case without the
-17-
<PAGE> 22
imposition of any condition, restriction or term which could reasonably be
expected to have a Material Adverse Effect;
(b) no provision of any applicable law or regulation and no
judgment, injunction, order, decree or other legal restraint shall prohibit or
make illegal the consummation of the Merger;
(c) the Board of Directors of the Company shall have duly
authorized and approved the execution and delivery of this Agreement by the
Company and the transactions contemplated hereby prior to the execution by the
Company of this Agreement.
(d) tax opinions addressed to each of Parent and the Company by
KPMG Peat Marwick, independent certified public accountants for both Fidelity
and Parent in form and substance mutually acceptable to Parent and the Company
shall have been obtained with respect to the Merger, based on customary reliance
and subject to customary qualifications, to the effect that, for federal income
tax purposes, the Merger will qualify as a tax-free "reorganization" under
Section 368(a) of the Code.
8.2 Conditions to the Obligations of Parent and Merger Subsidiary. The
obligations of Parent and Merger Subsidiary to consummate the Merger are further
subject to the satisfaction of the following conditions:
(a) there shall not be effected, instituted, pending or proposed
any action by any Governmental Entity (by legislation, rulemaking, change of
applicable law or otherwise) (i) an effect of which is to make illegal, to delay
materially or otherwise directly or indirectly to restrain or prohibit the
consummation by Parent or Merger Subsidiary of the Merger, seeking to obtain
material damages or imposing any material adverse conditions in connection
therewith or otherwise directly or indirectly relating to the transactions
contemplated by this Agreement or the Merger, (ii) an effect of which is to
impose limitations on the ability of Parent or any of its subsidiaries or
affiliates effectively to exercise full rights of ownership of the Shares,
including, without limitation, the right to vote any Shares acquired or owned by
Parent or any of its subsidiaries or affiliates on all matters properly
presented to the Company's stockholders or (iii) that otherwise, in the
reasonable judgment of Parent, is likely to have a Material Adverse Effect or a
Parent Material Adverse Effect;
(b) the Company and Fidelity shall have performed in all material
respects their covenants and agreements under this Agreement, and the
representations and warranties of the Company and Fidelity set forth in this
Agreement shall be true in all material respects when made and at and as of the
Effective Time as if made at and as of such time; and Parent and Merger
Subsidiary shall have received certificates of the Chief Executive Officer or a
Vice President of the Company and Fidelity to that effect;
(c) no change shall have occurred or been threatened (and no
development shall have occurred or been threatened involving a prospective
change) that, in the reasonable judgment of Parent, has or is likely to have a
Material Adverse Effect;
(d) Parent shall have been furnished with copies of the text of
the resolutions by which the corporate action on the part of the Company
necessary to approve this Agreement and the transactions contemplated hereby
were taken, together with a certificate dated as of the Effective Time executed
on behalf of the Company by its corporate secretary certifying to Parent that
such
-18-
<PAGE> 23
copies are true, correct and complete copies of such resolutions and that
such resolutions were duly adopted and have not been amended or rescinded;
(e) Parent's Board of Directors shall have received an opinion
from Cruttenden Roth Incorporated, its financial advisor, in connection with the
Merger that the Merger Consideration is fair to Parent from a financial point of
view;
(f) Parent shall have received an opinion of Stradling Yocca
Carlson & Rauth, counsel to the Company, dated as of the Effective Time, as to
the matters set forth on Exhibit A hereto.
8.3 Conditions to the Obligations of the Company. The obligations of
the Company to consummate the Merger are subject to the further satisfaction of
the following conditions:
(a) there shall not be effected, instituted, pending or proposed
any action by any Governmental Entity (by legislation, rulemaking, change of
applicable law or otherwise) (i) an effect of which is to make illegal, to delay
materially or otherwise directly or indirectly to restrain or prohibit the
consummation by the Company of the Merger, seeking to obtain material damages or
imposing any material adverse conditions in connection therewith or otherwise
directly or indirectly relating to the transactions contemplated by this
Agreement or the Merger, (ii) an effect of which is to impose limitations on the
ability of Parent or any of its subsidiaries or affiliates effectively to
exercise full rights of ownership of the Shares, including, without limitation,
the right to vote any Shares acquired or owned by Parent or any of its
subsidiaries or affiliates on all matters properly presented to the Company's
stockholders or (iii) that otherwise, in the reasonable judgment of the Company,
is likely to have a Material Adverse Effect or a Parent Material Adverse Effect;
(b) Parent and Merger Subsidiary shall have performed in all
material respects their covenants and agreements under this Agreement, and the
representations and warranties of Parent and Merger Subsidiary set forth in this
Agreement shall be true in all material respects when made and at and as of the
Effective Time as if made at and as of such time; and the Company shall have
received certificates of the Chief Executive Officer or a Vice President of
Parent and Merger Subsidiary to that effect;
(c) no change shall have occurred or been threatened (and no
development shall have occurred or been threatened involving a prospective
change), other than changes resulting from changes in interest rates, that, in
the reasonable judgment of the Company, has or is likely to have a Parent
Material Adverse Effect;
(d) Fidelity's Board of Directors shall have received an opinion
from its financial advisor Wedbush Morgan Securities that the Merger
Consideration is fair to Fidelity from a financial point of view (the fairness
opinion referenced in this Section 8.3(d), together with the fairness opinion
referenced in Section 8.2(e), shall be known, collectively, as the "Fairness
Opinions");
(e) The Company shall have received an opinion of James M.
Phillips, Jr., Professional Law Corporation, counsel to Parent and Merger
Subsidiary, dated as of the Effective Time, as to the matters set forth on
Exhibit C hereto;
-19-
<PAGE> 24
(f) Parent shall have increased the size of the Board of
Directors of Parent, effective as of the Closing, from five members to eight
members, all of which members shall have been duly appointed in accordance with
the Delaware General Corporation Law, and such members shall include the
following individuals: William P. Foley, II, Carl A. Strunk, Richard H. Pickup,
George E. Olenik, Thomas E. Pistilli and Patrick F. Stone, with two vacancies to
be filled by subsequent appointment by the Corporation's Board of Directors.
ARTICLE IX
CONDITIONS FOLLOWING THE CLOSING
9.1 Adoption of Additional Stock Option Plan. On or before the 60th day
after the Closing Date, Parent shall adopt a new stock option plan (the "Option
Plan"), which Option Plan shall (i) authorize and reserve for issuance (x)
600,000 new shares of Parent's Common Stock, plus (y) the number of shares of
Parent's Common Stock reserved for issuance under Parent's 1995 Incentive Stock
Option Plan (the "1995 Plan") but not granted pursuant to the 1995 Plan as of
the date of this Agreement, and (ii) be in form and substance as is approved by
Fidelity in its discretion. In addition, on or before such 60th day after the
Closing Date, Parent shall have taken all steps necessary and required to adopt
the Option Plan, including, without limitation, obtaining the approval of the
Option Plan by Parent's stockholders and the filing of a Registration Statement
on Form S-8 pursuant to the Securities Act registering the issuance of the
shares of stock under the Option Plan.
9.2 Fidelity Financing. Following the Closing, Fidelity agrees to
provide Parent with up to $5 million in senior unsecured debt financing (the
"Fidelity Financing") on terms and subject to conditions to be mutually agreed
upon between Fidelity and Parent. The parties hereby expressly agree that the
aggregate dollar amount of the Fidelity Financing shall be reduced by the dollar
amount of any intercompany amounts owed by the Company to Fidelity as of the
Closing Date.
ARTICLE X
TERMINATION
10.1 Termination. This Agreement may be terminated and the Merger may
be abandoned at any time prior to the Effective Time :
(i) by mutual written consent of the Company and Parent;
(ii) by either the Company or Parent, if the Merger has not
been consummated by July 30, 1998 (provided that the party seeking to terminate
the Agreement shall not have breached its obligations under this Agreement in
any material respect);
(iii) by Parent, at any time prior to the Effective Time,
by action of the Board of Directors of Parent, if there has been a breach by the
Company of any of the representations, warranties, covenants or agreements
contained in this Agreement, or if any representation or warranty of the Company
shall have become untrue, in either case which has or
-20-
<PAGE> 25
could reasonably be expected to have a Material Adverse Effect, provided,
however, that Parent shall not be permitted to terminate this Agreement pursuant
to this Section 10.1(iii) with respect to any such breach or occurrence after
the expiration of a ten (10) day period following Parent's receipt of notice of
such breach from the Company;
(iv) by the Company, at any time prior to the Effective
Time, by action of the Board of Directors of the Company, if any of the
representations, warranties, covenants or agreements contained in this
Agreement, or if any representation or warranty of the Parent or Merger
Subsidiary shall have become untrue, in either case which has or could
reasonably be expected to have a Material Adverse Effect, provided, however,
that the Company shall not be permitted to terminate this Agreement pursuant to
this Section 10.1(v) with respect to any such breach or occurrence after the
expiration of a ten (10) day period following the Company's receipt of notice
such breach from the Parent or Merger Subsidiary; or
10.2 Effect of Termination. If this Agreement is terminated pursuant to
Section 10.1, this Agreement shall become void and of no effect with no
liability on the part of any party hereto or their respective officers and
directors, except that the agreements contained in Sections 5.4, 6.1 and 11.4
shall survive the termination hereof. Specifically, and without limiting the
generality of the foregoing, Parent and Merger Subsidiary agree that, except as
expressly provided in this Section 10.2, termination of this Agreement shall be
their sole and exclusive remedy for any nonwillful breach by the Company of its
representations, warranties and covenants under this Agreement and the Company
agrees that termination of this Agreement shall be its sole and exclusive remedy
for any nonwillful breach by Parent or Merger Subsidiary of their
representations, warranties and covenants under this Agreement. If this
Agreement is terminated by reason of a willful breach by a party, then the
breaching party shall be liable to the non-breaching party for all actual,
consequential and incidental damages suffered by the non-breaching party arising
from such willful breach.
ARTICLE XI
MISCELLANEOUS
11.1 Notices. All notices, requests and other communications to any
party hereunder shall be in writing (including telecopy or similar writing) and
shall be given,
if to the Company or Fidelity, to:
Fidelity National Financial, Inc.
3916 State Street, Suite 300
Santa Barbara, California 93105
Telecopy: (805) 898-7191
Attn: Carl A. Strunk, Executive Vice President
-21-
<PAGE> 26
with a copy to:
Stradling Yocca Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, CA 92660-6441
Telecopy: (714) 725-4100
Attn: C. Craig Carlson, Esq.
if to the Parent or Merger Subsidiary, to:
Micro General Corporation
14711 Bentley Circle
Tustin, CA 92780
Telecopy: (714) 731-0557
Attn: Thomas E. Pistilli, President
with a copy to:
Palmieri, Tyler, Wiener, Wilhelm & Waldron, LLP
East Tower - Suite 1300
2063 Main Street
Irvine, CA 92614-6228
Telecopy: (714) 851-1554
Attn: James M. Phillips, Jr., Esq.
or such other address or telecopy number as such party may hereafter specify for
the purpose by notice to the other parties hereto. Each such notice, request or
other communication shall be effective when delivered at the address specified
in this Section.
11.2 Survival of Representations and Warranties. The representations
and warranties and agreements contained herein and in any certificate or other
writing delivered pursuant hereto shall survive the Effective Time or the
termination of this Agreement for a period of one year from the date thereof,
except for the representations, warranties and agreements set forth in Sections
5.4, 6.1, 7.4 and 11.4 which shall have no expiration date.
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, Fidelity,
Parent and Merger Subsidiary or in the case of a waiver, by the party against
whom the waiver is to be effective.
(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.
-22-
<PAGE> 27
11.4 Fees and Expenses. Except as otherwise provided in this Agreement,
all costs and expenses incurred in connection with this Agreement shall be paid
by the party incurring such cost or expense; provided, however, with respect to
legal fees only, the parties hereby expressly agree that all legal fees incurred
by the Company, Fidelity, Parent and Merger Subsidiary in connection with the
transactions contemplated by this Agreement shall be aggregated and apportioned
equally between Fidelity, on the one hand, and Parent, on the other hand.
11.5 Successors and Assigns; Parties in Interest. The provisions of
this Agreement shall be binding, upon and inure to the benefit of the parties
hereto and their respective successors and assigns; provided, that no party may
assign, delegate or otherwise transfer any of its rights or obligations under
this Agreement without the consent of the other parties hereto except that, with
the consent of the Company, Merger Subsidiary may transfer or assign, in whole
or from time to time in part, to one or more of Parent or any of its
wholly-owned subsidiaries, any or all of its rights or obligations, but any such
transfer or assignment will not relieve Merger Subsidiary of its obligations
under this Agreement. Except as expressly set forth herein nothing in this
Agreement, express or implied, is intended to or shall confer upon any person
not a party hereto any right, benefit or remedy of any nature whatsoever under
or by reason of this Agreement, including to confer third party beneficiary
rights.
11.6 Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated, and the parties shall negotiate
in good faith to modify this Agreement and to preserve each party's anticipated
benefits under this Agreement.
11.7 Governing Law. This Agreement shall be construed in accordance
with and governed by the internal laws of the State of California, without
giving effect to the principles of conflicts of laws thereof.
11.8 Entire Agreement. This Agreement, including Exhibits and
Disclosure Schedules to this Agreement, constitutes the entire agreement, and
supersedes all other prior agreements, written and oral, among the parties, with
respect to the subject matter hereof.
11.9 Counterparts; Effectiveness; Interpretation. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall
have received counterparts hereof signed by all of the other parties hereto.
When a reference is made in this Agreement to a Section, such reference shall be
to a Section of this Agreement unless otherwise indicated. The table of contents
and headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement.
Whenever the words "include", "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation".
11.10 Effect of Disclosure Schedule. Notwithstanding anything to the
contrary contained in this Agreement or in any Section of the Disclosure
Schedule, any information disclosed in one Section of the Disclosure
Schedule shall be deemed to be disclosed in all Sections of the Disclosure
Schedule, to the extent that such deemed disclosure is apparent from the
information actually disclosed.
-23-
<PAGE> 28
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.
MICRO GENERAL CORPORATION
By:
------------------------------------
Thomas E. Pistilli, President
ACS MERGER, INC.
By:
------------------------------------
Carl A. Strunk, President, Treasurer
and Secretary
ACS SYSTEMS, INC.
By:
------------------------------------
Carl A. Strunk, Executive Vice
President
FIDELITY NATIONAL FINANCIAL, INC.
By:
------------------------------------
Carl A. Strunk, Executive Vice
President and Chief Financial Officer
-24-
<PAGE> 1
EXHIBIT 10.57.1
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER (the "Agreement") is entered into as of this
14th day of May, 1998 by and among ACS SYSTEMS, INC., a California corporation
(the "Company"), ACS MERGER, INC., a Delaware corporation ("Merger Subsidiary")
and MICRO GENERAL CORPORATION, a Delaware Corporation and the Parent of Merger
Subsidiary ("Parent") (the Company and Merger Subsidiary are sometimes
collectively referred to herein as the "Constituent Corporations").
RECITALS:
A. The Company is a corporation duly organized and existing under the
laws of the State of California and has an authorized capital of 300,000 shares,
all of which are designated common stock (the "ACS Common Stock"). As of May 14,
1998, there were 3,000 shares of ACS Common Stock issued and outstanding.
B. Merger Subsidiary is a corporation duly organized and existing under
the laws of the State of Delaware and has an authorized capital of 1,000 shares,
all of which are designated common stock (the "Merger Subsidiary Common Stock").
As of May 14, 1998, there were 100 shares of Merger Subsidiary Common Stock
issued and outstanding.
C. The respective Boards of Directors of the Company and Merger
Subsidiary have approved this Agreement and the respective sole shareholder and
sole stockholder of the Company and Merger Subsidiary have duly approved, in
accordance with the applicable laws of the State of California, the principal
terms of this Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
1. THE MERGER.
1.1 MERGER AND EFFECTIVENESS. In accordance with the provisions of this
Agreement and the California General Corporation Law ("CGCL"), Merger Subsidiary
shall be merged with and into the Company (the "Merger"), with the Company as
the surviving corporation (the "Surviving Corporation"). The Merger shall become
effective in accordance with the CGCL upon the filing of this Agreement,
together with a Certificate of Approval of each Constituent Corporation, with
the Secretary of State of the State of California (the "Effective Time").
1.2 EFFECT OF THE MERGER. Upon the Effective Time of the Merger, the
separate existence of Merger Subsidiary shall cease and the Company, as the
Surviving Corporation, shall succeed, without other transfer, to all the rights
and property of Merger Subsidiary and shall be subject to all the debts and
liabilities of Merger Subsidiary in the same manner as if the Company itself
incurred them. The Merger shall otherwise have the effects set forth in Section
1107 of the CGCL.
<PAGE> 2
2. CHARTER DOCUMENTS.
2.1 ARTICLES OF INCORPORATION. The Articles of Incorporation of the
Company as in effect immediately before the Effective Time of the Merger shall
continue in full force and effect as the Articles of Incorporation of the
Surviving Corporation until duly amended in accordance with the provisions
thereof and applicable law.
2.2 BYLAWS. The Bylaws of the Company as in effect immediately before
the Effective Time of the Merger shall continue in full force and effect as the
Bylaws of the Surviving Corporation until duly amended in accordance with the
provisions thereof, the Articles of Incorporation and applicable law.
3. MANNER OF CONVERSION OF STOCK.
3.1 CONVERSION OF ACS COMMON STOCK. At the Effective Time of the
Merger, by virtue of the Merger and without any action on the part of the holder
thereof, all shares of ACS Common Stock which were issued and outstanding
immediately prior to the Effective Time of the Merger shall be converted into
the right to receive an aggregate of 4,600,000 shares of common stock, par value
$.05 per share, of Parent ("Parent Common Stock") on a pro rata basis without
interest (the "Merger Consideration").
3.2 MERGER SUBSIDIARY COMMON STOCK. At the Effective Time of the
Merger, by virtue of the Merger and without any action on the part of the holder
thereof, each share of common stock of Merger Subsidiary which was issued and
outstanding immediately prior to the Effective Time of the Merger shall be
converted into the right to receive one (1) share of ACS Common Stock.
4. GENERAL.
4.1 FURTHER ASSURANCES. From time to time, as and when required by the
Company, its successors or assigns, there shall be executed and delivered on
behalf of Merger Subsidiary such deeds and other instruments, and there shall be
taken or caused to be taken by it such further and other actions as shall be
appropriate or necessary in order to vest or perfect in or conform of record or
otherwise by the Company the title to and possession of all the property,
interests, assets, rights, privileges, immunities, powers, franchises and
authority of Merger Subsidiary and otherwise to carry out the purposes of this
Agreement, and the officers and directors of the Company are fully authorized in
the name and on behalf of Merger Subsidiary or otherwise to take all such
actions and to execute and deliver all such deeds and other instruments.
4.2 AMENDMENTS; WAIVERS. Any provision of this Agreement may be amended
or waived prior to the Effective Time of the Merger if, and only if, such
amendment or waiver is in writing and signed, in the case of an amendment, by
the Company, Merger Subsidiary and Parent or in the case of a waiver, by the
party against whom the waiver is to be effective and, in either case approved by
the shareholders of the Company, Merger Subsidiary and/or Parent, as applicable
and as required by law.
4.3 INTEGRATION. This Agreement is being entered into pursuant to, and
in order to implement the terms of, the Plan.
4.4 GOVERNING LAW. This Agreement shall be construed, interpreted and
<PAGE> 3
enforced in accordance with and governed by the laws of the State of California.
4.5 COUNTERPARTS. In order to facilitate the filing of this Agreement,
the same may be executed in any number of counterparts, each of which shall be
deemed to be an original and all of which together shall constitute one and the
same instrument.
IN WITNESS WHEREOF, the Company, Merger Subsidiary and Parent have each
caused this Agreement of Merger to be executed by their respective authorized
officers as of the date first above written.
MICRO GENERAL CORPORATION
By:
----------------------------------------
Thomas E. Pistilli, President
By:
----------------------------------------
Linda I. Morton, Secretary
ACS MERGER, INC.
By:
----------------------------------------
Carl A. Strunk, President and
Secretary
ACS SYSTEMS, INC.
By:
----------------------------------------
Mark J. Attaway, President
By:
----------------------------------------
M'Liss Jones Kane, Secretary
<PAGE> 4
CERTIFICATE OF APPROVAL
OF
AGREEMENT OF MERGER
Mark J. Attaway and M'Liss Jones Kane hereby certify that:
1. They are the President and the Secretary, respectively, of ACS
SYSTEMS, INC., a California corporation (the "Corporation").
2. The Agreement of Merger, in the form attached hereto (the "Agreement
of Merger"), was duly approved by the Board of Directors of the Corporation.
3. There is one class of shares of the Corporation, consisting of
Common Stock, and the number of shares outstanding and entitled to vote on the
merger is 3,000 shares of Common Stock.
4. The principal terms of the Agreement of Merger were approved by a
vote of a number of shares of Common Stock of the Corporation which equaled or
exceeded the vote required. The percentage vote required was more than fifty
percent (50%) of the outstanding shares of Common Stock
We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this Certificate are true and
correct of our own knowledge.
Date: May 14, 1998
------------------------------------
Mark J. Attaway, President
------------------------------------
M'Liss Jones Kane, Secretary
<PAGE> 5
CERTIFICATE OF APPROVAL
OF
AGREEMENT OF MERGER
Carl A. Strunk hereby certifies that:
1. He is the President, Treasurer and Secretary of ACS MERGER, INC., a
Delaware corporation (the "Corporation").
2. The Agreement of Merger, in the form attached hereto (the "Agreement
of Merger"), was duly approved by the Board of Directors of the Corporation.
3. There is one class of shares of the Corporation, consisting of
Common Stock, and the number of shares outstanding and entitled to vote on the
merger is 100 shares of Common Stock.
4. The principal terms of the Agreement of Merger were approved by a
vote of a number of shares of Common Stock of the Corporation which equaled or
exceeded the vote required. The percentage vote required was more than fifty
percent (50%) of the outstanding shares of Common Stock.
5. Equity securities of Micro General Corporation, a Delaware
corporation and the parent of the Corporation (the "Parent"), are to be issued
in the merger. No vote of shareholders of the Parent was required.
I further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this Certificate are true and
correct of my own knowledge.
Date: May 14, 1998
----------------------------------------
Carl A. Strunk, President, Treasurer
and Secretary
<PAGE> 1
Exhibit 10.58
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (the "Agreement") is made and dated as of the
1st day of August, 1998, by and among FIDELITY NATIONAL FINANCIAL, INC., a
Delaware corporation (the "Company"); the lenders from time to time party hereto
(each a "Lender," and, collectively, the "Lenders"); and SANWA BANK CALIFORNIA
("Sanwa"), as agent for the Lenders (in such capacity, the "Agent").
RECITALS
A. The Company has requested that the Lenders extend credit to the
Company in the form of a secured revolving credit facility and a secured term
loan facility, and that the Agent agree to act as credit agent and collateral
agent for the benefit of the Lenders with respect thereto.
B. The Company, the Agent and the Lenders desire to enter into this
Agreement to evidence the willingness of the Lenders to provide such credit
facilities and of the Agent to act on their behalf, and to set forth the rights
and obligations of the parties with respect to such credit extensions.
NOW, THEREFORE, in consideration of the above Recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
AGREEMENT
1. Revolving Credit Facility.
1(a) Revolving Credit Limit. On the terms and subject to the
conditions set forth herein, the Lenders severally agree that they shall from
time to time to but not including the Maturity Date (as that term and
capitalized terms not otherwise defined herein are defined in the Glossary
attached hereto as Annex 1), make revolving loans (the "Revolving Loans" or a
"Revolving Loan"), pro rata in accordance with their respective Percentage
Shares, in an aggregate outstanding amount not to exceed at any date: (1) the
Aggregate Credit Limit, less (2) the aggregate outstanding principal amount of
the Term Loan on such date.
1(b) Calculation and Payment of Interest. The Company shall
pay interest on Revolving Loans outstanding hereunder from the date disbursed to
but not including the date of payment, at a rate per annum equal to, at the
option of and as selected by the Company from time to time (subject to the
provisions of Paragraphs 3(b), 3(c) and 3(d) below): (1) the Floating Rate
during the applicable computation period, or (2) the Applicable Eurodollar Rate
for the selected Interest Period. Interest on Revolving Loans shall be payable
as provided in Paragraph 3(a) below.
1
<PAGE> 2
1(c) Principal Repayment. Subject to the provisions of
Paragraph 3(b) below, including, without limitation, the right of the Company to
continue Eurodollar Loans following the end of their respective Interest Periods
on the terms and subject to the conditions set forth therein, the Company shall
pay the principal amount of each Revolving Loan outstanding as a Eurodollar Rate
Loan on the last day of the Interest Period therefor and shall pay the principal
amount of each Revolving Loan outstanding as a Floating Rate Loan on the
Maturity Date. Principal amounts prepaid hereunder may be reborrowed on the
terms and subject to the conditions set forth in Paragraph 6(b) below, it being
expressly acknowledged and agreed that the credit facility provided under this
Paragraph 1 is a revolving facility.
2. Term Loan.
2(a) Credit Amount. On the terms and subject to the conditions
set forth herein, the Lenders severally agree that on the Effective Date they
shall advance, in a single disbursement, their respective Percentage Shares of a
term loan (the "Term Loan") in such amount as the Company may request pursuant
to a duly executed Loan Request, but not to exceed in any event the lesser of:
(1) $20,000,000.00, and (2) the Aggregate Credit Limit minus the dollar amount
of Revolving Loans requested to be funded on the Effective Date.
2(b) Calculation and Payment of Interest. The Company shall
pay interest on the Term Loan (including portions thereof as selected by the
Company subject to the provisions of Paragraph 3(b) below) from the date
disbursed to but not including the date of payment, at a rate per annum equal
to, at the option of and as selected by the Company from time to time (subject
to the provisions of Paragraphs 3(b), 3(c) and 3(d) below): (1) the Floating
Rate during the applicable computation period, or (2) the Applicable Eurodollar
Rate for the selected Interest Period. Interest on the Term Loan shall be
payable as provided in Paragraph 3(a) below.
2(c) Payment of Principal. The principal amount of the Term
Loan shall be payable in: (1) ten consecutive equal quarterly installments of
$1,000,000.00 each, said installments to be payable on the last Business Day of
each calendar quarter, commencing September 30, 1998, and (2) one final
installment in the amount necessary to repay the remaining outstanding principal
balance of the Term Loan in full on the Maturity Date.
3. Pricing Provisions.
3(a) Interest Billing and Payment Requirements. Interest
accruing on Floating Rate Loans shall be payable monthly, in arrears, for each
month on the last Business Day of such month in the amount set forth in an
interest billing for such Floating Rate Loans delivered by the Agent to the
Company (which delivery may be telephonic or by facsimile transmission and, if
by telephone, shall be confirmed on the same Business Day by facsimile
transmission or other writing), with the balance of accrued and unpaid interest
payable in full on the Maturity Date. Interest accruing on Eurodollar Rate Loans
shall be payable, in arrears, on the last day of the applicable Interest Period
therefor, or in the case of Eurodollar Rate Loans with Interest Periods ending
later than three months from the date funded, at the end of each three month
period from the date funded and at the end of the applicable Interest Period
therefor.
2
<PAGE> 3
3(b) Election of Type of Loan; Conversion Options; Funding of
Loans.
(1) The Term Loan shall initially be funded as a
Floating Rate Loan and, thereafter, subject to the provisions of this
Paragraph 3(b), the outstanding principal amount thereof or portions of
such amount may be converted into Eurodollar Rate Loans as provided
hereunder.
(2) The Company may elect from time to time to have
Revolving Loans funded by giving the Agent irrevocable notice of such
election no later than: (i) in the case of a Revolving Loan to be funded
as a Floating Rate Loan, 12:00 noon (Los Angeles time) on the Business Day
immediately preceding the requested funding date, and (ii) in the case of
a Revolving Loan to be funded as a Eurodollar Rate Loan, 9:00 a.m. (Los
Angeles time) on the third Eurodollar Business Day preceding the proposed
funding date.
(3) The principal amount of each Eurodollar Rate Loan
shall be in the minimum amount of $5,000,000.00 and multiples of
$1,000,000.00 in excess thereof, and the principal amount of each Floating
Rate Loan shall be in the minimum amount of $1,000,000.00 and multiples of
$1,000,000.00 in excess thereof, and the aggregate number of Eurodollar
Rate Loans outstanding on any date with a different Interest Period may
not exceed five.
(4) The Company may elect from time to time to convert
Loans outstanding: (i) as Eurodollar Rate Loans to Floating Rate Loans by
giving the Agent irrevocable notice of such election no later than 12:00
noon (Los Angeles time) on the Business Day immediately preceding the last
day of the Interest Period for such Eurodollar Rate Loan, and (ii) as
Floating Rate Loans to Eurodollar Rate Loans by giving the Agent
irrevocable notice of such election no later than 9:00 a.m. (Los Angeles
time) on the third Eurodollar Business Day preceding the proposed
conversion date. Any conversion of Eurodollar Rate Loans may only be made
on the last day of the applicable Interest Period. No Floating Rate Loan
may be converted into a Eurodollar Rate Loan if an Event of Default or
Potential Default has occurred and is continuing at the requested
conversion date.
(5) The Company may elect from time to time to have any
Eurodollar Rate Loan continued as such upon the expiration of the Interest
Period applicable thereto by giving the Agent irrevocable notice of such
election no later than 9:00 a.m. (Los Angeles time) on the third
Eurodollar Business Day preceding the last day of such Interest Period;
provided, however, that no Eurodollar Rate Loan may be continued when any
Event of Default or Potential Default has occurred and is continuing, but
shall be automatically converted to a Floating Rate Loan on the last day
of the Interest Period applicable thereto. The Agent shall notify the
Company promptly that such automatic conversion will occur. If the Company
shall fail to give notice of its election to continue a Eurodollar Rate
Loan as provided above, the Company shall be
3
<PAGE> 4
deemed to have elected to convert the affected Eurodollar Rate Loan to a
Floating Rate Loan on the last day of the applicable Interest Period.
(6) Each request for the funding, continuation or
conversion of a Loan shall be evidenced by the timely delivery by the
Company to the Agent of a duly executed Loan Request (which delivery may
be by facsimile transmission).
(7) Upon receipt of a Loan Request for the funding of a
new Loan, including, without limitation, the Term Loan, the Agent shall
notify each Lender of such Lender's Percentage Share thereof no later than
9:30 a.m. (Los Angeles time) on the date such Loan Request is received by
the Agent (said notice by the Agent to the Lenders to be given
telephonically and confirmed by facsimile transmission). Each Lender shall
make its Percentage Share of the proposed Loan available to the Agent, in
same-day funds, on the funding date at the Contact Office of the Agent,
ABA 122003516, for the Agent's Account #2302-25217, or such other account
as the Agent shall designate no later than 12:00 noon (Los Angeles time).
The failure of any Lender to advance its Percentage Share of a proposed
Loan shall not relieve any other Lender of its obligation hereunder to
advance its Percentage Share thereof, but no Lender shall be responsible
for the failure of any other Lender to make any such advance.
3(c) Inability to Determine Rate. In the event that the Agent
shall have reasonably determined (which determination shall be conclusive and
binding upon the Company) that by reason of circumstances affecting the
interbank market adequate and reasonable means do not exist for ascertaining the
Eurodollar Rate for any Interest Period, the Agent shall forthwith give
facsimile notice of such determination, confirmed in writing, to each Lender and
to the Company. If such notice is given: (1) no Revolving Loan may be funded as
a Eurodollar Rate Loan, (2) any Floating Rate Loan that was to have been
converted to a Eurodollar Rate Loan shall, subject to the provisions hereof, be
continued as a Floating Rate Loan, and (3) any outstanding Eurodollar Rate Loan
shall be converted, on the last day of the then current Eurodollar Interest
Period applicable thereto, to a Floating Rate Loan. Until such notice has been
withdrawn by the Agent, the Company shall not have the right to convert a
Floating Rate Loan to a Eurodollar Rate Loan or to fund any Revolving Loan as a
Eurodollar Rate Loan or to continue a Eurodollar Rate Loan as such. The Agent
shall withdraw such notice in the event that the circumstances giving rise
thereto no longer pertain and that adequate and reasonable means exist for
ascertaining the Eurodollar Rate for the Interest Period requested by the
Company, and following withdrawal of such notice by the Agent, the Company shall
have the right to have Revolving Loans funded as Eurodollar Rate Loans, to
convert Floating Rate Loans to a Eurodollar Rate Loans and to continue
Eurodollar Rate Loans as such in accordance with the terms and conditions of
this Agreement.
