-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IWMClxWDKgJ50ybZvjkvJIReGsz92oeyZ5BAbcaUBxjvnqpWPZF6paf//F1zLjWL atYBHWsva1hdJyIgc3axdg== 0000892569-96-000267.txt : 19960326 0000892569-96-000267.hdr.sgml : 19960326 ACCESSION NUMBER: 0000892569-96-000267 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960325 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIDELITY NATIONAL FINANCIAL INC /DE/ CENTRAL INDEX KEY: 0000809398 STANDARD INDUSTRIAL CLASSIFICATION: TITLE INSURANCE [6361] IRS NUMBER: 860498599 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09396 FILM NUMBER: 96538095 BUSINESS ADDRESS: STREET 1: 17911 VON KARMAN AVE STREET 2: STE CITY: IRVINE STATE: CA ZIP: 92714 BUSINESS PHONE: 7148529770 MAIL ADDRESS: STREET 1: 2100 S.E. MAIN STREET STREET 2: SUITE 400 CITY: IRVINE STATE: CA ZIP: 92714 10-K 1 FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 31, 1995 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 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 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) ------------------------ DELAWARE 86-0498599 (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 17911 VON KARMAN AVENUE 92714 (714) 622-5000 IRVINE, CALIFORNIA (ZIP CODE) (REGISTRANT'S TELEPHONE NUMBER, (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) INCLUDING AREA CODE)
------------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - ---------------------------------------- ---------------------------------------- Common Stock, $.0001 par value New York Stock Exchange Liquid Yield Option Notes, due 2009, New York Stock Exchange zero coupon, convertible subordinated
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE ------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K, or any amendment to this Form 10-K. / / As of March 18, 1996, 12,450,019 shares of Common Stock ($.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 $139,236,010. 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 62. 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, 1995, to be filed within 120 days after the close of the fiscal year that is the subject of this Report. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS FORM 10-K
PAGE NO. -------- PART I Item 1 Business......................................................... 1 Item 2 Properties....................................................... 10 Item 3 Legal Proceedings................................................ 10 Item 4 Submission of Matters to a Vote of Security Holders.............. 11 PART II Item 5 Market for Registrant's Common Stock and Related Stockholder Matters.......................................................... 11 Item 6 Selected Financial Data.......................................... 13 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................ 16 Item 8 Financial Statements and Supplementary Data...................... 28 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................................. 62 PART III Item 10 Directors and Executive Officers of the Registrant............... 62 Item 11 Executive Compensation........................................... 62 Item 12 Security Ownership of Certain Beneficial Owners and Management... 62 Item 13 Certain Relationships and Related Transactions................... 62 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.............................................................. 62
3 PART I ITEM 1. BUSINESS Fidelity National Financial, Inc., through its principal subsidiaries (collectively, the "Company"), Fidelity National Title Insurance Company ("Fidelity Title"), which, in turn, is the parent company of Fidelity National Title Insurance Company of California ("Fidelity California") and Fidelity National Title Insurance Company of Tennessee ("Fidelity Tennessee"); Fidelity National Title Insurance Company of Pennsylvania ("Fidelity Pennsylvania"), which, in turn, is the parent company of American Title Insurance Company ("ATIC"); Fidelity National Title Insurance Company of New York ("Fidelity New York") and Fidelity National Title Insurance Company of Texas ("Fidelity Texas"), which was merged into Fidelity Title in December 1993, (collectively, the "Insurance Subsidiaries"); and its wholly owned underwritten title companies (collectively, the "UTCs"), including Fidelity National Title Company ("FNTC") and Fidelity National Title Company of California ("FNCAL"), is one of the largest national underwriters engaged in the business of issuing title insurance policies and performing other title related services such as escrow, collection and trust activities, real estate tax information services, trustee sale guarantees, foreclosure publishing and posting services and exchange intermediary services in connection with real estate transactions. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Recent Developments." Title insurance services are provided primarily through the Company's direct operations and otherwise through independent title insurance agents who issue title policies on behalf of the Insurance 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. 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 of public records, maps and other relevant documents to ascertain title ownership and the existence of easements, restrictions, rights of way, conditions, encumbrances or other matters affecting the title to, or use of, real property. A visual inspection or survey of the property may also be made prior to the issuance of certain title insurance policies. To facilitate the preparation of preliminary reports without the necessity of manually searching public records, copies of public records, maps and other relevant historical documents are compiled and indexed in a "title plant." Each title plant relates to a particular county and is kept current on a daily or other periodic basis by the continual addition of copies of recorded documents which affect real property in the particular county. Title companies often subscribe to independent title information services to assist in the updating of their title plants and the maintenance of title records. The major expense of a title company is the search and examination function in preparing preliminary title reports, commitments and title policies; and not from claim losses associated with the issuance of said policies. The premium for title insurance is due in full at the closing of the real estate transaction and is based upon the purchase price of the property insured or the amount of the mortgage loan. Coverage under the policy generally terminates upon resale or refinance of the property. The terms of coverage have become relatively standardized in accordance with forms approved by state or national trade associations. DIRECT VS. 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 1 4 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 -- Results of Operations -- Expenses." THE TITLE POLICY PROCESS. A brief description of the process of issuing a title insurance policy, which usually occurs over a thirty to ninety day period, is as follows: (i) The customer, typically a real estate salesperson or broker, escrow agent or lender, places an order for a title policy. (ii) Sales personnel note the specifics of the order and place a request with the title department for a preliminary report (a commitment in the eastern United States). (iii) After the relevant historical data on the property is compiled, the title officer prepares a preliminary title report which documents (a) the current status of title and conditions affecting the property, (b) any exclusions, exceptions and/or limitations which the title underwriter might include in the policy and (c) specific issues which need to be addressed and resolved by the parties to the transaction before the title policy will be issued. The preliminary report is circulated to all the parties for satisfaction of any specific issues. (iv) After the specific issues identified in the preliminary report are satisfied, an escrow agent closes the transaction in accordance with the instructions of the parties and the title underwriter's conditions. (v) Once the transaction is closed and all monies have been released, the title underwriter issues the policies (a) to the owner and the lender, on a new home sale or resale transaction or (b) to the lender only, on a refinance transaction. LOSSES AND RESERVES. The maximum amount of liability under a title insurance policy is usually the face amount of the policy plus the cost of defending the insured's title against an adverse claim. The reserve for claim losses is based upon known claims, as well as losses the insurer expects to incur based on historical experience and other factors, including industry averages, claim loss history, legal environment, geographic considerations, expected recoupments and the types of policies written. The title underwriter establishes a reserve for each known claim based on a review and evaluation of potential liability. ECONOMIC FACTORS AFFECTING INDUSTRY. Title insurance revenue is closely related to the level of real estate activity and the average price of real estate sales. Real estate sales are directly affected by the availability of funds to finance purchases. Other factors affecting real estate activity include demand, mortgage interest rates, family income levels and general economic conditions. While the level of sales activity was relatively depressed in certain geographical areas during the period 1991 through mid-1993, lower mortgage interest rates beginning in the latter part of 1991 triggered an increase in refinancing activity which continued at record levels through 1993 and into the first quarter of 1994. During 1994 and early 1995, steady interest rate increases caused by actions taken by the Federal Reserve Board, resulted in a significant decline in refinancing transactions and a stagnation in residential resales and new home sales. Since late 1995, decreases in mortgage interest rates and the resulting improvement in the real estate market have had a favorable effect on the level of real estate activity, including refinancing transactions, new home sales and resales. Although it is impossible to predict in what future direction interest rates and the real estate market may move or fluctuate, the Company believes that the current interest rate environment may positively impact the title insurance industry during 1996. 2 5 TITLE INSURANCE OPERATIONS The Insurance Subsidiaries are currently licensed to issue title insurance policies through direct operations and independent agents in all states (with the exception of Iowa) and the District of Columbia, the Bahamas, the Virgin Islands and Puerto Rico. The Company maintains direct operations in Arizona, California, Florida, Hawaii, Michigan, Missouri, Nevada, New Jersey, New Mexico, New York, North Carolina, Oregon, Pennsylvania, Tennessee, Texas and Washington. "See Management's Discussion and Analysis of Financial Condition and Results of Operations -- Recent Developments." Direct operations are divided into approximately 75 branches consisting of more than 325 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 1,100 agents, primarily in those areas in which agents are the more accepted title insurance provider. The following table sets forth for the years 1995, 1994 and 1993, respectively, the approximate dollars and percentages of title insurance premium revenue by state according to records maintained by the Company for operating purposes:
YEARS ENDED DECEMBER 31, ---------------------------------------------------------------- 1994 1993 1994 ------------------ ------------------ ------------------ AMOUNT % AMOUNT % AMOUNT % -------- ----- -------- ----- -------- ----- (DOLLARS IN THOUSANDS) California................ $124,407 43.6% $139,946 37.9% $195,532 45.5% Texas..................... 28,761 10.1 39,368 10.7 38,522 9.0 Pennsylvania.............. 13,751 4.8 20,326 5.5 28,432 6.6 Florida................... 16,141 5.7 24,786 6.7 27,142 6.3 New York.................. 17,436 6.1 26,683 7.2 22,669 5.3 Arizona................... 15,462 5.4 17,125 4.6 19,591 4.5 All others................ 69,594 24.3 101,041 27.4 97,884 22.8 -------- ----- -------- ----- -------- ----- Totals.......... $285,552 100.0% $369,275 100.0% $429,772 100.0% ======== ===== ======== ===== ======== =====
For the entire title insurance industry, 15 states accounted for 77.8% of title premiums written in the United States in 1994. California represented the single largest state with 18.5%. The Company is licensed and has operations in all 15 of these states. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Recent Developments." MARKETING. The Company attempts to increase the volume of its title insurance business primarily through customer solicitation by sales personnel. The Company actively encourages its branch 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, 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 timeliness and accuracy in the delivery of services. DIRECT AND AGENCY OPERATIONS. The Company generates the majority of its revenue from its network of direct operations as opposed to relying on 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." 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, document preparation fees, reconveyance fees, real estate tax information fees, trustee sale guarantee fees, foreclosure publishing and posting fees and exchange intermediary fees. 3 6 In 1995, 62.1% of the Company's title insurance premiums were generated by direct operations. In 1994 and 1993, 53.2% and 56.4%, respectively, of title insurance premiums were generated by direct operations. The percentage of title insurance premiums generated by agency operations was 37.9%, 46.8% and 43.6% in 1995, 1994 and 1993, respectively. The average percentage of premiums generated by agents and retained by the Company has increased to 23.7% in 1995 from 23.2% in 1994 and 21.4% in 1993. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Expenses." The relationship between the Company and each agent is governed by an agency agreement which states the conditions under which the agent is authorized to issue a title insurance policy on behalf of the Company. The agency agreement also prescribes the circumstances under which the agent may be liable to the Company if a policy loss is attributable to errors made by the agent. The agency agreement typically is terminable upon 30 days' notice or immediately for cause. In determining whether to engage an independent agent, the Company considers the agent's experience, financial condition and loss history. Loss history is an important consideration in the Company's decision to initiate or continue agency relationships. The Company maintains financial and loss experience records for each agent and conducts periodic audits of its agents. On September 14, 1995, the Company announced that it had executed a definitive agreement with Nations Holding Group to acquire one hundred percent of Nations Title Inc. and its wholly owned subsidiaries Nations Title Insurance Company, Nations Title Insurance Company of New York and National Title Insurance Company of New York (collectively, "Nations Title Inc."), which is the eighth largest title insurer in the United States based on 1994 reported revenues of $297.0 million. Nations Title Inc. recorded revenues of $231.4 million in 1995. The acquisition of Nations Title Inc. is expected to close in the first quarter of 1996, following the final determination of the purchase price. The Company believes that the combination of its direct operations and Nations' strong agency network will provide a balance to Fidelity's title premium revenue between direct and agency, as well as hedge against future market downturns. The Company also believes that the acquisition of Nations Title Inc. should increase the Company's revenue and positively impact its balance sheet and margins due to the operating economies of the combined companies. The acquisition will also increase market share in areas where the Company has 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. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- 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 document preparation fees, reconveyance fees, recording fees, real estate tax information service fees, trustee sale guarantee fees, foreclosure publishing and posting fees and other title related fees. In a few cases, the Company leases its title plants to independent agents for their examination of title records for a rental or usage fee. TITLE LOSSES AND RESERVES. The Company believes that the level of risk undertaken pursuant to its underwriting standards is consistent with that of the industry. The maximum amount of liability under a title insurance policy is usually the face amount of the policy plus the cost of defending the insured's title against an adverse claim. The Company's reserve for claim losses includes known claims as well as losses the Company expects to incur, net of recoupments. Each known claim is reserved for on the basis of a review by the Company as to the estimated amount of the claim and the costs required to settle the claim. Reserves for claims which are incurred but not reported are provided for at the time premium revenue is recognized based on historical loss experience and other factors, including industry averages, claim loss history, current legal environment, geographic considerations and types of policies written. Claims greater than $500,000 ("major claims") are reserved for as they become known because the unique circumstances surrounding most major claims make it inherently impractical to predict the incidence and amount of such claims. The occurrence of a significant major claim in any given period could have a material adverse effect on the Company's financial condition and results of operations for such period. See "Reinsurance." Escrow losses are expensed when they become known. 4 7 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 focus on residential resale and refinance transactions have helped minimize the net title claims paid as a percentage of title insurance premiums ("net claims paid ratio"). The Company further reduces its losses by following aggressive recoupment procedures under rights of subrogation or warranties and by carefully reviewing all claims. The Company paid title claims, net of recoupments, of approximately $26.2 million, $23.3 million and $18.1 million in 1995, 1994 and 1993, respectively, representing 9.2%, 6.3% and 4.2% of title insurance premium revenue during such periods. The increase in the net claims paid ratio can be attributed to the development of claims and related payments over time. As payments related to prior years are made, particularly prior years in which premium volume was at higher levels than those generated in the current market, the net claims paid ratio increases as a simple percentage. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Results of Operations -- Expenses." There can be no assurance that the Company's current paid loss experience will continue at these levels. Courts and juries sometimes award damages against insurance companies, including title insurance companies, in excess of policy limits. Such awards are typically based on allegations of fraud, misrepresentation, deceptive trade practices or other wrongful acts commonly referred to as "bad faith." Although the Company has not experienced damage awards materially in excess of policy limits, the possibility of such bad faith damage awards may cause the Company to experience increased costs and difficulty in settling title claims. The Company generally pays losses in cash. In some instances claims are settled by purchasing the interest of the insured in the real property or the interest of the adverse claimant. Such interests are generally 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, 1995, the amount of these interests was $7.4 million. REINSURANCE. In the ordinary course of business, the Company reinsures certain risks with other title insurers for the purpose of limiting its maximum loss exposure and also assumes reinsurance for certain risks of other title insurers for the purpose of earning additional income. The Company cedes or assumes a portion of certain policy liabilities under agent fidelity, excess of loss and case-by-case reinsurance agreements. Reinsurance agreements provide that the reinsurer is liable for loss and loss adjustment expense payments exceeding the amount retained by the ceding company. However, the ceding company remains primarily liable in the event the reinsurer does not meet its contractual obligations. Reinsurance activity is not significant. See Note A of Notes to Consolidated Financial Statements. COMPETITION. The title insurance industry is highly competitive. The number and size of competing companies varies in the different geographic areas in which the Company conducts its business. In the Company's principal markets, competitors include other major title underwriters such as Chicago Title Insurance Company, Commonwealth Land Title Insurance Company, First American Title Insurance Company, Lawyers Title Insurance Corporation, Old Republic Title Insurance Company and Stewart Title Guaranty Company, as well as numerous independent agency operations at the local level. Competition is based primarily on the quality and timeliness of service, since the parties to a real estate transaction are usually concerned with time schedules and costs associated with delays in closing the transaction. In those states where prices are not established by regulatory authorities the price of the title insurance policy is also a competitive factor. The Company believes that its competitive position is enhanced by its quality customer service and pricing. REGULATION. Title insurance companies are subject to extensive regulation under applicable state laws. Each insurance company 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 5 8 issuing and revoking licenses to transact business, regulating trade practices, licensing agents, approving policy forms, accounting principles, financial practices, establishing reserve and capital and surplus requirements, defining suitable investments for reserves, capital and surplus and approving rate schedules. The Company has analyzed its current Insurance Subsidiary structure and the regulatory environments of the various states of domicile of the Insurance Subsidiaries. Based on this analysis the Company has implemented a program to merge certain of its Insurance Subsidiaries, resulting in two or three Insurance Subsidiaries as opposed to the current six. The Company is also reviewing the potential redomestication of certain Insurance Subsidiaries. Pursuant to statutory accounting requirements of the various states in which the Insurance Subsidiaries are qualified, they must defer a portion of premiums earned as an unearned premium reserve for the protection of policyholders and must maintain qualified assets in an amount equal to the statutory requirements. The level of unearned premium reserve required to be maintained at any time is determined on a quarterly basis by statutory formula based upon either the age and dollar amount of policy liabilities underwritten or the age and dollar amount of statutory premiums written. As of December 31, 1995, the combined statutory unearned premium reserve required and reported for the Insurance Subsidiaries was $121.5 million. The Insurance Subsidiaries are regulated by the insurance commissioners of their respective states of domicile. Regulatory examinations usually occur at three year intervals. Examinations have been completed for Fidelity Title and Fidelity California as of and for the three year period ended December 31, 1993. A preliminary report of examination has been received for Fidelity Title. The preliminary report, as forwarded to the Company by the State of Arizona Department of Insurance, indicates that the Arizona examiners are proposing adjustments that would impact Fidelity Title's statutory capital and surplus, as well as its amount available for dividends, if recorded. The Company is involved in ongoing discussions with the Arizona examiners and has reached a preliminary agreement with the Arizona examiners regarding these issues. The agreed upon adjustments have been considered in the calculation of dividend capability, statutory surplus and statutory income reported below. A final report of examination for Fidelity California as filed by the State of California Department of Insurance has been received by the Company. The report indicated that the examiners had adjustments which impacted the statutory capital and surplus of Fidelity California. In addition, these adjustments affected the Fidelity California amount available for dividends. Adjustments required as a result of the examination of Fidelity California have been considered in the calculation of dividend capability, statutory surplus and statutory income (loss) reported below. The Department of Insurance of the State of Florida has recently completed a triennial examination of ATIC as of and for the three year period ended December 31, 1994. The Company recently received a preliminary report of examination. The preliminary report, as forwarded to the Company by the Department of Insurance of the State of Florida, indicates that the examiners are proposing adjustments that could materially impact the statutory capital and surplus of ATIC. These adjustments have not been included in the 1995 Statutory Annual Statement as filed with insurance regulatory authorities. Certain of these proposed adjustments have been considered in the calculation of dividend capability, statutory surplus and statutory income (loss) reported below. In addition, since early 1995, the Company has effectively discontinued issuing ATIC insurance policies. Further, ATIC has recently entered into a voluntary consent order with the Department of Insurance of the State of Florida agreeing voluntarily to cease writing all new insurance business and to certain other conditions and restrictions. Policies issued through ATIC operations are underwritten by Fidelity Title. Statutorily calculated net worth determines the maximum insurable amount under any single title insurance policy. As of January 1, 1996, the statutory single policy maximum insurable amounts for Fidelity Title, Fidelity Pennsylvania, ATIC and Fidelity New York were $25.2 million, $30.0 million, $2.9 million and $25.0 million, respectively. There are no statutory single risk limits prescribed for Fidelity California or Fidelity Tennessee. 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 6 9 Department of Insurance of their respective states of domicile. In the case of Fidelity Title, the total amount of dividends or distributions made in any twelve month period may not exceed the lesser of 10% of the surplus as regards policyholders as of the last day of the preceding year or the net investment income for the twelve month period ending the last day of the preceding year. In the case of Fidelity California, Fidelity Tennessee and Fidelity Pennsylvania, the total amount of dividends made in any twelve month period may not exceed the greater of 10% of the surplus as regards policyholders as of the last day of the preceding year or net income for the twelve month period ending the last day of the preceding year. In the case of ATIC, the total amount of dividends or distributions made in any twelve month period may not exceed 10% of the total of statutory unassigned funds plus the preceding year's statutory net income. In the case of Fidelity New York, the total amount of dividends and distributions is limited to surplus as regards policyholders, excluding capital stock, less fifty percent of statutory premium reserve as of the last day of the preceding year and capital contributions received in the latest five year period. As of January 1, 1996, Fidelity Title could pay dividends or make other distributions to the Company of $3,016,000. As of January 1, 1996, Fidelity California and Fidelity Tennessee could pay dividends or make distributions to Fidelity Title of $1,072,000 and $623,000, respectively. As of January 1, 1996, Fidelity Pennsylvania could pay dividends or make other distributions to the Company of $2,193,000. ATIC and Fidelity New York do not have any dividend capability as of January 1, 1996. The combined statutory capital and surplus of the Insurance Subsidiaries was $71,052,000, $85,553,000 and $92,548,000 as of December 31, 1995, 1994 and 1993, respectively. The combined statutory income (loss) of the Insurance Subsidiaries was $(699,000), $5,288,000 and $31,350,000 for the years ended December 31, 1995, 1994 and 1993, respectively. These amounts do not include certain of the proposed ATIC examination adjustments previously discussed. As a condition to continued authority to underwrite policies in the states in which the Insurance Subsidiaries conduct their business, the Insurance Subsidiaries are required to pay certain fees and file information regarding their officers, directors and financial condition. In addition, the Company's escrow and trust business is subject to regulation by various state banking authorities. Under Arizona law, minimum statutory requirements are $500,000 for capital and $250,000 for surplus. Under California law, the minimum statutory requirement is $500,000 for paid-in capital represented by shares of stock. Under Tennessee law, minimum statutory requirements are $100,000 for capital, and $500,000 for capital and surplus combined. Under Pennsylvania law, the minimum statutory requirements are capital of not less than $250,000, and paid in initial surplus at least equal to fifty percent of capital. Under Florida law, the minimum statutory requirement is surplus as to policyholders of not less than the greater of $1,500,000 or 10% of total liabilities. Under New York law, the minimum statutory requirement is $250,000 for capital and initial surplus. Each of the Company's title underwriters have complied with the minimum statutory requirements as of December 31, 1995, with the exception of ATIC, after considering the proposed examination adjustments previously discussed. In November 1995, the National Association of Insurance Commissioners ("NAIC") distributed the latest draft of the Title Insurers Model Act (the "Act"). The purpose of the Act is to provide guidance to the state insurance regulatory agencies relative to the effective regulation and supervision of the title insurance industry and title insurers. The Act addresses aspects of the title insurance industry from corporate structure and financial and accounting information to market conduct and legal standards. The effective date of the Act has not been specified in the draft of the Act. Certain provisions of the Act will be phased in over a multi-year period. The UTCs are also subject to certain regulation by insurance regulatory or banking authorities, primarily relating to minimum net worth and dividend capability. Minimum net worth of $7.5 million and $2.5 million is required for FNTC and FNCAL, respectively. In addition, the Company has agreed to notify the State of California Department of Insurance of dividend payments by FNTC and FNCAL greater than 30% of earnings before income taxes for a period of three years. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Recent Developments." 7 10 RATINGS The Insurance Subsidiaries are regularly assigned ratings by independent agencies designed to indicate their financial condition and/or claims paying ability. Financial data and other information is supplied to the rating agencies and subjected to quantitative and qualitative analyses from which the ratings were derived. Ratings of the Company's principal Insurance Subsidiaries, as assigned by Demotech, Inc. during 1995, are listed below.
DEMOTECH, INC. (FINANCIAL STABILITY RATING) ---------------------------- Fidelity Title........................................ A = Exceptional Fidelity Pennsylvania................................. A = Exceptional Fidelity New York..................................... A = Exceptional
INVESTMENT POLICIES AND INVESTMENT PORTFOLIO The Company's investment policy is designed to maintain a high quality portfolio, maximize current income, minimize interest rate risk and match the duration of the portfolio to the Company's liabilities. 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, 1995 and 1994, the carrying amounts and fair value of total investments were $180.1 million and $180.1 million, $217.6 million and $216.0 million, respectively. It is the practice of the Company to purchase investment grade fixed maturity securities, as well as selected equity securities. The securities in the Company's portfolio are subject to economic conditions and normal market risks and uncertainties. The following table sets forth certain information regarding the investment ratings of the Company's fixed maturity portfolio at December 31, 1995 and 1994.
DECEMBER 31, --------------------------------------------------------------------------------------- 1995 1994 ------------------------------------------ ------------------------------------------ AMORTIZED % FAIR % AMORTIZED % FAIR % RATINGS(1) COST OF TOTAL VALUE OF TOTAL COST OF TOTAL VALUE OF TOTAL --------- -------- -------- -------- --------- -------- -------- -------- (DOLLARS IN THOUSANDS) AAA.................... $ 86,604 68.1% $ 87,577 67.8% $ 112,522 60.2% $104,088 59.8% AA..................... 7,753 6.1 7,963 6.1 46,079 24.7 43,646 25.1 A...................... 30,849 24.2 31,623 24.5 25,991 13.9 24,257 13.9 Other.................. 2,058 1.6 2,073 1.6 2,236 1.2 2,173 1.2 -------- ----- -------- ----- -------- ----- -------- ----- Total............. $ 127,264 100.0% $129,236 100.0% $ 186,828 100.0% $174,164 100.0% ======== ===== ======== ===== ======== ===== ======== =====
- --------------- (1) Ratings as assigned by Standard & Poor's Corporation The following table sets forth certain information regarding the maturities of the Company's fixed maturity securities at December 31, 1995. 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. 8 11 Fixed maturity securities with an amortized cost of $46,956,000 and a fair value of $47,244,000 were callable at December 31, 1995.
AMORTIZED % FAIR % MATURITY COST OF TOTAL VALUE OF TOTAL --------- -------- -------- -------- (DOLLARS IN THOUSANDS) One year or less................................... $ 843 0.7% $ 844 0.7% After one year through five years.................. 39,887 31.3 40,288 31.2 After five years through ten years................. 65,925 51.8 67,102 51.9 After ten years.................................... 20,609 16.2 21,002 16.2 -------- ----- -------- ----- Total......................................... $ 127,264 100.0% $129,236 100.0% ======== ===== ======== =====
Equity securities at December 31, 1995 and 1994 consist of investments in various industry groups as follows:
1995 1994 ------------------- ------------------- FAIR FAIR COST VALUE COST VALUE ------- ------- ------- ------- (DOLLARS IN THOUSANDS) Banks, trust and insurance companies................ $12,038 $13,071 $13,196 $10,374 Industrial, miscellaneous and all other............. 12,430 18,341 4,711 5,108 ------- ------- ------- ------- Total.......................................... $24,468 $31,412 $17,907 $15,482 ======= ======= ======= =======
The Company's investment results for the years ended December 31, 1995, 1994, and 1993 were as follows:
DECEMBER 31, ---------------------------------- 1995 1994 1993 -------- -------- -------- (DOLLARS IN THOUSANDS) Net investment income(1)(2)................................ $ 15,014 $ 20,269 $ 14,160 Average invested assets(1)................................. 233,831 303,615 214,995 Effective return on average invested assets(1)............. 6.4% 6.7% 6.6%
- --------------- (1) Excludes investments in real estate. (2) Net investment income as reported in the Consolidated Statements of Earnings has been adjusted to provide the tax equivalent yield on tax exempt investments and to exclude gains and losses on the sale of investments. Realized capital gains (losses) totalled $5,213,000, $(3,086,000) and $4,246,000 in 1995, 1994 and 1993, respectively. REAL ESTATE AND PROPERTY MANAGEMENT OPERATIONS The Company, principally through Manchester Development Corporation ("Manchester"), currently doing business as Orion Realty Group, a wholly-owned subsidiary, previously invested in various real estate projects directly and through partnerships. Some of these partnerships involve related parties. See Notes D and E of Notes to Consolidated Financial Statements. Manchester currently assists in the identification and leasing of space for operating purposes and manages property owned by the Company. The Company's investments in real estate and partnerships represented approximately 2.1% of the Company's assets at December 31, 1995. EMPLOYEES As of December 31, 1995, the Company had approximately 4,100 full-time equivalent employees. The Company believes that its relations with employees are generally good. 9 12 ITEM 2. PROPERTIES During 1994, a subsidiary of the Company completed the purchase of a corporate home office building in Irvine, California, which houses the Company's corporate departments and various subsidiaries. The majority of the branch offices of the Company are leased from third parties. The remainder are owned by the Company, leased from partnerships in which the Company has an interest or leased from affiliates. As of December 31, 1995, the Company leased office and storage spaces in 192 locations in California, 35 in Texas, 31 in Florida, 26 in Arizona, 12 in Oregon, 9 in Pennsylvania, 8 in Nevada, 6 each in New York and North Carolina, 5 each in Michigan and New Mexico, 4 each in New Jersey and Washington, 2 each in Connecticut and Massachusetts, and one each in Georgia, Hawaii, Missouri, Tennessee and Virginia. See Note J of Notes to Consolidated Financial Statements. ITEM 3. LEGAL PROCEEDINGS In the ordinary course of business, the Company is involved in various pending and threatened litigation matters related to its operations, some of which include claims for punitive or exemplary damages. In October 1992, Fidelity California filed an action for declaratory relief in U.S. District Court (Eastern District-Fresno, California) to determine its obligations and liabilities, if any, under a certain title insurance policy issued to National Westminster Bank U.S.A. ("NatWest") (Fidelity National Title Insurance Company of California v. National Westminster Bank U.S.A. and related counterclaim). NatWest filed a counterclaim for damages and certain equitable relief seeking compensatory damages of approximately $7,732,000, punitive damages in an unspecified amount, attorneys' fees, interest and costs. The Company has a reinsurance agreement in place that will reimburse the Company for all amounts paid in excess of $2.0 million. Fidelity California previously recorded a claim loss reserve related to this matter in the Consolidated Financial Statements. The primary issues concern whether Fidelity California's policy insured the priority of NatWest's deed of trust over certain mechanics' lien claims and whether Fidelity California had an obligation to defend and indemnify NatWest against an action by a mechanics' lien claimant to enforce its claim of lien. As part of a counterclaim lawsuit, NatWest has added allegations of breach of the covenant of good faith and fair dealing. Fidelity California believes that the policy and endorsements issued to the insured exclude coverage for mechanics' liens. In September 1994, a three week trial was concluded. The court had asked for post trial briefing, which was provided by the parties and the case was submitted for decision in September 1994. No ruling has been received from the court. Management believes that the ruling will not have a material adverse effect on Fidelity National Title Insurance Company of California or the Company. In August 1994, CommerceBank filed a lawsuit (the "Lawsuit") against Tustin Retail (a real estate partnership), Manchester (a general partner in Tustin Retail) and two officers of the Company (also general partners in Tustin Retail). The Lawsuit is essentially a judicial foreclosure under a deed of trust securing a $4,350,000 note dated February 18, 1992, to CommerceBank from Tustin Retail (the "Note"). In December 1995, the Federal Deposit Insurance Corporation, which took control of CommerceBank, submitted a bid at the property foreclosure auction and acquired the property for $2.9 million. A fair value hearing is scheduled for June 1996, in order to determine the remaining amount due under the Note, if any. The defendants believe that the value of the real property subject to the deed of trust securing the Note is sufficient to satisfy any amounts due under the Note, based on an independent appraisal of the property substantiating such value. The defendants intend to vigorously defend the Lawsuit if it cannot be settled. Management believes that the Lawsuit will not have a material adverse effect on Manchester or the Company. In December 1995, Giant Group, Ltd. ("Giant") instituted an action in the United States District Court for the Central District of California against the Company, the Company's Chief Executive Officer and others. Giant alleges that defendants have engaged in various unlawful activities, including trading on non-public confidential and/or inside information, misappropriating confidential and proprietary information from Giant and its affiliate Rally's Hamburgers, Inc. and violating the disclosure requirements of Section 13(d) of the Securities Exchange Act of 1934. On January 3, 1996, Giant filed a First Amended Complaint to its Federal action which adds to Giants' prior allegations. Among other things, Giant alleges that the defendants plan to gain control of Rally's assets by forcing Rally's into bankruptcy. On January 16, 1996, Fidelity and Mr. Foley 10 13 answered the First Amended Complaint and filed counterclaims against Giant and all of its directors. Fidelity and Mr. Foley deny that they engaged in any unlawful activities, including, among other things, trading on non-public confidential and proprietary information from Giant or Rally's, or violating the disclosure requirements of Section 13(d) of the Securities Exchange Act of 1934. In their counterclaims Fidelity and Mr. Foley seek declaratory relief, injunctive relief and monetary damages with respect to certain of the counterclaims. On February 16, 1996, Fidelity and Mr. Foley filed a First Amended Counterclaim against Giant and each of its directors. The Company believes that Giant's allegations are totally without merit and intends to defend the action and pursue their counterclaims vigorously. The Company has made an offer to purchase Giant and already owns 14.8% of Giant's outstanding common stock. Giant declined the offer and Fidelity has announced that it intends to offer a slate of directors at Giant's next annual meeting. Management believes that no other actions depart from customary litigation incidental to the insurance business of the Company and that resolution of all such litigation will not have a material adverse effect on the Company. 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 1995. 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.
DIVIDENDS HIGH LOW DECLARED --- --- --------- Year ended December 31, 1995 First quarter.................................................. $10 3/8 $9 1/8 $.064 Second quarter................................................. 13 5/8 9 1/4 .064 Third quarter.................................................. 13 1/2 10 7/8 .064 Fourth quarter................................................. 16 7/8 11 7/8 .070 Year ended December 31, 1994 First quarter.................................................. 23 1/4 15 7/8 .064 Second quarter................................................. 16 3/8 11 1/2 .064 Third quarter.................................................. 12 10 1/8 .064 Fourth quarter................................................. 11 1/4 9 1/8 .064
On March 18, 1996, the last reported sale price of the Common Stock on the New York Stock Exchange Composite Tape was $15.25 per share. As of March 18, 1996, the Company had approximately 975 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 6, 1996, the Company's Board of Directors declared a cash dividend of $.07 per share which will be payable on May 3, 1996 to stockholders of record on April 15, 1996. 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 if and when declared. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" and "Business -- Regulation." 11 14 Contractual Restrictions on Dividend Payments. The Company's ability to pay dividends on its Common Stock is restricted by provisions contained in the Fidelity National Financial, Inc. Credit Agreement dated as of September 21, 1995. Based upon information derived from the December 31, 1995 Consolidated Financial Statements, the maximum amount available to pay dividends is $6,955,000. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources and Recent Developments." See Note G of Notes to Consolidated Financial Statements. 12 15 ITEM 6. SELECTED FINANCIAL DATA The historical operating results data, per share data and balance sheet data set forth below are derived from the Consolidated Financial Statements of the Company. Per share data has been retroactively adjusted for stock dividends and splits since the Company's inception. The Consolidated Financial Statements for years ended December 31, 1995, 1994, 1993, 1992 and 1991 have been audited by KPMG Peat Marwick LLP, independent certified public accountants. Audited Consolidated Balance Sheets at December 31, 1995 and 1994 and Consolidated Statements of Earnings, Stockholders' Equity and Cash Flows for the years ended December 31, 1995, 1994, and 1993, and Notes thereto are included elsewhere herein and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere herein.
YEARS ENDED ---------------------------------------------------------------- DECEMBER 31, ---------------------------------------------------------------- 1995 1994 1993 1992 1991 (1)(2)(3) (1)(2)(3) (1)(2)(3) (1)(3) (3) -------- -------- -------- ---------- ---------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA) (RESTATED) (RESTATED) OPERATING RESULTS DATA: Revenue: Title insurance premiums................................... $285,552 $369,275 $429,772 $288,646 $162,847 Escrow fees................................................ 49,723 52,260 69,982 56,038 34,116 Other fees and revenue..................................... 56,954 59,351 60,958 43,285 27,096 Interest and investment income, including realized gains (losses)................................................. 17,616 11,918 14,671 4,308 2,265 -------- -------- -------- -------- -------- 409,845 492,804 575,383 392,277 226,324 -------- -------- -------- -------- -------- Expenses: Personnel costs............................................ 165,514 181,953 196,470 146,609 95,665 Other operating expenses................................... 123,888 129,367 135,925 103,809 63,793 Agent commissions.......................................... 82,713 132,713 147,427 82,217 40,432 Provision for claim losses................................. 19,031 27,838 39,220 31,894 13,589 Interest expense........................................... 9,239 8,594 2,587 1,458 2,228 Minority interest expense.................................. -- -- 1,200 629 -- -------- -------- -------- -------- -------- 400,385 480,465 522,829 366,616 215,707 -------- -------- -------- -------- -------- Earnings before income taxes and extraordinary item.......... 9,460 12,339 52,554 25,661 10,617 Income tax expense........................................... 1,828 2,594 16,259 8,367 3,999 -------- -------- -------- -------- -------- Earnings before extraordinary item........................... 7,632 9,745 36,295 17,294 6,618 Extraordinary item, net of income taxes(4)(5)................ (813) 2,400 -- -- -- -------- -------- -------- -------- -------- Net earnings............................................... $ 6,819 $ 12,145 $ 36,295 $ 17,294 $ 6,618 ======== ======== ======== ======== ======== PER SHARE DATA: Earnings per share before extraordinary item................. $ .59 $ .59 $ 2.16 $ 1.18 $ .54 Extraordinary gain (loss), net of income taxes............... (.06) .15 -- -- -- -------- -------- -------- -------- -------- Net earnings per share, primary basis...................... $ .53 $ .74 $ 2.16 $ 1.18 $ .54 ======== ======== ======== ======== ======== Dividends per share.......................................... $ .25 $ .25 $ .22 .17 $ .14 Weighted average shares outstanding (000s)................... 12,970 16,476 16,831 14,626 12,360 OTHER DATA: Direct operations market share(6)............................ 20.3% 20.6% 18.3% 16.8% 17.1% Orders closed by direct operations........................... 302,000 335,000 464,000 349,000 210,000 Average fee per file(7)...................................... $ 790 $ 750 $ 710 $ 740 $ 760 Provision for claim losses to title insurance premiums....... 6.7% 7.5% 9.1% 11.0% 8.3% Net claims paid ratio(8)..................................... 9.2% 6.3% 4.2% 7.2% 6.0% Title related revenue: Percentage direct operations............................... 71.1% 62.6% 65.3% 72.6% 77.6% Percentage agency operations............................... 28.9% 37.4% 34.7% 27.4% 22.4% Employees at year end...................................... 4,100 3,500 4,700 4,000 2,800 Number of licensed states at year end...................... 49 49 48 48 33 Return on average equity before extraordinary item(4)(5)(9)............................................ 10.0% 10.3% 40.3% 33.2% 19.6% Return on average equity including extraordinary item(4)(5)(9)............................................ 9.0% 12.9% 40.3% 33.2% 19.6% BALANCE SHEET DATA: Cash and cash equivalents.................................... $ 47,431 $ 34,689 $ 42,731 $ 48,375 $ 21,075 Investments.................................................. 180,082 217,648 236,533 107,215 20,116 Total assets................................................. 405,063 418,119 396,279 252,441 126,637 Notes payable................................................ 136,047 142,129 52,769 26,266 30,483 Reserve for claim losses..................................... 146,094 153,306 142,512 104,528 41,595 Minority interest............................................ 393 616 22,424 21,199 541 Stockholders' equity......................................... 77,947 73,954 114,926 65,277 38,916
(Footnotes on following page) 13 16 - --------------- (1) The Company acquired Fidelity Pennsylvania and ATIC on June 30, 1992. The selected financial data above includes the balance sheet accounts of Fidelity Pennsylvania and ATIC at December 31, 1995, 1994, 1993 and 1992 and the results of their operations for the years ended December 31, 1995, 1994 and 1993 and the six months ended December 31, 1992. (2) The Company acquired Fidelity New York on March 17, 1993. See Note B of Notes to Consolidated Financial Statements. The selected financial data above includes the balance sheet accounts of Fidelity New York at December 31, 1995, 1994 and 1993 and the results of its operations for the years ended December 31, 1995 and 1994 and the period from March 17, 1993 through December 31, 1993. (3) The Company acquired Agency Sales and Posting, Pente Enterprises, Inc. and Arizona Sales and Posting, Inc. (collectively, "ASAP") on December 7, 1993. This acquisition was accounted for as a pooling of interests, and certain Selected Financial Data has therefore been restated. See Note A of Notes to Consolidated Financial Statements. The Selected Financial Data above includes the balance sheet accounts of ASAP at December 31, 1995, 1994, 1993, 1992 and 1991, respectively, and the results of ASAP operations for the years then ended. (4) 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") issued in February 1994. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Extraordinary Item." (5) During 1995, the Company recognized a $1.25 million extraordinary loss, net of related income taxes of $437,000 related to the early retirement of its Senior Secured Notes. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Extraordinary Item." (6) This estimate of direct operations market share is based upon the number of title recordings by the Company in the counties where the Company maintains direct operations and excludes title recordings by the Company's agents and excludes title recordings in eastern and southeastern states because such information is not available. The direct operations market share percentage has been weighted to give effect to the Company's related direct revenue in the applicable counties. (7) Average fee per file is based upon title insurance premiums, escrow fees and certain other title related fees from direct operations divided by orders closed. (8) The net claims paid ratio is the percentage resulting from total title claims paid, net of recoupments, divided by title insurance premiums. (9) 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. 14 17 QUARTERLY FINANCIAL DATA Selected quarterly financial data is as follows:
QUARTERS ENDED --------------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, --------- -------- ------------- ------------ (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1995 Revenue............................. $ 83,059 $ 95,494 $ 113,471 $117,821 Earnings (loss) before income taxes and extraordinary item............ (4,737) 1,322 7,831 5,044 Earnings (loss) before extraordinary item.............................. (2,447) 1,021 5,873 3,185 Extraordinary item, net of income taxes...................... (813) -- -- -- Net earnings (loss)................. (3,260) 1,021 5,873 3,185 Earnings (loss) per share before extraordinary item................ (.19) .08 .46 .25 Extraordinary item, net of income taxes...................... (.06) -- -- -- Primary earnings (loss) per share... (.25) .08 .46 .25 Fully diluted earnings (loss) per share............................. (.25) .08 .40 .24 Dividends per share................. .06 .06 .06 .07 1994 Revenue............................. $ 143,619 $129,429 $ 113,319 $106,437 Earnings (loss) before income taxes and extraordinary item............ 9,934 5,186 2,897 (5,678) Earnings (loss) before extraordinary item.............................. 6,805 3,584 2,317 (2,961) Extraordinary item, net of income taxes...................... -- 579 -- 1,821 Net earnings (loss)................. 6,805 4,163 2,317 (1,140) Earnings (loss) per share before extraordinary item................ .39 .21 .15 (.20) Extraordinary item, net of income taxes...................... -- .03 -- .12 Primary earnings (loss) per share... .39 .24 .15 (.08) Fully diluted earnings (loss) per share............................. .36 .24 .15 (.08) Dividends per share................. .06 .06 .06 .06 1993 Revenue............................. $ 110,353 $147,280 $ 154,245 $163,505 Earnings before income taxes........ 6,227 13,667 15,282 17,378 Net earnings........................ 4,304 9,451 10,461 12,079 Net earnings per share.............. .28 .57 .61 .69 Dividends per share................. .05 .05 .06 .06
15 18 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion is intended to provide information to facilitate the understanding and assessment of significant changes and trends related to the financial condition and results of operations of the Company. This discussion and analysis should be read in conjunction with the Company's Consolidated Financial Statements and the Notes thereto appearing elsewhere herein. OVERVIEW The following table sets forth certain financial and other data for the years indicated:
YEARS ENDED DECEMBER 31, -------------------------------------- 1995 1994 1993 -------- -------- -------- (DOLLARS IN THOUSANDS) Total revenue.......................... $409,845 $492,804 $575,383 ======== ======== ======== Total expenses......................... $400,385 $480,465 $522,829 ======== ======== ======== Earnings before extraordinary item..... $ 7,632 $ 9,745 $ 36,295 Extraordinary item -- gain (loss) on early retirement of debt, net of income taxes......................... (813) 2,400 -- -------- -------- -------- Net earnings........................... $ 6,819 $ 12,145 $ 36,295 ======== ======== ======== Net claims paid ratio(1)............... 9.2% 6.3% 4.2% Return on average equity before extraordinary item(2)................ 10.0% 10.3% 40.3% Return on average equity including extraordinary item(2)................ 9.0% 12.9% 40.3%
- --------------- (1) The net claims paid ratio is the percentage resulting from total title claims paid, net of recoupments, divided by title insurance premiums. (2) Percentage return on average equity is net earnings for the period divided by the simple average of total stockholders' equity as of the beginning and end of each year presented. Title insurance revenue is closely related to the level of real estate activity and the average price of real estate sales. Real estate sales are directly affected by the availability of funds to finance purchases. Other factors affecting real estate activity include demand, mortgage interest rates, family income levels and general economic conditions. While the level of sales activity was relatively depressed in certain geographical areas during the period 1991 through mid-1993, lower mortgage interest rates beginning in the latter part of 1991 triggered an increase in refinancing activity which continued at record levels through 1993 and into the first quarter of 1994. During 1994 and early 1995, steady interest rate increases caused by actions taken by the Federal Reserve Board resulted in a significant decline in refinancing transactions and a stagnation in residential resales and new home sales. Since late 1995, decreases in mortgage interest rates and the resulting improvement in the real estate market have had a favorable effect on the level of real estate activity, including refinancing transactions, new home sales and resales. 16 19 The following table sets forth information regarding title related revenue derived from direct operations and title related revenue derived from agency operations:
YEARS ENDED DECEMBER 31, ------------------------------------------------------------------- % % % 1995 OF TOTAL 1994 OF TOTAL 1993 OF TOTAL -------- -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) Revenue from direct operations: Title insurance premiums............ $177,202 47.3% $196,376 42.5% $242,194 44.8% Escrow fees......................... 49,723 13.3 52,260 11.3 69,982 13.0 Other title related fees and revenue.......................... 39,117 10.5 40,534 8.8 40,648 7.5 -------- ----- -------- ----- -------- ----- Total....................... 266,042 71.1 289,170 62.6 352,824 65.3 Revenue from agency operations: Title insurance premiums............ 108,350 28.9 172,899 37.4 187,578 34.7 -------- ----- -------- ----- -------- ----- Total title related revenue................... $374,392 100.0% $462,069 100.0% $540,402 100.0% ======== ===== ======== ===== ======== =====
During 1995, 1994 and 1993, 71.1%, 62.6% and 65.3%, respectively, of total title related revenue (excluding interest and investment income and non-title related other fees and revenue) was generated from direct operations. The Company focuses on direct operations because it retains the entire premium from each transaction and is able to generate additional sources of revenue by providing other title related services. The fluctuation in the percentage of revenue generated by direct operations versus the percentage of revenue generated by agency operations between 1995 and 1994 is due to several factors. During 1995, the Company terminated a number of agency relationships based on the Company's agency retention criteria. The Company continually monitors agency relationships for quality and productivity. Audits of agents are conducted on a periodic basis, and agents which do not meet the Company's standards are not retained. In addition, during 1995, the Company acquired certain former agents which were converted to direct operations. See "Recent Developments." Finally, in certain states where a significant amount of premium volume was generated, the Company operates on a direct basis. During 1994 agency operations generated a slightly larger percentage of total title related revenue as compared to 1993, primarily as a result of the increased contributions made by Fidelity Pennsylvania, ATIC and Fidelity New York. The Company's strategy of expanding into selected geographic markets through the acquisition of title insurance operations continued during the last three years. The Company's acquisition strategy includes the restructuring of acquired operations by focusing on direct operations in residential resale and refinance markets, enhancing sales and marketing efforts, minimizing net claim payments through stringent quality controls and effectively managing overhead costs. RESULTS OF OPERATIONS REVENUE. The following table presents information regarding the components of the Company's revenue:
YEARS ENDED DECEMBER 31, -------------------------------------- 1995 1994 1993 -------- -------- -------- (DOLLARS IN THOUSANDS, OTHER THAN FEE PER FILE) Title insurance premiums............................... $285,552 $369,275 $429,772 Escrow fees............................................ 49,723 52,260 69,982 Other fees and revenue................................. 56,954 59,351 60,958 Interest and investment income, including realized gains (losses).............................. 17,616 11,918 14,671 -------- -------- -------- Total revenue..................................... $409,845 $492,804 $575,383 ======== ======== ======== Orders closed by direct operations..................... 302,000 335,000 464,000 Average fee per file from direct operations............ $ 790 $ 750 $ 710
Favorable mortgage interest rates in the latter part of 1991 through early 1994 triggered refinancing activity at record levels. Beginning in early 1994 through mid-1995, steady interest rate increases caused by 17 20 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. These factors have resulted in title premiums of $285.6 million, $369.3 million and $429.8 million, for 1995, 1994 and 1993, respectively. The difference in title insurance premiums between 1995 and 1994 of $83.7 million represents a decrease of 22.7%. Title insurance premiums decreased $60.5 million, or 14.1%, in 1994 from 1993. The average fee per file increased to $790 in 1995 from $750 in 1994, which had previously increased from $710 in 1993. The increase can be attributed to the change in the mix of business from refinance to resale. As mortgage interest rates increased due to the actions taken by the Federal Reserve Board, the refinancing trend ended. Thus, title business that was generated was primarily related to new home sale or resale transactions, which typically charge higher fees than refinancing transactions. Fees generated from refinancing transactions are generally less than fees generated from resale transactions because the base rate charged on such a policy is usually lower. Furthermore, one policy is issued to a lender in a refinance transaction and two policies are issued in a resale transaction (buyer and lender). The Company's direct operations generate escrow fees from holding funds and documents in connection with the closing of real estate transactions, as well as other fees and revenue. Other fees and revenue primarily include document preparation fees, reconveyance fees, real estate information fees, foreclosure publishing and posting fees, exchange intermediary fees and fees received by ACS Systems, Inc. See Note B of Notes to Consolidated Financial Statements. 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 1995, 1994 and 1993 years in a pattern generally consistent with the fluctuation in title insurance premiums. Escrow fees have decreased $2.6 million to $49.7 million in 1995, a 5.0% decrease from $52.3 million in 1994. The 1995 percentage decrease in escrow fees is not as significant as the percentage decrease in title premiums due to the change in the direct operation/agency business mix. See "Overview." Escrow fees decreased $17.7 million, or 25.3%, in 1994 from 1993 to $52.3 million from $70.0 million. The decrease in escrow fees in 1994 from 1993 is greater than the decrease in title insurance premiums due to the increase in agency title insurance premiums as a percentage of total title related revenue. Agency title insurance premiums do not generate escrow fees for the Company. Other fees and revenue remained relatively stable during the three year period ended December 31, 1995. During 1995, other fees and revenue decreased $2.4 million, or 4.0%, to $57.0 million from $59.4 million in 1994 and decreased $1.6 million, or 2.6%, to $59.4 million from $61.0 million in 1993. Other fees and revenue were generated at comparable levels in 1995 and 1994, primarily as a result of the type of business in 1995, which was primarily resale business, and the direct operation/agency business mix. See "Overview." Direct operations generate other fees and income. Thus, even in a year when overall title revenue may be down, the level of other fees and revenue can be maintained, depending on the direct operation/agency business mix. The consistency between years is primarily attributable to the nature of the revenues included and the current title insurance market environment which has shifted from a refinance to a resale oriented market. See "Recent Developments." In a resale transaction, other fees and revenues are greater than in a refinancing transaction. Interest and investment income levels are primarily a function of securities markets, interest rates and the amount of cash available for investment. During 1995, interest and investment income increased $5.7 million, or 47.9%, to $17.6 million from $11.9 million in 1994. The tax adjusted yield decreased slightly, to 6.4% in 1995 compared to 6.7% in 1994, while average invested assets, excluding real estate, decreased 23.0%, or $69.8 million, to $233.8 million in 1995 from $303.6 million in 1994. The difference in investment results is primarily attributable to the net capital gains (losses) recorded in 1995 versus 1994. During 1995, the Company recognized $5.2 million in capital gains compared to $3.1 million in capital losses recognized in 1994. Included in the gain amount is a net $3.4 million gain realized upon the sale of the Company's US Facilities Corporation common stock holdings during the third quarter of 1995. See "Recent Developments." 18 21 In 1994, interest and investment income decreased 19.0%, or $2.8 million, to $11.9 million from $14.7 million in 1993. The tax adjusted yield increased only slightly, to 6.7% in 1994 compared to 6.6% in 1993, while average invested assets, excluding real estate, increased 41.2%, or $88.6 million, to $303.6 million in 1994 from $215.0 million in 1993. The difference in investment results is attributable to the net capital gain (loss) activity between the years. In 1994, the Company recognized $3.1 million of net capital losses. Included in this amount is $2.6 million of capital losses recognized in December 1994. During December 1994, the Company sold certain investments, totalling approximately $38.2 million, in order to reinvest the proceeds in higher yielding investment instruments and to fund the early retirement of the Company's LYONs at favorable market prices. See "Extraordinary Item." $4.2 million of capital gains realized on the sale of assets, primarily fixed maturity and equity securities, are included in interest and investment income for the 1993 year. See Note C of Notes to Consolidated Financial Statements. EXTRAORDINARY ITEM. During 1994, due to favorable market prices and the Company's belief that the Company's Common Stock and LYONs represent excellent investments, the Board of Directors authorized the Company to repurchase up to 5.5 million shares of its Common Stock or a comparable amount of its LYONs which are convertible into 21.095 shares of Common Stock per $1,000 maturity of LYONs. In accordance with this authorization, the Company purchased $48 million principal amount of LYONs at an average purchase price of $366.51 per $1,000 maturity of LYONs. As a result of the LYONs purchase transactions, the Company recorded an extraordinary gain on the early retirement of debt of $2.4 million, net of the related income tax effect. In March 1995, the board of directors authorized the repurchase of an additional 2.2 million shares of Common Stock or the equivalent amount of LYONs increasing the total amount authorized to 7.7 million shares or the equivalent amount of LYONs. See "Liquidity and Capital Resources" and "Recent Developments." EXPENSES. The following table presents the components of the Company's expenses:
YEARS ENDED DECEMBER 31, -------------------------------------- 1995 1994 1993 -------- -------- -------- (DOLLARS IN THOUSANDS) Personnel costs........................................ $165,514 $181,953 $196,470 Other operating expenses............................... 123,888 129,367 135,925 Agent commissions...................................... 82,713 132,713 147,427 Provision for claim losses............................. 19,031 27,838 39,220 Interest expense....................................... 9,239 8,594 2,587 Minority interest expense.............................. -- -- 1,200 -------- -------- -------- Total expenses............................... $400,385 $480,465 $522,829 ======== ======== ========
The Company's operating expenses primarily consist of personnel costs and other operating expenses which are incurred as title insurance orders are received and processed. Direct title insurance premiums and escrow fee revenue are recognized as income at the time the underlying real estate transaction closes. As a result, revenue lags approximately 60-90 days behind expenses and therefore gross margins may fluctuate. Personnel costs include both base salaries and commissions paid to employees and are the most significant operating expense incurred by the Company. Personnel costs totalled $165.5 million, $182.0 million and $196.5 million for the years ended December 31, 1995, 1994 and 1993, respectively. These costs generally fluctuate with the level of direct orders opened and closed, and with the fluctuation in revenue between direct and agency operations. See "Overview" and "Revenue." Personnel costs, as a percentage of total revenue, have increased to 40.4% in 1995 from 36.9% in 1994, which had previously increased from 34.1% in 1993. These increases in personnel costs as a percentage of total title revenue can be attributed to the fluctuating market conditions in the title insurance industry. The Company has taken significant measures to maintain appropriate personnel levels and costs relative to the volume of business and revenues, as indicated by the $16.5 million, or 9.1% reduction in personnel costs between 1995 and 1994, and the $14.5 million, or 7.4%, reduction in personnel costs in 1994 as compared to 1993. The Company will not, however, compromise its customer service standards or quality controls in responding to market conditions. The Company continues to 19 22 monitor the prevailing market conditions and will respond as necessary, while positioning itself to take advantage of the real estate recovery as it occurs. Other operating expenses primarily 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, courier services, computer services, professional services, general insurance, trade and notes receivable allowances and depreciation. Other operating expenses increased as a percentage of total revenue to 30.2% in 1995 from 26.3% in 1994, which had previously increased from 23.6% in 1993. In response to market conditions, the Company implemented aggressive cost control programs in order to reduce operating expenses to levels consistent with the levels of title related revenue, however, certain fixed costs are incurred regardless of revenue levels, thus, resulting in the year over year percentage increases. The Company continues to be committed to these cost control measures. Total other operating expenses have decreased $5.5 million, or 4.3%, to $123.9 million in 1995 from $129.4 million in 1994. In 1994 operating expenses decreased $6.5 million, or 4.8%, from $135.9 million in 1993. See "Overview." Agent commissions represent the portion of premiums retained by agents pursuant to the terms of their respective agency contracts. Accordingly, this expense increases as agent premiums increase. The following table illustrates the relationship of agent premiums and agent commissions:
YEARS ENDED DECEMBER 31, ---------------------------------------------------------------- 1995 1994 1993 ------------------ ------------------ ------------------ AMOUNT % AMOUNT % AMOUNT % -------- ----- -------- ----- -------- ----- (DOLLARS IN THOUSANDS) Agent premiums.................... $108,350 100.0% $172,899 100.0% $187,578 100.0% Agent commissions................. 82,713 76.3 132,713 76.8 147,427 78.6 -------- ----- -------- ----- -------- ----- Premiums retained by the Company............... $ 25,637 23.7% $ 40,186 23.2% $ 40,151 21.4% ======== ===== ======== ===== ======== =====
