-----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, FOmx3R3vxKxj3l75/5qBVhLNgDwpfiD1Wk+mnQXZm3m6olvXkcBm2WKB5ZykK9Fg Rk75hsKGf6axvn6vRHvD1g== 0000892569-97-000832.txt : 19970401 0000892569-97-000832.hdr.sgml : 19970401 ACCESSION NUMBER: 0000892569-97-000832 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 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: 97568337 BUSINESS ADDRESS: STREET 1: 17911 VON KARMAN AVE STREET 2: STE CITY: IRVINE STATE: CA ZIP: 92714 BUSINESS PHONE: 7148529770 MAIL ADDRESS: STREET 2: 17911 VON KARMAN AVE STE 500 CITY: IRVINE STATE: CA ZIP: 92714 10-K 1 FORM 10-K FOR THE PERIOD ENDING 12/31/96 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 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 92614 (714) 622-5000 IRVINE, CALIFORNIA (ZIP CODE) (REGISTRANT'S TELEPHONE NUMBER, (ADDRESS OF PRINCIPAL EXECUTIVE INCLUDING AREA CODE) OFFICES)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- ------------------------ Common Stock, $.0001 par value New York Stock Exchange Liquid Yield Option Notes, due 2009, zero coupon, convertible subordinated New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K, or any amendment to this Form 10-K. [ ] As of March 25, 1997, 13,921,556 shares of Common Stock ($.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 $125,516,000. The aggregate market value was computed with reference to the closing price on the New York Stock Exchange on such date. LOCATION OF EXHIBIT INDEX: The index to exhibits is contained in Part IV herein on page number 57. 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, 1996, 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...................... 10 PART II Item 5 Market for Registrant's Common Stock and Related Stockholder Matters..... 11 Item 6 Selected Financial Data.................................................. 12 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................ 15 Item 8 Financial Statements and Supplementary Data.............................. 25 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................................................... 57 PART III Item 10 Directors and Executive Officers of the Registrant....................... 57 Item 11 Executive Compensation................................................... 57 Item 12 Security Ownership of Certain Beneficial Owners and Management........... 57 Item 13 Certain Relationships and Related Transactions........................... 57 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.......... 57
i 3 PART I ITEM 1. BUSINESS Fidelity National Financial, Inc., through its principal subsidiaries (collectively, the "Company"), is one of the largest national underwriters engaged in the business of issuing title Insurance policies and performing other title-related services such as escrow, collection and trust activities, real estate information and technology services, trustee sale guarantees, foreclosure publishing and posting services and exchange intermediary services in connection with real estate transactions. Title insurance services are provided through the Company's direct operations and otherwise through independent title insurance agents who issue title policies on behalf of the underwriting subsidiaries. Title insurance is generally accepted as the most efficient means of determining title to, and the priority of interests in, real estate in nearly all parts of the United States. Today, virtually all real property mortgage lenders require their borrowers to obtain a title insurance policy at the time a mortgage loan is made or to allow the sale of loans in the secondary market. The Company's principal subsidiaries consist of Fidelity National Title Insurance Company ("Fidelity Title"), which, in turn, is the parent company of Fidelity National Title Insurance Company of California ("Fidelity California"), Fidelity National Title Insurance Company of Tennessee ("Fidelity Tennessee") and Nations Title Insurance Company ("Nations Title"); Fidelity National Title Insurance Company of Pennsylvania ("Fidelity Pennsylvania"), which, in turn, was the parent company of American Title Insurance Company ("ATIC"), which was merged into Fidelity Pennsylvania as of November 21, 1996; Fidelity National Title Insurance Company of New York ("Fidelity New York"), which, in turn, is the parent company of Nations Title Insurance of New York Inc. ("Nations New York") and National Title Insurance of New York Inc. ("National") (collectively, the "Insurance Subsidiaries"); and its wholly-owned underwritten title companies (collectively, the "UTCs"). Nations Title Insurance Company, Nations Title Insurance of New York Inc. and National Title Insurance of New York Inc. were acquired, along with Nations Title Inc. ("NTI," collectively, "Nations Title Inc.") in a transaction which closed on April 1, 1996. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Recent Developments" and Note B of Notes to Consolidated Financial Statements. INDUSTRY OVERVIEW Title Policies. Title insurance policies state the terms and conditions upon which a title underwriter will insure title to real estate. The beneficiaries of title insurance policies are generally buyers of real property or mortgage lenders. Most mortgage lenders require title insurance as a condition to making loans secured by real estate. Title insurance is different from other types of insurance because it relates to past events which affect title to property at the time of closing and not unforeseen future events. Prior to issuing policies, underwriters can reduce or eliminate future losses by accurately performing searches and examinations. Title insurance policies are issued on the basis of a preliminary title report or commitment. These reports are prepared after a search 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 1 4 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. 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. It is impossible to predict in what future direction interest rates and the real estate market may move or fluctuate. TITLE INSURANCE OPERATIONS The Insurance Subsidiaries are currently licensed to issue title insurance policies through direct operations and independent agents in all states (with the exception of Iowa) and the District of Columbia, the Bahamas, the Virgin Islands and Puerto Rico. The Company maintains direct operations in Arizona, California, Florida, Hawaii, Missouri, Nevada, New Jersey, New Mexico, New York, North Carolina, Oregon, Pennsylvania, Tennessee, Texas and Washington. Direct operations are divided into approximately 80 branches consisting of more than 330 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. 2 5 The Company also transacts title insurance business through a network of approximately 2,000 agents, primarily in those areas in which agents are the more accepted title insurance provider. The following table sets forth for the years 1996, 1995 and 1994, respectively, the approximate dollars and percentages of title insurance premium revenue by state according to records maintained by the Company:
YEARS ENDED DECEMBER 31, ---------------------------------------------------------------- 1996 1995 1994 ------------------ ------------------ ------------------ AMOUNT % AMOUNT % AMOUNT % -------- ----- -------- ----- -------- ----- (DOLLARS IN THOUSANDS) California................ $183,108 38.5% $124,407 43.6% $139,946 37.9% New York.................. 45,938 9.7 17,436 6.1 26,683 7.2 Texas..................... 42,122 8.9 28,761 10.1 39,368 10.7 Florida................... 25,444 5.3 16,141 5.7 24,786 6.7 Pennsylvania.............. 25,441 5.3 13,751 4.8 20,326 5.5 Arizona................... 23,865 5.0 15,462 5.4 17,125 4.6 All others................ 130,043 27.3 69,594 24.3 101,041 27.4 -------- ----- -------- ----- -------- ----- Totals.......... $475,961 100.0% $285,552 100.0% $369,275 100.0% ======== ===== ======== ===== ======== =====
For the entire title insurance industry, 12 states accounted for 72.0% of title premiums written in the United States in 1995. California represented the single largest state with 17.8%. The Company is licensed and has operations in all 12 of these states. 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 personnel to develop new business relationships with persons in the real estate community, such as real estate sales agents and brokers, financial institutions, independent escrow companies and title agents, real estate developers, mortgage brokers and attorneys. The Company's marketing efforts are also assisted by general advertising. The Company believes customer service is the most important factor in attracting and retaining customers and measures customer service in terms of quality and timeliness in the delivery of services. Direct and Agency Operations. Preliminary title reports and commitments to issue policies are prepared by title underwriters or wholly-owned underwritten title companies (direct operations) or by independent agents on behalf of the underwriters (agency operations). The terms and conditions upon which the real property will be insured are determined in accordance with the underwriting standards, policies and procedures of the title underwriter. In direct operations, the title underwriter issues the title insurance policy and retains the entire premium paid in connection with the transaction. In agency operations, the search and examination function is performed by an independent agent. The majority of the title premium collected is retained by the agent with the balance remitted to the title underwriter. Independent agents may select among several title underwriters based upon the amount of the premium "split" offered by the underwriter, the overall terms and conditions of the agency agreement and the scope of services offered to the agent. Premium splits vary by geographic region. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Results of Operations -- Expenses and Recent Developments." Prior to the acquisition of the Nations group of companies, which was completed on April 1, 1996, the Company generated the majority of its revenue from its network of direct operations as opposed to agency relationships, the latter being more common in the title industry. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview and Recent Developments." The Company's direct operations generate higher margins than agency operations because the Company retains the entire premium from each transaction instead of paying commissions to agents and claim losses are less than in agency based operations because the Company controls the issuance of the title policy. Direct operations also provide additional sources of income, such as escrow, document preparation fees, reconveyance fees, real estate information and technology fees, trustee sale guarantee fees, foreclosure publishing and posting fees and exchange intermediary fees. 3 6 In 1996, 49.8% of the Company's title insurance premiums were generated by direct operations. In 1995 and 1994, 62.1% and 53.2%, respectively, of title insurance premiums were generated by direct operations. The percentage of title insurance premiums generated by agency operations was 50.2%, 37.9% and 46.8% in 1996, 1995 and 1994, respectively. The average percentage of premiums generated by agents and retained by the Company was 21.3%, 23.7% and 23.2% in 1996, 1995, and 1994, respectively. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Results of Operations -- Overview, Revenue and 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 or retain 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 April 1, 1996, the Company completed its acquisition of one hundred percent of Nations Title Inc. and its wholly-owned subsidiaries Nations Title Insurance Company, Nations Title Insurance of New York Inc. and National Title Insurance of New York Inc., from Nations Holding Group for an adjusted purchase price of $19.3 million plus 193,600 shares, $2.1 million, of Fidelity National Financial, Inc.'s Common Stock. The acquisition positioned the Company as the nation's fourth largest title insurance underwriter. The Company believes that the combination of its direct operations and Nations Title Inc.'s strong agency network provides a balance to the Company's title premium revenue between direct and agency, as well as a hedge against future market downturns. The acquisition of Nations Title Inc. has also increased the Company's revenue and positively impacted its balance sheet and margins due to the operating economies of the combined companies. The acquisition has also increased market share in areas where the Company has had a limited presence, particularly in those areas where business is primarily agent driven, as well as in states where the Company has a strong market position. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview, Revenue and Recent Developments." Escrow, Trust and Other Title-Related Services. The Company holds funds and documents in real estate transactions for delivery upon closing pursuant to the instructions of the respective parties to an escrow. The Company derives revenue from other ancillary services generated from direct operations, such as document preparation fees, reconveyance fees, recording fees, real estate information and technology 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, 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 as 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 continued 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 $37.3 million, $26.2 million and $23.3 million in 1996, 1995 and 1994, respectively, representing 7.8%, 9.2% and 6.3% of title insurance premium revenue during such periods. 1996 net claims paid include Nations Title Inc. claims paid since April 1, 1996, totalling $9.3 million. Fluctuations 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, 1996, the amount of these interests was $10.2 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. 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, including underwriters, underwritten title companies and independent agents, are subject to extensive regulation under applicable state laws. Each insurance underwriter is usually subject to a holding company act in its state of domicile which regulates, among other 5 8 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, ultimately resulting in two Insurance Subsidiaries as opposed to the current eight. ATIC was merged into Fidelity Pennsylvania effective November 21, 1996 and Fidelity Title was redomesticated to California effective December 31, 1996. 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, 1996, the combined statutory unearned premium reserve required and reported for the Insurance Subsidiaries was $173.5 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 are currently in progress for Fidelity Pennsylvania (1995), Fidelity Tennessee (1995), ATIC (1994) and Nations Title (1995 and 1996). Examinations have been completed for Fidelity Title and Fidelity California as of and for the three-year period ended December 31, 1993. The Department of Commerce and Insurance of the State of Tennessee has completed the field portion of their triennial examination of Fidelity Tennessee as of and for the three-year period ended December 31, 1995. The Company has recently received a preliminary report of examination. The preliminary report, as forwarded to the Company by the Department of Commerce and Insurance of the State of Tennessee, indicates that the examiners are proposing certain immaterial adjustments. These adjustments have previously been included in the 1995 Fidelity Tennessee Statutory Annual Statement as amended and filed with insurance regulatory authorities. The Department of Insurance of the State of Florida has completed the field portion of their triennial examination of ATIC, which was merged into Fidelity Pennsylvania as of November 21, 1996, as of and for the three-year period ended December 31, 1994. The Company has 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, ultimately Fidelity Pennsylvania. Certain of these adjustments have not been included in the 1996 Fidelity Pennsylvania Statutory Annual Statement as filed with insurance regulatory authorities as the Company does not agree with these findings and has requested support for the examination report. These same adjustments have not been considered in the calculation of dividend capability, statutory surplus and statutory income (loss) reported below. The Kansas Department of Insurance has completed a triennial examination of Nations Title as of and for the two-year period ended December 31, 1995 and is currently performing an examination as of and for the year ended December 31, 1996. The Company received a report of examination as of and for the two-year period ended December 31, 1995. The report, as forwarded to the Company by the Kansas Department of Insurance, indicates that the examiners are proposing adjustments that materially impact the statutory capital and surplus of Nations Title. These adjustments have been included in the 1996 Statutory Annual Statement as filed with insurance regulatory authorities and have been considered in the calculation of dividend capability, statutory surplus and statutory income (loss) reported below. Further, Nations Title has recently entered into a voluntary consent order with the Kansas Department of Insurance agreeing to cease writing all new insurance business and to certain other conditions and restrictions. This is consistent with the Company's 6 9 intent in acquiring Nations Title, which was to have all policies which formerly would have been issued by Nations Title issued by one of the Fidelity National Insurance Subsidiaries. Statutorily calculated net worth determines the maximum insurable amount under any single title insurance policy. As of January 1, 1997, the statutory single policy maximum insurable amounts for Fidelity Title, Fidelity Pennsylvania and Fidelity New York were $25.3 million, $30.5 million and $28.6 million, respectively. There are no statutory single risk limits prescribed for Fidelity California or Fidelity Tennessee. The statutory single risk limits for Nations Title, Nations New York and National are $2.4 million, $28.6 million and $7.3 million, respectively. Upon acquisition, the Company took action to have Nations Title business, as well as certain Nations New York and National business, written by Fidelity National Insurance Subsidiaries. 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 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 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, 1997, Fidelity Title could pay dividends or make other distributions to the Company of $5,621,000. Fidelity Pennsylvania and Fidelity New York do not have any dividend paying capability as of January 1, 1997. The combined statutory capital and surplus of the Insurance Subsidiaries was $77,125,000, $67,525,000 and $90,153,000 as of December 31, 1996, 1995 and 1994, respectively. The December 31, 1996, combined capital and surplus includes $11,189,000 of restricted surplus resulting from the aggregate excess of loss reinsurance transaction entered effective December 31, 1996. The Company has submitted the aggregate excess of loss reinsurance contract to the appropriate Departments of Insurance for approval. See Note A of Notes to Consolidated Financial Statements. The combined statutory income (loss) of the Insurance Subsidiaries was $17,451,000, $(1,533,000) and $6,664,000 for the years ended December 31, 1996, 1995 and 1994, respectively. Combined statutory income for the year ended December 31, 1996, also includes a reinsurance gain of $11,189,000 related to the aggregate excess of loss reinsurance transaction. 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. Pursuant to statutory requirements of the various states in which the Insurance Subsidiaries are domiciled, they must maintain certain levels of minimum capital and surplus. Each of the Company's title underwriters have complied with the minimum statutory requirements as of December 31, 1996. See Note K of Notes to Consolidated Financial Statements. In April 1996, the National Association of Insurance Commissioners ("NAIC") published 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. Certain provisions of the Act will be phased in over a multi-year period. The Company has not determined the impact, if any, of the Act on the financial condition or operations of the Insurance Subsidiaries. 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 Fidelity National Title Company ("FNTC") and Fidelity National Title Company of California 7 10 ("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 through 1998. See Note B of Notes to Consolidated Financial Statements. 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 1996, 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 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, 1996 and 1995, the carrying amount, which is equal to the fair value, of total investments was $227.7 million and $180.1 million, respectively. It is the practice of the Company to purchase investment grade fixed maturity securities, selected non-investment grade fixed maturity securities and equity securities. The securities in the Company's portfolio are subject to economic conditions and normal market risks and uncertainties. The following table sets forth certain information regarding the investment ratings of the Company's fixed maturity portfolio at December 31, 1996 and 1995:
DECEMBER 31, ------------------------------------------------------------------------------------- 1996 1995 ----------------------------------------- ----------------------------------------- AMORTIZED % FAIR % AMORTIZED % FAIR % RATINGS(1) COST OF TOTAL VALUE OF TOTAL VALUE OF TOTAL VALUE OF TOTAL --------------- -------- -------- -------- -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) AAA............ $110,718 66.0% $109,956 66.1% $ 86,604 68.1% $ 87,577 67.8% AA............. 10,485 6.3 10,572 6.3 7,753 6.1 7,963 6.1 A.............. 40,587 24.2 40,007 24.1 30,849 24.2 31,623 24.5 Other.......... 5,822 3.5 5,794 3.5 2,058 1.6 2,073 1.6 -------- ----- -------- ----- -------- ----- -------- ----- Total... $167,612 100.0% $166,329 100.0% $127,264 100.0% $129,236 100.0% ======== ===== ======== ===== ======== ===== ======== =====
- --------------- (1) Ratings as assigned by Standard & Poor's Corporation The following table sets forth certain information regarding the Company's fixed maturity securities at December 31, 1996. Expected maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Fixed maturity 8 11 securities with an amortized cost of $41,495,000 and a fair value of $41,280,000 were callable at December 31, 1996:
AMORTIZED % FAIR % MATURITY COST OF TOTAL VALUE OF TOTAL ------------------------------------------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) One year or less........................... $ 2,255 1.3% $ 2,263 1.3% After one year through five years.......... 79,731 47.6 79,434 47.8 After five years through ten years......... 59,821 35.7 59,186 35.6 After ten years............................ 25,805 15.4 25,446 15.3 -------- ----- -------- ----- Total............................ $167,612 100.0% $166,329 100.0% ======== ===== ======== =====
Equity securities at December 31, 1996 and 1995 consist of investments in various industry groups as follows:
1996 1995 ------------------- ------------------- FAIR FAIR COST VALUE COST VALUE ------- ------- ------- ------- (DOLLARS IN THOUSANDS) Banks, trust and insurance companies........ $ 800 $ 863 $12,038 $13,071 Industrial, miscellaneous and all other..... 20,589 42,715 12,430 18,341 ------- ------- ------- ------- Total............................. $21,389 $43,578 $24,468 $31,412 ======= ======= ======= =======
The Company's investment results for the years ended December 31, 1996, 1995, and 1994 were as follows:
DECEMBER 31, ---------------------------------- 1996 1995 1994 -------- -------- -------- (DOLLARS IN THOUSANDS) Net investment income(1)(2)........................ $ 15,742 $ 15,014 $ 20,269 Average invested assets(1)......................... 266,480 233,831 303,615 Effective return on average invested assets(1)..... 5.9% 6.4% 6.7%
- --------------- (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 realized capital gains and losses on the sale of investments. Realized capital gains (losses) totalled $2,625,000, $5,213,000 and $(3,086,000) in 1996, 1995 and 1994, 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, E and N 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, 1996. EMPLOYEES As of December 31, 1996, the Company had approximately 4,500 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, 1996, the Company leased office and storage spaces as follows:
NUMBER OF LOCATIONS --------- California................................................................ 196 Florida................................................................... 35 Arizona................................................................... 31 Texas..................................................................... 27 Oregon.................................................................... 16 New York and New Jersey................................................... 8 New Mexico and Pennsylvania............................................... 6 Michigan, North Carolina, Nevada and Washington........................... 5 Connecticut, Hawaii and Tennessee......................................... 2 One each in: Colorado, Georgia, Indiana, Massachusetts, Maryland, Minnesota, Missouri, Ohio, Kansas, Rhode Island, Utah, Virginia and Wisconsin
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 mechanic's 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. In April 1996, the U.S. District Court ruled in favor of Fidelity California on all counts. Thereafter, NatWest filed an appeal to the Ninth Circuit Court of Appeals. Appellate briefs are in the process of preparation and filing. No ruling has been received from the appellate court. Management believes that the ruling will not have a material adverse effect on Fidelity National Title Insurance Company of California or the Company. Management believes that no other actions depart from customary litigation incidental to the business of the Company and that resolution of all such litigation will not have a material adverse effect on the Company. 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 1996. 10 13 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, 1996 First quarter............................................ $16 9/64 $13 1/64 $.064 Second quarter........................................... 14 13/64 11 23/64 .064 Third quarter............................................ 14 21/32 12 25/64 .064 Fourth quarter........................................... 15 3/8 13 55/64 .070 Year ended December 31, 1995 First quarter............................................ 9 7/16 8 19/64 .058 Second quarter........................................... 12 25/64 8 13/32 .058 Third quarter............................................ 12 17/64 9 57/64 .058 Fourth quarter........................................... 15 11/32 10 51/64 .064
On March 25, 1997, the last reported sale price of the Common Stock on the New York Stock Exchange Composite Tape was $12.125 per share. As of March 25, 1997, the Company had approximately 900 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 25, 1997, the Company's Board of Directors declared a cash dividend of $.07 per share which will be payable on May 2, 1997 to stockholders of record on April 11, 1997. The continued payment of dividends will depend upon operating results, business requirements, contractual restrictions, regulatory considerations and other factors. The Company anticipates the continued payment of dividends. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" and "Business -- Regulation." Contractual Restrictions on Dividend Payments. The Company's ability to pay dividends on its Common Stock and make certain payments is restricted by provisions contained in the Company's Credit Agreement dated as of September 21, 1995, as amended. The maximum amount available to pay dividends and make such payments is $15,640,000. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." See Note G of Notes to Consolidated Financial Statements. 11 14 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 the years ended December 31, 1996, 1995, 1994, 1993 and 1992 have been audited by KPMG Peat Marwick LLP, independent certified public accountants. Audited Consolidated Balance Sheets at December 31, 1996 and 1995 and Consolidated Statements of Earnings, Stockholders' Equity and Cash Flows for the years ended December 31, 1996, 1995, and 1994, 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, ----------------------------------------------------------------- 1996 1995 1994 1993 1992 --------------- -------- -------- -------- ---------- (1)(2)(3)(6)(7) (1)(2)(3) (1)(2)(3) (1)(2)(3) (1)(3) --------------- -------- -------- -------- ---------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA) (RESTATED) OPERATING RESULTS DATA: Revenue: Title insurance premiums.................................. $ 475,961 $285,552 $369,275 $429,772 $288,646 Escrow fees............................................... 66,927 49,723 52,260 69,982 56,038 Other fees and revenue.................................... 76,333 56,954 59,351 60,958 43,285 Interest and investment income, including realized gains (losses)................................................ 17,692 17,616 11,918 14,671 4,308 -------- -------- -------- -------- -------- 636,913 409,845 492,804 575,383 392,277 -------- -------- -------- -------- -------- Expenses: Personnel costs........................................... 211,668 165,514 181,953 196,470 146,609 Other operating expenses.................................. 154,043 123,888 129,367 135,925 103,809 Agent commissions......................................... 187,901 82,713 132,713 147,427 82,217 Provision for claim losses................................ 33,302 19,031 27,838 39,220 31,894 Interest expense.......................................... 9,446 9,239 8,594 2,587 1,458 Minority interest expense................................. -- -- -- 1,200 629 -------- -------- -------- -------- -------- 596,360 400,385 480,465 522,829 366,616 -------- -------- -------- -------- -------- Earnings before income taxes and extraordinary item......... 40,553 9,460 12,339 52,554 25,661 Income tax expense.......................................... 16,216 1,828 2,594 16,259 8,367 -------- -------- -------- -------- -------- Earnings before extraordinary item.......................... 24,337 7,632 9,745 36,295 17,294 Extraordinary item, net of income taxes(4)(5)............... -- (813) 2,400 -- -- -------- -------- -------- -------- -------- Net earnings.......................................... $ 24,337 $ 6,819 $ 12,145 $ 36,295 $ 17,294 ======== ======== ======== ======== ======== PER SHARE DATA: Earnings per share before extraordinary item................ $ 1.71 $ .53 $ .54 $ 1.96 $ 1.07 Extraordinary gain (loss), net of income taxes.............. -- (.05) .13 -- -- -------- -------- -------- -------- -------- Net earnings per share, primary basis................. $ 1.71 $ .48 $ .67 $ 1.96 $ 1.07 ======== ======== ======== ======== ======== Dividends per share......................................... $ .26 $ .23 $ .23 $ .20 $ .15 Weighted average shares outstanding, primary basis (000s)... 14,265 14,267 18,124 18,514 16,089 OTHER DATA: Direct operations market share(8)........................... 21.0% 20.3% 20.6% 18.3% 16.8% Orders closed by direct operations.......................... 394,000 302,000 335,000 464,000 349,000 Average fee per file(9)..................................... $ 806 $ 790 $ 750 $ 710 $ 740 Provision for claim losses to title insurance premiums...... 7.0% 6.7% 7.5% 9.1% 11.0% Net claims paid ratio(10)................................... 7.8% 9.2% 6.3% 4.2% 7.2% Title-related revenue: Percentage direct operations.............................. 60.0% 71.1% 62.6% 65.3% 72.6% Percentage agency operations.............................. 40.0% 28.9% 37.4% 34.7% 27.4% Employees at year end....................................... 4,500 4,100 3,500 4,700 4,000 Number of licensed states at year end....................... 49 49 49 48 48 Return on average equity before extraordinary item(4)(5)(11)............................................ 25.9% 10.0% 10.3% 40.3% 33.2% Return on average equity including extraordinary item(4)(5)(11)............................................ 25.9% 9.0% 12.9% 40.3% 33.2% BALANCE SHEET DATA: Investments................................................. $ 227,674 $180,082 $217,648 $236,533 $107,215 Cash and cash equivalents................................... 63,971 47,431 34,689 42,731 48,375 Total assets................................................ 509,296 405,063 418,119 396,279 252,441 Notes payable............................................... 148,922 136,047 142,129 52,769 26,266 Reserve for claim losses.................................... 187,245 146,094 153,306 142,512 104,528 Minority interest........................................... 1,287 393 616 22,424 21,199 Stockholders' equity........................................ 110,251 77,947 73,954 114,926 65,277
12 15 - --------------- (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, 1996, 1995, 1994, 1993, 1992 and the results of their operations for the years ended December 31, 1996, 1995, 1994, 1993 and for the six months ended December 31, 1992. (2) The Company acquired Fidelity New York on March 17, 1993. The selected financial data above includes the balance sheet accounts of Fidelity New York at December 31, 1996, 1995, 1994, 1993 and the results of its operations for the years ended December 31, 1996, 1995, 1994 and for 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. The selected financial data above includes the balance sheet accounts of ASAP at December 31, 1996, 1995, 1994, 1993, and 1992, 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 an $813,000 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) The Company acquired NTI and its wholly-owned subsidiaries Nations Title, Nations New York and National on April 1, 1996. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Recent Developments" and Note B of Notes to Consolidated Financial Statements. The selected financial data above includes the balance sheet accounts of NTI and subsidiaries at December 31, 1996 and the results of its operations for the nine-month period ended December 31, 1996. (7) The Company acquired CRM, Inc. ("CRM") on November 1, 1996. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Recent Developments" and Note B of Notes to Consolidated Financial Statements. The selected financial data above includes the balance sheet accounts of CRM at December 31, 1996 and the results of its operations for the two-month period ended December 31, 1996. (8) 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. (9) 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. (10) The net claims paid ratio is the percentage resulting from total title claims paid, net of recoupments, divided by title insurance premiums. (11) 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. 13 16 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) 1996 Revenue................................. $126,398 $171,628 $ 166,692 $172,195 Earnings before income taxes............ 8,300 11,757 10,623 9,873 Net earnings............................ 5,145 6,946 6,317 5,929 Primary earnings per share.............. 0.36 0.49 0.44 0.41 Fully diluted earnings per share........ 0.32 0.41 0.38 0.36 Dividends paid per share................ 0.06 0.06 0.06 0.06 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................... (.17) .07 .42 .22 Extraordinary item, net of income taxes................................ (.05) -- -- -- Primary earnings (loss) per share....... (.22) .07 .42 .22 Fully diluted earnings (loss) per share................................ (.22) .07 .36 .21 Dividends paid per share................ .06 .06 .06 .06 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................... .35 .19 .13 (.18) Extraordinary item, net of income taxes................................ -- .03 -- .11 Primary earnings (loss) per share....... .35 .22 .13 (.07) Fully diluted earnings (loss) per share................................ .33 .22 .13 (.07) Dividends paid per share................ .06 .06 .06 .06
14 17 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, ---------------------------------- 1996 1995 1994 -------- -------- -------- (DOLLARS IN THOUSANDS) Total revenue...................................... $636,913 $409,845 $492,804 ======== ======== ======== Total expenses..................................... $596,360 $400,385 $480,465 ======== ======== ======== Earnings before extraordinary item................. $ 24,337 $ 7,632 $ 9,745 Extraordinary item -- gain (loss) on early retirement of debt, net of income taxes.......... -- (813) 2,400 -------- -------- -------- Net earnings............................. $ 24,337 $ 6,819 $ 12,145 ======== ======== ======== Net claims paid ratio (1).......................... 7.8% 9.2% 6.3% Return on average equity before extraordinary item (2).............................................. 25.9% 10.0% 10.3% Return on average equity including extraordinary item (2)......................................... 25.9% 9.0% 12.9%
- --------------- (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. It is impossible to predict in what future direction interest rates and the real estate market may move or fluctuate. 15 18 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, ------------------------------------------------------------------- % % % 1996 OF TOTAL 1995 OF TOTAL 1994 OF TOTAL -------- -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) Revenue from direct operations: Title insurance premiums.... $237,244 39.8% $177,202 47.3% $196,376 42.5% Escrow fees................. 66,927 11.2 49,723 13.3 52,260 11.3 Other title-related fees and revenue.................. 53,543 9.0 39,117 10.5 40,534 8.8 -------- ----- -------- ----- -------- ----- Total............... 357,714 60.0 266,042 71.1 289,170 62.6 Revenue from agency operations: Title insurance premiums.... 238,717 40.0 108,350 28.9 172,899 37.4 -------- ----- -------- ----- -------- ----- Total title-related revenue........... $596,431 100.0% $374,392 100.0% $462,069 100.0% ======== ===== ======== ===== ======== =====
On April 1, 1996, the Company completed its acquisition of the Nations Title Inc. group of companies. See "Recent Developments." The acquisition positioned Fidelity National Financial, Inc. as the nation's fourth largest title insurance underwriter. Nations Title Inc. and its three wholly-owned underwriting subsidiaries, Nations Title Insurance Company, Nations Title Insurance of New York Inc. and National Title Insurance of New York Inc., expanded the Company's national agency network and increased its market share in the more traditional agency driven states. The Nations Title Inc. acquisition resulted in additional agency business and a shift in the mix of business from direct to agency during 1996. The revenue and expense information presented in Management's Discussion and Analysis of Financial Condition and Results of Operations includes Nations Title Inc.'s results of operations for the nine-month period ended December 31, 1996. In 1996, the total title-related revenue (excluding interest and investment income and non-title-related other fees and revenue) generated by agency operations increased to 40.0% from 28.9% in 1995. During 1995 and 1994, 71.1% and 62.6%, respectively, of total title-related revenue was generated from direct operations. The Company traditionally focused on direct operations because it retains the entire premium from each transaction and is 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 agent 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. The Company's strategy of expanding into selected markets continued during the last three years. The Company's strategy includes the restructuring of acquired operations, expansion into the commercial market while maintaining its level of focus on the residential resale and refinance markets, enhancing sales and marketing efforts, minimizing net claim payments through stringent quality controls and effectively managing overhead costs. 16 19 RESULTS OF OPERATIONS Revenue. The following table presents information regarding the components of the Company's revenue:
YEARS ENDED DECEMBER 31, -------------------------------------- 1996 1995 1994 --------- ---------- --------- (DOLLARS IN THOUSANDS, OTHER THAN FEE PER FILE) Title insurance premiums....................... $ 475,961 $ 285,552 $ 369,275 Escrow fees.................................... 66,927 49,723 52,260 Other fees and revenue......................... 76,333 56,954 59,351 Interest and investment income, including 17,692 17,616 11,918 realized gains (losses)...................... -------- -------- -------- Total revenue........................ $ 636,913 $ 409,845 $ 492,804 ======== ======== ======== Orders closed by direct operations............. 394,000 302,000 335,000 Average fee per file from direct operations.... $ 806 $ 790 $ 750
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 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 and the Company's acquisition of Nations Title Inc., which was completed on April 1, 1996, have resulted in title premiums of $476.0 million, $285.6 million and $369.3 million, for 1996, 1995 and 1994, respectively. The difference in title insurance premiums between 1996 and 1995 of $190.4 million represents an increase of 66.7%. Title insurance premiums decreased $83.7 million, or 22.7%, in 1995 from 1994. The average fee per file increased to $806 in 1996 from $790 in 1995, which had previously increased from $750 in 1994. The increase in fee per file in 1996 over 1995 is the result of increased fee revenue attributable to higher fees charged per policy due to appreciated property values, an overall rate increase and an expansion in the commercial business sector offset by an increase in refinancing transactions. The increase in 1995 over 1994 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 and technology fees, foreclosure publishing and posting fees and exchange intermediary fees received. 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 1996, 1995 and 1994 years in a pattern generally consistent with the fluctuation in title insurance premiums. Escrow fees increased $17.2 million to $66.9 million in 1996, a 34.6% increase from $49.7 million in 1995. The 1996 percentage increase in escrow fees is not as significant as the percentage increase in title premiums due to the change in the direct operation/agency business mix. See "Overview." Escrow fees decreased $2.6 million, or 5.0%, in 1995 from 1994 to $49.7 million from $52.3 million. The decrease in escrow fees in 1995 from 1994 is not as great as the decrease in title insurance premiums due to the decrease 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. 17 20 Other fees and revenue trend closely with the level and mix of business, as well as the performance of certain of the Company's title-related subsidiaries. In 1996, other fees and revenue increased $19.3 million, or 33.9%, to $76.3 million from $57.0 million in 1995. The increase is primarily attributable to the increase in title premiums and escrow fees generated by the Company's direct operations. Direct operations generate other fees and income. Additionally, the Company's foreclosure publishing and posting business, exchange intermediary service and appraisal service have significantly expanded their market presence and revenue, which are included in other fees and income. 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. During 1995, other fees and revenue decreased $2.4 million, or 4.0%, to $57.0 million from $59.4 million in 1994. 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 the 1995 and 1994 years is primarily attributable to the nature of the revenue included and the title insurance market environment which shifted from a refinance to a resale oriented market. In a resale transaction, other fees and revenue are greater than in a refinancing transaction. See "Overview." Interest and investment income levels are primarily a function of securities markets, interest rates and the amount of cash available for investment. During 1996, interest and investment income increased .6% to $17.7 million from $17.6 in 1995. As interest rates declined during 1996 from 1995, which had previously declined from 1994 interest rates, the tax adjusted yield decreased to 5.9% in 1996 compared to 6.4% in 1995. Average invested assets, excluding real estate, increased $32.7 million, or 14.0%, to $266.5 million in 1996 from $233.8 million in 1995. The difference in investment results is primarily attributable to increased interest income resulting from an increase in average invested assets offset by a decrease in yield and in capital gains. During 1996, the Company recognized $2.6 million of capital gains compared to $5.2 million of capital gains recorded in 1995. In 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 1995 gain amount is a net $3.4 million gain realized upon the sale of the Company's common stock holdings in US Facilities Corporation during the third quarter of 1995. 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 Liquid Yield Option Notes ("LYONs") at favorable market prices. See "Extraordinary Item." 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 6.1 million shares of its Common Stock or a comparable amount of its LYONs which are convertible into 23.204 shares of Common Stock per $1,000 maturity value of LYONs. In accordance with this authorization, the Company purchased $48.0 million principal amount of LYONs at an average purchase price of $366.51 per $1,000 maturity value 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 2.4 million shares of Common Stock or the equivalent amount of LYONs increasing the total amount authorized to 8.4 million shares or the equivalent amount of LYONs. See "Liquidity and Capital Resources" and "Recent Developments." 18 21 Expenses. The following table presents the components of the Company's expenses:
YEARS ENDED DECEMBER 31, -------------------------------------- 1996 1995 1994 --------- ---------- --------- (DOLLARS IN THOUSANDS) Personnel costs................................ $211,668 $165,514 $181,953 Other operating expenses....................... 154,043 123,888 129,367 Agent commissions.............................. 187,901 82,713 132,713 Provision for claim losses..................... 33,302 19,031 27,838 Interest expense............................... 9,446 9,239 8,594 -------- -------- -------- Total expenses....................... $596,360 $400,385 $480,465 ======== ======== ========
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 (direct operations) paid to employees and are the most significant operating expense incurred by the Company. These costs generally fluctuate with the level of orders opened and closed and with the mix of revenue between direct and agency operations. Personnel costs totalled $211.7 million, $165.5 million and $182.0 million for the years ended December 31, 1996, 1995 and 1994, respectively. See "Overview" and "Revenue." Personnel costs, as a percentage of total revenue, have decreased to 33.2% in 1996 from 40.4% in 1995, which had previously increased from 36.9% in 1994. These fluctuations in personnel costs as a percentage of total revenue can be attributed to the varying market conditions in the title insurance industry and the mix of agency versus direct business. The Company has taken significant measures to maintain appropriate personnel levels and costs relative to the volume and mix of business and revenues. The Company will not, however, compromise its customer service standards or quality controls in responding to market conditions. The Company continues to monitor the prevailing market conditions and will respond as necessary. Other operating expenses consist of facilities expenses, title plant maintenance, premium taxes (which insurance underwriters are required to pay on title premiums and title-related revenue in lieu of franchise and other state taxes), escrow losses, courier services, computer services, professional services, general insurance, trade and notes receivable allowances and depreciation. Other operating expenses decreased as a percentage of total revenue to 24.2% in 1996 from 30.2% in 1995, which had previously increased from 26.3% in 1994. In response to market conditions, the Company implemented aggressive cost control programs in order to maintain operating expenses at levels consistent with the levels of title-related revenue; however, certain fixed costs are incurred regardless of revenue levels, resulting in the year over year percentage fluctuations. The Company continues to be committed to these cost control measures. Total other operating expenses totalled $154.0 million, $123.9 million and $129.4 million in 1996, 1995 and 1994, respectively. See "Overview." The period over period fluctuations in personnel costs and other operating expenses are primarily the result of the fluctuations in total revenue, as well as the changes in the direct operation and agency operation title premium mix. The 1996 addition of Nations Title Inc. title premiums, which are primarily agency related, has provided a balance between direct operation and agency revenue. In previous periods the majority of title premiums and total revenue were generated by direct operations, which resulted in higher personnel costs and other operating expenses. 19 22 Agent commissions represent the portion of premiums retained by agents pursuant to the terms of their respective agency contracts. The following table illustrates the relationship of agent premiums and agent commissions:
YEARS ENDED DECEMBER 31, -------------------------------------------------------- 1996 1995 1994 ---------------- ---------------- ---------------- AMOUNT % AMOUNT % AMOUNT % -------- ----- -------- ----- -------- ----- (DOLLARS IN THOUSANDS) Agent premiums.................... $238,717 100.0% $108,350 100.0% $172,899 100.0% Agent commissions................. 187,901 78.7 82,713 76.3 132,713 76.8 -------- ----- -------- ----- -------- ----- Premiums retained by the Company...................... $ 50,816 21.3% $ 25,637 23.7% $ 40,186 23.2% ======== ===== ======== ===== ======== =====
Agent commissions and the resulting percentage of agent premiums retained by the Company varies according to regional differences in real estate closing practices and state regulations. The 1996 increase in agent commissions as a percentage of agency premiums over 1995, resulting in a decrease in the percentage of agency premiums retained by the Company, is attributable to the fact that the average commissions paid to agents acquired in the Nations Title Inc. acquisition exceed those paid to the former agent base. The combination of higher agency commission rates and the significant agency revenue generated by the Nations Title Inc. acquisition have resulted in higher overall commissions in 1996. The percentage of agency premiums retained by the Company increased in 1995 over 1994 primarily due to the Company's expansion of operations outside of California into states where underwriters' retained premiums are generally greater. 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 1996, 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 7.0%, 6.7% and 7.5% in 1996, 1995 and 1994, respectively. A summary of the reserve for claim losses follows:
YEARS ENDED DECEMBER 31, ------------------------------ 1996 1995 1994 -------- -------- -------- (DOLLARS IN THOUSANDS) Beginning balance...................................... $146,094 $153,306 $142,512 Reserves assumed with Nations Title Inc.............. 45,171 -- -- Reserves assumed with Fidelity Pennsylvania and ATIC.............................................. -- -- 6,219 Title claim loss provision related to: Current year...................................... 32,505 23,901 38,575 Prior years....................................... 797 (4,870) (10,737) -------- -------- -------- Total title claim loss provision..................... 33,302 19,031 27,838 Title claims paid, net of recoupments related to: Current year...................................... (2,430) (2,818) (1,742) Prior years....................................... (34,892) (23,425) (21,521) -------- -------- -------- Total title claims paid, net of recoupments.......... (37,322) (26,243) (23,263) -------- -------- -------- Ending balance......................................... $187,245 $146,094 $153,306 ======== ======== ======== Provision for title claim losses to title insurance premiums............................................. 7.0% 6.7% 7.5% Net claims paid ratio.................................. 7.8% 9.2% 6.3%
20 23 Interest expense is incurred by the Company in financing its capital asset purchases and certain 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 totalled $4.2 million, $4.3 million and $3.8 million for the years 1996, 1995, and 1994, respectively. The LYONs-related component of interest expense amounted to $5.2 million, $4.9 million and $4.8 million for 1996, 1995 and 1994, respectively. Interest expense in 1996 was comparable to that of 1995 primarily as a result of slightly more favorable interest rates related to outstanding non-LYONs debt, offset by an increase in the LYONs component of interest expense. 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 financing and increases in the prime interest rate and LIBOR, to which certain of the interest rates paid by the Company are indexed. See "Recent Developments." Income tax expense for 1996, 1995 and 1994, as a percentage of earnings before income taxes, including the extraordinary loss in 1995 and extraordinary gain in 1994, was 40.0%, 16.9% and 24.2%, respectively. See "Extraordinary Item." The fluctuations in income tax expense as a percentage of earnings before income taxes, including the extraordinary item, are attributable to the effect of state income taxes on the Company's wholly-owned underwritten title companies; a change in the amount and characteristics of net income, operating income versus investment income; and the tax treatment of certain items. 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, 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 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, 1996, the fair value of the 21 24 Company's total investment securities was $227.7 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." On September 21, 1995, the Company obtained 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 was used to refinance higher rate indebtedness and for general corporate purposes. $5 million of the $13 million revolving credit facility was used to fund a portion of the Nations Title Inc. acquisition and the remainder is available for general corporate purposes. See Note G of Notes to Consolidated Financial Statements. In February 1994, the Company issued zero coupon, convertible subordinated Liquid Yield Option Notes due February 2009 at an interest rate of 5.5% with a principal amount at maturity of $235,750,000. Net proceeds to the Company were approximately $101,000,000. The proceeds were used for investment and general corporate purposes, including the repurchase of treasury shares. See Note G of Notes to Consolidated Financial Statements. In the normal course of business certain of the Company's subsidiaries enter into off-balance sheet credit risk associated with certain aspects of its title insurance policies and Manchester's real estate activities. This credit risk is in the form of standby letters of credit and general partnership guarantees. The Company believes that this credit risk is adequately secured by either legal remedies associated with settlement procedures or the underlying real estate assets. See Notes J and N of Notes to Consolidated Financial Statements. Recent Accounting Pronouncements. 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 the 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 was effective for financial statements issued for fiscal years beginning after December 15, 1995. The adoption of Statement 121 did not have a material effect on the Consolidated Financial Statements of the Company. 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 22 25 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 was effective for fiscal years beginning after December 15, 1995. The Company has chosen to continue using the Opinion 25 method when accounting for stock based compensation in its basic financial statements. Recent Developments. 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 2.4 million shares of its Common Stock, or comparable amount of the Company's LYONs. This was in addition to the 6.0 million shares or comparable amount of LYONs previously authorized for repurchase by the board of directors -- 1.2 million shares on March 31, 1994, 1.2 million shares on June 15, 1994, and an additional 3.6 million shares on August 11, 1994. Any shares repurchased are 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 December 31, 1996, the Company had repurchased 5,685,738 shares of its Common Stock for an aggregate price of $56.3 million, or $9.90 per share, 193,600 shares, cost basis of $1.9 million, of which were reissued in connection with the acquisition of Nations Title Inc. Additionally, as of December 31, 1996, the Company had purchased $48.0 million in maturity amount of LYONs for an aggregate price of $17.6 million, all of which were purchased in 1994. The purchase 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 September 21, 1995, the Company obtained 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 was used to refinance higher rate indebtedness and for general corporate purposes. $5 million of the $13 million revolving credit facility was used to fund a portion of the Nations Title Inc. acquisition. See Note G of Notes to Consolidated Financial Statements. In February of 1996, the Company proposed a merger with Giant Group, Ltd. ("Giant"). The Company had purchased 705,489 shares (or 14.8%) of Giant's outstanding common stock. The Company's intent in acquiring Giant was to utilize its liquid assets to take advantage of investment opportunities in non-interest rate sensitive businesses. On April 26, 1996, the parties reached a settlement agreement pursuant to which Giant repurchased its shares from Fidelity. In addition, as part of the settlement, Fidelity acquired 767,807 shares of Rally's Hamburger, Inc. ("Rally's") stock from Giant for $.83 per share, as well as an option to purchase additional shares of Rally's common stock. On April 1, 1996, the Company completed its acquisition of one hundred percent of Nations Title Inc. and its wholly-owned subsidiaries Nations Title Insurance Company, Nations Title Insurance of New York Inc. and National Title Insurance of New York Inc. from Nations Holding Group for an adjusted purchase price of $19.3 million plus 193,600 shares, $2.1 million, of the Company's Common Stock. The acquisition positioned Fidelity National Financial, Inc. as the nation's fourth largest title insurance underwriter. The Company believes that the combination of its direct operations and Nations Title Inc.'s strong agency network provides a balance to the Company's title premium revenue between direct and agency, as well as a hedge against future market downturns. The acquisition of Nations Title Inc. has also increased the Company's revenue and positively impacted its balance sheet and margins due to the operating economies of the combined companies. The acquisition has also increased market share in areas where the Company has had a limited presence, particularly in those areas where business is primarily agent driven, as well as in states where the Company has a strong market position. This transaction has been accounted for as a purchase. See Note B of Notes to Consolidated Financial Statements. On April 4, 1996, the Company purchased 17% of the outstanding common stock of National Alliance Marketing Group, Inc. ("National"), a California corporation, for $566,667; together with a warrant to 23 26 acquire an additional 14% of National common stock. In addition, the Company loaned $1,200,000 to National at closing at a rate of prime plus one percent. Subsequently, the Company agreed to increase the credit facility from $1,200,000 to $1,700,000. In consideration for the increase in the credit facility National agreed to increase the warrant shares which the Company can purchase. If the entire $1,700,000 is borrowed the Company may purchase an additional 34% of the outstanding shares of National. After receiving approval of the transaction from the California Department of Insurance, the transaction closed on July 12, 1996. National is the parent company of Alliance Home Warranty Company, a California insurance company. Alliance sells home warranty plans to buyers of resale homes, primarily in the central and Southern California markets. A home warranty contract generally promises the repair or replacement of major operating systems and built-in appliances inside a home for a period of one year. On May 16, 1996, the Company paid $3.1 million to acquire a first lien loan of $3.4 million secured by a commercial office building owned by a real estate partnership in which Manchester Development Corporation is the sole general partner. During 1996, but prior to the Company's acquisition of the loan, officers and directors of the Company assigned their ownership interests in the real estate partnership to Manchester. The Company leases space in the commercial office building. On May 29, 1996, the Company acquired 19.8% of the outstanding common stock of Smith/Norris Corporation ("Smith/Norris"), a California corporation, together with a warrant to acquire an additional 20% of Smith/Norris common stock. Smith/Norris is a privately held software development corporation which focuses on a family of image-enabled records systems including imaging, indexing, reporting, cashiering and accounting software for county and city government departments. As an additional part of the transaction, the Company established a credit facility in an amount up to $2,000,000 to finance future growth. On September 30, 1996, the Company accepted the assignment from a real estate partnership of the right to redeem a retail shopping center valued at $4.5 million in exchange for a net payment of $434,000. Officers and directors of the Company who held ownership interests in the real estate partnership assigned their rights to redeem to the Company. On November 21, 1996, the Company redeemed the retail property at a price of $2.8 million. The Company continues to collect rent from the retail tenants while actively marketing the property for sale. The property is carried at cost, which approximates fair value. On November 1, 1996, the Company acquired 80% of the outstanding stock of CRM, Inc. ("CRM") for a purchase price of $3.5 million, $1.0 million in cash and 173,790 shares, $2.5 million, of the Company's Common Stock. CRM provides real estate information services with a heavy concentration in the areas of tax services and flood certification. The Company combined its existing tax service business with that of CRM. Under certain circumstances the Company can purchase the remaining 20% of the outstanding stock of CRM. CRM, Inc. now operates as Fidelity National Tax Service, Inc. This transaction has been accounted for as a purchase. See Note B of Notes to Consolidated Financial Statements. On March 25, 1997, the Company's Board of Directors declared a cash dividend of $.07 per share which will be payable on May 2, 1997, to stockholders of record on April 11, 1997. 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. 24 27 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES INDEX TO FINANCIAL INFORMATION
PAGE NO. -------- Independent Auditors' Report....................................................... 26 Consolidated Balance Sheets as of December 31, 1996 and 1995....................... 27 Consolidated Statements of Earnings for the years ended December 31, 1996, 1995 and 1994............................................................................. 28 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996, 1995 and 1994.............................................................. 29 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994......................................................................... 30 Notes to Consolidated Financial Statements......................................... 31
25 28 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, 1996 and 1995 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, 1996. 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, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996 in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Orange County, California February 24, 1997 26 29 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, --------------------- 1996 1995 -------- -------- ASSETS Investments: Fixed maturities available for sale, at fair value................... $166,329 129,236 Equity securities, at fair value..................................... 43,578 31,412 Other long-term investments, at cost, which approximates fair value............................................................. 5,542 2,627 Short-term investments, at cost, which approximates fair value....... 873 8,148 Investments in real estate and partnerships, net..................... 11,352 8,659 -------- -------- Total investments............................................ 227,674 180,082 Cash and cash equivalents (including certificates of deposit of $4,057 in 1996 and $3,173 in 1995).......................................... 63,971 47,431 Trade receivables (less allowance of $6,822 in 1996 and $3,471 in 1995)................................................................ 54,355 39,801 Notes receivable, net (including $1,996 in 1996 and $2,104 in 1995 with affiliated parties).................................................. 11,317 15,926 Prepaid expenses and other assets...................................... 55,072 43,908 Title plants........................................................... 50,701 41,725 Property and equipment, net............................................ 38,617 33,740 Income taxes receivable................................................ 7,589 2,450 -------- -------- $509,296 $405,063 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable and accrued liabilities............................. $ 53,987 $ 44,549 Notes payable........................................................ 148,922 136,047 Reserve for claim losses............................................. 187,245 146,094 Deferred income taxes................................................ 7,604 33 -------- -------- 397,758 326,723 Minority interest.................................................... 1,287 393 Stockholders' equity: Preferred stock, $.0001 par value; authorized, 3,000,000 shares; issued and outstanding, none...................................... -- -- Common stock, $.0001 par value; authorized, 50,000,000 shares in 1996 and 1995; issued, 19,412,694 in 1996 and 19,183,189 in 1995....... 2 2 Additional paid-in capital........................................... 61,271 58,098 Retained earnings.................................................... 91,019 70,273 -------- -------- 152,292 128,373 Net unrealized gains on investments.................................. 12,334 5,866 Less treasury stock, 5,492,138 shares in 1996 and 5,685,738 shares in 1995, at cost..................................................... 54,375 56,292 -------- -------- 110,251 77,947 Commitments and contingencies........................................ Subsequent events.................................................... -------- -------- $509,296 $405,063 ======== ========
See Notes to Consolidated Financial Statements. 27 30 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31, ---------------------------------- 1996 1995 1994 -------- -------- -------- REVENUE: Title insurance premiums................................. $475,961 $285,552 $369,275 Escrow fees.............................................. 66,927 49,723 52,260 Other fees and revenue................................... 76,333 56,954 59,351 Interest and investment income, including realized gains (losses).............................................. 17,692 17,616 11,918 -------- -------- -------- 636,913 409,845 492,804 -------- -------- -------- EXPENSES: Personnel costs.......................................... 211,668 165,514 181,953 Other operating expenses................................. 154,043 123,888 129,367 Agent commissions........................................ 187,901 82,713 132,713 Provision for claim losses............................... 33,302 19,031 27,838 Interest expense......................................... 9,446 9,239 8,594 -------- -------- -------- 596,360 400,385 480,465 -------- -------- -------- Earnings before income taxes and extraordinary item...... 40,553 9,460 12,339 Income tax expense....................................... 16,216 1,828 2,594 -------- -------- -------- Earnings before extraordinary item.................... 24,337 7,632 9,745 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..................................... $ 24,337 $ 6,819 $ 12,145 ======== ======== ======== Primary earnings per share before extraordinary item..... $ 1.71 $ .53 $ .54 Extraordinary item -- gain (loss) on early retirement of debt, net of applicable income tax expense (benefit)............................................. -- (.05) .13 -------- -------- -------- Primary net earnings per share........................... $ 1.71 $ .48 $ .67 ======== ======== ======== Weighted average shares outstanding, primary basis....... 14,265 14,267 18,124 ======== ======== ======== Fully diluted earnings per share......................... $ 1.47 $ .48 $ .67 ======== ======== ======== Weighted average shares outstanding, fully diluted basis................................................. 18,682 14,267 22,604 ======== ======== ========
See Notes to Consolidated Financial Statements. 28 31 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMMON STOCK ADDITIONAL NET TREASURY STOCK ---------------- PAID-IN RETAINED UNREALIZED ------------------ SHARES AMOUNT CAPITAL EARNINGS GAINS (LOSSES) SHARES AMOUNT ------ ------ ---------- -------- -------------- ------ -------- Balance, December 31, 1993.......... 18,500 $2 $ 52,664 $ 58,438 $ 3,822 -- $ -- Exercise of stock options......... 283 -- 1,314 -- -- -- -- Net unrealized losses on investments..................... -- -- -- -- (12,736) -- -- Purchase of ACS Systems, Inc. .... 181 -- 2,681 -- -- -- -- Purchase of treasury stock........ -- -- -- -- -- 3,996 (40,461) ASAP purchase price adjustment.... (14) -- -- -- -- -- -- Cash dividends ($.23 per share)... -- -- -- (3,915) -- -- -- Net earnings...................... -- -- -- 12,145 -- -- -- -- ------ ------- -------- -------- ----- -------- Balance, December 31, 1994.......... 18,950 2 56,659 66,668 (8,914) 3,996 (40,461) -- ------ ------- -------- -------- ----- -------- Exercise of stock options......... 185 -- 1,439 -- -- -- -- Net unrealized gains on investments..................... -- -- -- -- 14,780 -- -- Purchase of treasury stock........ -- -- -- -- -- 1,690 (15,831) ACS Systems, Inc. purchase price adjustment...................... 48 -- -- -- -- -- -- Cash dividends ($.23 per share)... -- -- -- (3,214) -- -- -- Net earnings...................... -- -- -- 6,819 -- -- -- -- ------ ------- -------- -------- ----- -------- Balance, December 31, 1995.......... 19,183 2 58,098 70,273 5,866 5,686 (56,292) -- ------ ------- -------- -------- ----- -------- Exercise of stock options......... 56 -- 440 -- -- -- -- Net unrealized gains on investments..................... -- -- -- -- 6,468 -- -- Purchase of Nations Title Inc. ... -- -- 213 -- -- (194) 1,917 Purchase of CRM, Inc. ............ 174 -- 2,520 -- -- -- -- Cash dividends ($.26 per share)... -- -- -- (3,591) -- -- -- Net earnings...................... 24,337 -- ------ ------- -------- -------- ----- -------- Balance, December 31, 1996.......... 19,413 $2 $ 61,271 $ 91,019 $ 12,334 5,492 $(54,375) ====== == ======= ======== ======== ===== ========
See Notes to Consolidated Financial Statements. 29 32 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEARS ENDED DECEMBER 31, --------------------------------- 1996 1995 1994 --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings.............................................. $ 24,337 $ 6,819 $ 12,145 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation and amortization.......................... 12,814 13,410 11,207 Net increase (decrease) in reserve for claim losses.... (4,020) (7,212) 4,575 Amortization of LYONs original issue discount and issuance costs....................................... 5,295 4,916 4,701 Provision for losses on real estate and notes receivable........................................... 775 158 (159) Equity in (gains) losses of unconsolidated partnerships......................................... 520 (72) 134 (Gain) loss on sales of investments.................... (3,713) (5,023) 2,307 (Gain) loss on sale of real estate and other assets.... 1,088 (190) 779 Changes in assets and liabilities, net of effects from acquisitions: Net increase in trade receivables...................... (7,030) (11,306) (7,086) Net increase in prepaid expenses and other assets...... (5,434) (5,643) (3,143) Net decrease in accounts payable and accrued liabilities.......................................... (509) (3,547) (11,375) Net increase (decrease) in income taxes................ 3,417 7,673 (7,860) --------- --------- --------- Net cash provided by (used in) operating activities...................................... 27,540 (17) 6,225 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Investments in real estate and partnerships............... -- (100) (151) Proceeds from investment securities: Held to maturity (principally maturities of securities).......................................... -- 2,310 2,252 Available for sale..................................... 182,512 214,524 112,435 Proceeds from sales of other assets....................... 3,700 3,442 301 Proceeds from sales of real estate........................ 917 -- -- Collections of notes receivable........................... 14,645 3,035 2,465 Additions to title plants................................. (1,011) (1,719) (987) Additions to property and equipment....................... (14,085) (9,655) (25,233) Additions to notes receivable............................. (8,470) (5,980) (8,135) Purchases of investment securities: Held to maturity....................................... -- (1,941) (3,668) Available for sale..................................... (183,788) (151,305) (115,748) Distributions from partnerships........................... -- -- 30 Investment in ATIC preferred stock........................ -- -- (15,500) Acquisitions of businesses, net of cash acquired.......... (10,138) (11,363) (1,130) --------- --------- --------- Net cash provided by (used in) investing activities...................................... (15,718) 41,248 (53,069) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings................................................ 22,904 48,285 130,652 Debt service payments..................................... (17,066) (59,150) (27,287) Retirement of LYONs....................................... -- -- (17,592) Gain on early retirement of LYONs......................... -- -- (3,692) Dividends paid............................................ (3,477) (3,232) (4,132) Exercise of stock options................................. 440 1,439 1,314 Issuance (purchase) of treasury stock, net................ 1,917 (15,831) (40,461) --------- --------- --------- Net cash provided by (used in) financing activities...................................... 4,718 (28,489) 38,802 --------- --------- --------- Net increase (decrease) in cash and cash equivalents........ 16,540 12,742 (8,042) Cash and cash equivalents at beginning of year............ 47,431 34,689 42,731 --------- --------- --------- Cash and cash equivalents at end of year.................. $ 63,971 $ 47,431 $ 34,689 ========= ========= =========
See Notes to Consolidated Financial Statements. 30 33 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following describes the significant accounting policies of Fidelity National Financial, Inc. ("Fidelity Financial") and its subsidiaries (collectively, the "Company") which have been followed in preparing the accompanying Consolidated Financial Statements. Description of business Fidelity National Financial, Inc., through its principal subsidiaries 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 information and technology services, trustee sale guarantees, foreclosure publishing and posting services and exchange intermediary services in connection with real estate transactions. Title insurance services are provided through the Company's direct operations and otherwise through independent title insurance agents who issue title policies on behalf of the underwriting subsidiaries. Title insurance is generally accepted as the most efficient means of determining title to, and the priority of interests in, real estate in nearly all parts of the United States. Today, virtually all real property mortgage lenders require their borrowers to obtain a title insurance policy at the time a mortgage loan is made or to allow the sale of loans in the secondary market. The Company's principal subsidiaries consist of Fidelity National Title Insurance Company ("Fidelity Title"), which, in turn, is the parent company of Fidelity National Title Insurance Company of California ("Fidelity California"), Fidelity National Title Insurance Company of Tennessee ("Fidelity Tennessee") and Nations Title Insurance Company ("Nations Title"); Fidelity National Title Insurance Company of Pennsylvania ("Fidelity Pennsylvania"), which, in turn, was the parent company of American Title Insurance Company ("ATIC"), which was merged into Fidelity Pennsylvania as of November 21, 1996; Fidelity National Title Insurance Company of New York ("Fidelity New York"), which, in turn, is the parent company of Nations Title Insurance of New York Inc. ("Nations New York) and National Title Insurance of New York Inc. ("National") (collectively, the "Insurance Subsidiaries"); and its wholly-owned underwritten title companies (collectively, the "UTCs"). Nations Title Insurance Company, Nations Title Insurance of New York Inc. and National Title Insurance of New York Inc. were acquired, along with Nations Title Inc. ("NTI," collectively, "Nations Title Inc.") in a transaction which closed on April 1, 1996. See Note B. 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. 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 31 34 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) securities which it had on deposit with regulatory authorities and certain other fixed maturity securities, to maturity and carried them at amortized cost. 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 a limited partnership interest in an investment fund and certain other debt instruments, 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. Investments in real estate and partnerships are generally held for investment purposes and are carried at cost in the absence of any other than temporary impairment in value. Investments in real estate which are held for sale, including real estate acquired through foreclosure of properties in satisfaction of commercial and real estate loans, are carried at the lower of cost or fair value less estimated costs to sell. Realized gains and losses on the sale of investments are determined on the basis of the cost of the specific investments sold and are credited or charged to income on a trade date basis. Unrealized gains or losses on bonds and common stocks which are classified as available for sale, net of applicable deferred income taxes (benefits), are excluded from income and credited or charged directly to a separate component of stockholders' equity. The carrying value for investments considered available for sale 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. See Notes C, D, E and G. 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. 32 35 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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. Intangible assets at December 31, 1996 consist of cost in excess of net assets acquired of $8,349,000 less accumulated amortization of $1,733,000, capitalized licensing costs of $3,937,000 less accumulated amortization of $98,000, capitalized software of $11,720,000 less accumulated amortization of $2,740,000 and capitalized debt offering costs of $4,738,000 less accumulated amortization of $1,738,000. At December 31, 1995, intangible assets consist of cost in excess of net assets acquired of $5,303,000 less accumulated amortization of $1,378,000, capitalized licensing costs of $2,458,000, capitalized software of $11,135,000 less accumulated amortization of $1,105,000 and capitalized debt offering costs of $4,738,000 less accumulated depreciation of $1,505,000. Impairment of intangible assets is monitored on a continual basis, and is assessed based on an analysis of the cash flows generated by the underlying assets. No impairment of intangible assets has been noted. Income taxes The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109 ("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. 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 33 36 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 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. 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. Effective December 31, 1996, the Company entered into an aggregate excess of loss reinsurance contract, which is deemed to be long duration and retroactive. There is no impact on the 1996 Consolidated Financial Statements related to this transaction. See Note K. There is no other significant reinsurance activity. 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. Share and per share restatement 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. 34 37 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) On December 11, 1996, the Company declared a 10% stock dividend, to shareholders of record on December 23, 1996, distributed January 7, 1997. 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, 1996. Fractional shares were paid in cash. All data with respect to earnings per share, dividends per share and share information, including price per share where applicable, in the Consolidated Financial Statements and Notes thereto have been retroactively adjusted to reflect all stock dividends and splits. 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. 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 1995 and 1994 Consolidated Financial Statements to conform to the classifications used in 1996. B. ACQUISITIONS 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 acquired company operates 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. The assets acquired, including cost in excess of net 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. 35 38 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The acquired company operates as a subsidiary of the Company 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 1995 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 retained certain percentages of amounts collected subsequent to the acquisition date and remitted 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 retained certain percentages of amounts collected on open title orders subsequent to the acquisition date and remits the remaining amounts to the Department. The Company retained a total of $2.1 million in 1996. The amount retained by the Company in 1995 was not material. On June 22, 1995, the Company acquired 100% of the common stock of World Tax Service ("World Tax"), now known as Fidelity 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 121,000 shares of the Company's Common Stock at $11.98 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. The 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 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 April 1, 1996, the Company completed its acquisition of Nations Title Inc. from Nations Holding Group for an adjusted purchase price of $19.3 million plus 193,600 shares, $2.1 million, of the Company's Common Stock. The acquisition positioned Fidelity National Financial, Inc. as the nation's fourth largest title insurance underwriter. Nations Title Inc. and its three wholly-owned underwriting subsidiaries, Nations Title Insurance Company, Nations Title Insurance of New York Inc. and National Title Insurance of New York Inc., expanded the Company's national agency network and increased its market share in the more traditional agency driven states. This transaction has been accounted for as a purchase. 36 39 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The assets acquired and liabilities assumed in the Nations Title Inc. acquisition were as follows (dollars in thousands): Assets acquired at fair value..................................... $ 74,177 Liabilities assumed at fair value................................. (52,777) -------- Total purchase price............................................ $ 21,400 ========
On November 1, 1996, the Company acquired 80% of the outstanding stock of CRM, Inc. ("CRM") for a purchase price of $3.5 million, $1.0 million in cash and 173,790 shares, $2.5 million, of the Company's Common Stock. CRM provides real estate information services with a heavy concentration in the areas of tax services and flood certification. The Company combined its existing tax service business with that of CRM. Under certain circumstances the Company can purchase the remaining 20% of the outstanding stock of CRM. CRM, Inc. operates as a majority-owned subsidiary of the Company and is now known as Fidelity National Tax Service, Inc. ("Fidelity National Tax"). This transaction has been accounted for as a purchase. The CRM results of operations were not material to the 1996 Consolidated Financial Statements. The assets acquired, including cost in excess of net assets acquired, and liabilities assumed in the Fidelity National Tax acquisition were as follows (dollars in thousands): Tangible assets acquired at fair value............................. $ 2,073 Cost in excess of net assets acquired.............................. 2,590 Liabilities assumed at fair value.................................. (1,143) ------- Total purchase price............................................. $ 3,520 =======
Selected unaudited pro forma combined results of operations for the years ended December 31, 1996, 1995 and 1994, assuming the Nations Title Inc. acquisition occurred on January 1, 1996 and 1995, and assuming the Fidelity National Title Company of Washington, Fidelity Tax and Fidelity National Title Company acquisitions occurred on January 1, 1996, 1995 and 1994, are presented as follows:
DECEMBER 31, ---------------------------------- 1996 1995 1994 -------- -------- -------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Total revenue.............................. $681,642 $596,184 $504,999 Earnings before extraordinary item......... 24,278 6,189 9,955 Net earnings............................... 24,278 5,376 12,355 Earnings per share......................... $ 1.70 $ .37 $ .68
37 40 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) C. INVESTMENTS The carrying amounts and fair values of the Company's fixed maturity securities at December 31, 1996 and 1995 are as follows:
DECEMBER 31, 1996 -------------------------------------------------------- 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...... $ 87,765 $ 88,376 $ 106 $ (717) $ 87,765 States and political subdivisions................... 16,534 16,282 270 (18) 16,534 Corporate securities.............. 46,354 47,058 241 (945) 46,354 Mortgage-backed securities........ 15,676 15,896 86 (306) 15,676 -------- -------- ---- ------- -------- $166,329 $167,612 $ 703 $ (1,986) $166,329 ======== ======== ==== ======= ========
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 ======== ======== ==== ======= ========
The change in unrealized gains (losses) on fixed maturities for the years ended December 31, 1996, 1995, and 1994 was $(3,255,000), $13,025,000 and $(16,574,000), respectively. The amortized cost and estimated fair value of fixed maturity securities, which are classified as available for sale at December 31, 1996, 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 OF FAIR OF MATURITY COST TOTAL VALUE TOTAL ---------------------------------------------- -------- ----- -------- ----- (DOLLARS IN THOUSANDS) One year or less.............................. $ 2,255 1.3% $ 2,263 1.3% After one year through five years............. 79,731 47.6 79,434 47.8 After five years through ten years............ 59,821 35.7 59,186 35.6 After ten years............................... 25,805 15.4 25,446 15.3 -------- ----- -------- ----- Total....................................... $167,612 100.0% $166,329 100.0% ======== ===== ======== ===== Subject to call............................. $ 41,495 24.7% $ 41,280 24.8%
Fixed maturity securities valued at approximately $17,670,000 and $10,569,000 were on deposit with various governmental authorities at December 31, 1996 and 1995, respectively, as required by law. 38 41 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Equity securities at December 31, 1996 and 1995 consist of investments in various industry groups as follows:
1996 1995 ------------------- ------------------- FAIR FAIR COST VALUE COST VALUE ------- ------- ------- ------- (DOLLARS IN THOUSANDS) Banks, trust and insurance companies........ $ 800 $ 863 $12,038 $13,071 Industrial, miscellaneous and all other..... 20,589 42,715 12,430 18,341 ------- ------- ------- ------- Total..................................... $21,389 $43,578 $24,468 $31,412 ======= ======= ======= =======
The carrying value of the Company's investment in equity securities is fair value. As of December 31, 1996, gross unrealized gains and gross unrealized losses on equity securities were $22,912,000 and $723,000, respectively. Gross unrealized gains and gross unrealized losses on equity securities were $9,054,000 and $2,110,000, respectively, as of December 31, 1995. Included in equity securities at December 31, 1996, is an investment in a certain equity security with a cost of $3,366,000 and a fair value of $17,892,000. The change in unrealized gains (losses) on equity securities for the years ended December 31, 1996, 1995 and 1994 was $15,245,000, $9,369,000 and $(2,725,000), respectively. Interest and investment income, including realized gains (losses), consists of the following:
YEARS ENDED DECEMBER 31, ------------------------------- 1996 1995 1994 ------- ------- ------- (DOLLARS IN THOUSANDS) Cash and cash equivalents............................. $ 1,666 $ 1,571 $ 561 Fixed maturity securities............................. 9,431 8,254 9,569 Equity securities..................................... 4,823 5,091 688 Short-term investments................................ 165 155 429 Notes receivable...................................... 2,675 2,355 1,450 Other................................................. (1,068) 190 (779) ------- ------- ------- $17,692 $17,616 $11,918 ======= ======= =======
Total realized gains (losses) included in interest and investment income amounted to $2,625,000, $5,213,000 and $(3,086,000) for the years ended December 31, 1996, 1995 and 1994, respectively. During the years ended December 31, 1996, 1995, and 1994, gross realized gains on sales of fixed maturity securities considered available for sale were $452,000, $1,700,000 and $248,000, respectively; and gross realized losses were $714,000, $1,331,000 and $3,057,000, respectively. Gross proceeds from the sale of fixed maturity securities considered available for sale amounted to $93,108,000, $188,902,000 and $101,323,000, during the years ended December 31, 1996, 1995, and 1994, respectively. During the years ended December 31, 1996, 1995 and 1994, gross realized gains on sales of equity securities considered available for sale were $5,937,000, $5,111,000 and $634,000, respectively; and gross realized losses were $1,962,000, $457,000 and $132,000, respectively. Gross proceeds from the sale of equity securities amounted to $89,404,000, $25,622,000 and $11,112,000 during the years ended December 31, 1996, 1995 and 1994, respectively. 39 42 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) D. NOTES RECEIVABLE Notes receivable consist of the following:
DECEMBER 31, ------------------- 1996 1995 ------- ------- (DOLLARS IN THOUSANDS) Mortgage notes, secured by various deeds of trust, installments due monthly including interest at rates ranging from 7.5% to 10%, due through 2016.......................................... $ 512 $ 1,484 Promissory notes, secured by various assets and unsecured, installments due monthly including interest at rates ranging from 8.25% to 13%, due through 2005............................ 11,463 13,002 Promissory notes due from unconsolidated real estate partnerships at 12%, unsecured and secured by various deeds of trust, due through 1997................................................... -- 2,277 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............................. 471 587 Officer and employee secured and unsecured notes receivable at rates ranging from 7.0% to 11.0%, due through 2001............. 1,525 1,517 ------- ------- 13,971 18,867 Allowance for doubtful receivables............................... (2,654) (2,941) ------- ------- $11,317 $15,926 ======= =======
The allowance for doubtful receivables is primarily related to promissory notes at December 31, 1996, and notes receivable due from unconsolidated real estate partnerships at December 31, 1995. Interest income is not recognized on the Company's non-performing notes receivable. The carrying amounts and estimated fair values of the Company's notes receivable were as follows at December 31, 1996 and 1995 (dollars in thousands):
DECEMBER 31, ------------------------------------------- 1996 1995 ------------------- ------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE ------- ------- ------- ------- Mortgage notes.............................. $ 412 $ 412 $ 1,404 $ 1,404 Other promissory notes...................... 8,909 8,909 12,466 12,466 Affiliated notes............................ 1,996 1,996 2,056 2,056 ------- ------- ------- ------- $11,317 $11,317 $15,926 $15,926 ======= ======= ======= =======
The fair values of significant notes receivable are established using discounted cash flow analyses based on current market interest rates and comparison of rates being received to interest rates currently being offered for similar loans to borrowers with similar credit ratings. Loans with similar characteristics are aggregated for purposes of the calculations. All other notes receivable are not significant individually or in the aggregate, or are current and at market rates, and their carrying value approximates fair value. 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 40 43 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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, 1996 and 1995, the balance outstanding on the note approximated $471,000 and $587,000, respectively, and one property remains unsold. E. INVESTMENTS IN REAL ESTATE AND PARTNERSHIPS At December 31, 1996, the Company had financial interests ranging from 22% to 50% in three real estate partnerships which are accounted for under the equity method. The Company had financial interests ranging from 22% to 50% in five real estate partnerships which were accounted for under the equity method at December 31, 1995. These partnerships are involved in the ownership and management of commercial office buildings, retail facilities and have acquired specific parcels of real property for investment purposes. The Company, through Manchester Development Corporation ("Manchester"), a wholly-owned subsidiary, had a general partnership interest in one of the three real estate partnerships at December 31, 1996, and general partnership interests in three of the five real estate partnerships at December 31, 1995. See Note N. 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. On May 16, 1996, the Company paid $3.1 million to acquire a first lien loan of $3.4 million secured by a commercial office building owned by a real estate partnership in which Manchester is the sole general partner. During 1996, but prior to the Company's acquisition of the loan, officers and directors of the Company assigned their ownership interests in the real estate partnership to Manchester. The Company leases space in the commercial office building. On September 30, 1996, the Company accepted the assignment from a real estate partnership of the right to redeem a retail shopping center valued at $4.5 million in exchange for a net payment of $434,000. Officers and directors of the Company, who have ownership interests in the real estate partnership, assigned their rights to redeem to the Company. On November 21, 1996, the Company redeemed the retail property at a price of $2.8 million. The Company continues to collect rent from the retail tenants while actively marketing the property for sale. The property is carried at cost, which approximates fair value. Summarized combined financial information of the unconsolidated partnerships is as follows:
YEARS ENDED DECEMBER 31, ------------------------------ 1996 1995 1994 ------ ------- ------- (DOLLARS IN THOUSANDS) Total assets, primarily land, development and improvement costs.................................... $3,960 $14,096 $16,123 Total liabilities, primarily notes and mortgages payable.............................................. 841 12,664 13,784 ------ ------- ------- Partners' equity....................................... $3,119 $ 1,432 $ 2,339 ====== ======= ======= Revenue................................................ $ 378 $ 1,568 $ 1,609 ====== ======= ======= Net loss............................................... $ (73) $ (515) $ (367) ====== ======= =======
At December 31, 1996, the Company had a 92.5% and a 76% interest in real estate partnerships which are consolidated with the Company. The Company also had a 76% interest in a real estate partnership which was consolidated with the Company at December 31, 1995. 41 44 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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, ------------------- 1996 1995 ------- ------- (DOLLARS IN THOUSANDS) Investments in real estate: Land........................................................... $ 7,476 $ 4,223 Commercial buildings, net of accumulated depreciation of $2,925 and $2,160.................................................. 6,537 5,924 Investments in unconsolidated partnerships....................... 1,806 1,979 ------- ------- 15,819 12,126 Valuation allowance.............................................. (4,467) (3,467) ------- ------- $11,352 $ 8,659 ======= =======
F. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
DECEMBER 31, --------------------- 1996 1995 -------- -------- (DOLLARS IN THOUSANDS) Land........................................................... $ 4,370 $ 1,757 Buildings...................................................... 14,700 12,839 Leasehold improvements......................................... 9,452 7,299 Furniture, fixtures and equipment.............................. 71,365 61,510 -------- -------- 99,887 83,405 Accumulated depreciation and amortization...................... (61,270) (49,665) -------- -------- $ 38,617 $ 33,740 ======== ========
42 45 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) G. NOTES PAYABLE Notes payable consist of the following:
DECEMBER 31, --------------------- 1996 1995 -------- -------- (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% (7.39% at December 31, 1996), due September 2001................................................................... $ 18,250 $ 21,250 Bank revolving credit facility, secured by common stock of certain Insurance Subsidiaries, with interest due quarterly at prime rate (8.25%) at December 31, 1996), principal due quarterly beginning December 1997, due September 2001, unused portion of $8 million and $13 million at December 31, 1996 and 1995.................................. 5,000 -- Equipment line of credit, secured by equipment, with interest due monthly at prime rate plus 1.00% (9.25% at December 31, 1996), principal, due March 1997, unused portion of $414 and $212 at December 31, 1996 and 1995................................................................... 5,586 4,788 Bank promissory note, secured by equipment, with principal and interest due monthly at LIBOR plus 1.77% (7.16% at December 31, 1996), due October 1997........................................................... 2,760 6,156 Bank promissory note, secured by equipment, with principal and interest due monthly at LIBOR plus 1.77% (7.16% at December 31, 1996), due October 1998........................................................... 4,787 7,246 Bank promissory note, secured by equipment, with principal and interest due monthly at LIBOR plus 2.10% (7.49% at December 31, 1996), due June 1999................................................................... 3,282 4,405 Bank promissory note, secured by equipment, with principal and interest at 30 day commercial paper rate plus 2.44% (8.03% at December 31, 1996), due September 2000.............................................. 7,031 -- Promissory note, guaranteed by United States Small Business Administration, with interest only at 7.59% due monthly and principal due at maturity, September 2006........................................ 3,000 -- Promissory note, secured by real estate, with principal and interest due monthly at 9.875%, due April 1998...................................... 1,723 -- Liquid Yield Option Notes, zero coupon, subordinated convertible notes due 2009 with interest at 5.5%......................................... 97,013 91,951 Other promissory notes with various interest rates and maturities........ 490 251 -------- -------- $148,922 $136,047 ======== ========
Principal maturities, including accretion of original issue discount, are as follows (dollars in thousands): 1997...................................................... $ 17,587 1998...................................................... 11,565 1999...................................................... 8,057 2000...................................................... 6,927 2001...................................................... 4,688 Thereafter................................................ 190,835 -------- $239,659 ========
The Company's Credit Agreement, dated as of September 21, 1995, which includes a $22 million term loan and a $13 million 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 is in compliance with these covenants. At December 31, 1996, the maximum 43 46 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) amount available to make restricted payments and to pay dividends is $15,640,000 based on provisions contained in the Credit Agreement. 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 period 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, 1996 and 1995 (dollars in thousands):
DECEMBER 31, --------------------------------------------------- 1996 1995 ----------------------- ----------------------- CARRYING CARRYING AMOUNT FAIR VALUE AMOUNT FAIR VALUE -------- ---------- -------- ---------- Short-term borrowings................... $ 5,710 $ 5,710 $ 4,908 $ 4,908 Long-term borrowings, variable rate..... 41,110 41,110 39,070 39,070 Long-term borrowings, fixed rate........ 102,102 93,214 92,069 86,132 -------- -------- -------- -------- $148,922 $ 140,034 $136,047 $ 130,110 ======== ======== ======== ========
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. H. INCOME TAXES Income tax expense (benefit) consists of the following:
YEARS ENDED DECEMBER 31, ------------------------------ 1996 1995 1994 ------- ------- ------ (DOLLARS IN THOUSANDS) Current................................................ $ 2,405 $(2,729) $ (27) Deferred............................................... 13,811 4,120 3,913 ------- ------- ------ $16,216 $ 1,391 $3,886 ======= ======= ======
44 47 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Total income tax expense (benefit) for the years ended December 31, 1996, 1995 and 1994 was allocated as follows:
YEARS ENDED DECEMBER 31, ----------------------------- 1996 1995 1994 ------- ------ ------ (DOLLARS IN THOUSANDS) Income from continuing operations....................... $16,216 $1,828 $2,594 Extraordinary gain (loss)............................... -- (437) 1,292 ------- ------ ------ $16,216 $1,391 $3,886 ======= ====== ======
Deferred income tax expense (benefit) consists of the following:
YEARS ENDED DECEMBER 31, ------------------------------ 1996 1995 1994 ------- ------ ------- (DOLLARS IN THOUSANDS) Provision for claim losses in excess of statutory amounts.............................................. $ 5,108 $4,890 $(2,305) Employee benefit accruals.............................. (1,847) 81 1,704 (Excess) deficit book over tax bad debt expense........ 304 (535) 618 Other acquisition accruals............................. 1,862 610 1,314 Statutory unearned premium reserve..................... 3,624 303 3,630 Investment securities.................................. 5,481 -- (496) Accelerated depreciation............................... (1,068) -- 200 Investments in partnerships............................ (434) -- 250 Investments in real estate............................. 128 -- -- Change in valuation allowance.......................... -- -- (1,343) Section 338(h)(10) gain deferral....................... (153) (504) -- Other.................................................. 806 (725) 341 ------- ------ ------- $13,811 $4,120 $ 3,913 ======= ====== =======
The effective tax rate differs from the statutory income tax rate as follows:
YEARS ENDED DECEMBER 31, ------------------------ 1996 1995 1994 ---- ----- ----- Statutory income tax rate.................................... 41.0% 34.0% 35.0% Tax exempt interest income................................... (.8) (23.3) (10.9) Exclusion of certain meal and entertainment expenses......... 2.0 6.5 1.2 Change in valuation allowance................................ -- -- (8.4) Other........................................................ (2.2) (.3) 7.3 ---- ----- ----- 40.0% 16.9% 24.2% ==== ===== =====
The 1996 statutory income tax rate includes the impact of state income taxes incurred by the Company's wholly-owned underwritten title companies. 45 48 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The deferred tax assets and liabilities at December 31, 1996 consist of the following:
DEFERRED DEFERRED TAX TAX ASSETS LIABILITIES ------- ------- (DOLLARS IN THOUSANDS) Provision for claim losses in excess of statutory amounts........ $49,215 $ -- Employee benefit accruals........................................ 4,756 -- Excess book over tax provision for bad debts..................... 5,758 -- Other assets..................................................... 1,803 -- Statutory unearned premium reserve............................... -- 47,470 Accelerated depreciation......................................... -- 521 Investment securities............................................ -- 8,503 Investments in partnerships...................................... -- 460 Investments in real estate....................................... -- 778 Section 338(h)(10) gain deferral................................. -- 3,758 Other acquisition accruals....................................... -- 3,266 Other liabilities................................................ -- 4,380 Net operating loss available for carryover....................... 711 -- ------- ------- 62,243 69,136 Less: valuation allowance........................................ 711 -- ------- ------- Total deferred taxes............................................. $61,532 $69,136 ======= =======
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 ======= =======
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, net of the recorded valuation allowance. Management believes the existing net deductible temporary differences will reverse during periods in which the Company generates net taxable income. However, there can be no assurance that the Company will generate any earnings or any specific level of continuing earnings in future years. Certain tax planning or other strategies could be implemented, if necessary, to supplement income from operations to fully realize recorded tax benefits. 46 49 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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. I. SUMMARY OF RESERVE FOR CLAIM LOSSES A summary of the reserve for claim losses follows:
YEARS ENDED DECEMBER 31, ---------------------------------- 1996 1995 1994 -------- -------- -------- (DOLLARS IN THOUSANDS) Beginning balance.................................. $146,094 $153,306 $142,512 Reserves assumed with Nations Title Inc.......... 45,171 -- -- Reserves assumed with Fidelity Pennsylvania and ATIC.......................................... -- -- 6,219 Title claim loss provision related to: Current year.................................. 32,505 23,901 38,575 Prior years................................... 797 (4,870) (10,737) -------- -------- -------- Total title claim loss provision................. 33,302 19,031 27,838 Title claims paid, net of recoupments related to: Current year.................................. (2,430) (2,818) (1,742) Prior years................................... (34,892) (23,425) (21,521) -------- -------- -------- Total title claims paid, net of recoupments...... (37,322) (26,243) (23,263) -------- -------- -------- Ending balance..................................... $187,245 $146,094 $153,306 ======== ======== ======== Provision for title claim losses to title insurance premiums......................................... 7.0% 6.7% 7.5% Net claims paid ratio.............................. 7.8% 9.2% 6.3%
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. 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 policyholders and other customers. The Company believes that the reserves reflected in its Consolidated Financial Statements are adequate to pay losses and loss adjustment expenses which may result from such claims and proceedings; however, such estimates may be more or less than the amount ultimately paid when the claims are settled. Effective January 1996, the Company extended the term of an employment agreement with its Chief Executive Officer for an additional period of five years through March 31, 2001. Under this extension, he is to receive a minimum annual base salary and an annual bonus based on the Company's performance. In addition, the Board of Directors may grant the Chief Executive Officer an annual merit bonus in cash or Common Stock based on his individual performance during each year of the extension. 47 50 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Effective January 1, 1996, the Company entered into one year employment agreements with four of its key executives, whereby each was to receive a minimum annual base salary and an annual bonus based on the Company's performance. Bonuses in the form of cash or Common Stock could be paid to the executives at the discretion of the Compensation Committee of the Board of Directors. The Compensation Committee of the Board of Directors is currently negotiating new employment agreements with the four executives. 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 mechanic's 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. In April 1996, the U.S. District Court ruled in favor of Fidelity California on all counts. Thereafter, NatWest filed an appeal to the Ninth Circuit Court of Appeals. Appellate briefs are in the process of preparation and filing. No ruling has been received from the appellate court. Management believes that the ruling will not have a material adverse effect on Fidelity National Title Insurance Company of California or the Company. Management believes that no other actions depart from customary litigation incidental to the business of the Company and that resolution of all such litigation will not have a material adverse effect on the Company. In conducting its operations, the Company routinely holds customers' assets in trust, pending completion of real estate transactions. Such amounts are maintained in segregated bank accounts and have not been included in the accompanying Consolidated Balance Sheets. The Company has a contingent liability relating to proper disposition of these balances for its customers which amounted to $329.4 million at December 31, 1996. 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): 1997...................................................... $ 21,737 1998...................................................... 17,217 1999...................................................... 11,694 2000...................................................... 7,618 2001...................................................... 5,740 Thereafter................................................ 3,028 ------- Total future minimum operating lease payments............. $ 67,034 =======
48 51 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Rent expense incurred under operating leases during the years ended December 31, 1996, 1995 and 1994 was $23,413,000, $21,388,000 and $24,795,000, respectively. Included in rent expense for 1996, 1995 and 1994 is $523,000, $523,000 and $772,000, respectively, paid to related parties. K. STOCKHOLDERS' EQUITY On March 31, 1994, the Company announced that its board of directors authorized the repurchase in the open market of up to 1.2 million shares of the Company's Common Stock, or a comparable amount of the Company's LYONs, which are convertible into 23.204 shares of Common Stock per $1,000 maturity amount of LYONs. On June 15, 1994, the Company's board of directors authorized the additional repurchase of up to 1.2 million shares of the Company's Common Stock or a comparable amount of the Company's LYONs. A third authorization to repurchase an additional 3.6 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 2.4 million shares of the Company's Common Stock or comparable amount of LYONs. As of December 31, 1996, the Company had repurchased 5,685,738 shares of its Common Stock for an aggregate price of $56.3 million, or $9.90 per share, 193,600 shares, cost basis of $1.9 million, of which were reissued in connection with the acquisition of Nations Title Inc. Additionally, as of December 31, 1996, the Company had repurchased $48.0 million in maturity amount of LYONs for an aggregate price of $17.6 million. 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. Title insurance companies, including underwriters, underwritten title companies and independent agents, are subject to extensive regulation under applicable state laws. Each insurance underwriter is usually subject to a holding company act in its state of domicile which regulates, among other matters, the ability to pay dividends and investment policies. The laws of most states in which the Company transacts business establish supervisory agencies with broad administrative powers relating to issuing and revoking licenses to transact business, regulating trade practices, licensing agents, approving policy forms, accounting principles, financial practices, establishing reserve and capital and surplus requirements, defining suitable investments for reserves, capital and surplus and approving rate schedules. 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, ultimately resulting in two Insurance Subsidiaries as opposed to the current eight. ATIC was merged into Fidelity Pennsylvania effective November 21, 1996 and Fidelity Title was redomesticated to California effective December 31, 1996. 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, 1996, the combined statutory unearned premium reserve required and reported for the Insurance Subsidiaries was $173.5 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 are currently in progress for Fidelity Pennsylvania (1995), Fidelity Tennessee (1995), ATIC (1994) and Nations Title (1995 and 1996). Examinations have been completed for Fidelity Title and Fidelity California as of and for the three-year period ended December 31, 1993. 49 52 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Department of Commerce and Insurance of the State of Tennessee has completed the field portion of their triennial examination of Fidelity Tennessee as of and for the three-year period ended December 31, 1995. The Company has recently received a preliminary report of examination. The preliminary report, as forwarded to the Company by the Department of Commerce and Insurance of the State of Tennessee, indicates that the examiners are proposing certain immaterial adjustments. These adjustments have previously been included in the 1995 Fidelity Tennessee Statutory Annual Statement as amended and filed with insurance regulatory authorities. The Department of Insurance of the State of Florida has completed the field portion of their triennial examination of ATIC, which was merged into Fidelity Pennsylvania as of November 21, 1996, as of and for the three-year period ended December 31, 1994. The Company has 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 materially impact the statutory capital and surplus of ATIC, ultimately Fidelity Pennsylvania. Certain of these adjustments have not been included in the 1996 Fidelity Pennsylvania Statutory Annual Statement as filed with insurance regulatory authorities as the Company does not agree with these findings and has requested support for the examination report. These same adjustments have not been considered in the calculation of dividend capability, statutory surplus and statutory income (loss) reported below. The Kansas Department of Insurance has completed a triennial examination of Nations Title as of and for the two-year period ended December 31, 1995 and is currently performing an examination as of and for the year ended December 31, 1996. The Company received a report of examination as of and for the two-year period ended December 31, 1995. The report, as forwarded to the Company by the Kansas Department of Insurance, indicates that the examiners are proposing adjustments that materially impact the statutory capital and surplus of Nations Title. These adjustments have been included in the 1996 Statutory Annual Statement as filed with insurance regulatory authorities and have been considered in the calculation of dividend capability, statutory surplus and statutory income (loss) reported below. Further, Nations Title has recently entered into a voluntary consent order with the Kansas Department of Insurance agreeing to cease writing all new insurance business and to certain other conditions and restrictions. This is consistent with the Company's intent in acquiring Nations Title, which was to have all policies which formerly would have been issued by Nations Title issued by one of the Fidelity National Insurance Subsidiaries. Statutorily calculated net worth determines the maximum insurable amount under any single title insurance policy. As of January 1, 1997, the statutory single policy maximum insurable amounts for Fidelity Title, Fidelity Pennsylvania and Fidelity New York were $25.3 million, $30.5 million and $28.6 million, respectively. There are no statutory single risk limits prescribed for Fidelity California or Fidelity Tennessee. The statutory single risk limits for Nations Title, Nations New York and National are $2.4 million, $28.6 million and $7.3 million, respectively. Upon acquisition, the Company took action to have Nations Title business, as well as certain Nations New York and National business, written by Fidelity National Insurance Subsidiaries. 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 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 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, 1997, Fidelity Title could pay dividends or make other 50 53 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) distributions to the Company of $5,621,000. Fidelity Pennsylvania and Fidelity New York do not have any dividend paying capability as of January 1, 1997. The combined statutory capital and surplus of the Insurance Subsidiaries was $77,125,000, $67,525,000 and $90,153,000 as of December 31, 1996, 1995 and 1994, respectively. The December 31, 1996, combined capital and surplus includes $11,189,000 of restricted surplus resulting from the aggregate excess of loss reinsurance transaction entered effective December 31, 1996. The Company has submitted the aggregate excess of loss reinsurance contract to the appropriate Departments of Insurance for approval. See Note A. The combined statutory income (loss) of the Insurance Subsidiaries was $17,451,000, $(1,533,000) and $6,664,000 for the years ended December 31, 1996, 1995 and 1994, respectively. Combined statutory income for the year ended December 31, 1996, also includes a reinsurance gain of $11,189,000 related to the aggregate excess of loss reinsurance transaction. 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. Pursuant to statutory requirements of the various states in which the Insurance Subsidiaries are domiciled, they must maintain certain levels of minimum capital and surplus. 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 New York law, the minimum statutory requirement is $250,000 for capital and initial surplus. Under Kansas law, minimum statutory requirements are $450,000 for capital and $300,000 for initial surplus. Each of the Company's title underwriters have complied with the minimum statutory requirements as of December 31, 1996. In April 1996, the National Association of Insurance Commissioners ("NAIC") published 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. Certain provisions of the Act will be phased in over a multi-year period. The Company has not determined the impact, if any, of the Act on the financial condition or operations of the Insurance Subsidiaries. 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 Fidelity National Title Company ("FNTC") and Fidelity National Title Company of California ("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 through 1998. See Note B. 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 7,260,000 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. 51 54 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) During the years ended December 31, 1996, 1995 and 1994, 307,315, 287,183 and 330,827 shares, respectively, were purchased and allocated to employees, based upon their contributions, at an average price of $13.69, $10.75 and $11.97 per share, respectively. The Company contributed $1.2 million or the equivalent of 88,610 shares for the year ended December 31, 1996, $1.4 million or the equivalent of 130,508 shares for the year ended December 31, 1995 and $1.3 million or the equivalent of 113,403 shares for the year ended December 31, 1994 in accordance with the employer's matching contribution. A total of 5,537,617 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 1,497,375 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 2,147,750 shares of Common Stock, which may be newly issued or treasury shares. The per share option price is determined at the date of grant. The option price may be less than the fair market value of the Common Stock at the date of grant to reflect the application of the optionee's deferred bonus, if applicable. Options granted under the 1991 Option Plan shall be exercisable in such installments and for such periods as may be fixed at the time of grant, but in no event shall any stock options extend for a period in excess of 12 years from the date of grant. 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 907,500. 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. 52 55 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table sets forth activity in the 1987 and 1991 Stock Option Plans and the 1993 Stock Plan from December 31, 1994 through December 31, 1996:
1991 STOCK OPTION PLAN 1987 STOCK OPTION PLAN 1993 STOCK PLAN --------------------------------------- ------------------------ ----------------------- INCENTIVE NON-QUALIFIED EXERCISE EXERCISE EXERCISE OPTIONS OPTIONS PRICE SHARES PRICE(1) SHARES PRICE --------- ------------- ----------- ---------- ----------- -------- ------------ Outstanding at December 31, 1994.......................... 3,989 505,175 $1.25-12.60 1,318,089 $ 1.34-8.82 77,440 $11.47-12.26 Granted in 1995............... -- 302,500 8.37-10.74 56,089 4.34 88,330 8.26-8.98 Exercised in 1995............. (1,995) -- 1.25 (213,159) .89-8.59 -- -- Expired or cancelled in 1995........................ -- -- -- -- -- (19,965) 10.42-12.26 ------ --------- ----------- --------- ----------- --------- ----------- Outstanding at December 31, 1995.......................... 1,994 807,675 $1.25-12.60 1,161,019 $ .89-8.82 145,805 $ 8.26-12.26 Granted in 1996............... -- 294,250 11.59 95,181 6.82 27,500 11.72 Exercised in 1996............. -- -- -- (58,135) .72-8.19 -- -- Expired or cancelled in 1996........................ -- (63,525) 8.37-12.60 (25,722) 4.05-8.19 -- -- ------ --------- ----------- --------- ----------- --------- ----------- Outstanding at December 31, 1996.......................... 1,994 1,038,400 $1.25-12.60 1,172,343 $ .72-8.19 173,305 $ 8.26-12.26 ====== ========= =========== ========= =========== ========= =========== Exercisable at December 31, 1996.......................... 1,994 744,150 $1.25-12.60 1,172,343 $ .72-8.19 139,775 $ 8.26-12.26 ====== ========= =========== ========= =========== ========= =========== Exercisable through............. July 1998 October 2005 April 2008 May 2005
- --------------- (1) There were 311,521 options granted in 1994. These options were granted at an exercise price of $11.47 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 $7.34 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 3.0% per year through 1999 and $.13 per share from 2000 through 2005, at which time the exercise price will be $5.45. 56,089 options were granted in 1995 at an exercise price of $8.47 to key employees of the Company who applied deferred bonuses expensed in 1994 amounting to $236,773 to the exercise price, reducing it to $4.34 if exercised within the first year of the grant. The exercise price of these options decreases approximately 6.0% per year through 2000 and $.18 per share from 2001 through 2006, at which time the exercise price will be $1.77. In 1996, 95,181 options were granted at an exercise price of $11.36 to key employees of the company who applied deferred bonuses expensed in 1995 amounting to $432,640 to the exercise price, reducing it to $6.82 if exercised within the first year of the grant. The exercise price of these options decreases approximately 5% per year through 2001 and $.20 per share from 2002 through 2007, at which time the exercise price will be $4.00. The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("Opinion 25") and related Interpretations in accounting for its employee stock options. As discussed below, in management's opinion, the alternative fair value accounting provided for under Statement of Accounting Standards No. 123, "Accounting for Stock Based Compensation" ("Statement 123") requires use of option valuation models that were not developed for use in valuing employee stock options. Under Opinion 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of the grant, no compensation expense is recognized. Pro forma information regarding net earnings and earnings per share is required by Statement 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions. The risk free interest rate used in the calculation is the rate on the date the options were granted. The risk free interest rate used for options granted during 1996 was 6.5% and for options granted during 1995 the risk free interest rate used was 6.9%. A volatility factor for the expected market price of the Common Stock of 50% was used for options granted in 53 56 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 1996 and 1995. A weighted average expected life of seven years was used as the Company has little history of options being exercised. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that do not have vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the value of an estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purpose of pro forma disclosures, the estimated fair value of the options is amortized into expense over the options' vesting period. The Company's pro forma information follows (in thousands except for earnings per share information):
1996 1995 ------- ------ Pro forma net earnings............................................ $22,390 $5,509 Pro forma earnings per share Primary......................................................... $ 1.57 $ .39 Fully diluted................................................... $ 1.37 $ .39
A summary of the Company's stock option activity, and related information for the years ended December 31, follows:
1996 1995 ---------------------------- ---------------------------- NUMBER WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE OF SHARES EXERCISE PRICE OF SHARES EXERCISE PRICE --------- ---------------- --------- ---------------- Stock options outstanding beginning of year........................... 2,116,493 $ 7.79 1,904,693 $ 7.51 Stock options granted............... 416,931 10.51 446,919 8.11 Stock options exercised............. (58,135) 4.78 (215,154) 5.16 Stock options canceled.............. (89,248) 10.00 (19,965) 11.95 --------- ------ --------- ------ Stock options outstanding, end of year 2,386,041 $ 8.16 2,116,493 $ 7.79 ========= ====== ========= ====== Exercisable at end of year.......... 2,056,268 -- 1,795,723 -- Weighted-average fair value of options granted during the year... $ 11.57 -- $ 8.74 --
The weighted average remaining contractual life of those options is 8 years. 54 57 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, ------------------------------- 1996 1995 1994 ------- ------- ------- (DOLLARS IN THOUSANDS) Cash paid (refunded) during the year: Interest............................................ $ 4,766 $ 5,818 $ 4,022 ======= ======= ======= Income taxes........................................ $14,334 $(3,147) $12,286 ======= ======= ======= Non-cash investing and financing activities: ======= ======= ======= Dividends declared and unpaid....................... $ 975 $ 860 $ 855 ======= ======= ======= 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 ======= ======= ======= Acquisition of Nations Title Inc.................... $ 2,130 $ -- $ -- ======= ======= ======= Acquisition of Fidelity National Tax................ $ 2,520 $ -- $ --
N. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF RISK The Company generates a significant amount of title insurance premiums in California and Texas, 38.5% and 8.9% in 1996, 43.6% and 10.1% in 1995 and 37.9% and 10.7% in 1994. respectively. 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 receivables credit risk. The Company controls credit risk through monitoring procedures. Concentrations of credit risk with respect to notes receivable are limited because a number of diverse entities make up the Company's notes receivable base, thus spreading the credit risk. The Company controls credit risk through credit approvals, credit limits and monitoring procedures. The Company performs in-depth credit evaluations for all notes and requires guarantees and/or collateral, if deemed necessary. 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. 55 58 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company has a significant concentration of credit risk in its real estate operation which owns commercial real estate properties for its title insurance related direct operations in California and Arizona. As of December 31, 1996 and 1995, the Company's investments in real estate and partnerships totalled $11,352,000 and $8,659,000, respectively. Real estate related notes receivable of $983,000 and $1,992,000, respectively, were outstanding at December 31, 1996 and 1995, and were secured by either commercial real estate or were due from real estate related partnerships. The balance at December 31, 1995, is net of reserves of $2,357,000. 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 and E. 56 59 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, 1996 and 1995. Consolidated Statements of Earnings for the years ended December 31, 1996, 1995 and 1994. Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996, 1995 and 1994. Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994. 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. 10.1.1 First amendment to Employment Agreement between William P. Foley, II and Fidelity National Financial, Inc., effective as of January 1, 1996. 10.1.2 Employment Agreements effective as of January 1, 1996 between four key executives and Fidelity National Financial, Inc. 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 - -------- ------------------------------------------------------------------------------------ 10.4 Fidelity National Financial, Inc. 1987 Stock Option Plan, incorporated by reference from Form S-1, Registration No. 33-11321. 10.4.1 Amendments to Fidelity National Financial, Inc. 1987 Stock Option Plan approved by the stockholders of the Company on March 24, 1989, incorporated by reference from Form S-8, Registration No. 33-34300. 10.5 Fidelity National Financial, Inc. 1987 Employee Stock Purchase Plan, incorporated by reference from Form S-1, Registration No. 33-11321. 10.5.1 Amendments to Fidelity National Financial, Inc. 1987 Employee Stock Purchase Plan approved by the stockholders of the Company on March 24, 1989, incorporated by reference from Form S-8, Registration No. 33-15027. 10.5.2 Amendments to Fidelity National Financial, Inc. 1987 Employee Stock Purchase Plan, incorporated by reference from Form S-8, Registration No. 33-45709. 10.5.3 Amendments to Fidelity National Financial, Inc. 1987 Employee Stock Purchase Plan approved by the stockholders of the Company on June 15, 1993, incorporated by reference from Form S-8, Registration No. 33-64836. 10.5.4 Amendments to Fidelity National Financial, Inc. 1987 Stock Purchase Plan approved by the stockholders of the Company on June 20, 1995, incorporated by reference from Form S-8, Registration No. 33-61983. 10.6 Fidelity National Financial, Inc. 401(k) Profit Sharing Defined Contribution Plan and Trust adopted January 1, 1990, incorporated by reference from Form 10-K filed January 29, 1991. 10.6.1 Amendments to Fidelity National Financial, Inc. 401(k) Profit Sharing Plan, incorporated by reference from Form S-8, Registration No. 33-56514. 10.7 Fidelity National Financial, Inc. 1991 Stock Option Plan, approved by the stockholders of the Company on July 15, 1992, incorporated by reference from Form S-8, Registration No. 33-45272. 10.7.1 Amendments to Fidelity National Financial, Inc. 1991 Stock Option Plan approved by the stockholders of the Company on June 15, 1993, incorporated by reference from Form S-8, Registration No. 33-64834. 10.7.2 Amendment to Fidelity National Financial, Inc. 1991 Stock Plan, approved by the stockholders of the Company on June 14, 1994, incorporated by reference from Form S-8, Registration No. 33-83026. 10.8.3 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, incorporated by reference from Form 10-K filed March 26, 1996. 10.8.3.2 Amendment No. 2, dated as of March 15, 1996, to the Fidelity National Financial, Inc. Credit Agreement dated as of September 21, 1995. 10.8.3.3 Amendment No. 3, dated as of July 15, 1996, to the Fidelity National Financial, Inc. Credit Agreement dated as of September 21, 1995. 10.8.3.4 Amendment No. 4, dated as of February 24, 1997, 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.