3(d) Illegality. Notwithstanding any other provisions herein,
if any law, regulation, treaty or directive or any change therein or in the
interpretation or application thereof, shall make it unlawful for any Lender to
make or maintain Eurodollar Rate Loans as contemplated by this Agreement: (1)
the commitment of such Lender to make or to continue Eurodollar Rate Loans or to
convert Floating Rate Loans to Eurodollar Rate Loans shall
4
<PAGE> 5
forthwith be canceled and (2) such Lender's Percentage Share of Loans then
outstanding as Eurodollar Rate Loans, if any, shall be converted automatically
to Floating Rate Loans at the end of their respective Interest Periods or within
such earlier period as may be required by law. In the event of a conversion of
any such Loan prior to the end of its applicable Interest Period the Company
hereby agrees promptly to pay any Lender affected thereby, upon demand, the
amounts required pursuant to Paragraph 3(g) below, it being agreed and
understood that such conversion shall constitute a prepayment for all purposes
hereof. The provisions hereof shall survive the termination of this Agreement
and payment of the outstanding Loans and all other amounts payable hereunder.
3(e) Requirements of Law; Increased Costs. In the event that
any applicable law, order, regulation, treaty or directive issued by any central
bank or other governmental authority, agency or instrumentality or in the
governmental or judicial interpretation or application thereof, or compliance by
any Lender with any request or directive (whether or not having the force of
law) issued by any central bank or other governmental authority, agency or
instrumentality:
(1) Does or shall subject any Lender to any tax of any
kind whatsoever with respect to this Agreement or any Loans made
hereunder, or change the basis of taxation of payments to such Lender of
principal, fee, interest or any other amount payable hereunder (except for
change in the rate of tax on the overall net income of such Lender);
(2) Does or shall impose, modify or hold applicable any
reserve, capital requirement, special deposit, compulsory loan or similar
requirements against assets held by, or deposits or other liabilities in
or for the account of, advances or loans by, or other credit extended by,
or any other acquisition of funds by, any office of such Lender which are
not otherwise included in the determination of interest payable on the
Obligations; or
(3) Does or shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender of
making, renewing or maintaining any Loan or to reduce any amount receivable in
respect thereof or the rate of return on the capital of such Lender or any
corporation controlling such Lender, then, in any such case, the Company shall
promptly pay to such Lender, upon its written demand made through the Agent, any
additional amounts necessary to compensate such Lender for such additional cost
or reduced amounts receivable or rate of return as determined by such Lender
with respect to this Agreement or Loans made or Letters of Credit issued
hereunder. If a Lender becomes entitled to claim any additional amounts pursuant
to this Paragraph 3(e), it shall promptly notify the Company of the event by
reason of which it has become so entitled. A certificate as to any additional
amounts payable pursuant to the foregoing sentence containing the calculation
thereof in reasonable detail submitted by a Lender to the Company shall be
conclusive in the absence of manifest error. The provisions hereof shall survive
the termination of this Agreement and payment of the outstanding Loans and other
Obligations.
5
<PAGE> 6
3(f) Funding. Each Lender shall be entitled to fund all or any
portion of its Loans in any manner it may determine in its sole discretion,
including, without limitation, in the Grand Cayman inter-bank market, the London
inter-bank market and within the United States, but all calculations and
transactions hereunder shall be conduced as though all Lenders actually fund all
Eurodollar Rate Loans through the purchase of offshore dollar deposits in the
amount of the relevant Eurodollar Rate Loan in maturities corresponding to the
applicable Interest Periods.
3(g) Prepayment Premium. In addition to all other payment
obligations hereunder, in the event: (1) any Loan which is outstanding as a
Eurodollar Rate Loan is prepaid prior to the last day of the applicable Interest
Period, whether following the occurrence of an Event of Default or otherwise, or
(2) the Company shall fail to continue or to make a conversion to a Eurodollar
Rate Loan after the Company has given notice thereof as provided in Paragraph
3(b) above, then the Company shall immediately pay to the Lenders holding the
Loans prepaid or not made, continued or converted, through the Agent, an
additional premium sum compensating each Lender for losses, costs and expenses
incurred by such Lender in connection with such prepayment or such failure to
borrow, continue or convert. The Company acknowledges that such losses, costs
and expenses are difficult to quantify and that, in the case of the prepayment
of or failure to continue or convert to a Eurodollar Loan, the following formula
represents a fair and reasonable estimate of such losses, costs and expenses:
<TABLE>
<S> <C> <C> <C> <C> <C>
Amount [Applicable Eurodollar Rate ] Days Remaining
Being [Eurodollar Rate for such Incre- ] in Interest
Prepaid or [for Increment ment for Days ] x Period
Being x [Being Prepaid - Remaining in ] -------------
Not Borrowed, [or Not Borrowed, Interest ] 360
Converted or [Converted or Period ]
or Continued [Continued (as quoted on the first
Eurodollar Business Day
Following Lenders' receipt
of notice thereof)
</TABLE>
For purposes of calculating the current Eurodollar Rate for the days remaining
in the Interest Period for both the increment being prepaid or not converted or
continued, said current Eurodollar Rate shall be an interest rate interpolated
between Eurodollar Rates quoted for standard calendar periods for subsequent
months' maturities in accordance with normal conventions. A certificate as to
any additional amounts payable pursuant to the foregoing sentence containing the
calculation thereof in reasonable detail submitted by a Lender to the Company
shall be conclusive in the absence of manifest error. The provisions hereof
shall survive the termination of this Agreement and the payment of all other
Obligations.
3(h) Fees. The Company shall pay the following fees:
(1) To the Agent for the pro rata benefit of the Lenders
in accordance with their respective Percentage Shares, on the last
Business Day of each
6
<PAGE> 7
calendar quarter (and on the Maturity Date) for such calendar quarter (or
portion thereof), a non-usage fee in the amount set forth in a fee billing
delivered by the Agent to the Company, which non-usage fee shall equal:
(1) the average daily Aggregate Credit Limit in effect during such
calendar quarter (or portion thereof), minus the sum of the daily average
outstanding principal balance of the Term Loan and the daily average
outstanding amount of Revolving Loans during such calendar quarter (or
portion thereof), multiplied by (2) the product of: (i) one quarter of one
percent (0.25%), and (ii) a fraction, the numerator of which is the number
of days in the applicable calculation period and the denominator of which
is 360.
(2) To the Agent for its own account, such fees in such
amounts and payable at such times as the Company and the Agent may from
time to time agree in writing.
3(i) Default Interest. Notwithstanding anything to the
contrary contained herein, on any date that there shall have occurred and be
continuing an Event of Default, any and all Obligations outstanding shall bear
interest at a per annum rate equal to two percent (2%) in excess of the rate
applicable to each respective Loan then outstanding under this Agreement or, in
the case of Obligations other than Loans, two percent (2%) in excess of the
highest rate applicable to Loans then outstanding.
3(j) Computations. All computations of interest and fees
payable hereunder shall be based upon a year of three hundred and sixty (360)
days for the actual number of days elapsed.
3(k) Obligation of Lenders to Mitigate; Replacement of
Lenders. Each Lender agrees that:
(1) As promptly as practicable after the officer of such
Lender responsible for administering the Loans of such Lender becomes
aware of any event or condition that would entitle such Lender to receive
payments under Paragraphs 3(e) above, such Lender will use reasonable
efforts (i) to make, issue, fund or maintain the affected Loans of such
Lender through another lending office of such Lender or (ii) take such
other measures as such Lender may deem reasonable, if as a result thereof
the additional amounts which would otherwise be required to be paid to
such Lender pursuant to Paragraph 3(e) above would be materially reduced
or eliminated and if, as determined by such Lender in its sole discretion,
the making, issuing, funding or maintaining or purchasing of such Loans
through such other lending office or in accordance with such other
measures, as the case may be, would not otherwise materially adversely
affect such Loans or the interests of such Lender.
(2) If the Company receives a notice pursuant to
Paragraph 3(e) above stating that a Lender is unable to take such steps as
are set forth in subparagraph (1) above, so long as (i) no Potential
Default or Event of Default shall have occurred and be continuing, (ii)
the Company has obtained a commitment from another Lender or another
financial institution reasonably acceptable to the Agent to purchase at
par such
7
<PAGE> 8
Lender's Loans and Maximum Commitment, together with accrued interest and
fees and to assume all obligations of the Lender to be replaced under the
Loan Documents, and (iii) such Lender to be replaced is unwilling to
withdraw the applicable notices delivered to the Company, upon thirty (30)
days' prior written notice to such Lender and the Agent and payment of any
amounts then due to such Lender under Paragraph 3(e) above, the Company
may require, at the Company's expense and subject to payment of such
additional amounts as may become due under Paragraph 3(g) above as a
result of such action, the Lender giving such notice to assign, without
recourse, all of its Loans and Maximum Commitment, accrued interest and
fees to such other Lender or financial institution pursuant to the
provisions of Paragraph 12 below.
4. Miscellaneous Provisions.
4(a) Open Book Account. The obligation of the Company to repay
the Loans shall be evidenced by a notation on the books and records of the Agent
and each Lender. The Agent shall deliver a statement of account to the Company
and each Lender monthly setting forth the unpaid balance of Loans outstanding
hereunder. Such statement shall (absent clerical error) be deemed conclusively
correct and accepted by the Company and the Lenders unless any of such Persons
notifies the Agent to the contrary within ten (10) Business Days following
delivery of such statement. Upon any advance, conversion or prepayment with
respect to any Loan, each Lender is hereby authorized to record the date and
amount of each such advance and conversion made by such Lender, or the date and
amount of each such payment or prepayment of principal of the Loan made by such
Lender, the applicable Interest Period and interest rate with respect thereto,
on its books (or by any analogous method any Lender may elect consistent with
its customary practices) and any such recordation shall constitute prima facie
evidence of the accuracy of the information so recorded absent manifest error.
The failure of the Agent or any Lender to make any such notation shall not
affect in any manner or to any extent the Company's Obligations hereunder.
4(b) Nature and Place of Payments. All payments made on
account of the Obligations shall be made by the Company to the Agent for the
account of the Lenders or the Agent, as applicable, without setoff or
counterclaim, in lawful money of the United States of America in immediately
available same day funds, free and clear of and without deduction for any taxes,
fees or other charges of any nature whatsoever imposed by any taxing authority
and must be received by the Agent by 10:00 a.m. (Los Angeles time) on the day of
payment, it being expressly agreed and understood that if a payment is received
after 10:00 a.m. (Los Angeles time) by the Agent, such payment will be
considered to have been made by the Company on the next succeeding Business Day
and interest thereon shall be payable by the Company at the then applicable rate
during such extension. All payments on account of the Obligations shall be made
to the Agent through its Contact Office . If any payment required to be made by
the Company hereunder becomes due and payable on a day other than a Business
Day, the due date thereof shall be extended to the next succeeding Business Day
and interest thereon shall be payable at the then applicable rate during such
extension.
4(c) Prepayments.
8
<PAGE> 9
(1) The Company may prepay Loans hereunder in whole or
in part at any time.
(2) The Company shall pay in connection with any
prepayment hereunder all interest accrued but unpaid on Loans to which
such prepayment is applied, and all prepayment premiums, if any, on
Eurodollar Rate Loans to which such prepayment is applied, concurrently
with payment to the Agent of any principal amounts.
(3) Principal prepayments on the Term Loan shall be
applied against principal installments on the Term Loan in inverse order
of maturity.
4(d) Allocation of Payments Received. Prior to the occurrence
of an Event of Default and acceleration of the Obligations, all amounts received
by the Agent on account of the Loans shall be applied against Loans in such
order as the Company may direct in writing, subject to the requirement that
disbursements to the Lenders shall be in accordance with their respective
Percentage Shares. Such amounts shall be disbursed by the Agent to the Lenders
pro rata in accordance with their respective Percentage Shares by wire transfer
on the date of receipt if received by the Agent before 10:00 a.m. (Los Angeles
time) or if received later, by 12:00 noon (Los Angeles time) on the next
succeeding Business Day, without further interest payable by the Agent.
Following the occurrence of an Event of Default and acceleration of the
Obligations, all amounts received by the Agent on account of the Obligations
shall be disbursed by the Agent as follows:
(1) First, to the payment of reasonable expenses
incurred by the Agent in the performance of its duties and enforcement of
its rights and the rights of the Lenders under the Loan Documents,
including, without limitation, all costs and expenses of collection,
attorneys' fees, court costs and foreclosure expenses;
(2) Then, to the Lenders, pro rata in accordance with
their respective Percentage Shares, until all outstanding Loans and
interest accrued thereon and all other Obligations have been paid in full,
said amounts to be allocated first to interest and then, but only after
all accrued interest has been paid in full, to principal of Loans and,
finally, to all other Obligations; and
(3) Then, to such Persons as may be legally entitled
thereto.
4(e) Telephonic/Facsimile Communications. Any agreement of the
Agent and the Lenders herein to receive certain notices by telephone or
facsimile is solely for the convenience and at the request of the Company. The
Agent and the Lenders shall be entitled to rely on the authority of any Person
purporting to be an authorized Person and the Agent and the Lenders shall not
have any liability to the Company or other Person on account of any action taken
or not taken by the Agent or the Lenders in reliance upon such telephonic or
facsimile notice other than actions or inactions constituting gross negligence
or willful misconduct on the part of the Agent and the Lenders. The obligation
of the Company to repay the Loans shall not be affected in any way or to any
extent by any failure by the Agent and the Lenders to receive written
confirmation of any telephonic or facsimile notice or the receipt by the Agent
and the
9
<PAGE> 10
Lenders of a confirmation which is at variance with the terms understood by the
Agent and the Lenders to be contained in the telephonic or facsimile notice.
4(f) Use of Proceeds. The proceeds of the Loans shall be used
for general corporate purposes consistent with the terms and provisions of this
Agreement.
5. Collateral Security; Negative Pledge Agreement; Additional
Documents.
5(a) Collateral Security. As collateral security for the
Obligations, on or before the Effective Date the Company shall deliver to the
Agent each of the following (collectively, the "Initial Collateral Documents"):
(1) the Stock Pledge Agreement, pursuant to which the Company shall pledge and
grant to the Agent for the benefit of the Lenders and the Lenders from time to
time party hereto, a first priority perfected security interest in and lien upon
all existing and hereafter outstanding capital stock of the Pledged Subsidiaries
(collectively, the "Pledged Stock"); (2) all stock certificates evidencing the
Pledged Stock outstanding on the Effective Date accompanied by blank stock
powers covering such Pledged Stock, and (3) such UCC-1 financing statements as
the Agent shall request.
5(b) Negative Pledge Agreements. On or before the Effective
Date the Company shall cause each of the Pledged Subsidiaries to execute and
deliver to the Agent the Negative Pledge Agreement, pursuant to which such
Pledged Subsidiary shall covenant and agree that until the Obligations have been
paid in full and the credit facility evidenced hereby terminated, such Pledged
Subsidiary will not grant or permit to exist any Lien upon any of its property
or assets, including, without limitation, any capital stock of Subsidiaries
owned by it, other than Liens expressly created or permitted under the Loan
Documents.
5(c) Additional Documents. The Company agrees to execute and
deliver and to cause to be executed and delivered to the Agent from time to time
such documents, instruments and agreements as are in the Agent's judgment
reasonably necessary to obtain for the Agent on behalf of the Lenders the
benefit of the Pledged Stock, the Negative Pledge Agreements and the other Loan
Documents.
6. Conditions Precedent.
6(a) First Loan. As conditions precedent to the funding of the
first Loan hereunder:
(1) The Company shall have delivered or shall have had
delivered to the Agent, in form and substance reasonably satisfactory to
the Agent and its counsel, each of the following (with sufficient copies
for each of the Lenders):
(i) A duly executed copy of this Agreement;
(ii) A duly executed copy of the Stock Pledge
Agreement and the other Initial Collateral Documents;
10
<PAGE> 11
(iii) The Negative Pledge Agreement, duly executed
by each of the Pledged Subsidiaries;
(iv) Certified copies of resolutions of the Board
of Directors of the Company approving the execution and delivery of
the Loan Documents to which the Company is party;
(v) A certificate of the Secretary or an Assistant
Secretary of the Company certifying the names and true signatures of
the officers of the Company authorized to sign the Loan Documents to
which the Company is party;
(vi) Certified copies of resolutions of the Boards
of Directors of each of the Pledged Subsidiaries approving the
execution and delivery of the Negative Pledge Agreement to be
executed by such Pledged Subsidiary;
(vii) A certificate of the Secretary or an
Assistant Secretary of each of the Pledged Subsidiaries certifying
the names and true signatures of the officer(s) of the Pledged
Subsidiary authorized to sign the Negative Pledge Agreement to be
executed by such Pledged Subsidiary;
(viii) A copy of the Certificate of Incorporation
of the Company, certified by the Secretary of State of the State of
Delaware as of a recent date;
(ix) A copy of each of the Certificate of
Incorporation and Bylaws of the Company, certified by the Secretary
or an Assistant Secretary of the Company as of the date of this
Agreement as being accurate and complete;
(x) A certificate of good standing or status of
the Company from the Secretary of State of the States of Delaware
and California as of a recent date;
(xi) A Closing Certificate, duly executed by an
Authorized Officer, dated as of the date of the first Loan
hereunder, confirming the accuracy and completeness of the
representations and warranties of the Company set forth in the Loan
Documents and the fact that there does not exist a Potential Default
or an Event of Default;
(xii) A Financial Covenant Compliance Certificate,
duly executed by an Authorized Officer, dated at and as of June 30,
1998 and evidencing compliance by the appropriate Persons with the
requirements of Paragraphs 9(g)(3), 9(g)(4), 9(g)(5), 9(g)(7),
9(g)(8), 9(j), 9(k), 9(l), 9(m), 9(n), 9(o) and 9(p) below;
(xiii) An opinion of Stradling Yocca Carlson &
Rauth, counsel to the Company and the Pledged Subsidiaries;
11
<PAGE> 12
(xiv) For each of the Pledged Subsidiaries,
consents to the pledge of the Pledged Shares thereof (or written
waiver of the requirement for any such consent) from the Applicable
Insurance Regulatory Authority, in form and substance to the Agent
and the Lenders, or other evidence, including without limitation, an
opinion of counsel to the Company and the Pledged Subsidiaries
satisfactory to the Agent and the Lenders, that such filing or
waiver is not required;
(xv) Evidence satisfactory to the Agent and the
Lenders that upon the funding of the first Loan, all Indebtedness of
the Company to Sanwa with respect to the Existing Bridge Facility
shall have been paid in full, the credit facility evidenced thereby
terminated and any and all Liens in favor of Sanwa securing the
Existing Bridge Facility released; and
(xvi) The Agent's Fee Letter, duly executed by the
Company.
(2) The Agent shall have delivered to the Company and
each of the Lenders the initial Commitment Schedule, which shall be
acceptable to the Company and each of the Lenders.
(3) All acts and conditions (including, without
limitation, the obtaining of any necessary regulatory approvals and the
making of any required filings, recordings or registrations) required to
be done and performed and to have happened precedent to the execution,
delivery and performance of the Loan Documents and to constitute the same
legal, valid and binding obligations, enforceable in accordance with their
respective terms, shall have been done and performed and shall have
happened in due and strict compliance with all applicable laws.
(4) All documentation, including, without limitation,
documentation for corporate and legal proceedings in connection with the
transactions contemplated by the Loan Documents, shall be reasonably
satisfactory in form and substance to the Agent and its counsel.
6(b) All Loans. As conditions precedent to each Lender's
obligation to advance its Percentage Share of any Loan, including the first Loan
and including the conversion of any Loan to another type of Loan or the
continuation of any Eurodollar Rate Loan after the end of its applicable
Interest Period, at and as of the date of such advance, conversion or
continuation:
(1) There shall have been delivered to the Agent a Loan
Request therefor;
(2) The representations and warranties of the Company
contained in the Loan Documents shall be accurate and complete in all
material respects as if made on and as of the date of such advance,
conversion or continuance;
12
<PAGE> 13
(3) There shall not have occurred an Event of Default or
Potential Default; and
(4) If the Loan is a Revolving Loan, following the
funding thereof the aggregate principal amount of Revolving Loans
outstanding shall not exceed the limitations of Paragraph 1(a) above.
By delivering a Loan Request to the Agent hereunder, the Company shall be deemed
to have represented and warranted the accuracy and completeness of the
statements set forth in subparagraphs (b)(2) through (b)(4) above.
7. Representations and Warranties of the Company.
As an inducement to the Agent and each Lender to enter into this Agreement
and to make Loans as provided herein, the Company represents and warrants to the
Agent and each Lender that:
7(a) Financial Condition. The financial statements, dated the
Statement Date and the Interim Date, copies of which have heretofore been
furnished to each Lender, are complete and correct (subject, in the case of the
statements dated the Interim Date, to year-end audit adjustments) and present
fairly in accordance with GAAP the financial condition of the Company and its
consolidated Subsidiaries at such dates and the consolidated and consolidating
results of their operations and cash flows for the fiscal periods then ended. In
addition, the Company has furnished to each Lender for each of the Significant
Insurance Subsidiaries: (1) the annual Statutory Statement or any other
financial statement required to be filed by or on behalf of such Significant
Insurance Subsidiary with any Applicable Insurance Regulatory Authority for the
fiscal year ended December 31, 1997 and (2) the quarterly Statutory Statement or
any other financial statement required to be filed by or on behalf of such
Significant Insurance Subsidiary with any Applicable Insurance Regulatory
Authority for the fiscal quarter ended March 31, 1998. Such Statutory Statements
and other financial statements present fairly in accordance with SAP the
financial condition of the Significant Insurance Subsidiaries and the results of
operations for the fiscal periods then ended.
7(b) No Change. Since the Statement Date there has been no
material adverse change in the business, operations, assets or financial or
other condition of the Company, any Pledged Subsidiary or the Company and its
Subsidiaries taken as a whole. Except as expressly disclosed in writing to the
Agent and the Lenders prior to the Effective Date (including disclosures in
filings with the Securities and Exchange Commission), from the Statement Date
through the Effective Date neither the Company nor any of its Subsidiaries has
entered into, incurred or assumed any material long-term debt, mortgages, leases
or oral or written commitments, nor commenced any significant project, nor made
any purchase or acquisition of any significant property.
7(c) Corporate Existence; Compliance with Law. The Company and
each of its Subsidiaries: (1) is duly organized, validly existing and in good
standing as a corporation under the laws of the jurisdiction of its organization
and is qualified to do business in
13
<PAGE> 14
each jurisdiction where its ownership of property or conduct of business
requires such qualification and where failure to qualify would have a material
adverse effect on the Company or such Subsidiary or its property and/or business
or on the ability of the Company or such Subsidiary to pay or perform the
Obligations, (2) has the corporate power and authority and the legal right to
own and operate its property and to conduct business in the manner in which it
does and proposes so to do, (3) has all material governmental licenses,
authorizations, consents and approvals necessary to own its assets and carry on
its business as not being or proposed to be conducted, and (4) is in compliance
with all Requirements of Law and Contractual Obligations, the failure to comply
with which could have a material adverse effect on the business, operations,
assets or financial or other condition of the Company, any Pledged Subsidiary or
the Company and its Subsidiaries taken as a whole.
7(d) Corporate Power; Authorization; Enforceable Obligations.
The Company and each of the Pledged Subsidiaries has the corporate power and
authority and the legal right to execute, deliver and perform the Loan Documents
to which it is a party and has taken all necessary corporate action to authorize
the execution, delivery and performance of such Loan Documents. The Loan
Documents to which the Company and the Pledged Subsidiaries are party have been
duly executed and delivered on behalf of such Person and, assuming that the Loan
Documents are duly executed by the Agent and the Lenders, as applicable,
constitute legal, valid and binding obligations of such Person enforceable
against such Person in accordance with their respective terms, subject to the
effect of applicable bankruptcy and other similar laws affecting the rights of
creditors generally and the effect of equitable principles whether applied in an
action at law or a suit in equity.
7(e) No Legal Bar. The execution, delivery and performance of
the Loan Documents to which the Company and the Pledged Subsidiaries are party,
the borrowing hereunder and the use of the proceeds thereof, will not violate
any Requirement of Law or any Contractual Obligation of the Company or any of
its Subsidiaries the violation of which could have a material adverse effect on
the business, operations, assets or financial or other condition of the Company,
any Pledged Subsidiary or the Company and its Subsidiaries taken as a whole or
create or result in the creation of any Lien on any assets of the Company or any
of its Subsidiaries, except Liens created pursuant to or permitted under the
Loan Documents.
7(f) No Material Litigation. Except as disclosed on Exhibit A
hereto, no litigation, investigation or proceeding of or before any arbitrator,
court or Governmental Authority is pending or, to the knowledge of the Company,
threatened by or against the Company or any of its Subsidiaries or against any
of such parties' properties or revenues which is likely to be adversely
determined and which, if adversely determined, is likely to have a material
adverse effect on the business, operations, property or financial or other
condition of the Company, any Pledged Subsidiary or the Company and its
Subsidiaries taken as a whole.
7(g) Taxes. The Company and each of its Subsidiaries have
filed or caused to be filed all material tax returns that are required to be
filed and have paid all taxes shown to be due and payable on said returns or on
any assessments made against them or any of their property other than taxes
which are being contested in good faith by appropriate
14
<PAGE> 15
proceedings and as to which the Company or applicable Subsidiary has established
adequate reserves in conformity with GAAP.
7(h) Investment Company Act. The Company is not an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940, as amended.
7(i) Subsidiaries. Attached hereto as Exhibit B is an accurate
and complete list of all direct and indirect Subsidiaries of the Company and of
Subsidiaries of the Company, their respective jurisdictions of incorporation and
the percentage of their capital stock owned by the Company or other
Subsidiaries. All of the issued and outstanding shares of capital stock of such
Subsidiaries have been duly authorized and issued and are fully paid and
non-assessable.
7(j) Federal Reserve Board Regulations. Neither the Company
nor any of its Subsidiaries is engaged or will engage, principally or as one of
its important activities, in the business of extending credit for the purpose of
"purchasing" or "carrying" any "margin stock" within the respective meanings of
such terms under Regulation U. No part of the proceeds of any Loan issued
hereunder will be used for "purchasing" or "carrying" "margin stock" as so
defined or for any purpose which violates, or which would be inconsistent with,
the provisions of the Regulations of the Board of Governors of the Federal
Reserve System.
7(k) ERISA. The Company and each of its Subsidiaries are in
compliance in all respects with the requirements of ERISA and no Reportable
Event has occurred under any Plan maintained by the Company or any of its
Subsidiaries which is likely to result in the termination of such Plan for
purposes of Title IV of ERISA.
7(l) Assets. The Company and each of its Subsidiaries has good
and marketable title to all property and assets reflected in the financial
statements dated the Interim Date referred to in Paragraph 7(a) above, except
property and assets sold or otherwise disposed of in compliance with Paragraph
9(h) below. Neither the Company nor any of its Subsidiaries has outstanding
Liens on any of its properties or assets nor are there any security agreements
to which the Company or any of its Subsidiaries is a party, or title retention
agreements, whether in the form of leases or otherwise, of any personal property
except as reflected in the financial statements referred to in Paragraph 7(a)
above or as permitted under Paragraph 9(a) below.
7(m) Securities Acts. The Company has not issued any
unregistered securities in violation of the registration requirements of Section
5 of the Securities Act of 1933, as amended, or any other law, and is not
violating any rule, regulation or requirement under the Securities Act of 1933,
as amended, or the Securities and Exchange Act of 1934, as amended. The Company
is not required to qualify an indenture under the Trust Indenture Act of 1939,
as amended, in connection with its execution and delivery of the Loan Documents.
7(n) Consents, Etc. No consent, approval, authorization of, or
registration, declaration or filing with any Governmental Authority or any other
Person is required on the part of the Company or any of its Subsidiaries in
connection with the execution and delivery of the Loan Documents or the
performance of or compliance with the terms,
15
<PAGE> 16
provisions and conditions hereof or thereof, including, without limitation, with
respect to the pledge of the Pledged Shares and in connection with a foreclosure
or other exercise of remedies with respect to the Pledged Shares, other than
such as have been obtained prior to or concurrently with the occurrence of the
Effective Date.
7(o) Copyrights, Patents, Trademarks and Licenses, etc. The
Company and each of its Subsidiaries owns or is licensed or otherwise has the
right to use all of the patents, trademarks, service marks, trade names,
copyrights, contractual franchises, authorizations and other rights that are
reasonably necessary for the operation of its business, without conflict with
the rights of any other Person. To the best knowledge of the Company, no slogan
or other advertising device, product, process, method, substance, part or other
material now employed, or now contemplated to be employed, by the Company or any
of its Subsidiaries infringes upon any rights held by any other Person. Except
as specifically disclosed on Exhibit A hereto, no claim or litigation regarding
any of the foregoing is pending or, to the knowledge of the Company, threatened,
and, to the knowledge of the Company, no patent, invention, device, application,
principle or any statute, law, rule, regulation, standard or code is pending or
proposed, which, in either case, could, reasonably be expected to have a
material adverse effect on the Company or any of its Subsidiaries.
7(p) Hazardous Materials. To the best knowledge of the
Company, neither the Company, any of its Subsidiaries nor any other Person has:
(1) caused or permitted any Hazardous Materials to be disposed of in, on, under
or about any Property or any part thereof, and no Property, nor any part
thereof, has ever been used (whether by the Company, any of its Subsidiaries or,
to the best knowledge of the Company, by any other Person) for activities
involving, directly or indirectly, the disposal of any Hazardous Materials; (2)
caused or permitted to be incorporated into or utilized in the construction of
any improvements located on any Property any chemical, material, or substance to
which exposure is prohibited, limited or regulated by any Hazardous Materials
Laws or which, even if not so regulated, is known to pose a hazard (either in
its present form or if disturbed or removed) to the health and safety of the
occupants of such Property or of property adjacent to the Property; or (3)
discovered any occurrence or condition on any Property that could cause such
Property or any part thereof to be in violation of any Hazardous Materials Laws.
7(q) Regulated Entities. The Company is not subject to
regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act, the Interstate Commerce Act, any state public utilities code, or any
other Federal or state statute or regulation limiting its ability to incur
Indebtedness.
7(r) Insurance Licenses. Each of the Insurance Subsidiaries
holds active Licenses for the transaction of the line or lines of insurance in
which it is engaged in all jurisdictions in which it conducts, directly or
indirectly, any material insurance business. No such License is the subject of a
proceeding for suspension or revocation or any similar proceedings, there is no
sustainable basis for such a suspension or revocation, and to the Company's
knowledge no such suspension or revocation has been threatened, in any case in
which such suspension or revocation is likely to have a material adverse effect
on the business,
16
<PAGE> 17
operations, property or financial or other condition of the Company, any Pledged
Subsidiary or the Company and its Subsidiaries taken as a whole.
8. Affirmative Covenants. The Company hereby covenants and agrees
with the Agent and each Lender that, as long as any Obligations remain unpaid or
any Lender has any obligation to advance its Percentage Share of Loans
hereunder, the Company shall:
8(a) Financial Statements. Furnish or cause to be furnished to
the Agent and to each of the Lenders directly (without the need for duplication
of any of the required items is the same are included in other materials being
delivered concurrently):
(1) Within one hundred five (105) days after the last
day of each fiscal year of the Company: (i) consolidated statements of
income and cash flows of the Company and its consolidated Subsidiaries for
such year and balance sheets as of the end of such year presented fairly
in accordance with GAAP and accompanied by an unqualified report of a firm
of independent certified public accountants reasonably acceptable to the
Agent, (ii) internally prepared consolidating statements of income and
balance sheets as of the end of such year presented fairly in accordance
with GAAP, and (iii) a copy of the Company's 10K filed with the Securities
and Exchange Commission for such fiscal year;
(2) Within sixty (60) days after the last day of each of
the first three fiscal quarters of the Company: (i) consolidated
statements of income and cash flows for the Company and its consolidated
Subsidiaries for such calendar quarter and balance sheets as of the end of
such calendar quarter, (ii) internally prepared consolidating statements
of income and balance sheets as of the end of such year presented fairly
in accordance with GAAP, and (iii) a copy of the Company's 10Q filed with
the Securities and Exchange Commission for such fiscal quarter;
(3) Concurrently with the delivery of each of the
financial statements delivered pursuant to subparagraph (1) and (2) above:
(i) a certificate of an Authorized Officer stating that such financial
statements are presented fairly in accordance with GAAP (subject, with
respect to interim periods, to ordinary year-end audit adjustments),
confirming as of the last day of such fiscal period the continuing
accuracy and completeness of all representations and warranties of the
Company set forth in the Loan Documents or, with respect to any
representation and warranty made as of a specific date, the accuracy and
completeness as of such date, and that there does not exist a Potential
Default or an Event of Default hereunder, and (ii) a Financial Covenant
Compliance Certificate;
(4) Within one hundred five (105) days after the last
day of each fiscal year of each Significant Insurance Subsidiary: (i) a
copy of the annual Statutory Statement or any other financial statement
required to be filed by or on behalf of such Significant Insurance
Subsidiary with any Applicable Insurance Regulatory Authority for such
fiscal year, and (ii) a certificate of an Authorized Officer of the
Company stating
17
<PAGE> 18
that such Statutory Statement and/or other financial statements are
presented fairly as required by the Applicable Insurance Regulatory
Authority and fairly represent the financial condition of such Significant
Insurance Subsidiary and that such Significant Insurance Subsidiary is in
compliance with all regulatory and/or statutory reserve requirements
applicable to it;
(5) Within sixty (60) days after the last day of each of
the first three fiscal quarters of each Significant Insurance Subsidiary:
(i) a copy of the quarterly Statutory Statement or any other financial
statement required to be filed by or on behalf of such Significant
Insurance Subsidiary with any Applicable Insurance Regulatory Authority
for such fiscal period, and (ii) a certificate of an Authorized Officer
stating that such financial statements are presented fairly as required by
the Applicable Insurance Regulatory Authority and fairly represent the
financial condition of such Significant Insurance Subsidiary and that such
Significant Insurance Subsidiary is in compliance with all regulatory
and/or statutory reserve requirements applicable to it;
(6) Within fifteen (15) days following the filing
thereof, copies of all financial statements, reports and proxy statements
and all regular and periodic reports and all registration statements which
the Company files with the Securities and Exchange Commission (or any
successor agency);
(7) As soon as received by the Company, a copy of any
final financial examination report (including, without limitation, any
report in respect of any tri-annual examination conducted by any
Applicable Insurance Regulatory Authority) or market conduct examination
report issued by or prepared for any governmental authority (including any
Applicable Insurance Regulatory Authority and NAIC) with respect to any
Significant Insurance Subsidiary;
(8) Immediately, notice of any actual (or threatened
action that could lead to the) suspension, termination or revocation of
any License of any Significant Insurance Subsidiary by any Governmental
Authority (including any Applicable Insurance Regulatory Authority),
including any notice by any Governmental Authority of the commencement of
any proceeding, hearing or administrative action to suspend, terminate or
revoke any such License;
(9) Promptly after the Company knows or has reason to
believe that any Applicable Insurance Regulatory Authority or other
regulator having jurisdiction over the Company or any of its Significant
Insurance Subsidiaries has commenced any proceeding, issued any order,
given notice of a formal hearing, sought relief from any court or taken
any similar action with respect to the Company or any of its Significant
Insurance Subsidiaries that seeks to, or would, result in the revocation
of any License or other authorization of the Company or any of its
Significant Insurance Subsidiaries or materially restrict the ability of
the Company or any of its Significant Insurance Subsidiaries to do
business in any jurisdiction, a notice describing in reasonable detail
such proceeding, order, hearing or similar action; and
18
<PAGE> 19
(10) Promptly following the delivery or receipt by the
Company or any of its Subsidiaries of any other material correspondence,
notice or report to or from any Applicable Insurance Regulatory Authority
(including, without limitation, any NAIC specified real estate and
mortgage survey, or any successor report or survey, filed with the NAIC),
a copy thereof.