The percentage of agent premiums retained by the Company varies according to regional differences in real estate closing practices and state regulations. The percentage of agent premiums retained by the Company has increased in each of the last three years primarily due to the Company's expansion of operations outside of California into states where underwriters' retained premiums are generally greater. As the Company continues to expand its operations in markets outside California, the Company believes it may retain a larger percentage of agent premiums. 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 1995 and 1994 the Company recorded a provision for claim losses of 7.0% of title insurance premiums prior to major claim expense, net of recoupments and the impact of premium rates and Company loss experience in the state of Texas. Premiums are generally higher in Texas for similar coverage than in other states, while loss experience is comparable. As a result, losses as a percentage of premiums are lower. These factors resulted in a net provision for claim losses of 6.7% and 7.5% in 1995 and 1994, respectively. In 1993 the Company provided for claim losses at 9.0% of title premiums prior to major claim expense, net of recoupments and the impact of premium rates and Company loss experience in the state of Texas. The net provision for claim losses was 9.1% in 1993. 20 23 A summary of the reserve for claim losses follows:
YEARS ENDED DECEMBER 31, -------------------------------------- 1995 1994 1993 -------- -------- -------- (DOLLARS IN THOUSANDS) Beginning balance...................................... $153,306 $142,512 $104,528 Title claim loss provision related to: Current year...................................... 23,901 38,575 32,773 Prior years....................................... (4,870) (10,737) 6,447 -------- -------- -------- Total title claim loss provision............. 19,031 27,838 39,220 Title claims paid, net of recoupments related to: Current year...................................... (2,818) (1,742) (1,074) Prior years....................................... (23,425) (21,521) (17,046) -------- -------- -------- Total title claims paid, net of recoupments................................ (26,243) (23,263) (18,120) Reserves assumed with Fidelity Pennsylvania and ATIC(1)........................................... -- 6,219 -- Reserves assumed with Fidelity New York.............. -- -- 17,632 Income tax adjustment................................ -- -- (748) -------- -------- -------- Ending balance......................................... $146,094 $153,306 $142,512 ======== ======== ======== Provision for title claim losses to title insurance premiums............................................. 6.7% 7.5% 9.1% Net claims paid ratio.................................. 9.2% 6.3% 4.2%
- --------------- (1) See Note A of Notes to Consolidated Financial Statements. Interest expense is incurred by the Company in financing its capital asset purchases and certain of its acquisitions. Interest expense consists of interest related to the Company's outstanding debt and the amortization of original issue discount and debt issuance costs related to the LYONs issued in February 1994. Interest expense on "non-LYONs" debt totaled $4.3 million, $3.8 million and $2.6 million for the years 1995, 1994 and 1993, respectively. The LYONs related component of interest expense amounted to $4.9 million and $4.8 million for 1995 and 1994, respectively. Interest expense increased in 1995 over 1994 primarily as a result of an increase in the average outstanding balance of a certain subsidiary's equipment outstanding debt and increases in the prime interest rate, to which certain of the interest rates paid by the Company are indexed. See "Recent Developments." Interest expense and amortization expense increased in 1994 over 1993 as a result of the LYONs offering and due to the $22.5 million of Senior Secured Notes issued in a private placement in March 1993, in connection with the acquisition of Fidelity New York (formerly Security Title and Guaranty Company) which were outstanding the entire period. See Note B of Notes to Consolidated Financial Statements. Furthermore, an increase in the average outstanding balance of a subsidiary's equipment line of credit and increasing interest rates also resulted in increased interest expense in 1994 over 1993. Minority interest expense in 1993 represents primarily accrued dividends for the year on $20.0 million of ATIC's Redeemable Series A Preferred Stock ("ATIC Preferred Stock"), held by Fidelity Pennsylvania's former parent, at an adjusted rate of 6.0% per annum. The ATIC Preferred Stock was purchased by the Company in March 1994. See Note A of Notes to Consolidated Financial Statements. Income tax expense for 1995, 1994 and 1993, as a percentage of earnings before income taxes, including the extraordinary loss in 1995 and extraordinary gain in 1994, was 16.9%, 24.2% and 30.9%, respectively. See "Extraordinary Item." The decrease in income tax expense as a percentage of earnings before income taxes, including the extraordinary item is attributable to a change in the mix of net income. In 1995 and 1994, investment income, including net capital gains (losses), represented the significant component of net income. In 1993, net income consisted of operating and investment income in relatively equal proportions. Based on the characteristics of the investment income, which includes a significant amount of tax exempt income, the 21 24 effective income tax rate decreased. See Note H of Notes to Consolidated Financial Statements for additional information regarding income taxes. EXTRAORDINARY ITEM. In order to reduce interest expense incurred and interest rates paid, the Company prepaid the Senior Secured Notes (the "Senior Notes") issued in March 1993. Pursuant to the terms and conditions of the Senior Note Agreement, the Company provided for the Make Whole Provision, as defined, and related expenses in 1995. This amount, $1.25 million, before related income taxes, has been reflected as an extraordinary item in the Consolidated Statements of Earnings for the year ended December 31, 1995. LIQUIDITY AND CAPITAL RESOURCES The Company's cash requirements include debt service, operating expenses, taxes and dividends on its Common Stock. The Company believes that all anticipated cash requirements for current operations will be met from internally generated funds, through cash received from subsidiaries as well as cash generated by investment securities and short term bank borrowings through existing credit facilities. Two of the significant sources of the Company's funds are dividends and distributions from its subsidiaries. As a holding company, the Company receives cash from its subsidiaries in the form of dividends and as reimbursement for operating and other administrative expenses it incurs. The reimbursements are executed within the guidelines of various management agreements among the Company and its subsidiaries. Fluctuations in operating cash flows are primarily the result of increases or decreases in revenue. See "Overview." The Company's Insurance Subsidiaries and UTCs collect premiums and pay claims and operating expenses. The Insurance Subsidiaries also have cash flow sources derived from investment income, repayments of principal and proceeds from sales and maturities of investments and dividends from subsidiaries. Positive cash flow from 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 six title underwriters can pay dividends or make other distributions to the Company. The UTCs are also regulated by insurance regulatory or banking authorities. Positive cash flow from the UTCs is invested primarily in cash and cash equivalents. The short and long term liquidity requirements of the Company, Insurance Subsidiaries and UTCs are monitored regularly to match cash inflows with cash requirements. The Company, Insurance Subsidiaries and UTCs 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, 1995, the fair value of the Company's total investment securities was $180.1 million. These investments consist of securities which the Company believes are readily marketable and could be liquidated if necessary. See "Business -- Investment Policies and Investment Portfolio." In order to take advantage of investment market conditions, the Company's tax status and the interest rate environment, during the third quarter of 1995 the Company converted certain investments in tax-exempt fixed maturities to cash and cash equivalents. The Company is in the process of reinvesting these funds in taxable instruments. During September 1995, the Company reached agreement on the terms of a $35 million credit facility with a banking syndicate led by Chase Manhattan Bank N.A. The facility includes a $22 million term loan and a $13 million revolving credit facility. The $22 million term loan has been used to refinance higher rate indebtedness and for general corporate purposes. The $13 million revolving credit facility is available to fund a portion of the Nations Title Inc. acquisition and for general corporate purposes. See "Recent Developments." 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 22 25 general corporate purposes, including the repurchase of treasury shares. See Note G of Notes to Consolidated Financial Statements. In March 1993, the Company issued $22.5 million in Series A and B Senior Secured Notes due in April 1995, February 1998 and February 2000. The proceeds of this debt offering were used to purchase Fidelity New York. See Notes B and G of Notes to Consolidated Financial Statements for further details. In order to reduce interest expense incurred and interest rates paid, the Senior Notes were repaid during 1995. See "Results of Operations -- Extraordinary Item." In April 1993, the Company issued 1,402,000 shares of Common Stock, providing net proceeds to the Company of $17.8 million. The proceeds were used for general corporate purposes. During 1993, the Company acquired from outside lenders substantially all of Manchester's outstanding indebtedness. Additionally, Manchester had not been released from its general partnership obligations under a separate debt agreement of a real estate partnership in which it sold its interest in 1991. The amount outstanding under this agreement totalled $931,000 at December 31, 1995. During 1994, the lender on this project agreed to release Manchester by substituting the buyer as the obligor. No such release has yet been executed. The Company does not believe that Manchester will require additional capital contributions from the Company that will materially impact liquidity, nor will Manchester's operations materially impact the Company's results of operations. 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 "Legal Proceedings" and Notes J and N of Notes to Consolidated Financial Statements. Recent Accounting Pronouncements. In May 1993, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 115 ("Statement 115"), "Accounting for Certain Investments in Debt and Equity Securities." Statement 115 requires that investments be classified as "held to maturity," "available for sale" or "trading securities." Statement 115 defines investments in securities as "held to maturity" based upon a positive intent and ability to hold those securities to maturity. Investments held to maturity are reported at amortized cost. Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as "trading securities" and reported at fair value, with unrealized gains and losses included in operations. Debt and equity securities not classified as "held to maturity" or "trading securities" are classified as "available for sale" and recorded at fair value with unrealized gains and losses excluded from operations and reported as a separate component of stockholders' equity, net of related income tax effect. The Company adopted Statement 115 on January 1, 1994 and the impact on the results of operations and financial position was not material. In November 1995, the Financial Accounting Standards Board Emerging Issues Task Force granted all entities a one-time opportunity to reconsider their ability and intent to hold securities accounted for under Statement 115 as held to maturity. This allows entities to transfer securities from the held to maturity category without "tainting" their remaining held to maturity securities. The Board emphasized that this would be a one-time event. The Company has reassessed the appropriateness of the classifications of securities held and has chosen to reclassify its held to maturity portfolio to available for sale in 1995, in order to provide additional investment portfolio management flexibility. The fair value of the securities transferred from the held to maturity portfolio to the available for sale portfolio totalled $25.5 million and resulted in an unrealized gain of $459,000, before applicable income taxes. In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 ("Statement 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Statement 121 provides guidance for recognition and measurement of impairment of long-lived assets, certain identifiable intangibles and goodwill related both to assets to be held and used and assets to be disposed of. Statement 121 requires that under certain conditions entities perform separate calculations for assets to be held and used to determine whether recognition of an impairment loss is 23 26 required and, if so, to measure the impairment. If the sum of the expected future cash flows, undiscounted and without interest charges, is less than the asset's carrying amount, an impairment loss is considered; if the sum of the expected future cash flows is more than the asset's carrying amount, an impairment loss cannot be recognized. Measurement of an impairment loss is based on the fair value of the asset. Statement 121 requires long-lived assets and certain identifiable intangibles to be disposed of to be reported at the lower of carrying amount or fair value less cost to sell, except for assets covered by the provisions of Accounting Pronouncements Board Opinion No. 30. Statement 121 is effective for financial statements issued for fiscal years beginning after December 15, 1995. The Company does not anticipate that the adoption of Statement 121 will have a material effect on the Consolidated Financial Statements. Statement of Financial Accounting Standards No. 123 ("Statement 123"), "Accounting for Stock-Based Compensation", was issued by the Financial Accounting Standards Board in October 1995. Statement 123 applies to all transactions in which an entity acquires goods or services by issuing instruments or by incurring liabilities where the payment amounts are based on the entity's common stock price, except for employee stock ownership plans ("ESOPs"). Statement 123 covers transactions with employees and non-employees and is applicable to both public and non-public entities. Statement 123 establishes a new method of accounting for stock-based compensation arrangements with employees. The new method is a fair value method rather than the intrinsic value method that is contained in Accounting Pronouncements Board Opinion No. 25 ("Opinion 25"). However, the Statement does not require an entity to adopt the new fair value based method for purposes of preparing its basic financial statements. Entities are allowed (1) to continue to use the Opinion 25 method or (2) to adopt the Statement 123 fair value based method. Once the fair value based method is adopted, an entity cannot change back to the Opinion 25 method. Also, the selected method applies to all of an entity's compensation plans and transactions. The Statement 123 fair value based method will result in higher compensation cost than the Opinion 25 intrinsic value based method for fixed stock option compensation plans and will result in a different compensation cost for variable stock option compensation plans. Sometimes the amount will be higher and sometimes the amount will be lower. Also, many employee stock purchase plans that are considered noncompensatory under Opinion 25 will be compensatory and result in the recognition of compensation costs under the fair value based method. For entities not adopting the Statement 123 fair value based method, the Statement creates a unique financial reporting situation. It requires entities that retain the Opinion 25 method for preparing their basic financial statements to display in the footnotes pro forma net income and earnings per share information as if the fair value based method had been adopted. Thus, these entities are required to account for employee compensation arrangements by two different methods and must present two separate measures of results of operations. Statement 123 is effective for fiscal years beginning after December 15, 1995. The Company intends to continue using the Opinion 25 method when accounting for stock based compensation in its basic financial statements upon adoption of Statement 123. The Company will choose the pro forma disclosure method. Statement of Position 94-6 ("SOP 94-6"), "Disclosure of Certain Significant Risks and Uncertainties," was issued in December 1994. SOP 94-6 requires disclosures about certain risks and uncertainties that could significantly affect the amounts reported in an entity's financial statements in the near term and relate to: the nature of operations, the necessary use of estimates in the preparation of financial statements and significant concentrations in certain aspects of the entity's operations. SOP 94-6 is applicable to financial statements of both public and non-public companies, but does not cover governmental entities. SOP 94-6 is effective for financial statements issued for fiscal years ending after December 15, 1995. The Company has included SOP 94-6 related disclosures in its 1995 Consolidated Financial Statements. RECENT DEVELOPMENTS. In February 1994, the Company issued zero coupon, convertible subordinated Liquid Yield Option Notes due February 2009 with a principal amount at maturity of $235,750,000 at an interest rate of 5.5%. 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. On March 31, 1994, the Company purchased from Meridian Bank the ATIC Preferred Stock for $15.5 million, which represented a discount of approximately $6.2 million. As part of the agreement with Meridian Bank to purchase the ATIC Preferred Stock, the Company released Meridian Bank from its obligations to provide an additional $11 million in claims protection pursuant to the purchase agreement for 24 27 Fidelity Pennsylvania and ATIC. The Company believes that the loss reserves for Fidelity Pennsylvania and ATIC, when combined with the $6.2 million reduction in the purchase price of the ATIC Preferred Stock, which has been added to reserves for claim losses, will be sufficient to meet pre-1992 policy claims. This $11 million, in addition to the $20 million of ATIC Preferred Stock, had been available as protection to offset claim losses on pre-1992 policies in excess of assumed reserves if necessary, and therefore any development on the pre-1992 policies had not been reflected in the Company's Statements of Earnings. Subsequent to the Company's purchase of the ATIC Preferred Stock, adverse or favorable loss development on these pre-1992 policies is reflected in the Consolidated Statements of Earnings of the Company. On April 21, 1994, the Company acquired all of the capital stock of ACS Systems, Inc. ("ACS"). The adjusted purchase price was 209,370 shares of Company Common Stock ($2.7 million), and certain future considerations of $900,000. ACS is a computer software development company engaged in the development and marketing of trust, escrow and title related software. The transaction has been accounted for as a purchase. On April 26, 1994, The Company announced that it had made a proposal to acquire the outstanding stock of US Facilities Corporation ("US Facilities") for $15 per share. After numerous discussions with the US Facilities Board of Directors relative to the Company's acquisition of, or additional investment in, US Facilities, the Company and US Facilities Board of Directors were unable to come to a mutually acceptable agreement. During the third quarter of 1995 the Company disposed of its US Facilities holdings, recording a net realized gain of approximately $3.4 million, which has been included in the Company's 1995 Consolidated Statement of Earnings. On June 15, 1994, the Company provided to MacFarlane Partners L.P., a registered real estate investment advisor under the Investment Advisor Act of 1940, approximately $5.8 million to finance the acquisition of Mellon/McMahan Real Estate Advisors, Inc. ("Mellon/McMahan") from Mellon Bank N.A. This financing was structured as the purchase of an investment asset, subject to certain put options, acquired from Mellon/McMahan and a secured loan of approximately $3.8 million. In addition, the Company received an interest in MacFarlane Partners. In January 1996, the loan was repaid, and the remaining investment was disposed of for its approximate book value. In a private transaction which occurred on June 17, 1994, the Company acquired 31 percent, or 578,716 shares, of Micro General Corporation Common Stock ("Micro General", traded on NASDAQ, symbol -- MGEN) for $868,000. As a condition of the acquisition, two Company representatives have been named to Micro General's Board of Directors. Micro General develops, manufactures and markets automated equipment for shipping and mailing operations. During 1996 the Company acquired an additional 152,500 shares of Micro General. 40,000 of these shares were acquired in a private transaction at a cost of $60,000, or $1.50 per share. The remaining 112,500 shares were acquired in the open market at a cost of $225,000, or $2.00 per share. The Company currently owns approximately 37.5% of the outstanding Micro General Common Stock. The ownership interest is accounted for under the equity method. Effective August 15, 1994, the Company executed an Asset Option Agreement with WTC Financial ("WTC") and World Tax Service ("World Tax") to acquire an option to purchase a 60 percent undivided interest in all of the assets of World Tax for $3 million. Additional terms of the transaction included an option to WTC, World Tax's parent company, to purchase 110,000 shares of the Company's Common Stock at $13.18 per share. The Company also agreed to provide World Tax with a working capital line of credit in the amount of $2 million to be utilized exclusively by World Tax to fund operating and expansion needs. On June 14, 1995, the Company acquired certain assets of World Title Company ("World") for a purchase price to be determined based on the collection of certain accounts. In the case of trade accounts receivable acquired, the Company will retain certain percentages of amounts collected subsequent to the acquisition date and will remit the remaining amounts to the Department of Insurance of the State of California (the "Department"). The Company has also acquired the open title orders of World as of the purchase date. The Company will retain certain percentages of amounts collected on open title orders subsequent to the acquisition date and will remit the remaining amounts to the Department. 25 28 On June 22, 1995, the Company acquired 100% of the common stock of World Tax, now known as Fidelity National Tax Service, from WTC for $1.8 million. The Company had previously executed an Asset Option Agreement ("Agreement") with WTC to acquire an option to purchase a 60% undivided interest in all of the assets of World Tax for $3.0 million. In connection with the Agreement, WTC was granted an option to purchase 110,000 shares of the Company's Common Stock at $13.18 per share. The option to purchase shares was acquired from WTC as part of the World Tax transaction. This transaction has been accounted for as a purchase. During 1994, the Company paid $2.3 million in order to acquire a 100% ownership interest in an investment property where the Company had previously leased office space. The $2.3 million purchase price consisted of an $800,000 payment for the partnership interests of two third parties, and a $1.5 million payment to satisfy the then existing debt on the property. Two officers of the Company also held partnership interests in the property at the time of the acquisition. The partnership interests of the officers were transferred to the Company upon satisfaction of the debt. The Company disposed of the property during 1995 for its approximate book value. On March 8, 1995, the Company acquired the common stock of Western Title Company of Washington, an underwritten title company with operations in King County (Seattle) and Snohomish County (Everett) in the state of Washington. Western Title Company of Washington was acquired from its selling shareholder for $3.2 million in cash. In addition, the Company also has an option to purchase a title plant in Pierce County (Tacoma), Washington. The Washington acquisition will operate as a subsidiary of the Company in King and Snohomish Counties under the name Fidelity National Title Company of Washington. The acquisition has been accounted for as a purchase. On March 9, 1995, the Company announced that its board of directors authorized the additional repurchase, in the open market or in privately negotiated transactions, of up to 2.2 million shares of its Common Stock, or comparable amount of the Company's LYONs. This is in addition to the 5.5 million shares or comparable amount of LYONs previously authorized for repurchase by the board of directors -- 1.1 million shares on March 31, 1994, 1.1 million shares on June 15, 1994, and an additional 3.3 million shares on August 11, 1994. Any shares repurchased will initially be held by the Company. A limited number of shares may be used for various stock-based employee benefit programs, and the remainder will be used for other general corporate purposes. As of March 18, 1996, the Company had repurchased 5,168,853 shares of its Common Stock for an aggregate price of $56.3 million, or $10.89 per share. Additionally, as of March 18, 1996, the Company had repurchased $48 million in maturity amount of LYONs for an aggregate price of $17.6 million, all of which were purchased in 1994. The repurchase of the LYONs resulted in an extraordinary gain of $2.4 million which is net of related income taxes, unamortized debt issuance costs and amortized original issue discount, and is reflected in the 1994 Consolidated Statement of Earnings. On May 2, 1995, the Company acquired the common stock of Butte County Title Company, an underwritten title company with operations in Butte County in the state of California. Butte County Title Company was acquired from its selling shareholders for $400,000 in cash, which approximated book value. The acquired company operates as a subsidiary of the Company in Butte County, and is now known as Fidelity National Title Company of California. The acquisition has been accounted for as a purchase. On August 19, 1995, the Company acquired the common stock of Southern California Title Company, an underwritten title company with operations in Los Angeles County in the state of California. Southern California Title Company was acquired for $2.1 million in cash. The acquired company operates as a subsidiary of the Company in Los Angeles County and is now known as Fidelity National Title Company. The acquisition has been accounted for as a purchase. On September 14, 1995, the Company announced that it had executed a definitive agreement ("Agreement") with Nations Holding Group to acquire one hundred percent of Nations Title Inc., and its wholly owned subsidiaries Nations Title Insurance Company, Nations Title Insurance Company of New York and National Title Insurance Company of New York (collectively, "Nations Title Inc."), which is the eighth largest title insurer in the United States based on 1994 reported revenue of $297.0 million. Nations Title Inc. recorded revenue of $231.4 million in 1995. The acquisition of Nations Title Inc. is expected to close in the 26 29 first quarter of 1996, following final determination of the purchase price. The Company believes that the combination of its direct operations and Nations' strong agency network will provide a balance to Fidelity's title premium revenue between direct and agency, as well as hedge against future market downturns. Once assimilated, this acquisition should increase the Company's operating efficiencies and produce certain economies of scale, resulting in increased profits and enhancing its balance sheet. The Nations acquisition will significantly increase market share in areas where Fidelity National Financial, Inc. and subsidiaries have a limited presence, particularly in those areas where business in primarily agent driven, as well as in states where the Company currently has a strong position, while increasing its presence in the key title insurance states. Under the terms of the Agreement, Fidelity National Financial, Inc. will acquire one hundred percent of the outstanding stock of Nations Title Inc. from its sole shareholder, Nations Holding Group, for a purchase price of $21 million in cash and 176,000 shares of Fidelity National Financial, Inc. Common Stock, subject to certain purchase price adjustments as defined in the Agreement. On September 22, 1995, Fidelity National Financial, Inc. announced that it had reached agreement on the terms of a $35 million credit facility with a banking syndicate led by Chase Manhattan Bank N.A. The facility includes a $22 million term loan and a $13 million revolving credit facility. The $22 million term loan has been used to refinance higher rate indebtedness and for general corporate purposes. The $13 million revolving credit facility is available to fund a portion of the Nations Title Inc. acquisition. The Company is pleased with the level of confidence the banks have in Fidelity's long-term outlook and believes that the willingness of the banks to enter into this $35 million credit facility is an indication of Fidelity's overall financial strength. See Note G of Notes to Consolidated Financial Statements. On February 14, 1996, the Company offered Giant Group, Ltd. ("Giant") stockholders the right to exchange all of their shares of common stock of Giant for shares of the Company's Common Stock. Giant sent the Company a letter on February 22, 1996, indicating that the Giant Board of Directors had rejected the offer. On March 1, 1996, the Company delivered a Notice of Stockholder Intention to Submit Business to Giant. The Company intends to appear at Giant's 1996 Annual Meeting to elect four persons to the Board of Directors of Giant. Each of the four nominees has informed the Company that they believe it is in the best interests of the stockholders of Giant to merge into the Company. The Company currently owns 705,489 shares of the common stock of Giant (14.8%). On March 6, 1996, the Company's Board of Directors declared a cash dividend of $.07 per share which will be payable on May 3, 1996, to stockholders of record on April 15, 1996. SEASONALITY. Historically, the greatest volume of residential resale activity has occurred in the spring and summer months. However, events during the past five years, including numerous actions taken by the Federal Reserve Board, have caused unusual fluctuations in real estate activity, particularly in the seasonal pattern of residential resale and refinance activity. The Company cannot predict whether the historical pattern of residential resale and refinance activity will continue to be affected by such outside factors. INFLATION. To the extent real estate prices or mortgage interest rates increase due to inflationary factors, the Company's title insurance premium revenue generally increases because premiums are determined in part by the value of property or the amount of the mortgage loan. The Company's personnel costs and other operating expenses are also sensitive to inflation. 27 30 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES INDEX TO FINANCIAL INFORMATION
PAGE NO. -------- Independent Auditors' Report.............................................. 29 Consolidated Balance Sheets as of December 31, 1995 and 1994.............. 30 Consolidated Statements of Earnings for the years ended December 31, 1995, 1994 and 1993........................................................... 31 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1995, 1994 and 1993........................................ 32 Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993........................................ 33 Notes to Consolidated Financial Statements................................ 34
28 31 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, 1995 and 1994 and the related Consolidated Statements of Earnings, Stockholders' Equity and Cash Flows for each of the years in the three-year period ended December 31, 1995. 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, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995 in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Orange County, California February 26, 1996 29 32 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, --------------------- 1995 1994 -------- -------- ASSETS Investments: Fixed maturities: Held to maturity, at amortized cost............................... $ -- $ 26,664 Available for sale, at fair value................................. 129,236 149,111 -------- -------- Total fixed maturities....................................... 129,236 175,775 Equity securities, at fair value..................................... 31,412 15,482 Other long-term investments, at cost, which approximates fair value............................................................. 2,627 16,000 Short-term investments, at cost, which approximates fair value....... 8,148 800 Investments in real estate and partnerships, net..................... 8,659 9,591 -------- -------- Total investments............................................ 180,082 217,648 Cash and cash equivalents (including certificates of deposit of $3,173 in 1995 and $3,075 in 1994).......................................... 47,431 34,689 Trade receivables (less allowance of $3,471 in 1995 and $2,029 in 1994)................................................................ 39,801 28,495 Notes receivable, net (including $2,104 in 1995 and $1,320 in 1994 with affiliated parties).................................................. 15,926 13,139 Prepaid expenses and other assets...................................... 43,908 28,616 Title plants........................................................... 41,725 36,977 Property and equipment, net............................................ 33,740 39,014 Deferred income taxes.................................................. -- 12,553 Income taxes receivable................................................ 2,450 6,988 -------- -------- $405,063 $418,119 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable and accrued liabilities............................. $ 44,549 $ 48,114 Notes payable........................................................ 136,047 142,129 Reserve for claim losses............................................. 146,094 153,306 Deferred income taxes................................................ 33 -- -------- -------- 326,723 343,549 Minority interest.................................................... 393 616 Stockholders' equity: Preferred stock, $.0001 par value; authorized, 3,000,000 shares; issued and outstanding, none...................................... -- -- Common stock, $.0001 par value; authorized, 55,000,000 shares in 1995 and 1994; issued, 17,439,263 in 1995 and 17,227,402 in 1994....... 2 2 Additional paid-in capital........................................... 58,098 56,659 Retained earnings.................................................... 70,273 66,668 -------- -------- 123,329 128,373 Net unrealized gains (losses) on investments......................... 5,866 (8,914) Less treasury stock, 5,168,853 shares in 1995 and 3,633,410 shares in 1994, at cost..................................................... 56,292 40,461 -------- -------- 77,947 73,954 Commitments and contingencies........................................ -------- -------- Subsequent events.................................................... $405,063 $418,119 ======== ========
See notes to consolidated financial statements. 30 33 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31, ---------------------------------- 1995 1994 1993 -------- -------- -------- REVENUE: Title insurance premiums................................. $285,552 $369,275 $429,772 Escrow fees.............................................. 49,723 52,260 69,982 Other fees and revenue................................... 56,954 59,351 60,958 Interest and investment income, including realized gains (losses).............................................. 17,616 11,918 14,671 -------- -------- -------- 409,845 492,804 575,383 -------- -------- -------- EXPENSES: Personnel costs.......................................... 165,514 181,953 196,470 Other operating expenses................................. 123,888 129,367 135,925 Agent commissions........................................ 82,713 132,713 147,427 Provision for claim losses............................... 19,031 27,838 39,220 Interest expense......................................... 9,239 8,594 2,587 Minority interest expense................................ -- -- 1,200 -------- -------- -------- 400,385 480,465 522,829 -------- -------- -------- Earnings before income taxes and extraordinary item...... 9,460 12,339 52,554 Income tax expense....................................... 1,828 2,594 16,259 -------- -------- -------- Earnings before extraordinary item.................... 7,632 9,745 36,295 Extraordinary item -- gain (loss) on early retirement of debt, net of applicable income tax expense (benefit) of $(437) in 1995 and $1,292 in 1994.................. (813) 2,400 -- -------- -------- -------- Net earnings.......................................... $ 6,819 $ 12,145 $ 36,295 ======== ======== ======== Earnings per share before extraordinary item............. $ .59 $ .59 $ 2.16 Extraordinary item -- gain (loss) on early retirement of debt, net of applicable income tax expense (benefit)............................................. (.06) .15 -- -------- -------- -------- Net earnings per share................................ $ .53 $ .74 $ 2.16 ======== ======== ======== Weighted average shares outstanding...................... 12,970 16,476 16,831 ======== ======== ========
See notes to consolidated financial statements. 31 34 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT PER SHARE DATA)
NET COMMON STOCK ADDITIONAL UNREALIZED TREASURY STOCK --------------- PAID-IN RETAINED GAINS ---------------- SHARES AMOUNT CAPITAL EARNINGS (LOSSES) SHARES AMOUNT ------ ------ ---------- ------- ---------- ----- -------- Balance, December 31, 1992........ 14,972 $ 2 $ 33,540 $31,978 $ 332 243 $ 575 Sale of common stock............ 1,251 -- 17,472 -- -- (151) (355) Exercise of stock options....... 112 -- 466 -- -- (92) (220) Cash in lieu of fractional shares....................... -- -- -- (8) -- -- -- Net unrealized gains on investments.................. -- -- -- -- 3,490 -- -- Distributions to ASAP stockholders................. -- -- -- (5,066) -- -- -- Issuance of common stock for ASAP acquisition and conversion of ASAP from S to C corporation................ 483 -- 1,186 (1,186) -- -- -- Cash dividends ($.22 per share)....................... -- -- -- (3,575) -- -- -- Net earnings.................... -- -- -- 36,295 -- -- -- ------ --- ------- ------- -------- ----- -------- Balance, December 31, 1993........ 16,818 2 52,664 58,438 3,822 -- -- ------ --- ------- ------- -------- ----- -------- Exercise of stock options....... 257 -- 1,314 -- -- -- -- Net unrealized losses on investments.................. -- -- -- -- (12,736) -- -- Purchase of ACS Systems, Inc. ........................ 165 -- 2,681 -- -- -- -- Purchase of treasury stock...... -- -- -- -- -- 3,633 (40,461) ASAP purchase price adjustment................... (13) -- -- -- -- -- -- Cash dividends ($.25 per share)....................... -- -- -- (3,915) -- -- -- Net earnings.................... -- -- -- 12,145 -- -- -- ------ --- ------- ------- -------- ----- -------- Balance, December 31, 1994........ 17,227 2 56,659 66,668 (8,914) 3,633 (40,461) ------ --- ------- ------- -------- ----- -------- Exercise of stock options....... 168 -- 1,439 -- -- -- -- Net unrealized gains on investments.................. -- -- -- -- 14,780 -- -- Purchase of treasury stock...... -- -- -- -- -- 1,536 (15,831) ACS Systems, Inc. purchase price adjustment................... 44 -- -- -- -- -- -- Cash dividends ($.25 per share)....................... -- -- -- (3,214) -- -- -- Net earnings.................... -- -- -- 6,819 -- -- -- ------ --- ------- ------- -------- ----- -------- Balance, December 31, 1995........ 17,439 $ 2 $ 58,098 $70,273 $ 5,866 5,169 $(56,292) ====== === ======= ======= ======== ===== ========
See notes to consolidated financial statements. 32 35 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEARS ENDED DECEMBER 31, --------------------------------- 1995 1994 1993 --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings.............................................. $ 6,819 $ 12,145 $ 36,295 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization.......................... 13,469 11,207 6,048 Net increase (decrease) in reserve for claim losses.... (7,212) 4,575 21,100 Amortization of LYONs original issue discount and issuance costs....................................... 4,916 4,701 -- Provision for possible losses on real estate and notes receivable........................................... 158 (159) 3,223 Equity in (gains) losses of unconsolidated partnerships......................................... (72) 134 239 Minority interest expense.............................. -- -- 1,200 (Gain) loss on sales of assets......................... (5,213) 3,086 (4,246) Changes in assets and liabilities, net of effects from acquisitions: Net increase in trade receivables...................... (11,306) (7,086) (2,692) Net increase in prepaid expenses and other assets...... (5,702) (3,143) (3,962) Net increase (decrease) in accounts payable and accrued liabilities.......................................... (3,547) (11,375) 10,007 Net increase (decrease) in income taxes................ 7,673 (7,860) (688) --------- --------- --------- Net cash provided by (used in) by operating activities...................................... (17) 6,225 66,524 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Investments in real estate and partnerships............... (100) (151) (580) Proceeds from investment securities: Held to maturity (principally maturities of securities).......................................... 2,310 2,252 1,693 Available for sale..................................... 214,524 112,435 91,413 Proceeds from sales of other assets....................... 3,442 301 1,190 Collections of notes receivable........................... 3,035 2,465 1,272 Additions to title plants................................. (1,719) (987) (470) Additions to property and equipment....................... (9,655) (25,233) (11,134) Additions to notes receivable............................. (5,980) (8,135) (2,610) Purchases of investment securities: Held to maturity....................................... (1,941) (3,668) (2,551) Available for sale..................................... (151,305) (115,748) (193,417) Distributions from partnerships........................... -- 30 -- Investment in ATIC preferred stock........................ -- (15,500) -- Acquisitions of businesses, net of cash acquired.......... (11,363) (1,130) 6,320 --------- --------- --------- Net cash provided by (used in) investing activities...................................... 41,248 (53,069) (108,874) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings................................................ 48,285 130,652 42,441 Debt service payments..................................... (59,150) (27,287) (15,956) Retirement of LYONs....................................... -- (17,592) -- Gain on early retirement of LYONs......................... -- (3,692) -- Dividends paid............................................ (3,232) (4,132) (3,218) Exercise of stock options................................. 1,439 1,314 466 Issuance (purchase) of treasury stock, net................ (15,831) (40,461) 220 Stock offering proceeds, net.............................. -- -- 17,827 Cash in lieu of fractional shares......................... -- -- (8) Distributions to ASAP stockholders........................ -- -- (5,066) --------- --------- --------- Net cash provided by (used in) financing activities...................................... (28,489) 38,802 36,706 --------- --------- --------- Net increase (decrease) in cash and cash equivalents...... 12,742 (8,042) (5,644) Cash and cash equivalents at beginning of year............ 34,689 42,731 48,375 --------- --------- --------- Cash and cash equivalents at end of year.................. $ 47,431 $ 34,689 $ 42,731 ========= ========= =========
See notes to consolidated financial statements. 33 36 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS INFORMATION AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1992 IS RESTATED. A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following briefly 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"), Fidelity National Title Insurance Company ("Fidelity Title"), which, in turn, is the parent company of Fidelity National Title Insurance Company of California ("Fidelity California"), and Fidelity National Title Insurance Company of Tennessee ("Fidelity Tennessee"); Fidelity National Title Insurance Company of Pennsylvania ("Fidelity Pennsylvania"), which, in turn, is the parent company of American Title Insurance Company ("ATIC"); Fidelity National Title Insurance Company of New York ("Fidelity New York") and Fidelity National Title Insurance Company of Texas ("Fidelity Texas"), which was merged into Fidelity Title in December 1993, (collectively, the "Insurance Subsidiaries"); and its wholly owned underwritten title companies (collectively, "the UTCs"), including Fidelity National Title Company ("FNTC") and Fidelity National Title Company of California ("FNCAL"), is one of the largest national underwriters engaged in the business of issuing title insurance policies and performing other title related services such as escrow, collection and trust activities, real estate tax information services, trustee sale guarantees, foreclosure publishing and posting services and exchange intermediary services in connection with real estate transactions. Title insurance services are provided primarily through the Company's direct operations and otherwise through independent title insurance agents who issue title policies on behalf of the Insurance 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. Principles of consolidation and basis of presentation The accompanying Consolidated Financial Statements include the accounts of the Company and its wholly owned and majority owned subsidiaries. All material intercompany profits, transactions and balances have been eliminated. The Company's investments in non-majority owned partnerships are accounted for on the equity method. In December 1993, the Company acquired, for 470,136 shares of Common Stock, all of the capital stock of a group of three companies Agency Sales and Posting, Pente Enterprises, Inc. and Arizona Sales and Posting, Inc. (collectively, "ASAP"), that are in the business of providing newspaper publication and posting of notices of real estate foreclosure sales, conducting such sales and providing publication of other legal notices. The transaction has been accounted for as a pooling of interests. 34 37 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The results of operations of the separate enterprises and the combined amounts presented in the Consolidated Financial Statements as a result of the pooling of interests are summarized below:
YEAR ENDED DECEMBER 31, 1993 ----------------------- (DOLLARS IN THOUSANDS) Revenue: Fidelity National Financial, Inc. and subsidiaries.... $ 556,937 ASAP.................................................. 18,446 ----------- Combined.............................................. $ 575,383 =========== Net earnings: Fidelity National Financial, Inc. and subsidiaries.... $ 32,934 ASAP.................................................. 3,361(1) ----------- Combined.............................................. $ 36,295 ===========
- --------------- (1) Prior to the acquisition, Agency Sales and Posting and Arizona Sales and Posting, Inc. reported as S Corporations for income tax reporting purposes, with all earnings treated as if distributed to the stockholders and taxable to them. As a result, no provision for income taxes had been recorded by Agency Sales and Posting and Arizona Sales and Posting, Inc. prior to the acquisition by the Company. Pro forma adjustments have not been made to the results of operations to present income taxes which would otherwise have been incurred by these entities as these adjustments would be immaterial. See Note H. 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. Prior to a reassessment of the investment strategy and subsequent reclassification of the held to maturity portfolio in 1995, the Company had the ability and intent to hold those fixed maturity securities which it had on deposit with regulatory authorities, and certain other fixed maturity securities, to maturity and carried them at amortized cost. See Note O. Those 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. Care should be used in evaluating the significance of these estimated fair values. 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 investments in limited partnership interests in investment funds, are carried at cost, which approximates fair value. Short term investments, which consist primarily of securities purchased under agreements to resell, commercial paper and money market instruments, which have an original maturity of one year or less, are carried at amortized cost, which approximates fair value. 35 38 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 that are considered temporary, net of applicable deferred income taxes (benefits), are excluded from income and credited or charged directly to a separate component of stockholders' equity. The carrying value for investments in the held to maturity and available for sale categories is reduced to estimated realizable value if the decline in fair value is deemed other than temporary. Such reductions are recognized as realized losses. Trade receivables The carrying amounts reported in the Consolidated Balance Sheets for trade receivables approximate their fair value. Fair value of financial instruments The fair values of financial instruments presented in the applicable notes to the Company's Consolidated Financial Statements are estimates of the fair values at a specific point in time using available market information and appropriate valuation methodologies. These estimates are subjective in nature and involve uncertainties and significant judgment in the interpretation of current market data. Therefore, the fair values presented are not necessarily indicative of amounts the Company could realize or settle currently. The Company does not necessarily intend to dispose of or liquidate such instruments prior to maturity. Title plants Title plants are recorded at the cost incurred to construct or obtain and organize historical title information to the point it can be used to perform title searches. Costs incurred to maintain, update and operate title plants are expensed as incurred. Title plants are not amortized as they are considered to have an indefinite life if maintained. Sales of title plants are reported at the amount received net of the adjusted costs of the title plant sold. Sales of title plant copies are reported at the amount received. No cost is allocated to the sale of copies of title plants unless the value of the title plant is diminished. Property and equipment Property and equipment are recorded at cost, less depreciation. Depreciation is computed primarily using the straight-line method based on the estimated useful lives of the related assets which range from three to fifty years. Leasehold improvements are amortized on a straight-line basis over the lesser of the term of the applicable lease or the estimated useful lives of such assets. Cost in excess of net assets acquired and other intangible assets Intangible assets include cost in excess of net assets acquired, capitalized licensing costs and capitalized software costs and are amortized on a straight line basis over seven to forty years. At December 31, 1995, intangible assets consist of goodwill of $5,303,000 less accumulated amortization of $1,378,000, capitalized licensing costs of $2,458,000 and capitalized software of $8,710,000 less accumulated amortization of $604,000. Intangible assets at December 31, 1994 consist of goodwill of $5,270,000 less accumulated amortization of $1,263,000 and capitalized software of $539,000 less accumulated amortization of $20,000. 36 39 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Impairment of intangible assets is monitored on a continual basis, and is assessed based on an analysis of the cash flows generated by the underlying assets. No impairment of intangible assets has been noted. Income taxes The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109 ("Statement 109"), "Accounting for Income Taxes." Statement 109 provides that deferred tax assets and liabilities be recognized for temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities and expected benefits of utilizing net operating loss and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The impact on deferred taxes of changes in tax rates and laws, if any, are applied to the years during which temporary differences are expected to be settled and reflected in the financial statements in the period enacted. The cumulative effect of the adoption of Statement 109 was not material at January 1, 1993, nor to the results of operations for the year ended December 31, 1993. Reserve for claim losses The Company's reserve for claim losses includes known claims as well as losses the Company expects to incur, net of recoupments. Each known claim is reserved for on the basis of a review by the Company as to the estimated amount of the claim and the costs required to settle the claim. Reserves for claims which are incurred but not reported are provided for at the time premium revenue is recognized based on historical loss experience and other factors, including industry averages, claim loss history, current legal environment, geographic considerations and type of policy written. Major claims (greater than $500,000) are evaluated and amounts greater than $500,000 are reserved for as they become known because the unique circumstances surrounding most major claims make it inherently impractical to predict the incidence and amount of such claims. The occurrence of a significant major claim in any given period could have a material adverse effect on the Company's financial condition and results of operations for such period. Escrow losses are expensed when they become known and are included in other operating expenses. See Note I. If a loss is related to a policy issued by an independent agent, the Company may proceed against the independent agent pursuant to the terms of the agency agreement. In any event, the Company may proceed against third parties who are responsible for any loss under the title insurance policy, under rights of subrogation. The terms of the Fidelity Pennsylvania (formerly Meridian Title Insurance Company) acquisition provided $31 million of additional claim loss protection for Fidelity Pennsylvania and ATIC policies issued on or before December 31, 1991. As part of the acquisition, Fidelity Pennsylvania paid its former parent company, Meridian Bank, a cash dividend of $11 million and Meridian Bank retained a $20 million investment in ATIC Redeemable Series A Preferred Stock ("ATIC Preferred Stock"). Under certain circumstances, Meridian Bank would be required to repay the Company some or all of the dividend and relinquish some or all of the redemption value of the ATIC Preferred Stock as reimbursement for excess claims incurred by Fidelity Pennsylvania and ATIC over the reserves established at December 31, 1991 for policies issued on or before December 31, 1991. On March 31, 1994, the Company purchased from Meridian Bank the ATIC Preferred Stock for $15.5 million, which represented a discount of approximately $6.2 million. As part of the agreement with Meridian Bank to purchase the ATIC Preferred Stock, the Company released Meridian Bank from its obligations to provide an additional $11 million in claims protection pursuant to the purchase agreement for Fidelity Pennsylvania and ATIC. The Company believes that the loss reserves for Fidelity Pennsylvania and ATIC, when combined with the $6.2 million reduction in the purchase price of the ATIC Preferred Stock, which has been added to reserves for claim losses, will be sufficient to meet pre-1992 policy claims. This $11 million, in addition to the $20 million of ATIC Preferred Stock, had been available as 37 40 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) protection to offset claim losses on pre-1992 policies in excess of assumed reserves if necessary, and therefore any development on the pre-1992 policies had not been reflected in the Company's Consolidated Statements of Earnings. Subsequent to the Company's purchase of the ATIC Preferred Stock, adverse or favorable loss development on these pre-1992 policies is reflected in the Consolidated Statements of Earnings of the Company. Reinsurance In the ordinary course of business, the Company reinsures certain risks with other insurers for the purpose of limiting its maximum loss exposure and also assumes reinsurance for certain risks of other insurers for the purpose of earning additional revenue. The Company cedes or assumes a portion of certain policy liabilities under agent fidelity, excess of loss, and case-by-case reinsurance agreements. Reinsurance agreements provide that in the event of a loss (including costs, attorneys' fees and expenses) exceeding the retained amounts, the reinsurer is liable for the excess amount assumed. However, the ceding company remains primarily liable in the event the reinsurer does not meet its contractual obligations. Reinsurance activity is not significant. Title, escrow, other fees and revenue and agent commissions Title insurance premiums, escrow fees and other fees and revenue are recognized as revenue at the time of closing of the related real estate transaction. Title insurance commissions earned by the Company's agents are recognized as an expense concurrently with premium recognition. Permitted statutory accounting practices Fidelity Title, domiciled in Arizona, prepares its statutory financial statements in accordance with accounting practices prescribed or permitted by the Department of Insurance of the State of Arizona. Prescribed statutory accounting practices include a variety of publications of the National Association of Insurance Commissioners (the "NAIC"), as well as state laws, regulations, and general administrative rules. Permitted statutory accounting practices encompass all accounting practices not so prescribed. The Company received written approval from the Department of Insurance of the State of Arizona to admit certain accounts receivable related to its trustee sale guarantees which have aged to 180 days outstanding. This differs from prescribed statutory accounting practices. Statutory accounting practices prescribed by Arizona require that accounts receivable aged greater than 90 days outstanding be non-admitted. As of December 31, 1995, that permitted transaction increased statutory surplus by $2.3 million over what it would have been had the prescribed accounting practice been followed. Share and per share restatement On November 15, 1993, the Company declared a 3 for 2 stock split, payable in the form of a 50% stock dividend, to shareholders of record on December 8, 1993, distributed December 23, 1993. On December 13, 1995, the Company declared a 10% stock dividend, to shareholders of record on January 15, 1996, distributed February 2, 1996. The par value of the additional shares of Common Stock issued in connection with the stock dividend was credited to common stock and a like amount charged to retained earnings as of December 31, 1995. Fractional shares were paid in cash. All data with respect to earnings per share, dividends per share and share information, including price per share where applicable, in the following Notes to Consolidated Financial Statements have been retroactively adjusted to reflect the stock dividends and splits. 38 41 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Earnings per share Earnings per share is computed by dividing net earnings by the weighted average number of common and common equivalent shares outstanding during the period. The Company has granted certain options and warrants which have been treated as common share equivalents for purposes of calculating primary and fully diluted earnings per share. The Liquid Yield Option Notes ("LYONs") are considered other dilutive securities for purposes of calculating fully diluted earnings per share to the extent that they are not antidilutive. Primary and fully diluted earnings per share are approximately the same for all periods presented. Management estimates The preparation of these Consolidated Financial Statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain reclassifications Certain reclassifications have been made in the 1994 and 1993 Consolidated Financial Statements to conform to the classifications used in 1995. B. ACQUISITIONS In March 1993, the Company acquired the common stock of Fidelity National Title Insurance Company of New York ("Fidelity New York"), (formerly Security Title and Guaranty Company), a New York based title insurance underwriter, from Helmsley Enterprises, Inc. for $21.0 million in cash. Fidelity New York had a net book value before purchase accounting adjustments of $31.7 million on the date of acquisition. The acquisition has been accounted for as a purchase. The acquisition of Fidelity New York was financed through the private placement in March 1993 of 8.375% Senior Secured Notes, Series A, in the aggregate principal amount of $12.5 million and 8.735% Senior Secured Notes, Series B in the aggregate principal amount of $10 million. See Note G. The assets acquired and liabilities assumed in the acquisition of Fidelity New York were as follows (dollars in thousands): Assets acquired at fair value............................. $ 47,410 Liabilities assumed at fair value......................... (26,410) --------- Total purchase price................................. $ 21,000 =========
Selected unaudited pro forma combined results of operations for the year ended December 31, 1993, assuming the Fidelity New York acquisition occurred on January 1, 1993, are presented as follows:
YEAR ENDED DECEMBER 31, 1993 ----------------------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Total revenue................................ $ 586,835 Net earnings................................. 35,891 Earnings per share........................... $ 2.35
In April 1994, the Company acquired all of the capital stock of ACS Systems, Inc. ("ACS") for an adjusted purchase price of 209,370 shares of the Company's Common Stock and certain future considerations 39 42 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) of $900,000. ACS is a computer software development company engaged in the development and marketing of trust, escrow and title related software. The transaction has been accounted for as a purchase. The assets acquired, including cost in excess of assets acquired, and liabilities assumed in the acquisition of ACS were as follows (dollars in thousands): Tangible assets acquired at fair value..................... $ 3,014 Cost in excess of net assets acquired...................... 680 Liabilities assumed at fair value.......................... (1,013) ------- Total purchase price............................. $ 2,681 =======
The 1994 ACS results of operations were not material to the Consolidated Financial Statements. On March 8, 1995, the Company acquired the common stock of Western Title Company of Washington, an underwritten title company with operations in King County (Seattle) and Snohomish County (Everett) in the state of Washington. Western Title Company of Washington was acquired from its selling shareholder for $3.2 million in cash. In addition, the Company also has an option to purchase a title plant in Pierce County (Tacoma), Washington. The Company will operate as a subsidiary of Fidelity in King and Snohomish counties under the name Fidelity National Title Company of Washington. The acquisition has been accounted for as a purchase. The assets acquired, including cost in excess of assets acquired, and liabilities assumed in the acquisition of Fidelity National Title Company of Washington were as follows (dollars in thousands):
Tangible assets acquired at fair value...................... $3,330 Cost in excess of net assets acquired....................... 746 Liabilities assumed at fair value........................... (876) ------ Total purchase price.............................. $3,200 ======
On May 2, 1995, the Company acquired the common stock of Butte County Title Company, an underwritten title company with operations in Butte County in the state of California. Butte County Title Company was acquired from its selling shareholders for $400,000 in cash, which approximated book value. The acquired company operates as a subsidiary of the Company in Butte County, and is now known as Fidelity National Title Company of California. The acquisition has been accounted for as a purchase. The Fidelity National Title Company of California results of operations were not material to the Consolidated Financial Statements. On June 14, 1995, the Company acquired certain assets of World Title Company ("World") for a purchase price to be determined based on the collection of certain accounts. In the case of trade accounts receivable acquired, the Company will retain certain percentages of amounts collected subsequent to the acquisition date and will remit the remaining amounts to the Department of Insurance of the State of California ("Department"). The Company has also acquired the open title orders of World as of the purchase date. The Company will retain certain percentages of amounts collected on open title orders subsequent to the acquisition date and will remit the remaining amounts to the Department. The amount retained by the Company was not material in 1995. On June 22, 1995, the Company acquired 100% of the common stock of World Tax Service ("World Tax"), now known as Fidelity National Tax Service ("Fidelity Tax"), from WTC Financial ("WTC"), the parent company of World Tax, for $1.8 million. The Company had previously executed an Asset Option Agreement ("Agreement") with WTC to acquire an option to purchase a 60% undivided interest in all of the assets of World Tax for $3.0 million. In connection with the Agreement, WTC was granted an option to purchase 110,000 shares of the Company's Common Stock at $13.18 per share. The option to purchase shares 40 43 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) was acquired from WTC as part of the World Tax transaction. This transaction has been accounted for as a purchase. The assets acquired, including cost in excess of assets acquired, and liabilities assumed in the acquisition of Fidelity Tax were as follows (dollars in thousands): Tangible assets acquired at fair value..................... $ 437 Capitalized software....................................... 7,785 Liabilities assumed at fair value.......................... (3,422) ------- Total purchase price............................. $ 4,800 =======
On August 19, 1995, the Company acquired the common stock of Southern California Title Company, an underwritten title company with operations in Los Angeles County in the state of California. Southern California Title Company was acquired for $2.1 million in cash. The acquired company operates as a subsidiary of the Company in Los Angeles County, and is now known as Fidelity National Title Company. This transaction has been accounted for as a purchase. The assets acquired and liabilities assumed in the acquisition of Fidelity National Title Company were as follows (dollars in thousands): Tangible assets acquired at fair value..................... $ 935 Capitalized licensing costs................................ 2,498 Liabilities assumed at fair value.......................... (1,296) ------- Total purchase price............................. $ 2,137 =======
On September 14, 1995, the Company announced that it had executed a definitive agreement ("Agreement") with Nations Holding Group to acquire one hundred percent of Nations Title Inc., and its wholly owned subsidiaries Nations Title Insurance Company, Nations Title Insurance Company of New York and National Title Insurance Company of New York (collectively, "Nations Title Inc."), which is the eighth largest title insurer in the United States based on 1994 reported revenue. The acquisition of Nations Title Inc. is expected to close in the first quarter of 1996, following final determination of the purchase price. The Company believes that the combination of its direct operations and Nations' strong agency network will provide a balance to Fidelity's title premium revenue between direct and agency, as well as hedge against future market downturns. Once assimilated, this acquisition should increase the Company's operating efficiencies and produce certain economies of scale, resulting in increased profits and enhancing its balance sheet. The Nations acquisition will significantly increase market share in areas where Fidelity National Financial, Inc. and subsidiaries have a limited presence, particularly in those areas where business in primarily agent driven, as well as in states where the Company currently has a strong position, while increasing its presence in the key title insurance states. Under the terms of the Agreement, Fidelity National Financial, Inc. will acquire one hundred percent of the outstanding stock of Nations Title Inc. from its sole shareholder, Nations Holding Group, for a purchase price of $21 million in cash and 176,000 shares of Fidelity National Financial, Inc. Common Stock, subject to certain purchase price adjustments as defined in the Agreement. 41 44 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Selected unaudited pro forma combined results of operations for the years ended December 31, 1995 and 1994, assuming the Fidelity National Title Company of Washington, Fidelity Tax and Fidelity National Title Company acquisitions occurred on January 1, 1995 and 1994, are presented as follows:
DECEMBER 31, ----------------------- 1995 1994 -------- -------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Total revenue........................................ $417,270 $504,999 Earnings before extraordinary item................... 6,426 9,955 Net earnings......................................... 5,613 12,355 Earnings per share................................... $ .43 $ .75
C. INVESTMENTS In 1995, the Company reclassified fixed maturity securities previously classified as held to maturity to available for sale. See Note O. The carrying amounts and fair values of the Company's fixed maturity securities at December 31, 1995 and 1994 are as follows:
DECEMBER 31, 1995 --------------------------------------------------------- GROSS GROSS CARRYING AMORTIZED UNREALIZED UNREALIZED FAIR AMOUNT COST GAINS LOSSES VALUE -------- --------- ---------- ---------- -------- (DOLLARS IN THOUSANDS) Fixed maturity investments (available for sale): U.S. government and agencies.............. $ 77,523 $ 76,667 $ 959 $ (103) $ 77,523 States and political subdivisions......... 20,717 20,240 486 (9) 20,717 Corporate securities...................... 27,753 27,114 664 (25) 27,753 Mortgage-backed securities................ 3,243 3,243 -- -- 3,243 -------- -------- ------ -------- -------- $129,236 $ 127,264 $2,109 $ (137) $129,236 ======== ======== ====== ======== ========
DECEMBER 31, 1994 --------------------------------------------------------- GROSS GROSS CARRYING AMORTIZED UNREALIZED UNREALIZED FAIR AMOUNT COST GAINS LOSSES VALUE -------- --------- ---------- ---------- -------- (DOLLARS IN THOUSANDS) Fixed maturity securities (held to maturity): U.S. government and agencies.............. $ 15,411 $ 15,411 $ -- $ (1,335) $ 14,076 States and political subdivisions......... 8,774 8,774 67 (280) 8,561 Corporate securities...................... 2,386 2,386 1 (64) 2,323 Mortgage-backed securities................ 93 93 -- -- 93 -------- -------- ------ -------- -------- $ 26,664 $ 26,664 $ 68 $ (1,679) $ 25,053 ======== ======== ====== ======== ======== Fixed maturity securities (available for sale): U.S. government and agencies.............. $ 1,480 $ 1,521 $ -- $ (41) $ 1,480 States and political subdivisions......... 147,315 158,265 11 (10,961) 147,315 Mortgage-backed securities................ 316 378 -- (62) 316 -------- -------- ------ -------- -------- $149,111 $ 160,164 $ 11 $ (11,064) $149,111 ======== ======== ====== ======== ========
The changes in unrealized gains (losses) on fixed maturities for the years ended December 31, 1995, 1994 and 1993 were $13,025,000, $(16,574,000) and $5,067,000, respectively. 42 45 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The amortized cost and estimated fair value of fixed maturity securities, which are classified as available for sale at December 31, 1995, by contractual maturity, are shown as follows. Expected maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without call or prepayment penalties.