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EXHIBIT NUMBER DESCRIPTION - -------- ------------------------------------------------------------------------------------ 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. 10.10 Agreement of Limited Partnership of Folco Mission Valley Partners Limited Partnership, a California limited partnership, dated August 8, 1991, by Folco Development Corporation, an Arizona corporation, as general partner, and Fidelity National Title Insurance Company, an Arizona corporation, as limited partner, incorporated by reference from Form 10-K filed March 23, 1992. 10.10.2 Office Building Lease dated October 1, 1991 between Folco Mission Valley Partners Limited Partnership, a California limited partnership, as Landlord, and Fidelity National Title Insurance Company, an Arizona corporation, as Tenant, incorporated by reference from Form 10-K filed March 23, 1992. 10.12 Form of First Amendment to Office Building Lease between Folco Development Corporation, an Arizona corporation, as Landlord, and Fidelity National Title Insurance Company, an Arizona corporation, as Tenant, with respect to nine office buildings, and the schedule of such buildings, incorporated by reference from Form 10-K filed March 23, 1992. 10.14 Goodyear Investors Number II Partnership Agreement dated October 7, 1986 among Manchester Development Corporation, Folco Development Corporation Defined Benefit Pension Plan, Enfield Construction Company, et al., incorporated by reference from Form S-1, Registration No. 33-11321. 10.16 Agreement of Limited Partnership of Prospect Office Partners, a California limited partnership, dated September 1, 1988 by and among William P. Foley, II, Frank P. Willey, Max F. Hickman, Manchester Development Corporation, and James G. Watt Partnership, incorporated by reference from Form 10-K filed January 29, 1989. 10.16.1 Promissory Note dated October 1, 1988 in the original principal amount of $850,000 to Manchester Development Corporation by Prospect Office Partners, incorporated by reference from Form 10-K filed March 29, 1993. 10.16.2 Modification Agreement dated November 30, 1992 between Manchester Development Corporation and Prospect Office Partners, incorporated by reference from Form 10-K filed March 29, 1993. 10.18 Wilmac III Limited Partnership Certificate and Agreement of Limited Partnership, dated December 31, 1987 by and among Manchester Development Corporation, Stephen L. McCartney, Frank P. Willey and Robert P. Coluccio, incorporated by reference from Form 10-K filed January 29, 1989. 10.19 Agreement of Limited Partnership of Tustin Retail, a California limited partnership, dated April 1988 by and among Manchester Development Corporation and Vistar Financial Inc., incorporated by reference from Form 10-K filed January 29, 1989. 10.19.1 Amendment to Agreement of Limited Partnership of Tustin Retail by and among Manchester Development Corporation, Vistar Financial, Inc., William P. Foley, II, Frank P. Willey, John E. Hock, Robert A. Diemer, Gerald S. Misurek and Stuart R. Boesche, incorporated by reference from Form 10-K filed March 29, 1993. 10.19.2 Promissory Note dated May 1, 1988 in the original principal amount of $700,000 to Manchester Development Corporation by Tustin Retail, incorporated by reference from Form 10-K filed March 29, 1993. 10.19.3 Fixed Rate Promissory Note dated March 1, 1992 in the original principal amount of $303,500 to Manchester Development Corporation by Tustin Retail, incorporated by reference from Form 10-K filed March 29, 1993.
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EXHIBIT NUMBER DESCRIPTION - -------- ------------------------------------------------------------------------------------ 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. 10.24 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. 10.24.1 New York Stock Exchange, Inc. Listing Agreement dated December 7, 1993 by Fidelity National Financial, Inc., incorporated by reference from Form 10-K filed March 18, 1994, formerly Exhibit 10.33. 10.24.2 New York Stock Exchange, Inc. Listing Agreement dated May 28, 1996 by Fidelity National Financial, Inc. 10.24.3 New York Stock Exchange, Inc. Listing Agreement dated November 4, 1996 by Fidelity National Financial, Inc. 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. 10.32 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. 10.35 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, incorporated by reference from Form 10-K filed March 25, 1996. 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., incorporated by reference from Form 10-K filed March 25, 1996. 10.39.2 Variable Rate Promissory Note dated September 12, 1996 in the principal amount of $7,500,000 to MetLife Capital 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.
61 64
EXHIBIT NUMBER DESCRIPTION - -------- ------------------------------------------------------------------------------------ 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. 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., incorporate by reference from Form 10-K filed March 25, 1996. 10.44 Acquisition Agreement dated September 13, 1995 by and among Fidelity National Financial, Inc. and Nations Holding Group, Inc. and its wholly-owned subsidiary Nations Title Inc. to acquire all of the issued and outstanding shares of Nations Title Inc., incorporated by reference from Form 10-K filed March 25, 1996. 10.45 Agreement for purchase and sale of stock dated November 4, 1996 by and between Fidelity National Financial, Inc. and the stockholders of CRM, Inc. 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, 1996 as follows: None. 62 65 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 25, 1997 ------------------------------------------------ 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.
SIGNATURE TITLE DATE - ------------------------------------------ --------------------------------- --------------- /s/ WILLIAM P. FOLEY, II Chairman of the Board and Chief March 25, 1997 - ------------------------------------------ Executive Officer (Principal William P. Foley, II Executive Officer) /s/ FRANK P. WILLEY President and Director March 25, 1997 - ------------------------------------------ Frank P. Willey /s/ CARL A. STRUNK Executive Vice President and March 25, 1997 - ------------------------------------------ Chief Financial Officer Carl A. Strunk (Principal Financial and Accounting Officer) /s/ DANIEL D. (RON) LANE Director March 25, 1997 - ------------------------------------------ Daniel D. (Ron) Lane /s/ J. THOMAS TALBOT Director March 25, 1997 - ------------------------------------------ J. Thomas Talbot /s/ STEPHEN C. MAHOOD Director March 25, 1997 - ------------------------------------------ Stephen C. Mahood Director March , 1997 - ------------------------------------------ Donald M. Koll /s/ WILLIAM A. IMPARATO Director March 25, 1997 - ------------------------------------------ William A. Imparato /s/ CARY H. THOMPSON Director March 25, 1997 - ------------------------------------------ Cary H. Thompson
63 66 INDEPENDENT AUDITORS' REPORT The Board of Directors Fidelity National Financial, Inc.: Under date of February 24, 1997, we reported on the Consolidated Balance Sheets of Fidelity National Financial, Inc. and subsidiaries as of December 31, 1996 and 1995, 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, 1996 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 24, 1997 64 67 SCHEDULE I FIDELITY NATIONAL FINANCIAL, INC. (PARENT COMPANY) BALANCE SHEETS (DOLLARS IN THOUSANDS)
DECEMBER 31, --------------------- 1996 1995 -------- -------- ASSETS Cash................................................................... $ 2,922 $ 244 Investment securities available for sale, at fair value................ 31,569 16,463 Trade receivables, net................................................. 20 22 Notes receivable, net.................................................. 4,535 1,883 Investment in subsidiaries............................................. 215,253 168,438 Investments in real estate and partnerships, net....................... 1,435 1,435 Property and equipment, net............................................ -- 90 Income taxes receivable................................................ 7,589 2,450 Prepaid expenses and other assets...................................... 6,083 4,751 -------- -------- $269,406 $195,776 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable and accrued liabilities............................. $ 2,935 $ 4,108 Notes payable........................................................ 120,263 113,201 Accounts payable to subsidiaries..................................... 28,353 487 Deferred income taxes................................................ 7,604 33 -------- -------- 159,155 117,829 -------- -------- Stockholders' Equity: Preferred stock, $.0001 par value; authorized 3,000,000 shares; issued and outstanding, none...................................... -- -- Common stock, $.0001 par value; authorized, 50,000,000 shares in 1996 and 1995; issued 19,412,694 in 1996 and 19,183,189 in 1995........ 2 2 Additional paid-in capital........................................... 61,271 58,098 Retained earnings.................................................... 91,019 70,273 -------- -------- 152,292 128,373 Net unrealized gains on investments.................................. 12,334 5,866 Less treasury stock, 5,492,138 shares in 1996 and 5,685,738 shares in 1995, at cost..................................................... 54,375 56,292 -------- -------- 110,251 77,947 Commitments and contingencies........................................ Subsequent events.................................................... -------- -------- $269,406 $195,776 ======== ========
See accompanying Notes to Financial Statements. (Schedule continued on following page) 65 68 SCHEDULE I (CONTINUED) FIDELITY NATIONAL FINANCIAL, INC. (PARENT COMPANY) STATEMENTS OF EARNINGS AND RETAINED EARNINGS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31, ------------------------------- 1996 1995 1994 ------- ------- ------- REVENUE: Other fees and revenue...................................... $ 1,617 $ 583 $ 1,114 Interest and investment income.............................. 227 2,563 1,778 ------- ------- ------- 1,844 3,146 2,892 ------- ------- ------- EXPENSES: Other operating expenses.................................... 2,288 204 1,268 Interest expense............................................ 7,177 8,427 7,130 ------- ------- ------- 9,465 8,631 8,398 ------- ------- ------- Losses before income tax benefit, equity in earnings of subsidiaries and extraordinary item......................... (7,621) (5,485) (5,506) Income tax benefit............................................ 3,048 899 1,033 ------- ------- ------- Losses before equity in earnings of subsidiaries and extraordinary item.......................................... (4,573) (4,586) (4,473) Equity in earnings of subsidiaries............................ 28,910 12,218 14,218 ------- ------- ------- Earnings before extraordinary item............................ 24,337 7,632 9,745 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.................................................. $24,337 $ 6,819 $12,145 ======= ======= ======= Primary earnings per share before extraordinary item.......... $ 1.71 $ .53 $ .54 Extraordinary item -- gain (loss) on early retirement of debt, net of applicable income tax expense (benefit).............. -- (.05) .13 ------- ------- ------- Primary net earnings per share................................ $ 1.71 $ .48 $ .67 ======= ======= ======= Weighted average shares outstanding, primary basis............ 14,265 14,267 18,124 ======= ======= ======= Fully diluted earnings per share.............................. $ 1.47 $ .48 $ .67 ======= ======= ======= Weighted average shares outstanding, fully diluted basis...... 18,682 14,267 22,604 ======= ======= ======= Dividends per share........................................... $ .26 $ .23 $ .23 ======= ======= ======= Retained earnings, beginning of year.......................... $70,273 $66,668 $58,438 Dividends declared.......................................... (3,591) (3,214) (3,915) Net earnings................................................ 24,337 6,819 12,145 ------- ------- ------- Retained earnings, end of year................................ $91,019 $70,273 $66,668 ======= ======= =======
See accompanying Notes to Financial Statements. (Schedule continued on following page) 66 69 SCHEDULE I (CONTINUED) FIDELITY NATIONAL FINANCIAL, INC. (PARENT COMPANY) STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31, ---------------------------------- 1996 1995 1994 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings............................................. $ 24,337 $ 6,819 $ 12,145 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation and amortization......................... 90 98 310 Amortization of LYONs original issue discount and issuance costs ..................................... 5,202 4,916 4,701 Provision for losses on notes receivable.............. 240 (80) -- Net equity in earnings of subsidiaries................ (28,910) (12,218) (14,218) (Gain) loss on sale of investments.................... 1,625 (639) 727 Net increase (decrease) in income taxes............... 3,417 7,673 (7,860) Net (increase) decrease in prepaid expenses and other assets.............................................. (1,470) 4,397 (3,063) Net increase (decrease) in accounts payable and accrued liabilities................................. (1,287) (1,334) 1,591 -------- -------- -------- Net cash provided by (used in) operating activities..................................... 3,244 9,632 (5,667) -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of investments....................... 8,699 25,112 29,082 Purchase of investments.................................. (8,814) (7,471) (53,320) Additions to notes receivable............................ (4,350) -- (274) Collections on notes receivable.......................... 393 106 448 Additions to investment in subsidiaries.................. (10,699) (7,034) (6,215) Investment in real estate and partnerships, net.......... -- (53) (62) -------- -------- -------- Net cash provided by (used in) investing activities..................................... (14,771) 10,660 (30,341) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings............................................... 5,000 33,772 101,336 Debt service payments.................................... (3,000) (46,814) (208) Retirement of LYONs...................................... -- -- (17,592) Gain on early retirement of LYONs........................ -- -- (3,692) Dividends paid........................................... (3,477) (3,232) (4,132) Issuance (acquisition) of treasury stock, net............ 1,917 (15,831) (40,461) Exercise of stock options................................ 440 1,439 1,314 Net borrowings from (payments to) subsidiaries........... 13,325 10,618 (1,839) -------- -------- -------- Net cash provided by financing activities........ 14,205 (20,048) 34,726 -------- -------- -------- Net increase (decrease) in cash and cash equivalents....... 2,678 244 (1,282) Cash and cash equivalents at beginning of year............. 244 -- 1,282 -------- -------- -------- Cash and cash equivalents at end of year................... $ 2,922 $ 244 $ -- ======== ======== ========
See accompanying Notes to Financial Statements. (Schedule continued on following page) 67 70 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 Parent Company Financial Statements should be read in connection with the aforementioned Consolidated Financial Statements and Notes thereto included elsewhere herein. B. Notes payable consist of the following:
DECEMBER 31, --------------------- 1996 1995 -------- -------- (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% (7.39% at December 31, 1996), due September 2001........................................... $ 18,250 $ 21,250 Bank revolving credit facility, secured by common stock of certain Insurance Subsidiaries, with interest due quarterly at prime rate (8.25% at December 31, 1996) principal due quarterly beginning December 1997, due September 2001, unused portion of $8 million and $13 million at December 31, 1996 and 1995..................................................... 5,000 -- Liquid Yield Option Notes, zero coupon, subordinated convertible notes due 2009 with interest at 5.5%............. 97,013 91,951 -------- -------- $120,263 $113,201 ======== ========
Principal maturities, including accretion of original issue discount, are as follows (dollars in thousands): 1997...................................................... $ 3,312 1998...................................................... 4,500 1999...................................................... 5,250 2000...................................................... 5,500 2001...................................................... 4,688 Thereafter................................................ 187,750 -------- $211,000 ========
68 71 C. Supplementary cash flow information:
YEAR ENDED DECEMBER 31, ------------------------------- 1996 1995 1994 ------- ------- ------- (DOLLARS IN THOUSANDS) Cash paid (refunded) during the year: Interest............................................ $ 1,953 $ 4,376 $ 2,214 ======= ======= ======= Income taxes........................................ $14,334 $(3,147) $12,286 ======= ======= ======= Non-cash investing and financing activities: Dividends declared and unpaid....................... $ 975 $ 860 $ 855 ======= ======= ======= Discount on purchase of ATIC Preferred Stock, increase in reserve for claim losses............. $ -- $ -- $ 6,219 ======= ======= ======= Acquisition of ACS Systems, Inc..................... $ -- $ -- $ 2,681 ======= ======= ======= Acquisition of Nations Title Inc.................... $ 2,130 $ -- $ -- ======= ======= ======= Acquisition of Fidelity National Tax................ $ 2,520 $ -- $ -- ======= ======= =======
69 72 SCHEDULE II FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (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, 1996: Reserve for claim losses.......... $ 146,094 $ 33,302 $ 45,171(3) $ 37,322(1) $ 187,245 Allowance on: Trade Receivables.............. 3,471 2,644 3,091(3) 2,384(2) 6,822 Notes Receivable............... 2,941 775 153(3) 1,215(2) 2,654 Real estate allowance............. 3,467 -- 1,000(3) -- 4,467 Amortization of cost in excess of net assets acquired and other intangible assets.............. 3,988 2,321 -- -- 6,309 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 and other intangible assets.............. 1,503 2,485 -- -- 3,988 Year ended December 31, 1994: Reserve for claim losses.......... $ 142,512 $ 27,838 $ 6,219(5) $ 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(4) 3,296 Amortization of cost in excess of net assets acquired and other intangible assets.............. 1,088 415 -- -- 1,503
- --------------- (1) Represents payments of claim losses, net of recoupments. (2) Represents uncollectible accounts written off. (3) Represents reserve for claim losses and other allowances assumed in the acquisition of Nations Title Inc. (4) Represents reduction in the reserve balance due to the sale of a real estate property. (5) Reserves assumed with purchase of ATIC Preferred Stock. 70 EX-10.1.1 2 1ST AMEND TO EMPLOYEMENT AGREEMENT 1 Exhibit 10.1.1 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT, effective as of January 1, 1996, is entered into by and between FIDELITY NATIONAL FINANCIAL, INC., a Delaware corporation (the "Company"), and WILLIAM P. FOLEY, II (the "Employee"), and amends the current Employment Agreement between the Company and Employee, which current Employment Agreement was effective April 1, 1991. WHEREAS, the Company and Employee are parties to an Employment Agreement effective April 1, 1991 with a five year term which expires March 31, 1996, and WHEREAS, the Company and Employee wish to amend such Employment Agreement to extend the term for an additional five (5) years and in other respects, NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, the parties agree as follows: 1. Section 1 of the Employment Agreement, entitled "Employment and Duties," is hereby amended to delete the word "President" from such section. 2. Section 3 of the Employment Agreement, entitled "Salary," is hereby amended to increase the "minimum base annual salary, before deducting all applicable withholdings" from "$394,000.00" to "$600,000.00" effective January 1, 1996. In addition, there shall be a new sentence added to the end of Section 3 stating as follows: "The Board shall review Employee's minimum base annual salary in March of 1998 and may, in its sole discretion, increase (but not decrease) such minimum base annual salary for the remainder of the term of this Agreement based upon Employee's performance during the first two years of this Agreement." 3. Section 4(f) of the Employment Agreement, entitled "Other Compensation and Fringe Benefits," is hereby amended to delete the current Section 4(f) and replacing it with the following: (f) An annual bonus equal to $50,000 for each full percentage point the Company's return on equity exceeds 10% (based on equity as of the beginning of the year being measured). Return on equity shall be determined by dividing net income before extraordinary items by stockholders' equity as of the beginning of the year being measured. Any fractional percentage point increase shall be applied to $50,000 to determine the amount of such bonus ( for example, an 11.5% return on equity would result in a $75,000 bonus). Said bonus shall be paid no later than March 31st of each year and is fully vested in the event of a non- 2 renewal of this agreement or is vested pro-rata in the event of a termination of this Agreement other than for cause. The Board may additionally, in its sole discretion, grant to Employee an annual merit bonus based upon Employee's performance during the preceding year and any other factors the Board considers relevant. 4. Subsections (b),(c) & (d) of Section 7 of the Employment Agreement, entitled "Termination," are amended to change the language "as, otherwise directed by the Company" to read "as otherwise directed by Employee." 5. There is hereby added to the Agreement Paragraph 7A, which shall read in its entirety as follows: "7A. Severance Payment. (a) Employee may terminate his employment hereunder for "Good Reason". For purposes of this Agreement, "Good Reason" shall mean a change in control of the Company (as defined below). For purposes of this Agreement, a "change in control of the Company shall be deemed to have occurred if (i) there shall be consummated (x) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company's Common Stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of the Company's Common Stock immediately prior to the merger have the same proportionate ownership of Common Stock of the surviving corporation immediately after the merger, or (y) any sale, lease exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company, or (ii) the stockholders of the Company approved any plan or proposal for the liquidation or dissolution of the Company, or (iii) any "person" (such as that term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")), other than the Company or any "person" who on the date hereof is a director or officer of the Employer, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding securities, or (iv) during any period of two (2) consecutive years during the term of this Agreement or any renewals hereof, individuals who at the beginning of such period constitute the board cease for any reason to constitute at least a majority thereof, unless the election of each director who was not a director at the beginning of such period has been approved in advance by directors representing at least two-thirds of the directors then in office who were directors at the beginning of the period. Employee may only terminate this Agreement due to a change in control of the Company during the period commencing 60 days and expiring 365 days after such change in control. (b) If the Employee shall terminate his employment for Good Reason, or if, after a change in control of the Company, the Company shall terminate the Employee's employment in breach of this Agreement or pursuant to section 7(b), then: 3 (i) the Company shall pay the Employee his full salary through the date of termination pursuant to this Agreement; (ii) in lieu of any further salary and bonus payments to the Employee for periods subsequent to the date of termination, the Company shall pay as severance pay to the Employee an amount equal to the product of (A) the Employee's annual salary rate in effect as of the date of termination plus the total bonus paid or payable to the Employee for the most recently ended calendar year, multiplied by (B) the greater of the number of years (including partial years) remaining in the term of employment hereunder or the number 3, such payment to be made in a lump sum on or before the fifth day following the date of termination; and (iii) the Company shall maintain in full force and effect, for the continued benefit of the Employee for the greater of the number of years (including partial years) remaining in the term of employment hereunder or the number 3, all employee benefit plans and programs in which the executive was entitled to participate immediately prior to the date of termination provided that the Employee's continued participation is possible under the general terms and provisions of such plans and programs. In the event that the Employee's participation in any such plan or program is prohibited, the Company shall arrange to provide the Employee with benefits substantially similar to those which the Employee would otherwise have been entitled to receive under such plans and programs from which his continued participation is prohibited. (c) The Employee shall not be required to mitigate the amount of any payment provided for in this section 7A or section 7(b) above by seeking other employment or otherwise, nor shall any compensation or other payments received by the Employee after the date of termination reduce any payments due under this section 7A or section 7(b). (d) Notwithstanding the provision hereinabove, if any payment pursuant to this section 7A would be a "parachute payment" (as defined in Section 280G of the Internal Revenue Code) , such payment shall be limited to the largest portion of such payment as can be paid without being a "parachute payment." 5. Section 10 of the Employment Agreement, entitled "Non-Competition During Employment Term," is hereby amended to add a sentence at the end of such Section which shall read as follows: "The Company acknowledges that Employee is the Chairman of the Board and Chief Executive Officer of CKE Restaurants, Inc. and will devote a reasonable portion of his time to fulfilling his duties as a director and an officer of CKE Restaurants, Inc." 4 6. Section 19 of the Employment Agreement, entitled "Notices," is hereby amended to substitute the following addresses for the parties: "To the Company: Fidelity National Financial, Inc. 17911 Von Karman Avenue, Suite 300 Irvine, California 92714 Attention: Andrew F. Puzder Executive Vice President and General Counsel To Employee: William P. Foley II 4181 Creciente Drive Santa Barbara, California 93110 7. Effect on Employment Agreement. Except as herein amended, all provisions of the Agreement shall remain in full force and effect. IN WITNESS WHEREOF the parties have executed this First Amendment to Employment Agreement as of the date set forth herein above. FIDELITY NATIONAL FINANCIAL, INC. /s/ Andrew F. Puzder ------------------------------ By: Andrew F. Puzder Its: Executive Vice President and General Counsel WILLIAM P. FOLEY, II /s/ William P. Foley, II ------------------------------ EX-10.1.2 3 EMPLOYMENT AGREEMENT 1 Exhibit 10.1.2 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is effective as of January 1, 1996, by and between FIDELITY NATIONAL FINANCIAL, INC., a Delaware corporation (the "Company"), and FRANK P. WILLEY (the "Employee"), and supersedes any prior employment agreement entered into between the parties. In consideration of the mutual covenants and agreements set forth herein, the parties agree as follows: l. Employment and Duties. Subject to the terms and conditions of this Agreement, the Company employs the Employee to serve in an executive and managerial capacity as the President of the Company, and the Employee accepts such employment and agrees to perform such reasonable responsibilities and duties commensurate with aforesaid position, as directed by the Chief Executive Officer and as set forth in the Articles of Incorporation and the Bylaws of the Company. 2. Term. The term of this Agreement shall be for a period of one (1) year commencing on the date hereof and continuing for one (1) years until January 1, 1997, subject to termination as set forth in Section 7 hereof. 3. Salary. During the term of this Agreement, the Company shall pay Employee a minimum base annual salary, before deducting all applicable withholdings, of $250.000.00 per year, payable at the times and in the manner dictated by the Company's standard payroll policies. Such base salary may be periodically reviewed and increased at the discretion of the Chief Executive Officer and/or the Compensation Committee of the Board of Directors to reflect among other matters cost of living increases and performance results. 4. Other Compensation and Fringe Benefits. In addition to any executive bonus, pension, deferred compensation and stock option plans which the Company may from time to time make available to Employee upon mutual agreement, the Employee shall be entitled to the following: (a) The standard Company benefits enjoyed by the Company's other top executives. (b) Company shall pay Employee's initiation and membership dues in a social and/or recreational club as deemed necessary and appropriate by Employee to maintain various business relationships on behalf of the Company; provided, however, that the Company shall not be obligated to pay for any of Employee's personal purchases and expenses at such clubs. 2 (c) Company shall provide medical and insurance coverage to Employee and his dependents commencing on the date of execution hereof and so long as this Agreement and all renewals of same are in force and effect. (d) Supplemental disability insurance sufficient to provide two-thirds of pre-disability base salary as base salary has been defined in Section 3. (e) An annual bonus equal to $15,000 for each full percentage point the Company's return on equity exceeds 10% (based on equity as of the beginning of the year being measured). Return on equity shall be determined by dividing net income before extraordinary items by stockholders' equity as of the beginning of the year being measured. Any fractional percentage point increase shall be applied to $15,000 to determine the amount of such bonus ( for example, an 11.5% return on equity would result in a $22,500 bonus). Said bonus shall be paid no later than March 31st of each year and is fully vested event of a non-renewal of this agreement or is vested pro-rata in the event of a termination of this Agreement other than for cause. The Board may additionally, in its sole discretion, grant to Employee an annual merit bonus based upon Employee's performance during the preceding year and any other factors the Board considers relevant. The Company shall deduct from all compensation payable under this Agreement to Employee any taxes or withholdings the Company is required to deduct pursuant to state and federal laws or by mutual agreement between the parties. 5. Vacation. For and during each year of this Agreement, the Employee shall be entitled to reasonable vacation periods with pay consistent with his positions with the Company. In addition, Employee shall be entitled to such holidays consistent with the Company's standard policies or as the Company's Board of Directors may approve. 6. Expense Reimbursement. In addition to the compensation and benefits provided herein, the Company shall, upon receipt of appropriate documentation, reimburse Employee each month for his reasonable travel, lodging, entertainment, promotion and other ordinary and necessary business expenses. 7. Termination. (a) For Cause. The Company may terminate this Agreement immediately for cause upon written notice to the Employee, in which event the Company shall be obligated to pay the Employee that portion of the minimum base compensation set forth in Section 3 due him through the date of termination. Cause shall be limited to gross and willful neglect of duties or criminal or other illegal activities as determined by a court of competent jurisdiction. (b) Without Cause. Either party may terminate this Agreement immediately without cause by giving written notice to the other. If the Company terminates hereunder, it shall continue to pay to the Employee the minimum base salary for the unexpired term of this Agreement and a prorated bonus in a lump sum or as otherwise directed by Employee. If the Employee 3 terminates hereunder, the Company shall be obligated to pay the Employee the minimum base compensation set forth in Section 3 due him through the date of termination. (c) Disability. If the Employee fails to perform his duties hereunder on account of illness of other incapacity for a period of nine (9) consecutive months, the Company shall have the right upon written notice to the Employee to terminate this Agreement without further obligation by paying Employee the minimum base salary without offset for the remainder of the term of this Agreement in a lump sum or as otherwise directed by Employee. (d) Death. If the Employee dies during the term of this Agreement, this Agreement shall terminate immediately, and the Employee's legal representatives shall be entitled to receive the base salary for the remainder of the term of this Agreement in a lump sum or as otherwise directed by Employee. (e) Effect of Termination. Termination for any cause shall not constitute a waiver of the Company's rights under this Agreement nor a release of Employee from any obligation hereunder except his obligation to perform his day-to-day duties as an employee. 8. Severance Payment. (a) Employee may terminate his employment hereunder for "Good Reason". For purposes of this Agreement, "Good Reason" shall mean a change in control of the Company (as defined below). For purposes of this Agreement, a "change in control of the Company shall be deemed to have occurred if (i) there shall be consummated (x) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company's Common Stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of the Company's Common Stock immediately prior to the merger have the same proportionate ownership of Common Stock of the surviving corporation immediately after the merger, or (y) any sale, lease exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company, or (ii) the stockholders of the Company approved any plan or proposal for the liquidation or dissolution of the Company, or (iii) any "person" (such as that term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")), other than the Company or any "person" who on the date hereof is a director or officer of the Employer, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding securities, or (iv) during any period of two (2) consecutive years during the term of this Agreement or any renewals hereof, individuals who at the beginning of such period constitute the board cease for any reason to constitute at least a majority thereof, unless the election of each director who was not a director at the beginning of such period has been approved in advance by directors representing at least two-thirds of the directors then in office who were directors at the beginning of the period. Employee may only terminate this Agreement due to a change in control of the Company during the period commencing 60 days and expiring 365 days after such change in control. 4 (b) If the Employee shall terminate his employment for Good Reason, or if, after a change in control of the Company, the Company shall terminate the Employee's employment in breach of this Agreement or pursuant to section 7(b), then: (i) the Company shall pay the Employee his full salary through the date of termination pursuant to this Agreement; (ii) in lieu of any further salary and bonus payments or other payments due to the Employee for periods subsequent to the date of termination, the Company shall pay as severance pay to the Employee an amount equal to the product of (A) the Employee's annual salary rate in effect as of the date of termination plus the total bonus paid or payable to the Employee for the most recently ended calendar year, multiplied by (B) the greater of the number of years (including partial years) remaining in the term of employment hereunder or the number 2, such payment to be made in a lump sum on or before the fifth day following the date of termination; and (iii) the Company shall maintain in full force and effect, for the continued benefit of the Employee for the greater of the number of years (including partial years) remaining in the term of employment hereunder or the number 2, all employee benefit plans and programs in which the executive was entitled to participate immediately prior to the date of termination provided that the Employee's continued participation is possible under the general terms and provisions of such plans and programs. In the event that the Employee's participation in any such plan or program is prohibited, the Company shall arrange to provide the Employee with benefits substantially similar to those which the Employee would otherwise have been entitled to receive under such plans and programs from which his continued participation is prohibited. (c) The Employee shall not be required to mitigate the amount of any payment provided for in this section 8 or section 7(b) above by seeking other employment or otherwise, nor shall any compensation or other payments received by the Employee after the date of termination reduce any payments due under this section 8 or section 7(b). (d) Notwithstanding the provision hereinabove, if any payment pursuant to this section 8 would be a "parachute payment" (as defined in Section 280G of the Internal Revenue Code) , such payment shall be limited to the largest portion of such payment as can be paid without being a "parachute payment." 9. Non-Delegation of Employee's Rights. The obligations, rights and benefits of Employee hereunder are personal and may not be delegated, assigned or transferred in any manner whatsoever, nor are such obligations, rights or benefits subject to involuntary alienation, assignment or transfer. 10. Confidential Information. Employee acknowledges that in his capacity as an employee of the Company he will occupy a position of trust and confidence, and he further acknowledges that he will have access to and learn much information about the Company and its operations that is confidential or not generally known in the industry including, without limitation, information that 5 relates to purchasing, sales, customers, marketing, the Company's financial position and financing arrangements. Employee agrees that all such information is proprietary or confidential or constitutes trade secrets and is the sole property of the Company. Employee will keep confidential, and will not reproduce, copy or disclose to any other person or firm, any such information or any documents or information relating to the Company's methods, processes, customers, accounts, analyses, systems, charts, programs, procedures, correspondence, or records, or any other documents used or owned by the Company, nor will Employee advise, discuss with or in any way assist any other person or firm in obtaining or learning about any of the items described in this section. Accordingly, Employee agrees that during the term of this Agreement, or afterwards, he will not disclose, or permit or encourage anyone who is not an employee of the Company to disclose any such information, nor will he utilize any such information, either alone or with others, outside the scope of his duties and responsibilities with the Company. 11. Non-Competition During Employment Term. Employee agrees that during the term of his employment by the Company, he will devote substantially all his business time and effort to and give undivided loyalty to the Company. He will not engage in any way whatsoever, directly or indirectly, in any business that is competitive with the Company or its affiliates, nor solicit, or in any other manner work for or assist any business which is competitive with the Company or its affiliates. During the term of this Agreement, he will undertake no planning for or organization of any business activity competitive with the work he performs as an employee of the Company, and Employee will not combine or conspire with any other employee of the Company or any other person for the purpose of organizing any such competitive business activity. 12. Non-Competition After Employment Term. The parties acknowledge that the Employee will acquire much knowledge and information concerning the business of the Company and its affiliates as a result of his employment. The parties further acknowledge that the scope of business in which the Company is engaged as of the date of execution of this Agreement is national and very competitive and one in which few companies can successfully compete. Competition by Employee in that business after this Agreement is terminated would severely injure the Company. Accordingly, until two (2) years after this Agreement is terminated or Employee leaves the employment of the Company for any reason whatsoever, except as otherwise stated hereinbelow, Employee agrees (a) not to become an employee, consultant, advisor, principal, partner or substantial shareholder of any firm or business that in any way competes with the Company or its affiliates in any of their presently existing or then existing products and markets and (b) not to solicit any person or business that was at the time of such termination and remains a customer or prospective customer of the Company or any of its affiliates. Notwithstanding any of the foregoing provisions to the contrary, Employee shall not be subject to the restrictions set forth in this Section 12 under the following circumstances: (a) When Employee leaves the employment of the Company as a result of termination by the Company without cause; (b) When Employee is terminated as a result of the Company's failure to renew his employment agreement; or 6 (c) When Employee leaves the employment of the Company for Good Reason pursuant to section 8 above. 