8(b) Other Information. Promptly furnish or cause to be
furnished to the Agent (with the Agent providing the same to each of the
Lenders) such additional financial and other information, including, without
limitation, financial statements of the Company and the Pledged Subsidiaries, as
the Agent or any Lender (through the Agent) may from time to time reasonably
request, including, without limitation, such information as is necessary to
enable any Lender to participate out or assign any of its interests in the Loans
and other Obligations hereunder or to enable other financial institutions to
become signatories hereto.
8(c) Payment of Indebtedness. And shall cause each of its
Subsidiaries to, pay, discharge or otherwise satisfy at or before maturity or
before it becomes delinquent, defaulted or accelerated, as the case may be, all
its Indebtedness (including taxes), except: (1) Indebtedness being contested in
good faith and for which provision is made to the satisfaction of the Agent for
the payment thereof in the event the Company or such Subsidiary is found to be
obligated to pay such Indebtedness and which Indebtedness is thereupon promptly
paid by the Company or such Subsidiary, and (2) additional Indebtedness in an
amount not to exceed $1,000,000.00 in the aggregate at any date outstanding.
8(d) Maintenance of Existence and Properties. And shall cause
each of its Subsidiaries to: (1) maintain its corporate existence and maintain
all rights, privileges, licenses, approvals, franchises, properties and assets
necessary or desirable in the normal conduct of its business (except to the
extent expressly permitted under the Loan Documents), and (2) comply with all
Contractual Obligations and Requirements of Law the failure to comply with which
could have a material adverse effect on the business, operations, assets or
financial or other condition of the Company, any Pledged Subsidiary or the
Company and its Subsidiaries taken as a whole.
8(e) Inspection of Property; Books and Records; Discussions.
And shall cause each of its Subsidiaries to, keep proper books of record and
account in which full, true and correct entries in conformity with GAAP and all
Requirements of Law the failure to comply with which could have a material
adverse effect on the business, operations, assets or financial or other
condition of the Company, any Pledged Subsidiary or the Company and its
Subsidiaries taken as a whole shall be made of all dealings and transactions in
relation to its business and activities, and permit representatives of the Agent
or any Lender (at no cost or expense to the Company or any Subsidiary and during
normal business hours unless there shall have occurred and be continuing an
Event of Default) to visit and inspect any of its properties and examine and
make abstracts from any of its books and records at any reasonable time and as
often as may reasonably be desired by the Agent or any Lender and to discuss the
business, operations, properties and financial and other condition of the
Company and any of its
19
<PAGE> 20
Subsidiaries with officers and employees of such parties, and with their
independent certified public accountants.
8(f) Notices. Promptly give written notice to the Agent (with
the Agent providing the same to each of the Lenders) of:
(1) The occurrence of any Potential Default or Event of
Default;
(2) Any litigation or proceeding affecting the Company
or any of its Subsidiaries which is likely to be resolved adversely and
which if resolved adversely could have a material adverse effect on the
business, operations, property, or financial or other condition of the
Company, any Pledged Subsidiary or the Company and its Subsidiaries taken
as a whole;
(3) Any material adverse change in the business,
operations, property or financial or other condition of the Company, any
Pledged Subsidiary or the Company and its Subsidiaries taken as a whole;
and
(4) Prior to the occurrence thereof, the formation or
acquisition of any Subsidiary following the Effective Date as to which the
Company or such Subsidiary will make investments or contributions in an
aggregate amount in excess of $5,000,000.00.
8(g) Expenses. Pay all reasonable out-of-pocket expenses
(including fees and disbursements of counsel): (1) of the Agent incident to the
preparation, negotiation and administration of the Loan Documents and the
protection of the rights of the Lenders and the Agent under the Loan Documents,
and (2) of the Agent and, following the occurrence of an Event of Default, each
of the Lenders incident to the enforcement of payment of the Obligations,
whether by judicial proceedings or otherwise, including, without limitation, in
connection with bankruptcy, insolvency, liquidation, reorganization, moratorium
or other similar proceedings involving the Company or a "workout" of the
Obligations. The obligations of the Company under this Paragraph 8(g) shall be
effective and enforceable whether or not any Loan is funded hereunder and shall
survive payment of all other Obligations.
8(h) Loan Documents. And shall cause each of the Pledged
Subsidiaries to, comply with and observe all terms and conditions of the Loan
Documents to which the Company or any Pledged Subsidiary is party.
8(i) Insurance. And shall cause each of its Subsidiaries to,
obtain and maintain insurance with responsible companies in such amounts and
against such risks as are usually carried by corporations engaged in similar
businesses similarly situated, and furnish any of the Lenders on request (made
through the Agent) full information as to all such insurance.
8(j) Hazardous Materials. And shall cause each of its
Subsidiaries to:
20
<PAGE> 21
(1) Keep and maintain all Property in compliance with,
and shall not cause or permit any Property to be in violation of, any
federal, state or local laws, ordinances or regulations relating to
industrial hygiene or to the environmental conditions on, under or about
any Property, including, but not limited to, soil and ground water
conditions.
(2) Immediately advise the Agent in writing if any
Hazardous Materials Claims are hereafter asserted, and of any discharge,
release or disposal of any Hazardous Materials in, on, under or about any
Property. The Agent and the Lenders shall have the right to join and
participate in, as parties if they so elect, any legal proceedings or
actions initiated in connection with any Hazardous Materials Claims and to
have their reasonable attorneys' fees in connection therewith paid by the
Company.
(3) Without the prior written consent of the Agent and
the Lenders, take any remedial action in response to the presence of any
Hazardous Materials in, on, under or about any Property, nor enter into
any settlement agreement, consent decree or other compromise in respect to
any Hazardous Material Claims, which remedial action, settlement, consent
or compromise might, in the reasonable judgment of the Agent and the
Lenders impair the value of such Property; provided, however, that the
prior consent of the Agent and the Lenders shall not be necessary in the
event that the presence of Hazardous Materials in, on, under or about a
Property either poses an immediate threat to the health, safety or welfare
of any individual or is of such a nature that an immediate remedial
response is necessary and it is not possible to obtain the consent of the
Agent and the Lenders before taking such action, provided that in such
event the Company shall notify the Agent as soon as practicable of any
action so taken. The Agent and the Lenders agree not to withhold their
consent, where such consent is required hereunder, if either (i) a
particular remedial action is ordered by a court of competent
jurisdiction, or (ii) the Company establishes to the reasonable
satisfaction of the Agent and the Lenders that there is no reasonable
alternative to such remedial action which would result in less impairment
of the value of any Property.
8(k) Compliance with Laws. And shall cause each of its
Subsidiaries to, comply, with all Requirements of Law and Contractual
Obligations the failure to comply with which could have a material adverse
effect on the business, operations, assets or financial or other condition of
the Company, any Pledged Subsidiary or the Company and its consolidated
Subsidiaries taken as a whole.
8(l) Year 2000 Compliance. And shall cause each of its
Subsidiaries to, perform all acts reasonably necessary to ensure that the
Company and such Subsidiaries (and any business in which the Company or any of
its Subsidiaries holds a substantial interest) and all customers, suppliers and
vendors that are material to the Company's or any of its Subsidiaries'
businesses become Year 2000 Compliant in a timely manner. Such acts shall
include, without limitation, performing a comprehensive review and assessment of
all of the systems of the Company and its Subsidiaries and adopting a detailed
plan, with itemized budget, for the remediation and testing of such systems, as
well as ascertaining that the material customers,
21
<PAGE> 22
suppliers and vendors of the Company and its Subsidiaries are taking all
appropriate steps to become Year 2000 Compliant on a timely basis. For purposes
hereof, the phrase "Year 2000 Compliant" shall mean, in regard to any entity,
that the software, hardware, firmware, equipment, goods and systems utilized by
and material to the business operations or financial condition of such entity,
will properly perform date sensitive functions before, during and after the year
2000. The Company shall immediately upon request provide the Agent with such
certifications or other evidence of the compliance of the Company and its
Subsidiaries with the terms hereof as the Agent may from time to time require.
9. Negative Covenants. The Company hereby agrees that, as long as
any Obligations remain unpaid or any Lender has any obligation to advance its
Percentage Share of Loans hereunder, the Company shall not, directly or
indirectly:
9(a) Liens. Create, incur, assume or suffer to exist any Lien
upon the Pledged Stock, and the Company shall not and not permit any Subsidiary
to, create, incur, assume or suffer to exist any Lien upon any of its or their
other property and assets except:
(1) Liens existing on the Effective Date and reflected
in the financial statements referred to in Paragraph 7(a) above (other
than Liens securing the Existing Bridge Facility, which Liens will be
released on the Effective Date);
(2) Liens or charges for current taxes, assessments or
other governmental charges which are not delinquent or which remain
payable without penalty, or the validity of which are contested in good
faith by appropriate proceedings upon stay of execution of the enforcement
thereof, provided that the Company or such Subsidiary, as applicable,
shall have set aside on its books and shall maintain adequate reserves for
the payment of same in conformity with GAAP;
(3) Liens, deposits or pledges made to secure statutory
obligations, surety or appeal bonds, or bonds to obtain, or to obtain the
release of, attachments, writs of garnishment or for stay of execution, or
to secure the performance of bids, tenders, contracts (other than for the
payment of borrowed money), leases or for purposes of like general nature
in the ordinary course of the business of the Company or such Subsidiary;
(4) Purchase money security interests for property
hereafter acquired, conditional sale agreements, or other title retention
agreements, with respect to property hereafter acquired; provided,
however, that no such security interest or agreement shall extend to any
property other than the property acquired;
(5) Statutory Liens of landlord's, carriers,
warehousemen, mechanics, materialmen and other similar Liens imposed by
law and created in the ordinary course of business for amounts not yet due
or which are being contested in good faith by appropriate proceedings and
with respect to which adequate reserves are being maintained in conformity
with GAAP;
22
<PAGE> 23
(6) Attachment and judgment Liens not otherwise
constituting an Event of Default any of which Liens are in existence less
than thirty (30) days after the entry thereof or with respect to which
execution has been stayed, payment is covered in full by insurance, or the
Company or such Subsidiary shall in good faith be prosecuting an appeal or
proceedings for review and shall have set aside on its books such reserves
as may be required by GAAP with respect to such judgment or award;
(7) Liens incidental to the conduct of the business or
the ownership of the property of the Company or such Subsidiary which were
not incurred in connection with borrowed money and which do not in the
aggregate materially detract from the value of the property or materially
impair the use thereof in the operation of the business and which, in any
event, do not secure obligations aggregating in excess for the Company and
all Subsidiaries of $1,000,000.00;
(8) Liens securing Indebtedness of Insurance
Subsidiaries incurred or assumed in connection with the settlement of
claim losses in the ordinary course of business of such Insurance
Subsidiaries;
(9) Easements, rights-of-way, restrictions and other
similar encumbrances incurred in the ordinary course of business and
encumbrances consisting of zoning restrictions, easements, licenses,
restrictions on the use of Property or minor imperfections in title
thereto that, in the aggregate, are not material in amount, and that do
not in any case materially detract from the value of the Property subject
thereto or interfere with the ordinary conduct of the business of the
Company or any of its Subsidiaries;
(10) Liens on assets of a Person which becomes a
Subsidiary after the date of this Agreement pursuant to a Permitted
Acquisition, which Liens are in existence at such time;
(11) Liens on assets of GFI securing the GFI Warehouse
Debt; and
(12) Liens securing Other Permitted Secured Debt.
9(b) Indebtedness. And shall not permit any Subsidiary to,
create, incur, assume or suffer to exist, or otherwise become or be liable in
respect of any Indebtedness except:
(1) The Obligations;
(2) Indebtedness reflected in the financial statements
referred to in Paragraph 7(a) above (other than Indebtedness of the
Company to Sanwa under the Existing Bridge Facility, which Indebtedness
will be paid in full on the Effective Date);
(3) Trade debt incurred in the ordinary course of
business;
23
<PAGE> 24
(4) Indebtedness secured by Liens permitted under
Paragraph 9(a) above;
(5) Subordinated Debt;
(6) Guaranties issued by the Company and other
contingent obligations of the Company covering Indebtedness of
Subsidiaries to non-Affiliates in an aggregate amount not to exceed: (i)
in the case of all Subsidiaries other than GFI, $10,000,000.00, and (ii)
in the case of GFI, that dollar amount which when added to the aggregate
dollar amount of all outstanding advances and loans to, and contributions
by the Company to, and investments by the Company in, GFI from and after
December 31, 1997, do not exceed $35,000,000.00;
(7) Capital leases existing on the date hereof or
otherwise incurred in the ordinary course of business;
(8) Indebtedness of a Person which becomes a Subsidiary
after the date of this Agreement pursuant to a Permitted Acquisition,
which Indebtedness is in existence at such time; and
(9) Other Permitted Secured and Unsecured Debt.
9(c) Consolidation and Merger. And shall not permit any
Subsidiary to, liquidate or dissolve or enter into any consolidation or merger,
partnership, joint venture, syndicate or other combination except:
(1) A consolidation or merger consummated in connection
with a Permitted Acquisition and subject to the Company (if the Company is
involved) being the surviving corporation, or if the Permitted Acquisition
involves a Pledged Subsidiary, such Pledged
Subsidiary being the surviving corporation;
(2) The consolidation or merger of a Pledged Subsidiary
into the Company with the Company being the surviving corporation;
(3) The consolidation or merger of a Pledged Subsidiary
into another Pledged Subsidiary;
(4) The consolidation or merger of a Subsidiary other
than a Pledged Subsidiary into another Subsidiary which is not a Pledged
Subsidiary; and
(5) A partnership or joint venture in which the
investment of the Company or such Subsidiary will not violate Paragraph
9(g) below;
provided, however, that as a condition precedent to any consolidation or merger
otherwise permitted hereunder, there shall have been delivered to the Agent and
the Lenders, prior to the consummation thereof or to the entering into of any
binding agreement to consummate the same,
24
<PAGE> 25
evidence satisfactory to the Agent and the Lenders that neither prior to or
after giving effect to such consolidation or merger will there exist an Event of
Default or Potential Default.
9(d) Acquisitions. And shall not permit any Subsidiary to,
purchase or acquire or incur liability for the purchase or acquisition of all or
any substantial portion of the assets or business of any Person, whether in a
single transaction or a series of transactions, other than Permitted
Acquisitions; provided, however, that as a condition precedent to the right of
the Company or any Subsidiary to consummate a Permitted Acquisition hereunder,
there shall have been delivered to the Agent and the Lenders no later than
thirty (30) days prior thereto evidence satisfactory to the Agent and the
Lenders, including, without limitation, pro forma financial statements in form
and detail satisfactory to the Agent and the Lenders, demonstrating that: (1)
such acquisition meets all requirements set forth in the definition of
"Permitted Acquisition" and (2) both before and after giving effect thereto
there shall not exist an Event of Default or Potential Default.
9(e) Payment of Dividends. Declare or pay any dividends upon
its shares of stock now or hereafter outstanding or make any distribution of
assets to its stockholders as such, whether in cash, property or securities,
except: (1) dividends payable in shares of capital stock and cash in lieu of
fractional shares or in options, warrants or other rights to purchase shares of
capital stock and dividends, (2) dividends payable by the Subsidiaries of the
Company to the Company or to other Subsidiaries of the Company (it being agreed
and understood that the Company shall not permit to exist any Contractual
Obligations restricting the payment of dividends by any Subsidiary to the
Company except those imposed by Applicable Insurance Regulatory Authorities),
and (3) if, but only if, at the date of payment thereof and both before and
after giving effect to the payment thereof there does not exist an Event of
Default or Potential Default, dividends payable by the Company to its
shareholders.
9(f) Purchase or Retirement of Stock. Acquire, purchase,
redeem or retire any shares of its capital stock now or hereafter outstanding at
any time at which there shall exist an Event of Default or Potential Default.
9(g) Investments; Advances. And shall not permit any
Subsidiary to, make or commit to make any advance, loan or extension of credit
or capital contribution to, or purchase any stock, bonds, notes, debentures or
other securities of, or make any other investment in, any Person other than:
(1) Extensions of credit to customers in the ordinary
course of the title insurance business and ancillary or related lines of
business;
(2) Extensions of credit and capital contributions to
and investments in Subsidiaries;
(3) Advances to and investments by the Company in GFI
from and after December 31, 1997 in an outstanding aggregate dollar amount
which when taken with the aggregate dollar amount of outstanding
guaranties and other contingent liabilities
25
<PAGE> 26
of the Company for Indebtedness of GFI to non-Affiliates incurred or
assumed from and after December 31, 1997 does not exceed $35,000,000.00;
(4) Note and loan receivables held by the Company and
Subsidiaries (other than GFI) with an aggregate book value, determined in
accordance with GAAP, for the Company and all such Subsidiaries not to
exceed $20,000,000.00;
(5) Direct and indirect investments in real estate in an
aggregate amount not to exceed $10,000,000.00;
(6) Primary Quality Investments;
(7) Secondary Quality Investments with an aggregate cost
not to exceed sixty six percent (66%) of the Company's Effective Tangible
Net Worth; provided, however, that such Secondary Quality Investments
shall be diversified such that no single such Secondary Quality Investment
with a cost in excess of five percent (5%) of the Company's Effective
Tangible Net Worth shall be in any single Person, except that the Company
may make investments in Secondary Quality Investments which do not meet
such diversification requirement so long as the aggregate cost of such
Secondary Quality Investments does not exceed twenty five percent (25%) of
the Company's Effective Tangible Net Worth;
(8) Other debt and equity investments which are not
traded in recognized public markets in an aggregate cost not to exceed
that amount which when added to the aggregate cost of Secondary Quality
Investments which do not meet the diversification requirements of the
proviso of subparagraph (7) above would exceed twenty five percent (25%)
of the Company's Effective Tangible Net Worth;
(9) Investments in American Title Company in existence
on the Effective Date, as such investments may be increased in the event
of the sale of National Title Company of New York; and
(10) Investments consisting of Permitted Acquisitions.
9(h) Sale of Assets. And shall not permit any Subsidiary to,
sell, lease, assign, transfer or otherwise dispose of any of its assets (other
than obsolete or worn out property), whether now owned or hereafter acquired,
other than in the ordinary course of business as presently conducted and at fair
market value; provided, however, that the Company and its Subsidiaries may sell
the stock of Subsidiaries (other than the Pledged Subsidiaries) at fair market
value and provided that prior to and after giving effect to such sale there does
not exist an Event of Default or Potential Default.
9(i) Restriction on Acquisitions. And shall not permit any
Subsidiary to, acquire more than fifty percent (50%) in fair market value of
equity interests in or assets of any Person, whether in a single transaction or
a series of transactions, unless such acquisition shall constitute a Permitted
Acquisition.
26
<PAGE> 27
9(j) Capital Expenditures. And shall not permit any Subsidiary
to, make Capital Expenditures in excess of $20,000,000.00 in the aggregate for
the Company and all Subsidiaries during any fiscal year; provided, however, that
the limitations contained in this Paragraph 9(j) shall not apply to Capital
Expenditures associated with Permitted Acquisitions.
9(k) Minimum Effective Tangible Net Worth. Permit at any date
the Company's Effective Tangible Net Worth to be less than: (1) $206,000,000.00,
plus (2) fifty percent (50%) of consolidated Net Profit After Taxes of the
Company for each fiscal quarter, determined at the end of each fiscal quarter
beginning with the fiscal quarter ending March 31, 1998, plus (3) one hundred
percent (100%) of the net proceeds of any equity offering of the Company or the
conversion of debt into equity, consummated following the Effective Date, plus
(4) one hundred percent (100%) of any increase in the equity of the Company
related to the valuation of stock issued for the purposes of consummating any
Permitted Acquisition following the Effective Date.
9(l) Minimum Net Worth of FNTC. Permit at any date FNTC's net
worth, determined in accordance with GAAP, to be less than: (1) $26,000,000.00,
plus (2) fifty percent (50%) of Net Profits After Taxes of FNTC for each fiscal
quarter, determined at the end of each fiscal quarter beginning with the fiscal
quarter ending March 31, 1998.
9(m) Leverage Ratio. Permit at any date the Company's ratio of
Debt to Effective Tangible Net Worth to be greater than 1.15:1.00.
9(n) Minimum Cash Flow Coverage Ratio. Permit as of the
last day of any fiscal quarter, the ratio of:
(1) Adjusted Cash Flow of the Company during such fiscal
quarter and the immediately preceding three fiscal quarters, to
(2) The sum of, during such fiscal quarter and the
immediately preceding three fiscal quarters: (i) Adjusted Scheduled
Principal Payments, plus (ii) interest expense (excluding amortization of
the original issue discount on the LYONs during such period), plus (iii)
net claims paid and net credit write-offs, plus (iv) dividends paid by the
Company,
to be less than 1.20:1.00.
9(o) Minimum Statutory Surplus. Permit any date the aggregate
Statutory Surplus of FNNEW and FNTIC to be less than $75,000,000.00.
9(p) Minimum Primary Investment Portfolio. Permit at any date
the fair market value of Primary Quality Investments held by the Company to be
less than reserves for claim losses, determined in accordance with GAAP.
9(q) Subordinated Debt. Make or permit to be made any
prepayment on or repurchase any of the LYONs or make any prepayment on or
repurchase any other
27
<PAGE> 28
Subordinated Debt or amend or consent to the amendment or waiver of any term or
provision of the Subordinated LYONs Debt Indenture if prior to or after giving
effect to such action there exists an Event of Default or Potential Default.
9(r) Restriction on Negative Pledges. And will not permit any
Subsidiary to, grant, enter into or permit to remain in effect any agreement
with any Person (other than the Agent and the Lenders pursuant to the Negative
Pledge Agreements and Paragraph 9(a) above) which would have the effect of
prohibiting or restricting in any manner the Company or any of the Pledged
Subsidiaries from granting to the Agent for the benefit of the Lenders such
Liens upon assets and properties of the Company and the Pledged Subsidiaries as
the Company, such Pledged Subsidiaries and the Lenders might otherwise agree.
9(s) Formation of Additional Subsidiaries. Following the
Effective Date form, or permit any Subsidiary to form, any additional Subsidiary
other than in connection with Permitted Acquisitions.
10. Events of Default. Upon the occurrence of any of the following
events (an "Event of Default"):
10(a) The Company shall fail to pay any principal on the Loans
on the date when due or fail to pay within five days of the date when due any
other Obligation; or
10(b) Any representation or warranty made by the Company in
any Loan Document shall be inaccurate or incomplete in any material respect on
or as of the date made or deemed made; or
10(c) The Company shall fail to maintain its corporate
existence or the corporate existence of any Pledged Subsidiary or shall default
in the observance or performance of, or there shall otherwise occur a breach of,
any covenant or agreement contained in Paragraph 9 above; or
10(d) The Company shall fail to observe or perform any other
term or provision contained in the Loan Documents and such failure shall
continue for fifteen (15) days after the Company became aware of such failure;
or
10(e) The Company or any Subsidiary shall default in any
payment of principal of or interest on any Indebtedness (other than the
Obligations) in an aggregate amount for the Company and all of its Subsidiaries
in excess of $1,000,000.00 (and any grace period applicable thereto shall have
expired) or any other event shall occur, the effect of which is to permit such
Indebtedness to be declared or otherwise to become due prior to its stated
maturity; or
10(f) (1) The Company or any of its Subsidiaries, shall
commence any case, proceeding or other action (i) under any existing or future
law of any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking to have an order for
relief entered with respect to it, or seeking to adjudicate it a bankrupt or
insolvent, or
28
<PAGE> 29
seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts, or
(ii) seeking appointment of a receiver, trustee, custodian or other similar
official for it or for all or any substantial part of its assets, or the Company
or any of its Subsidiaries shall make a general assignment for the benefit of
its creditors; or (2) there shall be commenced against the Company or any of its
Subsidiaries, any case, proceeding or other action of a nature referred to in
clause (1) above which (i) results in the entry of an order for relief or any
such adjudication or appointment, or (ii) remains undismissed, undischarged or
unbonded for a period of thirty (30) days; or (3) there shall be commenced
against the Company or any of its Subsidiaries, any case, proceeding or other
action seeking issuance of a warrant of attachment, execution, distraint or
similar process against all or substantially all of its assets which results in
the entry of an order for any such relief which shall not have been vacated,
discharged, stayed, satisfied or bonded pending appeal within sixty (60) days
from the entry thereof; or (4) the Company or any of its Subsidiaries, shall
take any action in furtherance of, or indicating its consent to, approval of, or
acquiescence in (other than in connection with a final settlement), any of the
acts set forth in clause (1), (2) or (3) above; or (5) the Company or any of its
Subsidiaries, shall generally not, or shall be unable to, or shall admit in
writing its inability to pay its debts as they become due; or
10(g) (1) Any Person shall engage in any "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code)
involving any Plan, (2) any "accumulated funding deficiency" (as defined in
Section 302 of ERISA), whether or nor waived, shall exist with respect to any
Plan, (3) a Reportable Event shall occur with respect to, or proceedings shall
commence to have a trustee appointed, or a trustee shall be appointed, to
administer or to terminate, any Single Employer Plan, which Reportable Event or
institution of proceedings is, in the reasonable opinion of the Agent, likely to
result in the termination of such Plan for purposes of Title IV of ERISA, and,
in the case of a Reportable Event, the continuance of such Reportable Event
unremedied for ten days after notice of such Reportable Event pursuant to
Section 4043(a), (c) or (d) of ERISA is given or the continuance of such
proceedings for ten days after commencement thereof, as the case may be, (4) any
Single Employer Plan shall terminate for purposes of Title IV of ERISA, (5) any
withdrawal liability to a Multiemployer Plan shall be incurred by the Company or
(6) any other event or condition shall occur or exist; and in each case in
clauses (1) through (6) above, such event or condition, together with all other
such events or conditions, if any, is likely to subject the Company or any of
its Subsidiaries to any tax, penalty or other liabilities in the aggregate
material in relation to the business, operations, property or financial or other
condition of the Company, any Pledged Subsidiary or the Company and its
Subsidiaries taken as a whole; or
10(h) One or more judgments or decrees shall be entered
against the Company or any of its Subsidiaries and such judgments or decrees
(other than decrees involving amounts in the aggregate of less than
$5,000,000.00) shall not have been vacated, discharged, stayed, satisfied or
bonded pending appeal within thirty (30) days from the entry thereof or in any
event later than five days prior to the date of any proposed sale thereunder; or
29
<PAGE> 30
10(i) Any Pledged Subsidiary shall fail to observe or perform
any provision of its Negative Pledge Agreement or shall attempt to rescind or
revoke such Negative Pledge Agreement; or
10(k) There shall occur a Change of Control;
THEN, automatically upon the occurrence of an Event of Default under Paragraph
10(f) above, at the option of any Lender upon the occurrence of an Event of
Default under Paragraph 10(a) above and, in all other cases, at the option of
the Majority Lenders, each Lender's obligation to make Loans shall terminate and
the principal balance of outstanding Loans and interest accrued but unpaid
thereon and all other Obligations shall become immediately due and payable,
without demand upon or presentment to the Company, which are expressly waived by
the Company and the Agent and the Lenders may immediately exercise all rights,
powers and remedies available to them at law, in equity or otherwise, including,
without limitation, pursuant to the Stock Pledge Agreement.
11. The Agent.
11(a) Appointment. Each Lender hereby irrevocably designates
and appoints the Agent as the agent of such Lender under the Loan Documents and
each such Lender hereby irrevocably authorizes the Agent, as the agent for such
Lender, to take such action on its behalf under the provisions of the Loan
Documents and to exercise such powers and perform such duties as are expressly
delegated to the Agent by the terms of the Loan Documents, together with such
other powers as are reasonably incidental thereto. Notwithstanding any provision
to the contrary elsewhere in the Loan Documents, the Agent shall not have any
duties or responsibilities, except those expressly set forth herein or therein,
or any fiduciary relationship with any Lender, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read
into the Loan Documents or otherwise exist against the Agent. The Company shall
pay to the Agent an agency fee in such amount and at such times as the Agent and
the Company may from time to time agree in writing.
11(b) Delegation of Duties. The Agent may execute any of its
duties under the Loan Documents by or through agents or attorneys-in-fact and
shall be entitled to advice of counsel concerning all matters pertaining to such
duties. The Agent shall not be responsible for the negligence or misconduct of
any agents or attorneys-in-fact selected by it with reasonable care.
11(c) Exculpatory Provisions. Neither the Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or affiliates shall be
(1) liable for any action lawfully taken or omitted to be taken by it or such
Person under or in connection with the Loan Documents (except for its or such
Person's own gross negligence or willful misconduct), or (2) responsible in any
manner to any of the Lenders for any recitals, statements, representations or
warranties made by the Company or any officer thereof contained in the Loan
Documents or in any certificate, report, statement or other document referred to
or provided for in, or received by the Agent under or in connection with the
Loan Documents or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of the Loan Documents or for any
30
<PAGE> 31
failure of the Company to perform its obligations hereunder. The Agent shall not
be under any obligation to any Lender to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, the Loan Documents or to inspect the properties, books or records of the
Company.
11(d) Reliance by Agent. The Agent shall be entitled to rely,
and shall be fully protected in relying, upon any note, writing, resolution,
notice, consent, certification, affidavit, letter, cablegram, telegram,
telecopy, telex or teletype message, statement, order or other document or
conversation reasonably believed by it to be genuine and correct and to have
been signed, sent or made by the proper Person or Persons and upon advice and
statements of legal counsel (including, without limitation, counsel to the
Company), independent accountants and other experts selected by the Agent. The
Agent may deem and treat the payee of any note as the owner thereof for all
purposes. As to the Lenders: (1) the Agent shall be fully justified in failing
or refusing to take any action under the Loan Documents unless it shall first
receive such advice or concurrence of the Majority Lenders or all of the
Lenders, as appropriate, or it shall first be indemnified to its satisfaction by
the Lenders ratably in accordance with their respective Percentage Shares
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any action (except for liabilities and expenses
resulting from the Agent's gross negligence or willful misconduct), and (2) the
Agent shall in all cases be fully protected in acting, or in refraining from
acting, under the Loan Documents in accordance with a request of the Majority
Lenders or all of the Lenders, as appropriate, and such request and any action
taken or failure to act pursuant thereto shall be binding upon all the Lenders.
11(e) Notice of Default. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Potential Default or Event of
Default hereunder unless the Agent has received notice from a Lender or the
Company referring to the Loan Documents, describing such Potential Default or
Event of Default and stating that such notice is a "notice of default." In the
event that the Agent receives such a notice, the Agent shall give notice thereof
to the Lenders. The Agent shall take such action with respect to such Potential
Default or Event of Default as shall be reasonably directed by the Majority
Lenders provided that such action is consistent with the provisions of this
Agreement; provided that, unless and until the Agent shall have received such
directions, the Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Potential Default or Event
of Default as it shall deem advisable in the best interest of the Lenders.