>AMORTIZED % FAIR % MATURITY COST OF TOTAL VALUE OF TOTAL --------- -------- -------- -------- (DOLLARS IN THOUSANDS) One year or less................................. $ 843 0.7% $ 844 0.7% After one year through five years................ 39,887 31.3 40,288 31.2 After five years through ten years............... 65,925 51.8 67,102 51.9 After ten years.................................. 20,609 16.2 21,002 16.2 -------- ----- -------- ----- Total......................................... $ 127,264 100.0% $129,236 100.0% ======== ===== ======== ===== Subject to call.................................... $ 46,956 36.9% $ 47,244 36.6%
Fixed maturity securities valued at approximately $10,569,000 and $10,977,000 were on deposit with various governmental authorities at December 31, 1995 and 1994, respectively, as required by law. The carrying value of the Company's investment in equity securities is fair value. As of December 31, 1995, gross unrealized gains and gross unrealized losses on equity securities were $9,054,000 and $2,110,000, respectively. Gross unrealized gains and gross unrealized losses on equity securities were $693,000 and $3,118,000, respectively, as of December 31, 1994. Equity securities at December 31, 1995 and 1994 consist of investments in various industry groups as follows:
1995 1994 ------------------- ------------------- FAIR FAIR COST VALUE COST VALUE ------- ------- ------- ------- (DOLLARS IN THOUSANDS) Banks, trust and insurance companies........ $12,038 $13,071 $13,196 $10,374 Industrial, miscellaneous and all other..... 12,430 18,341 4,711 5,108 ------- ------- ------- ------- Total..................................... $24,468 $31,412 $17,907 $15,482 ======= ======= ======= =======
The changes in unrealized gains (losses) on equity securities for the years ended December 31, 1995, 1994 and 1993 were $9,369,000, $(2,725,000) and $250,000, respectively. Interest and investment income, including realized gains (losses), consists of the following:
YEARS ENDED DECEMBER 31, ------------------------------- 1995 1994 1993 ------- ------- ------- (DOLLARS IN THOUSANDS) Cash and cash equivalents..................... $ 1,571 $ 561 $ 944 Fixed maturity securities..................... 8,254 9,569 10,205 Equity securities............................. 5,091 688 2,218 Short-term investments........................ 155 429 350 Notes receivable.............................. 2,355 1,450 928 Other......................................... 190 (779) 26 ------- ------- ------- $17,616 $11,918 $14,671 ======= ======= =======
Total realized gains (losses) included in interest and investment income amounted to $5,213,000, $(3,086,000) and $4,246,000 for the years ended December 31, 1995, 1994 and 1993, respectively. 43 46 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) During the years ended December 31, 1995, 1994 and 1993, gross realized gains on sales of fixed maturity securities considered available for sale were $1,700,000, $248,000 and $2,226,000, respectively, and gross realized losses were $1,331,000, $3,057,000 and $149,000, respectively. See Note O. Gross proceeds from the sale of fixed maturity securities considered available for sale amounted to $188,902,000, $101,323,000 and $77,371,000, during the years ended December 31, 1995, 1994 and 1993, respectively. During the years ended December 31, 1995, 1994 and 1993, gross realized gains on sales of equity securities considered available for sale were $5,111,000, $634,000 and $2,409,000, respectively, and gross realized losses were $457,000, $132,000 and $266,000, respectively. Gross proceeds from the sale of equity securities amounted to $25,622,000, $11,112,000 and $14,042,000, during the years ended December 31, 1995, 1994 and 1993, respectively. Included in other long term investments at December 31, 1994 are the Company's interests in two limited partnership investment funds, each totalling $7.5 million, which are carried at cost, which approximates fair value. D. NOTES RECEIVABLE Notes receivable consist of the following:
DECEMBER 31, ------------------- 1995 1994 ------- ------- (DOLLARS IN THOUSANDS) Mortgage notes, unsecured and secured by various deeds of trust, installments due monthly including interest at rates ranging from 7.5% to 15.0%, due through 2016........................... $ 1,484 $ 1,806 Promissory notes, secured by various assets, installments due monthly including interest at rates ranging from 8.5% to 13%, due through 2002............................................... 13,002 10,525 Promissory notes due from unconsolidated real estate partnerships at 12%, unsecured and secured by various deeds of trust, due through 1997................................................... 2,277 2,271 Promissory note due from the Company's Chief Executive Officer, secured by a deed of trust, in monthly installments including interest at 9.5%, due through 2001............................. 587 693 Officer and employee unsecured notes receivable at rates ranging from 7.0% to 10.0%, due through 1999........................... 1,517 627 ------- ------- 18,867 15,922 Allowance for doubtful receivables............................... (2,941) (2,783) ------- ------- $15,926 $13,139 ======= =======
The allowance for doubtful receivables is primarily related to notes receivable due from unconsolidated real estate partnerships. Interest income is not recognized on the Company's non-performing notes receivable. 44 47 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The carrying amounts and estimated fair values of the Company's notes receivable were as follows at December 31, 1995 and 1994 (dollars in thousands):
DECEMBER 31, ------------------------------------------- 1995 1994 ------------------- ------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE ------- ------- ------- ------- Mortgage notes...................... $ 1,404 $ 1,404 $ 1,734 $ 1,679 Other promissory notes.............. 12,466 12,466 10,085 9,764 Affiliated notes.................... 2,056 2,056 1,320 1,280 ------- ------- ------- ------- $15,926 $15,926 $13,139 $12,723 ======= ======= ======= =======
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 is assumed to approximate fair value. In September 1991, Manchester Development Corporation ("Manchester"), a wholly-owned subsidiary, sold certain real estate investments and operating properties to Folco Development Corporation ("Folco"), of which the Company's Chief Executive Officer and spouse are sole shareholders, at the assets' net book value of $2,211,000. This transaction resulted in a note receivable from Folco to Manchester of approximately $1,492,000 secured by subordinated deeds of trust on the 11 office buildings included in the sale to Folco; see Note E. In connection with the sale, the existing leases of space by the Company were amended thereby increasing rental rates approximately 20%. The terms of the agreement between Manchester and Folco provide that each of the subordinated deeds of trust will be released and reconveyed upon payment to Manchester of 15% of the net sales proceeds from the sale of the property encumbered by the subordinated deeds of trust. As of December 31, 1995 and 1994, the balance outstanding on the note approximated $587,000 and $693,000, respectively, and one property remains unsold. A note with an outstanding balance of $305,000 at December 31, 1995 and 1994, secured by a second deed of trust, is guaranteed by an officer of the Company. Secured notes with an aggregate total outstanding balance of $585,000 are due from certain officers of the Company. E. INVESTMENTS IN REAL ESTATE AND PARTNERSHIPS At December 31, 1995 and 1994, the Company had financial interests ranging from 22% to 50% in five real estate partnerships which are 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, had general partnership interests in four of these real estate partnerships at December 31, 1995 and 1994. See Notes J and N. Officers and directors of the Company have ownership interests in one of the partnerships formed for the development of a commercial office building and one of the partnerships formed for the development of a retail facility. The Company leases space in both the commercial office building and the retail facility. The officers and directors received varying limited partnership interests as consideration for guaranteeing certain construction loans. 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. 45 48 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Summarized combined financial information of the unconsolidated partnerships is as follows:
YEARS ENDED DECEMBER 31, ------------------------------- 1995 1994 1993 ------- ------- ------- (DOLLARS IN THOUSANDS) Total assets, primarily land, development and improvement costs........................... $13,031 $15,167 $20,814 Total liabilities, primarily notes and mortgages payable........................... 11,696 12,815 17,811 ------- ------- ------- Partners' equity.............................. $ 1,335 $ 2,352 $ 3,003 ======= ======= ======= Revenue....................................... $ 1,201 $ 1,247 $ 1,614 ======= ======= ======= Net loss...................................... $ (618) $ (450) $ (664) ======= ======= =======
At December 31, 1995 and 1994, the Company also had a 76% interest in a real estate partnership which is consolidated with the Company. During 1994, the Company paid $2.3 million in order to acquire a 100% ownership interest in an investment property where the Company had previously leased office space. The $2.3 million purchase price consisted of an $800,000 payment for the partnership interests of two third parties, and a $1.5 million payment to satisfy the then existing debt on the property. Two officers of the Company also held partnership interests in the property at the time of the acquisition. The partnership interests of the officers were transferred to the Company upon satisfaction of the debt. The Company disposed of the property during 1995 for its approximate book value. During 1993, the Company acquired from outside lenders substantially all of Manchester's outstanding indebtedness. Additionally, Manchester had not been released from its general partnership obligations under a separate debt agreement of a real estate partnership in which it sold its interest in 1991. During 1994, the lender on this project agreed to release Manchester by substituting the buyer as the obligor. No such release has yet been executed. The amounts outstanding under this debt agreement approximated $931,000 and $946,000 at December 31, 1995 and 1994, respectively. See Notes J and N. Manchester is presently a partner with Sussex Holdings, Ltd. (an affiliate of Folco) in Folco Mission Valley Partners Limited Partnership, a California limited partnership. Manchester owns a 22% limited partnership interest and Sussex Holdings, Ltd. owns a 78% general partnership interest. Fidelity Title is the sole tenant in the building and received an approximate 30% decrease in its annual rental rate based upon its lease with Folco Mission Valley. Investments in real estate and partnerships consist of the following:
DECEMBER 31, ------------------- 1995 1994 ------- ------- (DOLLARS IN THOUSANDS) Investments in real estate: Land................................................... $ 4,223 $ 4,223 Commercial buildings, net of accumulated depreciation of $2,160 and $2,003................................ 5,924 7,142 Investments in unconsolidated partnerships............... 1,979 1,522 ------- ------- 12,126 12,887 Valuation allowance...................................... (3,467) (3,296) ------- ------- $ 8,659 $ 9,591 ======= =======
46 49 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) F. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
DECEMBER 31, --------------------- 1995 1994 -------- -------- (DOLLARS IN THOUSANDS) Land................................................... $ 1,757 $ 2,177 Buildings.............................................. 12,839 13,175 Leasehold improvements................................. 7,299 6,049 Furniture, fixtures and equipment...................... 61,510 51,614 -------- -------- 83,405 73,015 Accumulated depreciation and amortization.............. (49,665) (34,001) -------- -------- $ 33,740 $ 39,014 ======== ========
G. NOTES PAYABLE Notes payable consist of the following:
DECEMBER 31, ----------------------- 1995 1994 -------- -------- (DOLLARS IN THOUSANDS) Credit agreement, secured by common stock of certain Insurance Subsidiaries, with principal due quarterly and interest due monthly at LIBOR rate plus 2.0% (7.81% at December 31, 1995), due September 2001..................... $ 21,250 $ -- Senior secured notes, secured by common stock of certain Insurance Subsidiaries, with interest due semi-annually at 8.375% ($12,500), and 8.735% ($10,000) paid in 1995........ -- 22,500 Equipment line of credit, secured by equipment, with interest due monthly at prime (8.5% at December 31, 1995), principal due September 1996; unused portion of $212 and $4,345 at December 31, 1995 and 1994................................. 4,788 1,655 Bank revolving line of credit due July 1995, secured by common stock of certain Insurance Subsidiaries, with interest due monthly at prime rate (8.5% at December 31, 1994); unused portion of $208 existed at December 31, 1994, paid in 1995............................................... -- 11,792 Bank promissory note, secured by equipment, with principal and interest due monthly at LIBOR plus 1.77% (7.58% at December 31, 1995), due October 1997....................... 6,156 9,322 Bank promissory note, secured by equipment, with principal and interest due monthly at LIBOR plus 1.77% (7.58% at December 31, 1995), due October 1998....................... 7,246 9,527 Bank promissory note, secured by equipment, with principal and interest due monthly at LIBOR plus 2.10% (7.91% at December 31, 1995), due June 1999.......................... 4,405 -- Liquid Yield Option Notes, zero coupon, subordinated convertible notes due 2009 with interest at 5.5%........... 91,951 87,168 Other promissory notes with various interest rates and maturities................................................. 251 165 -------- -------- $136,047 $142,129 ======== ========
47 50 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Principal maturities, including accretion of original issue discount, are as follows (dollars in thousands): 1996...................................................... $ 14,989 1997...................................................... 9,646 1998...................................................... 6,726 1999...................................................... 4,710 2000...................................................... 4,250 Thereafter................................................ 191,524 -------- $231,845 ========
The Company's Credit Agreement, dated as of September 21, 1995, which includes a $22 million dollar term loan and a $13 million dollar revolving credit facility, is collateralized by the common stock of certain Insurance Subsidiaries. Additionally, the Company must comply with certain affirmative and negative covenants related to the Credit Agreement which require, among other things, that the Company maintain certain financial ratios related to liquidity, net worth, capitalization, investments, restricted payments and certain dividend restrictions. The Company was in compliance with these covenants. At December 31, 1995, the maximum amount available to pay dividends is $6,955,000. The Company has entered into an interest rate swap agreement concurrent with the funding of the Credit Agreement, dated as of September 21, 1995, which is principally used by the Company in the management of interest rate exposure. The interest rate swap agreement is accounted for on the accrual basis. Income and expense are recorded in the same category as that arising from the related debt. Amounts to be paid or received under interest rate swap agreements are recognized as interest income or expense in the periods in which they accrue. The interest rate swap agreement has not had a material impact on the Consolidated Financial Statements. See Note N. In February 1994, the Company issued zero coupon, convertible subordinated LYONs due February 2009 at an interest rate of 5.5% with a principal amount at maturity of $235,750,000. Net proceeds to the Company were approximately $101,000,000. The proceeds were used for investment and general corporate purposes, including the repurchase of treasury shares. See Note K. The carrying amounts and estimated fair values of the Company's notes payable were as follows at December 31, 1995 and 1994 (dollars in thousands):
DECEMBER 31, ----------------------------------------------- 1995 1994 --------------------- --------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- -------- -------- -------- Short-term borrowings................... $ 4,908 $ 4,908 $ 13,477 $ 13,477 Long-term borrowings, variable rate..... 39,070 39,070 18,868 18,868 Long-term borrowings, fixed rate........ 92,069 86,132 109,784 88,329 -------- -------- -------- -------- $136,047 $130,110 $142,129 $120,674 ======== ======== ======== ========
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 LYONs fair value is calculated based on quoted market prices. 48 51 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) H. INCOME TAXES Income tax expense (benefit) consists of the following:
YEARS ENDED DECEMBER 31, ------------------------------ 1995 1994 1993 ------- ------ ------- (DOLLARS IN THOUSANDS) Current........................................ $(2,729) $ (27) $20,242 Deferred....................................... 4,120 3,913 (3,983) ------- ------- -------- $ 1,391 $3,886 $16,259
Total income tax expense for the years ended December 31, 1995 and 1994 were allocated as follows:
YEARS ENDED DECEMBER 31, --------------------- 1995 1994 -------- -------- (DOLLARS IN THOUSANDS) Income from continuing operations....................... $1,828 $2,594 Extraordinary gain (loss)............................... (437) 1,292 ------- ------ $1,391 $3,886 ======= ======
The effect of the change in 1993 of the Federal statutory tax rate on income tax expenses was not material. Deferred income tax expense (benefit) consists of the following:
YEARS ENDED DECEMBER 31, ------------------------------ 1995 1994 1993 ------ ------- ------- (DOLLARS IN THOUSANDS) Provision for claim losses in excess of statutory amounts............................ $4,890 $(2,305) $(9,017) Employee benefit accruals...................... 81 1,704 (1,168) (Excess) deficit book over tax bad debt expense...................................... (535) 618 (1,298) Other acquisition accruals..................... 610 1,314 1,349 Statutory unearned premium reserve............. 303 3,630 5,703 Investment securities.......................... -- (496) 453 Accelerated depreciation....................... -- 200 232 Investments in partnerships.................... -- 250 (135) Change in valuation allowance.................. -- (1,343) -- Section 338 (h)(10) gain deferral.............. (504) -- -- Other.......................................... (725) 341 (102) ------- -------- -------- $4,120 $ 3,913 $(3,983) ======= ======== ========
The effective tax rate differs from the Federal statutory income tax rate as follows:
YEARS ENDED DECEMBER 31, ------------------------ 1995 1994 1993 ----- ----- ---- Statutory federal income tax rate.................... 34.0% 35.0% 35.0% Tax exempt interest income........................... (23.3) (10.9) (3.9) Exclusion of certain meal and entertainment expenses........................................... 6.5 1.2 .1 Change in valuation allowance........................ -- (8.4) -- Other................................................ (.3) 7.3 (.3) ---- ---- ---- 16.9% 24.2% 30.9% ==== ==== ====
49 52 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The deferred tax assets and liabilities at December 31, 1995 consist of the following:
DEFERRED DEFERRED TAX TAX ASSETS LIABILITIES ----------- ------------ (DOLLARS IN THOUSANDS) Provision for claim losses in excess of statutory amounts............................................ $32,284 $ -- Employee benefit accruals............................ 2,354 -- Excess book over tax provision for bad debts......... 3,700 -- Other assets......................................... 274 -- Statutory unearned premium reserve................... -- 28,268 Accelerated depreciation............................. -- 1,165 Investment securities................................ -- 3,022 Investments in partnerships.......................... -- 1,313 Section 338 (h)(10) gain deferral.................... -- 3,324 Other acquisition accruals........................... -- 278 Other liabilities.................................... -- 1,275 ------- ------- Total deferred taxes................................. $38,612 $ 38,645 ======= =======
The deferred tax assets and liabilities at December 31, 1994 consisted of the following:
DEFERRED DEFERRED TAX TAX ASSETS LIABILITIES ----------- ------------ (DOLLARS IN THOUSANDS) Provision for claim losses in excess of statutory amounts............................................ $37,337 $ -- Employee benefit accruals............................ 2,304 -- Excess book over tax provision for bad debts......... 2,567 -- Investment securities................................ 4,592 -- Other acquisition accruals........................... 1,680 -- Other assets......................................... 637 -- Statutory unearned premium reserve................... -- 27,965 Title plants......................................... -- 324 Accelerated depreciation............................. -- 1,201 Section 338 (h)(10) gain deferral.................... -- 3,828 Investments in partnerships.......................... -- 1,608 Other liabilities.................................... -- 1,638 ------- ------- Total deferred taxes................................. $49,117 $ 36,564 ======= =======
Based upon the Company's current and historical pre-tax earnings, management believes it is more likely than not that the Company will realize the benefit of its existing deferred tax assets. 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 1990 through 1994 Federal income tax returns are currently under examination by the Internal Revenue Service. Based on information currently available, management does not believe the outcome of these examinations will have a material impact on the financial condition or results of operations of the Company. 50 53 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) I. SUMMARY OF RESERVE FOR CLAIM LOSSES A summary of the reserve for claim losses follows:
YEARS ENDED DECEMBER 31, ---------------------------------- 1995 1994 1993 -------- -------- -------- (DOLLARS IN THOUSANDS) Beginning balance.......................... $153,306 $142,512 $104,528 Title claim loss provision related to: Current year.......................... 23,901 38,575 32,773 Prior years........................... (4,870) (10,737) 6,447 -------- -------- -------- Total title claim loss provision......... 19,031 27,838 39,220 Title claims paid, net of recoupments related to: Current year.......................... (2,818) (1,742) (1,074) Prior years........................... (23,425) (21,521) (17,046) -------- -------- -------- Total title claims paid, net of recoupments........................... (26,243) (23,263) (18,120) Reserves assumed with Fidelity Pennsylvania and ATIC (1) ............ -- 6,219 -- Reserves assumed with Fidelity New York.................................. -- -- 17,632 Income tax adjustment.................... -- -- (748) -------- -------- -------- Ending balance............................. $146,094 $153,306 $142,512 ======== ======== ======== Provision for title claim losses to title insurance premiums....................... 6.7% 7.5% 9.1% Net claims paid ratio...................... 9.2% 6.3% 4.2%
- --------------- (1) See Note A. 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 loss development studies completed during 1995, 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. J. COMMITMENTS AND CONTINGENCIES The Company's title insurance underwriting subsidiaries are, in the ordinary course of business, subject to claims made under, and from time-to-time are named as defendants in legal proceedings relating to, policies of insurance they have issued or other services performed on behalf of insured policy holders and other customers. The Company believes that the reserves reflected in its Consolidated Financial Statements are adequate to pay losses and loss adjustment expenses which may result from such claims and proceedings; however, such estimates may be more or less than the amount ultimately paid when the claims are settled. In April 1991, the Company renewed the employment agreement with its Chief Executive Officer whereby he is to receive a base annual salary. Cash or other bonuses may be paid to him at the discretion of the Compensation Committee of the Board of Directors. The agreement expires in March 1996, and allows the Company to terminate its Chief Executive Officer without termination payments. 51 54 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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. In October 1992, Fidelity California filed an action for declaratory relief in U.S. District Court (Eastern District-Fresno, California) to determine its obligations and liabilities, if any, under a certain title insurance policy issued to National Westminster Bank U.S.A. ("NatWest") (Fidelity National Title Insurance Company of California v. National Westminster Bank U.S.A. and related counterclaim). NatWest filed a counterclaim for damages and certain equitable relief seeking compensatory damages of approximately $7,732,000, punitive damages in an unspecified amount, attorneys' fees, interest and costs. The Company has a reinsurance agreement in place that will reimburse the Company for all amounts paid in excess of $2.0 million. Fidelity California has previously recorded a claim loss reserve related to this matter in the Consolidated Financial Statements. The primary issues concern whether Fidelity California's policy insured the priority of NatWest's deed of trust over certain mechanics' lien claims and whether Fidelity California had an obligation to defend and indemnify NatWest against an action by a mechanics' lien claimant to enforce its claim of lien. As part of a counterclaim lawsuit, NatWest has added allegations of breach of the covenant of good faith and fair dealing. Fidelity California believes that the policy and endorsements issued to the insured exclude coverage for mechanics' liens. In September 1994, a three week trial was concluded. The court had asked for post trial briefing, which was provided by the parties and the case was submitted for decision in September 1994. No ruling has been received from the court. Management believes that the ruling will not have a material adverse effect on Fidelity National Title Insurance Company of California or the Company. In August 1994, CommerceBank filed a lawsuit (the "Lawsuit") against Tustin Retail (a real estate partnership), Manchester (a general partner in Tustin Retail) and two officers of the Company (also general partners in Tustin Retail). The Lawsuit is essentially a judicial foreclosure under a deed of trust securing a $4,350,000 note dated February 18, 1992, to CommerceBank from Tustin Retail (the "Note"). In December 1995, the Federal Deposit Insurance Corporation, which took control of CommerceBank, submitted a bid at the property foreclosure auction and acquired the property for $2.9 million. A fair value hearing is scheduled for June 1996, in order to determine the remaining amount due under the Note, if any. The defendants believe that the value of the real property subject to the deed of trust securing the Note is sufficient to satisfy any amounts due under the Note, based on an independent appraisal of the property substantiating such value. The defendants intend to vigorously defend the Lawsuit if it cannot be settled. Management believes that the Lawsuit will not have a material adverse effect on Manchester or the Company. In December 1995, Giant Group, Ltd. ("Giant") instituted an action in the United States District Court for the Central District of California against the Company, the Company's Chief Executive Officer and others. Giant alleges that defendants have engaged in various unlawful activities, including trading on non-public confidential and/or inside information, misappropriating confidential and proprietary information from Giant and its affiliate Rally's Hamburgers, Inc. and violating the disclosure requirements of Section 13(d) of the Securities Exchange Act of 1934. On January 3, 1996, Giant filed a First Amended Complaint to its Federal action which adds to Giants' prior allegations. Among other things, Giant alleges that the defendants plan to gain control of Rally's assets by forcing Rally's into bankruptcy. On January 16, 1996, Fidelity and Mr. Foley answered the First Amended Complaint and filed counterclaims against Giant and all of its directors. Fidelity and Mr. Foley deny that they engaged in any unlawful activities, including, among other things, trading on non-public confidential and proprietary information from Giant or Rally's, or violating the disclosure requirements of Section 13(d) of the Securities Exchange Act of 1934. In their counterclaims Fidelity and Mr. Foley seek certain declaratory relief, injunctive relief and monetary damages with respect to certain of the counterclaims. On February 16, 1996, Fidelity and Mr. Foley filed a First Amended Counterclaim against Giant and each of its directors. The Company believes that Giant's allegations are totally without merit and intends to defend the action and pursue their counterclaims vigorously. The Company has made an offer to 52 55 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) purchase Giant and already owns 14.8% of Giant's outstanding common stock. Giant declined the offer and Fidelity has announced that it intends to offer a slate of directors at Giant's next annual meeting. Management believes that no other actions depart from customary litigation incidental to the insurance 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 $204.8 million and $168.4 million at December 31, 1995 and 1994, respectively. 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): 1996............................................... $19,116 1997............................................... 13,876 1998............................................... 9,100 1999............................................... 4,028 2000............................................... 1,584 Thereafter......................................... 679 ------- Total future minimum operating lease payments...... $48,383 =======
Rent expense incurred under operating leases during the years ended December 31, 1995, 1994 and 1993 was $21,388,000, $24,795,000 and $21,317,000, respectively. Included in rent expense for 1995, 1994 and 1993 is $523,000, $772,000 and $710,000, respectively, paid to Folco, the Company's Chief Executive Officer and Folco Mission Valley Partners. K. STOCKHOLDERS' EQUITY The Company sold 1,402,500 shares of its Common Stock, including 149,600 treasury shares, in connection with an offering which became effective April 29, 1993. In connection with the offering, certain selling stockholders sold 1,485,000 shares of the Company's Common Stock, including 1,237,500 shares sold by Meridian Bancorp, Inc. (parent company of Meridian Bank). Proceeds of the offering were $17,827,000, net of expenses of $467,000. On March 31, 1994, the Company announced that its Board of Directors authorized the repurchase in the open market of up to 1.1 million shares of the Company's Common Stock, or a comparable amount of the Company's LYONs, which are convertible into 21.095 shares of Common Stock per $1,000 maturity amount of LYONs. On June 14, 1994, the Company's Board of Directors authorized the additional repurchase of up to 1.1 million shares of the Company's Common Stock or a comparable amount of the Company's LYONs. A third authorization to repurchase an additional 3.3 million shares of the Company's Common Stock or a comparable amount of the Company's LYONs was announced on August 11, 1994. On March 9, 1995, the Company announced that the Board of Directors authorized the additional repurchase of up to 2.2 million shares of the Company's Common Stock or comparable amount of LYONs. As of December 31, 1995, the Company had repurchased 5,168,853 shares of its Common Stock for an aggregate price of $56.3 million, or $10.89 per share. Additionally, as of December 31, 1995, the Company had repurchased $48 million in maturity amount of LYONs for an aggregate price of $17.6 million. The repurchase of the LYONs resulted in 53 56 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) an extraordinary gain of $2.4 million which is net of related income taxes, unamortized debt issuance costs and amortized original issue discount, and is reflected in the 1994 Consolidated Statement of Earnings. Title insurance companies are subject to extensive regulation under applicable state laws. Each insurance company is usually subject to a holding company act in its state of domicile which regulates, among other matters, the ability to pay dividends and investment policies. The laws of most states in which the Company transacts business establish supervisory agencies with broad administrative powers relating to issuing and revoking licenses to transact business, regulating trade practices, licensing agents, approving policy forms, accounting principles, financial practices, establishing reserve and capital and surplus requirements, defining suitable investments for reserves, capital and surplus and approving rate schedules. The Company has analyzed its current Insurance Subsidiary structure and the regulatory environments of the various states of domicile of the Insurance Subsidiaries. Based on this analysis the Company has implemented a program to merge certain of its Insurance Subsidiaries, resulting in two or three Insurance Subsidiaries as opposed to the current six. The Company is also reviewing the potential redomestication of certain Insurance Subsidiaries. Pursuant to statutory accounting requirements of the various states in which the Insurance Subsidiaries are qualified, they must defer a portion of premiums earned as an unearned premium reserve for the protection of policyholders and must maintain qualified assets in an amount equal to the statutory requirements. The level of unearned premium reserve required to be maintained at any time is determined on a quarterly basis by statutory formula based upon either the age and dollar amount of policy liabilities underwritten or the age and dollar amount of statutory premiums written. As of December 31, 1995, the combined statutory unearned premium reserve required and reported for the Insurance Subsidiaries was $121.5 million. The Insurance Subsidiaries are regulated by the insurance commissioners of their respective states of domicile. Regulatory examinations usually occur at three year intervals. Examinations have been completed for Fidelity Title and Fidelity California as of and for the three year period ended December 31, 1993. A preliminary report of examination has been received for Fidelity Title. The preliminary report, as forwarded to the Company by the State of Arizona Department of Insurance, indicates that the Arizona examiners are proposing adjustments that would impact Fidelity Title's statutory capital and surplus, as well as its amount available for dividends, if recorded. The Company is involved in ongoing discussions with the Arizona examiners and has reached a preliminary agreement with the Arizona examiners regarding these issues. The agreed upon adjustments have been considered in the calculation of dividend capability, statutory surplus and statutory income (loss) reported below. A final report of examination for Fidelity California as filed by the State of California Department of Insurance has been received by the Company. The report indicated that the examiners had adjustments which impacted the statutory capital and surplus of Fidelity California. In addition, these adjustments affected the Fidelity California amount available for dividends. Adjustments required as a result of the examination of Fidelity California have been considered in the calculation of dividend capability, statutory surplus and statutory income (loss) reported below. The Department of Insurance of the State of Florida has recently completed a triennial examination of ATIC as of and for the three year period ended December 31, 1994. The Company recently received a preliminary report of examination. The preliminary report, as forwarded to the Company by the Department of Insurance of the State of Florida, indicates that the examiners are proposing adjustments that could materially impact the statutory capital and surplus of ATIC. These adjustments have not been included in the 1995 Statutory Annual Statement as filed with insurance regulatory authorities. Certain of these proposed adjustments have been considered in the calculation of dividend capability, statutory surplus and statutory income (loss) reported below. In addition, since early 1995, the Company has effectively discontinued issuing ATIC insurance policies. Further, ATIC has recently entered into a voluntary consent order with the Department of Insurance of the State of Florida agreeing voluntarily to cease writing all new insurance 54 57 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) business and to certain other conditions and restrictions. Policies issued through ATIC operations are underwritten by Fidelity Title. Statutorily calculated net worth determines the maximum insurable amount under any single title insurance policy. As of January 1, 1996, the statutory single policy maximum insurable amounts for Fidelity Title, Fidelity Pennsylvania, ATIC and Fidelity New York were $25.2 million, $30.0 million, $2.9 million and $25.0 million, respectively. There are no statutory single risk limits prescribed for Fidelity California or Fidelity Tennessee. 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 or distributions made in any twelve month period may not exceed the lesser of 10% of the surplus as regards policyholders as of the last day of the preceding year or the net investment income for the twelve month period ending the last day of the preceding year. In the case of Fidelity California, Fidelity Tennessee and Fidelity Pennsylvania, the total amount of dividends made in any twelve month period may not exceed the greater of 10% of the surplus as regards policyholders as of the last day of the preceding year or net income for the twelve month period ending the last day of the preceding year. In the case of ATIC, the total amount of dividends or distributions made in any twelve month period may not exceed 10% of the total of statutory unassigned funds plus the preceding year's statutory net income. In the case of Fidelity New York, the total amount of dividends and distributions is limited to surplus as regards policyholders, excluding capital stock, less fifty percent of statutory premium reserve as of the last day of the preceding year and capital contributions received in the latest five year period. As of January 1, 1996, Fidelity Title could pay dividends or make other distributions to the Company of $3,016,000. As of January 1, 1996, Fidelity California and Fidelity Tennessee could pay dividends or make distributions to Fidelity Title of $1,072,000 and $623,000, respectively. As of January 1, 1996, Fidelity Pennsylvania could pay dividends or make other distributions to the Company of $2,193,000. ATIC and Fidelity New York do not have any dividend capability as of January 1, 1996. The combined statutory capital and surplus of the Insurance Subsidiaries was $71,052,000, $85,553,000 and $92,548,000 as of December 31, 1995, 1994 and 1993, respectively. The combined statutory income (loss) of the Insurance Subsidiaries was $(699,000), $5,288,000 and $31,350,000 for the years ended December 31, 1995, 1994 and 1993, respectively. These amounts do not include certain of the proposed ATIC examination adjustments previously discussed. As a condition to continued authority to underwrite policies in the states in which the Insurance Subsidiaries conduct their business, the Insurance Subsidiaries are required to pay certain fees and file information regarding their officers, directors and financial condition. In addition, the Company's escrow and trust business is subject to regulation by various state banking authorities. Under Arizona law, minimum statutory requirements are $500,000 for capital and $250,000 for surplus. Under California law, the minimum statutory requirement is $500,000 for paid-in capital represented by shares of stock. Under Tennessee law, minimum statutory requirements are $100,000 for capital, and $500,000 for capital and surplus combined. Under Pennsylvania law, the minimum statutory requirements are capital of not less than $250,000, and paid in initial surplus at least equal to fifty percent of capital. Under Florida law, the minimum statutory requirement is surplus as to policyholders of not less than the greater of $1,500,000 or 10% of total liabilities. Under New York law, the minimum statutory requirement is $250,000 for capital and initial surplus. Each of the Company's title underwriters have complied with the minimum statutory requirements as of December 31, 1995, with the exception of ATIC, after considering the proposed examination adjustments previously discussed. In November 1995, the National Association of Insurance Commissioners ("NAIC") distributed the latest draft of the Title Insurers Model Act (the "Act"). The purpose of the Act is to provide guidance to the 55 58 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) state insurance regulatory agencies relative to the effective regulation and supervision of the title insurance industry and title insurers. The Act addresses aspects of the title insurance industry from corporate structure and financial and accounting information to market conduct and legal standards. The effective date of the Act has not been specified in the draft of the Act. Certain provisions of the Act will be phased in over a multi-year period. The UTCs are also subject to certain regulation by insurance regulatory or banking authorities, primarily relating to minimum net worth and dividend capability. Minimum net worth of $7.5 million and $2.5 million is required for FNTC and FNCAL, respectively. In addition, the Company has agreed to notify the State of California Department of Insurance of dividend payments by FNTC and FNCAL greater than 30% of earnings before income taxes for a period of three years. L. EMPLOYEE BENEFIT PLANS Employee benefits include an employee stock purchase plan, three stock option plans and a 401(k) plan. In 1987, stockholders approved the adoption of an Employee Stock Purchase Plan ("ESPP"). Under the terms of the ESPP and subsequent amendments, there are 6,600,000 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, 1995, 1994 and 1993, 261,075, 300,752 and 228,127 shares, respectively, were purchased and allocated to employees, based upon their contributions, at an average price of $11.82, $13.17 and $15.88 per share, respectively. The Company contributed $1.4 million or the equivalent of 118,644 shares for the year ended December 31, 1995; $1.3 million or the equivalent of 103,094 shares for the year ended December 31, 1994; and $1.3 million or the equivalent of 88,796 shares for the year ended December 31, 1993 in accordance with the employer's matching contribution. A total of 4,674,265 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 1,361,250 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 canceled prior to exercise are added to the shares authorized for future grants. The 1987 Option Plan, which may be terminated at the discretion of the Board of Directors, expires December 31, 1996 with respect to incentive stock options, and December 31, 1997, with respect to non-qualified stock options. See table below. In 1992, the stockholders approved the adoption of the 1991 Stock Option Plan ("1991 Option Plan"). Under the terms of the 1991 Option Plan, options may be granted to officers and key employees of the Company or any or all of its present or future subsidiaries. The number of shares reserved for issuance under the 1991 Option Plan and subsequent amendments is 1,952,500 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 10 years from the date of grant. 56 59 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) In 1994, the stockholders approved the adoption of the 1993 Stock Plan ("1993 Plan"). Under the terms of the 1993 Plan, options may be granted to officers, key employees and non-employee directors of the Company. The number of shares of Common Stock reserved for issuance under the 1993 Plan is 825,000. 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. The following table sets forth activity in the 1987 and 1991 Stock Option Plans and the 1993 Stock Plan from December 31, 1993 through December 31, 1995:
1991 STOCK OPTION PLAN 1987 STOCK OPTION PLAN 1993 STOCK PLAN(2) ---------------------------------------- ------------------------ ------------------------ INCENTIVE NON-QUALIFIED EXERCISE EXERCISE EXERCISE OPTIONS OPTIONS PRICE SHARES PRICE(1) SHARES PRICE --------- ------------- ------------ ---------- ----------- -------- ------------- Outstanding at December 31, 1993........................... 9,071 242,550 $ 1.37-13.86 1,170,445 $ 1.47-9.70 52,250 $ 13.48 Granted in 1994................ -- 216,700 12.62 283,201 8.07 16,500 12.62 Exercised in 1994.............. (5,445) -- 1.37 (252,152) 1.21-9.45 -- -- --------- ------------- ------------ ---------- ----------- -------- ------------- Outstanding at December 31, 1994........................... 3,626 459,250 1.37-13.86 1,201,494 1.47-9.70 68,750 12.62-13.48 Granted in 1995................ -- 275,000 9.20-11.82 50,990 4.77 80,300 9.09- 9.88 Exercised in 1995.............. (1,814) -- 1.37 (193,781) .98-9.23 -- -- Expired or cancelled in 1995... -- -- -- -- -- (16,500) 12.61-13.48 --------- ------------- ------------ ---------- ----------- -------- ------------- Outstanding at December 31, 1995........................... 1,812 734,250 $ 1.37-13.86 1,058,703 $ .98-9.23 132,550 $ 9.09-13.48 ======== ============ ========== ========= ========= ========= =========== Exercisable at December 31, 1995........................... 1,812 486,750 $ 1.37-13.86 1,055,471 $ .98-9.23 95,516 $ 9.77-13.48 ======== ============ ========== ========= ========= ========= =========== Exercisable through.............. July 1998 April 2005 April 2005 May 2005
- --------------- (1) There were 437,246 options granted in 1993. These options were granted at an exercise price of $12.73 to key employees of the Company who applied deferred bonuses expensed in 1992 amounting to $1,325,000 to the exercise price reducing it to $9.70 per share if exercised within the first year of grant. This is a non-variable plan that allows for exercise prices with a fixed discount from the quoted market price. The exercise price of these options decreases approximately 2.3% per year through 1998 and $.09 per share from 1999 through 2005 at which time the exercise price will be $8.09. 283,201 options were granted in 1994 at an exercise price of $12.62 to key employees of the Company who applied deferred bonuses expensed in 1993 amounting to $1,287,000 to the exercise price reducing it to $8.07 per share if exercised within the first year of grant. The exercise price of these options decreases approximately 3.3% per year through 1999 and $.14 per share from 2000 through 2006 at which time the exercise price will be $6.00. 50,990 options were granted in 1995 at an exercise price of $9.32 to key employees of the Company who applied deferred bonuses expensed in 1994 amounting to $236,773 to the exercise price, reducing it to $4.77 if exercised within the first year of the grant. The exercise price of these options decreases approximately 7.0% per year through 2000 and $.20 per share from 2001 through 2007, at which time the exercise price will be $1.95. 57 60 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) M. SUPPLEMENTARY CASH FLOW INFORMATION The following supplemental cash flow information is provided with respect to interest and tax payments, as well as certain non-cash investing and financing activities.
YEARS ENDED DECEMBER 31, ------------------------------- 1995 1994 1993 ------- ------- ------- (DOLLARS IN THOUSANDS) Cash paid (refunded) during the year: Interest............................................ $ 5,818 $ 4,022 $ 1,829 ======= ======= ======= Income taxes........................................ $(3,147) $12,286 $15,269 ======= ======= ======= Non-cash investing and financing activities: Dividends declared and unpaid....................... $ 860 $ 855 $ 1,072 ======= ======= ======= Liabilities assumed in acquisitions (See Note B.)... $ -- $ -- $26,410 ======= ======= ======= Discount on purchase of ATIC Preferred Stock, increase in reserve for claim losses............. $ -- $ 6,219 $ -- ======= ======= ======= Acquisition of ACS Systems, Inc. (See Note B.)...... $ -- $ 2,681 $ -- ======= ======= =======
As noted in Note A, effective January 1, 1993, the Company adopted Statement 109 which requires a change from the deferred method of accounting for income taxes of APB Opinion 11 to the asset and liability method of accounting for income taxes. Implementation of Statement 109 resulted in non-cash adjustments to the following balance sheet accounts:
INCREASE (DECREASE) ---------------------- (DOLLARS IN THOUSANDS) Assets: Investment securities.......................... $ (22) Trade receivables,net.......................... (48) Notes receivable, net.......................... (84) Prepaid expenses and other asset............... (85) Title plants................................... (354) Deferred income taxes.......................... 4,644 ------- $4,051 ================= Liabilities: Accounts payable and accrued liabilities....... $4,799 Reserve for claim losses....................... (748) ------- $4,051 =================
N. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF RISK In the normal course of business the Company enters into off-balance sheet credit risk associated with both its title insurance claims settlements. This credit risk is in the form of standby letters of credit outstanding of $317,000 at December 31, 1995 and 1994. Although the Company has credit risk associated with these obligations, it also has contractual rights associated with the claims settlement procedures. The Company generates a significant amount of title insurance premiums in California and Texas, 43.6% and 10.1% in 1995, 37.9% and 10.7% in 1994 and 45.5% and 9.0% in 1993, respectively. 58 61 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents, short-term investments, trade receivables, notes receivable and financial instruments used in hedging activities. The Company places its cash equivalents and short-term investments with high credit quality financial institutions and, by policy, limits the amount of credit exposure with any one financial institution. Investments in commercial paper of industrial firms and financial institutions are rated A1, P1 or better. Concentrations of credit risk with respect to trade receivables are limited because a large number of geographically diverse customers make up the Company's customer base, thus spreading the trade 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. The counterparty to the agreement relating to the Company's interest rate swap instrument consists of a major high credit quality financial institution. The Company does not believe that there is significant risk of nonperformance by this counterparty because the Company continually monitors the credit rating of such counterparties, and limits the financial exposure and the amount of agreements entered into with any one financial institution. While the notional amounts of financial instruments are often used to express the volume of these transactions, the potential accounting loss on these transactions if the counterparty failed to perform is limited to the amounts, if any, by which the counterparty's obligation under the contract exceeds the obligation of the Company to the counterparty. During 1993, the Company acquired from outside lenders substantially all of Manchester's outstanding indebtedness. Additionally, Manchester had not been released from its general partnership obligations under a separate debt agreement of a real estate partnership in which it sold its interest in 1991. The amount outstanding under this agreement totalled $931,000 and $946,000 at December 31, 1995 and 1994, respectively. During 1994, the lender on this project agreed to release Manchester by substituting the buyer as the obligor. No such release has yet been executed. The Company does not believe that Manchester will require additional capital contributions from the Company that will materially impact liquidity, nor will Manchester's operations materially impact the Company's results of operations. At December 31, 1995 and 1994, the Company had off-balance sheet credit risk associated with general partnership obligations of $7,898,000 and $8,019,000, respectively. The Company believes that this credit risk is adequately secured by either legal remedies associated with settlement procedures or the underlying real estate assets. See Note J. The Company has a significant concentration of credit risk in its real estate operations which owns commercial real estate properties for its title insurance related direct operations in California and Arizona. As of December 31, 1995 and 1994, the Company's investments in real estate and partnerships totalled $8,659,000 and $9,591,000, respectively. Real estate related notes receivable of $1,992,000 and $2,428,000, respectively, which are net of reserves of $2,357,000 and $2,342,000, respectively, were outstanding at December 31, 1995 and 1994, and were secured by either commercial real estate or were due from real estate related partnerships. The Company feels that this concentration of credit risk is adequately secured by either the underlying real estate or the related assets available from the general partners guaranteeing the loans. See Notes D, E and J. 59 62 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) O. NEW PRONOUNCEMENTS In May 1993, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 115 ("Statement 115"), "Accounting for Certain Investments in Debt and Equity Securities." Statement 115 requires that investments be classified as "held to maturity," "available for sale" or "trading securities." Statement 115 defines investments in securities as "held to maturity" based upon a positive intent and ability to hold those securities to maturity. Investments held to maturity are reported at amortized cost. Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as "trading securities" and reported at fair value, with unrealized gains and losses included in operations. Debt and equity securities not classified as "held to maturity" or "trading securities" are classified as "available for sale" and recorded at fair value with unrealized gains and losses excluded from operations and reported as a separate component of stockholders' equity, net of related income tax effect. The Company adopted Statement 115 on January 1, 1994 and the impact on the results of operations and financial position was not material. In November 1995, the Financial Accounting Standards Board Emerging Issues Task Force granted all entities a one-time opportunity to reconsider their ability and intent to hold securities accounted for under Statement 115 as held to maturity. This allows entities to transfer securities from the held to maturity category without "tainting" their remaining held to maturity securities. The Board emphasized that this would be a one-time event. The Company has reassessed the appropriateness of the classifications of securities held and has chosen to reclassify its held to maturity portfolio to available for sale in 1995, in order to provide additional investment portfolio management flexibility. The fair value of the securities transferred from the held to maturity portfolio to the available for sale portfolio totalled $25.5 million and resulted in an unrealized gain of $459,000, before applicable income taxes. In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 ("Statement 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Statement 121 provides guidance for recognition and measurement of impairment of long-lived assets, certain identifiable intangibles and goodwill related both to assets to be held and used and assets to be disposed of. Statement 121 requires that under certain conditions entities perform separate calculations for assets to be held and used to determine whether recognition of an impairment loss is required and, if so, to measure the impairment. If the sum of the expected future cash flows, undiscounted and without interest charges, is less than the asset's carrying amount, an impairment loss is considered; if the sum of the expected future cash flows is more than the asset's carrying amount, an impairment loss cannot be recognized. Measurement of an impairment loss is based on the fair value of the asset. Statement 121 requires long-lived assets and certain identifiable intangibles to be disposed of to be reported at the lower of carrying amount or fair value less cost to sell, except for assets covered by the provisions of Accounting Pronouncements Board Opinion No. 30. Statement 121 is effective for financial statements issued for fiscal years beginning after December 15, 1995. The Company does not anticipate that the adoption of Statement 121 will have a material effect on the Consolidated Financial Statements. Statement of Financial Accounting Standards No. 123 ("Statement 123"), "Accounting for Stock-Based Compensation", was issued by the Financial Accounting Standards Board in October 1995. Statement 123 applies to all transactions in which an entity acquires goods or services by issuing instruments or by incurring liabilities where the payment amounts are based on the entity's common stock price, except for employee stock ownership plans ("ESOPs"). Statement 123 covers transactions with employees and non-employees and is applicable to both public and non-public entities. Statement 123 establishes a new method of accounting for stock-based compensation arrangements with employees. The new method is a fair value method rather than the intrinsic value method that is contained in Accounting Pronouncements Board Opinion No. 25 ("Opinion 25"). However, the Statement does not require an entity to adopt the new fair value based method for purposes of preparing its basic financial statements. Entities are allowed (1) to continue to use the Opinion 25 method or (2) to adopt the Statement 123 fair value based method. Once the fair value based 60 63 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) method is adopted, an entity cannot change back to the Opinion 25 method. Also, the selected method applies to all of an entity's compensation plans and transactions. The Statement 123 fair value based method will result in higher compensation cost than the Opinion 25 intrinsic value based method for fixed stock option compensation plans and will result in a different compensation cost for variable stock option compensation plans. Sometimes the amount will be higher and sometimes the amount will be lower. Also, many employee stock purchase plans that are considered noncompensatory under Opinion 25 will be compensatory and result in the recognition of compensation costs under the fair value based method. For entities not adopting the Statement 123 fair value based method, the Statement creates a unique financial reporting situation. It requires entities that retain the Opinion 25 method for preparing their basic financial statements to display in the footnotes pro forma net income and earnings per share information as if the fair value based method had been adopted. Thus, these entities are required to account for employee compensation arrangements by two different methods and must present two separate measures of results of operations. Statement 123 is effective for fiscal years beginning after December 15, 1995. The Company intends to continue using the Opinion 25 method when accounting for stock based compensation in its basic financial statements upon adoption of Statement 123. The Company will choose the pro forma disclosure method. Statement of Position 94-6 ("SOP 94-6"), "Disclosure of Certain Significant Risks and Uncertainties," was issued in December 1994. SOP 94-6 requires disclosures about certain risks and uncertainties that could significantly affect the amounts reported in an entity's financial statements in the near term and relate to: the nature of operations, the necessary use of estimates in the preparation of financial statements and significant concentrations in certain aspects of the entity's operations. SOP 94-6 is applicable to financial statements of both public and non-public companies, but does not cover governmental entities. SOP 94-6 is effective for financial statements issued for fiscal years ending after December 15, 1995. The Company has included SOP 94-6 related disclosures in its 1995 Consolidated Financial Statements. 61 64 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. THROUGH 13. Within 120 days after the close of its fiscal year, the Company intends to file with the Securities and Exchange Commission a definitive proxy statement pursuant to Regulation 14A of the Securities Exchange Act of 1934 as amended, which will include the election of directors, the report of compensation committee on annual compensation, certain relationships and related transactions and other business. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) FINANCIAL STATEMENTS. The following is a list of the Consolidated Financial Statements of Fidelity National Financial, Inc. and its subsidiaries included in Item 8 of Part II. Independent Auditors' Report. Consolidated Balance Sheets as of December 31, 1995 and 1994. Consolidated Statements of Earnings for the years ended December 31, 1995, 1994 and 1993. Consolidated Statements of Stockholders' Equity for the years ended December 31, 1995, 1994 and 1993. Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993. Notes to Consolidated Financial Statements. (a)(2) FINANCIAL STATEMENT SCHEDULES. The following is a list of financial statement schedules filed as part of this annual report on Form 10-K. Schedule I: Fidelity National Financial, Inc. (Parent Company Financial Statements). Schedule II: Valuation and Qualifying Accounts. All other schedules are omitted because they are not applicable or not required, or because the required information is included in the Consolidated Financial Statements or notes thereto. (a)(3) The following exhibits are incorporated by reference or are set forth on pages to this Form 10-K:
EXHIBIT NUMBER DESCRIPTION ---------- -------------------------------------------------------------------------- 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.
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EXHIBIT NUMBER DESCRIPTION ---------- -------------------------------------------------------------------------- 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. 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. 10.2 Sale Agreement with Exhibits dated August 23, 1991 between Fidelity National Financial, Inc. and Meridian Bank, a Pennsylvania banking corporation, incorporated by reference from Form 10-K filed March 23, 1992.
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EXHIBIT NUMBER DESCRIPTION ---------- -------------------------------------------------------------------------- 10.3 Tax Allocation Agreement between Fidelity National Title Insurance Company and Fidelity National Financial, Inc., incorporated by reference from Form S-1, Registration No. 33-11321. 10.3.1 Tax Allocation Agreement dated February 19, 1992 between Fidelity National Title Insurance Company and Fidelity National Financial, Inc., incorporated by reference from Form 10-K filed March 23, 1992. 10.3.2 Tax Allocation Agreement dated February 19, 1992 between Fidelity National Title Insurance Company of California and Fidelity National Financial, Inc., incorporated by reference from Form 10-K filed March 23, 1992. 10.3.3 Tax Allocation Agreement dated February 19, 1992 between Fidelity National Title Insurance Company of Texas and Fidelity National Financial, Inc., incorporated by reference from Form 10-K filed March 23, 1992. 10.3.4 Tax Allocation Agreement dated January 1, 1989 between Western Financial Trust Company and Fidelity National Financial, Inc., incorporated by reference from Form 10-K filed March 29, 1993. 10.3.5 Tax Allocation Agreement dated July 1, 1992 between American Title Insurance Company and Fidelity National Financial, Inc., incorporated by reference from Form 10-K filed March 29, 1993. 10.3.6 Tax Allocation Agreement dated July 1, 1992 between Fidelity National Title Insurance Company of Pennsylvania and Fidelity National Financial, Inc., incorporated by reference from Form 10-K filed March 29, 1993. 10.3.7 Tax Allocation Agreement dated February, 1992 between Fidelity National Title Insurance Company of Tennessee and Fidelity National Financial, Inc., incorporated by reference from Form 10-K filed March 18, 1994. 10.3.8 Tax Allocation Agreement dated March 1, 1993 between Fidelity National Title Insurance Company of New York and Fidelity National Financial, Inc., incorporated by reference from Form 10-K filed March 18, 1994. 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.
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EXHIBIT NUMBER DESCRIPTION ---------- -------------------------------------------------------------------------- 10.6 Fidelity National Financial, Inc. 401(k) Profit Sharing Defined Contribution Plan and Trust adopted January 1, 1990, incorporated by reference from Form 10-K filed January 29, 1991. 10.6.1 Amendments to Fidelity National Financial, Inc. 401(k) Profit Sharing Plan, incorporated by reference from Form S-8, Registration No. 33-56514. 10.7 Fidelity National Financial, Inc. 1991 Stock Option Plan, approved by the stockholders of the Company on July 15, 1992, incorporated by reference from Form S-8, Registration No. 33-45272. 10.7.1 Amendments to Fidelity National Financial, Inc. 1991 Stock Option Plan approved by the stockholders of the Company on June 15, 1993, incorporated by reference from Form S-8, Registration No. 33-64834. 10.7.2 Amendment to Fidelity National Financial, Inc. 1991 Stock Plan, approved by the stockholders of the Company on June 14, 1994, incorporated by reference from Form S-8, Registration No. 33-83026. 10.8 Loan Agreement dated October 31, 1989 between Fidelity National Financial, Inc., Fidelity National Title Insurance Company of California and Imperial Bank with respect to loans in the principal amount of $15,343,756, incorporated by reference from Form 10-K filed January 29, 1990. 10.8.1 Promissory Note in the original principal amount of $12,000,000 to Imperial Bank by Fidelity National Financial, Inc. dated March 2, 1992, incorporated by reference from Form 10-K filed March 29, 1993. 10.8.2 General Security Agreement between Fidelity National Financial, Inc. and Imperial Bank dated February 1, 1989, incorporated by reference from Form 10-K filed January 29, 1990. 10.8.3 Credit Agreement dated as of September 21, 1995 between Fidelity National Financial Inc. and The Chase Manhattan Bank, N.A., Sanwa Bank California, Imperial Bank and First Interstate Bank, incorporated by reference from Form 8-K filed September 29, 1995. 10.8.3.1 Amendment No. 1, dated as of December 18, 1995, to the Fidelity National Financial, Inc. Credit Agreement dated as of September 21, 1995. 10.9 Agreement of Limited Partnership of Governor Park Partners, L.P., a California limited partnership, dated June 6, 1988 by and among Manchester Development Corporation, William W. Gerrity, and Jeffrey D. Sterk, incorporated by reference from Form 10-K filed January 29, 1989. 10.9.1 Promissory Note Secured by Deed of Trust to Imperial Bank dated July 24, 1991 by Governor Park Partners, L.P. in the original principal amount of $5,000,000, incorporated by reference from Form 10-K filed March 23, 1992. 10.9.2 Assignment of Deed of Trust dated May 4, 1993 by Imperial Bank to Fidelity National Financial, Inc., incorporated by reference from Form 10-K filed March 18, 1994. 10.9.3 Promissory Note dated March 1, 1990 in the original principal amount of $800,000 to Manchester Development Corporation by Governor Park Partners, L.P., incorporated by reference from Form 10-K filed March 29, 1993. 10.9.4 Modification Agreement dated November 30, 1992 between Manchester Development Corporation and Governor Park Partners, L.P., incorporated by reference from Form 10-K filed March 29, 1993.
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EXHIBIT NUMBER DESCRIPTION ---------- -------------------------------------------------------------------------- 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. 10.10.1 Loan Purchase and Sale Agreement dated July 31, 1991 by and between Resolution Trust Corporation, and Manchester Development Corporation, a California corporation, incorporated by reference from Form 10-K filed March 23, 1992. 10.10.1.1 Assignment and Assumption Agreement dated September 13, 1991 among Manchester Development Corporation, a California corporation, Folco Mission Valley Partners Limited Partnership, a California limited partnership, and Resolution Trust Corporation, 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. 10.11 Fixed Rate Promissory Note Secured by Deed of Trust dated September 16, 1991 in the original principal amount of $1,492,646 to Manchester Development Corporation, a California corporation, by Folco Development Corporation, an Arizona corporation, 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. 10.13 Office Building Lease dated June 17, 1987 between Liberty Service Corporation, as Landlord and Fidelity National Title Insurance Company, as Tenant, with respect to corporate headquarters, incorporated by reference from Form 10-K filed January 29, 1990. 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. 10.15 Form of Fidelity National Title Insurance Company Issuing Agency Agreement, 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.
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EXHIBIT NUMBER DESCRIPTION ---------- -------------------------------------------------------------------------- 10.17 Agreement of Limited Partnership of Oxnard Office Partners, a California limited partnership, dated October 1988 by and among Kensington Development Corporation, William P. Foley, II, Frank P. Willey, Gregory A. Winters, Joseph A. Beckerle, John E. Hock, Robert A. Diemer, and Gerald S. Misurek, incorporated by reference from Form 10-K filed January 29, 1989. 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. 10.20 Agreement of Limited Partnership of RSM Associates, a California limited partnership, dated September, 1989 by and among Manchester Development Corporation, John West, Steve Waters, Diversified Management Associates, Inc., a California corporation, and such limited partners as may be added, incorporated by reference from Form 10-K filed January 29, 1991. 10.20.1 Office Building Lease dated October, 1989 between RSM Associates, as Landlord, and Fidelity National Title Insurance Company, as Tenant, incorporated by reference from Form 10-K filed January 29, 1991. 10.20.2 Office Building Lease dated October, 1989 between RSM Associates, as Landlord, and Fidelity National Title Insurance Company, as Tenant, incorporated by reference from Form 10-K filed January 29, 1991. 10.20.3 Modification Agreement Amending Note and Deed of Trust dated November 8, 1991 by RSM Associates, a California limited partnership, and Security Pacific Bank, incorporated by reference from Form 10- K filed March 23, 1992. 10.20.4 Promissory Note dated October 1, 1989 in the original principal amount of $750,000 to Manchester Development Corporation by RSM Associates, incorporated by reference from Form 10-K filed March 29, 1993. 10.20.5 Modification Agreement dated November 30, 1992 between Manchester Development Corporation and RSM Associates, incorporated by reference from Form 10-K filed March 29, 1993.
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EXHIBIT DESCRIPTION NUMBER - ---------- 10.21 Form of Indemnification Agreement between the Registrant and certain of its officers and directors dated as of May 1, 1988 and the schedule of such officers and directors attached thereto, incorporated by reference from Form 10-K filed January 29, 1990. 10.22 Loan and Completion Guaranty dated June 22, 1988 to Commercial Center Bank, a California corporation, by Fidelity National Financial, Inc., incorporated by reference from Form 10-K filed January 29, 1991. 10.24 New York Stock Exchange, Inc. Listing Agreement dated February 7, 1992 by Fidelity National Financial, Inc., incorporated by reference from Form 10-K filed March 29, 1993. 10.25 Stock Purchase Agreement dated November 23, 1992 by and among Fidelity National Financial, Inc., Fidelity National Title Insurance Company of Pennsylvania, Security Title and Guaranty Company, and Helmsley Enterprises, Inc., incorporated by reference from Form 10-K filed March 29, 1993. 10.26 Agreement for Deed in Lieu of Foreclosure and Joint Escrow Instructions dated March 1992 between Manchester Development Corporation and Puget Sound Savings Bank, incorporated by reference from Form 10-K filed March 29, 1993. 10.27 Form of Underwriting Agreement between certain Representatives of the Underwriters and Fidelity National Financial, Inc., incorporated by reference from Form S-2, Registration No. 33-46597. 10.28 Form of Note Agreement dated as of March 1, 1993 between Fidelity National Financial, Inc. and Purchasers and the Schedule of such Purchasers, incorporated by reference from Form 10-K filed March 29, 1993. 10.28.1 Intercreditor Agreement dated as of March 1, 1993 among Imperial Bank, Massachusetts Mutual Life Insurance Company, The Canada Life Assurance Company, Canada Life Insurance Company of America, and Fidelity National Financial, Inc., incorporated by reference from Form 10-K filed March 29, 1993. 10.28.2 Form of 8.375% Senior Secured Note, Series A, incorporated by reference from Form 10-K filed March 29, 1993. 10.28.3 Form of 8.735% Senior Secured Note, Series B, incorporated by reference from Form 10-K filed March 29, 1993. 10.29 Variable Rate Note Agreement dated July 26, 1993 in the original principal amount of $3,500,000 to Cal West Service by Data Tree Corporation, incorporated by reference from Form 10-K filed March 18, 1994. 10.29.1 Convertible Note Purchase Agreement dated July 26, 1993 by and between Data Tree Corporation, Harish K. Chopra and Cal West Service Corporation, incorporated by reference from Form 10-K filed March 18, 1994. 10.29.2 Second Convertible Note Purchase Agreement dated July 15, 1994 in the additional principal amount of $5,000,000 to Cal West Service Corporation by Data Tree Corporation and Harish K. Chopra, incorporated by reference from Form 10-K filed March 30, 1995. 10.30 Variable Rate Promissory Note in the principal amount of $13,007,500 to General Electric Capital Corporation by Fidelity Asset Management, Inc., incorporated by reference from Form 10-K filed March 18, 1994. 10.31 Mortgage Note secured by Deed of Trust dated December 1, 1988 in the principal amount of $2,300,000 by Kensington Development Corporation to Allstate Life Insurance Company, incorporated by reference from Form 10-K filed March 18, 1994.
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EXHIBIT NUMBER DESCRIPTION ---------- -------------------------------------------------------------------------- 10.31.1 Assignment of Mortgage Note and Deed of Trust dated August 11, 1993 by Allstate Life Insurance Company to Fidelity National Title Insurance Company of California, incorporated by reference from Form 10-K filed March 18, 1994. 10.32 Asset Purchase Agreement dated December 31, 1993 by and between American Title Insurance Company ("Seller") and Fidelity National Title Insurance Company of New York ("Purchaser"), incorporated by reference from Form 10-K filed March 18, 1994. 10.33 Asset Purchase Agreement dated December 31, 1993, by and between American Title Insurance Company ("Seller") and Fidelity National Title Insurance Company of Pennsylvania ("Buyer"), incorporated by reference from Form 10-K filed March 18, 1994. 10.34 Stock Exchange Agreement dated December 7, 1993 by and among Fidelity National Financial, Inc. ("Buyer") and Richard and Donna Love (the "Seller"), incorporated by reference from Form 10-K filed March 18, 1994. 10.35 Fidelity National Financial, Inc. 1993 Stock Plan, approved by stockholders of the Company on June 14, 1994, incorporated by reference from Form S-8, Registration No. 33-83026. 10.36 Agreement to Purchase Option to Purchase an Undivided 60% Interest in Assets of World Tax Service, by and between Fidelity Participations, Inc. and World Tax Service, Inc., incorporated by reference from Form 10-K filed March 30, 1995. 10.36.1 Stock Purchase Agreement dated June 9, 1995 between Fidelity National Financial, Inc., WTC Financial and World Tax Service to acquire World Tax Service and certain assets of WTC Financial. 10.37 Acquisition of the Outstanding Capital Stock of Mellon/McMahan Real Estate Advisors, Inc., dated June 15, 1994 by and between MacFarlane Partners Limited Partnership and Mellon/McMahan Real Estate Advisors, Inc., incorporated by reference from Form 10-K filed March 30, 1995. 10.38 Variable Rate Promissory Note dated August 24, 1994 in the principal amount of $10,127,141 to Fleet Credit Corporation by Fidelity Asset Management, Inc., incorporated by reference from Form 10-K filed March 30, 1995. 10.39 Variable Rate Promissory Note dated August 24, 1994 in the principal amount of $10,134,939.93 to Fleet Credit Corporation by Fidelity Asset Management, Inc., incorporated by reference from Form 10-K filed March 30, 1995. 10.39.1 Variable Rate Promissory Note dated June 22, 1995 in the principal amount of $4,938,337 to Fleet Credit Corporation by Fidelity Asset Management, Inc. 10.40 Agreement of Purchase and Sale of Real Estate and Joint Escrow Instructions dated May 25, 1994 by and between Fidelity National Title Insurance Company and 17911 Von Karman Partners, incorporated by reference from Form 10-K filed March 30, 1995. 10.41 Stock Purchase Agreement dated February 14, 1995 by and among Fidelity National Financial, Inc., Raul Costelo, Jeff A. Sanderson and Mark J. Attaway to acquire outstanding capital stock of ACS Systems, Inc., incorporated by reference from Form 10-K filed March 30, 1995. 10.42 Stock Purchase Agreement by and among Ronald G. Bridge (selling shareholder); Western Title Co. of Washington, Inc. and Fidelity National Financial, Inc. to acquire Western Title Co. of Washington, Inc., incorporated by reference from Form 10-K filed March 30, 1995.
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EXHIBIT NUMBER DESCRIPTION ---------- -------------------------------------------------------------------------- 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. 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. 11 Computation of Primary and Fully Diluted Earnings per Share 21 List of Subsidiaries 23.1 Independent Auditors' Consent 27 Financial Data Schedule
(b) REPORTS ON FORM 8-K. The Company filed reports on Form 8-K during the fourth quarter ending December 31, 1995 as follows: NONE. 70 73 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FIDELITY NATIONAL FINANCIAL, INC. By: /s/ WILLIAM P. FOLEY, II William P. Foley, II Chief Executive Officer Date: March 19, 1996 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.