13. Return of Company Documents. Upon termination of this Agreement, Employee shall return immediately to the Company all records and documents of or pertaining to the Company and shall not make or retain any copy or extract of any such record or document. 14. Improvements and Inventions. Any and all improvements or inventions which Employee may conceive, make or participate in during the period of his employment shall be the sole and exclusive property of the Company. Employee will, whenever requested by the Company, execute and deliver any and all documents which the Company shall deem appropriate in order to apply for and obtain patents for improvements or inventions or in order to assign and convey to Company the sole and exclusive right, title and interest in and to such improvements, inventions, patents or applications. 15. Actions. The parties agree and acknowledge that the rights conveyed by this Agreement are of a unique and special nature and that the Company will not have an adequate remedy at law in the event of failure of the Employee to abide by its terms and conditions nor will money damages adequately compensate for such injury. It is, therefore, agreed between the paries that in the event of breach by Employee of any of his agreements contained in this Agreement, Company shall have the right, among other rights, to damages sustained thereby and to obtain an injunction or decree of specific performance from any court of competent jurisdiction to restrain or compel Employee to perform as agreed herein. Employee agrees that this section shall survive the termination of his employment and he shall be bound by its terms and at all times subsequent to the termination of his employment for so long a period as Company continues to conduct the same business or businesses as it was conducting during the period of this Agreement. Nothing herein contained shall in any way limit or exclude any other right granted by law or equity to the Company. 16. Amendment. This Agreement contains, and its terms constitute, the entire agreement of the parties, and it may be amended only by a written document signed by both parties to this Agreement. 17. Governing Law. California law shall govern the construction and enforcement of this Agreement and the parties agree that any litigation pertaining to this Agreement shall be in courts located in California. 18. Attorneys' Fees. If any party finds it necessary to employ legal counsel or to bring an action at law or other proceedings against the other party to enforce any of the terms hereof, the party prevailing in any such action or other proceeding shall be paid by the other party its reasonable attorneys' fees as well as court costs all as determined by the court and not a jury. 19. Severability. If any section, subsection or provision hereof is found for any reason whatsoever, to be invalid or inoperative, that section, subsection or provision shall be deemed severable and shall not affect the force and validity of any other provision of this Agreement. If any covenant herein is determined by a court to be overly broad thereby making the covenant 7 unenforceable, the parties agree and it is their desire that such court shall substitute a reasonable judicially enforceable limitation in place of the offensive part of the covenant and that as so modified the covenant shall be as fully enforceable as if set forth herein by the parties themselves in the modified form. The covenants of Employee in this Agreement shall each be construed as an agreement independent of any other provision in this Agreement, and the existence of any claim or cause of action of Employee against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the covenants in this Agreement. 20. Notices. Any notice, request, or instruction to be given hereunder shall be in writing and shall be deemed given when personally delivered or three (3) days after being sent by United States certified mail, postage prepaid, with return receipt requested, to the parties at their respective addresses set forth below: To the Company: Fidelity National Financial, Inc. 17911 Von Karman Avenue, Suite 300 Irvine, California 92714 Attention: Andrew F. Puzder Executive Vice President and General Counsel To Employee: Frank P. Willey 18 Pelican Point Newport Coast, California 92660 21. Waiver of Breach. The waiver by any party of any provisions of this Agreement shall not operate or be construed as a waiver of any prior or subsequent breach by the other party. 8 IN WITNESS WHEREOF the parties have executed this Employment Agreement as of the date set forth herein above. FIDELITY NATIONAL FINANCIAL, INC. By: /s/ William P. Foley, II ------------------------------------ Its. Chairman and Chief Executive Officer FRANK P. WILLEY /s/ Frank P. Willey ------------------- 9 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is effective as of January 1, 1996, by and between FIDELITY NATIONAL FINANCIAL, INC., a Delaware corporation (the "Company"), and PATRICK F. STONE (the "Employee"), and supersedes any prior employment agreement entered into between the parties. In consideration of the mutual covenants and agreements set forth herein, the parties agree as follows: l. Employment and Duties. Subject to the terms and conditions of this Agreement, the Company employs the Employee to serve in an executive and managerial capacity as the Executive Vice President of the Company, and the Employee accepts such employment and agrees to perform such reasonable responsibilities and duties commensurate with aforesaid position, as directed by the Chief Executive Officer and as set forth in the Articles of Incorporation and the Bylaws of the Company. 2. Term. The term of this Agreement shall be for a period of one (1) year commencing on the date hereof and continuing for one (1) years until January 1, 1997, subject to termination as set forth in Section 7 hereof. 3. Salary. During the term of this Agreement, the Company shall pay Employee a minimum base annual salary, before deducting all applicable withholdings, of $300,000.00 per year, payable at the times and in the manner dictated by the Company's standard payroll policies. Such base salary may be periodically reviewed and increased at the discretion of the Chief Executive Officer and/or the Compensation Committee of the Board of Directors to reflect among other matters cost of living increases and performance results. 4. Other Compensation and Fringe Benefits. In addition to any executive bonus, pension, deferred compensation and stock option plans which the Company may from time to time make available to Employee upon mutual agreement, the Employee shall be entitled to the following: (a) The standard Company benefits enjoyed by the Company's other top executives. (b) Company shall pay Employee's initiation and membership dues in a social and/or recreational club as deemed necessary and appropriate by Employee to maintain various business relationships on behalf of the Company; provided, however, that the Company shall not be obligated to pay for any of Employee's personal purchases and expenses at such clubs. (c) Company shall provide medical and insurance coverage to Employee and his dependents commencing on the date of execution hereof and so long as this Agreement and all renewals of same are in force and effect. 10 (d) Supplemental disability insurance sufficient to provide two-thirds of pre-disability base salary as base salary has been defined in Section 3. (e) An annual bonus equal to $15,000 for each full percentage point the Company's return on equity exceeds 10% (based on equity as of the beginning of the year being measured). Return on equity shall be determined by dividing net income before extraordinary items by stockholders' equity as of the beginning of the year being measured. Any fractional percentage point increase shall be applied to $15,000 to determine the amount of such bonus ( for example, an 11.5% return on equity would result in a $22,500 bonus). Said bonus shall be paid no later than March 31st of each year and is fully vested event of a non-renewal of this agreement or is vested pro-rata in the event of a termination of this Agreement other than for cause. The Board may additionally, in its sole discretion, grant to Employee an annual merit bonus based upon Employee's performance during the preceding year and any other factors the Board considers relevant. The Company shall deduct from all compensation payable under this Agreement to Employee any taxes or withholdings the Company is required to deduct pursuant to state and federal laws or by mutual agreement between the parties. 5. Vacation. For and during each year of this Agreement, the Employee shall be entitled to reasonable vacation periods with pay consistent with his positions with the Company. In addition, Employee shall be entitled to such holidays consistent with the Company's standard policies or as the Company's Board of Directors may approve. 6. Expense Reimbursement. In addition to the compensation and benefits provided herein, the Company shall, upon receipt of appropriate documentation, reimburse Employee each month for his reasonable travel, lodging, entertainment, promotion and other ordinary and necessary business expenses. 7. Termination. (a) For Cause. The Company may terminate this Agreement immediately for cause upon written notice to the Employee, in which event the Company shall be obligated to pay the Employee that portion of the minimum base compensation set forth in Section 3 due him through the date of termination. Cause shall be limited to gross and willful neglect of duties or criminal or other illegal activities as determined by a court of competent jurisdiction. (b) Without Cause. Either party may terminate this Agreement immediately without cause by giving written notice to the other. If the Company terminates hereunder, it shall continue to pay to the Employee the minimum base salary for the unexpired term of this Agreement and a prorated bonus in a lump sum or as otherwise directed by Employee. If the Employee terminates hereunder, the Company shall be obligated to pay the Employee the minimum base compensation set forth in Section 3 due him through the date of termination. (c) Disability. If the Employee fails to perform his duties hereunder on account of illness of other incapacity for a period of nine (9) consecutive months, the Company shall have the 11 right upon written notice to the Employee to terminate this Agreement without further obligation by paying Employee the minimum base salary without offset for the remainder of the term of this Agreement in a lump sum or as otherwise directed by Employee. (d) Death. If the Employee dies during the term of this Agreement, this Agreement shall terminate immediately, and the Employee's legal representatives shall be entitled to receive the base salary for the remainder of the term of this Agreement in a lump sum or as otherwise directed by Employee. (e) Effect of Termination. Termination for any cause shall not constitute a waiver of the Company's rights under this Agreement nor a release of Employee from any obligation hereunder except his obligation to perform his day-to-day duties as an employee. 8. Severance Payment. (a) Employee may terminate his employment hereunder for "Good Reason". For purposes of this Agreement, "Good Reason" shall mean a change in control of the Company (as defined below). For purposes of this Agreement, a "change in control of the Company shall be deemed to have occurred if (i) there shall be consummated (x) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company's Common Stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of the Company's Common Stock immediately prior to the merger have the same proportionate ownership of Common Stock of the surviving corporation immediately after the merger, or (y) any sale, lease exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company, or (ii) the stockholders of the Company approved any plan or proposal for the liquidation or dissolution of the Company, or (iii) any "person" (such as that term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")), other than the Company or any "person" who on the date hereof is a director or officer of the Employer, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding securities, or (iv) during any period of two (2) consecutive years during the term of this Agreement or any renewals hereof, individuals who at the beginning of such period constitute the board cease for any reason to constitute at least a majority thereof, unless the election of each director who was not a director at the beginning of such period has been approved in advance by directors representing at least two-thirds of the directors then in office who were directors at the beginning of the period. Employee may only terminate this Agreement due to a change in control of the Company during the period commencing 60 days and expiring 365 days after such change in control. (b) If the Employee shall terminate his employment for Good Reason, or if, after a change in control of the Company, the Company shall terminate the Employee's employment in breach of this Agreement or pursuant to section 7(b), then: (i) the Company shall pay the Employee his full salary through the date of termination pursuant to this Agreement; 12 (ii) in lieu of any further salary and bonus payments or other payments due to the Employee for periods subsequent to the date of termination, the Company shall pay as severance pay to the Employee an amount equal to the product of (A) the Employee's annual salary rate in effect as of the date of termination plus the total bonus paid or payable to the Employee for the most recently ended calendar year, multiplied by (B) the greater of the number of years (including partial years) remaining in the term of employment hereunder or the number 2, such payment to be made in a lump sum on or before the fifth day following the date of termination; and (iii) the Company shall maintain in full force and effect, for the continued benefit of the Employee for the greater of the number of years (including partial years) remaining in the term of employment hereunder or the number 2, all employee benefit plans and programs in which the executive was entitled to participate immediately prior to the date of termination provided that the Employee's continued participation is possible under the general terms and provisions of such plans and programs. In the event that the Employee's participation in any such plan or program is prohibited, the Company shall arrange to provide the Employee with benefits substantially similar to those which the Employee would otherwise have been entitled to receive under such plans and programs from which his continued participation is prohibited. (c) The Employee shall not be required to mitigate the amount of any payment provided for in this section 8 or section 7(b) above by seeking other employment or otherwise, nor shall any compensation or other payments received by the Employee after the date of termination reduce any payments due under this section 8 or section 7(b). (d) Notwithstanding the provision hereinabove, if any payment pursuant to this section 8 would be a "parachute payment" (as defined in Section 280G of the Internal Revenue Code) , such payment shall be limited to the largest portion of such payment as can be paid without being a "parachute payment." 9. Non-Delegation of Employee's Rights. The obligations, rights and benefits of Employee hereunder are personal and may not be delegated, assigned or transferred in any manner whatsoever, nor are such obligations, rights or benefits subject to involuntary alienation, assignment or transfer. 10. Confidential Information. Employee acknowledges that in his capacity as an employee of the Company he will occupy a position of trust and confidence, and he further acknowledges that he will have access to and learn much information about the Company and its operations that is confidential or not generally known in the industry including, without limitation, information that relates to purchasing, sales, customers, marketing, the Company's financial position and financing arrangements. Employee agrees that all such information is proprietary or confidential or constitutes trade secrets and is the sole property of the Company. Employee will keep confidential, and will not reproduce, copy or disclose to any other person or firm, any such information or any documents or information relating to the Company's methods, processes, customers, accounts, analyses, systems, charts, programs, procedures, correspondence, or records, or any other documents used or owned by the Company, nor will Employee advise, discuss with or in any way assist any other person or firm 13 in obtaining or learning about any of the items described in this section. Accordingly, Employee agrees that during the term of this Agreement, or afterwards, he will not disclose, or permit or encourage anyone who is not an employee of the Company to disclose any such information, nor will he utilize any such information, either alone or with others, outside the scope of his duties and responsibilities with the Company. 11. Non-Competition During Employment Term. Employee agrees that during the term of his employment by the Company, he will devote substantially all his business time and effort to and give undivided loyalty to the Company. He will not engage in any way whatsoever, directly or indirectly, in any business that is competitive with the Company or its affiliates, nor solicit, or in any other manner work for or assist any business which is competitive with the Company or its affiliates. During the term of this Agreement, he will undertake no planning for or organization of any business activity competitive with the work he performs as an employee of the Company, and Employee will not combine or conspire with any other employee of the Company or any other person for the purpose of organizing any such competitive business activity. 12. Return of Company Documents. Upon termination of this Agreement, Employee shall return immediately to the Company all records and documents of or pertaining to the Company and shall not make or retain any copy or extract of any such record or document. 13. Improvements and Inventions. Any and all improvements or inventions which Employee may conceive, make or participate in during the period of his employment shall be the sole and exclusive property of the Company. Employee will, whenever requested by the Company, execute and deliver any and all documents which the Company shall deem appropriate in order to apply for and obtain patents for improvements or inventions or in order to assign and convey to Company the sole and exclusive right, title and interest in and to such improvements, inventions, patents or applications. 14. Actions. The parties agree and acknowledge that the rights conveyed by this Agreement are of a unique and special nature and that the Company will not have an adequate remedy at law in the event of failure of the Employee to abide by its terms and conditions nor will money damages adequately compensate for such injury. It is, therefore, agreed between the paries that in the event of breach by Employee of any of his agreements contained in this Agreement, Company shall have the right, among other rights, to damages sustained thereby and to obtain an injunction or decree of specific performance from any court of competent jurisdiction to restrain or compel Employee to perform as agreed herein. Employee agrees that this section shall survive the termination of his employment and he shall be bound by its terms and at all times subsequent to the termination of his employment for so long a period as Company continues to conduct the same business or businesses as it was conducting during the period of this Agreement. Nothing herein contained shall in any way limit or exclude any other right granted by law or equity to the Company. 15. Amendment. This Agreement contains, and its terms constitute, the entire agreement of the parties, and it may be amended only by a written document signed by both parties to this Agreement. 14 16. Governing Law. California law shall govern the construction and enforcement of this Agreement and the parties agree that any litigation pertaining to this Agreement shall be in courts located in California. 17. Attorneys' Fees. If any party finds it necessary to employ legal counsel or to bring an action at law or other proceedings against the other party to enforce any of the terms hereof, the party prevailing in any such action or other proceeding shall be paid by the other party its reasonable attorneys' fees as well as court costs all as determined by the court and not a jury. 18. Severability. If any section, subsection or provision hereof is found for any reason whatsoever, to be invalid or inoperative, that section, subsection or provision shall be deemed severable and shall not affect the force and validity of any other provision of this Agreement. If any covenant herein is determined by a court to be overly broad thereby making the covenant unenforceable, the parties agree and it is their desire that such court shall substitute a reasonable judicially enforceable limitation in place of the offensive part of the covenant and that as so modified the covenant shall be as fully enforceable as if set forth herein by the parties themselves in the modified form. The covenants of Employee in this Agreement shall each be construed as an agreement independent of any other provision in this Agreement, and the existence of any claim or cause of action of Employee against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the covenants in this Agreement. 19. Notices. Any notice, request, or instruction to be given hereunder shall be in writing and shall be deemed given when personally delivered or three (3) days after being sent by United States certified mail, postage prepaid, with return receipt requested, to the parties at their respective addresses set forth below: To the Company: Fidelity National Financial, Inc. 17911 Von Karman Avenue, Suite 300 Irvine, California 92714 Attention: Andrew F. Puzder Executive Vice President and General Counsel To Employee: Patrick F. Stone 1020 Via Tranquila Santa Barbara, California 93110 20. Waiver of Breach. The waiver by any party of any provisions of this Agreement shall not operate or be construed as a waiver of any prior or subsequent breach by the other party. 15 IN WITNESS WHEREOF the parties have executed this Employment Agreement as of the date set forth herein above. FIDELITY NATIONAL FINANCIAL, INC. By: /s/ William P. Foley, II ------------------------------------ Its: Chairman and Chief Executive Officer PATRICK F. STONE /s/ Patrick F. Stone -------------------- 16 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is effective as of January 1, 1996, by and between FIDELITY NATIONAL FINANCIAL, INC., a Delaware corporation (the "Company"), and ANDREW F. PUZDER (the "Employee"), and supersedes any prior employment agreement entered into between the parties. In consideration of the mutual covenants and agreements set forth herein, the parties agree as follows: l. Employment and Duties. Subject to the terms and conditions of this Agreement, the Company employs the Employee to serve in an executive and managerial capacity as the General Counsel and Executive Vice President of the Company, and the Employee accepts such employment and agrees to perform such reasonable responsibilities and duties commensurate with aforesaid position, as directed by the Chief Executive Officer and as set forth in the Articles of Incorporation and the Bylaws of the Company. 2. Term. The term of this Agreement shall be for a period of one (1) year commencing on the date hereof and continuing for one (1) years until January 1, 1997, subject to termination as set forth in Section 7 hereof. 3. Salary. During the term of this Agreement, the Company shall pay Employee a minimum base annual salary, before deducting all applicable withholdings, of $240.000.00 per year, payable at the times and in the manner dictated by the Company's standard payroll policies. Such base salary may be periodically reviewed and increased at the discretion of the Chief Executive Officer and/or the Compensation Committee of the Board of Directors to reflect among other matters cost of living increases and performance results. 4. Other Compensation and Fringe Benefits. In addition to any executive bonus, pension, deferred compensation and stock option plans which the Company may from time to time make available to Employee upon mutual agreement, the Employee shall be entitled to the following: (a) The standard Company benefits enjoyed by the Company's other top executives. (b) Company shall pay Employee's initiation and membership dues in a social and/or recreational club as deemed necessary and appropriate by Employee to maintain various business relationships on behalf of the Company; provided, however, that the Company shall not be obligated to pay for any of Employee's personal purchases and expenses at such clubs. (c) Company shall provide medical and insurance coverage to Employee and his dependents commencing on the date of execution hereof and so long as this Agreement and all renewals of same are in force and effect. 17 (d) Supplemental disability insurance sufficient to provide two-thirds of pre-disability base salary as base salary has been defined in Section 3. (e) An annual bonus equal to $7,500 for each full percentage point the Company's return on equity exceeds 10% (based on equity as of the beginning of the year being measured). Return on equity shall be determined by dividing net income before extraordinary items by stockholders' equity as of the beginning of the year being measured. Any fractional percentage point increase shall be applied to $7,500 to determine the amount of such bonus ( for example, an 11.5% return on equity would result in a $11,250 bonus). Said bonus shall be paid no later than March 31st of each year and is fully vested event of a non-renewal of this agreement or is vested pro-rata in the event of a termination of this Agreement other than for cause. The Board may additionally, in its sole discretion, grant to Employee an annual merit bonus based upon Employee's performance during the preceding year and any other factors the Board considers relevant. (f) Options. Executive and the Company executed a letter entitled "Terms of Employment" under which Executive received certain options and the right to earn certain options (the "Letter "). A copy of the Letter is attached hereto as exhibit "A". Executive shall retain the right to the options and future grants of options as referenced in paragraphs 2, 3, 4, and 6 of the Letter, as such rights are expressed in the Letter. Executive shall also continue to have the right to represent Carl N. Karcher as set forth in paragraph 5 of the Letter. The Company shall deduct from all compensation payable under this Agreement to Employee any taxes or withholdings the Company is required to deduct pursuant to state and federal laws or by mutual agreement between the parties. 5. Vacation. For and during each year of this Agreement, the Employee shall be entitled to reasonable vacation periods with pay consistent with his positions with the Company. In addition, Employee shall be entitled to such holidays consistent with the Company's standard policies or as the Company's Board of Directors may approve. 6. Expense Reimbursement. In addition to the compensation and benefits provided herein, the Company shall, upon receipt of appropriate documentation, reimburse Employee each month for his reasonable travel, lodging, entertainment, promotion and other ordinary and necessary business expenses. 7. Termination. (a) For Cause. The Company may terminate this Agreement immediately for cause upon written notice to the Employee, in which event the Company shall be obligated to pay the Employee that portion of the minimum base compensation set forth in Section 3 due him through the date of termination. Cause shall be limited to gross and willful neglect of duties or criminal or other illegal activities as determined by a court of competent jurisdiction. (b) Without Cause. Either party may terminate this Agreement immediately without cause by giving written notice to the other. If the Company terminates hereunder, it shall 18 continue to pay to the Employee the minimum base salary for the unexpired term of this Agreement and a prorated bonus in a lump sum or as otherwise directed by Employee. If the Employee terminates hereunder, the Company shall be obligated to pay the Employee the minimum base compensation set forth in Section 3 due him through the date of termination. (c) Disability. If the Employee fails to perform his duties hereunder on account of illness of other incapacity for a period of nine (9) consecutive months, the Company shall have the right upon written notice to the Employee to terminate this Agreement without further obligation by paying Employee the minimum base salary without offset for the remainder of the term of this Agreement in a lump sum or as otherwise directed by Employee. (d) Death. If the Employee dies during the term of this Agreement, this Agreement shall terminate immediately, and the Employee's legal representatives shall be entitled to receive the base salary for the remainder of the term of this Agreement in a lump sum or as otherwise directed by Employee. (e) Effect of Termination. Termination for any cause shall not constitute a waiver of the Company's rights under this Agreement nor a release of Employee from any obligation hereunder except his obligation to perform his day-to-day duties as an employee. 8. Severance Payment. (a) Employee may terminate his employment hereunder for "Good Reason". For purposes of this Agreement, "Good Reason" shall mean a change in control of the Company (as defined below). For purposes of this Agreement, a "change in control of the Company shall be deemed to have occurred if (i) there shall be consummated (x) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company's Common Stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of the Company's Common Stock immediately prior to the merger have the same proportionate ownership of Common Stock of the surviving corporation immediately after the merger, or (y) any sale, lease exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company, or (ii) the stockholders of the Company approved any plan or proposal for the liquidation or dissolution of the Company, or (iii) any "person" (such as that term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")), other than the Company or any "person" who on the date hereof is a director or officer of the Employer, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding securities, or (iv) during any period of two (2) consecutive years during the term of this Agreement or any renewals hereof, individuals who at the beginning of such period constitute the board cease for any reason to constitute at least a majority thereof, unless the election of each director who was not a director at the beginning of such period has been approved in advance by directors representing at least two-thirds of the directors then in office who were directors at the beginning of the period. Employee may only terminate this Agreement due to a change in control of the Company during the period commencing 60 days and expiring 365 days after such change in control. 19 (b) If the Employee shall terminate his employment for Good Reason, or if, after a change in control of the Company, the Company shall terminate the Employee's employment in breach of this Agreement or pursuant to section 7(b), then: (i) the Company shall pay the Employee his full salary through the date of termination pursuant to this Agreement; (ii) in lieu of any further salary and bonus payments or other payments due to the Employee for periods subsequent to the date of termination, the Company shall pay as severance pay to the Employee an amount equal to the product of (A) the Employee's annual salary rate in effect as of the date of termination plus the total bonus paid or payable to the Employee for the most recently ended calendar year, multiplied by (B) the greater of the number of years (including partial years) remaining in the term of employment hereunder or the number 2, such payment to be made in a lump sum on or before the fifth day following the date of termination; and (iii) the Company shall maintain in full force and effect, for the continued benefit of the Employee for the greater of the number of years (including partial years) remaining in the term of employment hereunder or the number 2, all employee benefit plans and programs in which the executive was entitled to participate immediately prior to the date of termination provided that the Employee's continued participation is possible under the general terms and provisions of such plans and programs. In the event that the Employee's participation in any such plan or program is prohibited, the Company shall arrange to provide the Employee with benefits substantially similar to those which the Employee would otherwise have been entitled to receive under such plans and programs from which his continued participation is prohibited. (c) The Employee shall not be required to mitigate the amount of any payment provided for in this section 8 or section 7(b) above by seeking other employment or otherwise, nor shall any compensation or other payments received by the Employee after the date of termination reduce any payments due under this section 8 or section 7(b). (d) Notwithstanding the provision hereinabove, if any payment pursuant to this section 8 would be a "parachute payment" (as defined in Section 280G of the Internal Revenue Code) , such payment shall be limited to the largest portion of such payment as can be paid without being a "parachute payment." 9. Non-Delegation of Employee's Rights. The obligations, rights and benefits of Employee hereunder are personal and may not be delegated, assigned or transferred in any manner whatsoever, nor are such obligations, rights or benefits subject to involuntary alienation, assignment or transfer. 10. Confidential Information. Employee acknowledges that in his capacity as an employee of the Company he will occupy a position of trust and confidence, and he further acknowledges that he will have access to and learn much information about the Company and its operations that is confidential or not generally known in the industry including, without limitation, information that 20 relates to purchasing, sales, customers, marketing, the Company's financial position and financing arrangements. Employee agrees that all such information is proprietary or confidential or constitutes trade secrets and is the sole property of the Company. Employee will keep confidential, and will not reproduce, copy or disclose to any other person or firm, any such information or any documents or information relating to the Company's methods, processes, customers, accounts, analyses, systems, charts, programs, procedures, correspondence, or records, or any other documents used or owned by the Company, nor will Employee advise, discuss with or in any way assist any other person or firm in obtaining or learning about any of the items described in this section. Accordingly, Employee agrees that during the term of this Agreement, or afterwards, he will not disclose, or permit or encourage anyone who is not an employee of the Company to disclose any such information, nor will he utilize any such information, either alone or with others, outside the scope of his duties and responsibilities with the Company. 11. Non-Competition During Employment Term. Employee agrees that during the term of his employment by the Company, he will devote substantially all his business time and effort to and give undivided loyalty to the Company. He will not engage in any way whatsoever, directly or indirectly, in any business that is competitive with the Company or its affiliates, nor solicit, or in any other manner work for or assist any business which is competitive with the Company or its affiliates. During the term of this Agreement, he will undertake no planning for or organization of any business activity competitive with the work he performs as an employee of the Company, and Employee will not combine or conspire with any other employee of the Company or any other person for the purpose of organizing any such competitive business activity. 12. Non-Competition After Employment Term. The parties acknowledge that the Employee will acquire much knowledge and information concerning the business of the Company and its affiliates as a result of his employment. The parties further acknowledge that the scope of business in which the Company is engaged as of the date of execution of this Agreement is national and very competitive and one in which few companies can successfully compete. Competition by Employee in that business after this Agreement is terminated would severely injure the Company. Accordingly, until two (2) years after this Agreement is terminated or Employee leaves the employment of the Company for any reason whatsoever, except as otherwise stated hereinbelow, Employee agrees (a) not to become an employee, consultant, advisor, principal, partner or substantial shareholder of any firm or business that in any way competes with the Company or its affiliates in any of their presently existing or then existing products and markets and (b) not to solicit any person or business that was at the time of such termination and remains a customer or prospective customer of the Company or any of its affiliates. Notwithstanding any of the foregoing provisions to the contrary, Employee shall not be subject to the restrictions set forth in this Section 12 under the following circumstances: (a) When Employee leaves the employment of the Company as a result of termination by the Company without cause; (b) When Employee is terminated as a result of the Company's failure to renew his employment agreement; or 21 (c) When Employee leaves the employment of the Company for Good Reason pursuant to section 8 above. 13. Return of Company Documents. Upon termination of this Agreement, Employee shall return immediately to the Company all records and documents of or pertaining to the Company and shall not make or retain any copy or extract of any such record or document. 14. Improvements and Inventions. Any and all improvements or inventions which Employee may conceive, make or participate in during the period of his employment shall be the sole and exclusive property of the Company. Employee will, whenever requested by the Company, execute and deliver any and all documents which the Company shall deem appropriate in order to apply for and obtain patents for improvements or inventions or in order to assign and convey to Company the sole and exclusive right, title and interest in and to such improvements, inventions, patents or applications. 15. Actions. The parties agree and acknowledge that the rights conveyed by this Agreement are of a unique and special nature and that the Company will not have an adequate remedy at law in the event of failure of the Employee to abide by its terms and conditions nor will money damages adequately compensate for such injury. It is, therefore, agreed between the paries that in the event of breach by Employee of any of his agreements contained in this Agreement, Company shall have the right, among other rights, to damages sustained thereby and to obtain an injunction or decree of specific performance from any court of competent jurisdiction to restrain or compel Employee to perform as agreed herein. Employee agrees that this section shall survive the termination of his employment and he shall be bound by its terms and at all times subsequent to the termination of his employment for so long a period as Company continues to conduct the same business or businesses as it was conducting during the period of this Agreement. Nothing herein contained shall in any way limit or exclude any other right granted by law or equity to the Company. 16. Amendment. This Agreement contains, and its terms constitute, the entire agreement of the parties, and it may be amended only by a written document signed by both parties to this Agreement. 17. Governing Law. California law shall govern the construction and enforcement of this Agreement and the parties agree that any litigation pertaining to this Agreement shall be in courts located in California. 18. Attorneys' Fees. If any party finds it necessary to employ legal counsel or to bring an action at law or other proceedings against the other party to enforce any of the terms hereof, the party prevailing in any such action or other proceeding shall be paid by the other party its reasonable attorneys' fees as well as court costs all as determined by the court and not a jury. 19. Severability. If any section, subsection or provision hereof is found for any reason whatsoever, to be invalid or inoperative, that section, subsection or provision shall be deemed severable and shall not affect the force and validity of any other provision of this Agreement. If any covenant herein is determined by a court to be overly broad thereby making the covenant 22 unenforceable, the parties agree and it is their desire that such court shall substitute a reasonable judicially enforceable limitation in place of the offensive part of the covenant and that as so modified the covenant shall be as fully enforceable as if set forth herein by the parties themselves in the modified form. The covenants of Employee in this Agreement shall each be construed as an agreement independent of any other provision in this Agreement, and the existence of any claim or cause of action of Employee against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the covenants in this Agreement. 20. Notices. Any notice, request, or instruction to be given hereunder shall be in writing and shall be deemed given when personally delivered or three (3) days after being sent by United States certified mail, postage prepaid, with return receipt requested, to the parties at their respective addresses set forth below: To the Company: Fidelity National Financial, Inc. 17911 Von Karman Avenue, Suite 300 Irvine, California 92714 Attention: Frank P. Willey President To Employee: Andrew F. Puzder 25761 Pecos Road Laguna Hills, California 92653 21. Waiver of Breach. The waiver by any party of any provisions of this Agreement shall not operate or be construed as a waiver of any prior or subsequent breach by the other party. 