11(f) Non-Reliance on Agent and Other Lenders. Each Lender
expressly acknowledges that neither the Agent nor any of its officers,
directors, employees, agents, attorneys-in-fact or affiliates has made any
representations or warranties to it and that no act by the Agent hereinafter
taken, including any review of the affairs of the Company, shall be deemed to
constitute any representation or warranty by the Agent to any Lender. Each
Lender represents to the Agent that it has, independently and without reliance
upon the Agent or any other Lender, and based on such documents and information
as it has deemed appropriate, made its own appraisal of and investigation into
the business, operations, property, financial and other condition and
creditworthiness of the Company and made its own decision to make its loans
hereunder and enter into this Agreement. Each Lender also represents that it
will, independently
31
<PAGE> 32
and without reliance upon the Agent or any other Lender, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit analysis, appraisals and decisions in taking or not taking
action under this Agreement, and to make such investigation as it deems
necessary to inform itself as to the business, operations, property, financial
and other condition and creditworthiness of the Company. Except for notices,
reports and other documents expressly required to be furnished to the Lenders by
the Agent hereunder, the Agent shall not have any duty or responsibility to
provide any Lender with any credit or other information concerning the business,
operations, property, financial and other condition or creditworthiness of the
Company which may come into the possession of the Agent or any of its officers,
directors, employees, agents, attorneys-in-fact or affiliates.
11(g) Indemnification. The Lenders agree to indemnify the
Agent in its capacity as such (to the extent not reimbursed by the Company and
without limiting the obligation of the Company to do so), ratably according to
the respective amounts of their Percentage Shares, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind whatsoever which may at any time
(including without limitation at any time following the payment of the
Obligations) be imposed on, incurred by or asserted against the Agent in any way
relating to or arising out of the Loan Documents or any documents contemplated
by or referred to herein or the transactions contemplated hereby or any action
taken or omitted by the Agent under or in connection with any of the foregoing;
provided that no Lender shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from the Agent's gross negligence or
willful misconduct. The agreements in this subsection shall survive the payment
of the Obligations.
11(h) Agent in Its Individual Capacity. The Agent and its
affiliates may make loans to, accept deposits from and generally engage in any
kind of business with the Company as though the Agent were not the Agent
hereunder. With respect to such loans made or renewed by them, the Agent shall
have the same rights and powers under the Loan Documents as any Lender and may
exercise the same as though it were not the Agent, and the terms "Lender" and
"Lenders" shall include the Agent in its individual capacity.
11(i) Successor Agent. The Agent may resign as Agent under the
Loan Documents upon sixty (60) days' notice to the Lenders and agrees that it
will so resign in the event it ceases to hold any Percentage Share of the
Obligations. The Agent may be removed from such capacity in the event the
Lenders (other than the Agent) shall determine in their reasonable business
judgment that the Agent has consistently failed to perform the obligations of
the Agent hereunder. If the Agent shall resign or be removed as provided herein,
then the Lenders (other than the Agent) shall appoint from among the Lenders a
successor agent or, if such Lenders are unable to agree on the appointment of a
successor agent, the Agent shall appoint a successor agent for the Lenders
(which successor agent shall, in either case and assuming that there does not
exist a Potential Default or Event of Default, be reasonably acceptable to the
Company), whereupon such successor agent shall succeed to the rights, powers and
duties of the Agent, and the term "Agent" shall mean such successor agent
effective upon its appointment, and the former Agent's rights, powers and duties
as Agent shall be terminated,
32
<PAGE> 33
without any other or further act or deed on the part of such former Agent or any
of the parties to this Agreement or any of the Loan Documents or successors
thereto. After any retiring Agent's resignation hereunder as Agent, the
provisions of this Paragraph 11 shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Agent under the Loan Documents.
12. Additional Lenders; Assignments and Participations.
12(a) Addition of New Lender.
(1) Any Lender (an "Assigning Lender") may at any time
propose that one or more financial institutions (each, an "Applicant
Financial Institution") become an additional Lender hereunder by way of
assignment by such Assigning Lender of all or a portion of such Assigning
Lender's Maximum Commitment by notifying the Agent of the identity of such
Applicant Financial Institution and such Applicant Financial Institution's
proposed Maximum Commitment. The addition of any Applicant Financial
Institution shall be subject to:
(i) The prior written consent of the Agent and,
but only if there shall not exist an Event of Default or Potential
Default, the Company, no such consent to be unreasonably withheld;
and
(ii) Delivery of each of the items and the
occurrence of each of the events described in subparagraph (2)
below.
(2) Assuming delivery of the consent of the Agent as
required pursuant to subparagraph (1)(i) above, the Agent and the
Assigning Lender shall mutually agree on the Adjustment Date on which such
Applicant Financial Institution shall become a party hereto and a Lender
hereunder. On such Adjustment Date:
(i) The Agent shall deliver to the Company and
each of the Lenders a replacement Commitment Schedule to be
effective as of such Adjustment Date, reflecting the Lenders'
respective Maximum Commitments and Percentage Shares after giving
effect to the assignment.
(ii) No later than 11:30 a.m. (Los Angeles time)
on such Adjustment Date, such Applicant Financial Institution shall
pay to the Agent for delivery to the Assigning Lender an amount
equal to such Applicant Financial Institution's Percentage Share of
Loans outstanding held by the Assigning Lender. The Agent shall
thereupon remit such amount to the Assigning Lender. Following such
Adjustment Date, fees and interest accrued on the Obligations to but
not including such Adjustment Date shall be payable to the Lenders
in accordance with their respective Percentage Shares prior to such
Adjustment Date before giving effect to the readjustment thereof
pursuant to the Commitment Schedule provided by the Agent on such
Adjustment Date.
33
<PAGE> 34
(iii) The Agent, the Company, the Assigning Lender
and the Applicant Financial Institution shall execute and deliver an
Assignment and Acceptance Agreement, which Assignment and Acceptance
Agreement shall constitute an amendment to this Agreement and the
other Loan Documents to the extent necessary to reflect the
inclusion of the Applicant Financial Institution as a Lender
hereunder.
(iv) The Applicant Financial Institution shall pay
to the Agent a registration fee of $3,500.00.
Subject to the requirements described above, on the Adjustment Date the
Applicant Financial Institution shall become a party hereto and a Lender
hereunder and shall be entitled to all rights, benefits and privileges accorded
a Lender under the Loan Documents and shall be subject to all obligations of a
Lender under the Loan Documents.
12(b) Assignments Among Existing Lenders. Any Lender may at
any time agree to assign a portion of such Lender's Maximum Commitment and
Percentage Share to one or more of its Affiliates or to another existing Lender
(a "Transferee Lender"). In such event, such Lender and the Transferee Lender
shall so notify the Agent and the Company of the Adjustment Date on which such
assignment is to be effective. On such Adjustment Date:
(1) The Company shall deliver to the Agent, and each of
the Lenders a Commitment Schedule to be effective as of such Adjustment
Date, reflecting the Aggregate Credit Limit and the Lenders' respective
Maximum Commitments and Percentage Shares.
(2) The Agent, the Company, the assigning Lender and the
Transferee Lender shall execute and deliver an Assignment and Acceptance
Agreement, which shall constitute an amendment to this Agreement and the
other Loan Documents to the extent necessary to reflect such transfer.
(3) No later than 12:30 p.m. (Los Angeles time) on such
Adjustment Date, the Transferee Lender shall pay to the Agent an amount
equal to such Transferee Lender's Percentage Share of Loans outstanding in
excess of such Transferee Lender's previous Percentage Share thereof. The
Agent shall thereupon remit to the transferring Lender the amount thereof.
12(c) Minimum Loan Commitment. Notwithstanding anything to the
contrary contained herein, the inclusion of any Applicant Financial Institution
as a Lender hereunder pursuant to Paragraph 12(a) above and the assignment by an
existing Lender of a portion of such Lender's Maximum Commitment to a Transferee
Lender pursuant to Paragraph 12(b) above shall be subject to the following
restrictions:
(1) If an Applicant Financial Institution is acquiring a
portion of an existing Lender's Maximum Commitment by way of an assignment
from such existing Lender, then such assignment of Maximum Commitment must
be in the minimum
34
<PAGE> 35
amount of $5,000,000.00 (or if in a higher amount, in integral multiples
of $1,000,000.00 in excess thereof) and such existing Lender must continue
to hold a Maximum Commitment of not less than $5,000,000.00 following the
consummation of the contemplated assignment;
(2) If an existing Lender is assigning a portion of its
Maximum Commitment to a Transferee Lender, such assignment of Maximum
Commitment is in the minimum amount of $5,000,000.00 (or if in a higher
amount, in integral multiples of $1,000,000.00 in excess thereof) and such
existing Lender shall continue to hold a Maximum Commitment of not less
than $5,000,000.00 following the consummation of the contemplated
assignment.
12(d) Sub-Participations by Lenders. Any Lender may at any
time sell participating interests in any of the Obligations held by such Lender
and its Maximum Commitment hereunder; provided, however, that:
(1) No participation contemplated by this Paragraph
12(d) shall relieve such Lender from its obligations hereunder or under
any other Loan Document;
(2) Such Lender shall remain solely responsible for the
performance of such obligations;
(3) The Company, the Agent, and the other Lenders shall
continue to deal solely and directly with such Lender in connection with
such Lender's rights and obligations under the Loan Documents; and
(4) The participation agreement or other document
evidencing the sale of such participating interest shall not require the
Lender to obtain the consent of the purchaser thereof to any amendment or
waiver with respect to the Loan Documents other than as to amendments and
waivers requiring the consent of one hundred percent (100%) of the Lenders
pursuant to Paragraph 13(b) below.
12(e) Federal Reserve Bank. Notwithstanding the provisions of
Paragraphs 12(a) and 12(b) above, any Lender may at any time pledge or assign
all or any portion of such Lender's rights under this Agreement and the other
Loan Documents to a Federal Reserve Bank.
13. Miscellaneous Provisions.
13(a) No Assignment. The Company may not assign its rights or
obligations under this Agreement or the other Loan Documents without the prior
written consent of one hundred percent (100%) of the Agent and the Lenders. Any
attempted assignment in violation of this Paragraph 13(a) shall be automatically
deemed null and void. Subject to the foregoing, all provisions contained in this
Agreement or any document or agreement referred to herein or relating hereto
shall inure to the benefit of each Lender, its successors and assigns, and shall
be binding upon the Company, its successors and assigns.
35
<PAGE> 36
13(b) Amendment. Neither this Agreement nor any other Loan
Document may be amended or terms or provisions hereof waived unless such
amendment or waiver is in writing and signed by the Majority Lenders, the Agent
and the Company; provided, however, that without the prior written consent of
one hundred percent (100%) of the Agent and the Lenders and (other than with
respect to subparagraph (3) below) the Company, no amendment or waiver shall:
(1) reduce the principal of, or rate of interest or fees on, the Loans or extend
or otherwise modify the required amount or due date for any Loan, (2) modify any
Lender's Maximum Commitment or Percentage Share (except as the result of an
assignment permitted under Paragraph 12 above), (3) modify any provision of the
Loan Documents requiring one hundred percent (100%) of the Lenders to act, (4)
modify the definition of "Majority Lenders," (5) release any Pledged Subsidiary
from its obligations under its Negative Pledge Agreement or release any
collateral at any time held for the Obligations, or (6) amend this Paragraph
13(b). It is expressly agreed and understood that the failure by the required
Lenders to elect to accelerate amounts outstanding hereunder and/or to terminate
the obligation of the Lenders to make Loans hereunder shall not constitute an
amendment or waiver of any term or provision of this Agreement.
13(c) Cumulative Rights; No Waiver. The rights, powers and
remedies of the Lenders hereunder and under the other Loan Documents are
cumulative and in addition to all rights, power and remedies provided under any
and all agreements between the Company and the Lenders relating hereto, at law,
in equity or otherwise. Any delay or failure by the Lenders to exercise any
right, power or remedy shall not constitute a waiver thereof by the Lenders, and
no single or partial exercise by the Lenders of any right, power or remedy shall
preclude other or further exercise thereof or any exercise of any other rights,
powers or remedies.
13(d) Entire Agreement. This Agreement and the other Loan
Documents embody the entire agreement and understanding between the parties
hereto and supersede all prior agreements and understandings relating to the
subject matter hereof and thereof.
13(e) Survival. All representations, warranties, covenants and
agreements contained herein and in the other Loan Documents on the part of the
Company and the Pledged Subsidiaries shall survive the termination of this
Agreement and shall be effective until the Obligations are paid and performed in
full or longer as expressly provided herein.
13(f) Notices. All notices given by any party to the others
under any of the Loan Documents shall be in writing unless otherwise provided
for herein, delivered by facsimile transmission, by personal delivery or by
overnight courier, addressed to the party as set forth on Schedule I attached
hereto, as such Schedule I may be amended from time to time. Any party may
change the address to which notices are to be sent by notice of such change to
each other party given as provided herein.
13(g) Governing Law. This Agreement and the other Loan
Documents shall be governed by and construed in accordance with the laws of the
State of California without giving effect to its choice of law rules.
36
<PAGE> 37
13(h) Counterparts. This Agreement and the other Loan
Documents may be executed in any number of counterparts, all of which together
shall constitute one agreement.
13(i) Sharing of Payments. If any Lender shall receive and
retain any payment, whether by setoff, application of deposit balance or
security, or otherwise, in respect of the Obligations in excess of such Lender's
Percentage Share thereof, then such Lender shall purchase from the other Lenders
for cash and at face value and without recourse, such participation in the
Obligations held by them as shall be necessary to cause such excess payment to
be shared ratably as aforesaid with each of them; provided, that if such excess
payment or part thereof is thereafter recovered from such purchasing Lender, the
related purchases from the other Lenders shall be rescinded ratably and the
purchase price restored as to the portion of such excess payment so recovered,
but without interest. Each Lender is hereby authorized by the Company to
exercise any and all rights of setoff, counterclaim or bankers' lien against the
full amount of the Obligations, whether or not held by such Lender. Each Lender
hereby agrees to exercise any such rights first against the Obligations and only
then to any other Indebtedness of the Company to such Lender.
13(j) Consent to Jurisdiction. ANY LEGAL ACTION OR PROCEEDING
WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE
COURTS OF THE STATE OF CALIFORNIA OR OF THE UNITED STATES FOR THE CENTRAL
DISTRICT OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF
THE COMPANY, THE AGENT AND THE LENDERS CONSENTS, FOR ITSELF AND IN RESPECT OF
ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE
COMPANY, THE AGENT AND THE LENDERS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING
ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR
PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT
RELATED HERETO. THE COMPANY, THE AGENT AND THE LENDERS EACH WAIVE PERSONAL
SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY
OTHER MEANS PERMITTED BY CALIFORNIA LAW.
13(k) Waiver of Jury Trial. THE COMPANY, THE LENDERS AND THE
AGENT EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE
OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY
ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES
AGAINST ANY OTHER PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE,
WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE COMPANY,
THE LENDERS AND THE AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION
SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING,
THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY
37
<PAGE> 38
IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER
PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION
HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS.
13(l) Indemnity. Whether or not the transactions contemplated
hereby are consummated, the Company shall indemnify and hold the Agent and each
Lender and each of their respective officers, directors, employees, counsel,
agents and attorneys-in-fact (each, an "Indemnified Person") harmless from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, charges, expenses and disbursements (including
reasonable attorney's fees and expenses, including the documented cost of
internal counsel) of any kind or nature whatsoever which may at any time
(including at any time following repayment of the Loans and the termination,
resignation or replacement of the Agent or replacement of any Lender) be imposed
on, incurred by or asserted against any such Person in any way relating to or
arising out of this Agreement or any document contemplated by or referred to
herein, or the transactions contemplated hereby, or any action taken or omitted
by any such Person under or in connection with any of the foregoing, including
with respect to any investigation, litigation or proceeding (including any
insolvency proceeding or appellate proceeding) related to or arising out of this
Agreement or the Loans or the use of the proceeds thereof, whether or not any
Indemnified Person is a party thereto (all the foregoing, collectively, the
"Indemnified Liabilities"); provided, however, that the Company shall have no
obligation hereunder to any Indemnified Person with respect to Indemnified
Liabilities resulting from the gross negligence or willful misconduct of such
Indemnified Person. The agreements in this Paragraph 13(l) shall survive payment
of all other Obligations.
13(m) Marshalling; Payments Set Aside. Neither the Agent nor
the Lenders shall be under any obligation to marshall any assets in favor of the
Company or any other Person or against or in payment of any or all of the
Obligations. To the extent that the Company makes a payment or payments to the
Agent or the Lenders (through the Agent), or the Agent on behalf of the Lenders
enforces their Liens or exercises their rights of set-off, and such payment or
payments or the proceeds of such enforcement or set-off or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required (including pursuant to any settlement entered into by the Agent in
its discretion) to be repaid to a trustee, receiver or any other party in
connection with any insolvency proceeding, or otherwise, then (1) to the extent
of such recovery the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or set-off had not occurred, and
(2) each Lender severally agrees to pay to the Agent upon demand its ratable
share of the total amount so recovered from or repaid by the Agent.
13(n) Set-off. In addition to any rights and remedies of the
Lenders provided by law, if an Event of Default exists, each Lender is
authorized at any time and from
38
<PAGE> 39
time to time, without prior notice to the Company, any such notice being waived
by the Company to the fullest extent permitted by law, to set off and apply any
and all deposits (general or special, time or demand, provisional or final) at
any time held by, and other indebtedness at any time owing to, such Lender to or
for the credit or the account of the Company against any and all Obligations
owing to such Lender, now or hereafter existing, irrespective of whether or not
the Agent or such Lender shall have made demand under this Agreement or any Loan
Document and although such Obligations may be contingent or unmatured. Each
Lender agrees promptly to notify the Company and the Agent after any such
set-off and application made by such Lender; provided, however, that the failure
to give such notice shall not affect the validity of such set-off and
application.
13(o) Severability. The illegality or unenforceability of any
provision of this Agreement or any other Loan Document or any instrument or
agreement required hereunder or thereunder shall not in any way affect or impair
the legality or enforceability of the remaining provisions hereof or thereof.
13(p) No Third Parties Benefited. This Agreement and the other
Loan Documents are made and entered into for the sole protection and legal
benefit of the Company, the Lenders and the Agent, and their permitted
successors and assigns, and no other Person shall be a direct or indirect legal
beneficiary of, or have any direct or indirect cause of action or claim in
connection with, this Agreement or any of the other Loan Documents. Neither the
Agent nor any Lender shall have any obligation to any Person not a party to this
Agreement or other Loan Documents.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first above written.
FIDELITY NATIONAL FINANCIAL, INC.
a Delaware corporation
By: /s/ A. D. Meadows
Name: Allen d. Meadows
Title: EVP & CFO
SANWA BANK CALIFORNIA, as Agent
and as a Lender
By: /s/ Craig Ciebiera
Craig Ciebiera, Vice President
39
<PAGE> 40
COMERICA BANK - CALIFORNIA, as a Lender
By: /s/ Mario DePasquale
Name: Mario DePasquale
Title: Assistant Vice President
By: _________________________________
Name: _________________________________
Title: _________________________________
FIRST BANK & TRUST, as a Lender
By: /s/ K. P. Balkrishna
Name: K.P. Balkrishna
Title: Senior Vice President
SUN TRUST BANK, CENTRAL FLORIDA, N.A.,
as a Lender
By: /s/ Janet P. Sammons
Name: Janet P. Sammons
Title: Vice President
THE SUMITOMO BANK, LIMITED, LOS ANGELES
BRANCH, as a Lender
By: /s/ Kuzo Masaki
Name: Kuzo Masaki
40
<PAGE> 41
Title: General Manager
WELLS FARGO BANK, N.A., as a Lender
By: /s/ Timothy A. McDevitt
Name: Timothy A. McDevitt
Title: Vice President
By: /s/ Donald A. Hartmann
Name: Donald A. Hartmann
Title: Senior Vice President
41
<PAGE> 42
TABLE OF EXHIBITS AND SCHEDULES
Exhibit A Schedule of Litigation
Exhibit B Schedule of Subsidiaries
Schedule I Schedule of Addresses for Notice Purposes
Annex 1 Glossary, with Exhibits
42
<PAGE> 43
ANNEX 1: GLOSSARY
THIS GLOSSARY is attached to and incorporated by reference in that
certain Credit Agreement dated as of August 1, 1998 by and among FIDELITY
NATIONAL FINANCIAL, INC. (the "Company"), the Lenders from time to time party
thereto (the "Lenders") and SANWA BANK CALIFORNIA, as Agent for the Lenders. For
purposes of the Credit Agreement and the other Loan Documents, the following
capitalized terms shall have the following meanings:
"Adjusted Cash Flow" shall mean for any fiscal period: (a)
consolidated Cash Flow of the Company for such fiscal period, less (b)
amortization of the original issue discount on the LYONs during such fiscal
period, and plus (c) provision for claim losses and provision for credit losses,
determined in accordance with GAAP for such period.
"Adjusted Scheduled Principal Payments" shall mean for any fiscal
period: (a) all regularly scheduled payments of principal required to be made on
account of Indebtedness of the Company and its Subsidiaries during such fiscal
period, less (b) principal payments required to be made on GFI Warehouse Debt
(whether as a result of the maturity thereof or otherwise), and less (c)
principal payments on the GFI Class A Notes.
"Adjustment Date" shall mean the date as of which the addition of
a new Lender or assignment among existing Lenders is to be effective as provided
more particularly in Paragraph 12 of the Agreement.
"Affiliate" shall mean, as to any Person, any other Person
directly or indirectly controlling, controlled by or under direct or indirect
common control with, such Person. "Control" as used herein means with respect to
any business entity the power to direct the management and policies of such
business entity.
"Agent" shall have the meaning given such term in the
introductory paragraph of the Agreement and shall include any successor to Sanwa
as the initial "Agent" under the Agreement.
"Agent's Fee Letter" shall mean a fee letter in form and
substance satisfactory to the Agent setting forth the fees to be paid to the
Agent with respect to the credit facility evidenced by the Agreement.
"Aggregate Credit Limit" shall mean $100,000,000.00, as such
amount may be increased or decreased by written agreement of the Agent, the
Company and one hundred percent (100%) of the Lenders.
"Applicable Eurodollar Rate" shall mean, with respect to any
Eurodollar Loan for the Interest Period applicable to such Eurodollar Loan, the
rate per annum
A-1
<PAGE> 44
(rounded upward, if necessary, to the next higher 1/16 of one percent)
calculated as of the first day of such Interest Period in accordance with the
following formula:
Applicable Eurodollar Rate = ER + 1.15
----
1-ERP
where
ER = Eurodollar Rate
ERP = Eurodollar Reserve Percentage
"Applicable Insurance Regulatory Authority" shall mean, when used
with respect to any Significant Insurance Subsidiary, the insurance department
or similar administrative agency or authority located in the jurisdiction in
which such Significant Insurance Subsidiary is domiciled.
"Applicant Financial Institution" shall have the meaning given
such term in Paragraph 12(a) of the Agreement.
"Assigning Lender" shall have the meaning given such term in
Paragraph 12(a) of the Agreement.
"Assignment and Acceptance Agreement" shall mean an agreement in
the form of that attached hereto as Exhibit A.
"Authorized Officer" shall mean any of the chief financial
officer, executive vice president - finance, president, chief executive officer
or chief operating officer of the Company.
"Business Day" shall mean any day other than a Saturday, a Sunday
or a day on which banks in Los Angeles, California are authorized or obligated
to close their regular banking business.
"Capital Expenditures" shall mean, for any period, the aggregate
of all expenditures by the Company and its Subsidiaries for the acquisition or
leasing of fixed or capital assets or additions to equipment (including
replacements, capitalized repairs and improvements during such period) which
should be capitalized under GAAP on a consolidated balance sheet of the Company
and its Subsidiaries. For the purpose of this definition, the purchase price of
equipment which is purchased simultaneously with the trade-in of existing
equipment owned by the Company or any of its Subsidiaries or with insurance
proceeds shall be included in Capital Expenditures only to the extent of the
gross amount of such purchase price less the credit granted by the seller of
such equipment for such equipment being traded in at such time, or the amount of
such proceeds, as the case may be.
"Cash Flow" shall mean for any period the sum of (a) net income
(or net loss) plus (b) all amounts treated as expenses for interest,
amortization and depreciation.
A-2
<PAGE> 45
"Change of Control" shall mean any of the following:
(a) The acquisition by any other entity, individual or group
(within the meaning of Sections 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") of beneficial ownership (as defined
in Rule 13d-3 promulgated under the Exchange Act) of more than twenty percent
(20%) of the common stock of the Company and/or other securities which have more
than twenty percent (20%) of the combined voting power of the securities of the
Company entitled to vote in the election of directors; or
(b) The sale of all or substantially all of the assets of the
Company to any other entity, individual or group except in a transaction whereby
the holders of the common stock and/or other securities entitled to vote in the
election of directors immediately prior to such transaction own, directly or
indirectly, at least eight percent (80%) of all such securities immediately
after giving effect to such transaction; or
(c) If the Company shall cease to own directly one hundred
percent (100%) of the outstanding capital stock of each of the Pledged
Subsidiaries.
"Closing Certificate" shall mean a certificate in the form of
that attached hereto as Exhibit B.
"Commitment Schedule" shall mean a schedule setting forth the
current Aggregate Credit Limit and, for each Lender, such Lender's Maximum
Commitment and Percentage Share, as such schedule may be modified from time to
time consistent with the Loan Documents.
"Commonly Controlled Entity" of a Person shall mean a Person,
whether or not incorporated, which is under common control with such Person
within the meaning of Section 414(c) of the Internal Revenue Code.
"Contact Office" shall mean the office of the Agent located at
601 South Figueroa Street, W8-12, Los Angeles, California 90017 or such other
office as the Agent may notify the Company and the Lenders from time to time in
writing.
"Contractual Obligation" as to any Person shall mean any
provision of any security issued by such Person or of any agreement, instrument
or undertaking to which such Person is a party or by which it or any of its
property is bound.
"Debt" shall mean at any date: (a) consolidated Total Liabilities
of the Company, less (b) Total Liabilities of GFI, less (c) reserves for claim
losses established in conformity with GAAP, and less (d) Subordinated Debt of
the Company and its Subsidiaries.
"Effective Fed Funds Rate" shall mean for any day, the weighted
average of the rates on overnight Federal Funds transactions with members of the
Federal Reserve
A-3
<PAGE> 46
System arranged by Federal Funds brokers, as published for such day (or, if such
day is not a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of New York or, if such rate is not so published for any day that
is a Business Day, the average of quotations for such day on such transactions
received by the Agent from three Federal Funds brokers of recognized standing
selected by the Agent.
"Effective Date" shall mean the date on which all conditions
precedent to the funding of the first Loan set forth in Paragraph 6(a) of the
Agreement have been met to the satisfaction of the Agent and the Lenders.
"Effective Tangible Net Worth" shall mean on any date: (a) the
consolidated Tangible Net Worth of the Company, plus (b) Subordinated Debt of
the Company and its consolidated Subsidiaries, less (c) the Tangible Net Worth
of GFI, determined in accordance with GAAP.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as the same may from time to time be supplemented or amended.
"Eurodollar Business Day" shall mean a Business Day upon which
commercial banks in London, England are open for domestic and international
business.
"Eurodollar Rate" shall mean, with respect to any Eurodollar Loan
for the Interest Period applicable to such Eurodollar Loan, the rate for the
applicable Interest Period shown on Page 1701 of the Knight-Ridder screen for
the corresponding deposits of U.S. dollars three Business Days prior to the
first day of such Interest Period or such rate as is otherwise determined by the
Agent with reference to the British Banker's Association, or, if such rates are
not available, the arithmetic average as determined by the Agent of the rates at
which deposits in immediately available U.S. dollars in an amount equal to the
amount of such Eurodollar Loan having a maturity approximately equal to such
Interest Period are offered to three reference banks to be selected by the Bank
in the London interbank market, at approximately 11:00 a.m. (London time) three
Eurodollar Business Days prior to the first day of such Interest Period.
"Eurodollar Rate Loans" shall mean Loans outstanding under the
Agreement at such time as they are made and/or being maintained at a rate of
interest based upon the Eurodollar Rate.
"Eurodollar Reserve Percentage" shall mean with respect to an
Interest Period for a Eurodollar Loan, the maximum aggregate reserve requirement
(including all basic, supplemental, marginal and other reserves and taking into
account any transitional adjustments) which is imposed under Regulation D on
eurocurrency liabilities.
"Event of Default" shall have the meaning given such term in
Paragraph 10 of the Agreement.
A-4
<PAGE> 47
"Existing Bridge Facility" shall mean the credit facility
extended by Sanwa to the Company and evidenced by that certain Bridge Loan Note
dated as of March 24, 1998 executed by the Company in favor of Sanwa.
"Financial Covenant Compliance Certificate" shall mean a
certificate in the form of that attached hereto as Exhibit C, demonstrating
compliance by the appropriate Persons with the requirements of Paragraphs
9(g)(3), 9(g)(4), 9(g)(5), 9(g)(7), 9(g)(8), 9(j), 9(k), 9(l), 9(m), 9(n), 9(o)
and 9(p) of the Agreement.
"Floating Rate" shall mean on any day the higher of: (a) the rate
of interest publicly announced by Sanwa from time to time as its "reference
rate" as in effect at Sanwa's principal office in Los Angeles, California on
such day, and (b) the Effective Fed Funds Rate on such day plus one half of one
percent (0.50%).
"Floating Rate Loans" shall mean Loans outstanding under the
Agreement during such time as they are made and/or being maintained at a rate of
interest based upon the Floating Rate.
"FNNEW" shall mean Fidelity National Title Insurance Company of
New York, a New York corporation.
"FNTIC" shall mean Fidelity National Title Insurance Company, a
California corporation.
"FNTC" shall mean Fidelity National Title Company, a California
corporation.
"GAAP" shall mean generally accepted accounting principles in the
United States of America in effect from time to time consistently applied.
"GFI" shall mean Granite Financial, Inc., a Delaware corporation.
"GFI Class A Notes" shall mean 6.33% Class A Lease-Backed Term
Notes, Series 1996-1 Due November 20, 2001 issued pursuant to an Indenture dated
as of april 1, 1996 among GF Funding Corp. I, Norwest Bank Minnesota, National
Association, and Granite Financial, LLC.
"GFI Warehouse Debt' shall mean Indebtedness of GFI consisting of
short term working capital lines of credit.
"Governmental Authority" shall mean any nation or government, any
state or other political subdivision thereof, or any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Hazardous Materials" shall mean any flammable materials
(excluding wood products normally used in construction), explosives, radioactive
materials, hazardous wastes, toxic substances or related materials, including,
without limitation, any
A-5
<PAGE> 48
substances defined as or included in the definitions of "hazardous substances,"
"Hazardous wastes," "hazardous materials," or toxic substances" under any
applicable federal, state, or local laws or regulations.
"Hazardous Materials Claims" shall mean any enforcement, cleanup,
removal or other governmental or regulatory action or order with respect to the
Property, pursuant to any Hazardous Materials Laws, and/or any claim asserted in
writing by any third party relating to damage, contribution, cost recovery
compensation, loss or injury resulting from any Hazardous Materials.
"Hazardous Materials Laws" shall mean any applicable federal,
state or local laws, ordinances or regulations relating to Hazardous Materials.
"Indebtedness" of any Person shall mean all items of indebtedness
which, in accordance with GAAP and practices, would be included in determining
liabilities as shown on the liability side of a statement of condition of such
Person as of the date as of which indebtedness is to be determined, including,
without limitation, all obligations for money borrowed and capitalized lease
obligations, and shall also include all indebtedness and liabilities of others
assumed or guaranteed by such Person or in respect of which such Person is
secondarily or contingently liable (other than by endorsement of instruments in
the course of collection) whether by reason of any agreement to acquire such
indebtedness or to supply or advance sums or otherwise.
"Initial Collateral Documents" shall have the meaning given such
term in Paragraph 5(a) of the Agreement.
"Insurance Subsidiary" shall mean any Subsidiary of the Company
which is a licensed insurance company or a licensed underwritten title company.
"Interest Period" shall mean with respect to any Loan which is
being maintained as a Eurodollar Rate Loan, the period commencing on the date
such Loan is advanced and ending one, two, three, four or six months thereafter,
as designated in the related Loan Request; provided, however, that: (a) any
Interest Period which would otherwise end on a day which is not a Eurodollar
Business Day shall be extended to the next succeeding Eurodollar Business Day
unless by such extension it would fall in another calendar month, in which case
such Interest Period shall end on the immediately preceding Eurodollar Business
Day, (b) any Interest Period which begins on a day for which there is no
numerically corresponding day in the calendar month in which such Interest
Period is to end shall, subject to the provisions of clause (a) of the
Agreement, end on the last day of such calendar month, and (c) no Interest
Period shall end after the Maturity Date or.
"Interim Date" shall mean June 30, 1998.