SIGNATURES TITLE DATE - ----------------------------------------------- ----------------------------- --------------- /s/ WILLIAM P. FOLEY, II Chairman of the Board and - ----------------------------------------------- Chief Executive Officer William P. Foley, II (Principal Executive Officer) March 19, 1996 /s/ FRANK P. WILLEY President and Director - ----------------------------------------------- Frank P. Willey March 19, 1996 /s/ CARL A. STRUNK Executive Vice President - ----------------------------------------------- Chief Financial Officer Carl A. Strunk (Principal Financial and Accounting Officer) March 19, 1996 /s/ DANIEL D. (RON) LANE Director - ----------------------------------------------- Daniel D. (Ron) Lane March 19, 1996 /s/ J. THOMAS TALBOT Director - ----------------------------------------------- J. Thomas Talbot March 19, 1996 /s/ STEPHEN C. MAHOOD Director - ----------------------------------------------- Stephen C. Mahood March 19, 1996 /s/ DONALD M. KOLL Director - ----------------------------------------------- Donald M. Koll March 19, 1995 /s/ WILLIAM A. IMPARATO Director - ----------------------------------------------- William A. Imparato March 19, 1996 /s/ CARY H. THOMPSON Director - ----------------------------------------------- Cary H. Thompson March 19, 1996
71 74 INDEPENDENT AUDITORS' REPORT The Board of Directors Fidelity National Financial, Inc. Under date of February 26, 1996, we reported on the Consolidated Balance Sheets of Fidelity National Financial, Inc. and subsidiaries as of December 31, 1995 and 1994, and the related Consolidated Statements of Earnings, Stockholders' Equity and Cash Flows for each of the years in the three-year period ended December 31, 1995 which are included in the Annual Report on Form 10-K. In connection with our audits of the aforementioned Consolidated Financial Statements, we also audited the related financial statement schedules in the Annual Report on Form 10-K. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based on our audits. In our opinion, such schedules, when considered in relation to the basic Consolidated Financial Statements taken as a whole, present fairly, in all material respects, the information set forth therein. KPMG PEAT MARWICK LLP Orange County, California February 26, 1996 72 75 SCHEDULE I FIDELITY NATIONAL FINANCIAL, INC. (PARENT COMPANY) BALANCE SHEETS (DOLLARS IN THOUSANDS)
DECEMBER 31, --------------------- 1995 1994 -------- -------- ASSETS Cash................................................................... $ 746 $ -- Investment securities available for sale, at fair value................ 16,788 27,750 Trade receivables, net................................................. 22 -- Notes receivable, net.................................................. 13,514 11,587 Investment in subsidiaries............................................. 167,619 149,285 Investments in real estate and partnerships, net....................... 1,435 1,382 Property and equipment, net............................................ 90 188 Deferred income taxes.................................................. -- 12,553 Income taxes receivable................................................ 2,450 6,988 Prepaid expenses and other assets...................................... 4,953 7,543 -------- -------- $207,617 $217,276 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable and accrued liabilities............................. $ 4,173 $ 5,403 Notes payable........................................................ 113,201 121,460 Accounts payable to subsidiaries..................................... 12,263 16,459 Deferred income taxes................................................ 33 -- -------- -------- 129,670 143,322 -------- -------- Stockholders' Equity: Preferred stock, $.0001 par value; authorized 3,000,000 shares; issued and outstanding, none...................................... -- -- Common stock, $.0001 par value; authorized, 55,000,000 shares in 1995 and 1994; issued 17,439,263 in 1995 and 17,227,402 in 1994........ 2 2 Additional paid-in capital........................................... 58,098 56,659 Retained earnings.................................................... 70,273 66,668 -------- -------- 128,373 123,329 Net unrealized gains (losses) on investments......................... 5,866 (8,914) Less treasury stock, 5,168,853 shares in 1995 and 3,633,410 shares in 1994, at cost..................................................... 56,292 40,461 -------- -------- 77,947 73,954 Commitments and contingencies........................................ -------- -------- Subsequent events.................................................... $207,617 $217,276 ======== ========
See accompanying notes to financial statements. (Schedule continued on following page) 73 76 SCHEDULE I (CONTINUED) FIDELITY NATIONAL FINANCIAL, INC. (PARENT COMPANY) STATEMENTS OF EARNINGS AND RETAINED EARNINGS (DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31, ------------------------------- 1995 1994 1993 ------- ------- ------- REVENUE: Other fees and revenue...................................... $ 585 $ 1,114 $ 1,008 Interest and investment income.............................. 3,977 2,364 929 ------- ------- ------- 4,562 3,478 1,937 ------- ------- ------- EXPENSES: Other operating expenses.................................... 1,456 1,268 1,055 Interest expense............................................ 8,427 7,130 1,638 ------- ------- ------- 9,883 8,398 2,693 ------- ------- ------- Losses before income tax benefit, equity in earnings of subsidiaries and extraordinary item......................... (5,321) (4,920) (756) Income tax benefit............................................ 899 1,033 234 ------- ------- ------- Losses before equity in earnings of subsidiaries and extraordinary item.......................................... (4,422) (3,887) (522) Equity in earnings of subsidiaries............................ 12,054 13,632 36,817 ------- ------- ------- Earnings before extraordinary item............................ 7,632 9,745 36,295 Extraordinary item -- gain (loss) on early retirement of debt, net of applicable income tax expense (benefit) of $(437) in 1995 and $1,292 in 1994..................................... (813) 2,400 -- ------- ------- ------- Net earnings.................................................. $ 6,819 $12,145 $36,295 ======= ======= ======= Earnings per share before extraordinary item.................. $ .59 $ .59 $ 2.16 Extraordinary item -- gain (loss) on early retirement of debt, net of applicable income tax expense (benefit).............. (.06) .15 -- ------- ------- ------- Net earnings per share........................................ $ .53 $ .74 $ 2.16 ======= ======= ======= Dividends per share........................................... $ .25 $ .25 $ .22 ======= ======= ======= Retained earnings, beginning of year.......................... $66,668 $58,438 $31,979 Distributions to ASAP stockholders.......................... -- -- (5,066) Conversion of ASAP from S to C corporation.................. -- -- (1,186) Dividends declared.......................................... (3,214) (3,915) (3,575) Stock split................................................. -- -- (1) Cash in lieu of fractional shares........................... -- -- (8) Net earnings................................................ 6,819 12,145 36,295 ------- ------- ------- Retained earnings, end of year................................ $70,273 $66,668 $58,438 ======= ======= =======
See accompanying notes to financial statements. (Schedule continued on following page) 74 77 SCHEDULE I (CONTINUED) FIDELITY NATIONAL FINANCIAL, INC. (PARENT COMPANY) STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31, --------------------------------- 1995 1994 1993 -------- -------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings.............................................. $ 6,819 $ 12,145 $36,295 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation and amortization.......................... 98 310 -- Amortization of LYONs original issue discount and issuance costs....................................... 4,916 4,701 -- Provision for possible losses on notes receivable...... 1,172 -- -- Net equity in earnings of subsidiaries................. (12,054) (13,632) (36,817) (Gain) loss on sale of investments..................... (639) 727 (425) Net increase (decrease) in income taxes................ 7,673 (7,860) (688) Net increase in prepaid expenses and other assets...... 4,344 (3,212) (518) Net increase (decrease) in accounts payable and accrued liabilities.......................................... (1,212) 1,534 2,262 -------- -------- ------- Net cash provided by (used in) operating activities...................................... 11,117 (5,287) 109 -------- -------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of investments........................ 25,112 29,082 2,130 Purchase of investments................................... (7,746) (53,320) (8,431) Additions to notes receivable............................. (4,614) (7,452) (4,584) Collections on notes receivable........................... 1,515 448 -- Additions to investment in subsidiaries................... (7,034) (6,215) (1,998) Investment in real estate and partnerships, net........... (53) (62) (1,320) Additions to property and equipment, net.................. -- -- (268) -------- -------- ------- Net cash provided by (used in) investing activities...................................... 7,180 (37,519) (14,471) -------- -------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings................................................ 33,772 101,336 22,500 Debt service payments..................................... (46,814) (208) (663) Retirement of LYONs....................................... -- (17,592) -- Gain on early retirement of LYONs......................... -- (3,692) -- Dividends paid............................................ (3,232) (4,132) (3,218) Cash in lieu of fractional shares......................... -- -- (8) Purchase of stock warrants................................ -- -- -- Issuance (acquisition) of treasury stock, net............. (15,831) (40,461) 220 Exercise of stock options................................. 1,439 1,314 466 Distributions to ASAP stockholders........................ -- -- (5,066) Net borrowings (payments to) from subsidiaries............ 13,115 4,586 (16,123) Stock offering proceeds, net.............................. -- -- 17,827 -------- -------- ------- Net cash provided by financing activities......... (17,551) 41,151 15,935 -------- -------- ------- Net increase (decrease) in cash and cash equivalents........ 746 (1,655) 1,573 Cash and cash equivalents at beginning of year.............. -- 1,655 82 -------- -------- ------- Cash and cash equivalents at end of year.................... $ 746 $ -- $ 1,655 ======== ======== =======
See accompanying notes to financial statements. (Schedule continued on following page) 75 78 SCHEDULE I (CONTINUED) FIDELITY NATIONAL FINANCIAL, INC. (PARENT COMPANY) NOTES TO FINANCIAL STATEMENTS A. Fidelity National Financial, Inc. (the "Company") transacts substantially all of its business through its subsidiaries. The Consolidated Financial Statements for the Company and its subsidiaries are included with their Form 10-K. The Parent Company Financial Statements should be read in connection with the aforementioned Consolidated Financial Statements and notes thereto. B. Notes payable consist of the following:
DECEMBER 31, --------------------- 1995 1994 -------- -------- (DOLLARS IN THOUSANDS) Credit agreement, secured by common stock of certain Insurance Subsidiaries, with principal due quarterly and interest due monthly at LIBOR rate plus 2.0% (7.81% at December 31, 1995), due September 2001................................................................. $ 21,250 $ -- Senior secured notes, secured by common stock of certain Insurance Subsidiaries, with interest due semi-annually at 8.375% ($12,500), and 8.735% ($10,000) paid in 1995.................................... -- 22,500 Bank revolving line of credit due July 1995, secured by common stock of certain Insurance Subsidiaries, with interest due monthly at prime rate (8.5% at December 31, 1994); unused portion of $208 existed at December 31, 1994, paid in 1995...................................... -- 11,792 Liquid Yield Option Notes, zero coupon, subordinated convertible notes due 2009 with interest at 5.5%....................................... 91,951 87,168 -------- -------- $113,201 $121,460 ======== ========
The Company's Credit Agreement, dated as of September 21, 1995, which includes a $22 million dollar term loan and a $13 million dollar revolving credit facility, is collateralized by the common stock of certain Insurance Subsidiaries. Additionally, the Company must comply with certain affirmative and negative covenants related to the Credit Agreement which require, among other things, that the Company maintain certain financial ratios related to liquidity, net worth, capitalization, investments, restricted payments and certain dividend restrictions. The Company was in compliance with these covenants. At December 31, 1995, the maximum amount available to pay dividends is $6,955,000. The Company has entered into an interest rate swap agreement concurrent with the funding of the Credit Agreement, dated as of September 21, 1995, which is principally used by the Company in the management of interest rate exposure. The interest rate swap agreement is accounted for on the accrual basis. Income and expense are recorded in the same category as that arising from the related debt. Amounts to be paid or received under interest rate swap agreements are recognized as interest income or expense in the periods in which they accrue. The interest rate swap agreement has not had a material impact on the Parent Company Financial Statements. In February 1994, the Company issued zero coupon, convertible subordinated LYONs 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. 76 79 SCHEDULE I (CONTINUED) FIDELITY NATIONAL FINANCIAL, INC. (PARENT COMPANY) NOTES TO FINANCIAL STATEMENTS C. Supplementary cash flow information:
YEAR ENDED DECEMBER 31, ------------------------------- 1995 1994 1993 ------- ------- ------- (DOLLARS IN THOUSANDS) Cash paid (refunded) during the year: Interest.................................................... $ 4,376 $ 2,214 $ 838 ======== ======= ======= Income taxes................................................ $(3,147) $12,286 $15,269 ======== ======= ======= Non-cash investing and financing activities: Dividends declared and unpaid............................... $ 860 $ 855 $ 1,072 ======== ======= ======= Liabilities assumed in acquisitions......................... $ -- $ -- $26,410 ======== ======= ======= Discount on purchase of ATIC Preferred Stock, increase in reserve for claim losses................................. $ -- $ 6,219 $ -- ======== ======= ======= Acquisition of ACS Systems, Inc............................. $ -- $ 2,681 $ -- ======== ======= =======
D. Acquisitions: In April 1994, the Company acquired all of the capital stock of ACS Systems, Inc. ("ACS") for an adjusted purchase price of 209,370 shares of the Company's Common Stock and certain future considerations of $900,000. ACS is a computer software development company engaged in the development and marketing of trust, escrow and title related software. The transaction has been accounted for as a purchase. On March 8, 1995, the Company acquired the common stock of Western Title Company of Washington, an underwritten title company with operations in King County (Seattle) and Snohomish County (Everett) in the state of Washington. Western Title Company of Washington was acquired from its selling shareholder for $3.2 million in cash. In addition, the Company also has an option to purchase a title plant in Pierce County (Tacoma), Washington. The Company will operate as a subsidiary of Fidelity in King and Snohomish counties under the name Fidelity National Title Company of Washington. The acquisition has been accounted for as a purchase. On May 2, 1995, the Company acquired the common stock of Butte County Title Company, an underwritten title company with operations in Butte County in the state of California. Butte County Title Company was acquired from its selling shareholders for $400,000 in cash, which approximated book value. The acquired company operates as a subsidiary of the Company in Butte County, and is now known as Fidelity National Title Company of California. The acquisition has been accounted for as a purchase. The Fidelity National Title Company of California results of operations were not material to the Consolidated Financial Statements. On June 14, 1995, the Company acquired certain assets of World Title Company ("World") for a purchase price to be determined based on the collection of certain accounts. In the case of trade accounts receivable acquired, the Company will retain certain percentages of amounts collected subsequent to the acquisition date and will remit the remaining amounts to the Department of Insurance of the State of California ("Department"). The Company has also acquired the open title orders of World as of the purchase date. The Company will retain certain percentages of amounts collected on open title orders subsequent to the acquisition date and will remit the remaining amounts to the Department. 77 80 SCHEDULE I (CONTINUED) FIDELITY NATIONAL FINANCIAL, INC. (PARENT COMPANY) NOTES TO FINANCIAL STATEMENTS On June 22, 1995, the Company acquired 100% of the common stock of World Tax Service ("World Tax"), now known as Fidelity National Tax Service, from WTC Financial ("WTC"), the parent company of World Tax, for $1.8 million. The Company had previously executed an Asset Option Agreement ("Agreement") with WTC to acquire an option to purchase a 60% undivided interest in all of the assets of World Tax for $3.0 million. In connection with the Agreement, WTC was granted an option to purchase 110,000 shares of the Company's Common Stock at $13.18 per share. The option to purchase shares was acquired from WTC as part of the World Tax transaction. This transaction has been accounted for as a purchase. On August 19, 1995, the Company acquired the common stock of Southern California Title Company, an underwritten title company with operations in Los Angeles County in the state of California. Southern California Title Company was acquired for $2.1 million in cash. The acquired company operates as a subsidiary of the Company in Los Angeles County, and is now known as Fidelity National Title Company. This transaction has been accounted for as a purchase. On September 14, 1995, the Company announced that it had executed a definitive agreement ("Agreement") with Nations Holding Group to acquire one hundred percent of Nations Title Inc., and its wholly owned subsidiaries Nations Title Insurance Company, Nations Title Insurance Company of New York and National Title Insurance Company of New York (collectively, "Nations Title Inc."), which is the eighth largest title insurer in the United States based on 1994 reported revenue. The acquisition of Nations Title Inc. is expected to close in the first quarter of 1996, following final determination of the purchase price. The Company believes that the combination of its direct operations and Nations' strong agency network will provide a balance to Fidelity's title premium revenue between direct and agency, as well as hedge against future market downturns. Once assimilated, this acquisition should increase the Company's operating efficiencies and produce certain economies of scale, resulting in increased profits and enhancing its balance sheet. The Nations acquisition will significantly increase market share in areas where Fidelity National Financial, Inc. and subsidiaries have a limited presence, particularly in those areas where business is primarily agent driven, as well as in states where the Company currently has a strong position, while increasing its presence in the key title insurance states. Under the terms of the Agreement, Fidelity National Financial, Inc. will acquire one hundred percent of the outstanding stock of Nations Title Inc. from its sole shareholder, Nations Holding Group, for a purchase price of $21 million in cash and 176,000 shares of Fidelity National Financial, Inc. Common Stock, subject to certain purchase price adjustments as defined in the Agreement. 78 81 SCHEDULE II FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (DOLLARS IN THOUSANDS)
COL. C ------------------------- COL. B ADDITIONS COL. E ---------- ------------------------- COL. D --------- COL. A BALANCE AT CHARGED TO ---------- BALANCE - ------------------------------------------- BEGINNING COSTS AND OTHER DEDUCTIONS AT END DESCRIPTION OF PERIOD EXPENSES (DESCRIBE) (DESCRIBE) OF PERIOD - ------------------------------------------- ---------- ---------- ---------- ---------- --------- Year ended December 31, 1995: Reserve for claim losses................. $153,306 $ 19,031 $ -- $ 26,243(1) $ 146,094 Allowance on: Trade receivables..................... 2,029 1,701 -- 259(2) 3,471 Notes receivable...................... 2,783 612 -- 454(2) 2,941 Real estate allowance.................... 3,296 171 -- -- 3,467 Amortization of cost in excess of net assets acquired....................... 1,263 717 -- -- 1,980 Year ended December 31, 1994: Reserve for claim losses................. $142,512 $ 27,838 $ 6,219(6) $ 23,263(1) $ 153,306 Allowance on: Trade receivables..................... 2,353 813 -- 1,137(2) 2,029 Notes receivable...................... 3,083 (159) -- 141(2) 2,783 Real estate allowance.................... 4,369 -- -- 1,073(5) 3,296 Amortization of cost in excess of net assets acquired....................... 1,088 175 -- -- 1,263 Year ended December 31, 1993: Reserve for claim losses................. $104,528 $ 39,220 $ 17,632(3) $ 18,868(4) $ 142,512 Allowance on: Trade receivables..................... 2,080 1,248 -- 975(2) 2,353 Notes receivable...................... 1,949 1,167 -- 33(2) 3,083 Real estate allowance.................... 2,280 2,089 -- -- 4,369 Amortization of cost in excess of net assets acquired....................... 962 126 -- -- 1,088
- --------------- (1) Represents payments of claim losses, net of recoupments. (2) Represents uncollectible accounts written off. (3) Represents reserve for claim losses assumed in the acquisition of Fidelity National Title Insurance Company of New York. (4) Represents payments of claim losses, net of recoupments ($18,120) and Statement 109 adjustments ($748). (5) Represents reduction in the reserve balance due to the sale of a real estate property. (6) Reserves assumed with purchase of ATIC Preferred Stock. 79 EX-10.8.3.1 2 AMENDMENT #1 TO CREDIT AGREEMENT 1 EXHIBIT 10.8.3.1 AMENDMENT NO. 1 AMENDMENT NO. 1 dated as of December 18, 1995, between FIDELITY NATIONAL FINANCIAL, INC., a corporation duly organized and validly existing under the laws of the State of Delaware (the "Company"); each of the lenders that is a signatory hereto (individually, a "Bank" and, collectively, the "Banks"); and THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), a national banking association, as administrative agent for the Banks (in such capacity, together with its successors in such capacity, the "Administrative Agent"). The Company, the Banks and the Administrative Agent are parties to a Credit Agreement dated as of September 21, 1995 (as heretofore modified and supplemented and in effect on the date hereof, the "Credit Agreement"), providing, subject to the terms and conditions thereof, for loans to be made by said Banks to the Company in an aggregate principal amount not exceeding $35,000,000. The Company, the Banks and the Administrative Agent wish to amend the Credit Agreement in certain respects, and accordingly, the parties hereto hereby agree as follows: Section 1. Definitions. Except as otherwise defined in this Amendment No. 1, terms defined in the Credit Agreement are used herein as defined therein. Section 2. Amendments. Subject to the satisfaction of the conditions precedent specified in Section 4 below, but effective as of November 14, 1995, the Credit Agreement shall be amended as follows: 2.01. References in the Credit Agreement (including references to the Credit Agreement as amended hereby) to "this Agreement" (and indirect references such as "hereunder", "hereby", "herein" and "hereof") shall be deemed to be references to the Credit Agreement as amended hereby. 2.02. Section 1.01 of the Credit Agreement shall be amended by adding the following new definition and inserting the same in the appropriate alphabetical location: "'Recoupment Amount' means, as of any date, the aggregate amount, as of such date, received, directly or indirectly, by the Company or any of its Subsidiaries, whether through insurance, a judgment or otherwise, in reimbursement of any expenses or charges of the Company or any of its Subsidiaries relating to the loan fraud described in the memorandum attached as Exhibit A hereto; provided that, for purposes of Section 8.10(d) hereof, Recoupment Amendment No. 1 2 -2- Amount shall be rounded down to the nearest multiple of $100,000". 2.03. Section 8.01 of the Credit Agreement is hereby amended by (i) deleting the word "and" at the end of paragraph (r) thereof, (ii) relettering paragraph (s) thereof as paragraph (t) and (iii) inserting the following new paragraph (s) immediately prior to new paragraph (t): "(s) promptly upon receipt thereof, notice of any Recoupment Amount received by the Company or any of its Subsidiaries; and" 2.04. Section 8.10(d) of the Credit Agreement is hereby amended by (i) replacing the number "$12,000,000" appearing directly opposite the words "Fidelity National Title Insurance Company of New York" with "$8,000,000 plus the Recoupment Amount". Section 3. Representations and Warranties. The Company represents and warrants to the Banks that the representations and warranties set forth in Section 7 of the Credit Agreement are true and complete on the date hereof as if made on and as of the date hereof and as if each reference in said Section 7 to "this Agreement" included reference to this Amendment No. 1. Section 4. Conditions Precedent. As provided in Section 2 above, the amendments to the Credit Agreement set forth in said Section 2 shall become effective, as of November 14, 1995, upon the satisfaction of the following conditions precedent: 4.01. Execution by All Parties. This Amendment No. 1 shall have been executed and delivered by each of the parties hereto. 4.02. Documents. The Administrative Agent shall have received the following documents, each of which shall be satisfactory to the Administrative Agent in form and substance: (1) Corporate Documents. Certified copies of the charter and by-laws (or equivalent documents) of the Company (or, in the alternative, a certification to the effect that none of such documents has been modified since delivery thereof on the Closing Date pursuant to the Credit Agreement) and of all corporate authority for the Company (including, without limitation, board of director Amendment No. 1 3 - 3 - resolutions and evidence of the incumbency of officers for the Company) with respect to the execution, delivery and performance of this Amendment No. 1 and the Credit Agreement as amended hereby and the loans under the Credit Agreement as amended hereby and each other document to be delivered by the Company from time to time in connection with the Credit Agreement as amended hereby (and the Administrative Agent and each Bank may conclusively rely on such certificate until it receives notice in writing from the Company to the contrary). (2) Other Documents. Such other documents as the Administrative Agent or any Bank or special New York counsel to Chase may reasonably request. Section 5. Miscellaneous. Except as herein provided, the Credit Agreement shall remain unchanged and in full force and effect. This Amendment No. 1 may be executed in any number of counterparts, all of which taken together shall constitute one and the same amendatory instrument and any of the parties hereto may execute this Amendment No. 1 by signing any such counterpart. This Amendment No. 1 shall be governed by, and construed in accordance with, the law of the State of New York. Amendment No. 1 4 - 4 - IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to be duly executed and delivered as of the day and year first above written. FIDELITY NATIONAL FINANCIAL, INC. By /s/ Carl A. Strunk -------------------------------------- Carl A. Strunk Title: Executive Vice President and Chief Financial Officer Amendment No. 1 5 - 5 - BANKS ----- THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION) By /s/ Bryan J. Rolfe --------------------------------- Title: Vice President IMPERIAL BANK By /s/ Bruce Vanderberg --------------------------------- Title: Sr. Vice President SANWA BANK CALIFORNIA By /s/ David C. Misch --------------------------------- Title: Commercial Banking Officer FIRST INTERSTATE BANK OF CALIFORNIA By /s/ Marla W. Johnson --------------------------------- Title: Vice President Amendment No. 1 6 - 6 - THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), as Administrative Agent By /s/ Bryan J. Rolfe --------------------------------- Title: Vice President Amendment No. 1 7 EXHIBIT A [FIDELITY NATIONAL TITLE LETTERHEAD] MEMORANDUM TO: BANKS WHICH ARE A PARTY TO THE FIDELITY NATIONAL FINANCIAL, INC. CREDIT AGREEMENT DATED AS OF SEPTEMBER 21, 1995 FROM: DAVE KENNEALLY DATE: NOVEMBER 17, 1995 SUBJ: FIDELITY NATIONAL TITLE INSURANCE COMPANY OF NEW YORK ("FNNEW") - -------------------------------------------------------------------------------- The major components of the FNNEW change in surplus are: In late June of 1995 FNNEW became aware of a loan fraud perpetrated by an individual in Virginia. The loan fraud involved approximately 23 individual transactions closed by a now cancelled agent, Innovisions Title. Currently, the exposure to FNNEW is approximately $3.1 million, this was the primary component of the third quarter $3.0 Stat loss. GAAP Treatment: $3.1 million reclassification from Incurred But Not Reported ("IBNR") reserves to Case reserves. GAAP reserves at September 30, 1995: Case $ 7,006,000 IBNR 12,219,000 ----------- $19,225,000 ===========
Statutory Treatment: $3.1 million expense Increase in non-admitted assets of $620,000 Statutory reserve for undetermined title losses approximately $8,006,000 Resolution: - ----------- Ultimately the Company expects to recoup approximately $2.35 million under Fidelity Bond coverage, which will result in a reversal of the impact on a GAAP and Stat basis up to the amount of the recovery. Intercompany Prior Period Adjustment: A $743,000 charge was taken as an intercompany prior period adjustment. Total statutory impact of above approximately ($4.4 million). 8 CERTIFICATE OF SECRETARY OF FIDELITY NATIONAL FINANCIAL, INC. I, M'Liss Jones Kane, Secretary of Fidelity National Financial, Inc., a Delaware corporation (the "Company"), hereby certify that neither the charter nor the bylaws of the Company have been modified since their delivery on the Closing Date, as defined in the Credit Agreement dated September 21, 1995 between the Company and certain lenders for which The Chase Manhattan Bank is administrative agent (the "Credit Agreement") and all of the corporate authority for the Company including, without limitation, board of director resolutions and evidence of the incumbency of officers for the Company with respect to the execution, delivery and performance of Amendment Number One to the Credit Agreement and the Credit Agreement as amended hereby and each such other documents to be delivered by the Company from time to time in connection with the Credit Agreement as amended hereby. IN WITNESS WHEREOF, I hereby set my hand this 20th day of December, 1995. /s/ M'LISS JONES KANE --------------------------------------- M'Liss Jones Kane, Secretary Fidelity National Financial, Inc. 9 CERTIFICATE OF SECRETARY OF FIDELITY NATIONAL FINANCIAL, INC. I, M'Liss Jones Kane, the duly elected Secretary of Fidelity National Financial, Inc. ("FNFI"), hereby certify that at a meeting of the Board of Directors held on September 14, 1995, the following resolutions were unanimously adopted: RESOLVED, that the Board of Directors approves a $35,000,000 Revolving Credit and Term Loan Facility as presented to the Board and evidenced by that certain Credit Agreement between FNFI and The Chase Manhattan Bank, attached hereto; FURTHER RESOLVED, that the appropriate officers of this corporation be and hereby are authorized to take all necessary action to cause said transactions referred to in the Credit Agreement to be completed, including but not limited to executing all documents required at closing and as may be needed in the future. IN WITNESS WHEREOF, I hereby set my hand and seal this 3rd day of January, 1996. /s/ M'LISS JONES KANE --------------------------------------- M'Liss Jones Kane, Secretary EX-10.36.1 3 STOCK PURCHASE AGREEMENT DATED JUNE 9, 1995 1 EXHIBIT 10.36.1 STOCK PURCHASE AGREEMENT By this Agreement made and entered into as of this 9 the day of June, 1995, Fidelity National Title Insurance Company, an Arizona corporation ("Fidelity"), and WTC Financial, a California corporation ("Shareholder") and World Tax Service, a California corporation (the "Company"), state, confirm and agree as follows: I. Recitals 1. .1. World Tax Service.. Shareholder is the record and beneficial owner of One Hundred percent(100%) of the issued and outstanding capital stock of the Company, more specifically described in Section 4.1.5 below (the "Stock"). 1..2. Purchase. Fidelity desires to acquire the Stock from Shareholder. 1..3. Sale. Shareholder desires to sell to Fidelity the Stock on and subject to the terms and conditions set forth below. II. Purchase and Sale 2..1. Sale. At the Closing, as defined below, Shareholder shall sell, transfer, assign, and deliver to Fidelity, in reliance upon the epresentations and warranties set forth below, the Stock on and subject to the terms, covenants and conditions set forth below and Fidelity shall purchase the Stock for the consideration set forth in Section 2.2 below. 2..2. Purchase Price. In full consideration of the sale, transfer, assignment and delivery of the Stock by Shareholder, and in reliance upon the representations and warranties set forth below, Fidelity shall, in full payment therefor, pay One Million Six Hundred Thousand and No/100 Dollars ($1,600,000.00). 2..3. Payment of Purchase Price. Fidelity shall pay the purchase price by making payment of One Million Six Hundred Thousand and No/100 Dollars ($1,600,000.00) to Imperial Bank in satisfaction of Shareholder's obligation owed to Imperial Bank evidenced by the Note attached hereto as Exhibit "A" (the "Imperial Note"). 2 2..4. Intercompany Obligations. Shareholder will contribute all intercompany amounts due to Shareholder from the Company as additional contributed capital as of the Closing. 2..5. Other Agreements. Shareholder shall obtain written representations, satisfactory to Fidelity, from Imperial Bank that upon payment of the Purchase Price in the manner set forth in paragraph 2..3 above, that Shareholder's obligations under the Imperial Note will be satisfied and that all security or other interests Imperial Bank may have in the Stock and/or the assets of the Company shall be released. III. Closing 3..1. Closing. Completion of the transaction contemplated by Article II above (the "Closing"), shall take place at the offices of Shareholder at 1:30 P.M. local time on June 9, 1995 or at such other time and place as the parties hereto may mutually agree in advance of such date and time (the "Closing Date"). Not withstanding the execution of this Agreement and the Closing hereof, this Agreement shall be of no effect and shall not bind either party unless and until the TRANSFER AND ASSIGNMENT AGREEMENT, known as the {'Book of Business" agreement, contemplated by American Title Insurance Company, a Florida corporation and World Title Company, a California corporation is given appropriate approval by the California Department of Insurance and is fully executed and enforceable . 3..2. Shareholder Closing Documents. Provided that all of the conditions to the Closing set forth in Sections 5.1 and 5.2 below have been satisfied or waived by the party benefiting therefrom, at the Closing, Shareholder shall execute and deliver or cause to be delivered to Fidelity the following documents: 3..2.1. Certificates evidencing the Stock with stock powers attached evidencing the assignment of the Stock to Fidelity. 3..2.2. The Company's original minute books, such minute books to contain (i) original Articles of Incorporation and all amendments thereto, or copies thereof if the originals are unavailable, (ii) the Company's By-Laws presently in effect, (iii) the Company's stock 2 3 transfer records together with all available canceled stock certificates and (iv) all minutes of meetings or consents in lieu of such meetings of the Company's Board of Directors and shareholders. 3..2.3. Release, in a form satisfactory to Fidelity, of Imperial Bank's security interest in the Stock. 3..2.4. Such other documents and agreements as may be either reasonable or necessary to carry out the purpose and intention of this Agreement. 3..3. Fidelity's Closing Documents. Provided that all of the conditions to the Closing set forth in Sections 5.1 and 5.2 below have been satisfied or waived by the party benefiting therefrom, at the Closing, Fidelity shall execute and deliver or cause to be delivered to Shareholder, the following documents: 3..3.1. A cashier's or bank check payable to Imperial Bank or written verification of completion of a wire transfer to Imperial Bank in the amount shown in Section 2.2. 3..3.2. Such other documents and agreements as may be either reasonable or necessary to carry out the purpose and intention of this Agreement. IV. Representations and Warranties 4..1. Shareholder's Representations and Warranties. Shareholder and the Company jointly and severally represent and warrant to Fidelity that the statements contained in this Article IV are correct and complete as of the date hereof and as of the Closing Date except as set forth in the disclosure schedule accompanying this Agreement (the "Disclosure Schedule") . The Disclosure Schedule will be arranged in paragraphs corresponding to the lettered and numbered paragraphs contained in this Article IV. It is understood between the parties to this Agreement that absent fraudulent representations or omissions on the part of officers or directors of Shareholder or the Company, such officers and directors shall not be subject to liability for any untrue or incomplete statement contained in this Article IV. 3 4 4. .1 .1. This Agreement, and the documents to be delivered at the Closing, have been duly executed and delivered by Shareholder and are the lawful, valid and legally binding obligation of Shareholder, enforceable in accordance with their respective terms. Shareholder has obtained all shareholder and Board of Directors approvals with respect to the transactions contemplated by this Agreement and any other transactions contemplated hereby. The execution and delivery of this Agreement, and the consummation of the transactions contemplated hereby, will not result in the creation of any lien, charge or encumbrance or the acceleration of any indebtedness or other obligation of the Company, and are not prohibited by, do not materially conflict with, nor violate any provision of (i) any contract or agreement to which Shareholder or the Company is a party or to which its assets or property are bound, (ii) any rule, regulation, order, decree or judgment of any court or governmental agency, or (iii) any law applicable to the Company. 4. . 1.2. Shareholder owns the Stock free and clear of any liens, claims, and encumbrances whatsoever and that upon the completion of the transactions contemplated herein, title to the Stock will be vested in Fidelity free and clear of any liens, claims or encumbrances whatsoever. 4. . 1.3. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California, has full power and authority to own its properties and to carry on business in the manner in which it is currently conducted and has complied in all material respects with all federal, state and local laws with respect to the operation and conduct of its business. Copies of the Articles of Incorporation and all amendments thereto, bylaws as amended and currently in force, stock records and corporate minutes and records of the Company heretofore made available to Fidelity are true, complete and correct. The Company is qualified to do business and is in good standing in those states where the failure to so qualify would have a material adverse effect on the business, financial condition or the results of operations of the Company. 4 5 4. . 1.4. The Company does not own any stock or have any other equity or profit sharing interest in, and does not control, directly or indirectly, any corporation, association, partnership, joint venture or other entity. The Company has authorized capital stock consisting of One Million (1,000,000) shares of common stock, of which 1,000 shares are issued and outstanding. All of the issued and outstanding shares of the Stock are duly authorized and validly issued, fully-paid and nonassessable, were offered, issued and sold in accordance with applicable federal and state securities laws, and there are no preemptive rights in respect thereof. There are no other classes of stock of the Company, other than the common stock set forth above. 4. . 1.6. There are no outstanding options, warrants, rights, calls, commitments, conversion rights, plans or other agreements or instruments of any character providing for the purchase or other acquisition by the holders thereof or issuance of any securities of the Company of any description. There are no outstanding or authorized stock appreciation, phantom stock, profit participation or similar rights with respect to the Company. Shareholder is the record and beneficial owner of the Stock. 4. . 1.7. As of the Closing Date, all necessary filings will have been made with and all necessary approvals will have been obtained from federal and state securities and other regulatory authorities with respect to the transfers of the Stock contemplated herein. There are no stock transfer or similar fees or taxes payable with respect to the transactions contemplated by this Agreement. 4..1.8. Section4.1.8. of the Disclosure Schedule contains true and correct copies of the audited consolidated balance sheets of shareholder and its consolidated subsidiaries as of October 31, 1993 and 1994, and the related consolidated Statements of Income, Retained Earnings and Cash Flows for the years then ended. Also attached are unaudited consolidated balance sheets and statements of income for Shareholder and its consolidated subsidiaries for the six 5 6 month period ended April 30th, 1995 (collectively, the "Financial Statements"). The Financial Statements have been prepared in accordance with Generally Accepted Accounting Principles ("GAAP"), applied on a consistent basis as of and at the dates indicated above. 4..1.9. All federal, state and local tax and information returns relating to the Company required to have been filed prior to the date hereof have been duly and timely filed (including any extensions) and each such return correctly reflects the income, franchise, and other tax liability and all other information regarding the Company required to be reported thereon. All taxes, penalties, interest and related charges and fees related to income of the Company have been paid, to the extent such payments are required (including extensions) prior to and as of the date hereof, and the Company does not have any deficiency with respect to any tax period or any liability with respect to taxes or penalties and interest thereon, or related charges and fees, whether or not assessed, which are not adequately provided for in the tax accrual reserves in Financial Statements. The Company has not extended the statute of limitations with respect to review or examination of any of its federal, state or local tax returns. The Company has filed all required sales, ad valorem and other similar tax returns and has paid all of such taxes required to be paid by it prior to the date hereof. 4. .1 .10. The Company does not expect any authority to assess any additional taxes for any period for which Tax Returns have been filed. There is no dispute or claim concerning any tax liability of the Company either claimed or raised by any authority in writing or as to which the Company's or Shareholder's directors, officers or employees have personal knowledge based on contact with any agent of such authority. 4..1.11. Section 4.1.11 of the Disclosure Schedule lists all federal, state, local, and foreign income Tax Returns filed with respect to the Company for taxable periods ended on or after October 31, 1990, indicates those Tax Returns which have been audited, and indicates those Tax Returns that are currently subject to audit. 6 7 4..1.12. Section 4.1.12 of the Disclosure Schedule contains correct and complete copies of all federal income Tax Returns, examination reports, and statements of deficiencies assessed against or agreed to by Shareholder or the Company. 4. .1 .13. The Company has not; (i) filed a consent under Code Sec. 341(f) concerning collapsible corporations; (ii) made any payments, is obligated to make any payments, or is a party to any agreement that under certain circumstances could obligate it to make any payments that will not be deductible under Code Sec. 280G; (iii) been a United States real property holding corporation within the meaning of Code Sec. 897(c)(2) during the specific period specified in Code Sec. 897(c)(1)(A)(ii); (iv) failed to disclose on its federal income tax returns all positions taken therein that could give rise to a substantial understatement of federal income tax within the meaning of Code Sec. 6662; (v) a party to any tax allocation or sharing agreement; (vi) a member of an affiliated group filing a consolidated federal income tax return (other than a group the common parent of which is Shareholder) or has any liability for the taxes of any person or entity as a transferee or successor, by contract, or otherwise. 4. .1 .14. Section 4.1.14 of the Disclosure Schedule lists all of the real property owned by the Company, or in which it has an ownership interest, with a brief description of each such property . 4..1.15. Section 4.1.15 of the Disclosure Schedule lists and describes briefly all real property leased or subleased to the Company. The Company has delivered to Fidelity correct and complete copies of the leases and subleases listed (as amended to date). With respect to each lease and sublease listed in section 4.1.15 of the Disclosure Schedule: 4..1.15.1. To the knowledge of Shareholder and the Company the lease or sublease is legal, valid, binding, enforceable, and in full force and effect and will continue to be legal, valid, binding, enforceable, and in full force and effect on identical terms following the consummation of the transactions contemplated hereby; 7 8 4..1.15.2. To the knowledge of Shareholder and the Company no party to the lease or sublease is in breach or default, and no event has occurred which, with notice or lapse or time, would constitute a material breach or default or permit termination, modification, or acceleration thereunder; 4..1.15.3. No party to the lease or sublease has repudiated any provision thereof; 4..1.15.4. There are no disputes, oral agreements, or forbearance programs in effect as to the lease or sublease; 4..1.15.5. With respect to each sublease, the representations and warranties set forth above are true and correct with respect to the underlying lease; 4..1.15.6. The Company has not assigned, transferred, conveyed, mortgaged, deeded in trust, or encumbered any interest in the leasehold or sublease hold; 4. . 1 .15.7. To the knowledge of Shareholder and the Company all facilities leased or subleased have received all approvals or governmental authorities (including licenses and permits) required in connection with the operation thereof and have been operated and maintained in accordance with applicable laws, rules, and regulations; 4..1.15.8. All facilities leased or subleased thereunder are supplied with utilities and other services necessary for the operation of said facilities; and 4..1.15.9. To the knowledge of Shareholder and the Company the owner of the facility leased or subleased has good and marketable title to the parcel of real property, free and clear of any Security Interest, easement, covenant, or 8 9 other restriction, except for installments of special easements not yet delinquent and recorded easements, covenants, and other restrictions which do not impair the current use, occupancy, or value, or the marketability of title, of the property subject thereto. 4. .1 .16. Section 4.1.16 of the Disclosure Schedule sets forth the following information with respect to each insurance policy (including policies providing property, casualty, liability, and workers' compensation coverage and bond and surety arrangements) to which the Company has been a party, a named insured, or otherwise the beneficiary of coverage at any time within the past S years: (i) The name, address, telephone number of the agent; (ii) The name of the insurer, the name of the policyholder, and the name of each covered insured; (iii) The policy number and the period of coverage; (iv) The scope (including an indication of whether the coverage was on a claims made, occurrence, or other basis) and amount (including a description of how deductibles and ceilings and calculated and operate) of coverage; and (v) A description of any retroactive premium adjustments or other loss-sharing arrangements. 4..1.17. To the knowledge of Shareholder or the Company no executive, key employee, or group of employees has any plans to terminate employment with the Company . The Company is not a party to or bound by any collective bargaining agreement, nor has any of them experienced any strikes, grievances, claims of unfair labor practices, or other collective bargaining disputes. The Company has not committed any unfair labor practice. None of the directors and officers (and employees with responsibility for employment matters) of the Company has any knowledge of any organizational effort presently being made or threatened by or on behalf of any labor union with respect to employees or any of the Company. 4..1.18. Section 4.1.18 of the Disclosure Schedule lists each Employee Benefit Plan that the Company maintains or to which any of them contributes. Each such Employee Benefit Plan (and each related trust, insurance contract or fund) complies in form and in operation in all respects with the applicable requirements of ERISA, the Code, and other applicable laws. All required reports and descriptions (including Form 9 10 5500 Annual Reports, Summary Annual Reports, PBGC-1's, and Summary Plan Descriptions) have been filed or distributed appropriately with respect to each such Employee Benefit Plan. The requirements of Part 6 of Subtitle B of Title I of ERISA and of Code Sec. 4980B have been met with respect to each such Employee Benefit Plan which is an Employee Welfare Benefit Plan. All contributions (including all employer contributions and employee salary reduction contributions) which are due have been paid to each such Employee Benefit Plan which is an Employee Pension Benefit Plan 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 Pension Benefit Plan or accrued in accordance with the past custom and practice of the Company. All premiums or other payments for all periods ending on or before the Closing Date have been paid with respect to each such Employee Benefit Plan which is an Employee Welfare Benefit Plan. Each such Employee Benefit Plan which is an Employee Pension Benefit Plan meets the requirements of a "qualifiedplan" under Code Sec. 401(a) and has received, within the last two years, a favorable determination letter from the Internal Revenue Service. The market value of assets under each such Employee Benefit Plan which is an Employee Pension Benefit Plan (other than any Multi employer Plan) equals or exceeds the present value of all bested and nonvested Liabilities thereunder determined in accordance with PBGC methods, factors, and assumptions applicable to an Employee Pension Benefit Plan terminating on the date of determination. The Company has delivered to Fidelity correct and complete copies of the plan documents and summary plan descriptions, the most recent determination letter received from the Internal Revenue Service, the most recent Form 5500 Annual Report, and all related trust agreements, insurance contracts, and other funding agreements which implement each such Employee Benefit Plan. 4..1.19. With respect to each Employee Benefit Plan that the Company maintains or ever has maintained or to which it contributes, ever has contributed, or ever has been required to contribute; (i) No such Employee Benefit Plan which is an Employee Pension Benefit Plan (other than any Multi employer Plan) has been completely or partially terminated or been the subject of a reportable event as to which notices would be required to be filed with the PBGC. No proceeding by the PBGC to terminate any such Employee Pension Benefit Plan (other than any Multi 10 11 employer Plan) has been instituted or threatened; (ii) There have been no prohibited transactions with respect to any such Employee Benefit Plan. No fiduciary has any liability for breach of fiduciary duty or any other failure to act or comply in connection with the administration or investment of the assets of any such Employee Benefit Plan. No action, suit, proceeding, hearing, or investigation with respect to the administration or the investment of the assets of any such Employee Benefit Plan (other than routine claims for benefits) is pending or threatened and neither Shareholder nor the Company have any knowledge of any basis for any such action, suit, proceeding, hearing, or investigation.(iii) The Company has not incurred, and has no reason to expect that it will incur, any liability to the PBGC (other than PBGC premium payments) or otherwise under Title IV of ERISA (including any withdrawal Liability) or under the Code with respect to any such Employee Benefit Plan which is an Employee Pension Benefit Plan. 4..1.20. The Company does not contribute to, ever has contributed to, or ever has been required to contribute to any Multi employer Plan or has any liability (including withdrawal liability) under any Multi employer Plan. 4..1.21. The Company does not maintain or ever has maintained or contributes, ever has contributed, or ever has been required to contribute to any Employee Welfare Benefit Plan providing medical, health, or life insurance or other welfare-type benefits for current or future retired or terminated employees, their spouses, or their dependents (other than in accordance with Code Sec. 4980(B). 4..1.22. The Company owns or has the right to use pursuant to license, sublicense, agreement, or permission all intellectual property necessary for the operation of their businesses as presently conducted. Each item of intellectual property owned or used by any of the Company immediately prior to the Closing hereunder will be owned or available for use by FNFI on identical terms and conditions immediately subsequent to the Closing hereunder. The Company has taken all necessary action to maintain and protect each item of intellectual property that it owns or uses. 11 12 4. . 1.23. The Company has not interfered with, infringed upon or misappropriated any intellectual property rights of third parties, and has never received any charge, complaint, claim, demand, or notice alleging any such interference, infringement, misappropriation, or violation. No third party has interfered with, infringed upon or misappropriated any intellectual property rights of the Company. 4..1.24. The Company, and its respective predecessors and affiliates has complied with all environmental, health, and safety laws, and no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or notice has been filed or commenced against it alleging any failure so to comply. Without limiting the generality of the preceding sentence, the Company and its respective predecessors and affiliates has obtained and been in compliance with all of the terms and conditions of all permits, licenses, and other authorizations which are required under, and has complied with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules, and timetables which are contained in, all environmental, health, and safety laws. 4..1.25. The Company has no liability for nor has it 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 the basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand against the Company giving rise to any 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. 4..1.26. To the knowledge of Shareholder and the Company all properties used in the business of the Company, and its respective predecessors and affiliates have been free of asbestos, PCB's, methylene chloride, trichloroethylene, 1,2-trans-dichloroethylene, dioxins, dibenzofurans, and extremely hazardous substances. 4..1.27. None of the Company's shareholders, or their affiliates has been involved in any business arrangement or relationship with the 12 13 Company within the past 12 months, and none of its shareholders or their affiliates owns any asset, tangible or intangible, which is used in the business of the Company. 4..1.28. All accounts receivable reflected on the October 31, 1994 and April 30th, 1995 Financial Statements were, and all such receivables on the date hereof are, valid obligations of the respective makers thereof and were not, and are not, to the knowledge of Shareholder, subject to any valid offset or counterclaim, are collectible in full net of any reserves set forth in the Financial Statements, and are not subject to any assignment, claim, lien or security interest. 4. . 1.29. There are no actions, suits, claims, complaints, charges, hearings, investigations, arbitration (or other dispute resolution proceedings) or other proceedings pending or, to the knowledge of Shareholder, threatened against or affecting the Company in any court or panel or before any arbitrator or governmental agency, domestic or foreign. The Company has not been charged with, and to the best of Shareholder's knowledge, is not under investigation with respect to, any charge concerning any violation of any provision of any federal, state or other applicable law or regulation with respect to the business of the Company. 4..1.30. Other than as disclosed in the Disclosure Schedule under another section of this Agreement the Company is not a party to, bound by or the beneficiary of any instrument, commitment, agreement, arrangement or understanding meeting any of the descriptions set forth below (the "Material Contracts"): 4..1.30.1. Real estate leases, personal property leases, insurance policies, licenses of intellectual property, technical information or software, employment contracts or Benefit Plans, as one or more of these terms may be described below or are otherwise understood. 4..1.30.2. Any contract or agreement requiring a capital expenditure or the purchase of goods or services in excess of $ 15,000 over the remaining term thereof. 13 14 4. . 1.30.3. Any instrument evidencing indebtedness (other than routine purchase orders or trade payable), any liability for borrowed money, any obligation for the deferred payment for the purchase price for property in excess of $ 15,000, or any instrument guaranteeing any indebtedness, obligation or liability of another. 4..1.30.4. Any deed, bill of sale, lease, easement, agreement or other instrument affecting any right, title or interest in any real or personal property, other than minor pieces of office equipment and other immaterial items. 4..1.30.5. Any contract or agreement with any governmental agency or authority. 4. . 1.30.6. Any license or royalty agreement. 4. . 1.30.7. Any power of attorney, proxy or similar instrument or agreement. 4..1.30.8. Any warranty or service contract obligating the Company to provide goods or services to another for any period of time which is not terminable by the Company upon not more than 30 days without penalty or claim for damages. 4..1.30.9. Any contract containing covenants not to compete in any line or business or with any person in any geography area. 4..1.31. Accurate, correct and complete copies of each Material Contract have been made available to Fidelity. Each Material Contract is in full force and effect and is valid, binding and enforceable in accordance with its terms. The Company, and to Shareholder's knowledge, each other party has complied in all material respects with all material commitments and obligations on their part to be performed or observed under each Material Contract. No event has occurred which is or, 14 15 after the giving of notice or the passage of time, or both, would constitute a material breach or default under a Material Contract on the part of the Company, or to the knowledge of Shareholder, any other party. The Company has not received any written notice, or to Shareholder's knowledge, been given other notice of an intention to cancel or terminate a Material Contract or to exercise or not exercise options or rights under a Material Contract. The Company has not received any written, or to Shareholder's knowledge, other notice of a default, offset or counterclaim under any Material Contract, or any other written or, to their knowledge, other communication calling upon the Company to comply with any provision of any Material Contract or asserting the failure of the Company to comply with any Material Contract. The consummation of the transactions contemplated hereby, without notice to or consent or approval of any party, will not constitute a default under or a breach of any provision of a Material Contract, and the Company will have and may enjoy and enforce all rights and benefits under each Material Contract after the Closing. There is no security interest, lien, encumbrance or claim of any kind on the Company under any Material Contract. 4..1.32. Section 4.1.32 of the Disclosure Schedule contains a true and complete list of the names and compensation arrangements of all employees, officers and directors of the Company and, with respect to those whose current annual rate of compensation from the Company equals or exceeds $ 35,000, a list and summary description of all written and unwritten agreements, arrangements or understanding, with officers, directors and employees of the Company, regarding services to be rendered, terms and conditions of employment and compensation (the "Employment Contracts "). 4..1.33. The Company does not have any "welfare benefit plans" (as defined in Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), "employee pension benefit plans" (as defined in Section 3(2) of ERISA), bonus, profit sharing, deferred compensation, severance, termination, incentive or other compensation plans or arrangements, or other employee fringe benefit plans, whether funded or unfunded, qualified or unqualified, maintained or contributed to by the Company for the benefit of any 15 16 current or former employees of the Company or any other individual who currently provides, or formerly provided, services to the Company as an independent contractor (all of the foregoing are collectively referred to as "Benefit Plans"). The transactions contemplated by this Agreement will not result in the right of any employee to terminate his or her employment relationship with the Company or create any severance or termination obligation of the Company. 4..1.34. Except to the extent reflected on the Financial Statement as of April 30, 1995, the Company does not have any material indebtedness, liability or obligation of any nature, whether absolute or contingent, related to or arising from the operation of the business or the ownership, possession or use of any assets. 4..1.35. None of the information furnished by Shareholder or the Company to Fidelity shall contain any untrue statement of a material fact or omit to state any fact, the omission of which would be misleading. 4..1.36. No person has asserted to the Company in writing, or to Shareholder's knowledge, otherwise, any claim for indemnification under the Company's Articles of Incorporation or bylaws, or under applicable state law, or any Agreement, and to the best of Shareholder's knowledge, no basis for such claim exists. 4..1.37. Since April 30th, 1995, there have not been (i) any changes in the assets, liabilities, financial condition, or operations of the Company from that reflected in the Financial Statements, except changes in the ordinary course of business that have not been, either individually or in the aggregate, materially adverse; (ii) any loan or advance except normal travel advances or reasonable expense advances to any director, officer or employee of the Company; (iii) any forgiveness or cancellation of any debts or obligations due the Company; (iv) the waiver of any rights or the discharge or satisfaction of any lien, charge, or encumbrance or payment of any liability or obligation, other than the payment of current liabilities in the ordinary course of business; (v) any cancellation, acceleration, termination, or modification of any agreement, contract, lease, or license (or series of 16 17 related agreements, contracts, leases, and licenses) involving more than $15,000 to which the Company is a party to or bound by; (vi) an imposition of any liens or encumbrances on or against the assets of the Company; (vii) any postponement of the payment of accounts payable or other liabilities outside the ordinary course of business; (viii) any licenses or sublicenses granted with respect to any intellectual property of the Company or (ix) any other transaction other than in the ordinary course of business consistent with past practices. 4..1.38. The Company has materially complied with all statutes, codes, ordinances, licensing requirements, laws, rules, regulations, decrees, awards or orders applicable to its business or operations, including those relating to employment, environmental matters, employee benefits, the production, marketing and sale of its products and services, trade regulations, antitrust, warranties and control of foreign exchange. 4..1.39. Neither the Company, nor to the knowledge of Shareholder, have any of the Company's officers, directors, agents, employees, associates or any other person acting on behalf of the Company (i) made any unlawful domestic or foreign political contributions, (ii) made any payment or provided any services which were not legal to make or provide or which the Company or any such officer, employee or other person should have known were not legal for the payee or the recipient of such services to receive, (iii) received any payments, services or gratuities which were not legal to receive or which the Company or such person should have known were not legal for the payor or the provider to make or provide, (iv) had any transactions or payments which were not recorded in the Company's accounting books and records or disclosed in its financial statements, (v) had any off-book bank or cash account or "slush fund", (vi) made any payments to governmental officials in their individual capacities for the purpose of affecting their action or the action of the government they represent to obtain special concessions, or (vii) made illegal payments to obtain or retain business. 4. . 1.40. Neither Shareholder nor the Company has retained any broker, finder, agent or other intermediary or incurred any liability or 17 18 obligation for any brokerage fees, commissions or finders fees with respect to this Agreement or the transactions contemplated by this Agreement. 4..2. Fidelity's Representations and Warranties. Fidelity hereby represents and warrants to Shareholder that as of the date hereof and as of the Closing Date: 4. .2.1. Fidelity is a corporation duly organized, validly existing and in good standing under the laws of the State of Arizona, is qualified to do business and in good standing in those states where the failure to so qualify would have a material adverse affect on the business, financial condition or the results of its operations, has full corporate power and authority to own its properties and to carry on its business in the manner in which it is currently conducted and has complied in all material respects with all material federal, state, and local laws with respect to the operation and conduct of its business. 4..2.2. Fidelity has full power and authority and has taken all necessary action to execute and deliver this Agreement and to carry out the transactions contemplated hereby. All corporate and other action required to be taken to authorize the execution, delivery and performance of this Agreement and the transactions contemplated hereby has been duly and properly taken. No consents or approvals of any third parties are necessary, or will be necessary, in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated herein by Fidelity. 4..2.3. This Agreement, and the documents to be delivered at the Closing, have been duly executed and delivered and are the lawful, valid and legally binding obligation of Fidelity, enforceable against Fidelity in accordance with their respective terms. 4..2.4. Fidelity shall acquire the Stock for its own account, for investment purposes only and not with a view to the distribution or resale thereof; provided, however, that the disposition of the Stock shall at all times remain within the sole control of Fidelity. 18 19 4..2.5. Fidelity has not retained any broker, finder, agent or other intermediary or incurred any liability or obligation for any brokerage fees, commissions or finders fees with respect to this Agreement or to the transactions contemplated by this Agreement. V. Conditions to Closing 5. .1. Conditions for the Benefit of Fidelity. The obligation of Fidelity to consummate the transactions contemplated by this Agreement is subject to the prior or concurrent satisfaction of each of the following conditions: 5..1.1. Warranties and Covenants. The representations and warranties of Shareholder contained herein shall be accurate in all material respects as if made on and as of the Closing Date, as well as the date of this Agreement. Shareholder shall have performed all of the obligations and compiled with each and all of the covenants required to be performed or complied with on or prior to the Closing. 5..1.2. No Pending Actions. No action or proceeding before any court or governmental body shall be pending or threatened wherein an unfavorable judgment, decree or order would prevent the carrying out of this Agreement or any of the transactions contemplated hereby, declare unlawful the transactions contemplated by this Agreement, cause such transactions to be rescinded, or which might affect the right of Fidelity to own or control the Stock. 5. . 1.3. Consents. All consents by third parties that are required for the transfer of the Stock or that are required for the consummation of the transactions contemplated hereby, or that are required in order to prevent a breach of or a default under or a termination of any agreement to which the Company or Shareholder is a party or to which any portion of the property of the Company is subject will be obtained or provided for. 5. . 1.4. Release. Imperial Bank shall have released any and all interest it has in the Stock or assets of the Company. 19 20 5..1.5. Intercompany Debt. All amounts reflected in the Financial Statements as amounts owed by the Company to Shareholder shall either be forgiven or contributed back to the Company by Shareholder as additional paid in capital. 5..2. Conditions for the Benefit of Shareholder. The obligation of Shareholder to consummate the transactions contemplated by this Agreement is subject to the prior or concurrent satisfaction of each of the following conditions: 5..2.1. Warranties and Covenants. The representations and warranties of Fidelity contained herein shall be accurate in all material respects as if made on and as of the Closing Date, as well as the date of this Agreement. Fidelity shall have performed each and all of the obligations and complied with each and all of the covenants specified in this Agreement to be performed or complied with on or prior to the Closing. 5. .2.2. No Pending Actions. No action or proceeding before any court or governmental body shall be pending or threatened wherein an unfavorable judgment, decree or order would prevent the carrying out of this Agreement or any of the transactions contemplated hereby, declare unlawful the transactions contemplated by this Agreement, or cause such transactions to be rescinded. 5..2.3. Consents. All consents by third parties that are required for the consummation of the transactions contemplated hereby, or that are required in order to prevent a breach of or a default under or a termination of any agreement to which Fidelity is a party or to which any portion of its assets are subject, will be obtained or provided for. VI. Survival of Representation and Warranties; Indemnification 20 21 6..1. Survival of Representations and Warranties. The representations and warranties of the Company, Shareholder and Fidelity shall survive the Closing and shall continue until the expiration of the applicable statutory period of limitations on the commencement of a cause of action for the breach of contract, except for the provisions of Sections 4.1.9 thru and including 4.1.13. relative to taxes, which shall survive until the expiration of the applicable statute of limitations, including any waivers or extensions thereof. 6..2. Indemnification of Fidelity. Subject to the provisions of Section 6.5.2, the Company and Shareholder jointly and severally agree to indemnify, defend and hold harmless Fidelity from and against any and all losses, damages, claims, suits, proceedings, liabilities and expenses (including without limitation, reasonable attorney's fees) ("Losses" or "Claims" as the context requires) which may be imposed on, sustained, incurred, suffered by or asserted against Fidelity, directly or indirectly, as a result of, relating to or arising out of (a) the breach of any representation or warranty or covenant or agreement of the Company or Shareholder contained in this Agreement or (b) any Claims arising from the actions of the Company or Shareholder prior to the Closing Date. 6..3. Indemnification of the Shareholder. Fidelity agrees to indemnify, defend and hold harmless Shareholder from and against any and all losses, damages, claims, suits, proceedings, liabilities and expenses (including without limitation, reasonable attorney's fees) ("Losses" or "Claims" as the context requires) which may be imposed on, sustained, incurred, suffered by or asserted against Shareholder, directly or indirectly, as a result of, relating to or arising out of (a) the breach of any representation or warranty or covenant or agreement of Fidelity contained in this Agreement or (b) any Claims arising from the actions of Fidelity and its Affiliates, including the Company, after the Closing Date relating to the conduct of the Business, and which is not subject to the indemnification of Fidelity under section 6.2. 6..4. Procedures for Indemnification. 6..4.1. If a party to this Agreement entitled to assert a Claim under this Agreement shall receive notice of the assertion by a person who is not a party to this Agreement of any claim or the commencement by any such person of any action or proceeding ( a "Third Party Claim") with respect to which Fidelity or the Company and Share- 21 22 holder are obligated to provide indemnification, the indemnified party (the Indemnitee") shall give the indemnifying party (the "Indemnitor") prompt notice thereof. Such notice shall describe the Third Party Claim in reasonable detail. 6..4.2. The Indemnitor may elect to compromise or defend, at such Indemnitor's own expense and by Indemnitor's own counsel, which shall be reasonably acceptable to the indemnified party, any Third Party Claim. If an Indemnitor elects to defend a Third Party Claim, it shall, within 30 days of receipt of the notice referred to in Section 6.4.1 above (or sooner, if the nature of such Third Party Claim so requires), notify the related Indemnitee of its intent to do so, and such Indemnitee shall reasonably cooperate in the compromise of, or defense against, such Third Party Claim. The Indemnitor shall pay such Indemnitee actual out-of-pocket expenses incurred in connection with such cooperation. If an Indemnitor elects not to defend against a Third Party Claim, or fails to notify an Indemnitee of its election as provided in Section 6.4.1 above, Indemnitee may without advance written notice to the Indemnitor, pay, compromise or defend such Third Party Claim reasonably and in good faith on behalf of and for the account of the Indemnitor. No Indemnitor shall consent to entry of any judgment or enter into any settlement against or with respect to any Indemnitee without the written consent of such Indemnitee, unless such judgment or settlement (i) provides solely for money damages or other payments for which such Indemnitee is entitled to indemnification hereunder and (ii) includes as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnitee of a release from all liability in respect to such Third Party Claim. 6..4.3. With respect to any Claim hereunder which does not result from a Third Party Claim, the Indemnitor shall have a period of thirty (30) days from receipt of notice from the Indemnitee within which to respond thereto. If such Indemnitor does not respond within such 30-day period or rejects such Claim in whole or in part, such Indemnitee shall be free to pursue such remedies as may be available to such Indemnitee under applicable law. 22 23 6..4.4. If the amount of any Claim or Loss shall, at any time subsequent to payment pursuant to this Agreement, be reduced by recovery, settlement or otherwise, the amount of such reduction, less any expenses incurred in connection therewith, shall promptly be repaid by the Indemnitee to the related Indemnitor. 