23 IN WITNESS WHEREOF the parties have executed this Employment Agreement as of the date set forth herein above. FIDELITY NATIONAL FINANCIAL, INC. By: /s/ Frank P. Willey ------------------- Its: President ANDREW F. PUZDER /s/ Andrew F. Puzder -------------------- 24 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is effective as of January 1, 1996, by and between FIDELITY NATIONAL FINANCIAL, INC., a Delaware corporation (the "Company"), and CARL A. STRUNK (the "Employee"), and supersedes any prior employment agreement entered into between the parties. In consideration of the mutual covenants and agreements set forth herein, the parties agree as follows: l. Employment and Duties. Subject to the terms and conditions of this Agreement, the Company employs the Employee to serve in an executive and managerial capacity as the Chief Financial Officer of the Company, and the Employee accepts such employment and agrees to perform such reasonable responsibilities and duties commensurate with aforesaid position, as directed by the Chief Executive Officer and as set forth in the Articles of Incorporation and the Bylaws of the Company. 2. Term. The term of this Agreement shall be for a period of one (1) year commencing on the date hereof and continuing for one (1) years until January 1, 1997, subject to termination as set forth in Section 7 hereof. 3. Salary. During the term of this Agreement, the Company shall pay Employee a minimum base annual salary, before deducting all applicable withholdings, of $240.000.00 per year, payable at the times and in the manner dictated by the Company's standard payroll policies. Such base salary may be periodically reviewed and increased at the discretion of the Chief Executive Officer and/or the Compensation Committee of the Board of Directors to reflect among other matters cost of living increases and performance results. 4. Other Compensation and Fringe Benefits. In addition to any executive bonus, pension, deferred compensation and stock option plans which the Company may from time to time make available to Employee upon mutual agreement, the Employee shall be entitled to the following: (a) The standard Company benefits enjoyed by the Company's other top executives. (b) Company shall pay Employee's initiation and membership dues in a social and/or recreational club as deemed necessary and appropriate by Employee to maintain various business relationships on behalf of the Company; provided, however, that the Company shall not be obligated to pay for any of Employee's personal purchases and expenses at such clubs. (c) Company shall provide medical and insurance coverage to Employee and his dependents commencing on the date of execution hereof and so long as this Agreement and all renewals of same are in force and effect. 25 (d) Supplemental disability insurance sufficient to provide two-thirds of pre-disability base salary as base salary has been defined in Section 3. (e) An annual bonus equal to $7,500 for each full percentage point the Company's return on equity before extraordinary items exceeds 10% (based on equity as of the beginning of the year being measured). Any fractional percentage point increase shall be applied to $7,500 to determine the amount of such bonus ( for example, an 11.5% return on equity would result in a $11,250 bonus). Said bonus shall be paid no later than March 31st of each year. The Board may additionally, in its sole discretion, grant to Employee an annual merit bonus based upon Employee's performance during the preceding year and any other factors the Board considers relevant. The Company shall deduct from all compensation payable under this Agreement to Employee any taxes or withholdings the Company is required to deduct pursuant to state and federal laws or by mutual agreement between the parties. 5. Vacation. For and during each year of this Agreement, the Employee shall be entitled to reasonable vacation periods with pay consistent with his positions with the Company. In addition, Employee shall be entitled to such holidays consistent with the Company's standard policies or as the Company's Board of Directors may approve. 6. Expense Reimbursement. In addition to the compensation and benefits provided herein, the Company shall, upon receipt of appropriate documentation, reimburse Employee each month for his reasonable travel, lodging, entertainment, promotion and other ordinary and necessary business expenses. 7. Termination. (a) For Cause. The Company may terminate this Agreement immediately for cause upon written notice to the Employee, in which event the Company shall be obligated to pay the Employee that portion of the minimum base compensation set forth in Section 3 due him through the date of termination. Cause shall be limited to gross and willful neglect of duties or criminal or other illegal activities as determined by a court of competent jurisdiction. (b) Without Cause. Either party may terminate this Agreement immediately without cause by giving written notice to the other. If the Company terminates hereunder, it shall continue to pay to the Employee the minimum base salary for the unexpired term of this Agreement and a prorated bonus in a lump sum or as otherwise directed by Employee. If the Employee terminates hereunder, the Company shall be obligated to pay the Employee the minimum base compensation set forth in Section 3 due him through the date of termination. (c) Disability. If the Employee fails to perform his duties hereunder on account of illness of other incapacity for a period of nine (9) consecutive months, the Company shall have the right upon written notice to the Employee to terminate this Agreement without further obligation by 26 paying Employee the minimum base salary without offset for the remainder of the term of this Agreement in a lump sum or as otherwise directed by Employee. (d) Death. If the Employee dies during the term of this Agreement, this Agreement shall terminate immediately, and the Employee's legal representatives shall be entitled to receive the base salary for the remainder of the term of this Agreement in a lump sum or as otherwise directed by Employee. (e) Effect of Termination. Termination for any cause shall not constitute a waiver of the Company's rights under this Agreement nor a release of Employee from any obligation hereunder except his obligation to perform his day-to-day duties as an employee. 8. Severance Payment. (a) Employee may terminate his employment hereunder for "Good Reason". For purposes of this Agreement, "Good Reason" shall mean a change in control of the Company (as defined below). For purposes of this Agreement, a "change in control of the Company shall be deemed to have occurred if (i) there shall be consummated (x) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company's Common Stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of the Company's Common Stock immediately prior to the merger have the same proportionate ownership of Common Stock of the surviving corporation immediately after the merger, or (y) any sale, lease exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company, or (ii) the stockholders of the Company approved any plan or proposal for the liquidation or dissolution of the Company, or (iii) any "person" (such as that term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")), other than the Company or any "person" who on the date hereof is a director or officer of the Employer, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding securities, or (iv) during any period of two (2) consecutive years during the term of this Agreement, individuals who at the beginning of such period constitute the board cease for any reason to constitute at least a majority thereof, unless the election of each director who was not a director at the beginning of such period has been approved in advance by directors representing at least two-thirds of the directors then in office who were directors at the beginning of the period. Employee may only terminate this Agreement due to a change in control of the Company during the period commencing 60 days and expiring 365 days after such change in control. (b) If the Employee shall terminate his employment for Good Reason, or if, after a change in control of the Company, the Company shall terminate the Employee's employment in breach of this Agreement or pursuant to section 7(b), then: (i) the Company shall pay the Employee his full salary through the date of termination pursuant to this Agreement; 27 (ii) in lieu of any further salary and bonus payments or other payments due to the Employee for periods subsequent to the date of termination, the Company shall pay as severance pay to the Employee an amount equal to the product of (A) the Employee's annual salary rate in effect as of the date of termination plus the total bonus paid or payable to the Employee for the most recently ended calendar year, multiplied by (B) the greater of the number of years (including partial years) remaining in the term of employment hereunder or the number 2, such payment to be made in a lump sum on or before the fifth day following the date of termination; and (iii) the Company shall maintain in full force and effect, for the continued benefit of the Employee for the greater of the number of years (including partial years) remaining in the term of employment hereunder or the number 2, all employee benefit plans and programs in which the executive was entitled to participate immediately prior to the date of termination provided that the Employee's continued participation is possible under the general terms and provisions of such plans and programs. In the event that the Employee's participation in any such plan or program is prohibited, the Company shall arrange to provide the Employee with benefits substantially similar to those which the Employee would otherwise have been entitled to receive under such plans and programs from which his continued participation is prohibited. (c) The Employee shall not be required to mitigate the amount of any payment provided for in this section 8 or section 7(b) above by seeking other employment or otherwise, nor shall any compensation or other payments received by the Employee after the date of termination reduce any payments due under this section 8 or section 7(b). (d) Notwithstanding the provision hereinabove, if any payment pursuant to this section 8 would be a "parachute payment" (as defined in Section 280G of the Internal Revenue Code) , such payment shall be limited to the largest portion of such payment as can be paid without being a "parachute payment." 9. Non-Delegation of Employee's Rights. The obligations, rights and benefits of Employee hereunder are personal and may not be delegated, assigned or transferred in any manner whatsoever, nor are such obligations, rights or benefits subject to involuntary alienation, assignment or transfer. 10. Confidential Information. Employee acknowledges that in his capacity as an employee of the Company he will occupy a position of trust and confidence, and he further acknowledges that he will have access to and learn much information about the Company and its operations that is confidential or not generally known in the industry including, without limitation, information that relates to purchasing, sales, customers, marketing, the Company's financial position and financing arrangements. Employee agrees that all such information is proprietary or confidential or constitutes trade secrets and is the sole property of the Company. Employee will keep confidential, and will not reproduce, copy or disclose to any other person or firm, any such information or any documents or information relating to the Company's methods, processes, customers, accounts, analyses, systems, charts, programs, procedures, correspondence, or records, or any other documents used or owned 28 by the Company, nor will Employee advise, discuss with or in any way assist any other person or firm in obtaining or learning about any of the items described in this section. Accordingly, Employee agrees that during the term of this Agreement, or afterwards, he will not disclose, or permit or encourage anyone who is not an employee of the Company to disclose any such information, nor will he utilize any such information, either alone or with others, outside the scope of his duties and responsibilities with the Company. 11. Non-Competition During Employment Term. Employee agrees that during the term of his employment by the Company, he will devote substantially all his business time and effort to and give undivided loyalty to the Company. He will not engage in any way whatsoever, directly or indirectly, in any business that is competitive with the Company or its affiliates, nor solicit, or in any other manner work for or assist any business which is competitive with the Company or its affiliates. During the term of this Agreement, he will undertake no planning for or organization of any business activity competitive with the work he performs as an employee of the Company, and Employee will not combine or conspire with any other employee of the Company or any other person for the purpose of organizing any such competitive business activity. 12. Non-Competition After Employment Term. The parties acknowledge that the Employee will acquire much knowledge and information concerning the business of the Company and its affiliates as a result of his employment. The parties further acknowledge that the scope of business in which the Company is engaged as of the date of execution of this Agreement is national and very competitive and one in which few companies can successfully compete. Competition by Employee in that business after this Agreement is terminated would severely injure the Company. Accordingly, until two (2) years after this Agreement is terminated or Employee leaves the employment of the Company for any reason whatsoever, except as otherwise stated hereinbelow, Employee agrees (a) not to become an employee, consultant, advisor, principal, partner or substantial shareholder of any firm or business that in any way competes with the Company or its affiliates in any of their presently existing or then existing products and markets and (b) not to solicit any person or business that was at the time of such termination and remains a customer or prospective customer of the Company or any of its affiliates. Notwithstanding any of the foregoing provisions to the contrary, Employee shall not be subject to the restrictions set forth in this Section 12 under the following circumstances: (a) When Employee leaves the employment of the Company as a result of termination by the Company without cause; (b) When Employee is terminated as a result of the Company's failure to renew his employment agreement; or (c) When Employee leaves the employment of the Company for Good Reason pursuant to section 8 above. 13. Return of Company Documents. Upon termination of this Agreement, Employee shall return immediately to the Company all records and documents of or pertaining to the Company and shall not make or retain any copy or extract of any such record or document. 29 14. Improvements and Inventions. Any and all improvements or inventions which Employee may conceive, make or participate in during the period of his employment shall be the sole and exclusive property of the Company. Employee will, whenever requested by the Company, execute and deliver any and all documents which the Company shall deem appropriate in order to apply for and obtain patents for improvements or inventions or in order to assign and convey to Company the sole and exclusive right, title and interest in and to such improvements, inventions, patents or applications. 15. Actions. The parties agree and acknowledge that the rights conveyed by this Agreement are of a unique and special nature and that the Company will not have an adequate remedy at law in the event of failure of the Employee to abide by its terms and conditions nor will money damages adequately compensate for such injury. It is, therefore, agreed between the paries that in the event of breach by Employee of any of his agreements contained in this Agreement, Company shall have the right, among other rights, to damages sustained thereby and to obtain an injunction or decree of specific performance from any court of competent jurisdiction to restrain or compel Employee to perform as agreed herein. Employee agrees that this section shall survive the termination of his employment and he shall be bound by its terms and at all times subsequent to the termination of his employment for so long a period as Company continues to conduct the same business or businesses as it was conducting during the period of this Agreement. Nothing herein contained shall in any way limit or exclude any other right granted by law or equity to the Company. 16. Amendment. This Agreement contains, and its terms constitute, the entire agreement of the parties, and it may be amended only by a written document signed by both parties to this Agreement. 17. Governing Law. California law shall govern the construction and enforcement of this Agreement and the parties agree that any litigation pertaining to this Agreement shall be in courts located in California. 18. Attorneys' Fees. If any party finds it necessary to employ legal counsel or to bring an action at law or other proceedings against the other party to enforce any of the terms hereof, the party prevailing in any such action or other proceeding shall be paid by the other party its reasonable attorneys' fees as well as court costs all as determined by the court and not a jury. 19. Severability. If any section, subsection or provision hereof is found for any reason whatsoever, to be invalid or inoperative, that section, subsection or provision shall be deemed severable and shall not affect the force and validity of any other provision of this Agreement. If any covenant herein is determined by a court to be overly broad thereby making the covenant unenforceable, the parties agree and it is their desire that such court shall substitute a reasonable judicially enforceable limitation in place of the offensive part of the covenant and that as so modified the covenant shall be as fully enforceable as if set forth herein by the parties themselves in the modified form. The covenants of Employee in this Agreement shall each be construed as an agreement independent of any other provision in this Agreement, and the existence of any claim or cause of action of Employee against the Company, whether predicated on this Agreement or 30 otherwise, shall not constitute a defense to the enforcement by the Company of the covenants in this Agreement. 20. Notices. Any notice, request, or instruction to be given hereunder shall be in writing and shall be deemed given when personally delivered or three (3) days after being sent by United States certified mail, postage prepaid, with return receipt requested, to the parties at their respective addresses set forth below: To the Company: Fidelity National Financial, Inc. 17911 Von Karman Avenue, Suite 300 Irvine, California 92714 Attention: Andrew F. Puzder Executive Vice President and General Counsel To Employee: Carl A. Strunk 563 Promontory Drive East Newport Beach, California 92660 21. Waiver of Breach. The waiver by any party of any provisions of this Agreement shall not operate or be construed as a waiver of any prior or subsequent breach by the other party. 31 IN WITNESS WHEREOF the parties have executed this Employment Agreement as of the date set forth herein above. FIDELITY NATIONAL FINANCIAL, INC. By: /s/ William P Foley, II ----------------------- Its. Chairman and Chief Exective Officer CARL A. STRUNK /s/ Carl A. Strunk ------------------ EX-10.8.3.2 4 EXHIBIT 1 Exhibit 10.8.3.2 AMENDMENT NO. 2 AMENDMENT NO. 2 dated as of March 15, 1996, 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 the date hereof, 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 8.08(d) of the Credit Agreement shall be amended by replacing the word "by" with the word "to" in the fifth line thereof. 2.03. Section 8.08(i) of the Credit Agreement shall be deleted in its entirety and each of the clauses (j), (k) and (l) shall be relettered accordingly. 2.04. Section 8.08(k) of the Credit Agreement (to be relettered 8.08(j) as contemplated above) shall be amended in its entirety to read as follows: Amendment No. 2 2 - 2 - "Investments (other than notes receivable and Investments of the type described in clause (d) above) up to but not exceeding $5,000,000 in any one Person and Investments in the capital stock, bonds, notes or debentures of one other Person up to but not exceeding the sum of (i) $15,000,000 plus (ii) 50% of the amount, if any, by which the retained earnings of the Company as of the date of the most recent such Investment exceeds the retained earnings of the Company as of June 30, 1995; provided that Investments permitted under this Section 8.08(j) shall not exceed $70,000,000 in the aggregate; and" 2.05. Section 8.17 of the Credit Agreement shall be amended (i) by adding the words "including, without limitation, Investments permitted by Section 8.08(k) (notwithstanding that the entities in which such Investments are made are Affiliates)" immediately after the word "Agreement" and immediately before the comma in the second line thereof and (ii) by adding, in the parenthetical contained in clause (y) of the proviso therein, the words "and other than transactions with CKE Restaurants Inc., a Delaware corporation" immediately after the words "to an Affiliate". 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. 2. 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 the date hereof, upon the satisfaction of the following conditions precedent: 4.01. Execution by All Parties. This Amendment No. 2 shall have been executed and delivered by the Company and the Banks constituting Majority Banks. 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 Amendment No. 2 3 - 3 - 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 resolutions and evidence of the incumbency of officers for the Company) with respect to the execution, delivery and performance of this Amendment No. 2 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. 2 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. 2 by signing any such counterpart. This Amendment No. 2 shall be governed by, and construed in accordance with, the law of the State of New York. Amendment No. 2 4 - 4 - IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 to be duly executed and delivered as of the day and year first above written. FIDELITY NATIONAL FINANCIAL, INC. By /s/ Carl A. Strunk --------------------------------- Title: Executive Vice President, Chief Financial Officer Amendment No. 2 5 - 5 - BANKS THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION) By /s/ Robert A. Foster -------------------------- Title: Vice President IMPERIAL BANK By /s/ Jeff Thomas ------------------------- Title: Vice President SANWA BANK CALIFORNIA By /s/ John C. Hyche -------------------------- Title: Vice President FIRST INTERSTATE BANK OF CALIFORNIA By /s/ Marla W. Johnson -------------------------- Title: Vice President Amendment No. 2 6 - 6 - THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), as Administrative Agent By /s/ Robert A. Foster ------------------------- Title: Vice President Amendment No. 2 EX-10.8.3.3 5 EXHIBIT 1 Exhibit 10.8.3.3 AMENDMENT NO. 3 AMENDMENT NO. 3 dated as of July 15, 1996, 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, a New York state-chartered banking corporation, 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. 3, 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 March 31, 1996, 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 8.10(d) of the Credit Agreement shall be amended in its entirety to read as follows: "(d) Minimum Surplus. The Company will cause Fidelity National Title Insurance Company, Fidelity National Title Insurance Company of Pennsylvania and Fidelity National Title Insurance Company of New York to maintain an aggregate Surplus of $60,000,000 plus the Recoupment Amount, as at the last day of each fiscal quarter of the Company." Amendment No. 3 2 - 2 - 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. 3. 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 March 31, 1996, upon receipt by the Administrative Agent of duly executed counterparts of this Amendment No. 3 by the Company and the Banks constituting Majority Banks. Section 5. Miscellaneous. Except as herein provided, the Credit Agreement shall remain unchanged and in full force and effect. This Amendment No. 3 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. 3 by signing any such counterpart. This Amendment No. 3 shall be governed by, and construed in accordance with, the law of the State of New York. IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 3 to be duly executed and delivered as of the day and year first above written. FIDELITY NATIONAL FINANCIAL, INC. By /s/ Carl A. Strunk ------------------------------- Title: Executive Vice President and Chief Financial Officer Amendment No. 3 3 - 3 - BANKS THE CHASE MANHATTAN BANK By /s/ Robert A. Foster ------------------------------- Title: IMPERIAL BANK By ------------------------------- Title: SANWA BANK CALIFORNIA By ------------------------------- Title: WELLS FARGO BANK, N.A. By ------------------------------- Title: Amendment No. 3 4 - 3 - BANKS THE CHASE MANHATTAN BANK By ------------------------------- Title: IMPERIAL BANK By /s/ Jeff Thomas ------------------------------- Title: VP SANWA BANK CALIFORNIA By ------------------------------- Title: WELLS FARGO BANK, N.A. By ------------------------------- Title: Amendment No. 3 5 - 3 - BANKS THE CHASE MANHATTAN BANK By ------------------------------- Title: IMPERIAL BANK By ------------------------------- Title: SANWA BANK CALIFORNIA By /s/ John C. Hyche ------------------------------- Title: Vice President WELLS FARGO BANK, N.A. By ------------------------------- Title: Amendment No. 3 6 - 3 - BANKS THE CHASE MANHATTAN BANK By ------------------------------- Title: IMPERIAL BANK By ------------------------------- Title: SANWA BANK CALIFORNIA By ------------------------------- Title: WELLS FARGO BANK, N.A. By /s/ Sandra Martin ------------------------------- Title: Amendment No. 3 EX-10.8.3.4 6 EXHIBIT 1 Exhibit 10.8.3.4 AMENDMENT NO. 4 AMENDMENT NO. 4 dated as of February 24, 1997, 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, a New York state-chartered banking corporation, 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. 4, 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 December 31, 1996, 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 inserting the following new defined term in the appropriate alphabetical order: "Arbitrage Loans" shall mean loans in an aggregate outstanding amount not exceeding $175,000,000 at any one time made by any financial institution (a "lender") which is, at the time of the making of such loan, a depository (whether on its own behalf or as escrow agent) of the Company or any Subsidiary of the Company, to the Company or any such Subsidiary in an amount not exceeding the amount of the deposits of the Company or any such Subsidiary held by such depository, the Amendment No. 4 2 - 2 - proceeds of which are invested in U.S. Government securities and/or certificates of deposit rated A-1 or P-1 and having a term not exceeding the maturity date of such loan (but in no event longer than 92 days), provided that (i) the relevant borrower shall have a right of offset against such investment (in the case of certificates of deposit) and (ii) all such loans must be off the balance sheet of the Company and its Subsidiaries at the last day of any quarterly fiscal period. 2.03. Section 8.07 of the Credit Agreement shall be amended by (i) deleting the word "and" at the end of clause (d) thereof, (ii) replacing the period at the end of clause (e) thereof with a semicolon and (iii) adding the following new clauses (f), (g) and (h) thereto: "(f) Indebtedness of FNF Ventures, Inc. to the Small Business Administration in an aggregate outstanding amount not exceeding $20,000,000 at any one time; (g) Indebtedness of Western American Exchange Corporation ("WestAmex"), or any other Wholly Owned Subsidiary of the Company primarily engaged in the same business as WestAmex, incurred in connection with exchanges of property with respect to which no gain or loss is recognized pursuant to Section 1031 of the United States Internal Revenue Code, provided that (i) such exchange is entered into in the ordinary course of business of WestAmex, (ii) such Indebtedness is recourse only to the property subject to the exchange and (iii) the aggregate amount of all such Indebtedness shall not exceed $25,000,000 at any time; and (h) Arbitrage Loans." 2.04. Section 8.08(c) of the Credit Agreement shall be amended by adding the words ", provided that the aggregate amount of all Investments in the restaurant business or businesses related thereto made under Section 8.05 does not exceed 10% of the Consolidated Investment Portfolio" immediately preceding the semicolon therein. 2.05. Section 8.08 of the Credit Agreement shall be amended by adding the following clause (l) thereto: "(l) Arbitrage Loans." Amendment No. 4 3 - 3 - 2.06. Section 8.12 of the Credit Agreement shall be amended by replacing "$15,000,000" with "$25,000,000". 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. 4. 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 December 31, 1996, upon receipt by the Administrative Agent of duly executed counterparts of this Amendment No. 4 by the Company and the Banks constituting Majority Banks. Section 5. Miscellaneous. Except as herein provided, the Credit Agreement shall remain unchanged and in full force and effect. This Amendment No. 4 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. 4 by signing any such counterpart. This Amendment No. 4 shall be governed by, and construed in accordance with, the law of the State of New York. IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 4 to be duly executed and delivered as of the day and year first above written. FIDELITY NATIONAL FINANCIAL, INC. By /s/ Carl A. Strunk -------------------------------- Title: Executive Vice President and Chief Financial Officer BANKS THE CHASE MANHATTAN BANK By -------------------------------- Title: Amendment No. 4 4 - 3 - 2.06. Section 8.12 of the Credit Agreement shall be amended by replacing "$15,000,000" with "$25,000,000". 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. 4. 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 December 31, 1996, upon receipt by the Administrative Agent of duly executed counterparts of this Amendment No. 4 by the Company and the Banks constituting Majority Banks. Section 5. Miscellaneous. Except as herein provided, the Credit Agreement shall remain unchanged and in full force and effect. This Amendment No. 4 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. 4 by signing any such counterpart. This Amendment No. 4 shall be governed by, and construed in accordance with, the law of the State of New York. IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 4 to be duly executed and delivered as of the day and year first above written. FIDELITY NATIONAL FINANCIAL, INC. By -------------------------------- Title: BANKS THE CHASE MANHATTAN BANK By /s/ Robert A. Foster -------------------------------- Title: Vice President Amendment No. 4 5 - 4 - IMPERIAL BANK By /s/ Jeff Thomas ------------------------------- Title: Vice President SANWA BANK CALIFORNIA By ------------------------------- Title: WELLS FARGO BANK, N.A. By ------------------------------- Title: THE CHASE MANHATTAN BANK, as Administrative Agent By ------------------------------- Title: Amendment No. 4 6 - 4 - IMPERIAL BANK By ------------------------------- Title: SANWA BANK CALIFORNIA By /s/ John C. Hyche ------------------------------- Title: Vice President WELLS FARGO BANK, N.A. By ------------------------------- Title: THE CHASE MANHATTAN BANK, as Administrative Agent By ------------------------------- Title: Amendment No. 4 7 - 4 - IMPERIAL BANK By ------------------------------- Title: SANWA BANK CALIFORNIA By ------------------------------- Title: WELLS FARGO BANK, N.A. By /s/ Michael Sullivan ------------------------------- Title: Vice President THE CHASE MANHATTAN BANK, as Administrative Agent By ------------------------------- Title: Amendment No. 4 8 - 4 - IMPERIAL BANK By ------------------------------- Title: SANWA BANK CALIFORNIA By ------------------------------- Title: WELLS FARGO BANK, N.A. By ------------------------------- Title: THE CHASE MANHATTAN BANK, as Administrative Agent By /s/ Robert A. Foster ------------------------------- Title: Vice President Amendment No. 4 EX-10.24.2 7 LISTING APPLICATION 1 Exhibit 10.24.2 LISTING APPLICATION TO NEW YORK STOCK EXCHANGE, INC. FIDELITY NATIONAL FINANCIAL, INC. 1,875,000 Additional Shares of Common Stock to be issued pursuant to the 1987 Employee Stock Purchase Plan 2,921,638 Additional Shares of Common Stock to be Issued in Connection with a 10% Stock Dividend Securities Presently Issued and Outstanding 11,154,918 Securities Held in Treasury 4,698,957 Securities Issued Pursuant 1,585,388 Pursuant to this Application Securities Reserved for Issuance Prior to this Application 11,487,500 Securities Reserved for Issuance Pursuant to this Application 3,211,250 Securities Authorized for Listing Giving Effect to this Application 32,138,013
All requisite approvals and authorizations will have been received, and required supporting documents relating to this transaction will have been filed with the New York Stock Exchange. Fidelity National Financial, Inc. By: /s/ M'Liss Jones Kane --------------------- M'Liss Jones Kane Senior Vice President The New York Stock Exchange, Inc. hereby authorizes, upon official notice of issuance, the listing of 4,796,638 additional shares of Common Stock. 2 The New York Stock Exchange, Inc. By: /s/ Thomas E. Veit ------------------ Thomas E. Veit Vice President, Client Service EX-10.24.3 8 LISTING APPLICATION 1 Exhibit 10.24.3 LISTING APPLICATION TO NEW YORK STOCK EXCHANGE, INC. FIDELITY NATIONAL FINANCIAL, INC. (FNF) 157,993 Additional Shares of Common Stock to be issued pursuant to an Agreement for Purchase and Sale of Stock of CRM, Inc. Securities Presently Issued and Outstanding: 12,472,810 Securities Held in Treasury: 5,168,853 Securities Issued Pursuant to this Application: 157,993 Securities Reserved for Issuance 14,698,750 Prior to this Application Securities Authorized for Listing 32,498,406 Giving Effect to this Application
All requisite approvals and authorizations will have been received, and required supporting documents relating to this transaction will have been filed with the New York Stock Exchange. Fidelity National Financial, Inc. By: /s/ M' Liss Jones Kane ---------------------- M'Liss Jones Kane Senior Vice President The New York Stock Exchange, Inc. hereby authorizes, upon official notice of issuance, the listing of 157,993 additional shares of Common Stock. By: /s/ Thomas E. Veit ------------------------------- Thomas E. Veit Vice President - Client Service EX-10.39.2 9 EXHIBIT 1 EXHIBIT 10.39.2 Secured Party: MetLife Capital Corporation Debtor: Fidelity Asset Management, Inc. Address: 10900 NE 4th Street, Suite 500 Address: 17911 Von Karman Avenue Bellevue, WA 98004-5853 Irvine, CA 91714 Telephone: (206) 451-0090 Telephone: (714) 622-4553
1. Secured Party and Debtor have entered into a Master Security Agreement dated as of September 12, 1996, (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: $7,500,000.00 3. a. Term. The Term of this Note is forty-eight (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 the principal sum of Seven Million Five Hundred Thousand Dollars ($7,500,000.00), together with interest on unpaid principal from the Term Commencement Date until payment in full at a rate of 30-Day Commercial Paper in effect from time to time, as published in Federal Reserve Statistical Release H.15[519], plus two and forty-four one hundredths percent (2.44%) per annum ("Variable Rate") computed on the basis of a 360 day year of twelve consecutive thirty day months in forty-eight (48) installments of principal, each in the amount of $156,250.00, plus interest as defined above, payable commencing October 13, 1996, and monthly thereafter until September 13, 2000, on which date the entire balance of principal and interest unpaid shall be due and payable. It is agreed that each installment, when paid, shall be applied by the holder hereof, first so much as shall be required to the payment of interest accrued as specified hereto, and the balance thereof to the repayment of the principal sum. 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 NA Installment Payments. d. Secured Party acknowledges receipt from Debtor of a payment in the amount of $NA to be held by Secured Party as a deposit to secure Debtor's performance hereunder. e. Rate Fix Option. On any payment date during the term of this Note, after 90 days from Term Commencement Date, (the "Rate Fix Date"), provided that no event of Default, or event which with the passage of time or giving of notice would constitute an Event of Default, has occurred and is continuing, Debtor shall have the option, upon at least thirty (30) 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 (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) 3.04%. The Treasury Constant Maturities Rate as set forth above shall be such the weekly average of the U.S. Treasury Constant Maturities as published in the Federal Reserve Statistical Release H.15 (519) for the week immediately preceding the Rate Fix 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 Rate Fix Date, in immediately available funds, a fee of $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 to 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 Rate Fix Date at the then applicable interest rate over the remaining term. 2 4. Debtor waiver any right of exemption and waives presentment, protest and demand and notice of protest, demand and of dishonor and nonpayment of this Note, and consents that any holder hereof shall have the right, without notice, to grant any extension or extensions of time for payment of this Note or any part thereof or any other indulgences or forbearances whatsoever, or may release any of the security for this Note without in any way affecting the liability of any other party for the payment of this Note. 5. The Equipment will be located at the locations specified in Schedule A hereto. 6. The Installment Payments may change for Equipment accepted after N/A. 7. 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 September 12, 1996 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: DEBTOR: METLIFE CAPITAL CORPORATION FIDELITY ASSET MANAGEMENT, INC. By: VINCE IACI By: CARL A. STRUNK ------------------------ ----------------------------- Title: Vice President Title: President ------------------------ ----------------------------- EX-10.45 10 EXHIBIT 1 Exhibit 10.45 AGREEMENT FOR PURCHASE AND SALE OF STOCK This Agreement for Purchase and Sale of Stock ("Agreement") is made and entered into this 4th day of November, 1996, by and between William F. McCreary, Sr., Trustee of The McCreary Family Trust, Christopher M. McCreary, William F. McCreary, Jr., Dean P. McCreary, Mark R. Johnson, and Alan H. Martin (individually referred to herein as a "Stockholder" and collectively referred to herein as the "Stockholders") and Fidelity National Financial, Inc., a Delaware corporation (referred to herein as "Buyer"). WHEREAS, the Stockholders are the owners of all of the issued and outstanding shares of common stock and preferred stock of CRM Inc., a California corporation (the "Company"); and each Stockholder is willing to transfer all of such Stockholder's shares of preferred stock of the Company (the "Shares") to Buyer upon the terms and conditions set forth herein; WHEREAS, Buyer is willing, subject to the terms and conditions set forth herein, to acquire all of the Shares; WHEREAS, the parties are entering into this Agreement, in part, with the intention to consolidate the tax service business of the Company and Fidelity National Tax Service, a California corporation which is an affiliate of Buyer; NOW, THEREFORE, in consideration of the premises, and the mutual covenants, agreements, representations and warranties hereinafter set forth, the parties hereto, intending to be legally bound, hereby agree as follows: 1. Stock Sale by the Stockholders. Subject to the terms and conditions set forth in this Agreement, the Stockholders will transfer to Buyer all of the Shares, the exact number of Shares to be transferred by each of the Stockholders to be as follows:
Stockholder No. of Shares ----------- -------------- McCreary Family Trust 44,000
1 2 Christopher M. McCreary 25,000 William F. McCreary, Jr. 25,000 Dean P. McCreary 25,000 Alan H. Martin 25,000 Mark R. Johnson 16,000 ------ TOTAL 160,000
2. Purchase Price. In consideration for the sale and transfer of the Shares by the Stockholders, Buyer shall pay to the Stockholders, Twenty Two Dollars ($22) per Share, or an aggregate consideration of Three Million Five Hundred Twenty Thousand ($3,520,000) for all of the Shares, as follows: (a) Buyer shall pay to the Stockholders, pro rata, an aggregate of One Million Dollars ($1,000,000) of cash consideration, and (b) Buyer shall issue and deliver to the Stockholders, pro rata, share certificates of Buyer valued at an aggregate of Two Million Five Hundred Twenty Thousand Dollars ($2,520,000) evidencing the Stockholders' ownership of Buyer's common stock (the shares of Buyer's common stock transferred to the Stockholders are referred to herein as the "Buyer Stock"). The exact number of shares of the Buyer Stock to be issued and delivered to the Stockholders shall be determined based on the average closing price of Buyer Stock on the New York Stock Exchange for the five (5) to fifteen (15) days prior to the Closing Date (as defined in Section 3 hereof), and said number of shares of Buyer's Stock shall be inserted in the space provided below on the Closing Date and initialed by the Buyer and the appropriate Stockholder. In lieu of issuing fractional shares of Buyer Stock to the Stockholders, Buyer shall pay cash equal to such fraction multiplied by the value of one share of Buyer Stock, as determined hereinabove.