A-6
<PAGE> 49
"Licenses" shall mean any licenses or certificates of authority
from any Applicable Insurance Regulatory Authority or permits or authorizations
to transact title insurance business or to act as an insurance agent or broker.
"Lien" shall mean any security interest, mortgage, pledge, lien,
claim on property, charge or encumbrance (including any conditional sale or
other title retention agreement), any lease in the nature thereof, and the
filing of or agreement to give any financial statement under the Uniform
Commercial Code of any jurisdiction.
"Loan Documents" shall mean the Agreement, the Stock Pledge
Agreement, the Negative Pledge Agreements and each other document, instrument or
agreement executed by the Company in connection herewith or therewith, as any of
the same may be amended, extended or replaced from time to time.
"Loan Request" shall mean a request for a Loan in substantially
the form of Exhibit D attached hereto.
"Loans" shall mean, collectively and severally, the Revolving
Loans and the Term Loan.
"LYONs" shall mean those certain Liquid Yield Option Notes issued
by the Company pursuant to the Subordinated LYONs Debt Indenture.
"Majority Lenders" shall mean the Lenders holding not less than
sixty-six and two thirds percent (66.667%) of the Percentage Shares.
"Maturity Date" shall mean the earlier of: (a) July 31, 2001, as
such date may be extended from time to time in writing by one hundred percent
(100%) of the Lenders, in their sole discretion, and (b) the date the Lenders
terminate their obligation to make further Loans under the Agreement pursuant to
Paragraph 10 of the Agreement.
"Maximum Commitment" shall mean , with respect to any Lender on
any date, the dollar amount specified as such Lender's "Maximum Commitment" on
the current Commitment Schedule, as such amount may be increased pursuant to an
assignment of additional Maximum Commitment to such Lender pursuant to Paragraph
13(b) of the Agreement or otherwise increased or decreased by written agreement
of the Company, the Agent and one hundred percent (100%) of the Lenders.
"Multiemployer Plan" as to any Person shall mean a Plan of such
Person which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA.
"NAIC" shall mean the National Association of Insurance
Commissioners and any successor thereto.
"Negative Pledge Agreement" shall mean an agreement in the form
of that attached hereto as Exhibit E.
A-7
<PAGE> 50
"Net Profit After Taxes" shall mean for any Person for any fiscal
period, the pre-tax net income (or net loss) of such Person for such period,
determined in accordance with GAAP, less all accrued taxes on or measured by
income to the extent included in the determination of such net income (or loss);
provided, however, that net income (or loss) shall be computed without giving
effect to extraordinary losses or extraordinary gains, as determined under GAAP.
"Obligations" shall mean any and all debts, obligations and
liabilities of the Company to the Lenders (whether now existing or hereafter
arising, voluntary or involuntary, whether or not jointly owed with others,
direct or indirect, absolute or contingent, liquidated or unliquidated, and
whether or not from time to time decreased or extinguished and later increased,
created or incurred), arising out of or related to the Loan Documents.
"Other Permitted Secured and Unsecured Debt" shall mean
Indebtedness described on Exhibit F attached hereto.
"Other Permitted Secured Debt" shall mean Indebtedness described
as such on Exhibit F attached hereto.
"PBGC" shall mean the Pension Benefit Negative Pledge Agreement
Corporation established pursuant to Subtitle A of Title IV of ERISA and any
successor thereto.
"Percentage Share" shall mean, for any Lender at any date that
percentage which the Maximum Commitment of such Lender at such date bears to the
Aggregate Credit Limit on such date, as set forth in the most recent Commitment
Schedule delivered by the Agent to the Company and the Lenders.
"Permitted Acquisition" shall mean an acquisition by the Company
or one of its Subsidiaries as to which each of the following statements is
accurate and complete (and the Company by consummating such acquisition being
automatically deemed to so represent and warrant to the Agent and the Lenders):
(a) The acquisition is of an equity interest in or assets of a
company which meets each of the following criteria:
(1) The company's principal line of business is providing
financial services to the public or, if the company's principal line of
business is not providing financial services to the public, the total
consideration to be paid by the Company or such Subsidiary for the
subject equity interests or assets did not exceed the following
limitations:
(i) If the consideration is to be paid through the
issuance of stock or warrants or other securities convertible
into stock, the book value of such stock (or the stock into which
such warrants or
A-8
<PAGE> 51
other securities are convertible), when taken together with the
aggregate book value of all stock (or the stock into which such
warrants or other securities are convertible) issued by the
Company and its Subsidiaries in connection with the acquisition
of equity interests in or assets of other non-financial services
companies from and after December 31, 1997, will not exceed
$25,000,000.00, or
(ii) If the consideration is to be paid in cash,
the dollar amount thereof when taken together with the aggregate
dollar amount of cash consideration paid by the Company and its
Subsidiaries in connection with the acquisition of equity
interests in or assets of other non-financial services companies
from and after December 31, 1997, will not exceed $10,000,000.00;
(2) The company's ratio of Cash Flow to scheduled
principal and interest payments required to be made on account of
Indebtedness of such company as of the end of the most recent fiscal
quarter of the company for such quarter and the immediately preceding
three fiscal quarters was not less than 1.20:1.00; and
(3) The company's ratio of Total Liabilities to Tangible
Net Worth as of the end of the most recent fiscal quarter of the company
was not more than 3.00:1.00.
(b) If the consideration paid by the Company included the
issuance of stock of the Company (or warrants or other securities convertible
into stock of the Company), the book value of such stock (or the stock into
which such warrants or other securities are convertible), when taken in the
aggregate with the book value of all stock (and warrants or other convertible
securities) issued by the Company in connection with acquisitions of all or
substantially all of the stock or assets of companies after December 31, 1997
(other than GFI) did not exceed fifty percent (50%) of the Company's Effective
Tangible Net Worth at the date of consummation of the subject acquisition.
(c) The cash consideration paid by the Company in connection with
such acquisition, when taken in the aggregate with the cash consideration paid
by the Company in connection with acquisitions of all or substantially all of
the stock or assets of companies after December 31, 1997 (other than GFI) did
not exceed twenty five percent (25%) of the Company's Effective Tangible Net
Worth at the date of consummation of the subject acquisition.
(d) The book value of stock (or warrants or other convertible
securities) to be issued or cash to be paid in connection with the subject
acquisition, when taken in the aggregate book value of all stock (or warrants or
other convertible securities) issued by the Company and its Subsidiaries and
cash consideration paid by the Company and its Subsidiaries in consideration of
acquisitions of all or substantially all of the stock or assets of companies
after December 31, 1997 (other than GFI) did not exceed fifty
A-9
<PAGE> 52
percent (50%) of the Company's Effective Tangible Net Worth at the date of
consummation of the subject acquisition.
(e) Following the consummation of such acquisition and after
giving effect thereto there does not exist an Event of Default or Potential
Default.
"Person" shall mean any corporation, natural person, firm, joint
venture, partnership, limited liability company, trust, unincorporated
organization, government or any department or agency of any government.
"Plan" shall mean as to any Person, any pension plan that is
covered by Title IV of ERISA and in respect of which such Person or a Commonly
Controlled Entity of such Person is an "employer" as defined in Section 3(5) of
ERISA.
"Pledged Stock" shall have the meaning given such term in
Paragraph 5(a) of the Agreement.
"Pledged Subsidiaries" shall mean each of FNNEW, FNTIC and FNTC.
"Potential Default" shall mean an event which but for the lapse
of time or the giving of notice, or both, would constitute an Event of Default.
"Primary Quality Investments" shall mean any of the following:
(a) Operating deposit accounts maintained in the Company's name
alone with FDIC member institutions;
(b) Direct obligations of the United States of America or any
agency thereof;
(c) Certificates of deposit issued by FDIC member institutions
rated at least A- by Standard and Poor's Corporation (or bearing an equivalent
rating of another nationally recognized rating agency) with a maturity not to
exceed ninety (90) days and in an aggregate dollar amount not to exceed
$5,000,000.00 per issuing institution;
(d) Commercial paper issued by obligors rated at least A- by
Standard and Poor's Corporation (or bearing an equivalent rating of another
nationally recognized rating agency) with a maturity not to exceed ninety (90)
days and in an aggregate dollar amount not to exceed $5,000,000.00 per
issuer/obligor;
(e) Shares of money market funds in which the underlying
investments are rated at investment grade by Standard and Poor's Corporation (or
bearing an equivalent rating of another nationally recognized rating agency);
and
(f) Bonds and preferred stock rated at investment grade by
Standard and Poor's Corporation (or bearing an equivalent rating of another
nationally recognized
A-10
<PAGE> 53
rating agency) in an aggregate dollar amount not to exceed in any single
issuer/obligor ten percent (10%) of the Company's Effective Tangible Net Worth.
"Property" shall mean, collectively and severally, any and all
real property, including all improvements and fixtures thereon, owned or
occupied by the Company or any of its Subsidiaries.
"Reference Rate" shall mean the fluctuating per annum rate
announced from time to time by the Agent in Los Angeles, California, as its
"Reference Rate". The Reference Rate is a rate set by the Agent based upon
various factors including the Agent's costs and desired return, general economic
conditions, and other factors, and is used as a reference point for pricing some
loans, which may be priced at, of the Agreement or below the Reference Rate.
"Regulation D" shall mean Regulation D of the Board of Governors
of the Federal Reserve System (12 C.F.R. Section 221), as the same may from time
to time be amended, supplemented or superseded.
"Reportable Event" shall mean a reportable event as defined in
Title IV of ERISA, except actions of general applicability by the Secretary of
Labor under Section 110 of ERISA.
"Requirements of Law" shall mean as to any Person the Certificate
of Incorporation and ByLaws or other organizational or governing documents of
such Person, and any law, treaty, rule or regulation, or a final and binding
determination of an arbitrator or a determination of a court or other
Governmental Authority, in each case applicable to or binding upon such Person
or any of its property or to which such Person or any of its property is
subject.
"Revolving Loan" shall have the meaning given such term in
Paragraph 1(a) of the Agreement.
"SAP" shall mean with respect to any Significant Insurance
Subsidiary, the accounting procedures and practices prescribed or permitted by
the Applicable Insurance Regulatory Authority for such Significant Insurance
Subsidiary, applied on a consistent basis.
"Secondary Quality Investments" shall mean debt and equity
investments which are traded in recognized public markets but which do not
qualify as Primary Quality Investments.
"Significant Insurance Subsidiary" shall mean any of those
Subsidiaries of the Company listed on Exhibit G attached hereto and any
Subsidiary formed or acquired following the Effective Date which the Agent has
designated as such.
A-11
<PAGE> 54
"Single Employer Plan" shall mean as to any Person any Plan of
such Person which is not a Multiemployer Plan.
"Statement Date" shall mean December 31, 1997.
"Statutory Statement" shall mean with respect to any Significant
Insurance Subsidiary, a statement of the condition and affairs of such
Significant Insurance Subsidiary, prepared in accordance with SAP and filed with
the Applicable Insurance Regulatory Authority for such Significant Insurance
Subsidiary.
"Statutory Surplus" shall mean with respect to any Significant
Insurance Subsidiary at any date, the amount, determined in accordance with SAP,
of such Significant Insurance Subsidiary's surplus as regards policy holders as
of the last day of the fiscal quarter of such Significant Insurance Subsidiary
ending on or most recently ended prior to such date.
"Stock Pledge Agreement" shall mean an agreement in the form of
that attached hereto as Exhibit H.
"Subordinated Debt" shall mean Indebtedness of the Company
subordinated to the Obligations pursuant to written subordination agreements in
form and substance satisfactory to the Agent and the Majority Lenders, it being
agreed and understood that Indebtedness of the Company evidenced by the LYONs
shall constitute "Subordinated Debt" for all purposes of the Loan Documents.
"Subordinated LYONs Debt Indenture" shall mean that certain
Indenture dated as of February 1, 1995 by and between the Company and Chemical
Bank, as Trustee, as the same may be amended from time to time.
"Subsidiary" shall mean with respect to any Person: (a) any
corporation more than fifty percent (50%) of the stock of which having by the
terms thereof ordinary voting power to elect the board of directors, managers or
trustees of such corporation shall, at the time as of which any determination is
being made, be owned by such Person, either directly or through Subsidiaries of
such Person (irrespective of whether or not at the time stock of any other class
or classes of such corporation shall have or might have voting power by reason
of the happening of any contingency), and (b) any Person other than a
corporation, including, without limitation, any partnership, joint venture or
other business combination, whose management and policies are controlled by or
under common control with such Person or any of the Subsidiaries of such Person.
"Tangible Net Worth" shall mean for any Person at any time of
determination, total assets (exclusive of equity investments in Subsidiaries and
other Persons, notes receivable from Affiliates, goodwill, patents, trademarks,
trade names, organization expense, treasury stock, unamortized debt discount and
premium, deferred charges and other like intangibles) less Total Liabilities
(including accrued and deferred income taxes but excluding Subordinated Debt),
at such time.
A-12
<PAGE> 55
"Total Liabilities" shall mean for any Person at any time of
determination, all liabilities of such Person which in accordance with GAAP
would be shown on the liability side of a balance sheet of such Person but
excluding Subordinated Debt, as determined in accordance with GAAP.
"Transferee Lender" shall have the meaning given such term in
Paragraph 12(b) of the Agreement.
A-13
<PAGE> 56
TABLE OF EXHIBITS TO GLOSSARY
<TABLE>
<S> <C>
Exhibit A Form of Assignment and Acceptance Agreement
Exhibit B Form of Closing Certificate
Exhibit C Form of Financial Covenant Compliance Certificate
Exhibit D Form of Loan Request
Exhibit E Form of Negative Pledge Agreement
Exhibit F Schedule of Permitted Other Secured and Unsecured Debt
Exhibit G Schedule of Significant Insurance Subsidiaries
Exhibit H Form of Stock Pledge Agreement
</TABLE>
A-14
<PAGE> 57
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT (the "Stock Pledge Agreement") is made and
dated as of the 1st day of August, 1998 by and between FIDELITY NATIONAL
FINANCIAL, INC. a Delaware corporation (the "Company"), and SANWA BANK
CALIFORNIA, acting in its capacity as agent for the Lenders from time to time
party to (and as the term "Lenders" and capitalized terms not otherwise defined
herein are defined in) that certain Credit Agreement dated as of August 1, 1998
(as the same may be amended, extended and replaced from time to time, the
"Credit Agreement") (Sanwa acting in such capacity being referred to herein as
the "Agent").
RECITALS
A. Pursuant to the Credit Agreement, the Lenders have agreed to extend
credit to the Company and the Agent has agreed to act as agent for the Lenders
in connection with such credit extension.
B. As a condition precedent to the agreement of the Lenders to enter
into the Credit Agreement, the Company is required, among other things, to
execute and deliver to the Agent for the benefit of the Lenders this Stock
Pledge Agreement.
NOW, THEREFORE, in consideration of the above Recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
AGREEMENT
1. Appointment. By executing the Credit Agreement or otherwise becoming
a Lender thereunder, each Lender shall automatically be deemed to have appointed
the Agent to act as secured party, agent, custodian and bailee for the exclusive
benefit of Lenders with respect to the Collateral (as defined in Paragraph 3
below). The Agent hereby accepts such appointment and agrees to maintain and
hold all Collateral as secured party, agent, custodian and bailee for the
exclusive benefit of the Lenders. The Agent agrees to act in accordance with
this Stock Pledge Agreement and acknowledges and agrees that the Agent is not,
and shall not at any time in the future be, subject with respect to the
Collateral, in any manner or to any extent, to the direction or control of the
Company except as expressly permitted hereunder and under the other Loan
Documents.
2. Grant of Security Interest. The Company hereby pledges, mortgages,
assigns and grants to the Agent for the equal, ratable benefit of the Lenders
and to each of the Lenders in
<PAGE> 58
accordance with their respective Percentage Shares, a first priority perfected
security interest in the property described in Paragraph 3 below (collectively
and severally, the "Collateral") to secure payment and performance of the
Obligations.
3. Collateral. The Collateral shall consist of all now existing and
hereafter arising right, title and interest of the Company in each of the
following:
(a) All now existing and hereafter outstanding capital stock of
the Pledged Subsidiaries, and all new substituted and additional documents,
instruments, and general intangibles issued with respect thereto (collectively
and severally, the "Pledged Shares") and all now existing and hereafter arising
rights of the holder of the Pledged Shares, including, without limitation, all
voting and rights to and interest in all cash and noncash dividends and all
other property now or hereafter distributable on account of or receivable with
respect to any of the foregoing; and
(b) All proceeds of the foregoing Collateral. For purposes of
this Stock Pledge Agreement, the term "proceeds" shall mean whatever is
receivable or received when Collateral or proceeds are sold, collected,
exchanged or otherwise disposed of, whether such disposition is voluntary or
involuntary, and includes, without limitation, all rights to payment, including
return premiums, with respect to any insurance relating thereto.
4. Representations and Warranties. In addition to all representations
and warranties of the Company set forth in the Loan Documents, which are
incorporated herein by this reference, the Company hereby represents and
warrants that:
(a) The Company is the sole owner of and has good and marketable
title to the Collateral (or, in the case of after-acquired Collateral, at the
time the Company acquires rights in the Collateral, will be the sole owner
thereof) and is the record and beneficial owner of the Pledged Shares;
(b) Except for the security interest in favor of the Agent for
the benefit of the Lenders granted pursuant hereto, no person has (or, in the
case of after-acquired Collateral, at the time the Company acquires rights
therein, will have) any right, title, claim or interest (by way of security
interest or other lien or charge) in, against or to the Collateral;
(c) All information heretofore, herein or hereafter supplied to
the Agent or any Lender by or on behalf of the Company with respect to the
Collateral is accurate and complete;
(d) The Company has delivered to the Agent all instruments,
chattel paper and other items of Collateral in which a security interest is or
may be perfected by possession, and any certificate Pledged Shares together with
such additional writings, including, without limitation, assignments and stock
powers, with respect thereto as the Agent shall request; and
(e) The Pledged Shares in the aggregate constitute all of the
issued and outstanding shares of the Subsidiaries, have been validly issued and
are fully paid and
2
<PAGE> 59
nonassessable, and there are no outstanding options, warrants or other
agreements with respect thereto.
5. Covenants and Agreements of the Company. In addition to all covenants
and agreements of the Company set forth in the Loan Documents, which are
incorporated herein by this reference, the Company hereby agrees:
(a) To do all acts that may be necessary to maintain, preserve
and protect the Collateral;
(b) Not to use or permit any Collateral to be used unlawfully or
in violation of any provision of this Stock Pledge Agreement, any other
agreement with the Agent and/or the Lenders related hereto, or any Requirement
of Law or Contractual Obligation affecting the Collateral;
(c) To pay promptly when due all taxes, assessments, charges,
encumbrances and Liens now or hereafter imposed upon or affecting any
Collateral;
(d) To appear in and defend any action or proceeding which may
affect its title to or the Agent's interest on behalf of the Lenders in the
Collateral;
(e) Not to surrender or lose possession of (other than to the
Agent), sell, encumber, lease, rent, or otherwise dispose of or transfer any
Collateral or right or interest therein and to keep the Collateral free of all
levies and security interests or other Liens or charges except the security
interest in favor of the Agent for the benefit of the Lenders granted hereunder;
(f) To account fully for and promptly deliver to the Agent, in
the form received, all documents, chattel paper, instruments and agreements
constituting Collateral hereunder and all proceeds of the Collateral received,
all endorsed to the Agent or in blank, as requested by the Agent, and
accompanied by such stock powers as appropriate and until so delivered all such
documents, instruments, agreements and proceeds shall be held by the Company in
trust for the Lenders, separate from all other property of the Company;
(g) To keep separate, accurate and complete records of the
Collateral and to provide the Agent and each of the Lenders with such records
and such other reports and information relating to the Collateral as the Agent
or any Lender may request from time to time;
(h) To keep the records concerning the Collateral at the
location referred to in Paragraph 8 below and not to remove such records from
such location without the prior written consent of the Agent; and
(i) To account fully for and promptly deliver to the Agent, in
the form received, any dividend or any other distribution on account of the
Pledged Shares whether in securities or property by way of stock-split,
spin-off, split-up or reclassification, combination of shares or the like, or in
case of any reorganization, consolidation or merger; provided, however,
3
<PAGE> 60
that until there shall have occurred an Event of Default, the Company shall be
entitled to retain any cash dividends paid on account of the Pledged Shares.
6. Authorized Action by Secured Party. The Company hereby agrees that
from time to time, without presentment, notice or demand, and without affecting
or impairing in any way the rights of the Agent with respect to the Collateral,
the obligations of the Company hereunder or the Obligations, the Agent may, but
shall not be obligated to and shall incur no liability to the Company, any
Lender or any third party for failure to, take any action which the Company is
obligated by this Stock Pledge Agreement to do and to exercise such rights and
powers as the Company might exercise with respect to the Collateral, and the
Company hereby irrevocably appoints the Agent as its attorney-in-fact to
exercise such rights and powers, including without limitation, to: (a) collect
by legal proceedings or otherwise and endorse, receive and receipt for all
dividends, interest, payments, proceeds and other sums and property now or
hereafter payable on or on account of the Collateral; (b) enter into any
extension, reorganization, deposit, merger, consolidation or other agreement
pertaining to, or deposit, surrender, accept, hold or apply other property in
exchange for the Collateral; (c) insure, process and preserve the Collateral;
(d) transfer the Collateral to its own or its nominee's name; (e) make any
compromise or settlement, and take any action it deems advisable, with respect
to the Collateral; and (f) notify any obligor on any Collateral to make payment
directly to the Agent. The Company hereby grants to the Agent for the benefit of
the Lenders an exclusive, irrevocable power of attorney, with full power and
authority in the place and stead of the Company to take all such action
permitted under this Paragraph 6.
7. Remedies. Upon the occurrence of an Event of Default the Agent may,
without notice to or demand on the Company and in addition to all rights and
remedies available to the Agent and the Lenders under the Loan Documents, at
law, in equity or otherwise, do any one or more of the following:
(a) Foreclose or otherwise enforce the Agent's security interest
in any manner permitted by law, or provided for in this Stock Pledge Agreement;
(b) Sell, lease or otherwise dispose of any Collateral at one or
more public or private sales at the Agent's place of business or any other place
or places, including, without limitation, any broker's board or securities
exchange, whether or not such Collateral is present at the place of sale, for
cash or credit or future delivery, on such terms and in such manner as the Agent
may determine;
(c) Recover from the Company all costs and expenses, including,
without limitation, reasonable attorneys' fees (including the allocated cost of
internal counsel), incurred or paid by the Agent or any Lender in exercising any
right, power or remedy provided by this Stock Pledge Agreement;
(d) Vote or consent, and in connection therewith the Company
hereby grants to the Agent a proxy to vote or to consent, with respect to
Pledged Shares; and
4
<PAGE> 61
(e) Restrict the prospective bidders or purchasers of Pledged
Shares to persons or entities who (1) will represent and agree that they are
purchasing for their own account, for investment, and not with a view to the
distribution or sale of any of the Pledged Shares; and (2) satisfy the offeree
and purchaser requirements for a valid private placement transaction under
Section 4(2) of the Securities Act of 1933, as amended (the "Act"), and under
Securities and Exchange Commission Release Nos. 33-6383; 34-18524; 35-22407;
39-700; IC-12264; AS-306, or under any similar statute, rule or regulation. The
Company agrees that disposition of the Pledged Shares pursuant to any private
sale made as provided above may be at prices and on other terms less favorable
than if the Pledged Shares were sold at public sale, and that the Agent has no
obligation to delay the sale of any Pledged Shares for public sale under the
Act. The Company agrees that a private sale or sales made under the foregoing
circumstances shall be deemed to have been made in a commercially reasonable
manner. In the event that the Agent elects to sell the Pledged Shares, or part
of them, and there is a public market for the Pledged Shares, in a public sale,
the Company shall use its best efforts to register and qualify the Pledged
Shares, or applicable part thereof, under the Act and all state Blue Sky or
securities laws required by the proposed terms of sale, and all expenses thereof
shall be payable by the Company, including, but not limited to, all costs of (i)
registration or qualification of, under the Act or any state Blue Sky or
securities laws or pursuant to any applicable rule or regulation issued pursuant
thereto, any Pledged Shares, and (ii) sale of such Pledged Shares, including,
but not limited to, brokers' or underwriters' commissions, fees or discounts,
accounting and legal fees (including the allocated cost of internal counsel) and
disbursements, costs of printing and other expenses of transfer and sale. If any
consent, approval or authorization of any state, municipal or other governmental
department, agency or authority shall be necessary to effectuate any sale or
other disposition of Pledged Shares, or any part thereof, the Company will
execute such applications and other instruments as may be required in connection
with securing any such consent, approval or authorization, and will otherwise
use its best efforts to secure the same.
The Company shall be given five (5) business days' prior notice of the time and
place of any public sale or of the time after which any private sale or other
intended disposition of Collateral other than Pledged Shares is to be made,
which notice the Company hereby agrees shall be deemed reasonable notice
thereof. Upon any sale or other disposition pursuant to this Stock Pledge
Agreement, the Agent shall have the right to deliver, assign and transfer to the
purchaser thereof the Collateral or portion thereof so sold or disposed of. Each
purchaser at any such sale or other disposition (including the Agent) shall hold
the Collateral free from any claim or right of whatever kind, including any
equity or right of redemption of the Company and the Company specifically waives
(to the extent permitted by law) all rights of redemption, stay or appraisal
which it has or may have under any rule of law or statute now existing or
hereafter adopted.
Notwithstanding the foregoing, none of the above remedies can be exercised
either directly as to FNTIC or indirectly as to FNTIC, by way of actions as to
direct or indirect holding companies of FINTIC, without first filing for and
obtaining written prior approval from the California Insurance Department
pursuant to California Insurance Code Section 1215.2.
5
<PAGE> 62
8. Residence; Collateral Location; Records Location. The Company
represents that its chief place of business is located at 3916 State Street,
Santa Barbara, California 93105 and that the Company's records concerning the
Collateral are located at its chief place of business.
EXECUTED as of the day and year first above written.
FIDELITY NATIONAL FINANCIAL, INC.,
a Delaware corporation
By: /s/ A. D. Meadows
Name: Allen D. Meadows
Title: EVP & CFO
SANWA BANK CALIFORNIA, a California
banking corporation, as Agent
By: /s/ C. M. Ciebiera
Name: C.M. Ciebiera
Title: Vice President/Manager
6
<PAGE> 1
EXHIBIT 10.58.1
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (the "Amendment") is made and
dated as of the 31st day of December, 1998, by and among SANWA BANK CALIFORNIA,
("Sanwa"), SANWA, in its capacity as agent for the Lenders party to the Credit
Agreement referred to below (the "Agent") (and as the long term "Lenders" and
capitalized terms not otherwise defined herein are used in the Credit
Agreement), the Lenders from time to time party to the Credit Agreement referred
to below and FIDELITY NATIONAL FINANCIAL, INC. (the "Company").
RECITALS
A. Pursuant to that certain Credit Agreement dated as of August 1, 1998,
by and among the Agent, the Lenders and the Company (as amended from time to
time, the "Credit Agreement"), the Lenders agreed to extend credit to the
Company on the terms and subject to the conditions set forth therein.
B. The Company, the Agent and the Lenders desire to modify the Credit
Agreement in certain respects as set forth more particularly below.
NOW, THEREFORE, in consideration of the foregoing Recitals and for other
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
AGREEMENT
1. Increase in Capital Expenditures. To reflect the agreement of the
parties to increase the aggregate amount of Capital Expenditures that
the Company may make in any fiscal year, effective as of the
Effective Date (as such term is defined in Paragraph 4 below)
Paragraph 9(j) of the Credit Agreement is hereby amended to read in
its entirety as follows:
"9(j) Capital Expenditures. And shall not permit any
Subsidiary to, make Capital Expenditures in excess of $25,000,000.00 in
the aggregate for the Company and all Subsidiaries during any fiscal
year; provided, however, that the limitations contained in this
Paragraph 9(j) shall not apply to Capital Expenditures associated with
Permitted Acquisitions."
2. Amendment of Definition. To reflect the agreement of the parties to
amend the definition of the term "Primary Quality Investments" set forth in
Annex I to the Credit Agreement, effective as of the Effective Date subparagraph
(d) of such term is hereby amended to read in its entirety as follows:
<PAGE> 2
"(d) Commercial paper issued by obligors rated at least
investment grade by Standard and Poor's Corporation (or bearing an
equivalent rating of another nationally recognized rating agency) with a
maturity not to exceed ninety (90) days and in an aggregate amount not
to exceed $5,000,000.00 per issuing institution."
3. Reaffirmation of Loan Documents. The Company hereby affirms and
agrees that (a) the execution and delivery by the Company of and the performance
of its obligations under this Amendment shall not in any way amend, impair,
invalidate or otherwise affect any of the obligations of the Company or the
rights of the Lenders under the Loan Documents or any other document or
instrument made or given by the Company in connection therewith, (b) the term
"Obligations" as used in the Loan Documents includes, without limitation, the
Obligations of the Company under the Credit Agreement as amended hereby and (c)
the Loan Documents remain in full force and effect.
4. Effective Date. This Amendment shall be effective retroactive to
December 31, 1998 on the date (the "Effective Date") that there has been
delivered to the Agent:
(a) A copy of this Amendment, duly executed by each party hereto;
(b) Such corporate resolutions, incumbency certificates and other
authorizing documentation as the Agent may reasonably request.
5. Representations and Warranties. The Company hereby represents and
warrants to the Agent and the Lenders as follows:
(a) The Company has the corporate power and authority and the
legal right to execute, deliver and perform this Amendment and has taken all
necessary corporate action to authorize the execution, delivery and performance
of this Amendment. This Amendment has been duly executed and delivered on behalf
of the Company and constitutes the legal, valid and binding obligations of the
Company enforceable against the Company in accordance with its terms.
(b) At and as of the date of execution hereof and at and as of
the effective date of this Amendment and both prior to and after giving effect
hereto: (i) the representations and warranties of the Company contained in the
Credit Agreement and the other Loan Documents are accurate and complete in all
respects, and (ii) there has not occurred an Event of Default or Potential
Default.
6. No Other Amendment. Except as expressly amended hereby, the Loan
Documents shall remain in full force and effect as written and amended to date.
2
<PAGE> 3
7. Counterparts. This Amendment may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute one and the same
agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be executed as of the day and year first above written.