6..5. Remedies. 6..5.1. No action for indemnification under this Article VI may be brought with respect to a breach of any representations and warranties after the date indicated in Section 6.1 above unless, prior to the date such representations and warranties expire, the party seeking indemnification has notified in reasonable detail the party from whom indemnification is sought of a claim for indemnity hereunder. 6..5.2. Fidelity, the Company or Shareholder, as the case may be, shall have no liability to defend, indemnify or hold harmless the other party to this Agreement unless and until the aggregate amount payable by the former party as a result of all such breaches exceeds $25,000, whereupon the former party shall be liable only for the amount in excess of such $25,000 provided, however, that such limitation shall not apply to any claim for taxes pursuant to the provisions of sections 4.1.9 thru and including 4.1.13. VII. General Provisions 7..1. Amendment and Waiver. No amendment or waiver of any of the provisions of this Agreement shall be effective unless the same shall be in writing and signed by the parties hereto. Furthermore, any such written waiver or amendment shall be effective only for the specific instance and for the specific purpose for which it was given. 7..2. Costs and Expenses. Each party to this Agreement shall bear their own costs and expenses incurred in connection with the preparation of this Agreement and the consummation of the transactions contemplated hereunder. Not withstanding the foregoing, the Company shall not incur nor be responsible for any costs or 23 24 expenses, including attorneys fees, in connection with this Agreement or the transactions contemplated herein. 7..3. Notices. All notices, requests, demand and other communications hereunder, whether or not required, shall be in writing and shall be sent by registered or certified mail, or any recognized national delivery service, postage prepaid, return receipt required, as follows: If to Fidelity: Andrew F. Puzder Executive Vice President and General Counsel Fidelity National Title Insurance Company 17911 Von Karman Avenue, Suite 300 Irvine, California 92714 If to Shareholder:WTC Financial 19200 Von Karman Avenue, suite 500 Irvine, California 92715 With a copy to: George J. Wall, Esq. PALMIERI, TYLER, WIENER, WILHELM & WALDRON 2601 Main Street, Suitel300 Irvine, California 92714 If to the Company:World Tax Service 17911 Von Karman Avenue, Suite 300 Irvine, California 92714 Attn: Legal Department or to such other addresses as either party may from time to time provide to the other by notice hereunder. All such notices shall be effective when deposited with the designated carrier addressed as set forth above. 7..4. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, all of which however, shall constitute one and the same agreement. 24 25 7. .5. Affiliates. For purposes of this Agreement "Affiliates" of a person shall mean a person who directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such person; the term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a person, whether through the ownership of voting securities, by contract or otherwise. 7..6. Parties in Interest. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and assigns. However, except as set forth in the preceding sentence, this agreement is intended solely for the benefit of the parties hereto and no third party shall be a beneficiary or have the right to enforce this Agreement or any of the terms and provisions hereof. 7..7. Entire Transaction. This Agreement and the documents and transactions referred to herein and the Addendum Agreement of even date herewith, constitute the full and complete understanding of the parties hereto with respect to these transactions and supersede all other agreements and understandings of the parties hereto. There have been no representations or statements made concerning this transaction except asset forth in this Agreement and neither party is relying upon any representation or statement except those set forth in this Agreement in determining to enter into this Agreement. 7. .8. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California, including the choice of law provisions thereof. The parties hereto consent to the jurisdiction of the Courts of California and to the venue of the County of Orange with respect to all matters relating to this Agreement. Should any provision of this Agreement be found to be invalid, unenforceable, or void for any reason, the remaining provisions of this Agreement shall remain in full force and effect as though the invalid, unenforceable or void provision were not a part of hereof. 7..9. Headings. The section and other headings contained in this Agreement are for the convenience of the parties, are for reference purposes only, and shall not affect in any way the meaning or interpretation of this Agreement. 25 26 7..10. Expenses. Except as otherwise expressly provided herein to the contrary, each party to this Agreement shall pay their respective costs and expenses in connection with the transactions referred to herein. 7. .1 1. Joint Cooperation. The Parties shall cooperate fully with each other and their respective counsel and accountants and to execute and deliver any further documents that may be reasonably necessary in connection with any steps required to be taken as part of their respective obligations under this Agreement. 7..12. Joint Preparation. All parties to this Agreement have been represented by competent counsel. This Agreement has been jointly prepared by the Parties, and any uncertainties or ambiguity existing in it shall not be interpreted against any of the parties under the presumptions of California Civil Code Section 1654, but rather shall be interpreted according to the rules generally governing the interpretation of contracts. 7. .13. Injunctive Relief. The parties hereto agree that money damages would be an insufficient remedy for any breach of this Agreement by Shareholder and that Fidelity shall be entitled to an injunction and specific performance as a remedy for any such breach, without proof of actual damages and without the necessity of posting a bond or other security, such proof and security being waived by Shareholder. Such remedy shall not be deemed to be the exclusive remedy for any such breach but shall be in addition to all other remedies available to Fidelity at law or in equity. 26 27 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed by their duly authorized representatives, as of the date first above written. FIDELITY NATIONAL TITLE INSURANCE COMPANY, an Arizona corporation By: /s/ Andrew F. Puzder -------------------------------- Andrew F. Puzder Its: General Counsel WTC FINANCIAL, a California corporation By: /s/ Michael E. Lowther -------------------------------- Michael E. Lowther Its: President WORLD TAX SERVICE, a California corporation By: Its: 27 28 STOCK PURCHASE AGREEMENT By this Agreement made and entered into as of this 9th day of June, 1995, Fidelity National Financial, Inc., a Delaware corporation ("FNFI"); WTC Financial, a California corporation ("Shareholder"), and Spatial Data, Inc., a California corporation (the "Company") state, confirm and agree as follows: I. Recitals 1..1. Spatial Data Inc. Shareholder is the record and beneficial owner of One Hundred and Fifty Six Thousand (156,000) shares of capital stock of Spatial Data Inc., a California corporation ("the Company"), which represents approximately sixty two percent (62.4%) of the issued and outstanding stock of the Company (the "Stock"). 1..2. Notes Receivable. Shareholder is the holder and beneficial owner of certain notes receivable and other intercompany receivables (the "Intercompany Obligations") under which the Company is indebted to Shareholder in the aggregate amount of Four Hundred and Eight Thousand dollars($408,000). 1..3. Purchase. FNFI desires to acquire the Stock and Intercompany Obligations from Shareholder. 1..4. Sale. Shareholder desires to sell to FNFI the Stock and the Intercompany Obligations on and subject to the terms and conditions set forth below. II. Purchase and Sale 2..1. Sale. At the Closing, as defined below, Shareholder shall sell, transfer, assign, and deliver to FNFI, in reliance upon the representations and warranties set forth below, the Stock and the Intercompany Obligations on and subject to the terms, covenants and conditions set forth below and FNFI shall purchase the Stock and Intercompany Obligations for the consideration set forth in Section 2.2 below. 1 29 2..2. Purchase Price. In full consideration of the sale, transfer, assignment and delivery of the Stock and Intercompany Obligations by Shareholder, and in reliance upon the representations and warranties set forth below, FNFI shall, in full payment therefor, pay Two Hundred Thousand and No/100 Dollars ($200,000.00). Fifty Thousand and No/100 Dollars ($50,000.00) of the Purchase Price shall be consideration for the Stock and One Hundred and Fifty Thousand and No Dollars ($150,000.00) shall be consideration for the Intercompany Obligations. 2..3. Payment of Purchase Price. FNFI shall pay the purchase price by making payment of Two Hundred Thousand and No/100 Dollars ($200,000.00) to Imperial Bank in partial satisfaction of Shareholder's obligation owed to Imperial Bank evidenced by the Note attached hereto as Exhibit "A" (the "Imperial Note"). 2..4. Intercompany Obligations. The Intercompany Obligations and all appropriate and necessary assignment documents are attached hereto as Exhibit "B". 2..5. Other Agreements. Shareholder shall obtain written representations, satisfactory to FNFI, from Imperial Bank that upon payment of the Purchase Price in the manner set forth in paragraph 2..3 above, that Shareholder's obligations under the Imperial Note will be satisfied and that all security or other interests Imperial Bank may have in the Stock, the Intercompany Obligations and/or the assets of the Company shall be released. III. Closing 3..1. Closing. Completion of the transaction contemplated by Article II above (the "Closing"), shall take place at the offices of Shareholder at 1:30 P.M. local time on June 9, 1995 or at such other time and place as the parties hereto may mutually agree in advance of such date and time (the "Closing Date"). Not withstanding the execution of this Agreement and the Closing hereof, this Agreement shall be of no effect and shall not bind either party unless and until; (i) the TRANSFER AND ASSIGNMENT AGREEMENT, known as the "Book of Business" agreement, contemplated by American Title Insurance Company, a Florida corporation and World Title Company, a California corporation is given appropriate approval by the California Department of Insurance, is fully executed 2 30 and enforcable or (ii) Shareholder obtains all necessary releases, waivers, or approvals regarding that certain Shareholder Agreement between the shareholders of the Company dated August 13th, 1993. 3..2. Shareholder Closing Documents. Provided that all of the conditions to the Closing set forth in Sections 5.1 and 5.2 below have been satisfied or waived by the party benefiting therefrom, at the Closing, Shareholder shall execute and deliver or cause to be delivered to FNFI the following documents: 3..2.1. Certificates evidencing the Stock with stock powers attached evidencing the assignment of the Stock to FNFI. 3..2.2. Certified copies of the Company's original minute books, such minute books to contain (i) original Articles of Incorpora tion and all amendments thereto, or copies thereof if the originals are unavailable, (ii) the Company's By-Laws presently in effect, (iii) the Company's stock transfer records together with all available canceled stock certificates and (iv) all minutes of meetings or consents in lieu of such meetings of the Company's Board of Directors and shareholders. 3..2.3. Release, in a form satisfactory to FNFI, of Imperial Bank's security interest in the Stock and or assets of the Company.. 3..2.4. Such other documents and agreements as may be either reasonable or necessary to carry out the purpose and intention of this Agreement. 3..3. FNFI's Closing Documents. Provided that all of the conditions to the Closing set forth in Section 5.1 and 5.2 below have been satisfied or waived by the party benefiting therefrom, at the Closing, FNFI shall execute and deliver or cause to be delivered to Shareholder, the following documents: 3..3.1. A cashier's or bank check payable to Imperial Bank or written verification of completion of a wire transfer to Imperial Bank in the amount shown in Section 2.2. 3 31 3..3.2. Such other documents and agreements as may be either reasonable or necessary to carry out the purpose and intention of this Agreement. IV. Representations and Warranties 4..1. Shareholder's Representations and Warranties. Shareholder and the Company jointly and severally represent and warrant to FNFI that the statements contained in this Article IV are correct and complete as of the date hereof and as of the Closing Date except as set forth in the disclosure schedule accompanying this Agreement (the "Disclosure Schedule") . The Disclosure Schedule will be arranged in paragraphs corresponding to the lettered and numbered paragraphs contained in this Article IV. It is understood between the parties to this Agreement that absent fraudulent representations or omissions on the part of officers or directors of Shareholder or the Company, such officers and directors shall not be subject to liability for any untrue or incomplete statement contained in this Article IV. 4..1.1. This Agreement, and the documents to be delivered at the Closing, have been duly executed and delivered by Shareholder and are the lawful, valid and legally binding obligation of Shareholder, en forceable in accordance with their respective terms. Shareholder has obtained all shareholder and Board of Directors approvals with respect to the transactions contemplated by this Agreement and any other transactions contemplated hereby. The execution and delivery of this Agreement, and the consummation of the transactions contemplated hereby, will not result in the creation of any lien, charge or encum brance or the acceleration of any indebtedness or other obligation of the Company, and are not prohibited by, do not materially conflict with, nor violate any provision of (i) any contract or agreement to which Shareholder or the Company is a party or to which its assets or property are bound, (ii) any rule, regulation, order, decree or judgment of any court or governmental agency, or (iii) any law applicable to the Company. 4..1.2. Shareholder owns the Stock free and clear of any liens, claims, and encumbrances whatsoever and that upon the completion of 4 32 the transactions contemplated herein, title to the Stock will be vested in FNFI free and clear of any liens, claims or encumbrances whatsoever. 4..1.3. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California, has full power and authority to own its properties and to carry on business in the manner in which it is currently conducted and has complied in all material respects with all federal, state and local laws with respect to the operation and conduct of its business. Copies of the Articles of Incorporation and all amendments thereto, bylaws as amended and currently in force, stock records and corporate minutes and records of the Company heretofore made available to FNFI are true, complete and correct. The Company is qualified to do business and is in good standing in those states where the failure to so qualify would have a material adverse effect on the business, financial condition or the results of operations of the Company. 4..1.4. The Company does not own any stock or have any other equity or profit sharing interest in, and does not control, directly or indirectly, any corporation, association, partnership, joint venture or other entity. 4..1.5. The Company has authorized capital stock consisting of One Million (1,000,000) shares of common stock, of which 250,000 shares are issued and outstanding. All of the issued and outstanding shares of the Stock are duly authorized and validly issued, fully-paid and nonassessable, were offered, issued and sold in accordance with applicable federal and state securities laws, and there are no preemptive rights in respect thereof. There are no other classes of stock of the Company, other than the common stock set forth above. 4..1.6. There are no outstanding options, warrants, rights, calls, commitments, conversion rights, plans or other agreements or instruments of any character providing for the purchase or other acqui sition by the holders thereof or issuance of any securities of the Company of any description. There are no outstanding or authorized stock appreciation, phantom stock, profit participation or similar rights 5 33 with respect to the Company. Shareholder is the record and beneficial owner of the Stock. 4..1.7. As of the Closing Date, all necessary filings will have been made with and all necessary approvals will have been obtained from federal and state securities and other regulatory authorities with respect to the transfers of the Stock contemplated herein. There are no stock transfer or similar fees or taxes payable with respect to the transactions contemplated by this Agreement. 4..1.8. Section 4.1.8. of the Disclosure Schedule contains true and correct copies of the audited consolidated balance sheets of Shareholder and its consolidated subsidiaries as of October 31, 1993 and 1994, and the related consolidated Statements of Income, Retained Earnings and Cash Flows for the years then ended. Also attached are unaudited consolidated balance sheets and statements of income for Shareholder and its consolidated subsidiaries for the six month period ended April 30th, 1995 (collectively, the "Financial Statements"). The Financial Statements have been prepared in accordance with Generally Accepted Accounting Principles ("GAAP"), applied on a consistent basis as of and at the dates indicated above. 4..1.9. All federal, state and local tax and information returns relating to the Company required to have been filed prior to the date hereof have been duly and timely filed (including any extensions) and each such return correctly reflects the income, franchise, and other tax liability and all other information regarding the Company required to be reported thereon. All taxes, penalties, interest and related charges and fees related to income of the Company have been paid, to the extent such payments are required (including extensions) prior to and as of the date hereof, and the Company does not have any deficiency with respect to any tax period or any liability with respect to taxes or penalties and interest thereon, or related charges and fees, whether or not assessed, which are not adequately provided for in the tax accrual reserves in Financial Statements. The Company has not extended the statute of limitations with respect to review or examination of any of its federal, state or local tax returns. The Company has filed all 6 34 required sales, ad valorem and other similar tax returns and has paid all of such taxes required to be paid by it prior to the date hereof. 4..1.10. The Company does not expect any authority to assess any additional taxes for any period for which Tax Returns have been filed. There is no dispute or claim concerning any tax liability of the Company either claimed or raised by any authority in writing or as to which the Company's or Shareholder's directors, officers or employees have personal knowledge based on contact with any agent of such authority. 4..1.11. Section 4.1.11 of the Disclosure Schedule lists all federal, state, local, and foreign income Tax Returns filed with respect to the Company for taxable periods ended on or after October 31, 1990, indicates those Tax Returns which have been audited, and indicates those Tax Returns that are currently subject to audit. 4..1.12. Section 4.1.12 of the Disclosure Schedule contains correct and complete copies of all federal income Tax Returns, examination reports, and statements of deficiencies assessed against or agreed to by Shareholder or the Company. 4..1.13. The Company has not; (i) filed a consent under Code Sec. 341(f) concerning collapsible corporations; (ii) made any payments, is obligated to make any payments, or is a party to any agreement that under certain circumstances could obligate it to make any payments that will not be deductible under Code Sec. 280G; (iii) been a United States real property holding corporation within the meaning of Code Sec. 897(c)(2) during the specific period specified in Code Sec. 897(c)(1)(A)(ii); (iv) failed to disclose on its federal income tax returns all positions taken therein that could give rise to a substan tial understatement of federal income tax within the meaning of Code Sec. 6662; (v) a party to any tax allocation or sharing agreement; (vi) a member of an affiliated group filing a consolidated federal income tax return (other than a group the common parent of which is Shareholder) or has any liability for the taxes of any person or entity as a transferee or successor, by contract, or otherwise. 7 35 4..1.14. Section 4.1.14 of the Disclosure Schedule lists all of the real property owned by the Company, or in which it has an ownership interest, with a brief description of each such property . 4..1.15. Section 4.1.15 of the Disclosure Schedule lists and describes briefly all real property leased or subleased to the Company. The Company has delivered to FNFI correct and complete copies of the leases and subleases listed (as amended to date). With respect to each lease and sublease listed in section 4.1.15 of the Disclosure Schedule: 4..1.15.1. To the knowledge of Shareholder and the Company the lease or sublease is legal, valid, binding, enforceable, and in full force and effect and will continue to be legal, valid, binding, enforceable, and in full force and effect on identical terms following the consummation of the transactions contemplated hereby; 4..1.15.2. To the knowledge of Shareholder and the Company no party to the lease or sublease is in breach or default, and no event has occurred which, with notice or lapse or time, would constitute a material breach or default or permit termination, modification, or accelera tion thereunder; 4..1.15.3. No party to the lease or sublease has repudiated any provision thereof; 4..1.15.4. There are no disputes, oral agreements, or forbearance programs in effect as to the lease or sublease; 4..1.15.5. With respect to each sublease, the representations and warranties set forth above are true and correct with respect to the underlying lease; 4..1.15.6. The Company has not assigned, trans ferred, conveyed, mortgaged, deeded in trust, or encum bered any interest in the leasehold or sublease hold; 8 36 4..1.15.7. To the knowledge of Shareholder and the Company all facilities leased or subleased thereunder have received all approvals or governmental authorities (including licenses and permits) required in connection with the operation thereof and have been operated and maintained in accordance with applicable laws, rules, and regulations; 4..1.15.8. All facilities leased or subleased thereun der are supplied with utilities and other services necessary for the operation of said facilities; and 4..1.15.9. To the knowledge of Shareholder and the Company the owner of the facility leased or subleased has good and marketable title to the parcel of real property, free and clear of any Security Interest, easement, covenant, or other restriction, except for installments of special ease ments not yet delinquent and recorded easements, cove nants, and other restrictions which do not impair the current use, occupancy, or value, or the marketability of title, of the property subject thereto. 4..1.16. Section 4.1.16 of the Disclosure Schedule sets forth the following information with respect to each insurance policy (including policies providing property, casualty, liability, and workers' compensation coverage and bond and surety arrangements) to which the Company has been a party, a named insured, or otherwise the beneficiary of coverage at any time within the past 5 years: (i) The name, address, telephone number of the agent; (ii) The name of the insurer, the name of the policyholder, and the name of each covered insured; (iii) The policy number and the period of coverage; (iv) The scope (including an indication of whether the coverage was on a claims made, occurrence, or other basis) and amount (including a description of how deductibles and ceilings and calculated and operate) of coverage; and (v) A description of any retroactive premium adjustments or other loss-sharing arrangements. 9 37 4..1.17. To the knowledge of Shareholder no executive, key employee, or group of employees has any plans to terminate employment with the Company. The Company is not a party to or bound by any collective bargaining agreement, nor has any of them experienced any strikes, grievances, claims of unfair labor practices, or other collective bargaining disputes. The Company has not committed any unfair labor practice. None of the directors and officers (and employees with responsibility for employment matters) of the Company has any knowl edge of any organizational effort presently being made or threatened by or on behalf of any labor union with respect to employees or any of the Company. 4..1.18. Section 4.1.18 of the Disclosure Schedule lists each Employee Benefit Plan that the Company maintains or to which any of them contributes. Each such Employee Benefit Plan (and each related trust, insurance contract or fund) complies in form and in operation in all respects with the applicable requirements of ERISA, the Code, and other applicable laws. All required reports and descriptions (including Form 5500 Annual Reports, Summary Annual Reports, PBGC-1's, and Summary Plan Descriptions) have been filed or distributed appropriately with respect to each such Employee Benefit Plan. The requirements of Part 6 of Subtitle B of Title I of ERISA and of Code Sec. 4980B have been met with respect to each such Employee Benefit Plan which is an Employee Welfare Benefit Plan. All contributions (including all employer contributions and employee salary reduction contributions) which are due have been paid to each such Employee Benefit Plan which is an Employee Pension Benefit Plan 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 Pension Benefit Plan or accrued in accordance with the past custom and practice of the Company. All premiums or other payments for all periods ending on or before the Closing Date have been paid with respect to each such Employee Benefit Plan which is an Employee Welfare Benefit Plan. Each such Employee Benefit Plan which is an Employee Pension Benefit Plan meets the requirements of a "qualified plan" under Code Sec. 401(a) and has received, within the last two years, a favorable determination letter from the Internal Revenue Service. The market value of assets under each such Employee Benefit Plan which is an Employee Pension Benefit Plan (other than any Multi employer Plan) equals or exceeds the present value of all bested and 10 38 nonvested Liabilities thereunder determined in accordance with PBGC methods, factors, and assumptions applicable to an Employee Pension Benefit Plan terminating on the date of determination. The Company has delivered to FNFI correct and complete copies of the plan documents and summary plan descriptions, the most recent determination letter received from the Internal Revenue Service, the most recent Form 5500 Annual Report, and all related trust agreements, insurance contracts, and other funding agreements which implement each such Employee Benefit Plan. 4..1.19. With respect to each Employee Benefit Plan that the Company maintains or ever has maintained or to which it contributes, ever has contributed, or ever has been required to contribute; (i) No such Employee Benefit Plan which is an Employee Pension Benefit Plan (other than any Multi employer Plan) has been completely or partially terminated or been the subject of a reportable event as to which notices would be required to be filed with the PBGC. No proceeding by the PBGC to terminate any such Employee Pension Benefit Plan (other than any Multi employer Plan) has been instituted or threatened; (ii) There have been no prohibited transactions with respect to any such Employee Benefit Plan. No fiduciary has any liability for breach of fiduciary duty or any other failure to act or comply in connection with the administration or invest ment of the assets of any such Employee Benefit Plan. No action, suit, proceeding, hearing, or investigation with respect to the administration or the investment of the assets of any such Employee Benefit Plan (other than routine claims for benefits) is pending or threatened and neither Shareholder nor the Company have no knowledge of any basis for any such action, suit, proceeding, hearing, or investigation; (iii) The Company has not incurred, and Shareholder and the Company have no reason to expect that the Company will incur, any liability to the PBGC (other than PBGC premium payments) or otherwise under Title IV of ERISA (including any withdrawal Liability) or under the Code with respect to any such Employee Benefit Plan which is an Employee Pension Benefit Plan. 4..1.20. The Company does not contribute to, ever has contributed to, or ever has been required to contribute to any Multi employer Plan or has any liability (including withdrawal Liability) under any Multi employer Plan. 11 39 4..1.21. The Company does not maintain or ever has maintained or contributes, ever has contributed, or ever has been required to contribute to any Employee Welfare Benefit Plan providing medical, health, or life insurance or other welfare-type benefits for current or future retired or terminated employees, their spouses, or their dependents (other than in accordance with Code Sec. 4980(B). 4..1.22. The Company owns or has the right to use pursuant to license, sublicense, agreement, or permission all intellectual property necessary for the operation of their businesses as presently conducted. Each item of intellectual property owned or used by any of the Company immediately prior to the Closing hereunder will be owned or available for use by FNFI on identical terms and conditions immediately subsequent to the Closing hereunder. The Company has taken all necessary action to maintain and protect each item of intellectual property that it owns or uses. 4..1.23. The Company has not interfered with, infringed upon or misappropriated any intellectual property rights of third parties, and has never received any charge, complaint, claim, demand, or notice alleging any such interference, infringement, misappropriation, or violation. No third party has interfered with, infringed upon or misappropriated any intellectual property rights of the Company. 4..1.24. The Company, and its respective predecessors and affiliates has complied with all Environmental, Health, and Safety Laws, and no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or notice has been filed or commenced against it alleging any failure so to comply. Without limiting the generality of the preceding sentence, the Company and its respective predecessors and affiliates has obtained and been in compliance with all of the terms and conditions of all permits, licenses, and other authorizations which are required under, and has complied with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules, and timetables which are contained in, all Environmental, Health, and Safety Laws. 4..1.25. The Company has no Liability has not handled or disposed of any substance, arranged for the disposal of any substance, 12 40 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 the basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand against the Company giving rise to any 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. 4..1.26. To the knowledge of Shareholder and the Company all properties used in the business of the Company, and its respective predecessors and affiliates have been free of asbestos, PCB's, methylene chloride, trichloroethylene, 1,2-trans-dichloroethylene, dioxins, dibenzofurans, and extremely hazardous substances. 4..1.27. None of the Company's shareholders, or their affiliates has been involved in any business arrangement or relationship with the Company within the past 12 months, and none of its shareholders or their affiliates owns any asset, tangible or intangible, which is used in the business of the Company. 4..1.28. All accounts receivable reflected on the October 31, 1994 and April 30th, 1995 Financial Statements were, and all such receivables on the date hereof are, valid obligations of the respective makers thereof and were not, and are not, to the knowledge of Shareholder, subject to any valid offset or counterclaim, are collectible in full net of any reserves set forth in the Financial Statements, and are not subject to any assignment, claim, lien or security interest. 4..1.29. There are no actions, suits, claims, complaints, charges, hearings, investigations, arbitration (or other dispute reso lution proceedings) or other proceedings pending or, to the knowledge of Shareholder, threatened against or affecting the Company in any court or panel or before any arbitrator or governmental agency, domestic or foreign. The Company has not been charged with, and to the best of Shareholder's knowledge, is not under investigation with respect to, any charge concerning any violation of any provision of any 13 41 federal, state or other applicable law or regulation with respect to the business of the Company. 4..1.30. Other than as disclosed in the Disclosure Schedule under another section of this Agreement the Company is not a party to, bound by or the beneficiary of any instrument, commitment, agree ment, arrangement or understanding meeting any of the descriptions set forth below (the "Material Contracts"): 4..1.30.1. Real estate leases, personal property leases, insurance policies, licenses of Intellectual Prop erty, technical information or software, Employment Contracts or Benefit Plans, as one or more of these terms may be described below or are otherwise understood. 4..1.30.2. Any contract or agreement requiring a capital expenditure or the purchase of goods or services in excess of $ 15,000 over the remaining term thereof. 4..1.30.3. Any instrument evidencing indebtedness (other than routine purchase orders or trade payable), any liability for borrowed money, any obligation for the deferred payment for the purchase price for property in excess of $ 15,000, or any instrument guaranteeing any indebtedness, obligation or liability of another. 4..1.30.4. Any deed, bill of sale, lease, easement, agreement or other instrument affecting any right, title or interest in any real or personal property, other than minor pieces of office equipment and other immaterial items. 4..1.30.5. Any contract or agreement with any governmental agency or authority. 4..1.30.6. Any license or royalty agreement. 4..1.30.7. Any power of attorney, proxy or similar instrument or agreement. 14 42 4..1.30.8. Any warranty or service contract obligating the Company to provide goods or services to another for any period of time which is not terminable by the Company upon not more than 30 days without penalty or claim for damages. 4..1.30.9. Any contract containing covenants not to compete in any line or business or with any person in any geography area. 4..1.31. Accurate, correct and complete copies of each Material Contract have been made available to FNFI. Each Material Contract is in full force and effect and is valid, binding and enforceable in accor dance with its terms. The Company, and to Shareholder's knowledge, each other party has complied in all material respects with all material commitments and obligations on their part to be performed or observed under each Material Contract. No event has occurred which is or, after the giving of notice or the passage of time, or both, would constitute a material breach or default under a Material Contract on the part of the Company, or to the knowledge of Shareholder, any other party. The Company has not received any written notice, or to Shareholder's knowledge, been given other notice of an intention to cancel or terminate a Material Contract or to exercise or not exercise options or rights under a Material Contract. The Company has not received any written, or to Shareholder's knowledge, other notice of a default, offset or counterclaim under any Material Contract, or any other written or, to their knowledge, other communication calling upon the Company to comply with any provision of any Material Contract or asserting the failure of the Company to comply with any Material Contract. The consummation of the transactions contemplated hereby, without notice to or consent or approval of any party, will not constitute a default under or a breach of any provision of a Material Contract, and the Company will have and may enjoy and enforce all rights and benefits under each Material Contract after the Closing. There is no security interest, lien, encumbrance or claim of any kind on the Company under any Material Contract. 15 43 4..1.32. Section 4.1.32 of the Disclosure Schedule contains a true and complete list of the names and compensation arrangements of all employees, officers and directors of the Company and, with respect to those whose current annual rate of compensation from the Company equals or exceeds $ 35,000, a list and summary description of all written and unwritten agreements, arrangements or understanding, with officers, directors and employees of the Company, regarding services to be rendered, terms and conditions of employment and compensation (the "Employment Contracts"). 4..1.33. The Company does not have any "welfare benefit plans" (as defined in Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), "employee pension benefit plans" (as defined in Section 3(2) of ERISA), bonus, profit sharing, deferred compensation, severance, termination, incentive or other compensation plans or arrangements, or other employee fringe benefit plans, whether funded or unfunded, qualified or unqualified, maintained or contributed to by the Company for the benefit of any current or former employees of the Company or any other individual who currently provides, or formerly provided, services to the Company as an independent contractor (all of the foregoing are collectively referred to as "Benefit Plans"). The transactions contemplated by this Agreement will not result in the right of any employee to terminate his or her employment relationship with the Company or create any severance or termination obligation of the Company. 4..1.34. Except to the extent reflected on the Financial State ment as of April 30, 1995, the Company does not have any material indebtedness, liability or obligation of any nature, whether absolute or contingent, related to or arising from the operation of the business or the ownership, possession or use of any assets. 4..1.35. None of the information furnished by Shareholder or the Company to FNFI shall contain any untrue statement of a material fact or omit to state any fact, the omission of which would be misleading. 16 44 4..1.36. No person has asserted to the Company in writing, or to Shareholder's knowledge, otherwise, any claim for indemnification under the Company's Articles of Incorporation or bylaws, or under applicable state law, or any Agreement, and to the best of Sharehold er's knowledge, no basis for such claim exists. 4..1.37. Since April 30th, 1995, there have not been (i) any changes in the assets, liabilities, financial condition, or operations of the Company from that reflected in the Financial Statements, except changes in the ordinary course of business that have not been, either individually or in the aggregate, materially adverse; (ii) any loan or advance except normal travel advances or reasonable expense advances to any director, officer or employee of the Company; (iii) any forgiveness or cancellation of any debts or obligations due the Company; (iv) the waiver of any rights or the discharge or satisfaction of any lien, charge, or encumbrance or payment of any liability or obligation, other than the payment of current liabilities in the ordinary course of business; (v) any cancellation, acceleration, termination, or modification of any agreement, contract, lease, or license (or series of related agreements, contracts, leases, and licenses) involving more than $15,000 to which the Company is a party to or bound by; (vi) an imposition of any liens or encumbrances on or against the assets of the Company; (vii) any postponement of the payment of accounts payable or other liabilities outside the ordinary course of business; (viii) any licenses or sublicenses granted with respect to any intellectual property of the Company or (ix) any other transaction other than in the ordinary course of business consistent with past practices. 4..1.38. The Company has materially complied with all statutes, codes, ordinances, licensing requirements, laws, rules, regulations, de crees, awards or orders applicable to its business or operations, including those relating to employment, environmental matters, employee benefits, the production, marketing and sale of its products and services, trade regulations, antitrust, warranties and control of foreign exchange. 4..1.39. Neither the Company, nor to the knowledge of Shareholder, have any of the Company's officers, directors, agents, 17 45 employees, associates or any other person acting on behalf of the Com pany (i) made any unlawful domestic or foreign political contributions, (ii) made any payment or provided any services which were not legal to make or provide or which the Company or any such officer, employee or other person should have known were not legal for the payee or the recipient of such services to receive, (iii) received any payments, services or gratuities which were not legal to receive or which the Company or such person should have known were not legal for the payor or the provider to make or provide, (iv) had any transactions or payments which were not recorded in the Company's accounting books and records or disclosed in its financial statements, (v) had any off-book bank or cash account or "slush fund", (vi) made any payments to governmental officials in their individual capacities for the purpose of affecting their action or the action of the government they represent to obtain special concessions, or (vii) made illegal payments to obtain or retain business. 4..1.40. Neither Shareholder nor the Company has retained any broker, finder, agent or other intermediary or incurred any liability or obligation for any brokerage fees, commissions or finders fees with respect to this Agreement or the transactions contemplated by this Agreement. 4..2. FNFI's Representations and Warranties. FNFI hereby represents and warrants to Shareholder that as of the date hereof and as of the Closing Date: 4..2.1. FNFI is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, is qualified to do business and in good standing in those states where the failure to so qualify would have a material adverse affect on the business, financial condition or the results of its operations, has full corporate power and authority to own its properties and to carry on its business in the manner in which it is currently conducted and has complied in all material respects with all material federal, state, and local laws with respect to the operation and conduct of its business. 4..2.2. FNFI has full power and authority and has taken all necessary action to execute and deliver this Agreement and to carry out 18 46 the transactions contemplated hereby. All corporate and other action required to be taken to authorize the execution, delivery and perfor mance of this Agreement and the transactions contemplated hereby has been duly and properly taken. No consents or approvals of any third parties are necessary, or will be necessary, in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated herein by FNFI. 4..2.3. This Agreement, and the documents to be delivered at the Closing, have been duly executed and delivered and are the lawful, valid and legally binding obligation of FNFI, enforceable against FNFI in accordance with their respective terms. 4..2.4. FNFI shall acquire the Stock for its own account, for investment purposes only and not with a view to the distribution or resale thereof; provided, however, that the disposition of the Stock shall at all times remain within the sole control of FNFI. 4..2.5. FNFI has not retained any broker, finder, agent or other intermediary or incurred any liability or obligation for any brokerage fees, commissions or finders fees with respect to this Agreement or to the transactions contemplated by this Agreement. V. Conditions to Closing 5..1. Conditions for the Benefit of FNFI. The obligation of FNFI to consummate the transactions contemplated by this Agreement is subject to the prior or concurrent satisfaction of each of the following conditions: 5..1.1. Warranties and Covenants. The representations and warranties of Shareholder contained herein shall be accurate in all material respects as if made on and as of the Closing Date, as well as the date of this Agreement. Shareholder shall have performed all of the 19 47 obligations and compiled with each and all of the covenants required to be performed or complied with on or prior to the Closing. 5..1.2. No Pending Actions. No action or proceeding before any court or governmental body shall be pending or threatened wherein an unfavorable judgement, decree or order would prevent the carrying out of this Agreement or any of the transactions contemplated hereby, declare unlawful the transactions contemplated by this Agreement, cause such transactions to be rescinded, or which might affect the right of FNFI to own or control the Stock. 5..1.3. Consents. All consents by third parties that are required for the transfer of the Stock or that are required for the consummation of the transactions contemplated hereby, or that are required in order to prevent a breach of or a default under or a termination of any agreement to which the Company or Shareholder is a party or to which any portion of the property of the Company is subject will be obtained or provided for. 5..1.4. Release. Imperial Bank shall have released any and all interest it has in the Stock, the Intercompany Obligations, and or assets of the Company. 5..2. Conditions for the Benefit of Shareholder. The obligation of Shareholder to consummate the transactions contemplated by this Agreement is subject to the prior or concurrent satisfaction of each of the following conditions: 5..2.1. Warranties and Covenants. The representations and warranties of FNFI contained herein shall be accurate in all material respects as if made on and as of the Closing Date, as well as the date of this Agreement. FNFI shall have performed each and all of the obligations and complied with each and all of the covenants specified in this Agreement to be performed or complied with on or prior to the Closing. 20 48 5..2.2. No Pending Actions. No action or proceeding before any court or governmental body shall be pending or threatened wherein an unfavorable judgement, decree or order would prevent the carrying out of this Agreement or any of the transactions contemplated hereby, declare unlawful the transactions contemplated by this Agreement, or cause such transactions to be rescinded. 5..2.3. Consents. All consents by third parties that are required for the consummation of the transactions contemplated hereby, or that are required in order to prevent a breach of or a default under or a termination of any agreement to which FNFI is a party or to which any portion of its assets are subject, will be obtained or provided for. VI. Survival of Representation and Warranties; Indemnification 6..1. Survival of Representations and Warranties. The representations and warranties of the Company, Shareholder and FNFI shall survive the Closing and shall continue until the expiration of the applicable statutory period of limitations on the commencement of a cause of action for the breach of contract, except for the provisions of Sections 4.1.9 thru and including 4.1.13. relative to taxes, which shall survive until the expiration of the applicable statute of limitations, including any waivers or extensions thereof. 6..2. Indemnification of FNFI. Subject to the provisions of Section 6.5.2, the Company and Shareholder jointly and severally agree to indemnify, defend and hold harmless FNFI from and against any and all losses, damages, claims, suits, proceedings, liabilities and expenses (including without limitation, reasonable attorney's fees) ("Losses" or "Claims" as the context requires) which may be imposed on, sustained, incurred, suffered by or asserted against FNFI, directly or indirectly, as a result of, relating to or arising out of (a) the breach of any representation or warranty or covenant or agreement of the Company or Shareholder contained in this Agreement or (b) any Claims arising from the actions of the Company or Shareholder prior to the Closing Date. 6..3. Indemnification of the Shareholder. FNFI agrees to indemnify, defend and hold harmless Shareholder from and against any and all losses, damages, 21 49 claims, suits, proceedings, liabilities and expenses (including without limitation, reasonable attorney's fees) ("Losses" or "Claims" as the context requires) which may be imposed on, sustained, incurred, suffered by or asserted against Share holder, directly or indirectly, as a result of, relating to or arising out of the breach of any representation or warranty or covenant or agreement of FNFI contained in this Agreement. 6..4. Procedures for Indemnification. 6..4.1. If a party to this Agreement entitled to assert a Claim under this Agreement shall receive notice of the assertion by a person who is not a party to this Agreement of any claim or the commence ment by any such person of any action or proceeding ( a "Third Party Claim") with respect to which FNFI or the Company and Shareholder are obligated to provide indemnification, the indemnified party (the Indemnitee") shall give the indemnifying party (the "Indemnitor") prompt notice thereof. Such notice shall describe the Third Party Claim in reasonable detail. 6..4.2. The Indemnitor may elect to compromise or defend, at such Indemnitor's own expense and by Indemnitor's own counsel, which shall be reasonably acceptable to the indemnified party, any Third Party Claim. If an Indemnitor elects to defend a Third Party Claim, it shall, within 30 days of receipt of the notice referred to in Section 6.4.1 above (or sooner, if the nature of such Third Party Claim so requires), notify the related Indemnitee of its intent to do so, and such Indemnitee shall reasonably cooperate in the compromise of, or defense against, such Third Party Claim. The Indemnitor shall pay such Indemnitee actual out-of-pocket expenses incurred in connection with such cooperation. If an Indemnitor elects not to defend against a Third Party Claim, or fails to notify an Indemnitee of its election as provided in Section 6.4.1 above, Indemnitee may without advance written notice to the Indemnitor, pay, compromise or defend such Third Party Claim reasonably and in good faith on behalf of and for the account of the Indemnitor. No Indemnitor shall consent to entry of any judgment or enter into any settlement against or with respect to any Indemnitee without the written consent of such Indemnitee, unless such judgment or settlement (i) provides solely for money damages or other 22 50 payments for which such Indemnitee is entitled to indemnification hereunder and (ii) includes as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnitee of a release from all liability in respect to such Third Party Claim. 6..4.3. With respect to any Claim hereunder which does not result from a Third Party Claim, the Indemnitor shall have a period of thirty (30) days from receipt of notice from the Indemnitee within which to respond thereto. If such Indemnitor does not respond within such 30-day period or rejects such Claim in whole or in part, such Indemnitee shall be free to pursue such remedies as may be available to such Indemnitee under applicable law. 6..4.4. If the amount of any Claim or Loss shall, at any time subsequent to payment pursuant to this Agreement, be reduced by recovery, settlement or otherwise, the amount of such reduction, less any expenses incurred in connection therewith, shall promptly be repaid by the Indemnitee to the related Indemnitor. 6..5. Remedies. No action for indemnification under this Article VI may be brought with respect to a breach of any representations and warranties after the date indicated in Section 6.1 above unless, prior to the date such representations and warranties expire, the party seeking indemnification has notified in reasonable detail the party from whom indemnification is sought of a claim for indemnity hereunder. VII. General Provisions 7..1. Amendment and Waiver. No amendment or waiver of any of the provisions of this Agreement shall be effective unless the same shall be in writing and signed by the parties hereto. Furthermore, any such written waiver or amendment shall be effective only for the specific instance and for the specific purpose for which it was given. 7..2. Costs and Expenses. Each party to this Agreement shall bear their own costs and expenses incurred in connection with the preparation of this Agreement and the consummation of the transactions contemplated hereunder. Not withstanding 23 51 the foregoing, the Company shall not incur nor be responsible for any costs or expenses, including attorneys fees, in connection with this Agreement or the transactions contemplated herein. 7..3. Notices. All notices, requests, demand and other communications hereunder, whether or not required, shall be in writing and shall be sent by registered or certified mail, or any recognized national delivery service, postage prepaid, return receipt required, as follows: If to FNFI: Andrew F. Puzder Executive Vice President and General Counsel Fidelity National Financial, Inc. 17911 Von Karman Avenue, Suite 300 Irvine, California 92714 If to Shareholder: WTC Financial 19200 Von Karman Avenue, suite 500 Irvine, California 92715 Attn: President With a copy to: George J. Wall, Esq. PALMIERI, TYLER, WIENER,WILHELM& WALDRON 2601 Main Street, Suite1300 Irvine, California 92714 If to The Company: Spatial Data, Inc. 703 Palomar Airport Rd. Suite 170 Carlsbad Ca. 92009 Attn: President or to such other addresses as either party may from time to time provide to the other by notice hereunder. All such notices shall be effective when deposited with the designated carrier addressed as set forth above. 24 52 7..4. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, all of which however, shall constitute one and the same agreement. 7..5. Affiliates. For purposes of this Agreement "Affiliates" of a person shall mean a person who directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such person; the term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a person, whether through the ownership of voting securities, by contract or otherwise. 7..6. Parties in Interest. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and assigns. However, except as set forth in the preceding sentence, this agreement is intended solely for the benefit of the parties hereto and no third party shall be a beneficiary or have the right to enforce this Agreement or any of the terms and provisions hereof. 7..7. Entire Transaction. This Agreement and the documents and trans actions referred to herein and the Addendum Agreement of even date herewith, constitute the full and complete understanding of the parties hereto with respect to these transactions and supersede all other agreements and understandings of the parties hereto. There have been no representations or statements made concerning this transaction except asset forth in this Agreement and neither party is relying upon any representation or statement except those set forth in this Agreement in determining to enter into this Agreement. 7..8. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California, including the choice of law provisions thereof. The parties hereto consent to the jurisdiction of the Courts of California and to the venue of the County of Orange with respect to all matters relating to this Agreement. Should any provision of this Agreement be found to be invalid, unenforceable, or void for any reason, the remaining provisions of this Agreement shall remain in full force and effect as though the invalid, unenforceable or void provision were not a part of hereof. 7..9. Headings. The section and other headings contained in this Agreement are for the convenience of the parties, are for reference purposes only, and shall not affect in any way the meaning or interpretation of this Agreement. 25 53 7..10. Expenses. Except as otherwise expressly provided herein to the contrary, each party to this Agreement shall pay their respective costs and expenses in connection with the transactions referred to herein. 7..11. Joint Cooperation. The Parties shall cooperate fully with each other and their respective counsel and accountants and to execute and deliver any further documents that may be reasonably necessary in connection with any steps required to be taken as part of their respective obligations under this Agreement. 7..12. Joint Preparation. All parties to this Agreement have been represented by competent counsel. This Agreement has been jointly prepared by the Parties, and any uncertainties or ambiguity existing in it shall not be interpreted against any of the parties under the presumptions of California Civil Code Section 1654, but rather shall be interpreted according to the rules generally governing the interpretation of contracts. 7..13. Injunctive Relief. The parties hereto agree that money damages would be an insufficient remedy for any breach of this Agreement by Shareholder and that FNFI shall be entitled to an injunction and specific performance as a remedy for any such breach, without proof of actual damages and without the necessity of posting a bond or other security, such proof and security being waived by Shareholder. Such remedy shall not be deemed to be the exclusive remedy for any such breach but shall be in addition to all other remedies available to FNFI at law or in equity. 26 54 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed by their duly authorized representatives, as of the date first above written. FIDELITY NATIONAL FINANCIAL, INC., a Delaware corporation By: /s/ Andrew F. Puzder ----------------------------- Andrew F. Puzder Its: General Counsel WTC FINANCIAL, a California corporation By: /s/ Michael C. Lowther ----------------------------- Michael C. Lowther Its: President SPATIAL DATA, INC., a California corporation By:/s/ Michael C. Lowther ----------------------------- Its:Chairman ---------------------------- 27 55 STOCK PURCHASE AGREEMENT By this Agreement made and entered into as of this ____ day of June, 1995, Fidelity National Financial, Inc., a Delaware corporation ("FNFI"); WTC Financial, a California corporation ("Shareholder"), and Spatial Data, Inc., a California corporation (the "Company") state, confirm and agree as follows: I. Recitals 1..1. Spatial Data Inc. Shareholder is the record and beneficial owner of One Hundred and Fifty Six Thousand (156,000) shares of capital stock of Spatial Data Inc., a California corporation ("the Company"), which represents approximately sixty two percent (62.4%) of the issued and outstanding stock of the Company (the "Stock"). 1..2. Notes Receivable. Shareholder is the holder and beneficial owner of certain notes receivable and other intercompany receivables (the "Intercompany Obligations") under which the Company is indebted to Shareholder in the aggregate amount of Four Hundred and Eight Thousand dollars($408,000). 1..3. Purchase. FNFI desires to acquire the Stock and Intercompany Obligations from Shareholder. 1..4. Sale. Shareholder desires to sell to FNFI the Stock and the Intercompany Obligations on and subject to the terms and conditions set forth below. II. Purchase and Sale 2..1. Sale. At the Closing, as defined below, Shareholder shall sell, transfer, assign, and deliver to FNFI, in reliance upon the representations and warranties set forth below, the Stock and the Intercompany Obligations on and subject to the terms, covenants and conditions set forth below and FNFI shall purchase the Stock and Intercompany Obligations for the consideration set forth in Section 2.2 below. 1 EX-10.39.1 4 VARIABLE RATE PROMISSORY NOTE 1 Exhibit 10.39.1 FLEET Credit Corporation Secured Promissory Note No. 31831-03 Secured Party: Fleet Credit Corporation Debtor: FIDELITY ASSET MANAGEMENT, INC. 111 Westminster Street Address: 17911 Von Karman Ave., Suite 510 Providence, Rhode Island 02903 Irvine, CA 92714 Telephone:
1. Secured Party and Debtor have entered into a Master Security Agreement dated as of August 24, 1995, (the "Security Agreement"). To secure payment of the indebtedness set forth below, including the Principal Amount set forth below, and the performance of all obligations contained herein, Debtor hereby grants to Secured Party, its successors and assigns, a security interest in the property set forth in Schedule A hereto, together with all attachments, accessories, additions and accessions thereto, whether now existing or hereafter acquired, all replacements and substitutions therefor, and all proceeds thereof (all hereinafter referred to collectively as the "Equipment"). 2. Principal Amount. The original Principal Amount of this Note is $4,938,337.00. 3. a. Term. The Term of this Note is 48 months commencing on the Term Commencement Date as set forth in the Acceptance Certificate of this Note plus any partial period between the Acceptance Date of the Equipment as set forth in the Acceptance Certificate and the Term Commencement Date. b. Payments. Debtor hereby promises to pay the Principal Amount to Secured Party and Interest thereon as follows: (1) Interest only on the Term Commencement Date in an amount equal to $ N/A multiplied by the number of days between the Acceptance Date up to and including the Term Commencement Date. (2) Thereafter each Installment Payment shall be paid in 48 monthly consecutive installments and shall be equal to the "Base Payment" (as hereinafter defined) as adjusted by the "Payment Adjustment" (as hereinafter defined). The Base Payment for each month shall be $120,930.00. The Payment Adjustment for any given month shall be an amount equal to the product obtained from the calculation: Unpaid Principal Balance x Difference between the "Base Prime Rate" and "Prime Rate" ---------------- 12 *SEE ADDENDUM ATTACHED HERETO The Base Prime Rate is * % per annum and for the purpose of the foregoing calculation and the "Prime Rate" shall mean the rate of interest designated by Fleet National Bank from time to time as being its prime rate of interest in effect on the 15th day of the month preceding the month to which such Payment Adjustment applies. If the Prime Rate is lower than Base Prime Rate, then the Payment Adjustment shall be a deduction from the Base Payment. If the Prime Rate is higher than Base Prime Rate, the Payment Adjustment shall be added to the Base Payment. The first Installment Payment shall be payable on the 30th day of July with each of the remaining Installment Payments due on the same day of each month/quarter thereafter until fully paid, provided that the final installment shall be in the amount of the unpaid balance hereof, together with any accrued interest and late charges. In the event that the Payments set forth in any Acceptance Certificate hereto differ from those set forth in this Section 3(b), the Payments shall be as set forth in the Acceptance Certificate. c. Debtor agrees to pay Secured Party, in advance, the first N/A Installment Payments. d. Secured Party acknowledges receipt from Debtor of a payment in the amount of $ N/A to be held by Secured Party as a deposit to secure Debtor's performance hereunder. 4. The Equipment will be located at the locations specified in Schedule A hereto. 5. The Installment Payments may change for Equipment accepted after July 3, 1995. 6. This Note is secured by the Equipment, as set forth in Schedule A hereto and as further defined in the Security Agreement, the terms and conditions of which are incorporated herein by reference. This Note is one of the "Notes" referred to in the Security Agreement. Dated as of June 22, 1995 By execution hereof, the signer certifies that he has read, accepted and duly executed this Note to the Master Security Agreement on behalf of Debtor. SECURED PARTY: FLEET CREDIT CORPORATION DEBTOR: FIDELITY ASSET MANAGEMENT, INC. By: LINA FERRUOLO By: /s/ CARL A. STRUNK ------------------------------------- ------------------------------------- Title: Assistant Vice President Title: President ---------------------------------- ----------------------------------
2 ADDENDUM TO SECURED PROMISSORY NOTE NO. 31831-03 This Addendum dated June 22, 1995 (the "Addendum") is attached to and made part of that certain Secured Promissory Note No. 31831-03 dated as of June 22, 1995 ( the "Note") to that certain Master Security Agreement No. 31831 dated August 24, 1994 (the "Security Agreement") by and between the undersigned Parties. All capitalized terms used herein and not defined herein shall have the meaning set forth or referred to in the Note and the Security Agreement. The Note is amended as follows: 1. The first and second paragraphs of Section 3.b.(2) are deleted in their entirety and the following is substituted therefor: "(2) Thereafter each installment payment shall be paid in 48 monthly consecutive installments and shall be equal to the "Base Payment" (as hereinafter defined) as adjusted by the "Payment Adjustment" (as herein defined). The Base Payment for each month shall be $ 120,930.00. Interest shall accrue on the outstanding principal balance of the Note at a variable rate of interest, adjusted monthly, equal to the Libor Rate (as herein defined) plus 2.10% per annum (the "Payment Adjustment"). The "Base LIBOR Rate" shall be LIBOR Rate in effect on June 15, 1995 to wit 6.06%. The "Libor Rate" for the calculation of interest payable with any Payment shall be the one-month London Interbank Offered Rate (LIBOR) as published in the "Wall Street Journal" in effect as of the 15th day of the month proceeding the applicable Installment Payment. All interest hereunder shall be calculated on the basis of a year of 360 days comprised of 12 months of 30 days each." 2. Section 3 is amended by adding the following new subsections: "e. Rate Fix Option. At any time during the term of this Note, provided that no Event of Default, or event which with the passage of time or giving of notice would constitute and Event of Default, has occurred and is continuing, Debtor shall have the option, upon at least ten (10) days prior written notice to Secured Party, to fix the interest rate per annum applicable to this Note for the entire remaining Term at a rate equal to the (A) the Treasury Constant Maturities Rate (defined below) applicable to the number of years closest to the number of years (and any partial year) remaining in the term of the Note plus (B) 2.65%. All Treasury Constant Maturities rates as set forth above shall be such rates as 3 announced by the Federal Reserve Board of the U.S. Government as reported in Federal Reserve Statistical Release H.15 (519) for the week immediately preceding the Adjustment Date. In the event that the Debtor elects to exercise the Rate Fix Option set forth above, the Debtor shall pay to the Secured Party on the applicable Adjustment Date, in immediately available funds, a fee equal to $ 3,000.00. The Rate Fix Option shall be exercisable only once during the Term of the Note. "f. Reamortization of Note upon Adjustment. Upon the adjustment of the interest rate applicable to this Note pursuant subsection e. hereof, the Installment Payments due throughout the remaining Term of this Note and the allocation of such payments to principal and interest shall be amended and recalculated by reamortizing the Principal Amount of this Note as of the applicable Adjustment Date at the then applicable interest rate over the remaining term." Except as specifically set forth herein, all of the terms and conditions of the Note and Security Agreement shall remain in full force, and effect and are hereby ratified and affirmed. To the extent that the provisions of this Addendum conflict with any provisions contained in the Note or the Security Agreement, the provisions of this Addendum shall control. FLEET CREDIT CORPORATION FIDELITY ASSET MANAGEMENT, INC. By: LINA FERRUOLO By: CARL A. STRUNK ------------------------------- -------------------------------- Title: ASSISTANT VICE PRESIDENT Title: President ------------------------------- -------------------------------- EX-10.43 5 STOCK PURCHASE AGREEMENT DATED AUGUST 18, 1995 1 EXHIBIT 10.43 STOCK PURCHASE AGREEMENT DATED AS OF AUGUST 18, 1995 BY AND AMONG WILLIAM D. ROTHENBERG, MARSHALL D. WEXLER AND SOUTHERN CALIFORNIA TITLE COMPANY AND FIDELITY NATIONAL FINANCIAL, INC. 2 STOCK PURCHASE AGREEMENT DATED AS OF AUGUST 18, 1995 BY AND AMONG WILLIAM D. ROTHENBERG, MARSHALL D. WEXLER AND SOUTHERN CALIFORNIA TITLE COMPANY AND FIDELITY NATIONAL FINANCIAL, INC. 3 STOCK PURCHASE AGREEMENT This Stock Purchase Agreement (the "Agreement") is dated as of this 18th day of August, 1995, by and among WILLIAM D. ROTHENBERG and MARSHALL D. WEXLER, ("Selling Shareholders"), SOUTHERN CALIFORNIA TITLE COMPANY, a California corporation ("SCTC"), and FIDELITY NATIONAL FINANCIAL, INC., a Delaware corporation ("Fidelity"). RECITALS A. SCTC currently has authorized for issuance 500,000 shares of common stock of which 100 shares are issued and outstanding. Selling Shareholders own and otherwise hold all 100 shares of the issued and outstanding common stock (the "SCTC Stock") in the amounts set forth on SCHEDULE A-1. B. The parties hereto have determined that it is in the best interests of SCTC, its Selling Shareholders and Fidelity that Fidelity acquire the SCTC Stock. C. Selling Shareholders desires to sell to Fidelity and Fidelity desires to purchase from Selling Shareholders the SCTC Stock in accordance with the terms and conditions set forth herein. NOW, THEREFORE, with reference to the foregoing and in consideration of and subject to the conditions, representations, warranties, agreements and covenants contained in this Agreement, Selling Shareholders, SCTC and Fidelity, intending to be legally bound hereby, agree as follows: AGREEMENTS SECTION 1 PURCHASE PRICE AND PAYMENT TERMS 1.01 Purchase of SCTC Stock from Selling Shareholders. Subject to and upon the terms and conditions set forth in this Agreement, Selling Shareholders will sell, transfer, convey, assign and deliver to Fidelity, and Fidelity will purchase at the Closing hereunder, all shares of the SCTC Stock set forth opposite the name of Selling Shareholders on SCHEDULE A-1 for the consideration set forth in Section 1.02 hereof. Transfer of the SCTC Stock shall entitle Fidelity, through the ownership of the SCTC Stock, to 100% of the business, assets, title plants, properties, goodwill and rights of SCTC as a going concern, of every nature, kind and description, tangible and intangible, wheresoever located and whether or not carried or reflected on -2- 4 the books and records of SCTC, including, without limitation, the assets reflected on the most recent SCTC Balance Sheet referred to in Section 3.07 hereof (the "Most Recent Balance Sheet"), with only such dispositions of such assets reflected on the Balance Sheet as shall have occurred in the ordinary course of SCTC's business between the date hereof and the Closing and which are permitted by the terms hereof. 1.02 Purchase Price. (a) In consideration of the sale, transfer, conveyance, assignment and delivery of 100% of the outstanding shares of common stock of SCTC by Selling Shareholders to Fidelity, and in reliance upon the representations and warranties made herein by Selling Shareholders and SCTC, Fidelity will, in full payment therefor, pay to Selling Shareholders at the Closing the aggregate sum of One Million Nine Hundred Twenty Thousand Two Hundred Forty-One and 10/100 ($1,920,241.10) ("Purchase Price") by wire transfer of funds as provided in SCHEDULE A-2. (b) In the event that between the date hereof and the Closing, SCTC or Selling Shareholders shall cause SCTC to make any payment or payments to any person, firm, or entity in respect of any matter (including without limitation, any and all expenses in respect of this Agreement) other than in the ordinary course of the business of SCTC ("Business") and permitted hereunder, the Purchase Price shall be reduced by an amount equal to the aggregate of all such payments. SECTION 2 THE CLOSING 2.01 Closing Date. The Closing shall take place at 1:00 p.m., local time, on the 18th day of August, 1995, at the offices of Fidelity, 17911 Von Karman Avenue, Suite 500, Irvine, California 92714, or such other time and place as the parties may agree upon. The day on which the Closing actually takes place is herein sometimes referred to as the Closing Date. In the event either of the parties is entitled not to close on the scheduled date because a condition to the Closing set forth herein has not been met (or waived by the party or parties entitled to waive it), such party may postpone the Closing from time to time, by giving written notice to the other party, until the condition has been met (which all parties will use their best efforts to cause to happen), but in no event to a date later than August 21, 1995, unless otherwise agreed to by the parties. 2.02 Delivery by Selling Shareholders. Provided that all conditions to the Closing set forth in Sections 8 and 9 hereof have been satisfied or waived, at the Closing, Selling -3- 5 Shareholders shall deliver to Fidelity certificates evidencing the SCTC Stock endorsed for transfer to Fidelity. 2.03 Payment by Fidelity. Provided that all conditions to the Closing set forth in Sections 8 and 9 have been satisfied or waived, at the Closing, Fidelity shall pay to Selling Shareholders an amount equal to the Purchase Price by delivery of a wire transfer of funds in such amount and to such accounts as provided in SCHEDULE A-2. SECTION 3 REPRESENTATIONS AND WARRANTIES OF SCTC AND SELLING SHAREHOLDERS SCTC and the Selling Shareholders, jointly and severally, hereby represent and warrant, as of the date hereof and as of the Closing Date to Fidelity, with such exceptions, modifications, descriptions and disclosures as are set forth in the Schedules attached hereto, as set forth below: 3.01 Validity. This Agreement has been, and the documents to be delivered at Closing will be, duly executed and delivered and constitute lawful, valid and legally binding obligations of SCTC and the Selling Shareholders, enforceable in accordance with their respective terms. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not result in the creation of any lien, charge or encumbrance of any kind or the acceleration of any indebtedness or other obligation of the Business and are not prohibited by, do not violate or conflict with any provision of, and do not constitute a default under or a breach of (a) the charter or bylaws of SCTC, (b) any contract, agreement, permit, license or other instrument to which SCTC or the Selling Shareholders is a party or by which SCTC or the Selling Shareholders, or any of their respective assets, is bound, (c) any order, writ, injunction, decree or judgment of any court or governmental agency, or (d) any law, rule or regulation applicable to SCTC or the Selling Shareholders and will not restrict the ability of Fidelity to carry on the Business. No approval, authorization, consent or other order or action of or filing with any person, including any court, administrative agency or other governmental authority, is required for the execution and delivery by SCTC of this Agreement or the consummation by SCTC and the Selling Shareholders of the transactions contemplated hereby, except for filings or consents required pursuant to (i) the Worker Adjustment and Restraining Notification Act of 1988 and the rules and regulations thereunder ("WARN Act"); (ii) filings with state insurance regulatory agencies; (iii) applicable federal, state or local laws and regulations relating to the underwriting and sale of title insurance; and (iv) requirements of applicable federal and state securities laws. -4- 6 3.02 Organization, Etc. SCTC is a corporation duly organized, validly existing and in good standing under the laws of the State of California and has no active subsidiaries at the date hereof, except as set forth in SCHEDULE C-2 (the "SCTC Subsidiaries"). Each of the SCTC Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation as identified in SCHEDULE C-2. Except as disclosed to Fidelity on or before the date this Agreement is executed and delivered, SCTC and the SCTC Subsidiaries have corporate power to own or lease their respective properties and to carry on their respective businesses as and in the places where such properties are now owned, leased or operated, and such businesses are now conducted, and have complied in all material respects with all material federal, state and local laws with respect to their operation and the conduct of their businesses. SCTC and each of the SCTC Subsidiaries are duly qualified and licensed and in good standing as foreign corporations, or are licensed to do business as insurers, in each jurisdiction as set forth in SCHEDULE C-2, constituting each jurisdiction in which such qualification and licensing is required except for jurisdictions in which the failure to so qualify or be licensed would not have a material adverse effect on the financial condition or business of SCTC or the SCTC Subsidiaries taken as a whole. Copies of the Certificate of Incorporation and all amendments thereto, bylaws as amended and currently in force, stock records and corporate minutes and records of SCTC and each of the SCTC Subsidiaries heretofore made available to Fidelity are true, complete and correct at the date hereof. 