Value of Cash Shares of Fractional Shareholder Consideration Buyer Stock Shares - ----------- ------------- ----------- ---------- McCreary Family Trust $275,000 43,448 $4.47 Christopher M. McCreary $156,250 24,686 $8.29 William F. McCreary, Jr. $156,250 24,686 $8.29 Dean P. McCreary $156,250 24,686 $8.29 Alan Martin $156,250 24,686 $8.29 Mark R. Johnson $100,000 15,799 $5.90 -------- ------ ----- TOTAL $1,000,000 157,991 $43.54
2 3 3. Closing. The closing of the sale of the Shares, the payment of the cash consideration to the Stockholders, and the issuance and delivery of the Buyer Stock to the Stockholders ("Closing") will take place at 10:00 a.m. on November 4, 1996, at the offices of Citron & Deutsch, 10866 Wilshire Boulevard, Suite 970, Los Angeles, California, or at such date, time and place as the parties all agree in writing ("Closing Date"). At the Closing, (a) the Stockholders shall deliver to Buyer stock certificates evidencing the Shares duly endorsed for transfer or accompanied by duly executed stock powers, in either case executed in favor of Buyer, (b) Buyer shall deliver the cash consideration to the Stockholders payable by cashiers check to the Stockholders in the amounts set forth in Section 2 hereof, (c) Buyer shall deliver stock certificates to the Stockholders evidencing the shares of Buyer Stock to be issued to the Stockholders under this Agreement, in the amounts set forth in Section 2 hereof, duly registered in the name of the respective Stockholders, and (d) Buyer shall deliver to the Stockholders a cashiers check for the value of the fractional shares of Buyer Stock, if applicable, as provided in Section 2 hereof. Buyer and the Stockholders hereby covenant and agree to use their best efforts to negotiate, execute and deliver those agreements identified in Subsections (e), (f), (g), and (h) of Section 7 of this Agreement prior to or on the Closing Date. 4. Representations and Warranties of the Stockholders. The Stockholders jointly and severally represent and warrant, as of the date hereof and as of the Closing Date, as follows: (a) Organization, Good Standing and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of California, has all necessary corporate powers to own its properties and to carry on its business as now owned and operated by it, and is duly qualified to transact intrastate business and is in good standing in all jurisdictions in which the nature of its business or its properties makes such qualification necessary. The Company has one wholly-owned subsidiary, namely, Environmental Research, Inc. Environmental Research, Inc. is not actively conducting business, and does not have any assets, liabilities or obligations which would have a material effect on the transaction contemplated by this Agreement or the business or operations of the Company. (b) Capital Structure. Upon amendment of the Company's articles of incorporation, the authorized number of shares of the Company will be 300,000 shares of Common Stock, and 160,000 shares of Series A Preferred Stock, of which 40,000 shares of Common Stock will be issued and outstanding and 160,000 shares of Series A Preferred Stock 3 4 will be issued and outstanding. All of the issued and outstanding shares of Common Stock and Series A Preferred Stock will be owned of record and beneficially by the Stockholders, free and clear of any pledges, liens, encumbrances or charges. All of the Shares are validly issued, fully paid and non-assessable. There are no outstanding subscriptions, options, rights, warrants, convertible securities, or other agreements or commitments obligating the Company to issue or to transfer from treasury any additional shares or requiring any of the Stockholders to sell or transfer any Shares or giving any person the right or option to purchase any of the Shares. (c) Authority and Consent. The Company has full corporate power and authority and each of the Stockholders have the power and authority to execute and deliver this Agreement and any other agreements and instruments contemplated hereby. Upon execution by the Stockholders, this Agreement will be valid and binding upon the Stockholders in accordance with its terms. (d) Title to Assets. The Company has good and marketable title to all of its assets free and clear of any mortgage, pledge, lien, encumbrance or charge except as set forth on Schedule "4 (d)" to this Agreement. All assets are in good operating condition and repair and are suitable for the purposes for which they are presently used or proposed to be used. (e) Financial Statements. Schedule "4 (e)" to this Agreement sets forth the balance sheet of the Company as of September 30, 1996 and the related statement of income and retained earnings for the fiscal year then ended (collectively, the "Financial Statements"). The Financial Statements have been compiled in accordance with generally accepted accounting principles, except with respect to those certain departures from generally accepted accounting principles as are described in that certain letter dated October 10, 1996 from Brian W. Polchow, the Company's accountant who prepared the Financial Statements, to the Board of Directors of the Company. The Financial Statements are true and correct and fairly present in all material respects the financial condition of the Company as of the dates and for the periods reflected therein. No more recent Financial Statements have been prepared. There are no other liabilities or obligations of the Company not reflected on the Financial Statements which, either individually or in the aggregate, would be material. (f) Adverse Changes. Since the date of the Financial Statements, there has not been (i) any adverse change in the Company's financial condition, business or prospects, nor 4 5 have the Stockholders any reason to believe there will be; (ii) any transaction by the Company except in the ordinary course of business; (iii) any sale or transfer of any asset of the Company except in the ordinary course of business; (iv) any loan by the Company to any person or entity, or any guarantee by the Company of any loan; provided, however, since the date of the Financial Statements, the Company has paid the loan of $60,057.65 to William McCreary, Sr. reflected on the Company's balance sheet as a Long-Term Debt; and provided further, that since the date of the Financial Statements, the Company has reduced to zero the value of the Company's investment in 400,000 shares of common stock of CDS, Inc. reflected on the Company's balance sheet as an Investment of $75,459. (g) Taxes. The Company has timely filed all federal, state and local tax returns for income taxes, franchise taxes, sales taxes, withholding and payroll taxes, property taxes, and all other taxes of every kind whatsoever required by law to have been filed, and all such tax returns are complete and accurate. The Company has paid or caused to be paid all taxes which have become due and there is no further liability for any such taxes, and no interest or penalties accrued or accruing with respect thereto. The Company is not the subject of any audit by any federal, state, or local taxing authority, nor do any facts exist, to the best knowledge of the Stockholders, that would establish the basis for an audit. The Company is not the beneficiary of any extension of time for the filing of any tax return or with respect to any statute of limitations. (h) Real Property. The Company does not own any real property. The Company leases its offices at 468 N. Rosemead Blvd., Pasadena, CA 91107. There does not exist any default or event of default that with notice or lapse of time, or both, would constitute a default under the Company's lease of its offices. (i) Accounts Receivable. Schedule "4 (i)" to this Agreement is a full and complete list of the accounts receivable of the Company, showing the ageing of all such accounts receivable. Said accounts receivable are valid and genuine and arose from bona fide sales and deliveries of goods, performance of services or other transactions in the ordinary course of the Company's business, and are fully collectable, without any rights or claims to offset, except for doubtful accounts as set forth on Schedule "4(i)" to this Agreement, and other rights or claims of offset which are not, individually or in the aggregate, material. (j) Accounts Payable. Schedule "4 (j)" to this Agreement is a full and 5 6 complete list of the accounts payable of the Company as of the date set forth thereon. There are no other accounts payable not reflected on Schedule "4 (j)" hereof which, either individually or in the aggregate, would be material, excluding accounts payable incurred in the ordinary course of business or consistent with past practices. (k) Trade Names, Trademarks, Copyrights and Patents. Schedule "4 (k)" to this Agreement is a full and complete list of the Company's trade names, trademarks, service marks, logos, copyrights and patents. The Company is a sole owner of each such trade name, trademark, service mark, logo, copyright and patent, and has not licensed or otherwise granted any other party the right to use or exploit any such trade name, trademark, service mark, logo, copyright or patent, including, but not limited to, computer software used by the Company. The Company has not received any notice from any party that the Company is infringing upon any trade names, trademarks, service marks, logos, copyrights and patents. No third party has, to the best knowledge of the Stockholders, interfered with, infringed upon or misappropriated any intellectual property rights of the Company, and, to the best knowledge of the Stockholders, neither the Company nor the Stockholders have taken any action which infringes upon or misappropriates any intellectual property rights of third parties. The Stockholders have no interest in, or claim to any trade name, trademark, service mark, logo, copyright or patent used in the business or operations of the Company. (l) Labor Matters. The Company has not entered into any agreement with any labor union. To the best knowledge of the Stockholders, the Company has not committed or been charged with any unresolved unfair labor practices, has no currently pending labor negotiation or demands for representation, has no unresolved grievances presently pending pursuant to any collective bargaining agreement, and the Stockholders are not aware of any organizing activities among the employees of the Company or any other facts which may lead to a work stoppage, slow down or strike by the employees of the Company. (m) Compliance with Laws. The Company is in compliance with all material applicable laws, rules, regulations and ordinances which are or have been applicable to the business of the Company and which any such noncompliance would have a material adverse effect on the Company. The Company has all material licenses, certificates, and permits that are necessary for the conduct of the Company's business as currently conducted and such licenses, certificates and permits are in full force and effect. 6 7 (n) Employees. Schedule "4 (n)" to this Agreement contains a full and complete list of the names of all employees of the Company, stating the rates of compensation payable to each. No other person, except accountants, auditors, computer programmers, and attorneys, regularly performs compensable services for the Company. (o) Litigation. There is no litigation, proceeding, judgment, order, writ or decree pending or, to the best knowledge of the Stockholders, threatened against the Company, and there are no facts or circumstances known to the Stockholders which would give any of them reason to suspect any of the foregoing. The Company is not in default with respect to any order, writ, injunction or decree of any federal, state, local or foreign court, department, agency or instrumentality. (p) Insurance Policies. Schedule "4 (p)" to this Agreement is a summary of each insurance policy held by the Company, including without limitation, fire and casualty insurance, property damage and public liability insurance, product liability insurance, workers compensation insurance, life insurance and hospitalization insurance. The Company has maintained and now maintains, with no gap in coverage, (i) insurance on all of its assets of a type customarily insured, covering property damage and loss of income by fire or other casualty, and (ii) adequate insurance protection against all liabilities, claims and risks against which it is customary to insure. To the best knowledge of the Stockholders, each policy is legal, valid, binding and enforceable following consummation of the transactions contemplated by this Agreement. The Company is not in default, and no event has occurred which with notice or the lapse of time, would constitute a breach or default under any such policy. (q) Other Contracts. Schedule "4 (q)" to this Agreement is a full and complete list of all material contracts and agreements binding upon and enforceable by the Company, except as such enforceability may be limited by existing and future bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting creditors' rights generally and except as such enforceability may be limited by equitable principles of enforcement. There is no default or event that with notice or lapse of time, or both, would constitute default by any party to any of the agreements set forth on Schedule "4 (q)" to this Agreement. The Company has not received notice that any party to any of the agreements set forth in Schedule "4 (q)" to this Agreement intends to cancel or terminate any agreement or to exercise or not exercise any option 7 8 under any of these agreements. Each such contract shall continue to be binding upon and enforceable by the Company, except as set forth herein, following consummation of the transaction contemplated by this Agreement. (r) Agreement Will Not Cause Breach or Violation. Neither the entry into this Agreement nor the consummation of the transactions contemplated hereby will result in or constitute any of the following: (i) a material default or any event that, with notice or lapse of time, or both, would be a default, breach or violation of the Articles of Incorporation or Bylaws of the Company or any lease, license, promissory note, conditional sales contract, commitment, indenture, mortgage, deed of trust or other agreement, instrument or arrangement to which the Company is a party or by which the Company is bound; (ii) an event that would permit any party to terminate any agreement or to accelerate the maturity of any indebtedness or other material obligation of the Company; (iii) the creation or imposition of any material lien, charge or encumbrance on any of the assets of the Company; or (iv) the violation of any law, regulation, ordinance, judgment, order, or decree applicable to or affecting the Company, which violation would have a material effect on the Company. (s) Material Disclosures. There is no fact known to the Stockholders which adversely affects, or in the future may adversely affect the condition, assets, liabilities, business, operations or process of the Company that has not been previously communicated to Buyer. (t) Investment Intent. Each Stockholder understands that Buyer, in issuing the Buyer Stock to Stockholders pursuant to this Agreement, is relying upon the exemption contained in Section 4 (2) of the Securities Act of 1933, as amended (the "Act"). Each Stockholder acknowledges and represents that the Buyer Stock has not been registered under the Act and will be acquired by each Stockholder with the intent and purpose of retaining the same for personal investment and not for the purpose of or with the view to distributing said shares or any of them by sale or otherwise. Each Stockholder further acknowledges that he understands that future sale or transfer of the Buyer Stock will be restricted as a result of their unregistered status, and that the Buyer Stock must be held indefinitely unless subsequently registered under the Act or an exemption from registration under the Act is available. Each Stockholder further acknowledges that Buyer is under no obligation to register the Buyer Stock under the Act, except as set forth in Section 10 of this Agreement. 8 9 (u) Environmental Matters. The Company has not received any written or oral notice, report or other information regarding any liabilities or potential liabilities (whether accrued, absolute, contingent, unliquidated, or otherwise), including any investigatory, remedial or corrective obligations, relating to the Company or the facilities of the Company arising under Environmental and Safety Requirements, and the Company has not treated, stored, disposed of, arranged for or permitted the disposal of, transported, handled or Released any substance, including without limitation, any Hazardous Material, or owned or operated any facility or property, so as to give rise to material liabilities (whether accrued, absolute, contingent, unliquidated, or otherwise) of the Company for response costs, natural resource damages or attorney fees pursuant to Environmental and Safety Requirements. "Hazardous Material" shall mean anything that is a "hazardous substance" pursuant to CERCLA, any substance that is a "solid waste" or "hazardous waste" pursuant to RCRA, any pesticide, pollutant, containment, toxic chemical, petroleum product or byproduct, asbestos, polychlorinated biphenyl, noise or radiation. "Release" shall have the meaning set forth in CERCLA. "Environmental and Safety Requirements" shall mean all federal, state, local and foreign statues, regulations, ordinances, and other provisions having the force of law, all judicial and administrative orders and denominations, all contractual obligations and all common law concerning worker health and safety or the pollution or protection of the environment, including without limitation, CERCLA, the Resource Conservation and Recovery Act, the Clean Water Act, the Clean Air Act, and the Occupational Safety and Health Act, each as may be amended from time to time. "CERCLA" means the Comprehensive Environmental Response, Compensation, and Liability Act, as may be amended from time to time. 5. Representations and Warranties of Buyer. Buyer represents and warrants, as of the date hereof and as of the Closing Date, as follows: (a) Organization, Good Standing and Qualification. Buyer is a corporation duly organized, validly existing and in good standing under the laws of Delaware, has all necessary corporate powers to own its properties and to carry on its business as now owned and operated by it, and is duly qualified to transact intrastate business and is in good standing in all jurisdictions in which the nature of its business or its properties makes such qualification necessary. Fidelity National Title Insurance Company, an Arizona corporation, is a wholly owned subsidiary of Buyer; and Fidelity National Tax Service, a California corporation ("FNTS") is a wholly owned subsidiary of Fidelity National Title Insurance Company. 9 10 (b) Authority and Consent. Upon execution by Buyer, this Agreement shall be valid and binding upon Buyer in accordance with its terms. Buyer has the corporate power to execute, deliver and carry out the terms of this Agreement and has taken all necessary corporate and legal action with respect thereto, including obtaining any consent of the Board of Directors and its shareholders required by law or its Certificate of Incorporation or Bylaws. (c) Material Disclosures. There is no fact known to Buyer which adversely affects, or in the future may adversely affect the condition, assets, liabilities, business, operations or process of the Company or any subsidiary or affiliate of the Company that has not been previously communicated to the Stockholders. (d) SEC Filings: Financial Status. Buyer, to the best of its knowledge, has filed all forms, reports and documents required to be filed with the SEC (the "Buyer's SEC Reports"), which are publicly available in the form filed with the SEC. The Buyer's 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 Buyer's SEC Reports were prepared in accordance with generally accepted accounting principles 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 Buyer 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 any unaudited interim financial statements were or are subject to normal and recurring year-end adjustments. (e) Buyer Stock. Upon issuance of the Buyer Stock to the Stockholders, the Buyer Stock shall be validly issued, fully paid and non-assessable. (f) Other Contracts. Schedule "5 (f)" to this Agreement is a full and complete list of all material contracts and agreements binding upon and enforceable by FNTS 10 11 except as such enforceability may be limited by existing and future bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting creditors' rights generally and except as such enforceability may be limited by equitable principles of enforcement, a copy of all of which have been previously delivered to the Company and the Stockholders. There is no default or event that with notice or lapse of time, or both, would constitute default by any party to any of the agreements set forth on Schedule "5 (f)" to this Agreement. FNTS has not received notice that any party to any of the agreements set forth in Schedule "5 (f)" to this Agreement intends to cancel or terminate any agreement or to exercise or not exercise any option under any of these agreements. Each such contract shall continue to be binding upon and enforceable by FNTS (or its assigns), except as set forth herein, following consummation of the transaction contemplated by this Agreement. (g) Employees. Schedule "5 (g)" to this Agreement contains a full and complete list of the names of all employees of FNTS stating the rates of compensation payable to each. No other person, except accountants, auditors, computer programmers, and attorneys, regularly performs compensable services for FNTS. (h) Compliance with Laws. FNTS is in compliance with all material applicable laws, rules, regulations and ordinances which are or have been applicable to the business of FNTS. FNTS has all material licenses, certificates, and permits that are necessary for the conduct of FNTS's business as currently conducted and such licenses, certificates and permits are in full force and effect. (i) Agreement Will Not Cause Breach or Violation. Neither the entry into this Agreement nor the consummation of the transactions contemplated hereby will result in or constitute any of the following: (i) a material default or any event that, with notice or lapse of time, or both, would be a default, breach or violation of the Articles of Incorporation or Bylaws of Buyer or FNTS, or any lease, license, promissory note, conditional sales contract, commitment, indenture, mortgage, deed of trust or other agreement, instrument or arrangement to which Buyer or FNTS is a party or by which Buyer or FNTS is bound; (ii) an event that would permit any party to terminate any agreement or to accelerate the maturity of any indebtedness or other material obligation of Buyer or FNTS; (iii) the creation or imposition of any material lien, charge or encumbrance on any of the assets of Buyer or FNTS; or (iv) the violation of any law, regulation, ordinance, judgment, order, or decree applicable to or affecting FNTS or Buyer, which violation 11 12 would have a material effect on FNTS or Buyer. (j) Litigation. There is no litigation, proceeding, judgment, order, writ or decree pending or, to the best knowledge of Buyer, threatened against FNTS, and there are no facts or circumstances known to Buyer which would give it reason to suspect any of the foregoing. FNTS is not in default with respect to any order, writ, injunction or decree of any federal, state, local or foreign court, department, agency or instrumentality. 6. Conduct of Seller's Business Prior to Closing. From the date of this Agreement to the Closing Date, except as otherwise agreed in writing by Buyer, the Stockholders each covenant and agree that the Company shall: (a) Not take any action as would create a lien, charge or encumbrance against any of its assets; (b) Not enter into any agreement buying, selling or affecting any of its assets; (c) Not enter into or assume any contract, agreement, obligation, lease, license or commitment except in the ordinary course of business, consistent with past practice, and shall not enter into any license, including, without limitation, with respect to any computer software used by the Company; (d) Not extend, modify or terminate any contract, agreement, obligation, lease, license or commitment; (e) Not modify, cancel or cause to be canceled any insurance policy presently maintained by the Company; (f) Not use any new methods of management, operation or accounting in respect of, or otherwise change the character of, the business, operations, affairs or activities in any way associated with the business of the Company; (g) Operate and conduct the business operations of the Company in the 12 13 normal and customary manner consistent with reasonable and sound business practice; (h) Maintain the Company's assets in good condition and repair, reasonable wear and tear beyond the control of the Company excepted; (i) Provide Buyer and Buyer's agents, attorneys and accountants, at any time and from time to time, with reasonable access to the Company's books, records and tax returns and the business of the Company for the purpose of reviewing the same; (j) Make reasonably available for inspection and review by Buyer and its agents, attorneys and accountants, all other books, records and files and other materials relating to the business of the Company; (k) Not do or agree to do any of the following acts: (i) grant any increase in salaries payable or to become payable to any officer, employee, agent or representative employed or retained by the Company; (ii) increase benefits payable to any officer, employee, agent or representative employed or retained by the Company; (iii) waive or compromise any right or claim relating to the business of the Company except in the ordinary course of business and consistent with prior practices; or (iv) cancel, without full payment, any note, loan or other obligation owing to the Company; (l) Promptly advise Buyer in writing of any adverse change or the occurrence of any event which involves any possibility of an adverse change in the condition, (financial or otherwise), results of operations, assets, liabilities, business or prospects of the business of the Company; (m) Promptly advise Buyer in writing of each of the following: (i) any notice of default or written threat of default (whether or not disputed or denied) which is received or given by or to the Company; (ii) any litigation, action or investigation instituted by or against, or threatened against the Company; or (iii) any matter which would make the representations and warranties of Stockholders set forth in this Agreement not true and correct in all respects; (n) Use its best efforts to preserve and enhance the business reputation and relationships of the Company with its customers, suppliers, and service agencies; 13 14 (o) Not amend or authorize any amendment to the Company's Articles of Incorporation or Bylaws, except as necessary to carry out the terms of this Agreement or as otherwise requested by Buyer; (p) Not issue or grant, or authorize the issuance or grant, of any capital stock of the Company, or options, warrants or other right to purchase capital stock of the Company, except as otherwise necessary to carry out the terms of this Agreement. 7. Conditions to Buyer's Obligations. Unless waived by Buyer in writing, the obligations of Buyer under this Agreement are subject to the fulfillment on or prior to the Closing Date of the following conditions: (a) The representations and warranties of the Stockholders set forth in this Agreement shall be true and correct at and as of the Closing Date; (b) Each of the covenants and obligations of the Stockholders hereunder shall have been fully performed to the satisfaction of Buyer and its counsel; (c) No material adverse change shall have occurred in the financial or other condition of the business of the Company from that existing on the date of this Agreement; (d) All necessary agreements. Licenses, permits, approval, and consents of any parties to the consummation of the transaction contemplated by this Agreement shall have been obtained by the Stockholders and delivered to Buyer; and (e) Buyer and the Company shall have entered into a Software License Agreement; substantially in the form attached hereto as Exhibit "A". (f) Buyer and the Stockholders shall have entered into a Stock Put and Call Agreement, substantially in the form attached hereto as Exhibit "B". (g) The Stockholders shall have caused the formation of CRM Management Co., a California corporation, including, but not limited to, the incorporation of CRM Management 14 15 Co. and the issuance to CRM Management Co. of any and all licenses, certificates, permits or approvals required for its operation as contemplated by the Management Agreement and shall have caused CRM Management Co. to execute and deliver the Management Agreement, which shall also have been entered into by Buyer and the Company, substantially in the form attached hereto as Exhibit "C". (h) Buyer and the Company shall have entered into a Real Property Tax Reporting and Payment Service Agreement, substantially in the form attached hereto as Exhibit "D". 8. Conditions to the Stockholder's Obligations. Unless waived by Stockholders in writing, the obligations of the Stockholders under this Agreement are subject to the fulfillment on or prior to the Closing Date of the following conditions: (a) The representations and warranties of Buyer set forth in this Agreement shall be true and correct at and as of the Closing Date; (b) Each of the covenants and obligations of Buyer hereunder shall have been fully performed to the satisfaction of Seller and its counsel; (c) Buyer shall deliver to Seller certified resolutions of the Board of Directors of Buyer authorizing the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby; (d) No material change shall have occurred in the financial or other condition of Buyer from that existing at the date of this Agreement; (e) Buyer and the Stockholders shall have entered into a Stock Put and Call Agreement, substantially in the form attached hereto as Exhibit "B". (f) Buyer, the Company and CRM Management, Co. shall have entered into a Management Agreement, substantially in the form attached hereto as Exhibit "C". (g) Buyer and the Company shall have entered into a Real Estate Tax 15 16 Reporting and Payment Service Agreement, substantially in the form attached hereto as Exhibit "D". 9. Non-Competition. (a) Each of the Stockholders agrees that for a period commencing on the Closing Date and terminating on earlier of (i) five (5) years from the Closing Date, or (ii) the date on which the Management Agreement is terminated by CRM Management Co. as a result of a breach of the provisions thereof by the Company, such Stockholder (whether directly or indirectly through any affiliate of such Stockholder) shall refrain from carrying on directly or indirectly (either as a proprietor, partner, stockholder, director, officer, employee, consultant or otherwise), in any county in which the Company is then actively conducting business, any business which is the same as or similar to the business that is being conducted by the Company, except as officers, employees, or representatives of Buyer, an affiliate of Buyer, the Company, or CRM Management Co. (during the period of time the Management Agreement is in effect), and that such Stockholder will not, for a period commencing on the Closing Date and terminating on the earlier of (i) six (6) years from the Closing Date, or (ii) the date on which the Management Agreement is terminated by CRM Management Co. as a result of a breach of the provisions thereof by the Company, directly or indirectly, for himself or on behalf of or in conjunction with any third party, hire any employee of the Company, induce or entice any employee of the Company to leave his employment with the Company or solicit, or attempt to solicit, to any competing business of the Company, any person or entity which has an active account with the Company under the Management Agreement at the time such Stockholder ceases to be a service provider to CRM Management Co. or which had an account with the Company during the twelve (12) months prior thereto. (b) Buyer agrees that during the period that CRM Management Co. is providing services to the Company under the Management Agreement between said parties, Buyer (whether directly, or indirectly through any subsidiary or affiliate of Buyer) shall refrain from carrying on directly or indirectly (either as a proprietor, partner, stockholder, director, officer, employee, consultant or otherwise) in any county in which the Company is then conducting business, any business which is the same as or similar to the business that is being conducted by the Company; provided, however, that if Buyer is acquired by another entity by way of a merger, sale of all or substantially all of the assets of Buyer, or the sale of more than fifty percent (50%) of the stock of Buyer, and such entity is engaged directly or indirectly in a business substantially 16 17 similar to the business of the Company, such other entity shall be excluded from this Section 9 (b). Buyer specifically agrees that it shall not acquire any other entity (by merger, acquisition of stock or assets, or otherwise) and use such other entity to compete with the Company; rather any such acquisition shall be merged into, and treated for all purposes as part of, the Company with respect to the acquired entity's tax servicing business; and Buyer covenants and agrees that in the event of any such acquisition, Buyer shall transfer such tax service business to the Company upon the terms and at a price equal to the price paid for such tax service business by Buyer. (c) FNTS agrees during the period that CRM Management Co. is providing services to the Company under the Management Agreement, FNTS (whether directly, or indirectly through any subsidiary or affiliate of FNTS) shall refrain from carrying on directly or indirectly (either as a proprietor, partner, stockholder, director, officer, employee, consultant or otherwise) any business which is the same as or similar to the business that is being conducted by the Company. FNTS specifically agrees that it shall not acquire any other entity (by merger, acquisition of stock or assets, or otherwise) and use such other entity to compete with the Company; rather any such acquisition shall be merged into, and treated for all purposes as part of, the Company. 