FIDELITY NATIONAL FINANCIAL, INC.,
a Delaware corporation
By: /s/ Allen D. Meadows
----------------------------
Name: Allen D. Meadows
----------------------------
Title: EVP & CFO
----------------------------
SANWA BANK CALIFORNIA, as Agent
and as a Lender
By: /s/ S. L. Skelton
----------------------------
Name: S. L. Skelton
----------------------------
Title: VP
----------------------------
COMERICA BANK - CALIFORNIA, as a
Lender
By: /s/ Mario DePasquale
----------------------------
Name: Mario DePasquale
----------------------------
Title: AVP
----------------------------
FIRST BANK & TRUST, as a Lender
By: /s/ Alison A. Davis
----------------------------
Name: Alison A. Davis
----------------------------
Title: VP
----------------------------
3
<PAGE> 4
SUN TRUST BANK, CENTRAL FLORIDA,
N.A., as a Lender
By:
----------------------------
Name:
----------------------------
Title:
----------------------------
THE SUMITOMO BANK, LIMITED, LOS
ANGELES BRACH, as a Lender
By: /s/ Al Galluzzo
----------------------------
Name: Al Galluzzo
----------------------------
Title: SVP
----------------------------
WELLS FARGO BANK, N.A., as a Lender
By: /s/ Timothy A. McDevitt
----------------------------
Name: Timothy A. McDevitt
----------------------------
Title: VP
----------------------------
4
<PAGE> 1
Exhibit 10.59
STOCK PURCHASE AGREEMENT
BY AND AMONG
GRANITE FINANCIAL, INC,
FIDELITY NATIONAL FINANCIAL, INC.,
LEXINGTON CAPITAL CORPORATION,
AND
THE SHAREHOLDERS OF LEXINGTON CAPITAL CORPORATION
DATED AS OF AUGUST 31, 1998
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C>
RECITALS........................................................................ 1
INDEX OF EXHIBITS................................................................iv
INDEX OF SCHEDULES...............................................................iv
ARTICLE I
Certain Definitions............................... 1
ARTICLE 2
Stock Purchase................................. 6
2.1 Sale and Transfer of Stock............................................. 6
2.2 Consideration.......................................................... 6
ARTICLE 3
Closing..................................... 7
3.1. Closing................................................................. 7
3.2 Mutual Deliveries at Closing............................................ 7
3.3 Shareholders' Deliveries at Closing..................................... 7
3.4 Company's Deliveries at Closing......................................... 7
3.5 GFI's and FNFI's Deliveries at Closing...................................8
3.6 Conditions of GFI and FNFI.............................................. 9
3.7 Conditions of Company and Shareholders................................. 10
ARTICLE 4
Representations and Warranties of Company and Shareholders.. 11
4.1 Organization and Standing; Articles and Bylaws......................... 12
4.2 Authorization.......................................................... 12
4.3 Subsidiaries........................................................... 12
4.4 Capitalization......................................................... 12
4.5 Financial Statements................................................... 13
4.6 Material Contracts..................................................... 13
4.7 Assets Other Than Real Property........................................ 14
4.8 Real Property.......................................................... 14
4.9 No Conflicts........................................................... 14
4.10 Litigation............................................................. 15
4.11 Taxes.................................................................. 15
4.12 Employees.............................................................. 15
4.13 Consents............................................................... 16
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
4.14 Operating Rights....................................................... 16
4.15 Compliance with Applicable Laws........................................ 16
4.16 Insurance.............................................................. 16
4.17 Absence of Changes..................................................... 17
4.18 Employee Plans......................................................... 17
4.19 Intellectual Property Rights........................................... 18
4.20 Environment, Health and Safety......................................... 18
4.21 Certain Transactions................................................... 19
4.22 Bank Accounts; Powers of Attorney.......................................19
4.23 Investment Representation...............................................19
4.24 Absence of Claims Against Company.......................................20
4.25 Employee Loans......................................................... 20
4.26 Brokers' Fees.......................................................... 20
4.27 Full Disclosure........................................................ 20
ARTICLE 5
Representations and Warranties of GFI and FNFI.............. 20
5.1 Organization and Standing; Articles and Bylaws......................... 20
5.2 Authorization.......................................................... 20
5.3 No Conflicts........................................................... 21
5.4 Fidelity SEC Documents................................................. 21
5.5 Fidelity Common Stock.................................................. 21
5.6 Consents............................................................... 22
5.7 Brokers' Fees.......................................................... 22
5.8 Full Disclosure........................................................ 22
ARTICLE 6
Conduct of Business Pending Closing................... 22
6.1 Qualification.......................................................... 22
6.2 Ordinary Course........................................................ 22
6.3 Corporate Changes...................................................... 23
6.4 Indebtedness........................................................... 23
6.5 Accounting..............................................................23
6.6 Compliance with Legal Requirements..................................... 23
6.7 Disposition of Assets.................................................. 23
6.8 Compensation........................................................... 23
6.9 Modification or Breach of Agreements; New Agreements................... 24
6.10 Capital Expenditures................................................... 24
6.11 Consents............................................................... 24
6.12 Maintenance of Insurance............................................... 24
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
6.13 Discharge.............................................................. 24
6.14 Claims................................................................. 24
6.15 Taxes and Tax Assessments.............................................. 24
ARTICLE 7
Additional Covenants............................ 24
7.1 Covenants of Company and Shareholders.................................. 25
7.2 Covenants of GFI and FNFI.............................................. 25
7.3 Tax Advice..............................................................26
7.4 Access and Information................................................. 26
7.5 Expenses............................................................... 27
7.6 Certain Notifications.................................................. 27
7.7 Publicity.............................................................. 27
7.8 Further Assurances..................................................... 27
7.9 Competing Offers....................................................... 27
7.10 NYSE Listing........................................................... 28
7.11 Distribution of Retained Earnings.......................................28
7.12 Board of Directors......................................................28
ARTICLE 8
Termination, Amendment and Waiver..................... 28
8.1 Termination............................................................ 28
8.2 Effect of Termination.................................................. 29
8.3 Amendment.............................................................. 29
8.4 Waiver................................................................. 29
ARTICLE 9
Indemnification............................... 29
9.1 Survival of Representations and Warranties............................. 29
9.2 Indemnification by Company and Shareholders............................ 30
9.3 Indemnification by FNFI................................................ 30
9.4 Third-Party Claims..................................................... 30
9.5 Access and Information................................................. 31
9.6 Mitigation............................................................. 31
9.7 Right of Set-Off....................................................... 31
9.8 Limitations............................................................ 31
9.8 Indemnification Exclusive.............................................. 31
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
ARTICLE 10
General Provisions.............................. 32
10.1 Governing Law.......................................................... 32
10.2 Successors and Assigns................................................. 32
10.3 Entire Agreement....................................................... 32
10.4 Severability........................................................... 32
10.5 Notice................................................................. 33
10.6 Construction........................................................... 33
10.7 Headings............................................................... 34
10.8 Counterparts........................................................... 34
10.9 Recitals, Schedules, and Exhibits...................................... 34
</TABLE>
INDEX OF EXHIBITS
EXHIBIT A - Employment Agreements for Shareholders
EXHIBIT B - Registration Rights Agreement
EXHIBIT C - Officer's Certificate of the Company
EXHIBIT D - Secretary's Certificate of the Company
EXHIBIT E - Opinion of Counsel to the Company
EXHIBIT F - Officer's Certificate of GFI and FNFI
EXHIBIT G - Secretary's Certificate of GFI and FNFI
EXHIBIT H - Opinion of Counsel to GFI and FNFI
INDEX OF SCHEDULES
Company Disclosure Schedule
iv
<PAGE> 6
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into
as of this 31st day of August, 1998, by and among GRANITE FINANCIAL, INC., a
Delaware corporation ("GFI"), FIDELITY NATIONAL FINANCIAL, INC., a Delaware
corporation ("FNFI"), LEXINGTON CAPITAL CORPORATION, an Illinois corporation
("Company"), LAWRENCE B. MOLLER and EDWARD C. LITKE (collectively, the
"Shareholders). GFI, FNFI, Company, and Shareholders are sometimes referred to
collectively herein as the "Parties" or singularly as a "Party."
RECITALS
A. Shareholders are the record and beneficial owners of all the issued
and outstanding shares of capital stock of Company (the "Company Shares").
B. GFI is a wholly owned subsidiary of FNFI.
B. The respective Boards of Directors of GFI, FNFI, and Company deem it
advisable and in the best interests of their respective shareholders that GFI
purchase all of the Company Shares pursuant to this Agreement.
C. The Shareholders desire to sell all of the Company Shares to GFI
pursuant to this Agreement.
NOW, THEREFORE, in consideration of the premises and the respective
representations, warranties, covenants, agreements and conditions hereinafter
set forth, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties hereby agree as
follows:
ARTICLE I
CERTAIN DEFINITIONS
Unless the context otherwise requires, the terms defined in this Article
1 shall have the meanings herein specified for all purposes of this Agreement,
applicable to both the singular and the plural forms of such terms. Any
capitalized term used in this Agreement and not ascribed a meaning in this
Article 1 shall have the meaning ascribed to such term elsewhere in this
Agreement.
"Affiliate" means, with respect to a Person, any other Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with such Person.
1
<PAGE> 7
"Basis" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or would reasonably form the basis for
any specified consequence.
"Benefit Arrangement" means any form of current or deferred
compensation, bonus, stock option, stock appreciation right, severance pay,
salary continuation, pension, profit-sharing, retirement or incentive plan,
practice or arrangement, any group or individual disability, medical, dental,
health, hospitalization, life insurance or other insurance plans or related
benefits, or any other welfare or similar plan or arrangement for the benefit of
any director, officer or employee of Company, whether active or retired, or for
any class or classes of such directors, officers or employees.
"Claim" means any actual or threatened claim, action, suit, arbitration,
hearing, inquiry, proceeding (including administrative and informal
proceedings), complaint, charge, investigation or audit by or before any
Governmental Entity or arbitrator and any appeal from any of the foregoing.
"Closing" has the meaning set forth in Section 3.1, below.
"Closing Date" has the meaning set forth in Section 3.1, below.
"Closing Fidelity Price" means the average of the per share closing
sales price of FNFI's Common Stock publicly traded on the New York Stock
Exchange for the ten (10) consecutive trading days ending two (2) business days
prior to the Closing Date.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Shares" has the meaning set forth in Recital A.
"Company Stock" means shares of Common Stock, $1.00 par value, of
Company.
"Confidential Information" means any information concerning the
businesses and affairs of any of the Parties that is not already generally
available to the public.
"Disclosure Schedule" means the Schedules to this Agreement required to
be prepared by Company and Shareholders and delivered to GFI.
"Employee Plan" means any "employee benefit plan," as defined in Section
3(3) of ERISA, which is subject to any provisions of ERISA and covers any
employee, whether active or retired, of the Company.
2
<PAGE> 8
"Environmental, Health, and Safety Laws" means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, and the Occupational Safety and Health
Act of 1970, each as amended, together with all Legal Requirements concerning
pollution or protection of the environment, public health and safety, or
employee health and safety, including Legal Requirements relating to emissions,
discharges, releases, or threatened releases of pollutants, contaminants, or
chemical, industrial, hazardous, or toxic materials or wastes into ambient air,
surface water, ground water, or lands or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants, or chemical, industrial, toxic materials
or other Hazardous Materials.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Fidelity Common Stock" means the shares of restricted Common Stock, par
value of $0.0001 per share, of FNFI.
"GAAP" means United States generally accepted accounting principles, as
amended from time to time.
"Governmental Entity" means any court, federal, state, local or foreign
government or any administrative agency or commission or any other governmental
authority or instrumentality whatsoever.
"Hazardous Substances" means any hazardous, toxic or infectious
substance, material, gas or waste which is regulated by any Governmental Entity.
"Indebtedness" means, when used with reference to any Person, without
duplication, (i) any Liability of such Person created or assumed by such Person,
or any Subsidiary thereof, (A) for borrowed money, (B) evidenced by a bond,
note, debenture, or similar instrument (including a purchase money obligation,
deed of trust or mortgage) given in connection with the acquisition of, or
exchange for, any property or assets (other than inventory or similar property
acquired and consumed in the Ordinary Course of Business), including securities
and other indebtedness, (C) in respect of letters of credit issued for such
Person's account and "swaps" of interest and currency exchange rates (and other
interest and currency exchange rate hedging agreements) to which such Person is
a party or (D) for the payment of money as lessee under leases that should be,
in accordance with GAAP, recorded as capital leases for financial reporting
purposes; (ii) any Liability of others described in the preceding clause (i)
guaranteed as to payment of principal or interest by such Person or in effect
guaranteed by such Person through an agreement, contingent or otherwise, to
purchase, repurchase, or pay the related Indebtedness or to acquire the security
therefor; (iii) all Liabilities or obligations secured by a Lien upon property
owned by such Person and upon which Liabilities or obligations such Person
customarily pays interest or principal, whether or not such Person has assumed
or become liable for the payment of such liabilities or
3
<PAGE> 9
obligations; and (iv) any amendment, renewal, extension, revision or refunding
of any such Liability or obligation.
"Intellectual Property" means (i) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof; (ii) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith; (iii) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith; (iv) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing plans
and proposals); (v) all computer software (including data and related
documentation); (vi) all other proprietary rights; and (vii) all copies and
tangible embodiments thereof (in whatever form or medium).
"Knowledge" or "Known" means that Company and the Shareholders are
actually aware of the fact or matter in question or reasonably should be aware
of the fact or matter in question after a reasonable investigation in the
Ordinary Course of Business concerning such fact or matter.
"Legal Requirement" means any statute, law, ordinance, rule, regulation,
permit, order, writ, judgment, injunction, decree or award issued, enacted or
promulgated by any Governmental Entity or any arbitrator with binding authority
on a Party or Parties, as the case may be.
"Liability" means any liability (whether asserted or unasserted, whether
absolute or contingent, whether accrued or unaccrued, whether liquidated or
unliquidated, and whether due or to become due), including, but not limited to,
any liability for Taxes.
"Licenses" has the meaning set forth in Section 4.14, below.
"Lien" means all liens (including judgment and mechanics' liens,
regardless of whether liquidated), mortgages, assessments, security interests,
easements, pledges, trusts (constructive or otherwise), deeds of trust, options
or other charges, encumbrances or restrictions.
"Losses" means any and all losses, damages, demands, assessments,
adjustments, judgments, settlement payments, deficiencies, penalties, fines,
interest (including interests from the date of such damages), and costs and
expenses (including without limitation reasonable attorneys' fees and
disbursements of every kind, nature and description), less any recoveries
thereon.
4
<PAGE> 10
"Material Adverse Effect" means any event, effect, development,
occurrence or circumstance, individually or when taken together with all other
such events, effects, developments, occurrences or circumstances, causing,
resulting in or having a material adverse effect on (i) the business, assets,
results of operations, properties or condition (financial or otherwise) of
Company, GFI or FNFI, as applicable; or (ii) the legal right or authorization of
Company, GFI or FNFI, as applicable, to continue to operate its business as a
going concern.
"Material Contracts" means with respect to Company (i) any union
contract or any employment or consulting contract or arrangement providing for
future compensation, written or oral, with any officer, director or employee
which is not terminable on thirty (30) days notice or less without penalty or
obligation to make payments related to such termination; (ii) any plan contract
or arrangement, whether written or oral, providing for bonuses, pensions,
deferred compensation, severance pay or benefits, retirement payments, profit
sharing or the like; (iii) any existing broker agreement, lease sale or purchase
agreement, distribution agreement, volume purchase agreement, or similar
agreement in which the annual amount involved in fiscal 1997 and fiscal year
1998 exceeded or is expected to exceed $10,000 in aggregate amount; (iv) except
for trade indebtedness incurred in the Ordinary Course of Business, any
Indebtedness incurred in the acquisition of companies or other entities or
Indebtedness for borrowed money by way of direct loan, sale of debt securities,
recourse obligations on lease sales, purchase money obligation, conditional
sale, guarantee, leasehold obligations or otherwise; (v) any contract containing
covenants purporting to limit in any way the freedom of Company to compete in
any line of business or in any geographic area; (vi) any agreement of
indemnification; (vii) any agreement, contract or commitment relating to capital
expenditures and which involve future payments in excess of $25,000 in the
aggregate by Company; (viii) any agreements, contracts or commitments relating
to the disposition of assets, including any intangible assets or intellectual
property rights (other than inventory), which involve payments in excess of
$25,000 in the aggregate by Company; (ix) any contracts with a Governmental
Entity subject to price redetermination or renegotiation; or (x) all insurance
policies of Company; (xi) all equipment leases of Company in which the Company
is lessee and which involve payments in excess of $20,000 in the aggregate; or
(xii) any other agreement, contract or commitment which is material to Company.
"Material Contracts" with respect to GFI or FNFI means any agreement, contract
or commitment which FNFI files or is requested to file with its SEC reports.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency and, where appropriate, in accordance with formula).
"Party" has the meaning set forth in the preamble to this Agreement.
"Permitted Liens" means (i) liens for Taxes not yet due and payable or
for Taxes that the taxpayer is contesting in good faith through appropriate
proceedings; (ii) purchase money liens and liens securing rental payments under
capital lease arrangements and (iii) liens, if any, that are not substantial in
character, amount or extent and do not detract materially from the value, or
interfere
5
<PAGE> 11
with present use or the sale or other disposition, of the property subject
thereto or affected thereby.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof), or any other legal
entity.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental, customs, duties, capital stock,
franchise, profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated, or other
tax or contribution of any kind whatsoever, including any interest, penalty, or
addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
ARTICLE 2
STOCK PURCHASE
2.1 Sale and Transfer of Stock. On the basis of the representations,
warranties, covenants and agreements and subject to the satisfaction (or waiver
by the Party whose obligations hereunder are subject to such satisfaction) of
the conditions set forth in this Agreement, on the Closing Date, Shareholders
shall sell, convey, assign, transfer and deliver to GFI, and GFI shall purchase
and acquire from Shareholders, all of the Company Shares owned by Shareholders,
which constitutes 100% of the issued and outstanding capital stock of the
Company. Shareholders shall transfer to GFI good and marketable title to such
Company Shares, free and clear of all Liens.
6
<PAGE> 12
2.2 Consideration. In consideration for the sale of all of the Company
Shares to GFI, GFI and FNFI shall provide Shareholders with the following
consideration at the Closing:
(a) Cash in the amount of $3,000,000; and
(b) A number of shares of Fidelity Common Stock equal to
$500,000 divided by the Closing Fidelity Price.
The cash and Fidelity Common Stock due the Shareholders under this Section 2.2
shall be allocated among the Shareholders in proportion to the number of Company
Shares owned by each Shareholder.
ARTICLE 3
CLOSING
3.1. Closing. The consummation of the purchase of the Company Shares by
GFI and the other transactions contemplated by this Agreement (the "Closing")
shall occur at such place and on such date (the "Closing Date") and at such time
as may be mutually designated by the Parties within five (5) business days
following the satisfaction or waiver of the conditions set forth in Sections 3.6
and 3.7, below, or such other date, time, place and manner as the Parties may
mutually agree.
3.2 Mutual Deliveries at Closing. Provided that all of the conditions to
the Closing set forth in Sections 3.6 and 3.7, below, have been satisfied or
waived by the Party benefitting therefrom, the appropriate Parties or Persons
shall execute and deliver or cause to be delivered to the appropriate Parties at
Closing the following:
(a) The Employment Agreements between Company and each of the
Shareholders in substantially the form of Exhibit "A" hereto; and
(b) The Registration Rights Agreement substantially in the form
of Exhibit "B" hereto.
3.3 Shareholders' Deliveries at Closing. Provided that all of the
conditions to the Closing set forth in Sections 3.6 and 3.7, below, have been
satisfied or waived by the Party benefiting therefrom, Shareholders shall
execute and deliver or cause to be delivered to GFI at the Closing the following
documents:
(a) The original stock certificates for all of the Company
Shares along with duly executed stock powers in favor of GFI for each
certificate;
7
<PAGE> 13
(b) Such other documents and instruments as may be specified in
this Agreement or otherwise reasonably requested by GFI in order to consummate
the transactions contemplated hereby.
3.4 Company's Deliveries at Closing. Provided that all of the conditions
to the closing set forth in Sections 3.6 and 3.7, below, have been satisfied or
waived from the Party benefitting therefrom, Company shall execute and deliver
or cause to be delivered to GFI at the Closing the following:
(a) An Officer's Certificate of the Company dated the Closing
Date substantially in the form of Exhibit "C" hereto;
(b) A Secretary's Certificate of the Company dated the Closing
Date substantially in the form of Exhibit "D" hereto;
(c) An opinion of counsel to the Company substantially in the
form of Exhibit "E" hereto;
(d) Company's original minute book, such minute book to contain
(i) original Articles of Incorporation and all amendments thereto, or copies
thereof if the originals are unavailable; (ii) Company's Bylaws presently in
effect; (iii) Company's stock transfer records together with all available
canceled stock certificates; and (iv) all minutes of meetings or consents in
lieu of such meetings of Company's Board of Directors and shareholders;
(e) A good standing certificate of Company, dated within thirty
(30) business days of the Closing Date, for each jurisdiction in which Company
is required to be qualified and authorized to do business;
(f) Minutes of the Board of Directors and shareholders of
Company authorizing and approving this Agreement and the transactions
contemplated herein;
(g) The resignations of all of the officers and directors of
Company effective as of the Closing Date; and
(h) Such other documents and instruments as may be specified in
this Agreement or otherwise reasonably requested in writing by GFI at least five
(5) days prior to the Closing Date in order to consummate the transactions
contemplated hereby.
3.5 GFI and FNFI's Deliveries at Closing. Provided that all of the
conditions to the Closing set forth in Sections 3.6 and 3.7, below, have been
satisfied or waived by the Party benefiting therefrom, GFI or FNFI shall execute
and deliver or cause to be delivered to Shareholders at the Closing (or such
later time as may be indicated below) the following:
8
<PAGE> 14
(a) An Officer's Certificate of each of GFI and FNFI dated the
Closing Date substantially in the form of Exhibit "F" hereto (provided, however,
that such Officer's certificate may be delivered within 30 days following the
Closing);
(b) A Secretary's Certificate of each of GFI and FNFI dated the
Closing Date substantially in the form of Exhibit "G" hereto (provided, however,
that such Secretary's certificate may be delivered within 30 days following the
Closing);
(c) An opinion of counsel to GFI and FNFI substantially in the
form of Exhibit "H" hereto;
(d) The cash and Fidelity Common Stock in accordance with
Section 2.2, above;
(e) Such other documents and instruments as may be specified in
this Agreement or otherwise reasonably requested in writing by Shareholders at
least (5) days prior to the Closing Date in order to consummate the transactions
contemplated hereby.
3.6 Conditions of GFI and FNFI. GFI's and FNFI's obligations hereunder
to consummate the transactions hereunder are subject to the satisfaction, at or
prior to the Closing, of all of the following conditions:
(a) Representations and Warranties True; Performance of
Obligations. The representations and warranties made by Company and Shareholders
in this Agreement shall be true, correct and complete in all material respects
on and as of the Closing Date with the same force and effect as if they had been
made on and as of said date; and Company and Shareholders shall have in all
material respects performed all of the obligations and complied with each and
all of the covenants required to be performed or complied with by them on or
prior to the Closing Date.
(b) Material Adverse Effect. No act, event or condition shall
have occurred after the date hereof which has had or could have a Material
Adverse Effect on Company.
(c) Authorizations and Approvals. All authorizations, approvals
or consents from third parties, including from any Governmental Entity,
shareholders, landlord or other Person, necessary for the consummation of the
transactions contemplated hereby shall have been obtained.
(d) Deliveries. GFI and FNFI shall have received from the
appropriate Party or Person, the delivery obligations set forth in Sections 3.2
through 3.4, above.
(e) No Claims. There shall not be instituted and pending or
threatened any Claims before any Governmental Entity (i) challenging or
otherwise seeking to restrain or prohibit the consummation of the transactions
contemplated hereby, or (ii) seeking to prohibit the direct
9
<PAGE> 15
or indirect ownership or operation by GFI or FNFI of all or a material portion
of the business or assets of Company, or to compel GFI, FNFI or Company to
dispose of or hold separate all or a material portion of the business or assets
of Company, GFI or FNFI.
(f) Corporate Action. All corporate and other proceedings and
actions taken in connection with the transactions contemplated hereby and all
certificates, opinions, agreements, instruments, releases and documents
referenced herein or incident to the transactions contemplated hereby shall be
in form and substance satisfactory to GFI, FNFI and their counsel.
(g) Requisite Regulatory Approvals. All notices or filings
required to be made, all authorizations, permits, certificates, registrations,
consents, approvals or orders required to be obtained, and all waiting periods
required to expire, prior to the consummation of the transactions contemplated
by this Agreement under applicable federal law of the United States or
applicable laws of any state having jurisdiction over the transactions
contemplated by this Agreement or the businesses conducted by the Parties or any
Affiliate or Subsidiary of any Party (collectively, the "Requisite Regulatory
Approvals") shall have been obtained or expired, as the case may be, without the
imposition of any condition which is materially burdensome upon GFI, FNFI or any
Party or Person to be affected by such condition.
(h) Employment Agreements. Each Shareholder shall have entered
into the Employment Agreement with the Company substantially in the form
attached hereto as Exhibit "A."
(i) Registration Rights Agreement. Shareholders shall have
entered into the Registration Rights Agreement substantially in the form of
Exhibit "B" hereto.
(j) Residual Interests in Leases and Equipment. Prior to the
Closing, the Shareholders shall fully assign and transfer to the Company all
right, title and interest of the Shareholders in and to any "Residuals," as
hereafter defined, on equipment lease transactions originated by the Company at
any time prior to Closing. Residuals mean all rights of the Shareholders or the
Company to the lease agreement and equipment subject to the lease agreement
after the lessee has performed all obligations during the scheduled lease term,
including any release, sale or other re-marketing of the equipment, payments
made by lessee during any renewal or extension of the lease term or holding over
past the expiration of the lease agreement. Such Residuals shall be recorded as
an asset on the balance sheet of the Company.
(l) Shareholder Indebtedness. Prior to the Closing, Shareholders
shall fully repay all loans, indebtedness and other advances made by the Company
to Shareholders.
3.7 Conditions of Company and Shareholders. Company's and Shareholders'
obligations hereunder to consummate the transactions hereunder are subject to
the satisfaction, at or prior to the Closing, of the following conditions:
10
<PAGE> 16
(a) Representations and Warranties True; Performance of
Obligations. The representations and warranties made by GFI and FNFI in this
Agreement shall be true, correct and complete in all material respects on and as
of the Closing Date with the same force and effect as if they had been made on
and as of said date; and GFI and FNFI shall have in all material respects
performed all of the obligations and complied with each and all of the covenants
required to be performed or complied with by them on or prior to the Closing.
(b) Material Adverse Effect. No act, event or condition shall
have occurred after the date hereof has had or could have a Material Adverse
Effect on GFI or FNFI.
(c) Authorizations and Approvals. All authorizations, approvals
or consents from third parties, including from any Governmental Entity,
shareholders, landlord or other Person, necessary for the consummation of the
transactions contemplated hereby shall have been obtained.
(d) NYSE Listing. FNFI shall have made such filings as are
necessary with the New York Stock Exchange regarding the transactions
contemplated hereby and the shares of Fidelity Common Stock to be issued under
this Agreement shall have been filed for listing on the NYSE, subject only to
official notice of issuance.
(e) Deliveries. Company or Shareholders, as appropriate, shall
have received from GFI or FNFI the delivery obligations set forth in Sections
3.2 and 3.5, above.
(f) Corporate Action. All corporate and other proceedings and
actions taken in connection with the transactions contemplated hereby and all
certificates, opinions, agreements, instruments, releases and documents
referenced herein or incident to the transactions contemplated hereby shall be
in form and substance satisfactory to Company, Shareholders and their counsel.
(g) No Claims. There shall not be instituted and pending or
threatened any Claims before any Governmental Entity (i) challenging or
otherwise seeking to restrain or prohibit the consummation of the transactions
contemplated hereby, or (ii) seeking to prohibit the direct or indirect
ownership or operation by GFI or FNFI of all or a material portion of the
business or assets of Company, or to compel GFI or FNFI or Company to dispose of
or hold separate all or a material portion of the business or assets of Company,
GFI or FNFI.
(h) Requisite Regulatory Approvals. The Requisite Regulatory
Approvals shall have been obtained or expired, as the case may be, without the
imposition of any condition which is materially burdensome upon Company or any
Party or Person to be affected by such condition.
(i) Employment Agreements. The Company shall have entered into
the Employment Agreements with each of the Shareholders substantially in the
forms attached hereto as Exhibit "A" hereto.
11
<PAGE> 17
(j) Registration Rights Agreement. FNFI shall have afforded
Shareholders an opportunity to enter into the Registration Rights Agreement
substantially in the form of Exhibit "B" hereto.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF COMPANY AND SHAREHOLDERS
The Company and Shareholders each represents and warrants to GFI and
FNFI that (except for changes contemplated by this Agreement and except as set
forth in the Disclosure Schedule attached hereto), each of the following
statements is true, correct and complete in all material respects as of the date
of this Agreement and will be true, correct and complete in all material
respects as of the Closing Date (each such statement to be made again by Company
and Shareholders on that date with the Closing Date being substituted for the
date of this Agreement throughout this Article 4):
4.1 Organization and Standing; Articles and Bylaws. Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Illinois, has full power and authority to own its assets and
properties and to carry on its business as presently conducted. Company is duly
qualified and authorized to do business, and is in good standing as a foreign
corporation, in each jurisdiction where the nature of its activities and of its
properties (both owned and leased) make such qualification necessary, except
where the failure to so qualify would not have a Material Adverse Effect.
Company has furnished GFI with copies of its Articles of Incorporation and
Bylaws, as amended to the date hereof. Said copies are true, correct and
complete and contain all amendments through the Closing Date.
4.2 Authorization. All actions on the part of the Shareholders and all
corporate action on the part of Company, its officers, directors and
shareholders necessary for the authorization, execution and delivery of this
Agreement and the documents contemplated hereby, the performance of all of
Company's and Shareholders obligations hereunder and thereunder have been taken
or will be taken prior to the Closing. This Agreement and the documents
contemplated hereby, when executed and delivered, shall constitute valid and
legally binding obligations of Company and Shareholders enforceable in
accordance with their respective terms, except as the enforceability thereof may
be affected by the laws of bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the rights of creditors generally or any equitable remedy
a court may impose.
4.3 Subsidiaries. Except as disclosed in Schedule 4.3, the Company has
no Subsidiaries and does not presently own, of record or beneficially, or
control, directly or indirectly, any capital stock, securities convertible into
capital stock or any other equity interest in any corporation, association or
business entity, nor is the Company, directly or indirectly, a participant in
any joint venture, partnership or other entity.
12
<PAGE> 18
4.4 Capitalization. The authorized capital stock of Company consists of
100,000 shares of Common Stock, $1.00 par value, of which 6,000 shares are
issued and outstanding as of the date of this Agreement. All of the Company
Shares have been duly authorized and validly issued and are fully paid and
non-assessable. All of the Company Shares were offered, issued, sold and
delivered by Company in compliance with all applicable state and federal laws
concerning the issuance of securities. None of the Company Shares were issued in
violation of any preemptive rights created by statue, or by Company's charter
documents, or by any agreement to which Company may be bound.
Schedule 4.4 to the Disclosure Schedule hereto contains a complete list
of, and the number of shares owned of record by, the holders of the issued and
outstanding Company Stock.
There are no outstanding shares of Company Stock, preferred stock or any
other equity securities of Company, and there are no options, warrants, calls,
conversion rights, commitments or agreements of any character to which Company
or Shareholders may be bound that do or may obligate Company or Shareholders to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of Company Stock, preferred stock or other equity securities or that do
or may obligate Company or Shareholders to grant, extend or enter into any such
option, warrant, call, conversion right, commitment or agreement. There are no
outstanding arrangements, agreements, commitments or understandings of any kind
affecting or relating to the voting, issuance, purchase, redemption, repurchase
or transfer of any capital stock of Company or any other securities of Company.
Company and Shareholders have not, or prior to the Closing will have not, become
a party to or subject to any contract or obligation wherein any Person has a
right or option to purchase or acquire any rights in any additional capital
stock or securities of Company. Shareholders own of record and beneficially, and
have good and marketable title to all of the Company Shares, free and clear of
all Claims and Liens. As a result of the completion of the transactions set
forth herein, GFI will be the record and beneficial owner of all outstanding
capital stock of Company and rights to acquire capital stock of Company.
4.5 Financial Statements. Schedule 4.5 to the Disclosure Schedule hereto
includes (i) true, complete and correct copies of Company's balance sheet as of
December 31, 1997 (the end of its most recently completed fiscal year) and
statements of income and retained earnings for the year ended December 31, 1997;
and (ii) true, complete and correct copies of Company's balance sheet as of July
3,1998 and statement of income for the period then ended (collectively, the
"Financial Statements"). The Financial Statements have been prepared as a
compilation and fairly present the financial position of Company as of the dates
thereof and the results of its operations for the periods then ended, subject,
in the case of the June 30, 1998 Financial Statements, to the omission of
complete footnote information and normal year-end adjustments. There are no
material Company Liabilities, direct or indirect, fixed or contingent, which are
not reflected in the balance sheet as of July 3, 1998, except for Liabilities
incurred in the Ordinary Course of Business subsequent to July 3, 1998, which,
either individually or in the aggregate, would not be material. To the Company
and Shareholders' Knowledge, there is no Basis for any assertion against Company
of any Liability or obligation of any nature whatsoever that is not fully
reflected in the
13
<PAGE> 19
Financial Statements which, either individually or in the aggregate, would be
material. Since the date of the December 31, 1997 Financial Statements, there
have been no material changes in Company's accounting policies.
4.6 Material Contracts. Schedule 4.6 to the Disclosure Schedule hereto
contains a complete and accurate list of all Material Contracts to which Company
is a party or bound. True, correct and complete copies of all Material Contracts
listed on Schedule 4.6 to the Disclosure Schedule have been furnished or made
available by Company to GFI. Each Material Contract so listed is a valid and
binding obligation of Company and is enforceable against Company and the other
Person or Persons thereto, in accordance with its terms, subject to laws of
general application relating to bankruptcy, insolvency and the relief of debtors
and subject to the availability of equitable remedies. Company has performed all
obligations required to be performed by it to date and is not in default under
or in breach of any term or provision of any Material Contract to which Company
is a party, is subject or is otherwise bound, and, to the Knowledge of Company
and the Shareholders, no event has occurred that, with the giving of notice or
the passage of time or both, would constitute such a default or breach under any
Material Contract. To the Knowledge of Company and the Shareholders, no party
with whom Company has a Material Contract is in default of its obligations
thereunder, except as disclosed on Schedule 4.6. No consent or approval of any
party to any of the Material Contracts is necessary in order to permit Company
to consummate the transactions contemplated hereby.
4.7 Assets Other Than Real Property. Company has good and marketable
title to all properties and assets (other than real property which is subject to
Section 4.8, below) owned or leased by Company, free and clear of all Liens
except for Permitted Liens and those Liens set forth on Schedule 4.7. The assets
and properties of Company constitute all the assets, properties, rights,
privileges and interests necessary for the operation of Company's business. All
of the vehicles, machinery and equipment of Company are in good working order
and condition, ordinary wear and tear excepted.