3.03 Subsidiaries. Except as disclosed in SCHEDULE C-3, SCTC does not own stock or have any other equity interest in, and does not control, directly or indirectly, any corporation, association, partnership, joint venture or other entity and has not had such an ownership or control relationship with any such entity. The capitalization, including authorized capital stock and long-term debt, of each SCTC Subsidiary is accurately described in SCHEDULE C-3. All outstanding shares of capital stock of each SCTC Subsidiary (the "Shares") are duly authorized, validly issued, fully paid and nonassessable, were not issued in violation of any preemptive or other right of any person to acquire securities of any SCTC Subsidiary and constitute in the aggregate all the issued and outstanding shares of all classes of capital stock of the SCTC Subsidiaries. There is no outstanding subscription, option, convertible security, preemptive right, warrant, call or agreement (other than this Agreement) relating to the Shares or other obligations of any SCTC Subsidiary to issue any shares of capital stock. SCTC has good, marketable and indefeasible title to all of the Shares and the absolute right to sell, assign, transfer and deliver the same to Fidelity, free and clear of all claims, security interests, liens, pledges, charges, escrows, options, proxies, rights of first refusal, preemptive rights, mortgages, hypothecations, prior assignments, title -5- 7 retention agreements, indentures, security agreements or any other encumbrance or restriction of any kind. 3.04 Capital Stock, Stock Options. (a) SCTC has authorized capital stock consisting of 500,000 shares of common stock, of which 100 shares are issued and outstanding. All of the issued and outstanding shares of SCTC Stock are duly authorized and validly issued, fully paid and nonassessable, were offered, issued and sold in accordance with applicable federal and state securities laws, and there are no preemptive rights in respect thereof. There are no other classes of stock of SCTC other than the common stock set forth above and there are no outstanding options, warrants or other instruments which would entitle the holders thereof to acquire any common stock or other class of stock in SCTC. (b) Except as set forth in SCHEDULE C-4, there are no outstanding options, warrants, rights, calls, commitments, conversion rights, plans or other agreements of any character providing for the purchase or issuance of any SCTC securities of any description. (c) As of the Closing Date, all necessary filings will have been made with and all necessary approvals will have been obtained from federal and state securities regulatory authorities. All applicable stock transfer or similar fees and taxes will have been paid by or on behalf of SCTC and the Selling Shareholders. (d) Except as set forth in SCHEDULE C-4, the Selling Shareholders have good, marketable and indefeasible title to all of the SCTC Shares and the absolute right to sell, assign, transfer and deliver the same to Fidelity, free and clear of all claims, security interests, liens, pledges, charges, escrows, options, proxies, rights of first refusal, preemptive rights, mortgages, hypothecations, prior assignments, title retention agreements, indentures, security agreements or any other encumbrance or restriction of any kind. 3.05 Corporate Authority. SCTC has full legal right and corporate power and authority, without the consent of any other person, to make, execute, deliver and perform this Agreement and the transactions contemplated hereby, and the execution, delivery and performance of this Agreement by SCTC and the Selling Shareholders has been duly authorized by all necessary corporate action of SCTC and the Selling Shareholders, subject to compliance with applicable regulatory requirements. 3.06 No Default Resulting from Agreement. Except as set forth in SCHEDULE C-6, neither the execution and delivery of this Agreement nor the performance by SCTC in compliance with its terms will result in any breach of the terms and conditions of, -6- 8 or constitute a default under, the Certificate of Incorporation or bylaws of SCTC or any of the SCTC Subsidiaries, or any agreement, instrument, undertaking, judgment, decree, governmental order or other restriction or obligation to which SCTC or any of the SCTC Subsidiaries is a party or by which they or any of their properties or assets may be bound or affected. 3.07 Financial Statements. Attached as SCHEDULE C-7(1) are true, correct and complete copies of the financial statements of SCTC, including the balance sheets of SCTC as at June 30, 1995 and December 31, 1994, 1993 and 1992 (the "SCTC Balance Sheets"), and the statements of Income, Stockholders' Equity and Changes in Financial Position for the three fiscal years then ended, together with the reports thereon of Miller and Co., independent auditors (such unaudited and audited financial statements, including the notes and schedules thereto, if any, are hereinafter referred to as the "SCTC Financial Statements"). Except as set forth in SCHEDULE C-7(2), the SCTC Financial Statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis and the SCTC Financial Statements present fairly the assets, liabilities, stockholders' equity and financial condition of SCTC and the SCTC Subsidiaries as at the dates indicated and the results of their operations and changes in financial position for the periods then ended. 3.08 Tax Status. All federal, state and local tax and information returns required to have been filed prior to the date hereof by SCTC have been duly and timely (including any extensions) filed and each such return correctly reflects the income, franchise, premium and other tax liability and all other information regarding SCTC and the SCTC Subsidiaries required to be reported thereon. All taxes, penalties, interest and related charges and fees related to income of SCTC or any SCTC Subsidiary have been paid, to the extent such payments are required prior to and as of the date hereof, and neither SCTC nor any SCTC Subsidiary has any deficiency with respect to any tax period or any liability with respect to taxes or penalties and interest thereon, or related charges and fees, whether or not assessed, which are not adequately provided for in the tax accrual reserves in the SCTC Financial Statements, except current and deferred taxes pertaining to income earned after the date of the most recent SCTC Financial Statements. Except as set forth in SCHEDULE C-8, the federal income tax returns of SCTC and each of the SCTC Subsidiaries have not been audited by the Internal Revenue Service during the past 10 years. There is not now any proposed assessment of additional taxes, and there are no waivers or agreements by SCTC for the extension of time for the assessment of any taxes. SCTC and each of the SCTC Subsidiaries have filed all required sales, an valorem and other tax returns and have paid all of such taxes required to be paid by them prior to the date hereof. -7- 9 3.09 Notes and Accounts Receivable. Except as set forth in SCHEDULE C-9, all notes receivable and accounts receivable reflected on the Most Recent Balance Sheet (net of reserves stated therein) were, and all such receivables held in SCTC and the SCTC Subsidiaries on the date hereof are, valid obligations of the respective makers thereof and were not, and are not subject to any valid offset or counterclaim, and are not subject to prior assignment, claim, lien or security interest. No allowances for uncollectible accounts and notes and contract cancellations are reflected on the Most Recent Balance Sheet. SCTC has no reason to believe that its future experience with respect to the allowances for uncollectible accounts and notes and contract cancellations will be different from its historical experience. 3.10 Actions, Suits, Etc. SCHEDULE C-10 sets forth as of the date of this Agreement all actions, suits, claims, complaints, charges, hearings, investigations, arbitrations (or other dispute resolution proceedings) or other proceedings pending or threatened against, by or affecting SCTC or any of the SCTC Subsidiaries in any court or panel or before any arbitrator or governmental agency, domestic or foreign, other than actions related to garnishments of employee wages. Neither SCTC nor any of the SCTC Subsidiaries has been charged with, or is under investigation with respect to, any charge concerning any violation of any provision of any federal, state or other applicable law or administrative regulation in respect to its business, except as set forth in SCHEDULE C-10. Except as set forth in SCHEDULE C-10, there are no judgments unsatisfied against SCTC or any SCTC Subsidiary and no consent decrees to which SCTC or any SCTC Subsidiary is subject. Neither SCTC nor any of the SCTC Subsidiaries is involved in or threatened with any labor dispute which could have an adverse effect on the business and operations of SCTC and the SCTC Subsidiaries taken as a whole. Additionally, SCHEDULE C-10 sets forth a summary of the number and amount of all other unpaid and unsettled claims received by SCTC and the SCTC Subsidiaries regarding their policies or operations. Upon due inquiry, neither SCTC, SCTC Subsidiary nor Selling Shareholders knows, anticipates or has notice of any reasonable basis for any of the actions described above. 3.11 Agencies, Agents and Associates. SCHEDULE C-11 sets forth an accurate, correct and complete list of: (a) agencies, agents, sales associates or similar persons or entities through which SCTC or any SCTC Subsidiary place title insurance policies or which otherwise direct purchasers of title insurance and related services to SCTC or any SCTC Subsidiary ("Agents"), (b) Agents whose relationship with SCTC or any SCTC Subsidiary has been terminated within one year prior to the date hereof, (c) all persons who have become Agents within one year prior to the date hereof, and (d) all agreements, arrangements and understandings between SCTC or a SCTC Subsidiary and an Agent -8- 10 (the "Agency Agreements"). Each Agent is licensed under and otherwise complies with all applicable laws, rules and regulations, including the regulations of state insurance regulators. 3.12 Material Contracts. SCHEDULE C-12 sets forth an accurate, correct and complete list of all instruments, commitments, agreements, arrangements and understandings related to the Business to which SCTC or any SCTC Subsidiary is a party or bound, or pursuant to which SCTC or any SCTC Subsidiary is a beneficiary, meeting any of the descriptions set forth below (the "Material Contracts"): (a) Real Estate Leases, Personal Property Leases, Insurance, licenses of Intellectual Property, Technical Information or Software, Agency Agreements, Employment Contracts and Benefit Plans; (b) Any contract for capital expenditures or for the purchase of goods or services in excess of $20,000, except those incurred in the ordinary course of business and to be performed in six months or less; (c) Any purchase order, agreement or commitment obligating SCTC or any SCTC Subsidiary to sell or deliver any product or service at a price which does not cover the cost (including labor, materials and overhead) plus the customary profit margin associated with such product or service; (d) Any instrument evidencing indebtedness, any liability for borrowed money, any obligation for the deferred payment of the purchase price for property in excess of $20,000 (excluding normal trade payables), or any instrument guaranteeing any indebtedness, obligation or liability; (e) Any joint venture, partnership, cooperative arrangement or any other agreement involving a sharing of profits; (f) Any advertising contract not terminable without payment or penalty on sixty (60) days (or less) notice; (g) Any deed, lease, easement, agreement or other instrument affecting any right, title or interest in or to real property; (h) Any contract with any government or any agency or instrumentality thereof; (i) Any license or royalty agreement; -9- 11 (j) Any power of attorney, proxy or similar instrument; (k) The Certificate of Incorporation, bylaws and other organizational or constitutive documents of SCTC and any SCTC Subsidiary and any agreement among stockholders of SCTC or any SCTC Subsidiary; (l) Any contract for the purchase or sale of any of its assets other than in the ordinary course of business or granting an option or preferential rights to purchase or sell any assets; (m) Any contract to indemnify any party or to share tax liability with any party; (n) Any contract for the purchase or sale of foreign currency or otherwise involving foreign exchange transactions; (o) Any contract containing covenants not to compete in any line of business or with any person in any geographical area; (p) Any contract relating to the acquisition of a business or the equity of any other person; (q) Any contract relating to the purchase or sale of a portion of its requirements or output; (r) Any other contract, commitment, agreement, arrangement or understanding related to the Business (other than those excluded by an express exception from the descriptions set forth in subsections (a) through (q) above) which (i) provides for payment or performance by either party thereto having an aggregate value of $20,000 or more, (ii) is not terminable without payment or penalty on sixty (60) days (or less) notice, or (iii) is between SCTC or any SCTC Subsidiary or any of their Affiliates (as defined below); and (s) Any proposed arrangement of a type that if entered into would be a Material Contract. Accurate, correct and complete copies of each Material Contract have been delivered to Fidelity. Each Material Contract is in full force and effect and is valid, binding and enforceable in accordance with its terms. Each party has complied with all material commitments and obligations on its part to be performed or observed under each Material Contract. No event has occurred which is or, after the giving of notice or passage of time, or both, would constitute a default under or a breach of any Material Contract by SCTC or any SCTC Subsidiary, or, to the -10- 12 knowledge of SCTC, by any other party. SCTC has not received or given notice of an intention to cancel or terminate a Material Contract or to exercise or not exercise options or rights under a Material Contract. Neither SCTC nor any SCTC Subsidiary has received any notice of a default, offset or counterclaim under any Material Contract, or any other communication calling upon SCTC or any SCTC Subsidiary to comply with any provision of any Material Contract or ascertaining noncompliance. The consummation of the transactions contemplated hereby, without notice to or consent or approval of any party, will not constitute a default under or a breach of any provision of a Material Contract, and Fidelity will have and may enjoy and enforce all rights and benefits under each Material Contract. There is no security interest, lien, encumbrance or claim of any kind on SCTC's or any SCTC Subsidiary's interest under any Material Contract. 3.13 Lists of Certain Employees, Bank Accounts, Insurance Policies and Investments. SCHEDULE C-13 contains, with respect to SCTC and the SCTC Subsidiaries: (a) a true and complete list showing the names and compensation arrangements of all persons whose rate of compensation from SCTC or any of the SCTC Subsidiaries for the current fiscal year will equal or exceed $20,000, including a summary description of all agreements, arrangements or understandings, written or oral, with officers, directors and employees of SCTC or any SCTC Subsidiary, regarding services to be rendered, terms and conditions of employment, and compensation (the "Employment Contracts"). The services of all present employees will continue to be available on substantially the same terms and conditions to Fidelity following the Closing. SCHEDULE C-13 sets forth an accurate, correct and complete list of each employee who may become entitled to receive supplementary retirement benefits or allowances, whether pursuant to a contractual obligation or otherwise, and the estimated amounts of such payments. Since December 31, 1994, neither SCTC nor any SCTC Subsidiary has (i) paid, or made any accrual or arrangement for the payment of, bonuses or special compensation of any kind, including any severance or termination pay, to any present or former officer or employee, (ii) made any general wage or salary increases or (iii) increased or altered any other benefits or insurance provided to any employee. No employee is eligible for payments that would constitute "parachute payments" under Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"). SCTC and each SCTC Subsidiary have complied with all laws, rules and regulations relating to the employment of labor, including provisions relating to wages, hours, equal opportunity, occupational health and safety, severance, collective bargaining and the payment of social security and other taxes. Except as disclosed in SCHEDULE C-13, there is not and will not be any duty, responsibility, liability or obligation under any laws, rules or regulations relating to employment or any common law -11- 13 trust or contractual duty or standard of care arising from an employment relationship attributable to an event occurring or a state of facts existing prior to the Closing Date; (b) the name and address of each bank in which SCTC or any of the SCTC Subsidiaries has an account, safe deposit box, deposit, line of credit or other loan facility and, except for escrow and other trustee accounts, the names of all persons authorized to draw thereon or to have access thereto; and (c) a true and complete list and brief description of all policies of fire, liability, life and all other forms of insurance owned or held by SCTC or any of the SCTC Subsidiaries, all of which are in full force and effect on the date hereof. SCTC is not aware of any condition or fact which would lead it to believe that such policies would not insure SCTC and the SCTC Subsidiaries in a manner which is reasonably adequate at all times to protect them against risks of a material nature customarily insured against by others in the same location and engaged in the same or similar businesses that may reasonably be expected to have a material adverse effect upon the financial condition or business of SCTC and the SCTC Subsidiaries considered as a whole, there are no pending or asserted claims against such insurance as to which any insurer has denied liability, and there are no claims under such insurance that have not been properly filed. SCHEDULE C-13 also sets forth the claims experience for the last two full fiscal years and the interim period through the date hereof with respect to the Business (both insured and self-insured); and (d) a list of all marketable securities owned, together with the date of purchase, cost basis, current book value and the market value, as of June 30, 1995, of such securities. Except as set forth in SCHEDULE C-13, and except for routine maturities, sales and investments of funds in U.S. Treasury short-term obligations, since December 31, 1994 there have been no material portfolio sales or transfers. SCTC has good and marketable title to all of such investments. All of the securities on SCHEDULE C-13 and in the Form 9 are (a) properly valued at the lower of cost or market, (b) readily marketable, and (c) fully paid and not subject to assessment or other claims upon the holder thereof. 3.14 Union Agreements and Employee Relations. Neither SCTC nor any of the SCTC Subsidiaries is a party to any union or collective bargaining agreements, or similar agreements with employees as a group, nor does SCTC have knowledge of any pending or potential attempt to unionize any of the employees of SCTC or any of the SCTC Subsidiaries. Neither SCTC nor any of the SCTC Subsidiaries have, during the last five years, been the subject of a union election. To the best of SCTC's knowledge, neither SCTC nor any of the SCTC Subsidiaries have reason to believe that their continuing relations with their employees will vary in any -12- 14 way that would have a material adverse affect on the business or operations of SCTC or any of the SCTC Subsidiaries. 3.15 Employee Benefit Plans. (a) Benefit Plans. SCHEDULE C-15 sets forth an accurate, correct and complete list and summary description of all "welfare benefit plans" (as defined in Section 3(2) of the Employee Retirement Income SCTC Act of 1974, as amended ("ERISA")), "employee pension benefit plans" (as defined in Section 3(2) of ERISA), bonus, profit sharing, deferred compensation, incentive or other compensation plans or arrangements, and other employee fringe benefit plans whether funded or unfunded, qualified or unqualified (all the foregoing being herein called "Benefit Plans") maintained or contributed to by SCTC or any SCTC Subsidiary or any other organization which is a member of a controlled group of organizations (within the meaning of Sections 4l4(b), (c), (m) or (o) of the Code) for the benefit of any of its officers, employees or other persons. SCTC has delivered to Fidelity accurate, correct and complete copies of (i) each Benefit Plan (or, in the case of any unwritten Benefit Plans, descriptions thereof), (ii) the most recent annual report on Form 5500 and attached Schedule B (including any related actuarial valuation report), if any, filed with the Internal Revenue Service with respect to any Benefit Plan (if any such report was required), (iii) each trust agreement and group annuity contract relating to any Benefit Plan, (iv) certified financial statements, (v) attorney's response to an auditor's request for information, (vi) collective bargaining agreements or other such contracts, (vii) Form S-8, including any amendments thereto, (viii) each ruling letter or any outstanding ruling request on the tax exempt status of any voluntary employees' beneficiary association ("VEBA") implementing a Benefit Plan, and (ix) each general notification to employees of their rights under Section l62(k) of the Code and any other such correspondence indicating compliance with said Section l62(k). (b) Funding. All contributions to, and payments from, the Benefit Plans that may have been required to be made in accordance with the Benefit Plans and, when applicable, Section 302 of ERISA or Section 412 of the Code, have been timely made. All such contributions to, and payments from, the Benefit Plans, except those payments to be made from a trust qualified under Section 401(a) of the Code, for any period ending before the Closing Date that are not yet, but will be, required to be made, will be properly accrued and reflected in the SCTC Financial Statements. With respect to each Benefit Plan that is subject to Title I, Subtitle B, Part 3 of ERISA (concerning "Funding"), the funding method used in connection with such Benefit Plan is acceptable under ERISA, and the actuarial assumptions used in connection with funding such Benefit Plan, in the aggregate, are reasonable. SCHEDULE C-15 sets forth as of June 30, 1995 (i) the actuarial present value (based upon the same actuarial -13- 15 assumptions as those heretofore used for funding purposes) of all vested and nonvested (but without any assumption that nonvested accrued benefits have become nonforfeitable) accrued benefits (whether on account of retirement, termination, death or disability) under such Benefit Plan, (ii) if such Benefit Plan uses a benefit accrual formula having reference to final earnings, the actuarial present value of the benefits under such Benefit Plan as calculated in (i), but based upon projected earnings increases of five percent per annum, (iii) the actuarial present value (based upon the same actuarial assumptions, other than turnover assumptions, as those heretofore used for funding purposes) of vested benefits under such Benefit Plan, (iv) the net fair market value of the assets held to fund such Benefit Plan, (v) the funding method used in connection with such Benefit Plan, (vi) the amount and plan year of any "accumulated funding deficiency" as defined in Section 302(a)(2) of ERISA which exists with respect to any plan year of such Benefit Plan, and (vii) the amount of any employee contributions under such Benefit Plan. With respect to each Benefit Plan, including an "individual account plan" (as defined in Section 3(34) of ERISA), SCHEDULE C-15 sets forth (A) the amount of any liability of SCTC or any SCTC Subsidiary for contributions due with respect to such Benefit Plan as of the Closing Date and as of the end of any subsequent plan year ending prior to the Closing, and the date any such amounts were paid, and (B) the amount of any contribution paid with respect to such Benefit Plan for the plan year in which the Closing occurs. As of the most recent valuation date for each funded Benefit Plan that is a defined benefit pension plan, the present value of the accrued benefits (as computed by the actuaries for such Benefit Plan using the actuarial assumptions in effect for such purposes as reflected in the most recent actuarial report or valuation for such Benefit Plan) of all participants and former participants in such Benefit Plan did not, and as of the Closing Date such present value will not, exceed the fair market value of its assets. (c) Compliance With the Code and ERISA. SCTC and the SCTC Subsidiaries and each Benefit Plan (and any related trust agreement or annuity contract or any other funding instrument) comply currently, and have complied in the past, both as to form and operation, with the provisions of ERISA and the Code (including Section 410(b) of the Code relating to coverage and Section l62(k) relating to health coverage continuation), where required in order to be tax-qualified under Section 401(a) of the Code, and all other applicable laws, rules and regulations; all necessary governmental approvals for the Benefit Plans have been obtained; and, where available, a favorable determination as to the qualification under the Code of each of the Benefit Plans and each amendment thereto has been made by the Internal Revenue Service. All the Benefit Plans, as adopted or as they may have been amended as, when and to the extent required, comply with the applicable provisions of the Tax Equity and Fiscal Responsibility Act of 1982, the Deficit Reduction Act of 1984, the Retirement -14- 16 Equity Act of 1984, the Tax Reform Act of 1986, the Omnibus Budget Reconciliation Act 1986, the Budget Act of 1987, the Omnibus Budget Reconciliation Act of 1988, the Technical and Miscellaneous Revenue Act of 1988, and the Revenue Reconciliation Act of 1989. Except as set forth in SCHEDULE C-15, the Benefit Plans that are pension benefit plans have received determination letters from the Internal Revenue Service to the effect that such Benefit Plans are qualified and exempt from federal income taxes under Sections 401(a) and 501(a), respectively, of the Code, and no such determination letter has been revoked nor, to the knowledge of SCTC, has revocation been threatened, nor has any such Benefit Plan been amended since the date of its most recent determination letter or application therefor in any respect which would adversely affect its qualification or materially increase its cost. (d) Administration. Each Benefit Plan has been administered to date in compliance with the requirements of the Code and ERISA. All reports, returns and similar documents with respect to the Benefit Plans required to be filed with any government agency or distributed to any Benefit Plan participant have been duly and timely filed or distributed. Except as set forth in SCHEDULE C-15, there are no investigations by any governmental agency, termination proceedings or other claims (except claims for benefits payable in the normal operation of the Benefit Plans), suits or proceedings against or involving any Benefit Plan or asserting any rights or claims to benefits under any Benefit Plan that could give rise to any material liability, nor, to the knowledge of SCTC, are there any facts that could give rise to any material liability in the event of any such investigation, claim, suit or proceeding. Future compliance with the requirements of ERISA as in effect on the Closing Date or any collective bargaining agreements to which SCTC or any SCTC Subsidiary is a party will not result in any increase in the rate of benefit accrual under any Benefit Plan. SCTC's financial statements reflect all of SCTC's employee benefit liabilities in a manner satisfying the requirements of FAS 87 and 88. No event has occurred and no condition exists under any Benefit Plan that would subject SCTC, any SCTC Subsidiary or Fidelity to any tax under Code Sections 497l, 4972, 4977 or 4979 or to a fine under ERISA Section 502(c). All forms, documents and other materials have been filed with the Securities and Exchange Commission or otherwise distributed as required by the Securities Act of l933, as amended. There are no leased employees (as defined in Section 4l4(l) of the Code) that must be taken into account under any Benefit Plan. (e) Prohibited Transactions. No "prohibited transaction" (as defined in Section 4975 of the Code or Section 406 of ERISA) has occurred which involves the assets of any Benefit Plan and which could subject SCTC, a SCTC Subsidiary or any of their respective employees, or a trustee, administrator or other fiduciary of any trusts created under any Benefit Plan -15- 17 to the tax or penalty on prohibited transactions imposed by Section 4975 of the Code or the sanctions imposed under Title I of ERISA. No Benefit Plan has been terminated nor have there been any "reportable events" (as defined in Section 4043 of ERISA and the regulations thereunder) with respect thereto. Neither SCTC nor any SCTC Subsidiary nor any trustee, administrator or other fiduciary of any Benefit Plan nor any agent of any of the foregoing has engaged in any transaction or acted or failed to act in a manner which could subject SCTC, any SCTC Subsidiary, the Business or Fidelity to any liability for breach of fiduciary duty under ERISA or any other applicable law. (f) Other Plans. SCHEDULE C-15 sets forth an accurate, correct and complete list and summary description of each deferred compensation plan, bonus plan, stock option plan, employee stock purchase plan and any other employee benefit plan, agreement, arrangement or commitment not required under a previous subsection to be set forth in SCHEDULE C-15 (other than normal policies concerning holidays, vacations and salary continuation during short absences for illness or other reasons) maintained by SCTC or a SCTC Subsidiary. (g) Liabilities to PBGC. SCTC and the SCTC Subsidiaries have paid all premiums (and interest charges and penalties for late payment, if applicable) due the Pension Benefit Guaranty Corporation ("PBGC") with respect to each Benefit Plan and each plan year thereof for which such premiums are required. There has been no "reportable event" (as defined in Section 4043(b) of ERISA and the regulations of the PBGC under such Section) with respect to any Benefit Plan subject to Title IV of ERISA. No liability to the PBGC has been incurred by SCTC or the SCTC Subsidiary or any corporation or other trade or business under common control with SCTC or any SCTC Subsidiary (as determined under Section 414(c) of the Code) ("Common Control Entity") on account of any termination of an employee pension benefit plan subject to Title IV of ERISA. No filing has been made by SCTC or any Common Control Entity with the PBGC (and no proceeding has been commenced by the PBGC) to terminate any employee pension benefit plan subject to Title IV of ERISA maintained, or wholly or partially funded, by SCTC or any Common Control Entity. Neither SCTC nor any SCTC Subsidiary nor any Common Control Entity has (i) ceased operations at a facility so as to become subject to the provisions of Section 4062(e) of ERISA, (ii) withdrawn as a substantial employer so as to become subject to the provisions of Section 4063 of ERISA, (iii) ceased making contributions on or before the Closing Date to any employee pension benefit plan subject to Section 4064(a) of ERISA to which SCTC or any Common Control Entity made contributions during the five years prior to the Closing Date, or (iv) made a complete or partial withdrawal from a multi-employer plan (as defined in Section 3(37) of ERISA) so as to incur withdrawal liability as defined in Section 4201 of ERISA (without regard to subsequent reduction or waiver of such liability under Section -16- 18 4207 or 4208 of ERISA). No Benefit Plan subject to Title IV of ERISA has incurred any material liability to the PBGC other than for the payment of premiums, all of which have been paid when due. No Benefit Plan has applied for or received a waiver of the minimum funding standards imposed by Section 412 of the Code, and no Benefit Plan has an "accumulated funding deficiency" within the meaning of Section 412(a) of the Code as of the most recent plan year. SCTC has furnished to Fidelity the most recent actuarial report or valuation with respect to each Benefit Plan that is a "defined benefit pension plan" (as defined in Section 3(35) of ERISA). The information supplied to the actuary by SCTC and the SCTC Subsidiaries for use in preparing those reports or valuations was complete and accurate and SCTC has no reason to believe that the conclusions expressed in those reports or valuations are incorrect. (h) Multi-employer Plans. Except as set forth in SCHEDULE C-15, at no time since September 25, 1980, has SCTC or any SCTC Subsidiary been required to contribute to any "multi-employer pension plan" (as defined in Section 3(37) of ERISA) or incurred any withdrawal liability, within the meaning of Section 4201 of ERISA, or announced an intention to withdraw, but not yet completed such withdrawal, from any multi-employer pension plan. Except as set forth in SCHEDULE C-15, if SCTC and the SCTC Subsidiaries were to make a complete withdrawal from each such multi-employer pension plan, within the meaning of Section 4203 of ERISA, no withdrawal liability of SCTC and the SCTC Subsidiaries would be incurred. (i) Validity and Enforceability. All Benefit Plans, related trust agreements or annuity contracts (or any other funding instruments) and all plans, agreements, arrangements and commitments referred to in this Section are legally valid and binding and in full force and effect. 3.16 Absence of Undisclosed Liabilities. (a) Except to the extent reflected on the Most Recent Balance Sheet or on a Schedule attached hereto, neither the Business nor SCTC or any SCTC Subsidiary has or will have any indebtedness, duty, responsibility, liability or obligation of any nature, whether absolute, accrued, contingent or otherwise, related to or arising from the operation of the Business or the ownership, possession or use of any assets through the Closing Date, other than in the ordinary course of business on terms and conditions and in amounts consistent with past practices and on terms not more onerous than available to other corporations. (b) SCTC and each SCTC Subsidiary are solvent, having assets which at a fair valuation exceed their respective liabilities, and SCTC and each SCTC Subsidiary are able to meet their debts as they mature and will not become insolvent as a result of the transactions contemplated hereby. SCTC is not -17- 19 entering into the transactions contemplated by this Agreement with the intent to hinder, delay or defraud any entity to which it is indebted. Following consummation of the transactions contemplated by this Agreement, SCTC and each SCTC Subsidiary will have sufficient capital and property remaining to conduct the business in which it will thereafter be engaged. (c) Except as shown on SCHEDULE C-16, SCTC does not have any undisclosed accrued benefits to its employees or retired employees, including but not limited to health benefits to retirees. 3.17 Reserves. (a) The SCTC Financial Statements reflect adequate reserves to make any improvements or to construct any facilities on or in connection with any of the properties or developments of SCTC or any of the SCTC Subsidiaries which SCTC or any of the SCTC Subsidiaries is legally obligated to make or construct. (b) The reserves reflected in the SCTC Financial Statements at December 31, 1994 and on the Most Recent Balance Sheet, for insurance policy benefits, losses, claims and expenses, and the reserves carried on the books of SCTC and the SCTC Subsidiaries after that date, are consistent with both SCTC's current and historical loss experience and industry practice. 3.18 Accuracy of Information. None of the information furnished by SCTC to Fidelity for use in any filing by Fidelity shall contain any untrue statement of a material fact or shall omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading. 3.19 Shareholder Materials. No materials furnished to the shareholders of SCTC in connection with the transactions contemplated by this Agreement will contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading. 3.20 Obligations for Indemnification. Except as disclosed in SCHEDULE C-20, no person has any claim for indemnification under SCTC's Certificate of Incorporation or bylaws, or under applicable state law, and to the best knowledge of SCTC no basis for any such claim exists. 3.21 Approvals of Governmental Authorities. No consent, approval or authorization of, or declaration, filing or registration with, any governmental or regulatory authority is required in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and thereby, except for (i) requirements of federal -18- 20 securities law, (ii) requirements of any applicable state securities laws, (iii) requirements of any applicable state insurance or insurance holding company laws, and (iv) filing and recordation of all appropriate documents as required by the laws of the State of California. 3.22 Regulatory Filings. SCHEDULE C-22 lists (i) since December 31, 1989, all quarterly and annual statements which SCTC and the SCTC Subsidiaries authorized to do business as underwritten title companies have filed with or submitted to the insurance regulatory commissions, agencies or authorities of their respective domestic jurisdictions and (ii) since December 31, 1989, all reports of examinations issued by such insurance regulatory commissions, agencies or authorities in respect of SCTC or any of such SCTC Subsidiaries. Except as indicated in SCHEDULE C-22, (a) such filings or submissions were in substantial compliance when filed, and (b) no material deficiencies have been asserted to SCTC in writing by any such regulatory commission, agency or authority with respect to such filings or submissions. The statutory financial statements of SCTC and each of such SCTC Subsidiaries contained in the statements identified in (i) above have been prepared in accordance with the required or permitted statutory insurance accounting requirements and practices, except as expressly set forth or disclosed in the notes, exhibits or schedules thereto (which notes, exhibits and schedules fairly present the data purported to be shown thereby). SCHEDULE C-22 further sets forth all pending applications by SCTC before all governmental and regulatory entities, including without limitation applications for approval of policy terms and premiums. SCTC has delivered to Fidelity a copy of each of the most recent Annual Statements on Form 9 as filed by SCTC and the SCTC Subsidiaries with the appropriate authorities of their respective domestic jurisdictions. 3.23 Material Changes. Except as may be set forth in SCHEDULE C-23, since December 31, 1994: (a) there have not been changes which in the aggregate are materially adverse in the business ("material" meaning for purposes of this Section 3.23 having an aggregate cost to SCTC of $20,000 or more), assets, liabilities, results of operations or financial condition of SCTC or any of the SCTC Subsidiaries, or in their relationship with agents, salesmen, lenders, suppliers, customers, employees, or others, whether such changes have occurred in the ordinary course of business or otherwise; (b) there has not been any declaration, setting aside, or payment of any dividend or other distribution on or in respect of the SCTC Stock, nor has there been any direct or indirect redemption, retirement, purchase or other acquisition of any SCTC Stock, or any issuance of any SCTC Stock; -19- 21 (c) except pursuant to the normal annual review of all Branch Managers and the Executive Staff effective January 1, 1995, and normal salary reviews of salaried employees, there has not been any increase in the compensation or in the rate of compensation or commissions payable or to become payable by SCTC or any of the SCTC Subsidiaries to any director, officer, salaried employee earning $25,000 or more per annum, or any payment of or commitment to pay any bonus, profit-sharing or other extraordinary compensation to any employee; (d) there has not been any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the properties or business of SCTC or the SCTC Subsidiaries; (e) other than in the ordinary course of business, there has not been any material disposition of or encumbrance or agreement to dispose of or to encumber, or any material pledge or grant of a security interest in or agreement to pledge an interest in, any of the material properties or assets of SCTC or the SCTC Subsidiaries, or any increase or any agreement to increase any indebtedness of SCTC or the SCTC Subsidiaries; (f) there has not been any merger or consolidation involving SCTC or the SCTC Subsidiaries or any agreement to merge or consolidate with any other corporation or entity; or acquisition of or agreement to acquire any stock, business, property or assets of any other person, firm, association, corporation or other business organization, except for routine portfolio investments; (g) there has not been any labor dispute which materially and adversely affects the business or business prospects or properties of SCTC or the SCTC Subsidiaries; (h) there has not been any settlement in respect of any actions, suits or proceedings at law or in equity involving any payment by SCTC or any of the SCTC Subsidiaries in an amount in excess of $5,000 individually, or $20,000 in the aggregate; (i) there has not been any loan or advance except normal travel advances or reasonable expense advances to any officer, employee or shareholder of SCTC or the SCTC Subsidiaries; (j) there has not been any cancellation by SCTC or the SCTC Subsidiaries, without payment in full, of any notes, loans, or other obligations receivable from any officer, director or shareholder of SCTC or the SCTC Subsidiaries, or any member of their families, or from any corporation, partnership, or other entity in which any officer or director or shareholder of SCTC or of the SCTC Subsidiaries or any member of their families, has any -20- 22 direct or indirect interest known to SCTC or the SCTC Subsidiaries; (k) there has not been any sale or grant to any party or parties of any license, franchise, option or other right of any nature whatsoever to sell, distribute, or otherwise deal in or with the property of SCTC or the SCTC Subsidiaries, other than in the ordinary course of business, or any sale or grant to any party or parties of any license, franchise, option or other right of any nature to use any patent, trade name, trademark, service mark, copyright, pending applications therefor, trade secrets or other proprietary rights of SCTC or the SCTC Subsidiaries; (l) there has not been any change in the accounting methods or practices of SCTC or the SCTC Subsidiaries or any change in depreciation or amortization policies or rates theretofore adopted by SCTC or the SCTC Subsidiaries; (m) there has not been any contract entered into for services or otherwise with any of the officers, directors or shareholders of SCTC or the SCTC Subsidiaries or members of their families; (n) there has not been any increase in the reserves for insurance policy benefits, losses, claims and expenses carried on the books of SCTC or any of the SCTC Subsidiaries which is material to the business, financial condition or prospects of SCTC and the SCTC Subsidiaries taken as a whole; (o) there has not been any forgiveness or cancellation of debts or claims, waiver of any rights or any discharge or satisfaction of any lien, charge or encumbrance or payment of any liability or obligation, other than current liabilities in the ordinary course of business; and (p) there has not been any agreement or commitment by SCTC or the SCTC Subsidiaries to do or take any of the actions referred to in subsections (a) through (o) of this Section. Except as disclosed in SCHEDULE C-23, since December 31, 1991, neither SCTC nor any SCTC Subsidiary has made any major decisions affecting the Business, including (i) changes in management organization or personnel arrangements with Agents, brokers, advertising agencies, market research projects, advertising and promotion budgets or the content of advertisements or working capital levels (payables and receivables); (ii) changes in discretionary costs such as advertising, maintenance and repairs, research and development, and training; (iii) proposed new contracts or variations in existing contracts; (iv) any capital expenditures or deferral of capital expenditures; (v) deviation from operating budgets or plans on sales and profitability; or (vi) any other matters affecting the long-term course of the Business. -21- 23 3.24 Transactions with Affiliates. Since December 31, 1994, there has not been any dividend or other distribution of assets by SCTC or any SCTC Subsidiary. Except as otherwise disclosed in SCHEDULE C-24, no Affiliate (as defined below): (a) Owns, directly or indirectly, any debt, equity or other interest or investment in any corporation, firm or other entity which is a competitor, lessor, lessee, customer, supplier or advertiser of the Business; (b) Has any cause of action or other claim whatsoever against or owes any material amount to, or is owed any material amount by, SCTC or the SCTC Subsidiaries; (c) Has any interest in or owns any property or right used in the conduct of the Business; (d) Has lent or advanced any money to, or borrowed any money from, or guaranteed or otherwise become liable for any indebtedness or other obligations of, or acquired any capital stock, obligations or securities of, any SCTC Subsidiary; (e) Is a party to any contract, lease, agreement, arrangement or commitment used in the Business; or (f) Received from or furnished to the Business any goods or services (with or without consideration) since December 31, 1992. The term "Affiliate" shall mean any member of the immediate family (including spouse, brother, sister, descendant, ancestor or in-law) of any officer, director or shareholder of SCTC, or any corporation, partnership, trust or other entity in which SCTC or any such family member has a material interest or is a director, officer, partner or trustee. The term Affiliate shall also include any entity which controls, or is controlled by, or is under common control with any of the individuals or entities described in the preceding sentence. 3.25 Certain Advances. Except as set forth in SCHEDULE C-25, there are no amounts owed to SCTC or the SCTC Subsidiaries by any directors, officers, employees, consultants or shareholders or owed by any Affiliate of any director or officer, other than advances in the ordinary and usual course of business to officers and employees for reimbursable business expenses. 3.26 Related Parties. Except as set forth in SCHEDULE C-26, no officer or director of SCTC or the SCTC Subsidiaries, or any Affiliate of any such person, has either directly or indirectly, (i) an interest in any corporation, partnership, firm -22- 24 or other person or entity which furnishes or sells services or products which are similar to those furnished or sold by SCTC, or (ii) a beneficial interest in any contract or agreement to which SCTC or the SCTC Subsidiaries is a party or by which SCTC or the SCTC Subsidiaries may be bound. For purposes of this Section 3.26, there shall be disregarded any interest which arose solely from the ownership of less than a five percent equity interest in a corporation whose stock is regularly traded on any national securities exchange or in the over-the-counter market. 3.27 Motor Vehicles. SCHEDULE C-27 contains an accurate, correct and complete list of all motor vehicles used in the Business, whether owned or leased. All such vehicles are (a) properly licensed and registered in accordance with applicable law, (b) insured as set forth on SCHEDULE C-27, (c) in good operating condition and repair (reasonable wear and tear excepted) and (d) not subject to any lien or other encumbrance. 3.28 Real Estate. SCTC does not own any Real Estate. 3.29 Real Estate Leases. SCHEDULE C-29 sets forth an accurate, correct and complete list of all Real Estate leased or subleased by SCTC or a SCTC Subsidiary, including identification of the lease or sublease, street address, legal description and list of contracts, agreements, leases, subleases, options and commitments, oral or written, affecting such Real Estate or any interest therein to which SCTC or a SCTC Subsidiary is a party or by which SCTC or a SCTC Subsidiary is bound (the "Real Estate Leases"). SCTC has delivered to Fidelity accurate, correct and complete copies of each Real Estate Lease. With respect to such Leases: (a) The Real Estate Leases are in full force and effect and are valid, binding and enforceable in accordance with their respective terms; (b) No amounts payable under any Real Estate Lease are past due; (c) Each party thereto has complied with all material commitments and obligations on its part to be performed or observed under each Real Estate Lease; (d) Neither SCTC nor any SCTC Subsidiary has received any notice of a default, offset or counterclaim under any Real Estate Lease, or any other communication calling upon SCTC or any SCTC Subsidiary to comply with any provision of any Real Estate Lease or ascertaining non-compliance, and no event or condition has happened or presently exists which constitutes a default or, after notice or lapse of time or both, would constitute a default under any Real Estate Lease; -23- 25 (e) The consummation of the transactions contemplated hereby, without notice to or consent or approval of any party, will not constitute a breach of or a default under any provision of any Real Estate Lease, Fidelity will have and may enjoy and enforce all rights and benefits of the lessee under each Real Estate Lease, and SCTC shall obtain and deliver to Fidelity prior to Closing an Estoppel Certificate in form and substance satisfactory to Fidelity's counsel from the lessor under each Real Estate Lease indicating each such lessor's consent to continuation of each Real Estate Lease unchanged following consummation of the transactions contemplated hereby; and (f) There is no security interest, lien, encumbrance or claim of any kind on SCTC's or any SCTC Subsidiary's leasehold interest under any Real Estate Lease. SCTC has delivered to Fidelity accurate, correct and complete copies of existing title insurance policies, title reports, surveys, environmental audits and similar reports, if any, for the real property subject to the Real Estate Leases. At the Closing, SCTC shall deliver to Fidelity any consents or approvals of any parties that may be required in connection with the purchase of the SCTC Stock by Fidelity. 3.30 Personal Property Leases. SCHEDULE C-30 contains an accurate, correct and complete list of all leases of personal property used in the Business (the "Personal Property Leases"). SCTC has delivered to Fidelity accurate, correct and complete copies of each Personal Property Lease. With respect to such Personal Property Leases: (a) The Personal Property Leases are in full force and effect and are valid, binding and enforceable in accordance with their respective terms; (b) No amounts payable under any Personal Property Lease are past due; (c) Each party thereto has complied with all material commitments and obligations on its part to be performed or observed under each Personal Property Lease; (d) Neither SCTC nor any SCTC Subsidiary has received any notice of a default, offset or counterclaim under any Personal Property Lease, or any other communication calling upon SCTC or any SCTC Subsidiary to comply with any provision of any Personal Property Lease or ascertaining -24- 26 non-compliance, and no event or condition has happened or presently exists which constitutes a default or, after notice or lapse of time or both, would constitute a default under any Personal Property Lease; (e) The consummation of the transactions contemplated hereby, without notice to or consent or approval of any party, will not constitute a breach of or a default under any provision of any Personal Property Lease, and Fidelity will have and may enjoy and enforce all rights and benefits of the lessee under each Personal Property Lease; and (f) There is no security interest, lien, encumbrance or claim of any kind on SCTC's or any SCTC Subsidiary's leasehold interest under any Personal Property Lease. At the Closing, SCTC shall deliver to Fidelity any consents or approvals of any parties required in connection with the assignment of the Personal Property Leases to Fidelity. 3.31 Intellectual Property. SCHEDULE C-31 contains an accurate, correct and complete list and summary description of all patents, trademarks, trademark rights, trade names, trade styles, trade dress, service marks, copyrights and applications for any of the foregoing utilized by the Business (the "Intellectual Property"). During the preceding five years, neither SCTC nor any SCTC Subsidiary has been known by or done business under any name other than those listed on SCHEDULE C-31. SCHEDULE C-31 also contains an accurate, correct and complete list and summary description of all licenses and other agreements relating to any Intellectual Property. None of the Intellectual Property is subject to any extensions, renewals, taxes or fees due within 90 days after Closing. Except as set forth on SCHEDULE C-31, with respect to the Intellectual Property, (a) SCTC is the sole and exclusive owner and has the sole and exclusive right to use the Intellectual Property; (b) no action, suit, proceeding or investigation is pending or, to SCTC's knowledge, threatened; (c) none of the Intellectual Property interferes with, infringes upon, conflicts with or otherwise violates the rights of others or is being interfered with or infringed upon by others, and none is subject to any outstanding order, decree, judgment, stipulation or charge; (d) there are no royalty, commission or similar arrangements, and no licenses, sublicenses or agreements, pertaining to any of the Intellectual Property; (e) neither SCTC nor any SCTC Subsidiary has agreed to indemnify any person for or against any infringement of or by the Intellectual Property; (f) all items of Intellectual Property are properly registered under applicable law; and (g) the Intellectual Property constitutes all such assets, properties and rights which are used in or necessary for the conduct of the -25- 27 Business. The operation of the Business by Fidelity after the Closing in the manner and geographic areas in which the Business is currently conducted by SCTC and the SCTC Subsidiaries will not interfere with or infringe upon any patent or trademark or any asserted rights of others. Neither SCTC nor any SCTC Subsidiary is subject to any judgment, order, writ, injunction or decree of any court or any federal, state, local or other governmental agency or instrumentality, domestic or foreign, or any arbitrator, or has entered into or is a party to any contract which restricts or impairs the use of any Intellectual Property. 3.32 Trade Secrets. SCHEDULE C-32 contains an accurate, correct and complete list and summary description of all information in the nature of know-how, trade secrets or proprietary information, including formula, inventions, loss models, processes, compilations of information, copyrightable material and technical information, if any, relating to the Business (the "Technical Information"). All Technical Information: (a) Is owned solely and exclusively by SCTC and SCTC is solely responsible for the development of such Technical Information; (b) Is fully and completely documented and in condition for conveyance to and readily usable by Fidelity; (c) Has been continuously maintained in confidence by SCTC, used in areas separated from business activities involving contact with the public, and the only copies of which are maintained at the offices of SCTC under secure conditions; and (d) Has been maintained as a trade secret by SCTC by taking all necessary action to protect such Technical Information as a trade secret. All Technical Information and any copies thereof shall be delivered to Fidelity at Closing. SCTC has no knowledge of any violation of any trade secret rights or copyrights with respect to such Technical Information. Only the individuals named on SCHEDULE C-32 hereto, which describes their relationship with SCTC, have had access to the Technical Information, and each such individuals have signed a non-disclosure pact regarding such Technical Information. 3.33 Software and Information Systems. SCTC has all necessary right, title and interest to all electronic data processing systems, information systems, computer software programs, program specifications, charts, procedures, source codes, input data, routines, data bases (including title plants) and report layouts and formats, record file layouts, diagrams, -26- 28 functional specifications and narrative descriptions, flow charts and other related material used in the Business (collectively the "Software"). SCHEDULE C-33 contains an accurate, correct and complete list and summary description of all Software and identifies (i) Software which is owned by SCTC and any licenses thereof; (ii) Software which is licensed to SCTC and whether any copies of such licensed Software have been made; (iii) any other Software in which SCTC has any use, possessory or proprietary rights; and (iv) all pending Software development projects, together with an identification of the persons undertaking such projects. With respect to the Software: (a) All Software documentation is current, accurate and sufficient in detail and content to identify and explain it, and to allow its full and proper use by Fidelity without reliance on the special knowledge or memory of others, except as disclosed in SCHEDULE C-33; (b) No proprietary rights in any Software have been transferred, whether by sale, assignment or license, or have been lost for any reason, within the past two years; (c) All Software is presently protectable, and is not part of the public knowledge or literature, nor has any Software been used, divulged or appropriated for the benefit of any other person, or to the detriment of SCTC except as contemplated by the customer contracts identified in SCHEDULE C-33; (d) SCTC's rights in the Software are free and clear of any liens, encumbrances, restrictions, or legal or equitable claims of others, except as contemplated in any customer contract identified in SCHEDULE C-33; (e) SCTC has taken appropriate measurers to protect the secrecy, confidentiality and value of the Software; (f) SCTC has received no notice of any violation of trade secret rights, copyrights or other proprietary rights with respect to any Software and knows of no meritorious basis therefor; and (g) Any copies of Software are in SCTC's possession and control, except for certain copies of Software in the possession of customers pursuant to license agreements with SCTC listed on SCHEDULE C-33. The term "computer software programs" includes any set of arithmetic and/or logical instructions meant to run on, or to -27- 29 control the operation of, any computer, (i) whether the instructions are a complete program, a collection of programs making up a subsystem or subroutine, or meant to operate in conjunction with other Software, and (ii) whether the instructions must be run through another computer program (i.e., a "compiler") before being usable on a computer, whether be used at execution time in conjunction with another computer program (i.e., an "interpreter") or whether such instructions are in a form that can be run on a computer "as is", except for any necessary interfaces with the computer's microcode, operating system or reference-resolving routines (i.e., "loaders" or "linkage editors"). 3.34 Compliance with Law. Except as set forth in SCHEDULE C-34, (i) the Business conforms to all applicable statutes, codes, ordinances, licensing requirements, laws, rules and regulations, except for such minor violations as do not impair or interfere with the Business, (ii) SCTC and each SCTC Subsidiary have complied with all statutes, codes, ordinances, licensing requirements, laws, rules, regulations, decrees, awards or orders applicable to its business or operations, including those relating to employment, environmental matters, employee benefits, the production, marketing and sale of products, trade regulation, antitrust, warranties and control of foreign exchange; and there is not and will not be any liability arising from or related to any violations thereof, (iii) to SCTC's knowledge, there is no proposed or pending change in any such law, rule or regulation which would adversely affect the Business, (iv) no notice from any governmental body or other person of any violation of any statute, code, ordinance, law, rule or regulation or requiring or calling attention to the necessity of any alteration in connection with the Business has been served, and SCTC knows of no meritorious basis therefor, or (v) neither SCTC, nor any officer, agent or employee of SCTC, nor, to the knowledge of SCTC, any agent, associate or any other person acting on behalf of SCTC or any SCTC Subsidiary, (a) has made any unlawful domestic or foreign political contributions, (b) has made any payment or provided services which were not legal to make or provide or which SCTC or such SCTC Subsidiary or any such officer, employee or other person should have known were not legal for the payee or the recipient of such services to receive, (c) has received any payments, services or gratuities which were not legal to receive or which SCTC or such SCTC Subsidiary or such person should have known were not legal for the payor or the provider to make or provide, (d) has had any transactions or payments which are not recorded in its accounting books and records or disclosed in its financial statements, (e) has had any off-book bank or cash accounts or "slush funds", (f) has made any payments to governmental officials in their individual capacities for the purpose of affecting their action or the action of the government they represent to obtain special concessions, or (g) has made illegal payments to obtain or retain business. -28- 30 3.35 Brokers. Neither SCTC nor any SCTC Subsidiary has retained any broker, finder or agent or incurred any liability or obligation for any brokerage fees, commissions or finders fees with respect to this Agreement or the transactions contemplated hereby and SCTC hereby indemnifies and holds harmless Fidelity from and against any costs, claims, demands, damages, loss or liability resulting from a claim by any third party seeking payment of any such fees or commissions. 3.36 Environmental Matters. The ownership, use and operation by SCTC and each SCTC Subsidiary, and each of their predecessors, of each facility used in the Business has been and on the Closing Date will be and, to the knowledge of SCTC, all ownership, use and operation of each such facility by any other person has been, in compliance with all federal, state and local environmental and anti-pollution laws and regulations, including the Resource Conservation and Recovery Act, as amended ("RCRA"), its implementing regulations and all applicable state hazardous waste laws and regulations; the Clean Water Act, as amended, its implementing regulations and all applicable state effluent discharge laws and regulations; the Clean Air Act, as amended, its implementing regulations and all applicable state air emission laws and regulations; and all such laws and regulations concerning particulate emissions, hazard communication, surface water pollution, groundwater pollution, air pollution, solid wastes, hazardous wastes, storage, handling, treatment, transportation, spills or other releases, and disposal of any substance, material or waste, and exposure to or notification regarding any substance, material or waste. No action, suit, proceeding, investigation, complaint or charge exists for violation of any such laws, rules or regulations and there is no meritorious basis therefor. 3.37 Deficiency Accounts. SCHEDULE C-37 contains an accurate, correct and complete list of the only accounts which are held in trust by SCTC for third parties which have funding deficiencies or shortfalls (the "Deficiency Accounts"). 3.38 Disclosure. (a) The representations and warranties of SCTC contained in this Agreement and each Schedule, certificate or other written statement delivered pursuant to this Agreement or in connection with the transactions contemplated herein are accurate, correct and complete in all material respects, and do not contain any untrue statement of a material fact or, considered in the context in which presented, omit to state a material fact necessary in order to make the statements and information contained herein or therein not misleading. (b) Copies of any underlying documents listed or described in the Schedules referred to in this Agreement have heretofore been furnished to Fidelity. All such documents -29- 31 furnished to Fidelity are true and correct copies, and there are no amendments or modifications thereto, except as expressly noted in the Schedules in which such documents are incorporated. The minute books of SCTC and the SCTC Subsidiaries contain full, complete and accurate records of all meetings and other corporate actions taken by the directors and shareholders of SCTC and the SCTC Subsidiaries. (c) SCTC is not aware of any information necessary to enable a prospective purchaser to make an informed investment decision to purchase the SCTC Stock which has not been expressly disclosed to Fidelity in writing. There is no fact which materially adversely affects or in the future may (so far as SCTC can now foresee) materially adversely affect the business, operations, properties, prospects or condition, financial or otherwise, of the Business or the ability of SCTC or the Selling Shareholders to fully perform this Agreement and the transactions contemplated hereby, which has not been set forth or described in this Agreement or in an Schedule, certificate or other written statement furnished to Fidelity. There is no fact, other than general economic conditions, which adversely affects or might reasonably be expected to adversely affect in the future the business, operations, properties, prospects or condition, financial or otherwise, of the Business in any material respect which has not been set forth or referred to in this Agreement, including the Schedules. (d) Except as otherwise disclosed in writing pursuant hereto, all of SCTC's assets are free and clear of all liabilities, obligations, liens and encumbrances excepting only those liabilities and obligations that are expressly to be assumed by Fidelity hereunder and those liens and encumbrances securing the same that are specifically disclosed herein or expressly permitted by the terms hereof. SECTION 4 CONDUCT OF SCTC PENDING CLOSING The following covenants and agreements of SCTC shall be effective from the date hereof to the Closing, unless Fidelity shall otherwise consent in writing to the waiver of any of such covenants and agreements: 4.01 General. SCTC shall not take any action which would result in, or fail to take any action reasonably required to prevent, the material inaccuracy or breach of any of the representations and warranties of SCTC set forth in Section 3 hereof. The Business shall be conducted solely in the ordinary course consistent with past practice. SCTC shall not cause or permit to occur any of the events or occurrences described in Section 3.23 hereof. -30- 32 4.02 Indebtedness and Compensation. The business of SCTC and the SCTC Subsidiaries shall be conducted only in the ordinary course, without the creation of any indebtedness for borrowed money. SCTC shall not become obligated to pay or pay any increases in compensation or bonuses to any employee or contractor. 4.03 Maintenance of Properties. SCTC and each of the SCTC Subsidiaries shall maintain their properties and assets in good operating condition, ordinary wear and tear excepted. 4.04 Change in Capital Stock. No change will be made in the authorized or issued capital stock of SCTC or any of the SCTC Subsidiaries, and SCTC and the SCTC Subsidiaries will not issue or grant any right or option to purchase or otherwise acquire any of their capital stock. 4.05 Sales or Encumbrances of Assets. Except in the ordinary course of business, neither SCTC nor any SCTC Subsidiary will sell, mortgage, lease, buy or otherwise acquire, transfer or dispose of any real estate or any interest therein, and will not sell or transfer, mortgage, pledge or subject to any lien, charge or other encumbrance any other tangible or intangible asset. Acquisitions and dispositions of deeds of trust, real estate, and interests therein, in connection with a title or escrow claim, shall be deemed to be in the ordinary course of business if immaterial in number and value. 4.06 Banking Relationships. No change will be made in the banking and related arrangements referred to in Section 3.13 hereof. 4.07 Maintenance of Insurance. SCTC shall notify Fidelity of any changes in the terms of the insurance described in Section 3.13 hereof. 4.08 Maintenance of Books. The books of SCTC and the SCTC Subsidiaries will he maintained in the usual, regular and ordinary course on a basis consistent with prior years. 4.09 Preservation of Business. SCTC and each of the SCTC Subsidiaries will use their best efforts to preserve their business organization, to keep available the services of their present employees, and to preserve the goodwill of their suppliers, customers and others having business relations with them. 4.10 Meeting of Shareholders. SCTC shall as soon as practicable following the approval of the proposed acquisition by the California Department of Insurance and any other necessary regulating agency approval, whichever shall occur last, call a meeting of its shareholders for the purpose of submitting this Agreement and the transactions contemplated hereby for approval -31- 33 by such shareholders. In connection with such meeting, SCTC shall prepare and submit to its shareholders a notice of meeting and shareholder materials necessary to fully disclose the terms of the transactions described in this Agreement as set forth in this Agreement, and shall comply with respect to the conduct of such meeting in all material respects with the requirements, if any, of applicable federal or state law. 4.11 Consents. SCTC will obtain the consent of the following persons, where such consent is required, in the opinion of Fidelity, for effective consummation of the transactions contemplated by this Agreement: (i) the holders of its outstanding indebtedness; (ii) the lessors of all leases and (iii) the parties to any other agreements to which SCTC is a party or by which it is bound. Any consent obtained under this Section 4.11 shall not result in a material modification of the terms or conditions of any indebtedness, lease or other agreement to which it pertains. 4.12 Access to Properties, Books, Etc. SCTC shall allow Fidelity and its authorized representatives full access during normal business hours to all of the properties, books, contracts, commitments and records of SCTC and each of the SCTC Subsidiaries and shall furnish Fidelity such information concerning its affairs as may reasonably be requested. No investigation made heretofore or hereafter by Fidelity shall affect the representations and warranties of SCTC. 4.13 Board of Directors Meetings. SCTC shall give notice to Fidelity of all Board of Directors meetings in the same manner as legally provided for giving notice of meetings to members of the Board of Directors. Fidelity shall be entitled to have a person designated by Fidelity attend Board meetings as an observer, except for meetings or portions of meetings for the purpose of discussing the transactions contemplated herein. 4.14 Compliance with Laws, Etc. SCTC and the SCTC Subsidiaries shall comply with all laws, ordinances, rules, regulations and orders applicable to the Business, or any of their respective operations, assets or properties in respect thereof, the noncompliance with which might materially affect the Business or the SCTC Stock. 4.15 Update Schedules. SCTC shall promptly disclose to Fidelity any information contained in its representations and warranties or the Schedules delivered pursuant to this Agreement which, because of an event occurring after the date hereof, is incomplete or is no longer correct as of all times after the date hereof until the Closing Date; provided, however, that none of such disclosures shall be deemed to modify, amend or supplement the representations and warranties of SCTC, the SCTC Subsidiaries or the Selling Shareholders, unless Fidelity shall have consented thereto in writing. -32- 34 4.16 Press Releases. Except as required by applicable law, neither SCTC nor the Selling Shareholders shall give notice to third parties or otherwise make any public statement or releases concerning this Agreement or the transactions contemplated hereby except for such written information as shall have been approved in writing as to form and content in advance by Fidelity, which approval shall not be unreasonably withheld. SECTION 5 SURVIVAL AND INDEMNIFICATION 5.01 Survival. All representations, warranties, covenants and agreements contained in this Agreement or in any document delivered pursuant hereto shall be deemed to be material and to have been relied upon by the parties hereto, and shall survive the Closing. The representations and warranties set forth in this Agreement shall not be affected by any investigation, verification or approval by any party hereto or by anyone on behalf of any such party, except as specifically set forth in an Schedule or other document delivered pursuant to this Agreement. 5.02 Indemnification. Selling Shareholders shall indemnify, defend and hold harmless on a pre-tax basis Fidelity and its Affiliates, if any, its successors and assigns and their respective officers, directors, employees, stockholders and Affiliates (collectively "Indemnitees") from and against any and all loss, demand, damage, expense, cost (including court costs and reasonable attorneys' fees), suit, action, claim, liability or obligation, including foreseeable consequential damages incurred ("Losses") related to, caused by or arising from any misrepresentation, breach of warranty or failure to fulfill any covenant or agreement of SCTC, a SCTC Subsidiary or Selling Shareholders contained herein. 5.03 Third-Party Claims. If a claim by a third party is made against any person entitled to indemnification under Section 5.02 hereof arising out of such claim, the person seeking such indemnification (the "Indemnified Party") shall promptly notify the indemnifying party (the "Indemnifying Party") in writing of such claim. The Indemnifying Party shall have 20 days after receipt of the above-mentioned notice to undertake to conduct and control, through counsel of its own choosing (subject to the consent of the Indemnified Party, such consent not to be unreasonably withheld or delayed) and at its sole risk and expense, the good faith settlement or defense of such claim, and the Indemnified Party shall cooperate fully with the Indemnifying Party in connection therewith; provided: (i) the Indemnified Party shall be entitled to participate in such settlement or defense through counsel chosen by the Indemnified Party; provided that the fees and expenses of such counsel shall be borne by the Indemnified Party, and (ii) the Indemnifying Party shall have -33- 35 within the aforementioned 20-day period notified the Indemnified Party in writing of its election to undertake such defense or settlement and confirmed in writing its obligation to indemnify the Indemnified Party for the liability asserted in such claim. The Indemnifying Party shall obtain the written consent of the Indemnified Party, which shall not be unreasonably withheld or delayed, prior to ceasing to defend, settling or otherwise disposing of such claim if as a result thereof the Indemnified Party would become subject to injunctive or other equitable relief or the business of the Indemnified Party would be materially adversely affected in any manner. So long as the Indemnifying Party is reasonably contesting any such claim in good faith, the Indemnified Party shall fully cooperate with the Indemnifying Party in the defense of such claim as is reasonably required by the Indemnifying Party, and the Indemnified Party shall not pay or settle any such claim without the consent of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed. If the Indemnifying Party does not give the Indemnified Party the timely written notice of the undertaking referred to in clause (ii) above, the Indemnified Party shall thereafter have the right to contest, settle or compromise the claim at its exclusive discretion, at the risk and expense of the Indemnifying Party. SECTION 6 REPRESENTATIONS AND WARRANTIES OF FIDELITY As an inducement to SCTC and the Selling Shareholders to enter into this Agreement and to consummate the transactions contemplated hereby, Fidelity represents and warrants to SCTC and the Selling Shareholders as follows: 6.01 Organization, Etc. Fidelity is a corporation duly organized, validly existing and in good standing under the laws of the State or Delaware. 