4.8 Real Property. Company does not own any real property. Schedule 4.8
to the Disclosure Schedule hereto contains an accurate list and general
description of all real property leases, subleases, licenses or similar
agreements ("Leases") to which Company is a party (copies of which have been
previously furnished to GFI), in each case setting forth (i) the landlord and
tenant or sublessor and sublessee, as applicable, thereof and the date and term
of each of the Leases; (ii) the legal description or street address of each
property covered thereby; and (iii) a brief description (including size and
function) of the principal improvements and buildings thereon (the "Leased
Premises"). Company has valid leasehold interests in the Leased Premises, free
and clear of all Liens and Claims, except for (i) Claims of lessors, co-lessees
or sublessees in such matters as are reflected in the Leases; (ii) title
exceptions affecting the fee estate of the lessor under such Leases; and (iii)
other matters as described in the Disclosure Schedule. Company is not in
default, and no facts or circumstances have occurred which, through the passage
of time or both, or the giving of notice would constitute a default, under any
Lease. To the Company's and Shareholders' Knowledge, the activities of Company,
with respect to the Leased Premises, are in
14
<PAGE> 20
all material respects permitted and authorized by applicable zoning laws,
ordinances and regulations and all laws and regulations of any Governmental
Entity. To the Knowledge of Company and Shareholders, the portions of the
buildings on the Leased Premises that are used in the business of Company are
each in good repair and condition (including without limitation, the electrical,
mechanical, HVAC, plumbing, elevator, other building systems and structural
components serving such premises, and the roofs are water-tight), and are in the
aggregate sufficient to satisfy Company's current business activities as
conducted thereat.
4.9 No Conflicts. The execution and delivery nor the performance of this
Agreement by Company will result in any of the following: (i) a default or an
event that, with notice or lapse of time or both, could be a default, breach or
violation of (A) the Articles of Incorporation or Bylaws of Company, (B) any
Material Contract; (ii) the termination of any Material Contract or the
acceleration of the maturity of any Indebtedness or other material obligation of
Company; (iii) to the Knowledge of Company and the Shareholders, the creation or
imposition of any Lien (except for Permitted Liens) on any of the assets or
properties of Company; (iv) to the Knowledge of Company and the Shareholders,
the creation or imposition of any Lien on any shares of the Company Stock; or
(v) to the Knowledge of Company and the Shareholders, a violation or breach of
any writ, injunction or decree of any Governmental Entity or arbitrator to which
Company is a party or by which any of its properties are bound.
4.10 Litigation. There are no Claims before any court or administrative
agency pending or, to the Company's and Shareholders' Knowledge, currently
threatened against or with respect to Company (or to the Knowledge of Company or
Shareholders any Basis therefor), which question the validity of this Agreement
or any action taken or to be taken in connection herewith, or which,
individually or in the aggregate, might result in a Material Adverse Effect, or
in any material impairment of the right or ability to carry on its business as
now conducted or as proposed to be conducted, or in any material Liability or
Loss on the part of Company. Except as provided in Schedule 4.10 to the
Disclosure Schedule, Company and Shareholders are not a party or subject to, and
none of their assets are bound by, the provisions of any order, writ,
injunction, judgment, or decree of any Governmental Entity or arbitrator.
4.11 Taxes. Company has no Liability for any federal, state or local
Taxes, except for Taxes which have accrued and are not yet payable. Company has
filed or caused to be filed all Tax Returns required under applicable law to be
filed on or before the Closing Date, Company has paid or made provision for all
Taxes and other charges which have or may become due for the periods covered by
such Tax Returns, and all such Tax Returns are true, correct and complete in all
respects. None of the Tax Returns of Company are currently under investigation
or audit, nor is an investigation or audit pending, and there has not been an
investigation or audit of the Tax Returns of Company in the past seven (7)
years. There are no outstanding agreements or waivers extending the statutory
period of limitations applicable to any Tax Return for any period. The
accounting treatment of all items of income, gain, loss, deduction and credit as
reported on all Tax Returns and estimates filed by or on behalf of Company are
true, correct and complete, and all deferred Taxes and all Taxes due for the
period ending on the Closing Date have been accrued on
15
<PAGE> 21
the Balance Sheet of the June 30, 1998 Financial Statements. No Claim has ever
been made by any Governmental Entity in a jurisdiction where Company does not
file Tax Returns that it is or may be subject to taxation by that jurisdiction.
All Taxes owed by Company or which Company is obligated to withhold from amounts
owed or owing to any employee, independent contractor, stockholder, creditor or
third party have been paid. There are no unresolved Claims concerning Company's
Tax Liability, and to the Knowledge of Company and Shareholders no Basis for any
such Claims exist.
4.12 Employees. Schedule 4.12(a) to the Disclosure Schedule hereto sets
forth a complete list of all current employees of Company, together with each
employee's tenure with Company, title or job classification, and the current
annual rate of compensation payable to each such employee. There are no unfair
labor practice complaints, strikes, slowdowns, stoppages or other controversies
pending or, to the Company's and Shareholders' Knowledge, threatened, attempts
to unionize or controversies threatened between Company and, or relating to, any
of its employees, nor to the Knowledge of Company or Shareholders any Basis
therefore. Company is not a party to any collective bargaining agreement with
respect to any of its employees or, except as set forth on Schedule 4.12(b) of
the Disclosure Schedule, to a written employment contract with any of its
employees, and there are no understandings with respect to the employment of any
officer or employee of Company which are not terminable by Company without
Liability on not more than thirty (30) days' notice. Except as set forth in the
Company's profit sharing plan and retirement plan attached hereto as Schedule
4.18, no officer, director, or employee is entitled to receive any payment of
any amount under any existing agreement, Benefit Arrangement, Employment Plan or
other benefit, or to the accrual or vesting of any other benefit or payment as a
result of the consummation of any transactions contemplated by this Agreement.
Company has complied with all applicable Legal Requirements which govern
workers' compensation, equal employment opportunity and equal pay. Company's
employment of each of its employees is in compliance with all immigration and
naturalization laws of the United States.
4.13 Consents. All consents, approvals, orders, or authorizations of, or
registrations, qualifications, designations, declarations or filings with, any
Governmental Entity or under any Material Contract, required on the part of
Company in connection with the valid execution and delivery of this Agreement
and the sale of the Company Shares, or the consummation of any other transaction
contemplated hereby have been obtained, or will be effective at the Closing,
except for those consents where the failure to obtain such consents does not
result in a Material Adverse Effect on the Company, GFI, FNFI or the Company
Shares.
4.14 Operating Rights. To the Company's and Shareholders' Knowledge,
Company has all operating authority, licenses, franchises, permits,
certificates, consents, rights and privileges (collectively, "Licenses") as are
necessary or appropriate to the operation of its business as now conducted,
except for those Licenses where the failure to hold such Licenses would not
result in a Material Adverse Effect on the Company, GFI, FNFI or the Company
Shares. Such Licenses are in full force and effect, no violations have been or
are expected to have been recorded in respect of any such Licenses, and no
proceeding is pending or, to the Company's and
16
<PAGE> 22
Shareholders' Knowledge, threatened or any Basis therefore, that could result in
the revocation or limitation of any such Licenses. Company has conducted its
business so as to comply in all material respects with all such Licenses.
4.15 Compliance with Applicable Laws. To the Company's and Shareholders'
Knowledge, the properties, assets, business and operations of Company have been
and are being maintained and conducted in compliance with all Legal Requirements
to which Company is subject. No investigation or review by any Governmental
Entity with respect to Company is pending or, to the Company's and Shareholders'
Knowledge, threatened, or to the Knowledge of Company or Shareholders is there
any Basis therefore, nor has any Governmental Entity indicated to Company an
intention to conduct the same.
4.16 Insurance. Schedule 4.16 to the Disclosure Schedule hereto sets
forth an accurate list, as of the date of this Agreement first set forth above,
of all insurance policies carried by Company and all insurance loss runs or
workmen's compensation claims received for the past two (2) policy years.
Attached to Schedule 4.16 to the Disclosure Schedule are true, complete and
correct copies of the policies from the insurance company of all current
insurance policies, all of which are in full force and effect. All premiums
payable under all such policies have been paid and Company is otherwise in full
compliance with the terms of such policies (or other policies providing
substantially similar insurance coverage). To the Knowledge of Company or
Shareholders, such policies of insurance are of the type and in amounts carried
by Persons conducting businesses similar to that of Company. To the Company's
and Shareholders' Knowledge, there is no pending termination of or material
premium increase with respect to, any of such policies. All claims previously
made under such policies have been timely filed.
4.17 Absence of Changes. Except as set forth on Schedule 4.17 to the
Disclosure Schedule, since January 1, 1998, there has not been (i) any change or
amendment in the Articles of Incorporation, Bylaws or other governing
instruments of Company; (ii) any sale or issuance of, or grant of options or
rights to acquire, any shares of the Company Stock or other securities of
Company or any declaration, setting aside, or payment of dividends or
redemptions in respect of any shares of capital stock of Company, or any direct
or indirect redemption, purchase, or other acquisition of such stock, or any
agreement, understandings or commitments to do the same; (iii) any transfer or
other disposition or pledge of, or the grant of options or rights to acquire,
any of the outstanding shares of the Company Stock; (iv) any amendment,
termination or revocation, or any threat of any amendment, termination, or
revocation of any Material Contract; (v) any sale, transfer, mortgage, pledge,
or subjection to Lien (other than Permitted Liens) of, on or affecting any of
the assets of Company valued at or above $10,000 individually or in the
aggregate; (vi) any increase in the compensation paid or payable or in the
fringe benefits provided to any employee of Company, or the adoption of any
Benefit Arrangements or Employee Plans not in existence in the fiscal year ended
December 31, 1997; (vii) any damage, destruction or loss, whether or not covered
by insurance, of any of the assets of Company; (viii) any purchase or lease, or
commitment for the purchase or lease, of equipment or other capital items not
disclosed in Company's Financial Statements which is in excess of the normal,
ordinary and usual requirements
17
<PAGE> 23
of the business of Company; (ix) any change that by itself or together with
other changes, has had a Material Adverse Effect; (x) any agreement or
arrangement made by Company or any Shareholder to take any action which, if
taken prior to the date hereof, would have made any representation or warranty
set forth in this Agreement untrue or incorrect as of the date when made; or
(xi) the commencement or notice or threat of commencement of any Claim against
Company or any of its affairs.
4.18 Employee Plans. Schedule 4.18 to the Disclosure Schedule hereto
sets forth a complete list of all Employee Plans and Benefit Arrangements
maintained, administered or contributed to, or otherwise participated in, by
Company. True and complete copies of each such Employee Plan or Benefit
Arrangement, including amendments thereto, have been provided to GFI, together
with true and complete copies of (i) annual reports for the most recent three
(3) years (Form 5500 Series including, if applicable, Schedules A and B
thereto); (ii) all plan documents and the most recent summary plan description
of each such Employee Plan, together with any modifications thereto; and (iii)
the most recent favorable determination letter (if applicable) from the Internal
Revenue Service for each such Employee Plan. None of the Employee Plans is a
"multiemployer plan" as defined in Section 3(37) of ERISA or a "multiple
employer plan" as covered in Section 412(c) of the Code, and the Company has not
been obligated to make a contribution to any such multiemployer or multiple
employer plan. All contributions under the terms of the Plan or Arrangement or
applicable law (including all employer contributions and employee salary
reduction contributions) which are due have been paid to each such Employee Plan
or Benefit Arrangement and all contributions for any period ending on or before
the Closing Date which are not yet due have been paid to each such Employee Plan
or Benefit Arrangement or accrued in accordance with past custom and practice of
Company. Each Employee Plan which is intended to be qualified under Section
401(a) of the Code is, to the Company's and Shareholders' Knowledge, so
qualified and each trust maintained pursuant thereto is exempt from income tax
under Section 501(a) of the Code. Neither Company nor any Employee Plan, nor any
trusts created thereunder, has engaged in a non-exempted "prohibited
transaction," as defined in Section 406 of ERISA and Section 4975 of the Code,
or any breach of fiduciary duty as defined in Part 4 of Subtitle B of Title I of
ERISA in connection with any Employee Plan.
4.19 Intellectual Property Rights.
(a) To the Company's and Shareholders' Knowledge, Company owns,
or has the right to use, sell or license all Intellectual Property necessary or
required for the conduct of its business as presently conducted and such rights
to use, sell or license are reasonably sufficient for such conduct of Company's
business. Company has taken all reasonable and practicable action designed to
safeguard and maintain the secrecy and confidentiality of, and its proprietary
right in, all of its Intellectual Property.
(b) Neither the manufacture, marketing, license, sale or
intended use of any Intellectual Property licensed or sold by Company or
currently under development by Company violates any license or agreement between
Company and any third party or, to the Company's and
18
<PAGE> 24
Shareholders' Knowledge infringes any Intellectual Property of any other party;
and there is not pending or threatened, nor to the Knowledge of Company or
Shareholders any Basis therefor, any Claim contesting the validity, ownership or
right to use, sell, license or dispose of any Intellectual Property or that the
proposed use, sale, license or disposition thereof conflicts or will conflict
with the rights of any other party, nor to the Knowledge of Company or
Shareholders, is there any Basis for any such assertion.
4.20 Environment, Health and Safety.
(a) Company has complied with all Environmental, Health and
Safety Laws, except where failure to comply would not have a Material Adverse
Effect, and Company has received no written notice that a Claim or notice has
been filed or commenced against it alleging any failure to so comply. Without
limiting the generality of the preceding sentence, Company has, to the Company's
and Shareholders' Knowledge, obtained and been in compliance with all of the
terms and conditions of all Licenses and other authorizations which are required
under, and has complied with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
which are contained in, all Environmental, Health, and Safety Laws, except where
failure to comply would not have a Material Adverse Effect.
(b) Company has not, in violation of any Environmental, Health
and Safety Laws, handled or disposed of any substance, arranged for the disposal
of any substance, exposed any employee or other individual to any substance or
condition, or owned or operated any property or facility in any manner that
could form a Basis for any present or future Claim against Company giving rise
to any Liability, except where having done so would not have a Material Adverse
Effect. To the Company's and Shareholders' Knowledge, Company has no Liability
for damage to any site, location, or body of water (surface or subsurface), for
any illness of or personal injury to any employee or other individual, or for
any reason under any Environmental, Health, and Safety Law which could have a
Material Adverse Effect.
(c) All properties used in the Company's business are, to the
Company's and Shareholders' Knowledge, free of Hazardous Substances, except
where the existence thereof would not have a Material Adverse Effect.
4.21 Certain Transactions. There are no existing or pending
transactions, nor are there any agreements or understandings, between Company,
on the one hand, and any Shareholder, officer or director of Company, or any
person or entity affiliated with any of them, on the other hand, including,
without limitation, any transactions, arrangements or understandings relating to
the purchase or sale of goods or services or the sale, lease or use of any of
the assets of or by Company, with or without adequate compensation, or to any
indebtedness owed to or by Company, in any amount whatsoever.
4.22 Bank Accounts; Powers of Attorney. Schedule 4.22 of the Disclosure
Schedule sets forth an accurate list, as of the date of this Agreement, of the
following: (i) the name of each
19
<PAGE> 25
financial institution in which Company has any account or safe deposit box; (ii)
the names in which the accounts or boxes are held; (iii) the type of account;
and (iv) the name of each person authorized to draw thereon or have access
thereto. The Disclosure Schedule hereto also sets forth the name of each Person
holding a general or special power of attorney from Company and a description of
the terms of such power.
4.23 Investment Representations. Each Shareholder is an "accredited
investor," as such term is defined under the Securities Act. Each Shareholder is
receiving the Fidelity Common Stock for his own account for investment purposes
only, and not as a nominee or agent for any other Person, and not with a view to
or for resale in connection with any distribution thereof. Each Shareholder
acknowledges that the Fidelity Common Stock to be issued hereunder will not be
registered under the Securities Act, nor qualified under any state securities
laws on the ground, among others, that no distribution or public offering is to
be effected.
4.24 Absence of Claims Against Company. No Shareholder has any Claims
against the Company.
4.25 Employee Loans. Except as set forth on the Schedule 4.25, there are
no outstanding loans and/or other advances made by Company to any of its
officers, directors, shareholders, employees, agents or consultants.
4.26 Brokers' Fees. Company and Shareholders have no Liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement.
4.27 Full Disclosure. Neither this Agreement, the representations and
warranties by Company and Shareholders contained herein, the Exhibits or
Schedules hereto, nor any other written statement or certificate delivered or to
be furnished to GFI or FNFI in connection herewith, when read together, contain
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained herein or therein not
misleading. To the Knowledge of Company and Shareholders, there is no fact which
has not been disclosed to GFI and FNFI that would have a Material Adverse Effect
or would affect the ability of Company and Shareholders to perform their
obligations under this Agreement.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF GFI AND FNFI
GFI and FNFI represent and warrant to Company and Shareholders that
(except for changes contemplated by this Agreement) each of the following
statements is true, correct and complete in all material respects as of the date
of this Agreement and will be true, correct and complete in all material
respects as of the Closing Date (each such statement to be made again by
20
<PAGE> 26
GFI and FNFI on that date with the Closing Date being substituted for the date
of this Agreement throughout this Article 5):
5.1 Organization and Standing; Articles and Bylaws. GFI and FNFI are
corporations duly organized, validly existing and in good standing under the
laws of the State of Delaware, have full power and authority to own their
respective assets and properties and to carry on their respective businesses as
presently conducted. GFI and FNFI are duly qualified and authorized to do
business, and are in good standing as foreign corporations, in each jurisdiction
where the nature of their respective activities and of their respective
properties (both owned and leased) make such qualification necessary, except
where the failure to so qualify would not have a Material Adverse Effect.
5.2 Authorization. All corporate action on the part of GFI and FNFI, and
their respective officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement and the documents
contemplated hereby, the performance of all of GFI's and FNFI's obligations
hereunder and thereunder, and for the purchase of the Company Shares and the
issuance of the Fidelity Stock have been taken or will be taken prior to the
Closing. This Agreement and the documents contemplated hereby, when executed and
delivered by GFI and FNFI, shall constitute valid and legally binding
obligations of GFI and FNFI enforceable in accordance with their respective
terms, subject to laws of general application relating to bankruptcy, insolvency
and the relief of debtors and subject to the availability of equitable remedies.
5.3 No Conflicts. Neither the execution and delivery nor the performance
of this Agreement by GFI and FNFI will result in any of the following: (i) a
default or an event that, with notice or lapse of time or both, could be a
default, breach or violation of (A) the Articles of Incorporation or Bylaws of
GFI or FNFI, (B) any Material Contract of GFI or FNFI; (ii) the termination of
any Material Contract of GFI or FNFI or the acceleration of the maturity of any
Indebtedness or other material obligation of GFI or FNFI; (iii) the creation or
imposition of any Lien (except for Permitted Liens) on any of the respective
assets or properties of GFI or FNFI; (iv) the creation or imposition of any Lien
on any shares of the Fidelity Common Stock; or (v) a violation or breach of any
writ, injunction or decree of any Governmental Entity to which GFI or FNFI is a
party or by which any of their respective properties are bound.
5.4 Fidelity SEC Documents. FNFI has filed all forms, reports and
documents required to be filed with the SEC (the "Fidelity SEC Documents"), all
of which have been made available to Company. As of their respective dates, the
Fidelity SEC Documents complied in all material respects with the requirements
of the Securities Act and the Exchange Act, as the case may be, and the rules
and regulations of the SEC thereunder applicable to such Fidelity SEC Documents,
and none of the Fidelity SEC Documents contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The financial statements of FNFI included
in the Fidelity SEC Documents comply in all material
21
<PAGE> 27
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto, have been prepared in
accordance with GAAP applied on a consistent basis during the periods involved
(except in the case of the unaudited interim financial statements, as permitted
by Form 10-Q promulgated by the SEC) and fairly present (subject, in the case of
the unaudited interim financial statements, to recurring audit adjustments
normal in nature and amount) the consolidated financial position of FNFI as at
the dates thereof and the consolidated results of its operations and cash flows
or changes in financial position for the periods then ended. There has been no
Material Adverse Effect on FNFI since the filing of FNFI's most recent Form
10-Q.
5.5 Fidelity Common Stock. All of the shares of Fidelity Common Stock to
be issued to Shareholders pursuant to Section 2.2 above, will be duly
authorized, validly issued, fully paid and non-assessable. Such shares, when
issued in accordance with the terms hereof, will have been offered, issued, sold
and delivered by FNFI in compliance with all applicable state and federal laws,
free and clear of all Liens and Claims and none of such shares shall be issued
in violation of the preemptive rights, rights of first offer, or other rights of
any shareholder of FNFI.
5.6 Consents. All consents, approvals, orders, or authorizations of, or
registrations, qualifications, designations, declarations or filings with, any
Governmental Entity, required on the part of GFI and/or FNFI in connection with
the valid execution and delivery of this Agreement and the issuance of Fidelity
Common Stock, or the consummation of any other transaction contemplated hereby
have been obtained, or will be effective at the Closing.
5.7 Brokers' Fees. Neither GFI nor FNFI is a party to or obligated under
any agreement with any broker, agent, or finder relating to the transactions
contemplated hereby, and neither the execution of this Agreement nor the
consummation of the transactions provided for herein will result in any
liability to any broker, agent, or finder.
5.8 Full Disclosure. Neither this Agreement, the representations and
warranties by GFI and/or FNFI contained herein, the Exhibits or Schedules
hereto, nor any other written statement or certificate delivered or to be
furnished to Company in connection herewith, when read together, contain any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained herein or therein not misleading. To
the Knowledge of GFI and FNFI, there is no fact which has not been disclosed to
Company and Shareholders that would have a Material Adverse Effect or would
affect the ability of GFI and FNFI to perform their obligations under this
Agreement.
ARTICLE 6
CONDUCT OF BUSINESS PENDING CLOSING
During the period commencing on the date hereof and continuing through
the Closing Date, Company and Shareholders, jointly and severally, covenant and
agree that:
22
<PAGE> 28
6.1 Qualification. Company shall maintain all qualifications to transact
business and remain in good standing in its jurisdiction of incorporation and in
the foreign jurisdictions in which Company owns or leases any property or
conducts any business.
6.2 Ordinary Course. Company shall conduct its business in, and only in,
the Ordinary Course of Business and, to the extent consistent with such
business, shall not make or institute any unusual or novel methods of
management, accounting, or operation that vary materially from those methods
used by the Company as of December 31, 1997. Company will use commercially
reasonable efforts to preserve its business organization intact, to keep
available to Company its present officers and employees, and to preserve its
present relationships with suppliers, customers, and others having business
relationships with the Company. Company shall maintain its properties and assets
in good condition and repair.
6.3 Corporate Changes. Company shall not (i) amend its Articles of
Incorporation or Bylaws (or equivalent documents); (ii) acquire by merging or
consolidating with, or agreeing to merge or consolidate with, or purchase
substantially all of the stock or assets of, or otherwise acquire, any business
or any corporation, partnership, association or other business organization or
division thereof; (iii) enter into any partnership or joint venture; (iv) except
as provided in Section 7.11, declare, set aside, make or pay any dividend or
other distribution in respect of its capital stock or purchase or redeem,
directly or indirectly, any shares of its capital stock; (v) issue or sell any
shares of its capital stock of any class or any options, warrants, conversion or
other rights to purchase any such shares or any securities convertible into or
exchangeable for such shares; or (vi) liquidate or dissolve or obligate itself
to do so.
6.4 Indebtedness. Except in the Ordinary Course of Business and as
disclosed on Schedule 6.4, Company shall not incur any Indebtedness, sell any
debt securities or lend money to or guarantee the Indebtedness of any Person.
Company shall not restructure or refinance its existing Indebtedness.
6.5 Accounting. Company shall not make any change in the accounting
principles, methods or practices followed by it or depreciation or amortization
policies or rates heretofore adopted by it. Company shall maintain its books,
records, and accounts in accordance with GAAP applied on a basis consistent with
that of prior periods.
6.6 Compliance with Legal Requirements. Company shall comply promptly
and in all material respects with all Legal Requirements imposed upon it, its
operations and with respect to the transactions contemplated by this Agreement,
and shall cooperate promptly with, and furnish information to, GFI and FNFI in
connection with any such requirements imposed upon GFI or FNFI, or upon any of
its Affiliates, in connection therewith or herewith.
6.7 Disposition of Assets. Except in the Ordinary Course of Business,
Company shall not sell, transfer, license, lease or otherwise dispose of, or
suffer or cause the encumbrance by any
23
<PAGE> 29
Lien other than Permitted Liens upon any of its properties or assets, tangible
or intangible, or upon any interest therein.
6.8 Compensation. Except in the Ordinary Course of Business, Company
shall not (i) adopt or amend in any material respect any collective bargaining,
bonus, profit-sharing, compensation, stock option, pension, retirement, deferred
compensation, Employee Plan, Benefit Arrangement, or any other agreement, trust,
fund or arrangement for the benefit of employees other than to comply with any
Legal Requirement; or (ii) pay, or make any accrual or arrangement for payment
of, any increase in compensation, bonuses or special compensation of any kind,
or any severance or termination pay to, or enter into any employment or loan or
loan guarantee agreement with, any Shareholder or any current or former officer,
director, employee or consultant of Company.
6.9 Modification or Breach of Agreements; New Agreements. Except in the
Ordinary Course of Business, Company shall not terminate or modify, or commit or
cause or suffer to be committed any act that will result in breach or violation
of any term of or (with or without notice or passage of time, or both)
constitute a default under or otherwise give any Person a basis for
nonperformance under, any Material Contract, written or oral. Company shall
refrain from becoming a party to any contract or commitment other than in the
Ordinary Course of Business. Company shall meet all of its contractual
obligations in accordance with their respective terms.
6.10 Capital Expenditures. Except in the Ordinary Course of Business,
except for capital expenditures or commitments necessary to maintain its
properties and assets in good condition and repair (the amount of which shall
not exceed $15,000 individually or in the aggregate), Company shall not purchase
or enter into any contract to purchase any capital assets.
6.11 Consents. Company shall use commercially reasonable efforts to
obtain any consent, authorization or approval of, or exemption by, any
Governmental Entity or Person required to be obtained or made by any Party
hereto in connection with the transactions contemplated hereby or the taking of
any action in connection with the consummation thereof.
6.12 Maintenance of Insurance. Company shall maintain its policies of
insurance in full force and effect on substantially the same terms and
conditions as in effect on the date of this Agreement first set forth above, and
shall not do, permit or willingly allow to be done any act by which any of said
policies of insurance may be suspended, materially impaired or canceled.
6.13 Discharge. Company shall not cancel, compromise, release or
discharge any Claim of Company upon or against any Person or waive any right of
Company of material value, and not discharge any Lien upon any asset of Company
or compromise any debt or other obligation of Company to any Person other than
Liens, debts or obligations with respect to current Liabilities of Company.
24
<PAGE> 30
6.14 Claims. Company shall not institute, settle or agree to settle any
Claim before any Governmental Entity.
6.15 Taxes and Tax Assessments. Company shall pay, when due, and prior
to the imposition or assessment of any interest, penalties or Liens by reason of
the nonpayment of, all Taxes assessed against Company, its assets, properties or
operations. Company shall furnish promptly to GFI a copy of all notices of
proposed assessment or similar notices or reports that are received from any
taxing authority and which relate to Company's operations for periods ending on
or prior to the Closing Date.
ARTICLE 7
ADDITIONAL COVENANTS
7.1 Covenants of Company and Shareholders. During the period from the
date hereof through the Closing Date, Company and Shareholders agree to:
(a) Comply promptly with all applicable Legal Requirements
imposed upon them with respect to the transactions contemplated by this
Agreement, and shall cooperate promptly with, and furnish information to, GFI or
FNFI in connection with any such requirements imposed upon GFI or FNFI or upon
any of its Affiliates in connection therewith or herewith;
(b) Use their reasonable best efforts to obtain (and to
cooperate with GFI and FNFI in obtaining) any consent, authorization or approval
of, or exemption by, any Person required to be obtained or made by Company
and/or Shareholders in connection with the transactions contemplated by this
Agreement;
(c) Use their reasonable best efforts to bring about the
satisfaction of the conditions precedent to Closing set forth in Section 3.6,
above;
(d) Promptly advise GFI and FNFI orally and, within three (3)
business days thereafter, in writing of any change in Company's business or
condition that has had or would reasonably be expected to have a Material
Adverse Effect on Company;
(e) Deliver to GFI and FNFI prior to the Closing a written
statement disclosing any untrue statement in this Agreement or any Exhibit or
Schedule hereto (or supplement thereto) or document furnished pursuant hereto,
or any omission to state any material fact required to make the statements
herein or therein contained complete and not misleading, immediately upon the
discovery of such untrue statement or omission, accompanied by a written
supplement to any Exhibit or Schedule to this Agreement that may be affected
thereby; provided, however, that the disclosure of such untrue statement or
omission shall not prevent GFI or FNFI from terminating this Agreement pursuant
to Section 8.1(b), below, at any time at or prior to the Closing in respect of
any original untrue or misleading statement; and
25
<PAGE> 31
(f) Within five business (5) days prior to the Closing, deliver
to GFI and FNFI the Disclosure Schedule.
7.2 Covenants of GFI and FNFI. During the period from the date hereof to
the Closing Date, GFI and FNFI shall:
(a) Comply promptly with all applicable Legal Requirements
imposed upon it with respect to the transactions contemplated by this Agreement,
and shall cooperate promptly with, and furnish information to, Shareholders in
connection with any such requirements imposed upon the Shareholders or Company
or upon any of Company's Affiliates in connection therewith or herewith;
(b) Use its reasonable best efforts to obtain any consent,
authorization or approval of, or exemption by, any Person required to be
obtained or made by GFI and FNFI in connection with the transactions
contemplated by this Agreement;
(c) Use its reasonable best efforts to bring about the
satisfaction of the conditions precedent to Closing set forth in Section 3.7 of
this Agreement; and
(d) Promptly advise Company orally and, within three (3)
business days thereafter, in writing of any change in GFI's or FNFI's business
or condition that has had or would reasonably be expected to have a Material
Adverse Effect on GFI or FNFI;
7.3 Tax Advice. Each Shareholder shall assume and be fully responsible
for any and all Liability, including without limitation any and all Tax
Liability, incurred by such Shareholder, which is caused by, arises from, or
relates to the sale of the Company Shares to GFI and the other transactions set
forth herein. Company and Shareholders acknowledge that they have received their
own independent tax advice with respect to this Agreement and the transactions
contemplated thereby, and are not in any way relying on any statements or advice
of GFI, FNFI or any of their officers, directors, employees, agents or
representatives with respect to such matters.
7.4 Access and Information.
(a) During the period commencing on the date hereof and
continuing through the Closing Date, Shareholders shall cause Company to afford
to GFI and FNFI and to their accountants, counsel, and other representatives,
reasonable access during regular business hours and without undue interruption
to its business to all of its properties, books, contracts, commitments, records
and personnel and, during such period, to cause Company to furnish promptly to
GFI and FNFI all information concerning its business, properties and personnel
as GFI or FNFI may reasonably request.
(b) Except to the extent permitted by the provisions of Section
7.7, below, GFI and FNFI shall hold in confidence, and shall use reasonable
efforts to ensure that their respective
26
<PAGE> 32
employees and representatives hold in confidence, all such information supplied
to it by Shareholder or Company concerning Company and shall not disclose such
information to any third party except as may be required by any Legal
Requirement and except for information that (i) is or becomes generally
available to the public other than as result of disclosure by GFI or FNFI or its
representatives; (ii) becomes available to GFI or FNFI or their representatives
from a third party other than Shareholders or Company, and GFI or FNFI or their
representatives have no reason to believe that such third party is not entitled
to disclose such information; (iii) is known to GFI or FNFI or their
representatives on a non-confidential basis prior to its disclosure by
Shareholders or Company; or (iv) is made available by Shareholders or Company to
any other Person on a non-restricted basis. GFI and FNFI's obligations under the
foregoing sentence shall expire on the Closing Date or, if the closing does not
occur, one (1) year after the date hereof.
7.5 Expenses. All costs and expenses (including, without limitation, all
legal fees and expenses and costs) incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the Party incurring
the same. The legal expenses of the Company shall either (i) be paid by the
Shareholders or (ii) be paid by the by the Company and deducted from the amount
of retained earnings to be distributed to the Shareholders under Section 7.11.
7.6 Certain Notifications. At all times from the date hereof to the
Closing Date, each Party shall promptly notify the others in writing of the
occurrence of any event that will or reasonably would be expected to result in
the failure to satisfy any of the conditions specified in Sections 3.6 and 3.7,
above.
7.7 Publicity. At all times prior to the Closing Date, each Party shall
obtain the consent of all other Parties hereto prior to issuing, or permitting
any of its directors, officers, employees or agents to issue, any press release
or other information to the press, employees of Company or any third party with
respect to this Agreement or the transactions contemplated hereby; provided,
however, that no party shall be prohibited from supplying any information to any
of its representatives, agents, attorneys, advisors, and others to the extent
necessary to complete the transactions contemplated hereby so long as such
representatives, agents, attorneys, advisors, and others are made aware of the
terms of this Section 7.7. Nothing contained in this Agreement shall prevent any
party to this Agreement at any time from furnishing any required information to
any Governmental Entity or authority pursuant to a Legal Requirement or from
complying with its legal or contractual obligations; provided that the Party
furnishing such information shall have used its reasonable best efforts to
comply with this provision first, and in any event does so only with the advice
of counsel.