6.02 Corporate Authority. Fidelity has full corporate power and authority to make, execute and perform this Agreement and the transactions contemplated hereby, and the execution, delivery and performance of this Agreement by Fidelity have been or will be duly authorized by all necessary corporate action of Fidelity, subject to compliance with applicable regulatory requirements. 6.03 No Default Resulting from Agreement. Neither the execution and delivery of this Agreement nor performance by Fidelity in compliance with its terms will result in any material breach of the terms and conditions of, or constitute a default under, the Certificate of Incorporation or bylaws of Fidelity or any material agreement, instrument, undertaking, judgment, -34- 36 decree, governmental order or other restriction or obligation to which Fidelity is a party or by which it or any of its properties or assets may be bound or, to its knowledge, affected. 6.04 Accuracy of Information. None of the information furnished by Fidelity to SCTC and the Selling Shareholders for use in any filing by SCTC and the Selling Shareholders shall contain any untrue statement of a material fact or shall omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading. 6.05 Brokers. Except as set forth on SCHEDULE 6.05, no broker or, finder has acted on Fidelity's behalf in connection with this Agreement or the transactions contemplated hereby. 6.06 Approvals of Governmental Authorities. No consent, approval or authorization of, or declaration, filing or registration with, any governmental or regulatory authority is required in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, except for (i), requirements of federal securities law, (ii) requirements of any applicable state securities laws, (iii) requirements of any applicable state insurance or insurance holding company laws, and (iv) filing and recordation of all appropriate documents required by the laws of the State of California. 6.07 Representations and Warranties. No representation, warranty or covenant contained in this Agreement or in any written statement delivered pursuant hereto or in connection with the transactions contemplated hereby contains or shall contain any untrue material statement and does not and will not omit to state any material fact necessary to make any statement not misleading. Copies of all documents furnished to SCTC and the Selling Shareholders in connection with this Agreement or pursuant hereto are true and complete in all material respects. SECTION 7 CONDUCT OF FIDELITY PENDING CLOSING The following covenants and agreements of Fidelity shall be effective from the date hereof to the Closing, unless SCTC shall otherwise consent in writing to the waiver of any of such covenants and agreements: 7.01 Insurance, Banking and Corporation Regulatory Approvals. Fidelity shall prepare and file with the appropriate departments of insurance, banking and corporations applications for approval of the change of control of SCTC and the SCTC Subsidiaries. Fidelity agrees to use its best efforts to obtain the approvals of the insurance, banking and corporate regulatory -35- 37 authorities in the State of California and any other approvals as may be required by various insurance and trust laws and to cooperate with each of the other parties in connection therewith. SECTION 8 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF FIDELITY All of the obligations of Fidelity under this Agreement are subject to the fulfillment prior to or at the Closing of each of the following conditions, the waiver of any one or more of which by Fidelity must be in writing: 8.01 Accuracy of Representations and Warranties. The representations and warranties of SCTC and the Selling Shareholders contained herein or in any certificate, Schedule, certificate or other document delivered pursuant to the provisions hereof or in connection herewith shall be true and correct in all material respects as of the Closing Date with the same affect as though such representations and warranties had been made at the Closing Date, except to the extent such representations and warranties expressly relate only to an earlier date, and except for changes contemplated by this Agreement or approved in writing by Fidelity. 8.02 Compliance with Conditions. SCTC shall have performed and complied with all agreements and conditions required by this Agreement to be performed or complied with by it prior to the Closing. 8.03 Closing Documents. SCTC and the Selling Shareholders shall have delivered to Fidelity: (a) A certificate executed by the President and Treasurer of each of SCTC and the Selling Shareholders, to the extent applicable, dated as of the Closing Date, and certifying in such detail as Fidelity may reasonably request to the fulfillment of the conditions specified in Sections 8.01 and 8.02 hereof; (b) Duly adopted resolutions of the shareholders and Board of Directors of SCTC certified by the Secretary or an Assistant Secretary of SCTC the respective corporation as of the Closing Date, (i) authorizing and approving the execution and delivery of this Agreement and the consummation of the transactions contemplated herein and therein in accordance with their respective terms, and (ii) authorizing and approving all other necessary and proper corporate actions to enable SCTC to comply with the terms hereof; -36- 38 (c) Copies of Certificates of Incorporation of each of SCTC and the SCTC Subsidiaries, certified as of a date not more than three days prior to the Closing Date by the Secretary of State of the state of incorporation of each such entity, along with certificates as to the legal existence and good standing of SCTC and each of the SCTC Subsidiaries under the laws of such states, also certified by the Secretary of State of the state of incorporation of each such entity as of a date not more than three days prior to the Closing Date; (d) An opinion of counsel for SCTC, dated the Closing Date, substantially in the form of SCHEDULE D, with such modifications as shall be acceptable to legal counsel for Fidelity; and 8.04 Consents. SCTC shall have obtained any consents required under Section 4.11 hereof with respect to any indebtedness, leases or agreements which are material to the business of SCTC or any SCTC Subsidiary, and the Estoppel Certificates required pursuant to Section 3.29(e) hereof (which shall include an Estoppel Certificate related to that certain Ground Lease applicable to the property located at Sepulveda Boulevard and Oxnard Street in the County of Los Angeles, and a Termination Agreement with respect to that certain Standard Industrial/Commercial Single-Tenant Lease - Net dated May 1, 1995 applicable to the property located at 6007 Sepulveda Boulevard in the County of Los Angeles, California. 8.05 Governmental Approvals. SCTC shall have received from any and all governmental authorities, bodies or agencies having jurisdiction over the transactions contemplated by this Agreement, or any part thereof, such consents, authorizations and approvals as are necessary for the consummation thereof. 8.06 Resignations. SCTC shall obtain and deliver on the Closing Date the resignations, effective as of the Closing Date, of all members of the Board of Directors of SCTC and the SCTC Subsidiaries and such officers and employees thereof as Fidelity shall request. 8.07 Adverse Changes. The business, operations, assets, properties or prospects of the Business shall not have been and shall not be threatened to be adversely affected in any way as a result of any event or occurrence. 8.08 No Threatened or Pending Litigation. On the Closing Date, no suit, action or other proceeding or injunction or final judgment relating thereto, shall be threatened or be pending before any court or governmental or regulatory official, body or authority in which it is sought to restrain or prohibit or to obtain damages or other relief in connection with this Agreement or the consummation of the transactions contemplated hereby, and -37- 39 no investigation that might result in any such suit, action or proceeding shall be pending or threatened. 8.09 Employment Agreement. Marshall D. Wexler shall have entered into a new Employment Agreement with SCTC in form satisfactory to Fidelity. 8.10 Department of Insurance. Fidelity shall have received evidence satisfactory to Fidelity confirming the agreement to expedite licensing of SCTC and Butte County Title Company in specified counties and confirming the approval of the transactions contemplated by this Agreement or related hereto by the California Department of Insurance (including, but not limited to, evidence that the California Insurance Commissioner has approved SCTC's application for the change of control of SCTC). 8.11 Deficiency Accounts. The Deficiency Accounts shall been fully funded. 8.12 Release of Security Interests and Guarantee. Fidelity shall have received evidence satisfactory to Fidelity confirming the release by First L.A. Bank of (i) all of SCTC's guarantees to First L.A. Bank and (ii) all security interests of First L.A. Bank in the SCTC Stock and any and all of the assets of SCTC or related to the Business. 8.13 Settlement Agreements. Land Title Insurance Company (and Lawyers Title Insurance Corporation), Jack Ross, Commonwealth Land Title Insurance Company, Transamerica Financial Services and Security Union Title Insurance Company shall have entered into settlement agreements with SCTC in form satisfactory to Fidelity. SECTION 9 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SCTC AND THE SELLING SHAREHOLDERS All of the obligations of SCTC and the Selling Shareholders under this Agreement are subject to the fulfillment prior to the Closing of each of the following conditions, any one or more of which may be waived in writing by SCTC and Selling Shareholders: 9.01 Governmental Approvals. Fidelity shall have received from any and all governmental authorities, bodies or agencies having jurisdiction over the transactions contemplated by this Agreement, or any part thereof, such consents, authorizations and approvals as are necessary for the consummation thereof. -38- 40 SECTION 10 TERMINATION To the extent and under the circumstances set forth in this Section 10, this Agreement may be terminated at any time by Fidelity or SCTC and the Selling Shareholders prior to the Closing upon written notice to the other party, and upon any such termination no party hereto shall have any liability to the others, except as specified in Section 12.09 below. 10.01 Material Adverse Changes. By Fidelity, if an adverse change in the financial condition or business of SCTC considered as a whole shall have occurred, or SCTC shall have suffered a material loss or damage to any of its properties or assets, which change, loss or damage adversely affects or impairs the ability of SCTC to conduct its business. 10.02 Non-Compliance by SCTC or Selling Shareholders. By Fidelity, if a material term or condition of this Agreement to be complied with or performed by SCTC or the Selling Shareholders at or before the Closing shall not by that time have been complied with or performed within 10 days of written notice to SCTC or the Selling Shareholders of such non-compliance or non-performance, and such non-compliance or non-performance shall not have been waived in writing by Fidelity. 10.03 Non-Compliance by Fidelity. By SCTC or the Selling Shareholders, if a material term, covenant, or condition of this Agreement to be complied with or performed by Fidelity at or before the Closing shall not by that time have been complied with or performed within 10 days of written notice to Fidelity of such non-compliance or non-performance, and such non-compliance or non-performance shall not have been waived in writing by SCTC and the Selling Shareholders. 10.04 Litigation Regarding Agreement. By the Board of Directors of SCTC or Fidelity if there shall be pending against any of the Selling Shareholders, SCTC or Fidelity, or threatened in a writing received by any such party, any litigation or governmental proceeding seeking or threatening to seek to enjoin the Closing, or to obtain damages or the payment of penalties if the Closing is consummated; provided that the Board of Directors of the party seeking to terminate this Agreement under this Section 10.04 (i) shall have received a written opinion of its counsel hereunder, within 30 days after the institution or threat of such litigation or proceedings, to the effect that, after reasonable investigation, based on facts available to such counsel, such litigation or proceeding (whether directed at it or the other party) has a reasonable possibility of success, and (ii) shall have on a reasonable basis determined that the payment of such damages or penalties would adversely affect the business or financial condition of the party against whom such damages or -39- 41 penalties would be assessed. The Selling Shareholders, SCTC and Fidelity each shall promptly notify the others of any litigation or proceedings of the type which is the subject of this Section which is commenced or threatened against such party. SECTION 11 NON-COMPETITION 11.01 Non-competition. Except with the written consent of Fidelity, Marshall D. Wexler covenants and agrees that he will not, at any time within the Effective Period (as defined below), directly or indirectly engage in, or have any interest in, any person, firm, corporation or business (whether as an employee, officer, director, agent, shareholder, creditor, consultant or otherwise) that operates a business similar in any respect to the business of SCTC, in any of the counties, cities or states of the United States in which Fidelity has conducted its business within the 24-month period immediately preceding the Effective Period. The "Effective Period" shall commence upon the date hereof and shall terminate upon the fifth (5th) anniversary of the date of this Agreement. 11.02 Consideration. Twenty-Five Thousand Dollars ($25,000) of the Purchase Price paid pursuant to Section 1.02 shall be in consideration of the covenant contained in Section 11.01. 11.03 Separate Covenants. The parties hereto intend that the covenant contained in Section 11.01 shall be construed as a series of separate covenants: one for each county, city or state, as the case may be; and one for each one year period. Except for geographic coverage, each such separate covenant shall be deemed identical in terms to the covenant contained in Section 11.01. If in any judicial proceeding a court shall refuse to enforce any of the separate covenants deemed included in Section 11.01, then such unenforceable covenant shall be deemed eliminated from this Agreement to the extent necessary to permit the remaining separate covenants to be enforced. 11.04 No Interference. Each Selling Shareholder covenants and agrees that he will not at any time within the Effective Period disrupt, damage, impair or interfere with the business of SCTC or Fidelity, whether by way of interference with or raiding its employees, disrupting its relationships with customers, agents, representatives or vendors, or otherwise. 11.05 Injunctive Relief. The parties acknowledge and agree that the extent of damages to Fidelity in the event of a breach by the Selling Shareholders of any of the covenants contained in this Agreement may be impossible to ascertain and that there is and will be available to Fidelity no adequate remedy at law to compensate it in the event of any such breach; consequently, each -40- 42 Selling Shareholders agree that in the event of a breach of any of such covenants, in addition to any other relief to which Fidelity may be entitled, and not in lieu of any other rights and remedies available, Fidelity shall be entitled to enforce any or all of such covenants by injunctive or other equitable relief. SECTION 12 MISCELLANEOUS 12.01 Notices, Etc. All notices, requests, demands, and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given when delivered or, if mailed postage prepaid first class certified mail, return receipt requested, on the third day after mailing, to the following address or to such other address as a party may specify to the other in writing. (a) To Fidelity: Fidelity National Financial, Inc. 17911 Von Karman Avenue, Suite 300 Irvine, California 92714 Attn: Andrew F. Puzder Executive Vice President/ General Counsel With a copy to: Frank P. Willey President/Chief Executive Officer Fidelity National Financial, Inc. 17911 Von Karman Avenue, Suite 500 Irvine, California 92714 And a copy to: McDermott, Will & Emery 1301 Dove Street, Suite 500 Newport Beach, California 92660 Attn: John B. Miles, Esq. (b) To SCTC: Southern California Title Company 17911 Von Karman Avenue, Suite 500 Irvine, California 92714 Attn: Andrew Puzder, Esq. -41- 43 With a copy to: Dorais & Wheat 11726 San Vicente Boulevard Suite 550 Los Angeles, California 90049-5048 Attn: Claude J. Dorais, Esq. (c) To the Selling Shareholders: Marshall D. Wexler 10724 Wilshire Boulevard, #211 Los Angeles, California 90024 and, William D. Rothenberg 4706 Nomad Drive Woodland Hills, California 91364 With a copy to: Plotkin, Rapoport & Nahmias 1663 Ventura Boulevard, Suite 800 Encino, California 91436-1836 Attn: Gary A. Plotkin, Esq. 12.02 Entire Agreement. This Agreement supersedes all prior and contemporaneous discussions and agreements between and among Fidelity, SCTC and Selling Shareholders with respect to the sale of the SCTC Stock and the other matters contained herein, and this Agreement and the agreements to be executed and delivered pursuant to this Agreement contain the sole and entire agreement between and among the parties hereto with respect to the transactions contemplated herein. Each and every provision of this Agreement has been the subject of negotiation by the parties and no provision shall be construed against a party by virtue of that party being deemed to have drafted it. 12.03 Amendments and Waivers. This Agreement may be amended only by an instrument in writing executed by the party against whom enforcement of the amendment is sought. The president or any vice president of any party may, by a signed writing, give any consent, take any action, waive any inaccuracies in representations or other compliance by any other party to any of the covenants or conditions herein, modify the terms of this Agreement or take any other action deemed by him to be necessary or appropriate to consummate the transactions contemplated by this Agreement. 12.04 Counterparts; Headings. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which shall constitute one and the -42- 44 same instrument. The headings herein set out are for convenience of reference only and shall not be deemed a part of this Agreement. 12.05 Binding Effect. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors, and it may not be assigned by any party without the consent of the other; provided, however, that Fidelity shall have the right to assign this Agreement, in whole or in part, to any corporation not less than ninety percent of the voting stock of which is owned by Fidelity or its majority owned subsidiary, upon the following conditions: (a) such assignee shall, on or prior to the Closing Date, have performed and observed all covenants and agreements to be performed or observed by Fidelity under this Agreement; (b) all of the conditions to the obligations of SCTC set forth in this Agreement shall be satisfied by such assignee as if the assignee were Fidelity; and (c) if the Assignee is an insurer, that the Assignee has secured any and all required state approvals necessary to purchase the stock of SCTC. It is understood, however, that no such assignment shall relieve Fidelity of its liabilities and obligations under the terms of this Agreement. 12.06 Governing Law. The validity and effect of this Agreement shall be governed by and construed and enforced in accordance with the laws of the State of California, without giving effect to principles of conflicts of law thereof. 12.07 Cooperation. The Selling Shareholders, SCTC and Fidelity shall cooperate fully with each other and their respective counsel and accountants in connection with any steps required to be taken as part of their respective obligations under this Agreement. 12.08 Expenses. Whether or not the transactions contemplated by this Agreement are consummated, all expenses incurred by Fidelity, SCTC and the Selling Shareholders in connection with the authorization, preparation, execution and performance of this Agreement, including without limitation all fees and expenses or agents, representatives, counsel and accountants, shall be paid by the party which incurred such expenses. 12.09 Confidentiality. Each party understands that certain information which it has been furnished and will furnish in connection with this transaction is confidential and proprietary and each party agrees that it will maintain the confidentiality -43- 45 of such information and will not disclose it to others or use it except in connection with the proposed acquisition, without the consent of the party furnishing such information. Information of a party which is generally known in the industry, has been disclosed to its shareholders or creditors generally, is required to be disclosed by a governmental entity of appropriate jurisdiction, or which has been disclosed to the other party by third parties who have a right to do so shall not be deemed confidential or proprietary information for these purposes. In the event that the proposed acquisition is not consummated, each party agrees to promptly return to the others all materials (and copies thereof) which have been furnished to it regarding the business and financial condition of the other party, including all financial statements, reports, contracts, customer lists, accounts, records, tax returns, data, plans, processes and trade secrets. 12.10 Attorneys Fees. In the event any action or proceeding is commenced by a party hereto seeking enforcement or interpretation of this Agreement, the prevailing party in such action shall be entitled, in addition to other sums, to collect all costs of such suit (including attorneys' fees actually incurred) from the party or parties adverse to such prevailing party in such suit or proceeding. 12.11 Schedules. All Schedules referred to herein are intended to be and hereby are specifically made a part of this Agreement. 12.12 Severability. Any provision of this Agreement that is invalid or unenforceable in any jurisdiction shall be ineffective to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remaining provisions hereof, and any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 12.13 Guarantee. Selling Shareholders hereby jointly and severally unconditionally guarantee to Fidelity and its Affiliates the full and timely performance of all the obligations and agreements of SCTC. The foregoing guarantee shall include the guarantee of the payment of all damages, costs and expenses that might become recoverable as a result of the nonperformance of any of the obligations or agreements of SCTC and/or Selling Shareholders or as a result of the nonperformance of any or either of SCTC and/or Selling Shareholders under this guarantee. Any guaranteed person may, at its option, proceed against either Selling Shareholder for the performance of any such obligation or agreement, or for damages for default in the performance thereof, without first proceeding against any other party or against any of their properties. Selling Shareholders further agree that their guarantee shall be an irrevocable guarantee and shall continue in effect notwithstanding any extension or modification -44- 46 of any guaranteed obligation, any assumption of any such guaranteed obligation by any other party, or any other act or thing that might otherwise operate as a legal or equitable discharge of a guarantor and Selling Shareholders hereby waive all special suretyship defenses and notice requirements. Selling Shareholders acknowledge and agree that this guarantee and the enforceability of same is a material and essential inducement to Fidelity to proceed with this transaction. [SIGNATURE PAGE FOLLOWS] -45- 47 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the day and year first above written. FIDELITY NATIONAL FINANCIAL, INC. By: /S/ Andrew F. Puzder ---------------------------------------- Its:Executive Vice President --------------------------------------- (Title) SOUTHERN CALIFORNIA TITLE COMPANY By: /S/ Marshall D. Wexler ---------------------------------------- Marshall D. Wexler, President By: /S/ William D. Rothenberg ---------------------------------------- William D. Rothenberg, Vice President and Chief Financial Officer SELLING SHAREHOLDERS: /S/ Marshall D. Wexler ------------------------------------------- MARSHALL D. WEXLER /S/ William D. Rothenberg ------------------------------------------- WILLIAM D. ROTHENBERG SPOUSAL CONSENT: I am the spouse of a Selling Shareholder and acknowledge that I have read, and am aware of the contents of, this Agreement. I hereby consent to and approve this Agreement, and accept its terms. I further acknowledge and agree that my interest, if any, and my spouse's interest in the SCTC Stock shall be disposed of in accordance with the terms and conditions of this Agreement, notwithstanding all interests I may have, if any, in the SCTC Stock (community property or otherwise). /S/ Catherine Rothenberg - ---------------------------------------- (signature) /S/ Catherine Rothenberg - ---------------------------------------- (print name) -46- EX-10.44 6 ACQUISITION AGREEMENT DATED SEPTEMBER 13, 1995 1 EXHIBIT 10.44 ACQUISITION AGREEMENT 2 ACQUISITION AGREEMENT THIS ACQUISITION AGREEMENT (the "Agreement") is entered into as of September 13, 1995, by and among Fidelity National Financial, Inc., a Delaware corporation ("Fidelity"), and Nations Holding Group, Inc., a California corporation ("NHG"), and its wholly owned subsidiary Nations Title Inc., a Kansas corporation ("NTI"). Fidelity, NHG and NTI are referred to collectively herein as the "Parties" or singularly "Party". R E C I T A L S: A. NHG owns all of the issued and outstanding shares of capital stock of NTI and Nations Title Company of Bakersfield (formerly Heritage Title Company), a California corporation ("Heritage"). B. NTI owns all of the issued and outstanding shares of capital stock of Nations Title Insurance of New York Inc., a New York corporation ("Nations New York"), National Title Insurance of New York Inc., a New York corporation ("National New York"), Nations Title Insurance Company, a Kansas corporation ("Nations Kansas"), Nations Foreclosure Services, Inc., a Kansas corporation ("Nations Foreclosure"), Nations Appraisal Services, Inc., a Kansas corporation ("Nations Appraisal"), and Nations Post & Pub Services, Inc., a Kansas corporation ("Nations P & P"), and Nations Kansas owns all of the issued and outstanding shares of Suds Car Wash, a Nevada corporation ("Suds") (collectively the foregoing direct subsidiaries of NTI and Suds are sometimes referred to as the "NTI Subs"). C. This Agreement contemplates the acquisition by Fidelity from NHG of all of the issued and outstanding shares of capital stock of Heritage and NTI. D. Fidelity and NHG believe that this Agreement and the transactions contemplated herein are in their respective best interests and the best interests of their respective shareholders. NOW, THEREFORE, in consideration of the premises and the mutual promises herein made, and in consideration of the representations, warranties, and covenants herein contained, the Parties agree as follows: 1. Definitions. "Adverse Consequences" means all actions, suits, proceedings, hearings, investigations, charges, complaints, claims, demands, injunctions, judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and fees, including court costs and attorneys' fees and expenses, in each case (a) net of any insurance recoveries (except to the extent such recoveries increase the cost of insurance, through retrospective adjustments or otherwise), and (b) net of any tax benefit, after taking into account any tax detriment of any indemnity. 3 "Affiliate" shall mean, with respect to a Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such Person. "Ancillary Agreements" shall mean the Indemnity Escrow Agreement, the Registration Rights Agreement and the Underwriting Agreement. "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. "Business Consulting Agreement" shall mean that certain Business Consulting Agreement, dated of as even date herewith, between Fidelity, NHG, NTI and certain other NHG Subsidiaries. "Cash Purchase Price" has the meaning set forth in Section 2(a) below. "CB" means Creditanstalt Bankverein. "CB Loan" has the meaning set forth in Section 5(g) below. "Closing" has the meaning set forth in Section 2(d) below. "Closing Date" has the meaning set forth in Section 2(d) below. "Closing Date Intercompany Indebtedness" has the meaning set forth in Section 2(c)(i) below. "Code" means the Internal Revenue Code of 1986, as amended. "Consent to Acquisition" means that certain Consent to Acquisition agreement dated the date hereof among Fidelity, NHG, CB and Imperial. "Colton Property" has the meaning set forth in Section 2(b) below. "Confidential Information" means any information concerning the businesses and affairs of any of the Parties that is not already generally available to the public. "Deposit" has the meaning set forth in Section 2(c) below. "Deposit Escrow Agent" shall mean Imperial Bank. "Deposit Escrow Agreement" shall mean that certain Deposit Escrow Agreement, dated as of even date herewith, by and among Fidelity, NHG and the Deposit Escrow Agent, which relates to the Deposit. "Disbursed Deposit" has the meaning set forth in Section 2(d) below. 2 4 "Disclosure Schedule" has the meaning set forth in Section 3 below. "Employee Benefit Plan" means any (a) nonqualified deferred compensation or retirement plan or arrangement which is an Employee Pension Benefit Plan, (b) qualified defined contribution retirement plan or arrangement which is an Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or arrangement which is an Employee Pension Benefit Plan (including any Multiemployer Plan), or (d) Employee Welfare Benefit Plan or material fringe benefit plan or program. "Employee Pension Benefit Plan" has the meaning set forth in ERISA Section 3(2). "Employee Welfare Benefit Plan" has the meaning set forth in ERISA Section 3(1). "Environmental, Health, and Safety Laws" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Resource Conservation and Recovery Act of 1976, and the Occupational Safety and Health Act of 1970, each as amended, together with all other laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder) of federal, state, local, and foreign governments (and all agencies thereof) concerning pollution or protection of the environment, public health and safety, or employee health and safety, including laws relating to emissions, discharges, releases, or threatened releases of pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials or wastes into ambient air, surface water, ground water, or lands or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials or wastes. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Extremely Hazardous Substance" has the meaning set forth in Section 302 of the Emergency Planning and Community Right-to-Know Act of 1986, as amended. "Fidelity" has the meaning set forth in the preface above. "Fidelity Common Stock" means shares of common stock, par value $0.0001 per share, of Fidelity. "Fidelity SEC Reports" means Fidelity's Annual Report on Form 10-K for the year ended December 31, 1994, Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 1995 and June 30, 1995, all proxy statements relating to Fidelity's meetings of stockholders (whether annual or special) held since January 1, 1993, all other reports or registration statements (other than Reports on Form 10-Q not referred to above) filed by Fidelity with the SEC since January 1, 1993, and all amendments and supplements to all such reports and registration statements filed by Fidelity with the SEC. "Fidelity Shares" means the shares of Fidelity Common Stock, either held in treasury and transferred to NHG or newly issued by Fidelity to NHG, to which NHG shall become entitled to receive pursuant to this Agreement. 3 5 "GAAP" means, at any particular time, generally accepted accounting principles, consistently applied on a going concern basis without regard to the pendency of the transactions contemplated hereby and using audit scope and materiality standards used in the past and, with respect to interim financial statements, subject to normal year-end adjustments. "Heritage" has the meaning set forth in Recital A above. "Heritage Shares" shall mean the issued and outstanding shares of capital stock of Heritage, consisting of 3,000 shares of Common Stock, par value $100 per share. "Imperial" shall mean Imperial Bank in its capacity as a creditor of NHG or any NHG Subsidiary. "Imperial NHG Loan" has the meaning set forth in Section 5(g) below. "Imperial NTI Loan" has the meaning set forth in Section 5(g) below. "Indemnity Escrow Agent" shall mean Imperial Bank. "Indemnity Escrow Agreement" shall mean that agreement by and among Fidelity, NHG and the Indemnity Escrow Agent in the form attached as Exhibit A. "Intellectual Property" means (a) 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, (b) 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, (c) all copyrightable works, all copyrights, and all applications, registrations, and renewals in connection therewith, (d) 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), (f) all computer software (including data and related documentation), (g) all other proprietary rights, and (h) all copies and tangible embodiments thereof (in whatever form or medium). "Knowledge" means the actual knowledge of Henri J. Van Hirtum and the actual knowledge, after reasonable investigation, of the following persons: Richard Alexander, Christopher Likens, James Diltz, Barbara Coleman, Peter Likens, all regional managers and all regional counsel. "Lease Agreement" shall mean that certain Sublease Agreement dated June 1, 1994 between NHG and Nations Kansas. "Liability" means any liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due), including any liability for Taxes. 4 6 "Martha's Vineyard Expenditures" shall mean any and all costs, expenses or other expenditures (whether currently expensed or capitalized) arising out of or in connection with the ownership, use or disposition of the Vineyard Property after May 31, 1995 to the extent that such costs, expenses or other expenditures are actually paid or owed by Fidelity or any Fidelity Affiliate to third parties, except principal payments subsequent to May 31, 1995 on the current indebtedness secured by the Vineyard Property or the principal of any refinancing indebtedness thereof, but including, without limitation, the following: (i) all property holding costs, such as real estate taxes and customary maintenance; (ii) all sales or other disposition expenses, such as transfer taxes, attorneys' fees, title insurance premiums, brokerage fees or escrow charges; (iii) all amounts paid (including, without limitation, reasonable attorneys' fees) with respect to third-party claims and/or the defense, settlement or satisfaction thereof, arising out of or in connection with the Vineyard Property, including, without limitation, the pending claims of Louis Guilliano; (iv) all amounts paid to preserve, improve or develop the Vineyard Property; (v) all interest and other charges on indebtedness secured by the Vineyard Property; and (vi) any other amounts normally incurred in connection with the ownership, use or disposition of real property. "Material Adverse Effect" means any event, effect, development, occurrence or circumstance, individually or when taken together with all other such events, effects, developments, occurrences or circumstances, causing, resulting in or having a material adverse effect on (i) the business, assets, results of operations, business relationships, properties, condition (financial or otherwise), results of operations or prospects of the NHG Subsidiaries taken as a whole, (ii) the ability of the Parties to consummate the transactions contemplated by this Agreement, or (iii) the legal right or authorization of the NHG Subsidiaries to continue to operate their respective businesses. "May 31 Intercompany Indebtedness" has the meaning set forth in Section 2(c)(i) below. "Most Recent Audited Date" has the meaning set forth in Section 3(g) below. "Most Recent Financial Statements" has the meaning set forth in Section 3(g) below. "Most Recent Fiscal Quarter End" has the meaning set forth in Section 3(g) below. "Multiemployer Plan" has the meaning set forth in ERISA Section 3(37). "National New York" has the meaning set forth in Recital B above. 5 7 "Nations Appraisal" has the meaning set forth in Recital B above. "Nations Foreclosure" has the meaning set forth in Recital B above. "Nations Kansas" has the meaning set forth in Recital B above. "Nations New York" has the meaning set forth in Recital B above. "Nations P & P" has the meaning set forth in Recital B above. "Network Title" has the meaning set forth in Section 2(b) below. "NHG" has the meaning set forth in the preface above. "NHG Martha's Vineyard Profit Share" shall mean an amount equal to one-half (1/2) of the amount by which (a) the aggregate gross income, proceeds or revenue derived and collected by Fidelity or any Fidelity Affiliate from the ownership, use or disposition of the Vineyard Property after May 31, 1995 exceeds (b) the sum of $3,758,446 plus the cumulative aggregate of all Martha's Vineyard Expenditures plus any reasonable reserve for future losses or Martha's Vineyard Expenses in excess of the reasonably estimated fair market value of the Vineyard Property. To the extent (if any) that Fidelity or any Fidelity Affiliate occupies, or allows others to occupy, for commercial purposes, the Vineyard Property, or transfers any interest in the Vineyard Property along with other assets, Fidelity or a Fidelity Affiliate shall be deemed to have received as gross income under (a) above the greater of the consideration actually received for such occupancy or interests, or an amount equal to the fair market value of such occupancy or interests, as the case may be; provided, however, if the Vineyard Property is transferred with other assets to a party that is not an Affiliate of Fidelity and the parties thereto in good faith and reasonably allocate the consideration paid among the assets, including any interest in the Vineyard Property, the fair market value of the interest in the Vineyard Property shall be deemed to be the amount so allocated to it. "NHG Subsidiaries" shall mean, collectively, NTI, Heritage, the NTI Subs and the NTINY Subs. "NOLs" has the meaning set forth in Section 8(e) below. "NTI" has the meaning set forth in the preface above. "NTI Shares" shall mean the issued and outstanding shares of capital stock of NTI, consisting of 3,000 shares of Common Stock, no par value per share. "NTI Subs" has the meaning set forth in Recital B above. "NTINY Subs" means Nations Title Agency of Indiana, Inc., Nations Title Agency of Illinois, Inc., Nations Title Agency, Inc., and Nations Title of Arizona, Inc. 6 8 "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 preface above. "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. "PBGC" means the Pension Benefit Guaranty Corporation. "Policies" has the meaning set forth in Section 3(i) below. "Pomona Property" has the meaning set forth in Section 2(b) below. "Prohibited Transaction" has the meaning set forth in ERISA Section 406 and Code Section 4975. "Quality Loan" has the meaning set forth in Section 2(b) below. "Registration Rights Agreement" shall mean the Registration Rights Agreement, between NHG and Fidelity, in the form attached hereto as Exhibit B. "Reportable Event" has the meaning set forth in ERISA Section 4043. "Requisite Regulatory Approvals" has the meaning set forth in Section 6(a)(iii) below. "Retained Assets" has the meaning set forth in Section 2(b) below. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Securities Exchange Act" means the Securities Exchange Act of 1934, as amended. "Security Interest" means any mortgage, pledge, lien, encumbrance, charge, or other security interest, other than (a) mechanic's, materialmen's, and similar liens, (b) liens for Taxes not yet due and payable or for Taxes that the taxpayer is contesting in good faith through appropriate proceedings, (c) purchase money liens and liens securing rental payments under capital lease arrangements, and (d) other liens arising in the Ordinary Course of Business and not incurred in connection with the borrowing of money. "Standstill Period" means the period provided for in Section 1.2 of the Consent to Acquisition. 7 9 "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 (including taxes under Code Section 59A), 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. "Underwriting Agreements" shall mean the agreements among the parties indicated thereon in the forms attached hereto as Exhibit C. "Undisbursed Deposit" has the meaning set forth in Section 2(d) below. "Vineyard Property" shall mean the real property described on Exhibit H to this Agreement. 2. Basic Transactions. (a) Acquisition of NTI and Heritage by Fidelity. On the Closing Date, subject to the terms and conditions of this Agreement, Fidelity shall acquire from NHG, and NHG shall sell to Fidelity, the Heritage Shares and the NTI Shares, in each case free and clear of all liens, claims, encumbrances, security interests, pledges, equities, options, charges and restrictions other than restrictions imposed by a regulatory agency. In consideration for such acquisition, Fidelity shall (i) pay to NHG the cash sum of $21,000,000, subject to adjustment as provided below (the "Cash Purchase Price"), and (ii) issue to NHG an aggregate of 160,000 shares of Fidelity Common Stock (the "Fidelity Shares"), and (iii) pay to NHG the NHG Martha's Vineyard Profit Share, if any, within 30 days after its collection by Fidelity or any Fidelity Affiliate, which payment shall be in cash unless Fidelity or a Fidelity Affiliate has received property other than cash as part of the gross income, proceeds or revenue used in making the NHG Martha's Vineyard Profit Share calculation, in which event such payment shall be made in the proportion of the cash and property used in making such calculation. If Fidelity is recapitalized through the subdivision or combination of its outstanding shares of Fidelity Common Stock into a larger or smaller number of shares, or if Fidelity declares a dividend or distribution on Fidelity Common Stock payable in Fidelity Common Stock or securities convertible into Fidelity Common Stock, the number of Fidelity Shares shall be appropriately increased or reduced, as the case may be. (b) Pre-Closing Distributions; Retaliatory Refund. On or prior to the Closing Date, (i) the NHG Subsidiaries shall cancel and write-off the Closing Date Intercompany Indebtedness, and (ii) Nations New York and NTI shall distribute to NHG, as a dividend, all of the issued and outstanding shares of capital stock of Nations Title Insurance of Arizona, Inc. 8 10 (formerly Network Title and Escrow), an Arizona corporation ("Network Title "), and Quality Loan Service Corp., a California corporation ("Quality Loan"), and (iii) Nations New York and NTI shall distribute to NHG, as a dividend, those two real properties described on Exhibit E attached hereto (the "Colton Property" and the "Pomona Property", respectively) (collectively, Network Title, Quality Loan, the Colton Property and the Pomona Property are hereinafter sometimes referred to as the "Retained Assets"). Subsequent to the Closing Date, if Nations Kansas and/or National New York receive from the California State Board of Equalization refunds for the overpayment of taxes in the approximate amounts of $268,970 and $836,899, respectively, plus any interest which the State of California may pay thereon net of any Tax calculated thereon to Fidelity or an NHG Subsidiary, Fidelity shall pay to NHG an amount equal to any such refund and net interest received by Nations Kansas and/or National New York on the condition that NHG provide to Fidelity a release by TRW, Inc. of all of the NHG Subsidiaries and Fidelity from any such amount so refunded. In addition, NHG represents and warrants that such refunds were reported as income in the Federal and state income tax returns for the tax year ended December 31, 1993 and that such refunds were not reflected as assets in the Most Recent Financial Statements. (c) Adjustments. The Cash Purchase Price shall be subject to adjustment as follows: (i) Attached hereto as Exhibit D is a schedule of all amounts which were owed by NHG or any Affiliate of NHG (other than any of the NHG Subsidiaries) to the NHG Subsidiaries as of May 31, 1995 (the "May 31 Intercompany Indebtedness"). If, on the Closing Date, the amount so owed (the "Closing Date Intercompany Indebtedness") exceeds the May 31 Intercompany Indebtedness, the Cash Purchase Price to be paid by Fidelity, shall be reduced dollar for dollar for any such excess. For purposes of the foregoing, any management or other fees of any nature paid or accrued to NHG, or any Affiliate of NHG (other than the NHG Subsidiaries), by any NHG Subsidiary subsequent to May 31, 1995 shall be added to and included in the Closing Date Intercompany Indebtedness. (ii) On or before the Closing Date, the Parties shall determine if any entity to be acquired by Fidelity will (A) incur a Tax as a result of any cancellation and write-off or distribution described in Section 2(b) above and/or (B) retain, incur or otherwise be responsible for any Liability relating to the Retained Assets or such distribution thereof and/or (C) incur a Tax as a result of the refunds described in Section 2(b) above, and, if so, the amount thereof. In the event that there is such an amount, the Cash Purchase Price to be paid by Fidelity shall be reduced dollar for dollar for any such amount. Notwithstanding the foregoing, and the result of any such determination, NHG shall indemnify and hold harmless Fidelity, and its Affiliates (including the NHG Subsidiaries), from and against any such Tax in excess of any such amount so determined, and from and against any Adverse Consequences resulting from, arising out of or relating to any such Tax. For purposes hereof, the amount of such Tax shall be determined without regard to any net operating losses (either of the entity itself or any other member of the affiliated group), tax reserves reflected in either the Financial Statements or NHG's Disclosure Schedule or any tax sharing agreement. NHG further agrees to indemnify and hold harmless Fidelity and the NHG Subsidiaries from and against any Liability relating to any of the Retained Assets and any Adverse 9 11 Consequences resulting from, arising out of, or relating to the Retained Assets or the distribution of the Retained Assets pursuant to this Agreement. If, after the Closing Date, Fidelity determines that an adjustment provided for above is appropriate and was not fully adjusted for at the time of Closing, Fidelity shall so notify NHG thereof in writing and provide to NHG documentation supporting such adjustment. NHG shall thereupon pay to Fidelity the amount of such adjustment, in cash, within five (5) business days after written notice is given to NHG of such adjustment. If payment is not made within such five (5) days, the amount of adjustment not so paid shall bear interest at the rate of 10% per annum, and Fidelity may, at its election, either pursue its remedies directly against NHG or make a claim under the Indemnity Escrow Agreement, or both. If NHG, in good faith, disputes any such adjustment by giving written notice to Fidelity within five (5) business days after receipt by NHG of notice of such adjustment, the Parties covenant to negotiate in good faith the resolution of such dispute. If either Party determines in good faith that such dispute cannot be resolved, such Party can terminate such negotiations, and each Party will be left with its respective rights and remedies. (d) Deposit by Fidelity. Concurrently herewith, (i) Fidelity is delivering to NHG the sum of $2,000,000, of which Fidelity is hereby authorized and instructed to wire directly to CB on behalf of NHG the sum of $250,000 plus accrued interest as designated by CB, and to the Deposit Escrow Agent the sum of $3,000,000 (collectively, the "Deposit"), which amounts shall be deemed to be advances by Fidelity to NHG against the Cash Purchase Price, and (ii) Fidelity, NHG and the Deposit Escrow Agent are entering into the Deposit Escrow Agreement. All earnings on that portion of the Deposit held by the Deposit Escrow Agent shall belong to Fidelity except as otherwise provided in the Deposit Escrow Agreement. Upon the Closing, the portion of the Deposit then held by the Deposit Escrow Agent shall be disbursed to NHG and, together with the remainder of the Deposit, shall be retained by NHG and deemed to be partial payments of the Cash Purchase Price. In the event of a termination of this Agreement, Fidelity shall be entitled to the return of the entire Deposit from the Deposit Escrow Agent to the extent of the amount thereof not previously disbursed to NHG (the "Undisbursed Deposit"), and from NHG to the extent of the amount thereof received from Fidelity and/or the Deposit Escrow Agent (the "Disbursed Deposit"), together with simple interest on the Disbursed Deposit at six percent (6%) per annum; provided, however, that notwithstanding the foregoing, NHG shall be entitled to receive the Undisbursed Deposit and to retain the Disbursed Deposit if the Closing fails to occur by reason of the nonfulfillment of any condition in: (i) Section 6(c); (ii) Section 6(a)(i), if such 6(a)(i) failure results from any agreement, contract or license to which Fidelity is a party or by or under which it is bound or licensed or otherwise; or (iii) 6(a)(ii), if such failure results from any action, suit or proceeding instituted by a Person whose interest in such action, suit or proceeding derives from Fidelity or an Affiliate of Fidelity. Each Party shall promptly take such steps as may be necessary to effect the previous sentence, including, without limitation, issuing such written instructions and taking such other actions as 10 12 the Deposit Escrow Agent may request. The disposition of the Deposit pursuant to this Section 2(d) shall not prejudice any rights or remedies which the Parties may otherwise have pursuant to this Agreement. The Parties acknowledge and agree that any Undisbursed Deposit shall be the property of Fidelity until NHG is entitled thereto pursuant to the terms of this Agreement. The obligations of NHG pursuant to this Section 2(d) shall at all times be and remain secured, to the extent and in the manner set forth in the Pledge Agreement, dated as of even date herewith, between NHG and Fidelity. (e) The Closing. Subject to satisfaction or waiver of all of the conditions set forth in Section 6(b) and Section 6(c) below, the closing of the transactions contemplated by this Agreement (the "Closing") shall take place at Fidelity's offices located at 17911 Von Karman Avenue, Irvine, California on such date and at such time as may be mutually designated by Fidelity and NHG within five (5) business days following the satisfaction or waiver of all conditions to the obligations of the Parties to consummate the transactions contemplated hereby set forth in Section 6(a) below, or such other date as the Parties may mutually determine (the "Closing Date"). If the Closing Date has not occurred on or before March 31, 1996, this Agreement shall terminate on such date, subject to the terms of Section 2(d) above and Section 7 below; provided, however, if, on March 31, 1996, the only reason that the Closing has not occurred is because not all Requisite Regulatory Approvals have been obtained but the Parties reasonably believe that those not obtained will be obtained in the near future, either party may extend the March 31, 1996 date to May 31, 1996, if such party has received from CB and Imperial, in writing, the extension by them of the Standstill Period to May 31, 1996, by giving written notice of such extension to the other Parties on or before March 31, 1996. At the Closing, Fidelity shall deliver to NHG, subject to the Indemnity Escrow Agreement and to the provisions of Section 5(g) below, the following: (i) the Fidelity Shares; (ii) the remainder of the Cash Purchase Price; (iii) the Ancillary Agreements, duly executed by Fidelity; and (iv) such other documents and instruments as may be specified in this Agreement or otherwise reasonably requested by NHG in order to consummate the transactions contemplated hereby. At the Closing, NHG shall deliver to Fidelity the following: (i) the stock certificates representing the NTI Shares and the Heritage Shares, duly endorsed for transfer to Fidelity or accompanied by duly executed stock assignments separate from certificate; (ii) the Ancillary Agreements, duly executed by NHG; and (iii) such other documents and instruments as may be specified in this Agreement or otherwise reasonably requested by Fidelity in order to consummate the transactions contemplated hereby. Notwithstanding anything in this Agreement to the contrary, if all conditions to the Parties' obligations to consummate the transactions in this Agreement have been satisfied except the obtaining of the Requisite Regulatory Approval from the State of California to the sale and transfer of Heritage to Fidelity, the Parties shall close all of the transactions hereunder on the Closing Date except the sale of Heritage. In such event, there shall be withheld $500,000 of the Cash Purchase Price from such Closing, which shall be allocated to the purchase of Heritage. The purchase and sale of Heritage shall be consummated within three (3) business days after receipt of such Requisite Regulatory Approval from the State of California. If such Requisite Regulatory Approval is not obtained on or before November 30, 1996, either party may terminate the sale of Heritage, in which event Fidelity shall retain the $500,000 and NHG shall retain Heritage; provided, however, that, if either Party is in breach of its obligations under this Agreement at the time of such termination, such termination shall not release the Parties from the rights and obligations which the Parties then had with respect to such breach. Pending the 11 13 Closing of the sale of Heritage, all representations, warranties and covenants contained in this Agreement shall continue in effect with respect to Heritage. (f) Taking of Necessary Actions; Further Action. The Parties shall take all such reasonable and lawful actions (and NHG shall cause each of the NHG Subsidiaries to take all such reasonable and lawful actions) as may be necessary or appropriate in order to effectuate the transactions contemplated in this Agreement as promptly as possible, subject to the limitations set forth in Section 5(a) below. If, at any time after the Closing Date, any such further action is necessary or desirable to carry out the purposes of this Agreement, including to vest Fidelity with full right, title and possession to all of the issued and outstanding shares of capital stock of Heritage and NTI, and all assets, property, rights, privileges, powers and franchises of each (except for the Retained Assets), such Party shall take all such lawful and necessary action and shall direct its officers and directors to take all such lawful and necessary action. In addition, neither Party shall, and NHG shall ensure that none of the NHG Subsidiaries, Quality Loan or Network Title will, through any reorganization, recapitalization, transfer of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the covenants of the Parties or the NHG Subsidiaries hereunder or otherwise take any action which is inconsistent or in conflict with the transactions contemplated hereby. (g) Election to Restructure. Fidelity may, after the date hereof, elect to restructure the transactions contemplated in this Agreement, provided, however, that such restructure (i) preserves for NHG the same economic effect after the restructure as NHG had prior to the restructure, and (ii) does not materially and adversely affect the likelihood of obtaining the Requisite Regulatory Approvals with conditions acceptable to Fidelity. (h) Tax Election. The Parties agree that the Parties shall not make an election under Section 338(h)(10) of the Code. 3. Representations and Warranties of NHG. NHG represents and warrants to Fidelity that the statements contained in this Section 3 are correct and complete as of the date of this Agreement, except as set forth in the disclosure schedule of NHG accompanying this Agreement (the "Disclosure Schedule"). The Disclosure Schedule will be arranged in paragraphs corresponding to the lettered and numbered paragraphs contained in this Section 3. (a) Organization, Qualification, and Corporate Power. NHG and each of the NHG Subsidiaries is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction in which it is incorporated. NHG and each of the NHG Subsidiaries is duly authorized to conduct business and is in good standing under the laws of each jurisdiction where such qualification is required, except where the lack of such qualification would not have a Material Adverse Effect. The Disclosure Schedule sets forth a list of the jurisdictions in which NHG and each of the NHG Subsidiaries are qualified to conduct business. NHG and the NHG Subsidiaries each have full corporate power and authority to carry on the businesses in which it is engaged and to own and use the properties owned and used by it. 12 14 (b) Capitalization, Subsidiaries. (i) The entire authorized capital stock of NTI consists of 30,000 shares of Common Stock, and the NTI Shares represent all of the issued and outstanding shares of capital stock of NTI. All of the NTI Shares have been duly authorized and are validly issued, fully paid and nonassessable. There are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, or other contracts or commitments that could require NTI to issue, sell, or otherwise cause to become outstanding any additional shares of its capital stock. There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or similar rights with respect to NTI. All of the NTI Shares are owned of record and beneficially by NHG, free and clear of any and all liens, claims, encumbrances, security interests, pledges, equities, options, charges and restrictions whatsoever. (ii) The entire authorized capital stock of Heritage consists of 1,000,000 shares of Common Stock, and the Heritage Shares represent all of the issued and outstanding shares of capital stock of Heritage. All of the Heritage Shares have been duly authorized and are validly issued, fully paid and nonassessable. There are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, or other contracts or commitments that could require Heritage to issue, sell, or otherwise cause to become outstanding any additional shares of its capital stock. There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or similar rights with respect to Heritage. All of the Heritage Shares are owned of record and beneficially by NHG, free and clear of any and all liens, claims, encumbrances, security interests, pledges, equities, options, charges and restrictions whatsoever. (iii) The entire authorized capital stock of Nations New York consists of 181,166 shares of Common Stock, and the Nations New York Shares represent all of the issued and outstanding shares of capital stock of Nations New York. All of the Nations New York Shares have been duly authorized and are validly issued, fully paid and nonassessable. There are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, or other contracts or commitments that could require Nations New York to issue, sell, or otherwise cause to become outstanding any additional shares of its capital stock. There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or similar rights with respect to Nations New York. All of the Nations New York Shares are now owned of record and beneficially by NTI, and on the Closing Date will be owned of record and beneficially by NTI, free and clear of any and all liens, claims, encumbrances, security interests, pledges, equities, options, charges and restrictions whatsoever. (iv) Section 3(b) of the Disclosure Schedule sets forth, for each of the NTI Subs and each of the NTINY Subs, its authorized capital stock, the number of shares of each series or class of capital stock issued and outstanding and the record and beneficial owners thereof, and the par value of each such series or class of capital stock. Except as set forth in Section 3(b) of the Disclosure Schedule, all of the issued and outstanding shares of each of the NTI Subs and the NTINY Subs are duly authorized, validly issued, fully paid and nonassessable and are directly or indirectly owned of record 13 15 and beneficially by NTI, free and clear of all liens, claims, encumbrances, pledges, equities, options, shares and restrictions whatsoever. Such shares are subject to no options, warrants, rights of first refusal or other agreements restricting the transfer or voting of such shares. No rights, options, warrants, conversion rights, preemptive rights or agreements for the purchase or acquisition from, or the issuance and sale by, any NTI Sub or NTINY Sub of any shares of their respective capital stock are outstanding and no authorizations therefor are in effect, nor are there any proxies outstanding or voting agreements with respect to any shares of their respective capital stock. (v) Other than Nations New York's interests in Network Title and Quality Loan (which shall be distributed or disposed of pursuant to Section 2(b)(ii) above), there is no Person in which any of the NHG Subsidiaries owns, directly or indirectly, any equity or other voting interest or position. (c) Authorization of Transaction. Each of NHG and NTI has full power and authority (including full corporate power and authority) to execute and deliver this Agreement and the other agreements and instruments to be executed and delivered by them pursuant hereto and to perform their respective obligations hereunder and thereunder. This Agreement constitutes the valid and legally binding obligation of NHG and NTI and is enforceable in accordance with its terms. The Business Consulting Agreement constitutes a valid and binding obligation of NHG and each of the NHG Subsidiaries which is a party thereto, and is enforceable in accordance with its terms. (d) Noncontravention. Neither the execution and the delivery of this Agreement by NHG and NTI, nor the consummation of the transactions contemplated hereby by NHG and NTI, will (i) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which NHG or any of the NHG Subsidiaries is subject or any provision of the charter or bylaws of NHG or any of the NHG Subsidiaries or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which NHG or any of the NHG Subsidiaries is a party or by which they are bound or to which any of their assets are subject (or result in the imposition of any Security Interest upon any of their assets), except where the violation, conflict, breach, default, acceleration, termination, modification, cancellation, failure to give notice, or Security Interest would not have a Material Adverse Effect. Neither NHG nor any of the NHG Subsidiaries needs to give any notice to, make any filing with, or obtain any authorization, permit, certificate, registration, consent, approval or order of any government or governmental agency in order for the Parties to consummate the transactions contemplated by this Agreement or for the NHG Subsidiaries to continue operate their respective businesses following the Closing. (e) Title to Assets. NHG has good and marketable title to the NTI Shares and the Heritage Shares, and NTI has good and marketable title to the Nations New York Shares, in each case free and clear of all liens, claims, encumbrances, pledges, options and restrictions other than those held by CB (all of which are described in the Disclosure Schedules). NTI's sole material assets are the shares of capital stock of the NTI Subs. Each of the NHG Subsidiaries has good and marketable title to or a valid leasehold interest in, the properties and assets used by 14 16 it, located on its premises, or shown on the Most Recent Financial Statements or acquired after the date thereof, free and clear of all Security Interests, except for properties and assets disposed of in the Ordinary Course of Business since the date of the Most Recent Financial Statements. All of such properties and assets are, and require only routine maintenance to keep them, in good working condition, normal wear and tear excepted. (f) Corporate Records. NHG has provided to Fidelity the minute books, stock certificate books and stock record books of each of the NHG Subsidiaries. The minute books (containing the records of meetings of the shareholders, the board of directors, and any committees of the board of directors), the stock certificate books, and the stock record books of the NHG Subsidiaries are correct and complete. None of the NHG Subsidiaries is in default under or in violation of any provision of its charter or bylaws. (g) Financial Statements. Attached to Section 3(g) of the Disclosure Schedule are true and correct copies of the following financial statements (collectively, the "Financial Statements"): (i) (A) NTI's audited consolidated balance sheets as of December 31, 1994 and 1993 and statements of operations and shareholders' equity (deficit) and cash flow for the three years ended December 31, 1994 (the "Most Recent Audited Date"), (B) Heritage's audited balance sheets and statements of operations and shareholders' equity (deficit) and cash flow as of and for the three years ended December 31, 1994, and (C) audited statutory financial statements for the years ended December 31, 1994 and 1993 for Nations Kansas, Nations New York and National New York, all the foregoing, together with the Notes thereto; and (ii) unaudited consolidated balance sheets and statements of operations (the "Most Recent Financial Statements") as of and for the seven months ended July 31, 1995, and the six months ended June 30, 1995 (the "Most Recent Fiscal Quarter End") for each of NTI and Heritage and statutory financial statements for the six months ended June 30, 1995 for Nations Kansas, Nations New York and National New York. The Financial Statements (including the Notes thereto) have been prepared in accordance with GAAP (except for the referenced unaudited statutory financial statements, which have instead been prepared in accordance with applicable law) applied on a consistent basis throughout the periods covered thereby, present fairly in all material respects the financial condition of NTI and Heritage as of such dates and the results of operations of NTI and Heritage for such periods, are correct and complete in all material respects, and are consistent with the books and records of NTI and Heritage (which books and records are correct and complete in all material respects). (h) Absence of Material Adverse Changes. Since the Most Recent Audited Date, there has not been any changes in the business, condition (financial or otherwise), operations, title claims, results of operations, properties, assets or prospects of any of the NHG Subsidiaries which, either individually or in the aggregate, have been or could reasonably be expected to have a Material Adverse Effect on the NHG Subsidiaries taken as a whole. Without limiting the generality of the foregoing, since the Most Recent Audited Date: (i) none of the NHG Subsidiaries has sold, leased, transferred, or assigned any of its assets, tangible or intangible, other than for a fair consideration in the Ordinary Course of Business; 15 17 (ii) none of the NHG Subsidiaries has entered into any agreement, contract, lease, or license (or series of related agreements, contracts, leases, and licenses) either involving more than $50,000 or outside the Ordinary Course of Business; (iii) no party (including any of the NHG Subsidiaries) has accelerated, terminated, modified, or canceled any agreement, contract, lease, or license (or series of related agreements, contracts, leases, and licenses) involving more than $50,000 to which any of the NHG Subsidiaries is a party or by which any of them is bound; (iv) none of the NHG Subsidiaries has imposed any Security Interest upon any of its assets, tangible or intangible; (v) none of the NHG Subsidiaries has made any capital expenditure (or series of related capital expenditures) either involving more than $50,000 or outside the Ordinary Course of Business; (vi) none of the NHG Subsidiaries has made any capital investment in, any loan to, or any acquisition of the securities or assets of, any other Person (or series of related capital investments, loans, and acquisitions) either involving more than $50,000 or outside the Ordinary Course of Business; (vii) none of the NHG Subsidiaries has issued any note, bond, or other debt security or created, incurred, assumed, or guaranteed any indebtedness for borrowed money or capitalized lease obligation either involving more than $50,000 singly or $50,000 in the aggregate; (viii) none of the NHG Subsidiaries has delayed or postponed the payment of accounts payable and other liabilities outside the Ordinary Course of Business; (ix) none of the NHG Subsidiaries has canceled, compromised, waived, or released any right or claim (or series of related rights and claims) either involving more than $50,000 or outside the Ordinary Course of Business; (x) none of the NHG Subsidiaries has granted any license or sublicense of any rights under or with respect to any Intellectual Property; (xi) there has been no change made or authorized in the charters or bylaws of any of the NHG Subsidiaries; (xii) none of the NHG Subsidiaries has issued, sold, or otherwise disposed of any of its capital stock, or granted any options, warrants, or other rights to purchase or obtain (including upon conversion, exchange, or exercise) any of its capital stock; 16 18 (xiii) none of the NHG Subsidiaries has declared, set aside, or paid any dividend or made any distribution with respect to its capital stock (whether in cash or in kind) or redeemed, purchased, or otherwise acquired any of its capital stock; (xiv) none of the NHG Subsidiaries has experienced any physical damage, destruction, or loss (whether or not covered by insurance) to its property in excess of $50,000 in the aggregate among all of the NHG Subsidiaries; (xv) none of the NHG Subsidiaries has made any loan to, or entered into any other transaction with, any of its directors, officers, and employees outside the Ordinary Course of Business; (xvi) none of the NHG Subsidiaries has entered into any employment contract or collective bargaining agreement, written or oral, which are not cancelable at will, or modified the terms of any existing such contract or agreement; (xvii) none of the NHG Subsidiaries has granted any increase in the base compensation of any of its directors, officers, and employees outside the Ordinary Course of Business; (xviii) none of the NHG Subsidiaries has adopted, amended, modified or terminated any bonus, profit-sharing, incentive, severance, or other plan, contract, or commitment for the benefit of any of its directors, officers, and employees (or taken any such action with respect to any other Employee Benefit Plan); (xix) none of the NHG Subsidiaries has made any other material change in employment terms for any of its directors, officers, and key employees outside the Ordinary Course of Business; (xx) none of the NHG Subsidiaries has made or pledged to make any charitable or other capital contribution outside the Ordinary Course of Business; (xxi) there has not been any material intercompany transfer by any NHG Subsidiary of liquid assets to NHG or any Affiliate of NHG (including, without limitation, Quality Loan or Network Title) other than any such transfer involving the Retained Assets as contemplated by this Agreement, and no management or other fees have been charged by NHG or any Affiliate of NHG (other than the NHG Subsidiaries) to the NHG Subsidiaries since May 31, 1995; (xxii) there has not been any other material occurrence, event, incident, action, failure to act, or transaction outside the Ordinary Course of Business involving any of the NHG Subsidiaries; and (xxiii) none of the NHG Subsidiaries has agreed or committed to any of the foregoing. (i) Undisclosed Liabilities. None of the NHG Subsidiaries has any Liability (and, to the Knowledge of NHG, there is no Basis for any present or future action, suit, 17 19 proceeding, hearing, investigation, charge, complaint, claim, or demand against any of them giving rise to any Liability), except for (i) Liabilities set forth in the Most Recent Financial Statements; (ii) Liabilities that are not required by GAAP to be included in the Most Recent Financial Statements; (iii) Liabilities which have arisen after the Most Recent Fiscal Quarter End in the Ordinary Course of Business (none of which results from, arises out of, relates to, is in the nature of, or was caused by any breach of contract, breach of warranty, tort, infringement, or violation of law); and (iv) obligations or Liabilities, absolute, contingent or otherwise, relating to the issuance of or coverage under title insurance policies or other title assurances (collectively, "Policies"). Notwithstanding the foregoing, no representation is being made by NHG in any provision of this Agreement with respect to the adequacy of any loss reserves on Policies. (j) Legal and Regulatory Compliance. (i) Each of the NHG Subsidiaries, and their respective predecessors and affiliates, has complied with all applicable laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder) of federal, state, local, and foreign governments (and all agencies thereof), except where any failure to comply would not have a Material Adverse Effect, and no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or notice has been filed or commenced against any of them alleging any failure so to comply. (ii) Each of the NHG Subsidiaries has all material licenses, certificates, franchises, rights and permits that are necessary for the conduct of its business, and such licenses are in full force and effect. No suspension, revocation or non-renewal of any such license, certificate, franchise, right or permit, or any event which (whether with notice or the lack of time or both) might result in any such suspension, revocation or failure to renew, has occurred. Each of the NHG Subsidiaries has posted all deposits of securities and cash required by regulatory authorities having jurisdiction over it, and the Disclosure Schedule sets forth a list of such deposits and the locations thereof. The properties, assets, operations and businesses of the NHG Subsidiaries and those of their respective Subsidiaries, are, and have been maintained and conducted, in compliance with all applicable licenses, certificates, franchises, rights and permits, except where failure to do so would not have a Material Adverse Effect. (iii) Since January 1, 1995, the NHG Subsidiaries have filed all reports, registrations and statements, together with any amendments required to be made with respect thereto, that were required to be filed with (a) all appropriate insurance regulatory agencies; and (b) any other appropriate federal, state or local governmental or regulatory authority. All such reports, registrations and filings, as of their respective filing or mailing dates, (a) were true and complete in all material respects (or were amended so as to be so promptly following discovery of any discrepancy); and (b) complied in all material respects with all of the statutes, rules and regulations enforced or promulgated by the governmental or regulatory authority with which they were filed (or were amended so as to be so promptly following discovery of any such non-compliance) and none contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. True and correct copies of all such reports, registrations and statements have been provided or made available to Fidelity. 