7.8 Further Assurances.
(a) Subject to the terms and conditions of this Agreement, each
of the Parties hereto agrees to use all reasonable efforts to take, or cause to
be taken, all action, and to do, or cause to be done, all things necessary,
proper or advisable under applicable Legal Requirements, to consummate and make
effective the transactions contemplated by this Agreement.
27
<PAGE> 33
(b) If at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, Shareholders
and the proper officers or directors of GFI, FNFI and Company, as the case may
be, shall take or cause to be taken all such necessary or convenient action and
execute, and deliver and file, or cause to be executed, delivered and filed, all
necessary or appropriate documentation.
7.9 Competing Offers. Shareholders agree that they will not, and will
cause Company not to, directly or indirectly, through an officer, director,
agent, or otherwise, solicit, initiate or encourage the submissions of bids,
offers or proposals by, any Person with respect to an acquisition of Company or
its assets or capital stock or a merger or similar transaction, and Shareholders
will not, and will not permit Company to, engage any broker, financial adviser
or consultant to initiate or encourage proposals or offers from other Persons.
Furthermore, Shareholders shall not, and shall not permit Company to, directly
or indirectly, through any officer, director, agent or otherwise, engage in
negotiations concerning any such transaction with, or provide information to,
any Person other than GFI and FNFI and their representatives with a view to
engaging, or preparing to engage, that Person with respect to any matters in
this Section 7.9. Shareholders shall ensure that Company shall not commence any
proceeding to merge, consolidate or liquidate or dissolve or obligate itself to
do so.
7.10 NYSE Listing. FNFI will make such filings as are necessary with the
New York Stock Exchange regarding the transactions contemplated hereby and will
cause the shares of Fidelity Common Stock to be issued under this Agreement to
be approved for listing on the NYSE, subject only to official notice of
issuance, prior to the Closing.
7.11 Distribution of Retained Earnings. Notwithstanding anything to the
contrary contained herein, Shareholders may, immediately prior to the Closing,
take a distribution from the Company equal to the retained earnings of the
Company as of Closing (but excluding from such retained earnings the Residuals
assigned to the Company under Section 3.6(l)), computed in accordance with the
Code and regulations issued thereunder. The purpose of such distribution is to
allow Shareholders to receive the net profits of the Company earned through the
Closing which have not previously been distributed to the Shareholders.
7.12 Board of Directors. Following the Closing, the Shareholders shall
be appointed to and shall serve on the Board of Directors of the Company along
with such other persons as designated from time to time by GFI. Shareholders
acknowledge that GFI will appoint at least 3 other persons to the Board and that
GFI shall at all times have control over the Board of Directors.
ARTICLE 8
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. This Agreement may be terminated at any time prior to
the Closing:
28
<PAGE> 34
(a) By written consent of GFI, FNFI, Company and Shareholders;
(b) By Shareholders and Company as a group, on the one hand, or
by GFI and FNFI as a group, on the other hand, if there has been a breach,
failure to fulfill or default (collectively, a "Breach") on the part of the
other Party (the "Breaching Party") of any of the representations and warranties
contained herein or in the due and timely performance and satisfaction of any of
the covenants, agreements or conditions contained herein; or
(c) By Shareholders and Company as a group, on the one hand, or
by GFI and FNFI as a group, on the other hand, if there shall be a final
non-appealable order of a Governmental Entity or arbitrator in effect preventing
consummation of the transactions hereunder; or there shall be any action taken,
or any statute, rule, regulation or order enacted, promulgated or issued or
deemed applicable to the transactions hereunder by any Governmental Entity or
arbitrator which would make the consummation of the transactions illegal.
(d) By Shareholders and Company as a group, on the one hand, or
by GFI and FNFI as a group, on the other hand, if the Closing has not occurred
on or prior to August 14, 1998.
8.2 Effect of Termination. In the case of any termination of this
Agreement pursuant to Section 8.1, above, this Agreement shall forthwith become
void, and there shall be no Liability or obligation on the part of any Party or
its officers, directors or shareholders. Notwithstanding the foregoing sentence,
(i) the provisions of Section 7.4(b) and 7.5 shall remain in full force and
effect and survive any termination of this Agreement; (ii) each Party shall
remain liable for any breach of this Agreement prior to its termination; and
(iii) in the event of termination pursuant to Section 8.1(b), above, then
notwithstanding the provisions of Section 7.5, above, the Breaching Party shall
be liable to the non-breaching Party to the extent of the expenses incurred by
such other party in connection with this Agreement and the transactions
contemplated thereby.
8.3 Amendment. This Agreement may be amended at any time by a written
instrument executed by the Parties. Any amendment effected pursuant to this
Section 8.3 shall be binding upon all Parties.
8.4 Waiver. Any term or provision of this Agreement may be waived in
writing at any time by the Party or Parties entitled to the benefits thereof.
Any waiver effected pursuant to this Section 8.4 shall be binding upon all
Parties hereto. No failure to exercise and no delay in exercising any right,
power or privilege shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege preclude the exercise of any
other right, power or privilege. No waiver of any breach of any covenant or
agreement hereunder shall be deemed a waiver of a preceding or subsequent breach
of the same or any other covenant or agreement. The rights and remedies of each
Party under this Agreement are in addition to all other rights and remedies,
whether at law, in equity or otherwise, that such Party may have against the
other Parties.
29
<PAGE> 35
ARTICLE 9
INDEMNIFICATION
9.1 Survival of Representations and Warranties. The representations and
warranties of Company, Shareholders, GFI and FNFI contained in this Agreement or
in any writing delivered pursuant hereto or at the Closing shall survive the
Closing and the consummation of the transactions contemplated hereby until 18
months after the Closing Date; provided that the representations and warranties
contained in Sections 4.2, 4.4, 4.11, and 4.20 shall continue until the
expiration of the applicable statutes of limitations.
9.2 Indemnification by Company and Shareholders. Effective as of the
Closing and subject to the limitations set forth in Section 9.9, Shareholders,
in consideration for the purchase of the Company Shares by GFI, covenant and
agree with GFI, FNFI and their respective officers, directors, employees,
shareholders, assigns, successors and Affiliates (a "FNFI Indemnified Party") to
indemnify and hold harmless a FNFI Indemnified Party from, against and in
respect of any and all Losses suffered, sustained, incurred or paid by any FNFI
Indemnified Party in connection with resulting from or arising out of, directly
or indirectly:
(a) any breach of any representation or warranty of any
Shareholder or Company set forth in this Agreement or any certificate, document
or instrument delivered by or on behalf of any Shareholder or Company in
connection herewith;
(b) any non-fulfillment of any covenant or agreement on the part
of any Shareholder or Company in this Agreement; or
(c) the business, operations or assets of Company prior to the
Effective Time, except to the extent disclosed in the Financial Statements or
the Disclosure Schedule.
Payment shall not be a condition precedent to recovery under the above
indemnities.
9.3 Indemnification by GFI and FNFI. Effective as of the Closing and
subject to the limitations set forth in Section 9.9, GFI and FNFI covenant and
agree with Shareholders and their respective heirs, successors and assigns (a
"Shareholder Indemnified Party") to indemnify and hold harmless a Shareholder
Indemnified Party from, against and in respect of any and all Losses suffered,
sustained, incurred or paid by any Shareholder Indemnified Party in connection
with resulting from or arising out of, directly or indirectly:
(a) any breach of any representation or warranty of GFI or FNFI
set forth in this Agreement or any certificate, document or instrument delivered
by or on behalf of GFI or FNFI in connection herewith; or
(b) any non-fulfillment of any covenant or agreement on the part
of GFI or FNFI in this Agreement which is required to be performed after the
Closing.
30
<PAGE> 36
Payment shall not be a condition precedent to recovery under the above
indemnities.
9.4 Third-Party Claims. In the event any third party asserts any Claim
with respect to any matter as to which the indemnities in this Agreement relate,
the Party or Person against whom the Claim is asserted (the "Indemnified Party")
shall give prompt notice to the other Party or Person (the "Indemnifying
Party"), and the Indemnifying Party shall have the right at its election to take
over the defense or settlement of the third-party Claim at its own expense by
giving prompt notice to the Indemnified Party. If the Indemnifying Party does
not give such notice and does not proceed diligently so to defend the
third-party Claim within thirty (30) days after receipt of the notice of the
third-party Claim, the Indemnifying Party shall be bound by any defense or
settlement that the Indemnified Party may make as to those claims and shall
reimburse the Indemnified Party for its Losses related to the defense or
settlement of the third-party Claim. The Parties shall cooperate in defending
against any asserted third-party Claims. For purposes of this Article 9, the
reference to this Agreement includes any certificate, Disclosure Schedule,
Exhibit, list, summary or other information provided or delivered to a party by
the Indemnifying Party or its agents and affiliates in connection with this
Agreement.
9.5 Access and Information. With respect to any Claim for
indemnification hereunder, the Indemnified Party will give to the Indemnifying
Party and its counsel, accountants and other representatives full and free
access during normal business hours and upon the giving of reasonable prior
notice to their books and records relating to such Claims, and to their
employees, accountants, counsel and other representatives, all without charge to
the Indemnifying Party, except for reimbursement of reasonable out-of-pocket
expenses. The Indemnified Party agrees to maintain any of its books and records
which may relate to a Claim for indemnification hereunder for such period of
time as may be necessary to enable the Indemnifying Party to resolve such Claim;
provided that the failure to do so shall not relieve the Indemnifying Party of
any obligation hereunder unless the Indemnifying Party demonstrates that the
failure to do so substantially prejudiced the Indemnifying Party in the defense
of any third-party proceeding, and then only to the extent so prejudiced.
9.6 Mitigation. The Indemnified Parties agree to mitigate their Losses
and use their reasonable efforts to collect any indemnifiable damages from any
available insurer or third-party indemnitors before collecting from the
Indemnifying Party; provided, however, nothing in the foregoing sentence shall
preclude any Indemnified Party from filing a Claim against the Indemnifying
Party from the outset. If any amounts are recovered from an insurer or third
party after payment to an Indemnified Party, the recovering party (or parties)
shall promptly pay over to such Indemnifying Party (or Parties) any such
recovered amounts, but only to the extent of any Losses with respect to such
matter.
9.7 Right of Set-Off. Any Party to this Agreement shall be entitled to
set-off against any amounts due to another Party under the terms of this
Agreement or under any additional agreement (except for the Employment
Agreements) executed in connection herewith, any amounts due from such other
Party under the terms of this Agreement.
31
<PAGE> 37
9.8 Limitations. The obligations of the parties to indemnify the other
parties under this Article 9 are subject to the following limitations:
(a) Each of the Shareholder's obligations shall be limited to an
aggregate amount equal to the total consideration received by such Shareholder
under Section 2.2.
(b) Any indemnification claim under this Article 9 asserted by
GFI or FNFI against the Company or the Shareholders shall be asserted on a 50/50
basis against each of the Shareholders (i.e., each Shareholder shall not be
liable for more than 50% of any such claim).
(c) GFI or FNFI shall not assert a claim for indemnification
until the total of all claims exceed an aggregate amount of $20,000 (the
"Threshold Amount"). Once the claims exceed the Threshold Amount, GFI and FNFI
can assert and recover all amounts owed hereunder, including the initial $20,000
representing the Threshold Amount.
(d) FNFI's obligations to indemnify the Shareholders under this
Article 9 shall only apply to those breaches by FNFI of its representations,
warranties, covenants and obligations under this Agreement and not the
representations, warranties, covenants and obligations of GFI.
9.9 Indemnification Exclusive. The indemnification provisions of this
Article 9 are the sole and exclusive remedy any Party has against another Party
for any breach of representation, warranty, covenant or agreement.
ARTICLE 10
GENERAL PROVISIONS
10.1 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of Illinois as applied to agreements among Illinois
residents, made and to be performed entirely within the State of Illinois.
10.2 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
Parties hereto.
10.3 Entire Agreement. This Agreement, the Exhibits and Schedules
hereto, and the other documents delivered pursuant hereto constitute the full
and entire understanding and agreement among the Parties with regard to the
subject matter hereof and no Party shall be liable or bound to any other Party
in any manner by any representations, warranties, covenants, or agreements
except as specifically set forth herein or therein. Nothing in this Agreement,
express or implied, is intended to confer upon any Person, other than the
Parties hereto and their respective successors and assigns, any rights,
remedies, obligations, or Liabilities under or by reason of this Agreement,
except as expressly provided herein.
32
<PAGE> 38
10.4 Severability. In the event any provision of this Agreement shall be
invalid, illegal, or unenforceable, it shall, to the extent practicable, be
modified so as to make it valid, legal and enforceable and to retain as nearly
as practicable the intent of the Parties, and the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
10.5 Notice. All notices and other communications required or permitted
hereunder shall be in writing and shall be deemed effectively given (i) if
delivered personally (including by overnight express or messenger), upon
delivery; (ii) if delivered by registered or certified mail, return receipt
requested, upon the earlier of actual delivery or three (3) days after being
mailed; or (iii) if given by facsimile, upon confirmation of transmission by
facsimile, in each case to the Parties at the following addresses:
(a) If to GFI or FNFI, addressed to:
Fidelity National Financial, Inc.
3916 State Street, Suite 300
Santa Barbara, California 93105
Attn: Andrew F. Puzder
Facsimile: (805) 898-7149
With a copy to:
Greg Lane, Esq.
Fidelity National Financial, Inc.
3916 State Street, Suite 300
Santa Barbara, California 93105
Facsimile: 805-898-7149
(b) If to Shareholders or Company, addressed to:
Lexington Capital Corporation
106 Wilmot Road, Suite 250
Deerfield, Illinois 60015
Facsimile: 847-374-1044
With a copy to:
Allan J Reich, Esq.
D'Ancona & Pflaum
30 N. LaSalle Street
Suite 2900
Chicago, Illinois 60602
33
<PAGE> 39
Facsimile: 312-580-0923
10.6 Construction. Parties to this Agreement have participated jointly
in the negotiation and drafting of this Agreement and have had competent counsel
of their own choosing. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the Parties and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any of the provisions of
this Agreement.
10.7 Headings. The headings of the Articles and Sections of this
Agreement are for convenience of reference only and are not to be considered in
construing this Agreement.
10.8 Counterparts. This Agreement may be executed by facsimile and in
any number of counterparts, each of which shall be deemed an original, but all
of which together shall constitute one instrument.
10.9 Recitals, Schedules, and Exhibits. The Recitals, Schedules and
Exhibits to this Agreement are incorporated herein and, by this reference, made
a part hereof as if fully set forth at length herein.
[SIGNATURE PAGES FOLLOW.]
34
<PAGE> 40
IN WITNESS WHEREOF, the foregoing Stock Purchase Agreement is hereby
executed as of the date first above written.
FNFI:
FIDELITY NATIONAL FINANCIAL, INC.,
a Delaware Corporation
By: /s/ William W. Wehner
---------------------------------
Its: Executive Vice President
---------------------------------
GFI:
GRANITE FINANCIAL, INC.,
a Delaware Corporation
By: /s/ William W. Wehner
---------------------------------
Its: Chief Executive Officer
---------------------------------
COMPANY:
LEXINGTON CAPITAL CORPORATION, an
Illinois Corporation
By: /s/ Lawrence B. Moller
---------------------------------
Its: President
---------------------------------
SHAREHOLDERS:
/s/ Edward C. Litke
------------------------------------
Edward C. Litke, shareholder
/s/ Lawrence B. Moller
------------------------------------
Lawrence B. Moller, shareholder
35
<PAGE> 1
EXHIBIT 11
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
COMPUTATION OF BASIC AND DILUTED EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
-------- --------- ---------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
Basic earnings per share calculation:
Earnings before extraordinary loss $105,692 $ 49,008 $ 29,241
Extraordinary loss, net of applicable income tax
benefit of $1,180 -- (1,700) --
-------- -------- --------
Net earnings $105,692 $ 47,308 $ 29,241
======== ======== ========
Weighted average shares 27,921 23,355 20,426
======== ======== ========
Basic earnings per share
Earnings before extraordinary loss $ 3.79 $ 2.10 $ 1.43
Extraordinary loss -- (.07) --
-------- -------- --------
Net earnings $ 3.79 $ 2.03 $ 1.43
======== ======== ========
Diluted earnings per share calculation:
Earnings before extraordinary loss $105,692 $ 49,008 $ 29,241
Plus: Impact of assumed conversion of LYONs 2,463 3,142 3,196
-------- -------- --------
Earnings before extraordinary loss plus
assumed conversion 108,155 52,150 32,437
Extraordinary loss, net of applicable income tax
benefit of $1,180 -- (1,700) --
-------- -------- --------
Net earnings plus assumed conversions $108,155 $ 50,450 $ 32,437
======== ======== ========
Weighted average shares 27,921 23,355 20,426
Plus: Incremental shares from assumed conversions
LYONs 3,694 5,008 5,272
Options 1,859 1,236 733
-------- -------- --------
Dilutive potential shares 33,474 29,599 26,431
======== ======== ========
Diluted earnings per share
Earnings before extraordinary loss plus
assumed conversions $ 3.23 $ 1.76 $ 1.23
Extraordinary loss -- (0.06) --
-------- -------- --------
Net earnings $ 3.23 $ 1.70 $ 1.23
======== ======== ========
</TABLE>
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES
OF
FIDELITY NATIONAL FINANCIAL, INC.
1. Fidelity National Title Insurance Company, a California corporation
("FNTIC"), 99.9% owned by FNFI;
Subsidiaries:
(a) Fidelity National Company of California, a California
corporation;
(b) Fidelity National Company of Northern California, a California
corporation;
(c) Fidelity National Title & Escrow of Hawaii, Inc., a Hawaii
corporation;
(d) Fidelity National Title Insurance Agency of Coconino, Inc., an
Arizona corporation, FNTIC owns 21%;
(e) BHC&M, Ltd., a Virginia corporation;
(f) Title Services, Inc., a Tennessee corporation;
(g) Fidelity Tax Service, Inc., a California corporation;
(h) Kensington Development Corporation, a California corporation, 10%
is owned by FNTIC; 90% by Manchester Development Corporation, a
California corporation (see 34(a) below);
(i) Pacific American Property Exchange Corporation, a California
corporation;
(j) Republic Title Insurance Agency, Inc., a California corporation
(inactive);
(k) Title Insurance Policy Co. of Pinal County, an Arizona
corporation (inactive);
(l) UTC Capital Group, Inc., a Texas corporation;
Subsidiaries:
1. Dallas-Fidelity National Title Agency, Inc. dba Fidelity
National Title Agency, Inc., a Texas corporation
(inactive); 2. LRT Record Services, Inc. dba Land Records
of Texas, a Texas corporation (inactive);
(m) Western Financial Trust Company, a California corporation;
2. Fidelity National Title Insurance Company of New York, a New York
corporation;
Subsidiaries:
(a) Amtitle Company, a California corporation (inactive);
(b) Gulf Stream Title Company of Miami, a Florida corporation
(inactive);
(c) Miami Title and Abstract Company, a Florida corporation
(inactive);
<PAGE> 2
(d) National Title Insurance of New York, Inc., a New York
corporation;
(e) National Title Insurance Services, Inc., a North Carolina
corporation;
(f) Nations Title Insurance of New York, Inc., a New York
corporation;
Subsidiaries:
1. Fidelity National Title and Abstract, Inc., a Maryland
corporation;
2. Nations Title of Arizona, Inc., an Arizona corporation;
(g) Network Title Insurance Agencies of Florida, Inc., a Florida
corporation (inactive);
(h) Settlement Network of Pennsylvania, Inc., a Pennsylvania
corporation (inactive);
(i) Statewide Research, Inc., a Florida corporation;
3. Agency Sales and Posting, Inc., a California corporation;
4. Alamo Title Holding Company, a Texas corporation ("ATHC");
Subsidiaries:
(a) Alamo Title Company of Tarrant County, Inc. dba Alamo Title
Company, a Texas corporation;
(b) Alamo Title Insurance, a Texas corporation ("ATI");
Subsidiaries:
1. Alamo Title Company, a Texas corporation;
2. Rio Grande Title Company, Inc., a Texas corporation, ATI
owns 20%;
(c) Alamo Title of Guadalupe County, Inc. dba Alamo Title County, a
Texas corporation;
(d) Alamo Title of Travis County, Inc. dba Alamo Title Company, a
Texas corporation;
(e) Hexter-Fair Title Company, a Texas corporation, ATHC owns 50%;
(f) SWT Holding, Inc., a Texas corporation;
Subsidiary:
1. Alamo Title Company of Harris County, Inc. dba Alamo Title
Company, a Texas corporation;
Subsidiary:
(a) Alamo Title Company of Brazoria County, Inc. dba
Alamo Title Company, a Texas corporation;
<PAGE> 3
5. American National Financial, Inc., a California corporation, FNFI owns
42.7%;
Subsidiaries:
(a) American Document Services, Inc., a California corporation;
(b) American Title Company, a California corporation;
Subsidiaries:
1. Landmark REO Management Services, Inc., a Kansas
corporation;
2. Nations Title Insurance of Arizona, Inc., an Arizona
corporation;
3. Santa Barbara Title Company, a California corporation;
(c) West Point Appraisal Services, Inc.; a California corporation;
(d) West Point Properties, Inc., a California corporation;
(e) West Point Support Services, Inc., a California corporation;
6. Arizona Sales and Posting, Inc., an Arizona corporation;
7. A.S.A.P. Legal Publication Services, Inc., a California corporation;
8. Builders Title of Nevada, Inc., a Nevada corporation;
9. CalWest Service Corporation, a California corporation;
10. Classified Credit Data, Inc. a California corporation;
11. Credit Reports, Inc., a California corporation;
12. El Paso-Fidelity Title Company dba Fidelity National Title Company of El
Paso, a Texas corporation (inactive);
13. Fidelity Asset Management, Inc., an Arizona corporation;
14. Fidelity Asset Management, Inc., a California corporation;
15. Fidelity Express Network, Inc., a California corporation;
16. Fidelity National 1031 Exchange Services, Inc., a California
corporation;
17. Fidelity National Flood, Inc., a Texas corporation;
18. Fidelity National Information Services, Inc., a California corporation;
19. Fidelity National Tax Service, Inc., a California corporation, 100% of
the Preferred stock is owned by FNFI;
20. Fidelity National Title Agency, Inc., an Arizona corporation;
<PAGE> 4
21. Fidelity National Title Agency of Nevada, Inc., a Nevada corporation;
22. Fidelity National Title Agency of Pinal County, Inc., an Arizona
corporation;
23. Fidelity National Title Company, a California corporation;
24. Fidelity National Title Company of California, a California corporation;
25. Fidelity National Title Company of Oregon, an Oregon corporation;
Subsidiary:
(a) Professional Escrow, Inc., an Oregon corporation;
26. Fidelity National Title Company of Washington, a Washington corporation;
27. Fidelity National Title of Nevada, Inc., a Nevada corporation;
28. Fidelity Participations, Inc., a California corporation;
29. First Title Corporation, a Tennessee corporation;
30. FNTIC Properties, a California corporation;
31. Granite Financial, Inc., a Delaware corporation;
Subsidiaries:
(a) GF Funding Corp. I, a Delaware corporation;
(b) GF Funding Corp. II, a Delaware corporation;
(c) GF Funding Corp. III, a Delaware corporation;
(d) GF Funding Corp. IV, a Delaware corporation;
(e) GF Funding Corp. V, a Delaware corporation;
(f) GF Funding Corp. VI, a Delaware corporation;
(g) GF Funding Corp. VII, a Delaware corporation;
(h) Granite Financial Acquisition Corp. I, a Delaware corporation;
(i) North Pacific Funding, Inc., a Washington corporation;
Subsidiary:
1. CKC Corporation, a Washington corporation;
32. ICS Ifland Credit Services, Inc., a Kentucky corporation;
<PAGE> 5
33. Lexington Capital Corporation, a Illinois corporation;
34. Manchester Development Corporation, dba Orion Realty Group, a California
corporation;
Subsidiary:
(a) Kensington Development Corporation, a California corporation,
Manchester Development Corporation, a California corporation,
owns 90%, Fidelity National Title Insurance Company ("FNTIC"), a
California corporation, owns 10% (see 1(h) above);
35. Micro General Corporation, a Delaware corporation, FNFI owns 81%;
36. National Alliance Marketing Group, Inc., a California corporation;
Subsidiary:
(a) Fidelity National Home Warranty Company, a California
corporation;
37. Nations Title, Inc., a Kansas corporation;
Subsidiaries:
(a) Fidelity National Appraisal Services, Inc., a Kansas corporation;
(b) Nations Post and Pub Services, Inc., a Kansas corporation;
38. Nationwide Recording Service, a California corporation;
39. Rocky Mountain Aviation, Inc., an Arizona corporation;
40. Rocky Mountain Printing Services, Inc., a California corporation;
41. Rocky Mountain Support Services, Inc., an Arizona corporation;
42. San Joaquin Title Company, a California corporation;
43. Title Insurance and Escrow Services, Inc., an Oregon corporation;
44. WAEC Apartments, Inc., a California corporation;
45. WAEC, Inc., a California corporation;
46. Western Pacific Property and Casualty Agency, Inc., an Arizona
corporation.
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Fidelity National Financial, Inc.:
We consent to incorporation by reference in the Registration Statements
(No. 33-32853, 33-15027, 33-34300, 33-45709, 33-45272, 33-15008, 33-56514,
33-64834, 33-64836, 33-83026, 33-61983, 333-48411, 333-61111, 333-64229) on Form
S-8 of Fidelity National Financial, Inc. of our reports dated February 17, 1999,
except as to Note Q to the Consolidated Financial Statements, which is as of
March 25, 1999 relating to the Consolidated Balance Sheets of Fidelity National
Financial, Inc. and subsidiaries as of December 31, 1998 and 1997 and the
related Consolidated Statements of Earnings, Comprehensive Earnings,
Stockholders' Equity and Cash Flows and related schedules for each of the years
in the three-year period ended December 31, 1998 which reports appear in the
December 31, 1998 Annual Report on Form 10-K of Fidelity National Financial,
Inc.
KPMG LLP
Los Angeles, California
March 26, 1999
<TABLE> <S> <C>
<ARTICLE> 7
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<DEBT-HELD-FOR-SALE> 330,068
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 50,191
<MORTGAGE> 0
<REAL-ESTATE> 4,673
<TOTAL-INVEST> 510,515
<CASH> 51,309
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 969,470
<POLICY-LOSSES> 224,534
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 214,624
0
0
<COMMON> 3
<OTHER-SE> 396,737
<TOTAL-LIABILITY-AND-EQUITY> 969,470
910,278
<INVESTMENT-INCOME> 22,397
<INVESTMENT-GAINS> 17,190
<OTHER-INCOME> 338,600
<BENEFITS> 59,294
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 1,054,037
<INCOME-PRETAX> 175,134
<INCOME-TAX> 69,442
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 105,692
<EPS-PRIMARY> 3.79
<EPS-DILUTED> 3.23
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<DEBT-HELD-FOR-SALE> 297,889
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 56,626
<MORTGAGE> 0
<REAL-ESTATE> 4,728
<TOTAL-INVEST> 407,733
<CASH> 80,295
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 860,017
<POLICY-LOSSES> 215,611
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 155,566
0
0
<COMMON> 3
<OTHER-SE> 354,765
<TOTAL-LIABILITY-AND-EQUITY> 860,017
642,726
<INVESTMENT-INCOME> 14,688
<INVESTMENT-GAINS> 13,717
<OTHER-INCOME> 241,939
<BENEFITS> 41,383
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 739,227
<INCOME-PRETAX> 132,460
<INCOME-TAX> 55,540
<INCOME-CONTINUING> 76,920
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 76,920
<EPS-PRIMARY> 2.78
<EPS-DILUTED> 2.36
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<DEBT-HELD-FOR-SALE> 256,315
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 91,395
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 387,792
<CASH> 90,185
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 836,251
<POLICY-LOSSES> 206,919
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 156,295
0
0
<COMMON> 3
<OTHER-SE> 334,038
<TOTAL-LIABILITY-AND-EQUITY> 836,251
404,517
<INVESTMENT-INCOME> 10,025
<INVESTMENT-GAINS> 11,954
<OTHER-INCOME> 157,158
<BENEFITS> 26,757
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 470,647
<INCOME-PRETAX> 86,250
<INCOME-TAX> 36,131
<INCOME-CONTINUING> 50,119
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50,119
<EPS-PRIMARY> 1.84
<EPS-DILUTED> 1.56
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<DEBT-HELD-FOR-SALE> 239,663
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 81,155
<MORTGAGE> 0
<REAL-ESTATE> 5,172
<TOTAL-INVEST> 366,537
<CASH> 55,072
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 771,024
<POLICY-LOSSES> 201,853
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 165,751
0
0
<COMMON> 3
<OTHER-SE> 292,896
<TOTAL-LIABILITY-AND-EQUITY> 771,024
182,296
<INVESTMENT-INCOME> 4,994
<INVESTMENT-GAINS> 1,997
<OTHER-INCOME> 72,926
<BENEFITS> 13,339
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 220,075
<INCOME-PRETAX> 28,799
<INCOME-TAX> 12,119
<INCOME-CONTINUING> 16,680
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,680
<EPS-PRIMARY> .62
<EPS-DILUTED> .53
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<DEBT-HELD-FOR-SALE> 239,818
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 77,553
<MORTGAGE> 0
<REAL-ESTATE> 5,201
<TOTAL-INVEST> 358,373
<CASH> 72,887
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 747,695
<POLICY-LOSSES> 201,674
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 163,015
0
0
<COMMON> 3
<OTHER-SE> 274,047
<TOTAL-LIABILITY-AND-EQUITY> 747,695
616,074
<INVESTMENT-INCOME> 18,967
<INVESTMENT-GAINS> 16,839
<OTHER-INCOME> 211,179
<BENEFITS> 41,558
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 735,898
<INCOME-PRETAX> 85,603
<INCOME-TAX> 36,595
<INCOME-CONTINUING> 49,008
<DISCONTINUED> 0
<EXTRAORDINARY> (1,700)
<CHANGES> 0
<NET-INCOME> 47,308
<EPS-PRIMARY> 2.03
<EPS-DILUTED> 1.70
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<DEBT-HELD-FOR-SALE> 197,666
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 87,696
<MORTGAGE> 0
<REAL-ESTATE> 7,175
<TOTAL-INVEST> 317,417
<CASH> 101,068
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 705,845
<POLICY-LOSSES> 199,742
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 182,325
0
0
<COMMON> 3
<OTHER-SE> 228,429
<TOTAL-LIABILITY-AND-EQUITY> 705,845
440,149
<INVESTMENT-INCOME> 13,098
<INVESTMENT-GAINS> 13,957
<OTHER-INCOME> 142,652
<BENEFITS> 28,938
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 527,001
<INCOME-PRETAX> 53,917
<INCOME-TAX> 22,047
<INCOME-CONTINUING> 31,870
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,870
<EPS-PRIMARY> 1.43
<EPS-DILUTED> 1.18
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<DEBT-HELD-FOR-SALE> 191,309
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 62,022
<MORTGAGE> 0
<REAL-ESTATE> 7,767
<TOTAL-INVEST> 272,288
<CASH> 75,825
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 630,300
<POLICY-LOSSES> 199,257
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 184,194
0
0
<COMMON> 3
<OTHER-SE> 178,163
<TOTAL-LIABILITY-AND-EQUITY> 630,300
278,598
<INVESTMENT-INCOME> 8,730
<INVESTMENT-GAINS> 3,990
<OTHER-INCOME> 90,090
<BENEFITS> 18,022
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 340,891
<INCOME-PRETAX> 22,495
<INCOME-TAX> 9,120
<INCOME-CONTINUING> 13,375
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,375
<EPS-PRIMARY> .61
<EPS-DILUTED> .53
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<DEBT-HELD-FOR-SALE> 181,474
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 51,952
<MORTGAGE> 0
<REAL-ESTATE> 7,081
<TOTAL-INVEST> 250,604
<CASH> 61,636
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 601,759
<POLICY-LOSSES> 198,141
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 183,788
0
0
<COMMON> 3
<OTHER-SE> 161,441
<TOTAL-LIABILITY-AND-EQUITY> 601,759
127,453
<INVESTMENT-INCOME> 4,927
<INVESTMENT-GAINS> 1,545
<OTHER-INCOME> 41,387
<BENEFITS> 7,795
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 162,416
<INCOME-PRETAX> 5,101
<INCOME-TAX> 2,104
<INCOME-CONTINUING> 2,997
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,997
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 188,350
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 45,822
<MORTGAGE> 0
<REAL-ESTATE> 11,352
<TOTAL-INVEST> 254,577
<CASH> 81,108
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 609,658
<POLICY-LOSSES> 196,527
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 179,508
0
0
<COMMON> 3
<OTHER-SE> 162,642
<TOTAL-LIABILITY-AND-EQUITY> 609,658
552,799
<INVESTMENT-INCOME> 16,751
<INVESTMENT-GAINS> 2,476
<OTHER-INCOME> 162,769
<BENEFITS> 36,275
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 650,294
<INCOME-PRETAX> 48,226
<INCOME-TAX> 18,985
<INCOME-CONTINUING> 29,241
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,241
<EPS-PRIMARY> 1.43
<EPS-DILUTED> 1.23
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