18 20 (iv) The Disclosure Schedules contain a true and complete list of all reinsurance policies and agreements, and all excess loss and fidelity insurance policies, of the NHG Subsidiaries and shows the limits, the reinsurer or insurer, and any pending material claims against such insurer thereunder with respect to the NHG Subsidiaries. Such policies and agreements are in full force and effect, subject to no breach by the NHG Subsidiaries which shall give rise to a right in the insurer or reinsurer to deny any claim by the NHG Subsidiaries. The NHG Subsidiaries have committed no breach under any reinsurance agreements and policies or excess loss and fidelity insurance policies listed in the Disclosure Schedules, except where any such breaches, in the aggregate, would not have a Material Adverse Effect. None of the NHG Subsidiaries has received notice of any breach under any reinsurance agreements and policies or excess loss and fidelity insurance policies listed in the Disclosure Schedules. The NHG Subsidiaries have notified each such reinsurer or insurer of all claims, known to them, of which they are required to provide notice in accordance with the terms of such reinsurance and insurance policies and agreements. (k) Tax Matters. (i) NHG and each of the NHG Subsidiaries has filed all Tax Returns that it was required to file. All such Tax Returns were correct and complete in all material respects. All Taxes owed by NHG and any of the NHG Subsidiaries (whether or not shown on any Tax Return) have been paid. None of NHG or any of the NHG Subsidiaries currently is the beneficiary of any extension of time within which to file any Tax Return. No claim has ever been made by an authority in a jurisdiction where NHG or any of the NHG Subsidiaries does not file Tax Returns that it is or may be subject to taxation by that jurisdiction. There are no Security Interests on any of the assets of any of the NHG Subsidiaries that arose in connection with any failure (or alleged failure) to pay any Tax. (ii) NHG and each of the NHG Subsidiaries has withheld and timely paid to the appropriate governmental entity all Taxes required by any Tax law to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, shareholder, or other third party. (iii) Neither NHG nor any of the NHG Subsidiaries, or any director or officer (or employee responsible for Tax matters) of NHG or any of the NHG Subsidiaries, expects any authority to assess any additional Taxes for any period for which Tax Returns have been filed. There is no dispute or claim concerning any Tax Liability of NHG or any of the NHG Subsidiaries either (A) claimed or raised by any authority in writing or (B) as to which any shareholder, director or officer (or employees responsible for Tax matters) of NHG or any of the NHG Subsidiaries has knowledge based upon personal contact with any agent of such authority. Section 3(k) of the Disclosure Schedule lists all federal, state, local, and foreign income Tax Returns filed with respect to any of the NHG Subsidiaries for taxable periods ended on or after December 31, 1994, indicates those Tax Returns that have been audited, and indicates those Tax Returns that currently are the subject of audit. The NHG Subsidiaries have delivered to Fidelity correct and complete copies of all federal income Tax Returns, 19 21 examination reports, and statements of deficiencies assessed against or agreed to by any of them since December 31, 1994. (iv) None of the NHG Subsidiaries has waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency. (v) None of NHG or the NHG Subsidiaries has filed a consent under Code Sec. 341(f) concerning collapsible corporations. None of the NHG Subsidiaries has made any payments, is obligated to make any payments, or is a party to any agreement that under certain circumstances could obligate it to make any payments that will not be deductible under Code Sec. 280G or Code Sec. 162(m). None of the NHG Subsidiaries has been a United States real property holding corporation within the meaning of Code Sec. 897(c)(2) during the applicable period specified in Code Sec. 897(c)(1)(A)(ii). NHG and each of the NHG Subsidiaries has disclosed on its federal income tax returns all positions taken therein that could give rise to a substantial understatement of federal income Tax within the meaning of Code Sec. 6662. All obligations owed by or to the NHG Subsidiaries to or from NHG or any Affiliate of NHG (except the NHG Subsidiaries) under any tax sharing or tax allocation agreement is reflected in the May 31 Intercompany Indebtedness. None of the NHG Subsidiaries (A) has been a member of an affiliated group filing a consolidated federal income Tax Return (other than a group the common parent of which was NHG or TRW Inc. or a TRW Inc. predecessor) or (B) has any Liability for the Taxes of any Person (other than any of the NHG Subsidiaries) under Treas. Reg. ss.1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor, by contract, or otherwise. (vi) Section 3(k) of the Disclosure Schedule sets forth the following information with respect to each of the NHG Subsidiaries as of the most recent practicable date: (A) the basis of the shareholder of each such NHG Subsidiary in its stock (or the amount of any Excess Loss Account); (B) the amount of any net operating loss, net capital loss, unused investment or other credit, unused foreign tax, or excess charitable contribution allocable to the NHG Subsidiaries; and (C) the amount of any deferred gain or loss allocable to the NHG Subsidiaries arising out of any deferred intercompany transaction. (vii) The unpaid Taxes of the NHG Subsidiaries (A) did not, as of the Most Recent Fiscal Quarter End, exceed the reserve for Tax Liability (other than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the face of the Most Recent Balance Sheet (other than in any notes thereto) and (B) do not exceed that reserve as adjusted for the passage of time through the date hereof in accordance with GAAP. (l) Real Property. (i) All of the real property owned by any of the NHG Subsidiaries (excluding the Colton Property and the Pomona Property), or in which any of them have an ownership interest, is listed with a brief description of each such property in Section 3(l)(i) of the Disclosure Schedule. Each of the NHG Subsidiaries has good and 20 22 marketable title to the real properties that it owns, as described in such Disclosure Schedule, free and clear of all Security Interests, agreements, mortgages, covenants, conditions, restrictions, easements, charges, claims, assessments and encumbrances, except for: (a) rights of lessees or sublessees in such matters that are reflected in a written lease or sublease; (b) current taxes (including assessments collected with taxes) not yet due and payable; (c) encumbrances, if any, that are not substantial in character, amount or extent and do not materially detract from the value, or interfere with present use, or the ability of such NHG Subsidiary to dispose, of the property subject thereto or affected thereby; and (d) other matters as described in the Disclosure Schedule. The amount of indebtedness secured by the Vineyard Property does not exceed $1,755,000. The activities of the NHG Subsidiaries with respect to all real property owned by them for use in connection with their operations are, to the Knowledge of NHG, in all material respects permitted and authorized by applicable zoning laws, ordinances and regulations and all laws and regulations of any governmental entity. The buildings and improvements on real properties owned by the NHG Subsidiaries are in good condition and repair, and do not require more than normal and routine maintenance to keep them in such condition, normal wear and tear and latent defects of which NHG does not have knowledge excepted. (ii) Section 3(l)(ii) of the Disclosure Schedule lists and describes briefly all real property leased or subleased to any of the NHG Subsidiaries. The NHG Subsidiaries have delivered or made available to Fidelity correct and complete copies of the leases and subleases listed in Section 3(l)(ii) of the Disclosure Schedule (as amended to date). With respect to each lease and sublease listed in Section 3(l)(ii) of the Disclosure Schedule: (A) the lease or sublease is legal, valid, binding, enforceable, and in full force and effect, and the NHG Subsidiary which is a party to such lease or sublease enjoys and is entitled to quiet possession thereunder; (B) the lease or sublease will continue to be legal, valid, binding, enforceable, and in full force and effect on identical terms following the consummation of the transactions contemplated hereby; (C) 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; (D) no party to the lease or sublease has repudiated any provision thereof; (E) there are no disputes, oral agreements, or forbearance programs in effect as to the lease or sublease; (F) with respect to each sublease, the representations and warranties set forth in subsections (A) through (E) above are true and correct with respect to the underlying lease; 21 23 (G) none of the NHG Subsidiaries has assigned, transferred, conveyed, mortgaged, deeded in trust, or encumbered any interest in the leasehold or subleasehold; (H) all facilities leased or subleased thereunder have, to the Knowledge of NHG, received all approvals of governmental authorities (including licenses and permits) required in connection with the operation thereof while operated by NHG and have been operated and maintained by NHG in accordance with applicable laws, rules, and regulations; and (I) all facilities leased or subleased thereunder are supplied with utilities and other services necessary for the operation of said facilities. (m) Tangible Assets. The NHG Subsidiaries own or lease, or otherwise are legally entitled to use, all buildings, equipment, and other tangible assets necessary for the conduct of their businesses as presently conducted and as presently proposed to be conducted. Each such tangible asset is free from material defects (patent and latent, except for latent defects of which NHG does not have knowledge), has been maintained substantially in accordance with normal industry practice, is in good operating condition and repair (subject to normal wear and tear), and is suitable for the purposes for which it presently is used and presently is proposed to be used. (n) Contracts. Section 3(n) of the Disclosure Schedule lists the following contracts and other agreements to which any of the NHG Subsidiaries is a party: (i) any agreement (or group of related agreements) for the lease of personal property to or from any Person providing for lease payments in excess of $50,000 per annum; (ii) any agreement (or group of related agreements) for the purchase or sale personal property, or for the furnishing or receipt of services, the performance of which will extend over a period of more than one year, result in a material loss to any of the NHG Subsidiaries, or involve consideration in excess of $50,000; (iii) any agreement concerning a partnership or joint venture agreement; (iv) any agreement (or group of related agreements) under which it has created, incurred, assumed, or guaranteed any indebtedness for borrowed money, or any capitalized lease obligation, in excess of $50,000 or under which it has imposed a Security Interest on any of its assets, tangible or intangible; (v) any agreement concerning confidentiality or noncompetition; (vi) any agreement involving any of the NHG Subsidiaries and NHG or any of NHG's Affiliates; 22 24 (vii) any profit sharing, stock option, stock purchase, stock appreciation, deferred compensation, severance, or other material plan or arrangement for the benefit of the current or former directors, officers, and employees of any NHG Subsidiary; (viii) any collective bargaining agreement; (ix) any agreement for the employment of any individual on a full-time, part-time, consulting, or other basis providing annual compensation in excess of $50,000 or any agreement providing severance benefits; (x) any agreement under which an NHG Subsidiary has advanced or loaned any amount to any of its directors, officers, and employees outside the Ordinary Course of Business; (xi) any agency agreement between any of the NHG Subsidiaries, on the one hand, and any title insurance underwriter, on the other hand, which is currently in effect or which has been in effect during the last three years; (xii) any agreement pursuant to which an NHG Subsidiary is leasing or servicing a title plant; (xiii) any agreements pursuant to which an NHG Subsidiary sold assets having a value in excess of $100,000 during the last three years; (xiv) any agreements pursuant to which an NHG Subsidiary assumed obligations in excess of $100,000 during the last three years; (xv) any agreement under which an NHG Subsidiary is a guarantor or otherwise is liable for any liability or obligation (including indebtedness) of any other person or entity in excess of $50,000; (xvi) any agreement under which the consequences of a default or termination could have a Material Adverse Effect; or (xvii) any other agreement (or group of related agreements) the performance of which involves consideration in excess of $50,000. NHG has delivered or made available to Fidelity a correct and complete copy of each written agreement listed in Section 3(n) of the Disclosure Schedule (as amended to date) and a written summary setting forth the terms and conditions of each oral agreement referred to in Section 3(n) of the Disclosure Schedule. With respect to each such agreement: (A) the agreement is legal, valid, binding, enforceable, and in full force and effect; (B) the agreement will continue to be legal, valid, binding, enforceable, and in full force and effect on identical terms following the consummation of the transactions contemplated hereby; (C) to NHG's Knowledge, no party 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, under the agreement; and (D) no party has repudiated any provision of the agreement. 23 25 (o) Notes and Accounts Receivable. All notes and accounts receivable of the NHG Subsidiaries are reflected properly on their books and records, are valid receivables. (p) Powers of Attorney. There are no outstanding powers of attorney executed on behalf of any of the NHG Subsidiaries. (q) Insurance. In addition to the matters disclosed pursuant to Section 3(j)(iv) above, Section 3(q) of the Disclosure Schedule sets forth the following information with respect to each insurance policy (including policies providing property, casualty, liability, and workers' compensation coverage and bond and surety arrangements) to which any of the NHG Subsidiaries has been a party, a named insured, or otherwise the beneficiary of coverage at any time within calendar years 1994 and 1995: (i) the name, address, and telephone number of the agent; (ii) the name of the insurer, the name of the policyholder, and the name of each covered insured; (iii) the policy number and the period of coverage; (iv) the scope (including an indication of whether the coverage was on a claims made, occurrence, or other basis) and amount (including a description of how deductibles and ceilings are calculated and operate) of coverage; and (v) a description of any retroactive premium adjustments or other loss- sharing arrangements. With respect to each such insurance policy: (A) the policy is legal, valid, binding, enforceable, and in full force and effect; (B) the policy will continue to be legal, valid, binding, enforceable, and in full force and effect on identical terms following the consummation of the transactions contemplated hereby; (C) to NHG's Knowledge, neither the NHG Subsidiary nor any other party to the policy is in breach or default (including with respect to the payment of premiums or the giving of notices), and no event has occurred which, with notice or the lapse of time, would constitute such a breach or default, or permit termination, modification, or acceleration, under the policy; and (D) no party to the policy has repudiated any provision thereof. Each of the NHG Subsidiaries has been covered during the past 5 years by insurance in scope and amount customary and reasonable for the businesses in which it has engaged during the aforementioned period. Section 3(q) of the Disclosure Schedule describes any self-insurance arrangements affecting any of the NHG Subsidiaries. (r) Litigation. Section 3(r) of the Disclosure Schedule sets forth each instance in which any of the NHG Subsidiaries: (i) is subject to any outstanding injunction, judgment, order, decree, ruling, or charge; (ii) is a party or, to the Knowledge of NHG, is threatened to be made a party to any action, suit, proceeding, hearing, or investigation in or before any court or 24 26 quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator; or (iii) is a party to a settlement agreement pursuant to which there are obligations or conditional obligations yet to be performed. (s) Employees. None of the NHG Subsidiaries is a party to or bound by any collective bargaining agreement, nor has any of them experienced any strikes, grievances, claims of unfair labor practices, or other collective bargaining disputes. None of the NHG Subsidiaries has committed any unfair labor practice. None of the directors and officers (and employees with responsibility for employment matters) of NHG or the NHG Subsidiaries has any Knowledge of any organizational effort presently being made or threatened by or on behalf of any labor union with respect to employees of any of the NHG Subsidiaries. (t) Employee Benefits. (i) Section 3(t) of the Disclosure Schedule lists each Employee Benefit Plan that any of the NHG Subsidiaries maintains or to which any of them contributes. (A) Each such Employee Benefit Plan (and each related trust, insurance contract, or fund) complies in form and in operation in all respects with the applicable requirements of ERISA, the Code, and other applicable laws. (B) All required reports and descriptions (including Form 5500 Annual Reports, Summary Annual Reports, PBGC-1's, and Summary Plan Descriptions) have been filed or distributed appropriately with respect to each such Employee Benefit Plan. The requirements of Part 6 of Subtitle B of Title I of ERISA and of Code Sec. 4980B have been met with respect to each such Employee Benefit Plan which is an Employee Welfare Benefit Plan. (C) All contributions (including all employer contributions and employee salary reduction contributions) which are due have been paid to each such Employee Benefit Plan which is an Employee Pension Benefit Plan 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 Pension Benefit Plan or accrued in accordance with the past custom and practice of the NHG Subsidiaries. All premiums or other payments for all periods ending on or before the Closing Date have been paid with respect to each such Employee Benefit Plan which is an Employee Welfare Benefit Plan. (D) Each such Employee Benefit Plan which is an Employee Pension Benefit Plan meets the requirements of a "qualified plan" under Code Sec. 401(a) and has received a favorable determination letter from the Internal Revenue Service. (E) The market value of assets under each such Employee Benefit Plan which is an Employee Pension Benefit Plan (other than any Multiemployer Plan) equals or exceeds the present value of all vested and 25 27 nonvested Liabilities thereunder determined in accordance with PBGC methods, factors, and assumptions applicable to an Employee Pension Benefit Plan terminating on the date for determination. (F) NHG has delivered to Fidelity correct and complete copies of the plan documents and summary plan descriptions, the most recent determination letter received from the Internal Revenue Service, the most recent Form 5500 Annual Report, and all related trust agreements, insurance contracts, and other funding agreements which implement each such Employee Benefit Plan. (ii) With respect to each Employee Benefit Plan that any of the NHG Subsidiaries maintains or ever has maintained or to which any of them contributes, ever has contributed, or ever has been required to contribute: (A) No such Employee Benefit Plan which is an Employee Pension Benefit Plan (other than any Multiemployer Plan) has been completely or partially terminated or been the subject of a Reportable Event as to which notices would be required to be filed with the PBGC. No proceeding by the PBGC to terminate any such Employee Pension Benefit Plan (other than any Multiemployer Plan) has been instituted or threatened. (B) There have been no Prohibited Transactions with respect to any such Employee Benefit Plan. No fiduciary has any Liability for breach of fiduciary duty or any other failure to act or comply in connection with the administration or investment of the assets of any such Employee Benefit Plan. No action, suit, proceeding, hearing, or investigation with respect to the administration or the investment of the assets of any such Employee Benefit Plan (other than routine claims for benefits) is pending or threatened. To the Knowledge of NHG, there is no Basis for any such action, suit, proceeding, hearing, or investigation. (C) None of the NHG Subsidiaries has incurred, and none of the shareholders, directors or officers (or employees with responsibility for employee benefits matters) of NHG or the NHG Subsidiaries has any reason to expect that any of the NHG Subsidiaries will incur, any liability to the PBGC (other than PBGC premium payments) or otherwise under Title IV of ERISA (including any withdrawal Liability) or under the Code with respect to any such Employee Benefit Plan which is an Employee Pension Benefit Plan. (iii) None of the NHG Subsidiaries contributes to, ever has contributed to, or ever has been required to contribute to any Multiemployer Plan or has any liability (including withdrawal Liability) under any Multiemployer Plan. (iv) None of the NHG Subsidiaries maintains or ever has maintained or contributes, ever has contributed, or ever has been required to contribute to any Employee Welfare Benefit Plan providing medical, health, or life insurance or other welfare-type benefits for current or future retired or terminated employees, their spouses, or their dependents (other than in accordance with Code Sec. 4980B). 26 28 (u) Intellectual Property. (i) Each of the NHG Subsidiaries owns or has the right to use pursuant to license, sublicense, agreement, or permission all Intellectual Property necessary for the operation of its business as presently conducted. Each item of Intellectual Property owned or used by any of the NHG Subsidiaries immediately prior to the Closing hereunder will be owned or available for use by such NHG Subsidiary on identical terms and conditions immediately subsequent to the Closing hereunder. The NHG Subsidiaries have taken all necessary action to maintain and protect each item of Intellectual Property that it (or they) owns or uses. (ii) None of the NHG Subsidiaries have, to the Knowledge of NHG, interfered with, infringed upon or misappropriated any Intellectual Property rights of third parties, and none of the NHG Subsidiaries has ever received any charge, complaint, claim, demand, or notice alleging any such interference, infringement, misappropriation, or violation. No third party has, to the Knowledge of NHG, interfered with, infringed upon or misappropriated any Intellectual Property rights of any of the NHG Subsidiaries. (v) Environment, Health, and Safety. (i) Each of the NHG Subsidiaries, and, to NHG's Knowledge, their respective predecessors and affiliates has complied with all Environmental, Health, and Safety Laws, except where failure to comply would not have a Material Adverse Effect, and no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or notice has been filed or commenced against any of them alleging any failure so to comply. Without limiting the generality of the preceding sentence, each of the NHG Subsidiaries and their respective predecessors and affiliates has obtained and been in compliance with all of the terms and conditions of all permits, licenses, and other authorizations which are required under, and has complied with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules, and timetables which are contained in, all Environmental, Health, and Safety Laws, except where failure to comply would not have a Material Adverse Effect. (ii) None of the NHG Subsidiaries, or, to NHG's Knowledge, their respective predecessors and affiliates, has handled or disposed of any substance, arranged for the disposal of any substance, exposed any employee or other individual to any substance or condition, or owned or operated any property or facility in any manner that could form a reasonable basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand against any of the NHG Subsidiaries giving rise to any Liability, except where having done so would not have a Material Adverse Effect. None of the NHG Subsidiaries has any 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 would have a Material Adverse Effect. (iii) To NHG's Knowledge, all properties used in the business of the NHG Subsidiaries, and their respective predecessors and affiliates, have been free of asbestos, PCB's, methylene chloride, trichloroethylene, 1,2-trans-dichloroethylene, 27 29 dioxins, dibenzofurans, and Extremely Hazardous Substances, except where the existence thereof would not have a Material Adverse Effect. (w) Certain Business Relationships. None of NHG's shareholders or their Affiliates has been involved in any business arrangement or relationship with any of the NHG Subsidiaries within the past 12 months, and none of NHG's shareholders or their Affiliates owns any asset, tangible or intangible, which is used in the business of any of the NHG Subsidiaries. (x) Brokers' Fees. Neither NHG nor any of the NHG Subsidiaries has any liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement. (y) Investment Representations. NHG is acquiring the Fidelity Shares for its own account, for investment purposes only, and not with a view to or for resale in connection with any distribution thereof. (z) Disclosure. The representations and warranties contained in this Section 3 do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements and information contained in this Section 3 not misleading. 4. Representations and Warranties of Fidelity. Fidelity represents and warrants to NHG that the statements contained in this Section 4 are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Section 4), except as set forth in the disclosure schedule of Fidelity accompanying this Agreement (the "Fidelity Disclosure Schedule"). The Fidelity Disclosure Schedule will be arranged in paragraphs corresponding to the numbered and lettered paragraphs contained in this Section 4. (a) Organization. Fidelity is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction in which it is incorporated, and is duly authorized to conduct business and is in good standing under the laws of each jurisdiction where such qualification is required, except where the lack of such qualification would not have a material adverse effect on the financial condition of Fidelity and its Subsidiaries taken as a whole or the ability of Fidelity to consummate the transactions contemplated by this Agreement. (b) Authorization of Transaction. Fidelity has full power and authority (including full corporate power and authority) to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of Fidelity, enforceable in accordance with its terms and conditions. (c) Noncontravention. Neither the execution and the delivery of this Agreement by Fidelity, nor the consummation of the transactions contemplated hereby by Fidelity, will (i) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which Fidelity is subject or any provision of the charter or bylaws of Fidelity or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument or other arrangement to which either Fidelity is a 28 30 party or by which it is bound or to which any of its assets is subject, except where the violation, conflict, breach, default, acceleration, termination, modification, cancellation, or failure to give notice would not have a material adverse effect on the ability of the Parties to consummate the transactions contemplated by this Agreement. Fidelity does not need to give any notice to, make any filing with, or obtain any authorization, permit, certificate, registration, consent, approval or order of any government or governmental agency in order for the Parties to consummate the transactions contemplated by this Agreement, except with the New York Stock Exchange regarding the Fidelity Shares. (d) Brokers' Fees. Fidelity has no liability or obligation to pay any fees or commission to any broker, finder, or agent with respect to the transactions contemplated by this Agreement. (e) SEC Filings; Financial Statements. Fidelity has filed all forms, reports and documents required to be filed with the SEC and has heretofore delivered to or made available to NHG, in the form filed with the SEC, the Fidelity SEC Reports. The Fidelity SEC Reports (i) were prepared in all material respects in accordance with the requirements of the Securities Act or the Securities Exchange Act, as the case may be, and (ii) did not at the time they were filed (or if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing) contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statement therein, in the light of the circumstances under which they were made, not misleading. Each of the consolidated financial statements (including, in each case, any related notes thereto) contained in the Fidelity SEC Reports and Fidelity's 1994 Annual Report to Stockholders was prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto) and each fairly presents in all material respects the consolidated financial position of Fidelity and its subsidiaries as at the respective dates thereof and the consolidated results of its operations and cash flows for the periods indicated, except that the unaudited interim financial statements were or are subject to normal and recurring year-end adjustments which were not or are not expected to be material in amount. (f) Fidelity Shares. The Fidelity Shares, when issued pursuant to this Agreement, shall have been duly authorized and shall be validly issued, fully paid and nonassessable and, upon the Closing, will be owned of record and beneficially by NHG free and clear of any and all liens, claims or encumbrances created or suffered by Fidelity or Persons claiming by, under or through Fidelity, except as provided in the Indemnity Escrow Agreement and the Registration Rights Agreement. (g) Disclosure. The representations and warranties contained in this Section 4 do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements and information contained in this Section 4 not misleading. 5. Covenants. The Parties agree as follows with respect to the period from and after the execution of this Agreement. (a) General. Upon the terms and subject to the conditions hereof, each of the Parties hereto shall use, and shall cause their respective Subsidiaries to use, best efforts to take, 29 31 or cause to be taken, all actions, and to do, or cause to be done, all other things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement, to obtain in a timely manner all necessary waivers, consents and approvals (including Requisite Regulatory Approvals) and to effect all necessary registrations and filings, and otherwise to satisfy or cause to be satisfied all conditions precedent to its obligations under this Agreement. The foregoing covenant shall not include the obligation to satisfy any condition which may be imposed with respect to the obtaining of any Requisite Regulatory Approval if such condition, in the aggregate with all other such conditions, would (i) be materially burdensome upon Fidelity, or (ii) cause Fidelity to be in default under that certain Credit Agreement which Fidelity is currently negotiating with The Chase Manhattan Bank ("Chase"), a copy of the most current draft of which has been provided to NHG, or any similar Credit Agreement which Fidelity may have with another lender, provided that such other Credit Agreement is not significantly more restrictive than the draft Credit Agreement with Chase heretofore provided to NHG; provided, however, that if such a default would occur, Fidelity shall use its best efforts to obtain a waiver thereof from its lender. (b) Consents and Approvals. Subject to the limitations set forth in Section 5(a) above, the Parties shall each use their best efforts to obtain all consents, waivers, approvals, authorizations or orders (including, without limitation, all governmental and regulatory rulings and approvals), and the Parties shall make all filings (including, without limitation, all filings with governmental or regulatory agencies) required in connection with the authorization, execution and delivery of this Agreement by the Parties and the consummation by them of the transactions contemplated hereby. With respect to the filings for Requisite Regulatory Approvals in the states of Kansas, New York and California, Fidelity shall make such filings as the proposed new owner and shall pay all costs incurred by Fidelity in connection therewith, however, any costs incurred by NHG in connection with fulfilling its obligations to cooperate in connection with such filings shall be paid by NHG. As promptly as practicable after the date of this Agreement, the Parties shall file (Fidelity shall pay the filing fee in connection therewith) notifications under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") in connection with the transactions contemplated hereby and to respond as promptly as practicable to any inquiries received from the Federal Trade Commission and the Antitrust Division of the Department of Justice for additional information or documentation and to respond as promptly as practicable to all inquiries and requests received from any State Attorney General or other governmental authority in connection with antitrust matters. (c) Operation of Business. None of the NHG Subsidiaries shall, prior to the Closing, engage in any practice, take any action, or enter into any transaction outside the Ordinary Course of Business, except as may be required by law or except as a result of a recommendation by the Committee under the Business Consultant Agreement. Without limiting the generality of the foregoing, the NHG Subsidiaries will not: (i) authorize or effect any change in their charters or bylaws; (ii) grant any options, warrants, or other rights to purchase or obtain any of their capital stock or issue, sell, or otherwise dispose of any of their capital stock (except upon the conversion or exercise of options, warrants, and other rights currently outstanding); 30 32 (iii) except for the distributions of the Retained Assets contemplated by this Agreement, declare, set aside, or pay any dividend or distribution with respect to their capital stock (whether in cash or in kind), or redeem, repurchase, or otherwise acquire any of their capital stock, in either case outside the Ordinary Course of Business; (iv) issue any note, bond, or other debt security or create, incur, assume, or guarantee any indebtedness for borrowed money or capitalized lease obligation outside the Ordinary Course of Business; (v) impose any Security Interest upon any of its assets outside the Ordinary Course of Business or any lien, claim, encumbrance, pledge or option on the NTI Shares or the Heritage Shares; (vi) make any capital investment in, make any loan to, or acquire the securities or assets of any other person outside the Ordinary Course of Business; (vii) make any change in employment terms for any of its directors, officers, and key employees whose annual level of compensation in the last preceding fiscal year exceeded $50,000, or grant any bonuses or other forms of direct or indirect compensation, except in the Ordinary Course of Business; (viii) except for dispositions of the Retained Assets contemplated by this Agreement, dispose of any assets except in the Ordinary Course of Business; (ix) increase, terminate, amend or alter or otherwise modify any Employee Benefit Plan; or (x) pay any management or other fees of any nature to NHG, or any Affiliate of NHG (other than the NHG Subsidiaries); or (xi) commit to any of the foregoing. (d) Full Access. NHG and the NHG Subsidiaries will permit representatives of Fidelity to have full access to all premises, properties, personnel, books, records (including tax records), contracts, and documents of or pertaining to each of them. Each of the Parties to whom disclosure is made will treat and hold as such any Confidential Information it receives from any of the Parties making such disclosure in the course of the reviews contemplated by this Section 5(d), will not use any of the Confidential Information except in connection with this Agreement, and, if this Agreement is terminated for any reason whatsoever, agrees to return to the disclosing Party all tangible embodiments (and all copies) thereof which are in its possession, or certify to the disclosing Party that all such not returned have been destroyed. (e) Notice of Developments. Each Party will give prompt written notice to the others of any material adverse development of which such Party becomes aware causing a breach of any of its own representations and warranties in Section 3 and Section 4 above. No disclosure by any Party pursuant to this Section 5(e), however, shall be deemed to amend or supplement the respective Disclosure Schedule of either party or to prevent or cure any misrepresentation, breach of warranty, or breach of covenant. 31 33 (f) Exclusivity. NHG will not (and will not cause or permit any of the NHG Subsidiaries or its or their respective officers, directors or employees to) solicit, initiate, or encourage the submission of or participate in any negotiations or discussions with respect to any proposal or offer from any person relating to the acquisition of all or substantially all of the capital stock, assets or business of any of the NHG Subsidiaries (including any acquisition structured as a merger, consolidation, or share exchange). NHG and NTI shall notify Fidelity immediately if any Person makes any proposal, offer, inquiry, or contact with respect to any of the foregoing, and will cooperate with Fidelity by furnishing any information it may reasonably request. (g) CB and Imperial Loans. NHG currently has a loan outstanding with CB in the principal amount of approximately $11,500,000 (the "CB Loan"), which NHG incurred in connection with its acquisition of NTI. In addition, (i) NHG currently is indebted to Imperial in the amount of $600,000 and Imperial has issued a letter of credit for NHG in the amount of $581,005.42 (collectively, the "Imperial NHG Loan"), and (ii) NHG currently is indebted to Imperial in the amount of $700,000 which has been guaranteed by NTI (the "Imperial NTI Loan"). NHG shall (i) pay to CB and Imperial hereafter such of the Distributed Deposit as CB and Imperial shall require at the times requested by CB and Imperial, and (ii) disburse to CB and Imperial at the Closing whatever of the Cash Purchase Price is necessary to fully discharge all obligations owed by NHG to CB under the CB Loan, or otherwise, and all obligations owed by NTI to Imperial under the Imperial NTI Loan, or otherwise, and NHG hereby authorizes Fidelity to disburse on NHG's behalf at the Closing such cash amount to CB and Imperial by wire transfer. In addition, NHG covenants that, on or before the Closing Date, NHG shall obtain from CB and Imperial all consents from CB and Imperial and all releases of any interests which CB and Imperial have of any type or nature in the NTI Shares, the Heritage Shares, or the NHG Subsidiaries and their assets, properties and businesses, and NHG shall obtain from Imperial confirmation that none of the NHG Subsidiaries shall have any liability or obligation whatsoever with respect to the Imperial NHG Loan subsequent to the Closing. (h) Indemnity Escrow Agreement. On the Closing Date, Fidelity, Fidelity Sub and NHG shall execute and deliver the Indemnity Escrow Agreement, and there shall be delivered to, and directly deposited with, the Indemnity Escrow Agent, for the account and future potential benefit of NHG, 160,000 of the Fidelity Shares, which shall be held by the Indemnity Escrow Agent pursuant to the terms and conditions of the Indemnity Escrow Agreement. (i) Underwriting Agreements. On the Closing Date, the Parties thereto shall enter into the Underwriting Agreements. (j) Registration Rights Agreement. On the Closing Date, Fidelity and NHG shall enter into the Registration Rights Agreement. (k) Business Consulting Agreement. Each Party shall comply with and timely perform (and NHG shall cause each of the NHG Subsidiaries which are parties to the Business Consulting Agreement to comply with and timely perform) their respective covenants and obligations under the Business Consulting Agreement. (l) Lease Agreement. On the date hereof, NHG and Nations Kansas shall enter into a Termination of Sublease Agreement pursuant to which the Lease Agreement and all 32 34 rights and obligations of the parties thereunder shall be terminated effective on the date the NTI personnel vacate the premises. (m) Representations and Warranties True at Closing. All representations and warranties of NHG in this Agreement will also be true and correct as of the Closing Date as if made on that date; except to the extent that any such representation or warranty may become untrue or inaccurate because of events, occurring after the date of this Agreement, beyond the control of NHG or any NHG Subsidiary and NHG and the NHG Subsidiaries are unable to make them true or accurate as of the Closing despite their best efforts to do so. Notwithstanding the foregoing, any event occurring after the date of this Agreement shall not be a breach of a representation or warranty on the Closing Date if either (i) such event was in compliance with the covenants of NHG and the NHG Subsidiaries set forth in Section 5(c) of this Agreement, or (ii) such event was a result of a recommendation by the Committee under the Business Consultant Agreement, or (iii) such event would not have a Material Adverse Effect. (n) Retained Assets. Neither NHG nor any NHG Subsidiary shall take any actions or omit to take any actions with respect to any of the Retained Assets prior to the Closing which may adversely affect any NHG Subsidiary. (o) Schedule of Closing Date Intercompany Indebtedness. On the Closing Date, NHG shall deliver to Fidelity a true, complete and accurate schedule of the Closing Date Intercompany Indebtedness. (p) Closing Condition Covenants. Fidelity covenants that it shall deliver or cause to be satisfied the closing conditions set forth in Section 6(c) below. NHG covenants that it shall deliver or cause to be satisfied the closing conditions set forth in Section 6(b) below. (q) Inspection Rights. Until such time as Fidelity and all Fidelity Affiliates have completely divested themselves of their interests in or to the Vineyard Property, on or before the thirtieth (30th) day following the last day of each calendar year, Fidelity shall deliver to NHG a calculation of NHG's Martha's Vineyard Profit Share certified by Fidelity's Chief Financial Officer as of the end of such calendar year, which calculation shall itemize in reasonable detail the components thereof. NHG shall have the right to review, audit and/or challenge (at NHG's expense) any such calculation, and Fidelity and Fidelity's Affiliates shall, upon reasonable advance written notice, make available to NHG, during normal business hours at the principal offices of Fidelity, such books, records, receipts or other documentation as NHG may reasonably request in connection with any such review or audit. (r) Accounting Records. NHG covenants that Fidelity and its independent auditors may from time to time subsequent to the Closing Date, upon prior reasonable notice, have access to, and make copies of, the books and accounting records for any of the Retained Assets which NHG or its Affiliates may have in their possession subsequent to the Closing Date in order to enable Fidelity to comply with GAAP or any law, rule or regulation. (s) Corporate Records. NHG covenants that it will promptly after the date hereof take such actions as are necessary or appropriate to cause the corporate minute and stock books of the NHG Subsidiaries to be complete and accurate in all material respects consistent with the list of deficiencies provided to NHG by Fidelity concurrently herewith. 33 35 6. Conditions to Obligations to Close. (a) Conditions to Obligations of the Parties. The obligations of the Parties to consummate the transactions contemplated by this Agreement are subject to the satisfaction of the following conditions at or prior to the Closing: (i) there shall have been obtained, without the imposition of any material burden or restriction on any of the Parties not in existence on the date hereof, each consent to the consummation of the transactions contemplated by this Agreement which is required to be obtained from any Person under any agreement, contract or license to which Fidelity, NHG or any NHG Subsidiary is a party or by or under which it is bound or licensed, or otherwise, the withholding of which reasonably would have a Material Adverse Effect (this Section 6(a)(i) is not applicable to Requisite Regulatory Approvals, which are provided for in Section 6(a)(iii) below, nor is it applicable to any consents which may be required from CB, which NHG has covenanted to obtain and which, if not obtained, will be a material breach by NHG); (ii) no action, suit, or proceeding shall be pending or threatened before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling, or charge would (A) prevent consummation of any of the transactions contemplated by this Agreement, (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation, (C) affect adversely the right of Fidelity to own the capital stock of and control, directly or indirectly, the NHG Subsidiaries, or (D) affect materially and adversely the right of the NHG Subsidiaries to own their respective assets and to operate their respective businesses (and no such injunction, judgment, order, decree, ruling, or charge shall be in effect); (iii) 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 laws 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 the NHG Subsidiaries (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 Fidelity or any party to be affected by such condition or their respective Affiliates as determined pursuant to Section 5(a) above (for purposes hereof, the Parties acknowledge and agree that Requisite Regulatory Approvals shall not include the approval of the Insurance Commissioner, the Department of Insurance, or similar insurance regulator of any state other than Kansas, New York and California); and (iv) There shall not be any action taken, or any statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the transactions contemplated by this Agreement, by any Persons, which makes the consummation of such transactions illegal. 34 36 (b) Conditions to Obligations of Fidelity. The obligations of Fidelity to consummate the transactions to be performed by it in connection with the Closing are subject to satisfaction of the following conditions: (i) there shall not have been, and there shall not be on the Closing Date, a breach by NHG or NTI of any representation, warranty, covenant or agreement set forth in this Agreement, which breach either has had or may have a Material Adverse Effect and which shall not have been cured within 30 days of NHG's receipt of written notice specifying such breach and Fidelity's intention to terminate this Agreement; (ii) NHG and NTI shall have delivered to Fidelity a certificate dated as of the Closing Date and signed by the Chief Executive Officer and the Chief Financial Officer of NHG and NTI certifying as to the satisfaction of Section 6(b)(i) above; (iii) NHG shall have executed and delivered the Ancillary Agreement(s) to which it is a party; (iv) NHG shall have obtained full and complete releases and discharges of and from all liens, claims, encumbrances, pledges, options or other restrictions (excepted from restrictions, however, are normal and customary restrictions imposed by law or any regulatory agency) which may exist against, in or concerning the NTI Shares, the Heritage Shares, or any shares of capital stock of any other NHG Subsidiary, so that the NTI Shares, the Heritage Shares and the shares of capital stock of the other NHG Subsidiaries shall be free and clear of all such liens, claims, encumbrances, pledges, options or other restrictions as of the Closing Date; (v) Fidelity shall have received from NHG or NTI: (A) stock certificates representing the NTI Shares and the Heritage Shares, duly endorsed for transfer by NHG or accompanied by duly executed stock assignments separate from certificate; (B) stock certificates representing all of the issued and outstanding shares of capital stock of each of the NTI Subs, issued in the name of NTI, and of each of the NTINY Subs, issued in the name of Nations New York; (C) copies of the articles of incorporation, certificate of incorporation or other similar charter documents, as amended to date, of each of the NHG Subsidiaries, in each case certified as of a recent date by the secretaries of state of the appropriate jurisdiction; (D) copies of the bylaws, as amended to date, of each of the NHG Subsidiaries, in each case certified as true and correct by the respective corporate secretaries of such entities; (vi) all outstanding rights to acquire any stock or other equity securities of any of the NHG Subsidiaries pursuant to stock options or otherwise, shall have been canceled with the consent of the holders thereof and on terms approved by Fidelity; (vii) Fidelity shall have received from counsel to NHG and the NHG Subsidiaries an opinion substantially in form and substance as set forth in Exhibit F attached hereto, addressed to Fidelity, and dated as of the Closing Date; 35 37 (viii) Fidelity shall have received the resignations, effective as of the Closing, of each director and officer of the NHG Subsidiaries other than those whom Fidelity shall have specified in writing no later than five (5) days prior to the Closing; (ix) all actions to be taken by NHG and the NHG Subsidiaries in connection with consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to Fidelity; and (x) no Material Adverse Effect shall have occurred, or is reasonably likely to occur, by reason of a disapproval or disapprovals by the NHG Board of Directors of an action or actions recommended by the Committee under the Business Consultant Agreement. Fidelity may waive any condition specified in this Section 6(b) if it executes a writing so stating at or prior to the Closing. The above conditions are subject to the terms and provisions of Section 2(e) above. (c) Conditions to Obligations of NHG. The obligations of NHG to consummate the transactions to be performed by it in connection with the Closing are subject to satisfaction of the following conditions: (i) there shall not have been, and there shall not be on the Closing Date, a breach by Fidelity of any representation, warranty, covenant or agreement set forth in this Agreement, which breach either has had or may have a material adverse effect upon NHG and which shall not have been cured within 30 days of Fidelity's receipt of written notice specifying such breach and NHG's intention to terminate this Agreement; (ii) Fidelity shall have delivered to NHG a certificate dated as of the Closing Date and signed by the Chief Executive Officer and the Chief Financial Officer of Fidelity certifying as to the satisfaction of Section 6(c)(i) above; (iii) NHG shall have received from Fidelity the Cash Purchase Price and the Fidelity Shares, except for the portions thereof which are to be held by the Indemnity Escrow Agent pursuant to the Indemnity Escrow Agreement or which are to be disbursed to CB for credit to NHG's account pursuant to Section 5(g) above; (iv) Fidelity shall have executed and delivered the Ancillary Agreement(s) to which it is a party; (v) NHG shall have received from counsel to Fidelity an opinion in form and substance as set forth on Exhibit G attached hereto, addressed to NHG, and dated as of the Closing Date; 36 38 (vi) all actions to be taken by Fidelity in connection with consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to NHG; and (vii) The Fidelity Shares issuable pursuant to this Agreement shall have been duly authorized for listing, subject to notice of issuance, on the New York Stock Exchange. NHG may waive any condition specified in this Section 6(c) if it executes a writing so stating at or prior to the Closing. The above conditions are subject to the terms and provisions of Section 2(e) above. 7. Termination. (a) Termination by Fidelity Based on Breach by NHG or NTI or Committee Disapproval or Cessation of Standstill by CB/Imperial. Fidelity may terminate this Agreement if (i) a breach referred to in Section 6(b)(i) above is not cured by NHG as provided therein or (ii) a Material Adverse Effect referred to in Section 6(b)(x) above has occurred or is reasonably likely to occur or (iii) the Standstill Period for either CB or Imperial is terminated. (b) Termination by NHG Based on Breach by Fidelity. NHG may terminate this Agreement if a breach referred to in Section 6(c)(i) above is not cured by Fidelity as provided therein. (c) Effect of Termination. In the event of the termination of this Agreement pursuant to Section 2(e) above or this Section 7, none of the Parties shall have any obligation to perform hereunder from and after the date of such termination, except that (i) Sections 2(d) (the Deposit), 5(d) (confidentiality) and 9(k) (expenses) shall survive such termination and remain in full force and effect notwithstanding such termination, and (ii) no termination hereof shall relieve NHG or NTI, or Fidelity, from liability for any breach of this Agreement. 8. Remedies for Breaches of This Agreement. (a) Survival of Representations and Warranties. The representations and warranties of NHG in Sections 2(b) and 8(e) shall survive the Closing hereunder. All of the representations and warranties of NHG contained in Section 3 (other than Section 3(k)) and of Fidelity contained in Section 4 shall survive the Closing hereunder and continue in full force and effect for a period of two (2) years thereafter. The representations and warranties of NHG contained in Section 3(k) shall survive the Closing for a period of seven (7) years. All covenants and agreements contained in this Agreement shall survive until they are performed. (b) Indemnification Provisions for Benefit of Fidelity. In the event NHG or NTI breaches (or in the event any third party alleges facts that, if true, would mean NHG or NTI has breached) any of their representations, warranties, agreements or covenants contained herein, or in the event that any of the NHG Subsidiaries shall be liable for Taxes for periods ending on (or an allocable portion of the period that includes) the Closing Date in excess of the amount reserved therefor as disclosed in Section 3(k) of the Disclosure Schedule, and provided that 37 39 Fidelity makes a written claim for indemnification pursuant to this Section 8 before any applicable expiration thereof pursuant to Section 8(a) above, then each of NHG and NTI prior to the Closing jointly and severally agrees to indemnify Fidelity, and NHG after the Closing agrees to indemnify Fidelity and the NHG Subsidiaries from and against the entirety of any Adverse Consequences which Fidelity, or the NHG Subsidiaries, as the case may be, may suffer through and after the date of the claim for indemnification resulting from, arising out of, relating to, in the nature of, or caused by the breach (or the alleged breach). Notwithstanding any other provision of this Agreement, Fidelity may not make a claim for the breach of any representation or warranty made by NHG in this Agreement until such time as the aggregate Adverse Consequences of all such claims exceeds $500,000, in which event NHG shall be responsible for all such claims in excess of $500,000; provided, however, that the foregoing limit shall not apply to any claim for a breach of a representation or warranty set forth in Section 2(b) above or Section 2(e) below. (c) Indemnification Provisions for Benefit of NHG. In the event Fidelity or the Fidelity Sub breaches (or in the event any third party alleges facts that, if true, would mean Fidelity or Fidelity Subs has breached) any of its representations, warranties, agreements and covenants contained herein, and, provided that NHG makes a written claim for indemnification against Fidelity pursuant to this Section 8 before any applicable expiration thereof pursuant to Section 8(a) above, then Fidelity and Fidelity Sub agree to indemnify NHG from and against any Adverse Consequences which NHG may suffer resulting from, arising out of, relating to, in the nature of, or caused by the breach (or the alleged breach). Fidelity and Fidelity Sub also agree to indemnify NHG from and against any Adverse Consequences which NHG may suffer resulting from, arising out of, or relating to claims based on the acts or omissions of the NHG Subsidiaries subsequent to the Closing Date, provided that any such claim is not primarily a result of or based upon the breach of any representation, warranty, covenant or agreement of NHG contained in this Agreement or any Ancillary Agreement. Notwithstanding any other provision of this Agreement, neither Fidelity nor Fidelity Sub shall be liable to NHG for the breach of any representation or warranty made by Fidelity in this Agreement until such time as the Adverse Consequence of all such claims exceeds $500,000, in which event Fidelity shall be responsible for all such claims in excess of $500,000. (d) Matters Involving Third Parties. (i) If any third party shall notify any Party (the "Indemnified Party") with respect to any matter (a "Third Party Claim") which may give rise to a claim for indemnification against any other Party (the "Indemnifying Party") under this Section 8, then the Indemnified Party shall promptly notify each Indemnifying Party thereof in writing; provided, however, that no delay on the part of the Indemnified Party in notifying any Indemnifying Party shall relieve the Indemnifying Party from any obligation hereunder unless (and then solely to the extent) the Indemnifying Party thereby is prejudiced. (ii) Any Indemnifying Party will have the right to defend the Indemnified Party against the Third Party Claim with counsel of its choice reasonably satisfactory to the Indemnified Party so long as (A) the Indemnifying Party notifies the Indemnified Party in writing within 15 days after the Indemnified Party has given notice of the Third Party Claim that the Indemnifying Party will indemnify the Indemnified Party 38 40 from and against the entirety of any Adverse Consequences the Indemnified Party may suffer resulting from, arising out of, relating to, in the nature of, or caused by the Third Party Claim, (B) the Indemnifying Party provides the Indemnified Party with evidence reasonably acceptable to the Indemnified Party that the Indemnifying Party will have the financial resources to defend against the Third Party Claim and fulfill its indemnification obligations hereunder, whether through the Indemnity Escrow Agreement or otherwise, (C) the Third Party Claim involves only money damages and does not seek an injunction or other equitable relief, (D) settlement of, or an adverse judgment with respect to, the Third Party Claim is not, in the good faith judgment of the Indemnified Party, likely to establish a precedential custom or practice materially adverse to the continuing business interests of the Indemnified Party, and (E) the Indemnifying Party conducts the defense of the Third Party Claim actively and diligently. (iii) So long as the Indemnifying Party is conducting the defense of the Third Party Claim in accordance with Section 8(d)(ii) above, (A) the Indemnified Party may retain separate co-counsel at its sole cost and expense and participate in the defense of the Third Party Claim, (B) the Indemnified Party will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Indemnifying Party (not to be withheld unreasonably), and (C) the Indemnifying Party will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Indemnified Party (not to be withheld unreasonably). (iv) In the event any of the conditions in Section 8(d)(ii) above is or becomes unsatisfied, however, (A) the Indemnified Party may defend against, and consent to the entry of any judgment or enter into any settlement with respect to, the Third Party Claim, to the fullest extent provided in this Section 8, (B) the Indemnifying Party will reimburse the Indemnified Party promptly and periodically for the costs of defending against the Third Party Claim (including reasonable attorneys' fees and expenses) to the fullest extent provided in this Section 8, and (C) the Indemnifying Party will remain responsible for any Adverse Consequences the Indemnified Party may suffer resulting from, arising out of, relating to, in the nature of, or caused by the Third Party Claim to the fullest extent provided in this Section 8. (e) Matters Regarding Net Operating Losses ("NOLs"). It is the agreement of the Parties that Fidelity either (i) shall have available to it for utilization after the Closing Date the NOLs generated by the NHG Subsidiaries for the period January 1, 1995 through the Closing Date and the NOLs generated by the NHG Subsidiaries prior to January 1, 1995 which were not utilized by NHG as of December 31, 1994 or (ii) is to be compensated by NHG for such NOLs which are not so available to it (subject only to the expiration of such NOLs pursuant to Code Section 172(b) and the limitation provided by Code Section 382). NHG agrees to indemnify, reimburse and hold harmless Fidelity and its Affiliates (including the NHG Subsidiaries), from and against any Tax savings that Fidelity or its Affiliates (including the NHG Subsidiaries) would have realized from such NOLs if such NOLs are not so available for any reason (an "NOL Reduction"), including, but not limited to (i) an Internal Revenue Service audit adjustment (ii) the filing of an amended return by the NHG Group (iii) the use of any such NOLs by the NHG Group by reason of (A) the transactions described in this Agreement or (B) any income of the NHG Group (other than the NHG Subsidiaries). Such indemnification shall be made as follows: 39 41 (i) If and when Fidelity or its Affiliates (including the NHG Subsidiaries) incurs an out-of-pocket cost by reason of the NOL Reduction (a "Tax Increase"), Fidelity shall submit a reasonably detailed calculation with supporting documentation to NHG that demonstrates the basis for and the amount of the Tax Increase. (ii) The Tax Increase shall be determined (A) net of related tax savings to Fidelity or its Affiliates (including the NHG Subsidiaries) resulting from any reduction in their U.S. federal income tax on account of deductions for state income and franchise taxes, if any, or on account of disallowed deductions in prior years for which Fidelity or any such Affiliate may receive a deduction in future years, but (B) increased by the loss of use of money by Fidelity or such Affiliate in the event of any such disallowed deduction which may be subsequently used by Fidelity or its Affiliates (present valued at a rate based upon the rate of the 2-year Treasury Note at such time). (iii) NHG shall have twenty business days from receipt of Fidelity's calculation ("Review Period") to review and verify Fidelity's calculation. If NHG agrees with Fidelity's calculation, it shall pay to Fidelity the amount called for in Fidelity's calculation within five business days after expiration of the Review Period. If NHG disagrees with Fidelity's calculation and the parties cannot resolve the dispute within twenty business days after expiration of the Review Period, the parties shall submit the calculation for resolution to a mutually agreed upon "Big Six" accounting firm (excluding any Big Six accounting firm retained by either party within the three year period preceding such date and excluding any Big Six Accounting firm that was involved in preparing any tax return or financial statements related to the calculation). (iv) Notwithstanding subparagraphs (i) - (iii) above, if at the Closing Date, an NOL Reduction is determined, Fidelity may elect, in lieu of the operation of subparagraphs (i) - (iii) with respect solely to such NOL Reduction determined as of the Closing Date, to reduce the Cash Purchase Price or the amount of Fidelity Shares to be delivered by an amount equal to the NOL Reduction times the highest combined statutory federal and state income tax rate (taking into account the deductibility of the state income taxes against federal income taxes). This subparagraph (iv) shall apply only with respect to any NOL Reduction determined as of the Closing Date and any election pursuant to this subparagraph (iv) shall have no effect on NHG's obligations pursuant to this paragraph (e) for any other NOL Reduction. NHG covenants and agrees to provide to Fidelity (i) copies of the "pro forma" income tax returns for the NHG Subsidiaries included within the NHG consolidated federal income tax returns which NHG files with the Internal Revenue Service for the years ended December 31, 1995 and the Closing Date, concurrently with the filing of such returns with the Internal Revenue Service, (ii) access at the same time, and at subsequent times thereafter as Fidelity reasonably requests, to the consolidating work papers for such returns and (iii) such other information as Fidelity reasonably requests with respect to the determination of such NOLs. (f) Determination of Adverse Consequences. The Parties shall take into account the time cost of money (using the prime rate of Chase as the discount rate) in determining Adverse Consequences for purposes of this Section 8. 40 42 9. Miscellaneous. (a) Press Releases and Public Announcements. No Party shall issue any press release or make any public announcement relating to the subject matter of this Agreement without the prior written approval of the other Parties; provided, however, that any Party may make any public disclosure it believes in good faith is required by applicable law or any listing or trading agreement concerning its publicly-traded securities (in which case the disclosing Party will use its reasonable best efforts to advise the other Party prior to making the disclosure). (b) No Third-Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any Person other than the Parties and their respective successors and permitted assigns. (c) Entire Agreement. This Agreement (including the documents referred to herein) constitutes the entire agreement among the Parties and supersedes any prior understandings, agreements, or representations by or among the Parties, written or oral, to the extent they related in any way to the subject matter hereof. (d) Succession and Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of the other Parties, which may be given or withheld in their respective sole discretion; provided, however, that Fidelity may exercise any or all rights and/or fulfill any or all obligations under this Agreement in conjunction with or through one or more direct or indirect wholly-owned subsidiaries of Fidelity provided that Fidelity provides to NHG a guarantee in connection therewith reasonably satisfactory to NHG. (e) Counterparts. This Agreement may be executed in two or more counterparts, and by different parties on separate counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. (f) Headings. The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. (g) Notices. All notices, requests, demands, claims, and other communications hereunder will be in writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed duly given if (and then two business days after) it is sent by registered or certified mail, return receipt requested, postage prepaid, and addressed to the intended recipient as set forth below: If to NHG: Nations Holding Group, Inc. 514 Shatto Place Los Angeles, CA 90020 Fax: 213-487-7363 Attention: Henri J. Van Hirtum, Chief Executive Officer 41 43 With copy to: Tuttle & Taylor 355 S. Grand Avenue Los Angeles, CA 90071-3101 Fax: 213-683-0225 Attention: Charles L. Woltmann, Esq. If to Fidelity: Fidelity National Financial, Inc. 17911 Von Karman Avenue, Suite 300 Irvine, California 92714 Fax: (714) 622-4131 Attention: Andrew F. Puzder, Executive Vice President and General Counsel With copy to: Stradling, Yocca, Carlson & Rauth 660 Newport Center Drive, Suite 1600 Newport Beach, CA 92627 Fax: (714) 725-4100 Attention: C. Craig Carlson, Esq. Any Party may send any notice, request, demand, claim, or other communication hereunder to the intended recipient at the address set forth above using any other means (including personal delivery, expedited courier, messenger service, telecopy, telex, ordinary mail, or electronic mail), but no such notice, request, demand, claim, or other communication shall be deemed to have been duly given unless and until it actually is received by the intended recipient. Any Party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Parties notice in the manner herein set forth. (h) Governing Law. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of California without giving effect to any choice or conflict of law provision or rule (whether of the State of California or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of California, except where local law is otherwise applicable. All parties consent to personal jurisdiction and venue in the County of Orange in the State of California. (i) Amendments and Waivers. The Parties may mutually amend any provision of this Agreement at any time prior to the Effective Time with the prior authorization of their respective Boards of Directors. No amendment or waiver of any provision of this Agreement shall be valid unless the same shall be in writing and signed by all of the Parties. No waiver by any Party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence. (j) Severability. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. 42 44 (k) Expenses. Each of the Parties will bear its own costs and expenses (including legal fees and expenses) incurred in connection with the preparation, negotiation and closing of this Agreement and the transactions contemplated hereby; provided, however, that NHG shall bear all such expenses of the NHG Subsidiaries. (l) Construction. The Parties have participated jointly in the negotiation and drafting of this Agreement and have had competent counsel of their own choosing. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context otherwise requires. The word "including" shall mean including without limitation. (m) Incorporation of Exhibits and Schedules. The Exhibits and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof. (n) Attorneys' Fees. If legal action is instituted on this Agreement, or the subject matter hereof, the prevailing party shall be entitled to recover all costs of suit, including reasonable attorneys' fees. IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written. FIDELITY NATIONAL FINANCIAL, INC., a Delaware corporation By: /S/ Andrew F. Puzder ---------------------------------- Title: Executive Vice President ---------------------------------- NATIONS HOLDING GROUP, INC., a California corporation By: /S/ Henri J. Van Hirtum ---------------------------------- Title: President/Chief Executive Officer ---------------------------------- NATIONS TITLE, INC., a Kansas corporation By: /S/ Henri J. Van Hirtum ---------------------------------- Title: Chairman 43 EX-11 7 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1995 1994 1993 ------------ ------------ ------------ Earnings before extraordinary item.................... $ 7,632 $ 9,745 $ 36,295 Extraordinary item -- gain (loss) on early retirement of debt, net of applicable income tax expense (benefit) of $(437) in 1995 and $1,292 in 1994...... (813) 2,400 -- ------- ------- ------- Primary net earnings.................................. 6,819 12,145 36,295 Add: Interest expense and amortization of debt issuance costs, net of income tax effect, applicable to LYONs............................................ 3,245 3,056 -- ------- ------- ------- Fully diluted net earnings............................ $ 10,064 $ 15,201 $ 36,295 ======= ======= ======= Weighted average shares outstanding during the period (1)................................................. 12,505 15,959 16,278 Common stock equivalent shares-primary................ 465 517 553 ------- ------- ------- Common and common stock equivalent shares outstanding for purpose of calculating primary net earnings per share............................................... 12,970 16,476 16,831 Incremental shares to reflect full dilution........... 4,221 4,073 101 ------- ------- ------- Total shares for purpose of calculating fully diluted net earnings per share.............................. 17,191 20,549 16,932 ======= ======= ======= Primary earnings per share before extraordinary item................................................ $ .59 $ .59 $ 2.16 Extraordinary item, gain (loss) on early retirement of debt................................................ (.06) .15 -- ------- ------- ------- Primary net earnings per share........................ $ .53 $ .74 $ 2.16 ======= ======= ======= Fully diluted net earnings per share.................. $ .59(2) $ .74 $ 2.14 ======= ======= =======
- --------------- (1) Includes retroactive effects of all stock dividends and splits. (2) As other dilutive securities have an antidilutive effect, the earnings per share impact is not presented in the Consolidated Financial Statements. EX-21 8 LIST OF SUBSIDIARIES 1 EXHIBIT 21 LIST OF SUBSIDIARIES I. Manchester Development Corporation, a California corporation, d/b/a Orion Realty Group A. Kensington Development Corporation, a California corporation, owned 90%; see III. H. 2 below II. Rocky Mountain Aviation, Inc., an Arizona corporation III. Fidelity National Title Insurance Company, an Arizona corporation, owned 99.9%; material subsidiaries: A. Republic Title Insurance Agency, Inc., an Arizona corporation (inactive) B. Fidelity National Title Company of El Paso, a Texas corporation C. Western American Exchange Corporation, a California corporation D. Fidelity National Title Insurance Company of Tennessee, a Tennessee corporation; material subsidiary: 1. Title Services, Inc., a Tennessee corporation E. Southern Title Holding Company, a Texas corporation (inactive) F. Fidelity National Title Insurance Company of California, a California corporation; material subsidiaries: 1. Western Financial Trust Company, a California corporation 2. Kensington Development Corporation, a California corporation, owned 10%; see I.A. above 3. Fidelity National Title Company of Northern California, a California corporation G. Title Insurance Policy Co. of Pinal County, an Arizona corporation H. Pacific American Property Exchange Corporation, a California corporation (inactive) I. UTC Capital Group, Inc., a Texas corporation; subsidiaries: 1. Dallas-Fidelity National Title Agency, Inc. a Texas corporation d/b/a Fidelity National Title Agency, Inc. 2. LRT Record Services, Inc., a Texas corporation d/b/a Land Records of Texas J. Fidelity National Tax Service, a California corporation K. Fidelity National Company of California, a California corporation IV. Fidelity National Title Insurance Company of Pennsylvania, a Pennsylvania corporation, owned 99.9%; subsidiaries: A. American Title Insurance Company, a Florida corporation; material subsidiaries: 1. Amtitle Company, a California corporation (inactive) 2. Gulf Stream Title Company of Miami, a Florida corporation (inactive) 3. Settlement Network of Pennsylvania, a Pennsylvania corporation (inactive) 4. American Title and Abstract Company, a Florida corporation (inactive) 5. Miami Title and Abstract Company, a Florida corporation (inactive) B. National Title Insurance Services, Inc., a North Carolina corporation (inactive) C. Network Title Insurance Agencies of Florida, Inc. a Florida corporation (inactive) V. Western Pacific Property and Casualty Agency, Inc., an Arizona corporation VI. Lake Mortgage Corporation, an Arizona corporation (inactive) VII. Fidelity National Title Insurance Company Properties, a California corporation VIII. Rocky Mountain Printing Services, Inc. a California corporation
2 EXHIBIT 21 (CONTINUED) IX. Fidelity Asset Management, Inc., a California corporation X. Fidelity Participation, Inc., an Arizona corporation XI. Nationwide Recording Service, a California corporation XII. Cal West Service Corporation, a California corporation XIII. Fidelity National Title Insurance Company of New York, a New York corporation XIV. Agency Sales and Posting, Inc., a California corporation XV. Arizona Sales and Posting, Inc., an Arizona corporation XVI. Pente Enterprises, Inc., a California corporation XVII. Rocky Mountain Support Services, Inc., an Arizona corporation; subsidiary: A. ACS Systems, Inc., a California corporation XVIII. Fidelity National Title Company of Washington, a Washington corporation XIX. FNF Ventures, Inc., a California corporation XX. Fidelity National Title Company of California, a California corporation XXI. Fidelity National Title Company, a California corporation XXII. Fidelity National Title Insurance Agency of Coconino, Inc., an Arizona corporation XXIII. Fidelity National Title Agency, Inc., an Arizona corporation XXIV. Fidelity National Title Agency of Pinal County, Inc., an Arizona corporation XXV. Fidelity National Title Insurance Company of Oregon, an Oregon corporation XXVI. Fidelity National Title Agency of Nevada, Inc., a Nevada corporation XXVII. American Title Company, a California corporation
EX-23.1 9 INDEPENDENT AUDITORS' CONSENT 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT The Board of Directors Fidelity National Financial, Inc. We consent to incorporation by reference in the Registration Statements (Nos. 33-32853, 33-15027, 33-34300, 33-45709, 33-45272, 33-15008, 33-56514, 33-64834, 33-64836, 33-83026 and 33-61983) on Form S-8 of Fidelity National Financial, Inc. of our report dated February 26, 1996, relating to the Consolidated Balance Sheets of Fidelity National Financial, Inc. and subsidiaries as of December 31, 1995 and 1994 and the related Consolidated Statements of Earnings, Stockholders' Equity and Cash Flows and related schedules for each of the years in the three-year period ended December 31, 1995 which report appears in the December 31, 1995 Annual Report on Form 10-K of Fidelity National Financial, Inc. KPMG PEAT MARWICK LLP Orange County, California March 20, 1996 EX-27 10 FINANCIAL DATA SCHEDULE
7 0000809398 FIDELITY NATIONAL FINANCIAL, INC. 1,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 129,236 0 0 31,412 0 8,659 180,082 47,431 0 0 405,063 146,094 0 0 0 136,047 0 0 2 77,945 405,063 285,552 12,403 5,213 106,677 19,031 0 381,354 9,460 1,828 7,632 0 (813) 0 6,819 .53 .53 0 0 0 0 0 0 0
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