10. Stockholders' Registration Rights of Buyer Stock (a) If Buyer at any time proposes to register any of its securities under the Securities Act, it will each such time give written notice to all of the Stockholders of its intention so to do. If such registration is proposed to be on a form which permits inclusion of the Buyer Stock, upon the written request of any holder thereof, given within fifteen (15) days after receipt of notice by the holders thereof, Buyer shall include in such registration (and in any related qualification under Blue Sky laws) and in any underwriting therein, the Buyer Stock specified in said written request; provided, however, that if the underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, the underwriter may limit (or reduce to zero) the number of shares of the Buyer Stock that the holder thereof may include in the offering based on the total number of the securities held by the holders of Buyer Stock and based on the total number of securities (other than registrable securities) entitled to registration held by the holders of Buyer Stock and by other persons selling securities pursuant to registration rights granted them by Buyer; provided, however, that none of the terms of this Agreement shall be construed to limit or restrict Buyer's ability to grant registration rights to any holders of Buyer's stock at any time 17 18 provided that any such registration rights shall not be senior to the rights granted to the Stockholders in this Agreement. The Stockholders expressly agree that the rights granted hereunder shall be subject to any registration rights granted by Buyer prior to the date hereof. All Stockholders proposing to distribute their securities through such underwriting shall (together with Buyer and other holders distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by Buyer. (b) The holders of Buyer Stock included in any registration shall furnish to Buyer such information regarding such holder and the distribution proposed by such holder as Buyer may reasonably request in writing and as shall be required in connection with any registration, or qualification. (c) Buyer shall not be obligated to effect any registration pursuant to this Section 10 if the Buyer Stock intended to be included in such registration on behalf of the holder thereof could be sold by such holder to the public in an offering without registration. (d) All costs and expenses, (except for commissions resulting from the registration of the shares of the Stockholders, which shall be borne by the appropriate Stockholder) incurred in effecting the registration provided for in this Section 10, including without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for Buyer, one (1) counsel for the Stockholders (which may be the same counsel representing other stockholders participating in such registration and provided fees for such counsel shall not exceed $5,000), underwriting expenses, expenses of any audits incident to or required by any such registration, and expenses of complying with the securities or Blue Sky laws of any jurisdictions, shall be paid by Buyer; provided that such expenses will be borne pro rata by the selling holders if so required by any state securities law regulatory agency applicable to Buyer as a condition to qualifying said sale. (e) In the event of any registration of any of its securities under the Securities Act pursuant to this Section 10, Buyer shall indemnify and hold harmless the seller of such securities, the seller's accountants and attorneys, each underwriter (as defined in the Securities Act), and each other person who participates in the offering of such securities and each other person, if any, who controls (within the meaning of the Securities Act) such seller, 18 19 underwriter or participating person against any losses, claims, damages or liabilities, joint or several, to which such seller, underwriter, participating person or controlling person may become subject under the Securities Act or any other statute or at common law, in so far as such losses, claims, damages or liabilities (or action in respect thereof) arise out of or are based upon (a) any untrue statement or alleged untrue statement of any material fact contained, on the effective date thereof, in any Registration Statement under which such securities were registered under the Securities Act, any preliminary Prospectus or final Prospectus contained therein, or any summary Prospectus issued in connection with any securities being registered, or any amendment or supplement thereto, or (b) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and, except as otherwise provided in this Section 10 (e) hereof, shall reimburse each such seller, underwriter, participating person or such controlling person in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that Buyer shall not be liable to any seller, underwriter, participating person, or controlling person in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any untrue statements or alleged untrue statement or omissions or alleged omission made in such Registration Statement, preliminary Prospectus, summary Prospectus, Prospectus or amendment or supplement thereto, in reliance upon and in conformity with written information furnished to the Company by such seller specifically for use therein, or upon such statement or omission therein based on the authority of an expert within the meaning of that term as defined in the Securities Act; and provided further that Buyer shall not be required to indemnify any person against any liability arising from any untrue or misleading statement or omission or any alleged untrue statement or omission contained in any preliminary Prospectus if such deficiency is corrected in the final Prospectus. (f) Each Stockholder selling shares in any underwritten public offering shall indemnify and hold harmless each other holder of any stock of Buyer, Buyer, its directors and officers, each other person, if any, who controls Buyer, and Buyer's accountants and attorneys, against any losses, claims, damages, or liabilities, joint or several, to which any such holder, the Buyer or any such director or officer or any such person may become subject under the Securities Act or any other statute or at common law, in so far as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained, on the effective date thereof, in any Registration Statement under which Securities were registered under the Securities Act at the request of such holder, any preliminary Prospectus or final Prospectus contained therein, or any 19 20 summary Prospectus issued in connection with any securities being registered, or any amendment or supplement thereto, or (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in such Registration Statement, preliminary Prospectus, summary Prospectus, Prospectus, amendment or supplement thereto in reliance upon and in conformity with written information furnished to Buyer by the Stockholder specifically for use therein, and then only to the extent that such untrue statement or alleged untrue statement or omission or alleged omission by the Stockholder was not based on the authority of an expert as to which the Stockholder had no reasonable ground to believe, and did not believe, that the statement made on the authority of such expert was untrue or that there was an omission to state a material fact; provided, however, that no Stockholder shall be required to indemnify any person against any liability arising from any untrue or misleading statement or omission or alleged untrue or misleading statement or omission contained in any preliminary Prospectus if such deficiency is corrected in the final Prospectus. (g) Indemnification similar to, but only to the extent of, that specified in paragraphs (e) and (f) of this Section 12 shall be given by Buyer and each Stockholder (with such modifications as shall be appropriate) with respect to any required registration or other qualification of the Buyer Stock under any Federal or state law or regulation or governmental authority other than the Securities Act. (h) In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in this Section 10 is due in accordance with its terms but is held by a court of competent jurisdiction to be unenforceable or otherwise unavailable, the Buyer or the relevant Stockholder shall contribute to the aggregate expenses, claims, losses, damages and liabilities of the other party and for which such indemnification was sought and owed by the terms hereof. In determining the amount of contribution to which the respective parties are entitled, there shall be considered the parties' relative knowledge and access to information concerning the matter with respect to which the claim was asserted, the opportunity to correct and prevent any statement or omission and the relative fault of the parties. No person guilty of fraudulent misrepresentation within the meaning of Section 11(f) of the Securities Act shall be entitled to contribution from any person who was not guilty of such misrepresentation. For purposes of this Section 10(i), the directors, officers, employees, agents, controlling persons and underwriters of the Stockholders and the Company shall be entitled to contribution on the basis described above. 20 21 11. Buyer's Covenant Re Operation of the Company's Business. (a) Separate Corporate Existence; Liabilities. Buyer covenants and agrees that subsequent to the Closing, Buyer shall maintain the separate corporate existence of the Company, FNTS, and Buyer for the period commencing on the Closing Date and terminating on the date of expiration of Stockholders' and Buyer's respective rights under the Put and Call Agreement between Buyer and the Stockholders, and Buyer shall not, and shall cause FNTS to not, in any manner whatsoever, assign, convey, or transfer to the Company any obligations or liabilities, or potential obligations or liabilities, of any type of Buyer or FNTS (whether accrued, absolute, contingent, unliquidated or otherwise), without the prior written consent of CRM Management Co., which may be withheld in the sole and absolute discretion of CRM Management Co. Buyer understands and agrees that all obligations and liabilities of every type whatsoever of Buyer and FNTS, including, without limitation, any and all obligations to employees arising prior to the Closing Date (including liability for termination pay, back pay, vacation pay, vacation benefits, sick leave, health benefits, pension plans, profit sharing plans, stock purchase plans, reimbursement for business expenses, claims of any employee relating to employment or the termination thereof by Buyer, or otherwise, through and including November 1, 1996), customers, real property lessors, equipment lessors, vendors, creditors, and all other persons or entities are and shall remain the sole and exclusive liability and obligation of Buyer or FNTS, except for the obligations of FNTS set forth on Schedule "11 (a)" to this Agreement, which such other obligations shall be the responsibility of the Company. (b) Assistance to the Company. Buyer covenants and agrees that it shall extend all reasonable and customary assistance to the Company in all areas where reasonable to assist the Company in obtaining new business and in maintaining the Company's existing and new business. (c) Appointment of Directors. Buyer covenants and agrees that it shall vote its shares of capital stock of the Company, when taken together with the shares voted by the Stockholders, in such a manner as to cause the election of one (1) of the Stockholders to be a director of the Company throughout the term of the Management Agreement between the Company and CRM Management Co., and shall not increase the number of directors of the Company to more than five (5) directors during the term of such Management Agreement. It is the intention of 21 22 the parties hereto that the Stockholders be entitled to elect only one (1) of the five (5) directors of the Company. (d) Principal Place of Business. Buyer covenants and agrees that as soon as reasonably practicable after the Closing Date, as determined by CRM Management Co. in its sole discretion, the Company shall conduct the consolidated operations of the Company and FNTS at the Company's offices at 468 North Rosemead Boulevard, Pasadena, California. 12. Indemnification. (a) Indemnification by the Buyer. Buyer shall indemnify and hold harmless the Stockholders against any and all losses, liabilities, claims and expenses, including reasonable attorneys' fees ("Losses"), sustained by the Stockholders resulting from, arising out of, or connected with any inaccuracy in, breach of, or nonfulfillment of any representation, warranty, covenant or other obligation of Buyer contained in this Agreement. (b) Indemnification by Stockholders. Each Stockholder shall (severally but not jointly) indemnify and hold harmless Buyer against any and all Losses sustained by Buyer resulting from, arising out of, or connected with any inaccuracy in, breach of, or nonfulfillment of any representation, warranty, covenant or agreement made by or other obligation of such Stockholder contained in this Agreement. (c) Procedure. In the event any third party asserts any claim with respect to any matter as to which the indemnities in this Agreement relate, including indemnification pursuant to Section 10 hereof, the party against whom the claim is asserted (the "Indemnified Party") shall give prompt notice to the other party (the "Indemnifying Party"), and the Indemnifying Party shall have the right at its election to take over the defense or settlement of the third party claim at its own expense by giving prompt notice to the Indemnified Party. Failure by the Indemnified Party to provide the Indemnifying Party with notice of any such claim shall not relieve the Indemnifying Party from any liability which the Indemnifying Party may have on account of this indemnity or otherwise, except to the extent the Indemnifying Party shall have been materially prejudiced by such failure. If the Indemnifying does not give such notice and does not proceed diligently so to defend the third party claim within 30 days after receipt of the notice of the third party claim, the Indemnifying Party shall be bound by any defense or settlement that the Indemnified Party may 22 23 make as to those claims and shall reimburse the Indemnified Party for its Losses and expenses related to the defense or settlement of the third party claim. The parties shall cooperate in defending against any asserted third party claims. For purposes of this Section 12, the indemnification of the Indemnified Party shall also include the indemnification of the Indemnified Party's employees, agents, affiliates, and third parties performing services for the Indemnified Party, and the reference to this Agreement includes certificate, schedule, list, summary or other information provided or delivered to a party by the Indemnifying Party or its agents and affiliates in connection with this Agreement. 13. Brokers and Finders Fee. The Stockholders and Buyer each represent that there is no obligation to pay any commission, finders fee or similar charge in connection with the transaction provided for in this Agreement. 14. Survival of Representations and Warranties. The representations and warranties of the Stockholders set forth in Section 4(b), 4(c), 4(d), 4(e), and 4(g) of this Agreement shall survive the Closing until the expiration of the applicable statue of limitations; the representations and warranties of Buyer set forth in Section 5(b), 5(e), and 5(f) of this Agreement shall survive the Closing until the expiration of the applicable statue of limitations; all other representations and warranties of the parties contained in this Agreement shall survive the Closing for a period of one (1) year. 15. No Other Negotiations Pending Closing. After execution of this Agreement and prior to the Closing Date, the Stockholders shall not negotiate with any other person, firm or entity regarding the subject of this Agreement. 16. General Provisions. (a) Assignment. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise by any of the parties without the prior written consent of the other parties. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by, the parties and their respective successors and assigns. (b) Amendment. This Agreement may not be amended, altered or repealed, 23 24 in whole or in part, except by an instrument in writing signed on behalf of each of the parties hereto. (c) Arbitration. Any controversy or claim arising out of or relating to this Agreement, or the making, performance, or interpretation thereof, shall be settled by arbitration in Los Angeles or Orange County, California, in accordance with the Rules of the American Arbitration Association then existing, and the judgment in arbitration may be entered in any court having jurisdiction thereto. (d) Attorneys' Fees. If any action at law or equity, including an action for declaratory relief, or any proceeding in arbitration, is brought to enforce or interpret the provisions of this Agreement, the successful or prevailing party shall be entitled to recover reasonable attorneys' fees, and other costs incurred in that action or proceeding which may be set by the court or the arbitration panel in the same action or any separate action brought for that purpose, in addition to any other relief to which such party may be entitled. (e) Notices. Any notices or other communications required or permitted hereunder shall be in writing and shall be deemed duly given upon (a) transmitter's confirmation of a receipt of a facsimile transmission, (b) confirmed delivery by a standard overnight carrier or when delivered by hand, or (c) the expiration of five business days after the day when mailed by certified or registered mail, postage prepaid, addressed to the parties at the following addresses: If to Buyer, to: Fidelity National Financial, Inc. 17911 Von Karman Avenue Suite 300 Irvine, CA 92714 Facsimile No. (714) 622-4116 Attention: Andrew F. Puzder with a copy to: Stradling, Yocca, Carlson & Rauth 660 Newport Center Drive Suite 1600 Newport Beach, CA 92660 Facsimile No. (714) 725-4100 Attention: C. Craig Carlson If to Stockholders, to: the address set forth under their name on the signature page hereof with a copy to: Citron & Deutsch 10866 Wilshire Blvd. #970 24 25 Los Angeles, California 90024 Facsimile No. (310) 475-1368 Attention: Richard K. Citron The addressees or addresses set forth above may be changed from time to time by a notice sent to the other parties. (f) Agreement to Perform All Necessary Acts. Each party to this Agreement shall make, execute, acknowledge and deliver such other instruments and documents and take all such other action, as may be reasonably required to effectuate the purposes of this Agreement and to consummate the transactions contemplated hereby. (g) Waiver of Breach. No waiver of any term, provision, condition or breach of this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such term, provision, condition or breach of this Agreement. No failure or delay by a party to exercise any right it may have by reason of the breach or default of any other party shall operate as a waiver of default or modification of this Agreement or prevent the exercise of any right while the party continues to be in default. (h) Entire Agreement. This Agreement (and the Exhibits hereto) constitutes the entire agreement between the parties hereto pertaining to the subject matter contained herein and supersedes any and all other agreements, arrangements, and understandings, either oral or in writing, between the parties hereto with respect to the subject matter hereof. Each party to this Agreement acknowledges and represents that no representations, warranties, covenants, conditions, inducements, promises or agreements, oral or otherwise, other than as set forth herein, have been made by any party hereto, or anyone acting on behalf of any party. (i) Severability. It is intended that each section of this Agreement should be viewed as separate and divisible, and in the event that any section, provision, covenant, or condition of this Agreement shall be held to be invalid, void, or unenforceable, the remainder of the provisions shall remain in full force and effect and shall in no way be affected, impaired, or invalidated. (j) Choice of Law; Consent to Jurisdiction. This Agreement shall be 25 26 construed, interpreted and the rights of the parties determined in accordance with the laws of the State of California, without regard to its choice of law or conflict of law provisions. Each of the parties hereto irrevocably submit to the exclusive jurisdiction of (i) the Superior Court of the State of California for the County of Los Angeles or the County of Orange, and (ii) the United States District Court for the Central District of California, for the purposes of any suit, action or other proceeding arising out of this Agreement or any transaction contemplated hereby. (k) Interpretation. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." (l) Captions. The paragraph titles or captions used in this Agreement are intended solely for the convenience of reference and shall in no manner modify, expand, limit, explain, construe, describe the scope of or intent, or in any way affect the terms and conditions of this Agreement. (m) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (n) Exhibits and Schedules. The following Exhibits and Schedules are attached to this Agreement and are incorporated in this Agreement as though set forth in full therein. Schedule 4 (d): CRM Liens on Assets Schedule 4 (e): CRM Financial Statements Schedule 4 (i): CRM Accounts Receivable Schedule 4 (j): CRM Accounts Payable Schedule 4 (k): CRM Trade Names, Trademarks, Copyrights and Patents Schedule 4 (n): CRM Employees Schedule 4 (p): CRM Insurance Policies Schedule 4 (q): CRM Contracts Schedule 5 (f) FNTS Contracts Schedule 5 (g) FNTS Employees Schedule 11 (a) FNTS Liabilities Assumed By CRM Exhibit A: Software License Agreement 26 27 Exhibit B: Stock Put Agreement Exhibit C: Management Agreement Exhibit D: Real Property Tax Reporting and Payment Service Agreement IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.
STOCKHOLDERS BUYER - ------------ ----- /s/ William F. McCreary, Sr. FIDELITY NATIONAL FINANCIAL, INC. - ----------------------------- a Delaware corporation WILLIAM F. MCCREARY, SR. Trustee of The McCreary Family Trust 9750 Amanita Avenue Tujunga, CA 91042 By: /s/ Andrew F. Puzder -------------------- Andrew F. Puzder Executive Vice President /s/ Christopher M. McCreary and General Counsel - --------------------------- CHRISTOPHER M. MCCREARY 159 Stedman Place Monrovia, CA 91016 /s/ William F. McCreary, Jr. AS TO SECTION 9(c) ONLY - ---------------------------- WILLIAM F. MCCREARY, JR. 2812 Hermosita Drive Glendale, CA 91208 FIDELITY NATIONAL TAX SERVICE A California corporation /s/ Dean P. McCreary By: /s/ Andrew F. Puzder - -------------------- -------------------- DEAN P. MCCREARY Andrew F. Puzder 262 Manzanita Avenue Executive Vice President Sierra Madre, CA 91024 and General Counsel /s/ Mark R. Johnson - ------------------- MARK R. JOHNSON 10447 Laramie Avenue Chatsworth, CA 91311 /s/ Alan H. Martin - ------------------ ALAN H. MARTIN 612 Mondo Drive La Habra Heights, CA 90631
27 28 AGREEMENT FOR PURCHASE AND SALE OF STOCK SCHEDULE 4(d) CRM Liens on Assets CRM, Inc. has the following liens on its assets Advanta Leasing Corp. - Inter-tel Leasing, Inc. - Telephone system Digital Financial Services - 28 29 AGREEMENT FOR PURCHASE AND SALE OF STOCK SCHEDULE 4(e) CRM, Inc. Financial Statements 29 30 BRIAN W. POLCHOW CERTIFIED PUBLIC ACCOUNTANT 468 NORTH ROSEMEAD BOULEVARD, PASADENA, CALIFORNIA 91107 (818)351-8180 FAX (818)351-8181 MEMBER AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS CALIFORNIA SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors CRM Incorporated 468 North Rosemead Boulevard Second Floor Pasadena, California 91107 I have compiled the balance sheet of Crm Incorporated as of September 30, 1996 and the related statement of income and retained earnings for the year then ended, in accordance with the standards established by the American Institute of Certified Public Accountants. A compilation is limited to presenting in the form of financial statements information that is the representation of management. I have not audited or reviewed the accompanying financial statements and, accordingly do not express an opinion or any form of assurance on them. However, I did become aware of departures from generally accepted accounting principles that are described in the following paragraph. Management has elected to omit substantially all of the disclosures and statement of cash flows required by Generally Accepted Accounting Principles. If the omitted disclosures and statement of cash flows were included, they might influence the user's conclusions about the company's financial position, results of operations and cash flows. Accordingly, these financial statements are not designed for those who are not informed about such matters. Further, management has elected not to recognize the liability for deferred income taxes required by Generally Accepted Accounting Principles. The effect of this departure on the financial position, results of operations, and cash flows have not been determined. I am not independent with respect to CRM Incorporated. /s/ BRIAN W. POLCHOW October 10, 1996 31 CRM INCORPORATED BALANCE SHEET SEPTEMBER 30, 1996 ASSETS CURRENT ASSETS CASH AND CERTIFICATES OF DEPOSIT $1,076,946 ACCOUNTS RECEIVABLE 372,755 LOANS TO RELATED PARTIES 37,963 PREPAID EXPENSES 76,574 ---------- TOTAL CURRENT ASSETS 1,564,238 PROPERTY, PLANT, AND EQUIPMENT LEASEHOLD IMPROVEMENTS $ 338,781 FURNITURE AND EQUIPMENT 1,059,958 ---------- 1,398,739 LESS: ACCUMULATED DEPRECIATION (826,079) ---------- TOTAL PROPERTY, PLANT, AND EQUIPMENT 572,660 OTHER ASSETS LEASE DEPOSITS 67,206 INVESTMENTS 75,459 --------- TOTAL OTHER ASSETS 142,665 ---------- $2,279,563 ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES ACCOUNTS PAYABLE $ 97,891 ACCRUED PAYROLL AND RELATED LIABILITIES 29,132 INCOME TAXES PAYABLE 139,650 CURRENT PORTION OF LONG TERM DEBT 31,417 ---------- TOTAL CURRENT LIABILITIES 298,090 LONG TERM DEBT 72,920 LEASE DEPOSITS 2,055 STOCKHOLDERS' EQUITY COMMON STOCK $ 29,000 ADDITIONAL PAID IN CAPITAL 25,000 RETAINED EARNINGS 1,852,498 ---------- TOTAL STOCKHOLDERS' EQUITY 1,906,498 ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,279,563 ========== BRIAN W. POLCHOW CERTIFIED PUBLIC ACCOUNTANT 32 CRM INCORPORATED STATEMENT OF INCOME AND RETAINED EARNINGS FOR THE YEAR ENDED SEPTEMBER 30, 1996 REVENUE INCOME FROM OPERATIONS $2,925,937 INTEREST INCOME 25,819 OTHER INCOME 17,252 ---------- 2,969,008 EXPENSES SALARIES AND WAGES $989,889 TAXES ON PAYROLL 74,937 EMPLOYEE BENEFITS 69,326 AUTOMOBILE 40,691 COMMISSIONS 212,519 CONVENTIONS 7,658 DATA ACQUISITION AND CERTIFIED DOCUMENTS 329,940 CUSTOMER REIMBURSEMENTS 18,588 DEPRECIATION 168,994 DUES AND SUBSCRIPTIONS 14,159 ENTERTAINMENT AND PROMOTION 31,944 INSURANCE 31,869 INTEREST AND BANK CHARGES 2,822 LEGAL AND ACCOUNTING 53,295 OFFICE EXPENSE 1,704 OUTSIDE SERVICES 15,529 POSTAGE AND DELIVERY 34,455 PRINTING AND STATIONERY 27,371 PROGRAMMING AND SOFTWARE 37,843 RENT 161,715 REPAIRS AND MAINTENANCE 50,859 SUPPLIES 23,587 TAXES AND LICENSES 25,689 TELEPHONE 62,252 TRAVEL 29,346 UTILITIES 32,841 -------- TOTAL EXPENSE 2,549,822 ---------- OPERATING INCOME (LOSS) $ 419,186 LOSS ON INVESTMENTS (ENVIRONMENTAL RESEARCH, INC.) 99,650 ---------- NET INCOME BEFORE TAXES 319,536 INCOME TAXES 167,323 ---------- NET INCOME 152,213 RETAINED EARNINGS, OCTOBER 1, 1995 1,700,285 ---------- RETAINED EARNINGS, SEPTEMBER 30, 1996 $1,852,498 ==========
BRIAN W. POLCHOW CERTIFIED PUBLIC ACCOUNTANT 33 AGREEMENT FOR PURCHASE AND SALE OF STOCK SCHEDULE 4(i) CRM Accounts Receivable - ----------------------- 30 34 CRM, INC. ACCOUNTS RECEIVABLE 9/30/96 BALANCE PER AGING $301,077.3? 9/30/96 BILLING (SEE BILLING DEBIT TOTAL 45,530.00 9/30/96 WESTERN FINANCIAL BILLING 26,148.00 ----------- BALANCE 9/30/96 $372,755.3? ===========
35 10/09/96 at 01:25 PM CRM, Inc. Page 8 CUSTOMER AGED RECEIVABLES AGING DATE: 09/30/96
TOTAL ------------------- AGED BALANCE ---------------------- CUSTOMER NO. DUE CURRENT 31-60 61-90 90 + - -------------------------------- ---- --------- --------- --------- --------- --------- UNITED TITLE 8150 48.00 48.00 CONTINENTAL LAND 8180 52.00 52.00 ORANGE COAST TITLE 8230 96.00 96.00 OLD REPUBLIC TTLE CO 8660 56.00 56.00 FIRST SOUTH WESTERN TITLE 8670 148.00 52.00 96.00 WESTERN CITIES TITLE 8700 112.00 112.00 MISCELLANEOUS 99000 3,414.18 1,126.00 48.00 2,240.18 BENEFIT LAND TITLE COMPANY 99126 96.00 207.000 96.00 SIGNAL MORTGAGE MIS001 207.00
--------------- AGING SUMMARY -------------- TOTAL OPEN ITEMS 301,077.37 100.0% CURRENT 130,840.64 43.5% 31 - 60 DAYS 1,944.55 0.6% 61 - 90 DAYS 19,191.25 6.4% 90 + DAYS 149,100.93 49.5%
36 10/09/96 at 01:23 PM CRM, Inc. Page 1 CUSTOMER AGED RECEIVABLES AGING DATE: 09/30/96
TOTAL ------------------- AGED BALANCE ---------------------- CUSTOMER NO. DUE CURRENT 31-60 61-90 90 + - -------------------------------- ---- --------- --------- --------- --------- --------- SAN FRANCISCO FIREMEN C U 1300 50.00 10.00 40.00 POSTAL CREDIT UNION OF L.A. 1445 144.00- 144.00- PARSONS FEDERAL CREDIT UNION 1480 48.00 48.00 POSTAL & FEDERAL EMPLOYEES C.U. 1525 654.00 288.00 144.00- 510.00 SESLCO FEDERAL CREDIT UNION 1825 336.00 192.00 144.00 STANISLAUS COUNTY FEDERAL 1876 144.00 48.00 96.00 WATER & POWER CREDIT UNION 1896 364.00 104.00 260.00 XEROX FED CREDIT UNION 1975 6,676.00 5,268.00 1,408.00 SECURITY UNION TITLE INSURANCE ?SEC 4,199.30 1,379.65 2,517.15 302.50 TEST MORTGAGE 22222 96.00 96.00 ROLAND LAND, CALIF RESOURCES ?550 2,668.00 986.00 116.00 1,566.00 HIGHLAND FEDERAL ?440 1,032.00 384.00 648.00 MALAGA BANK ?505 1,838.00 322.00 676.00 840.00
37 10/09/96 at 01:24 PM CRM, Inc. Page 2 CUSTOMER AGED RECEIVABLES AGING DATE: 09/30/96
TOTAL ------------------- AGED BALANCE ---------------------- CUSTOMER NO. DUE CURRENT 31-60 61-90 90 + - -------------------------------- ---- --------- --------- --------- --------- --------- IMPERIAL THRIFT AND LOAN 3524 19,752.00 2,922.00 10,174.00 6,656.00 EASTERN INTERNATIONAL BANK 3628 520.00 376.00 144.00 HAWTHORNE SAVINGS AND LOAN 3636 8,724.30 3,241.00 5,483.30 TORRANCE BANK 3830 54.00 54.00 TRUST SAVINGS 3843 212.00 96.00 116.00 UNIVERSAL SAVINGS 3901 2,430.00 1,348.00 1,082.00 WESTERN FEDERAL 3972 237.00 237.00 WESTERN FINANCIAL 3999 30,004.80 29,808.00 196.80 REHAB FINANCIAL CORP. 41000 8,944.00 8,944.00 POWAY REDEVELOPMENT AGENCY 41110 378.00 378.00 CITY OF SOUTHGATE/REDEV AGENCY 1150 972.00 972.00 CITY OF EL CAJON 3001 30.00 24.00- BANKERS MUTUAL ?050 112.00 112.00
38 10/09/96 at 01:25 PM CRM, Inc. Page 3 CUSTOMER AGED RECEIVABLES AGING DATE: 09/30/96
TOTAL ------------------- AGED BALANCE ---------------------- CUSTOMER NO. DUE CURRENT 31-60 61-90 90 + - -------------------------------- ---- --------- --------- --------- --------- --------- BANKERS MUTUAL MORTGAGE, INC. 5060 BENEFICIAL MORTGAGE CORP. 5200 4,276.00 4,276.00 COUNTRYWIDE HOME MORTGAGE 5333 8,642.80 8,642.80 FIRST ALLIANCE MORTGAGE CO 5344 2,376.00 1,728.00 648.00 SOUTHWEST HARVARD GROUP 5375 100.00 100.00 IMPERIAL CREDIT INDUSTRIES 5432 240.00 240.00 PACIFIC CREST INVESTMENT & LOAN 5434 164.00 39.00 125.00 CALIFORNIA THRIFT AND LOAN 5440 50.00 50.00 DIRECTORS MORTGAGE 5511 676.00- 676.00- BENEFIT LAND TITLE CO 55555 96.00 96.00 G.E. CAPITAL COMMERCIAL CORP. 5575 1,779.90 249.10 260.40 48.00 1,222.40 DARYL BIRD COASTAL SECURITY MORTGAGE 5581 100.00 100.00 COASTAL SECURITY MORTGAGE 5582 96.00 96.00 RICHARD
39 10/09/96 at 01:24 PM CRM, Inc. Page 4 CUSTOMER AGED RECEIVABLES AGING DATE: 09/30/96
TOTAL ------------------- AGED BALANCE ---------------------- CUSTOMER NO. DUE CURRENT 31-60 61-90 90 + - -------------------------------- ---- --------- --------- --------- --------- --------- GREAT WESTERN FINANCIAL SERVI. 5585 240.00 192.00 48.00 SANWA BANK OF CALIFORNIA 56200 864.00 72.00 376.00 416.00 HARBOR BANK 5630 240.00 240.00 TITLE WEST MORTGAGE 5650 48.00 48.00 LTC ESCROW DIVISION 5650A 48.00 48.00 CACHE MORTGAGE 5686 1,773.00 1,773.00 SECURED BANKERS MORTGAGE CO. 5700 14,964.00 14,964.00 PACIFIC THRIFT AND LOAN 5740 704.00 704.00 CALIFORNIA STATEWIDE CDC 5785 24.00- 48.00 72.00- SOUTHERN PACIFIC THRIFT & LOAN 5800 36,582.00 3,295.00 3,775.00- 3,693.00 33,369.00 WALLACE MOIR COMPANY 5815 12,916.00 320.00 472.00 960.00 11,164.00 LTC PROPERTIES, INC. 5890 282.00 282.00 BUDGET FINANCE COMPANY 5970 48.00 48.00
40 10/09/96 at 01:24 PM CRM, Inc. Page 5 CUSTOMER AGED RECEIVABLES AGING DATE: 09/30/96
TOTAL ------------------- AGED BALANCE ---------------------- CUSTOMER NO. DUE CURRENT 31-60 61-90 90 + - -------------------------------- ---- --------- --------- --------- --------- --------- NORTH AMERICAN REAL ESTATE SER 5996 48.00 48.00 CALIFORNIA UNITED BANK 6000 472.00 312.00 160.00 CITIZENS BANK 6006 112.00 112.00 AMERICAN PACIFIC STATE BANK 6020 656.00 272.00 384.00 EXCHANGE BANK 6025 1,208.00 1,208.00 CUB FUNDING CORP. 6060 53,830.98 572.00 1,452.75 51,806.23 SUN TRUST BANK 61001 48.00 48.00 CHINO VALLEY BANK 6110 652.00 64.00 100.00 488.00 UNITED NATIONAL BANK 6118 272.00 64.00 208.00 COMMUNITY BANK 6120 298.00 64.00 234.00 CEDARS BANK 6133 436.00 96.00 112.00 228.00 MARATHON NATIONAL BANK 6155 216.00 216.00 OMNI BANK 6190 152.00 152.00
41 10/09/96 at 01:24 PM CRM, Inc. Page 6 CUSTOMER AGED RECEIVABLES AGING DATE: 09/30/96
TOTAL ------------------- AGED BALANCE ---------------------- CUSTOMER NO. DUE CURRENT 31-60 61-90 90 + - -------------------------------- ---- --------- --------- --------- --------- --------- BANK OF SOUTHERN CALIFORNIA 6215 33.00 33.00 NATIONAL BANK OF THE REDWOODS 6243 672.00 672.00 KAWEAH NATIONAL BANK 6245 576.00 576.00 VENTURA COUNTY NATIONAL BANK 6260 160.00 160.00 THE BANK OF HOLLYWOOD 6270 264.00 264.00 BANK OF CANTON 6328 99.00 96.00 3.00 BAY CITIES NATIONAL BANK 6350 144.00 144.00 PREFERRED BANK 6377 48.00 48.00 FOOTHILL INDEPENDENT BANK 6460 144.00 48.00 96.00 UTAH FEDERAL SAVINGS BANK 6465 1,134.00 378.00 756.00 DEPARTMENT OF VETERANS AFFAIRS 65025 43,760.00 43,760.00 MILLENIUM BANK 6510 336.00 116.00 220.00 LOS ANGELES NATIONAL BANK 6523 568.00 328.00 240.00
42 10/09/96 at 01:24 PM CRM, Inc. Page 7 CUSTOMER AGED RECEIVABLES AGING DATE: 09/30/96
TOTAL ------------------- AGED BALANCE ---------------------- CUSTOMER NO. DUE CURRENT 31-60 61-90 90 + - -------------------------------- ---- --------- --------- --------- --------- --------- SAN GABRIEL VALLEY BANK 6530 48.00 48.00 SANTA MONICA BANK 6600 144.00 48.00 96.00 CHINA TRUST BANK OF CALIFORNIA 6630 144.00 144.00 SIMI VALLEY BANK 6765 96.00 96.00 METROBANK 6790 48.00 48.00 QUEEN CITY BANK 6805 48.00 48.00 THE SIAM COMMERCIAL BANK 6810 18.00 18.00 SANWA BANK - RESIDENTIAL 6820 84.00 84.00 PAN AMERICAN BANK 6830 144.00 144.00 FIRST CENTRAL MORTG. DIVISION 6882 58.00 58.00 FAR EAST NATIONAL 6888 320.00 320.00 GOVERNMENT FINANCE GROUP 77700 4,972.11 2,513.09 2,459.02 J KLIMOWSKI CHICAGO TITLE COMPANY 8101 8,124.00 104.00 244.00 7,776.00
43 CRM, INC. Schedule of Doubtful Accounts September 30, 1996
CUSTOMER # CUSTOMER NAME AMOUNT - ----------- --------------------------------- --------- 1525 POSTAL & FEDERAL EMPLOYEES C/U 510.00 1975 XEROX 1,408.00 2550 ROLAND LAND 1,566.00 3440 HIGHLAND FEDERAL 648.00 3505 MALAGA BANK 840.00 3524 IMPERIAL THRIFT 9,005.00 3636 HAWTHORNE SAVINGS 5,483.30 41000 REHAB FINANCIAL 8,744.00 41150 CITY OF SOUTHGATE 972.00 5200 BENEFICIAL 4,276.00 5575 G.E. CAPITAL 1,222.40 5740 PACIFIC THRIFT AND LOAN 704.00 5800 SOUTHERN PACIFIC THRIFT AND LOAN 36,582.00 5815 WALLACE MOIR 11,164.00 6060 CUB FUNDING 53,830.98 6465 UTAH FEDERAL 756.00 77700 GOVERNMENT FINANCE GROUP 2,459.02 8101 CHICAGO TITLE 7,776.00 99000 MISCELLANEOUS 2,240.18 ---------- 150,186.88 ==========
44 AGREEMENT FOR PURCHASE AND SALE OF STOCK SCHEDULE 4(j) CRM Accounts Payable - -------------------- 31 45 10/10/96 at 10:20AM CRM, Inc. Page 4 VENDOR AGED PAYABLES AGING DATE: 09/30/96
VENDOR --------------- AGED BALANCE ------------------ INV DATE REF NO. T DUE CURRENT 31 - 60 61 - 90 90+ - -------- ------- - ----- --------- --------- --------- -------- -------------------- AGING SUMMARY --------------------- TOTAL OPEN ITEMS 84,891.14 100.0% CURRENT 84,891.14 100.0% 31 - 60 DAYS 0.00 61 - 90 DAYS 0.00 90 + DAYS 0.00 ESTIMATED SEPT UTILITIES 3,000.00 ESTIMATED UNRECORDED 10,000.00 DATA ACQUISITION --------- 97,891.14 =========
46 10/10/96 at 10:18AM CRM, Inc. Page 1 VENDOR AGED PAYABLES AGING DATE: 09/30/96
VENDOR ------------------- AGED BALANCE ---------------------- INV DATE REF NO. T DUE CURRENT 31 - 60 61 - 90 90+ - -------- ------- - ----- --------- --------- --------- -------- 1ABE AIRBORNE EXPRESS 09/20/96 T7284196 I 10/20 123.25 TOTAL DUE: 123.25 123.25 1AJT AJT MICROFILMING 09/30/96 10-520 I 10/30 50.88 TOTAL DUE: 50.88 50.88 1ATT AT&T 09/09/96 3637167 I 10/09 9.63 TOTAL DUE: 9.63 9.63 1AVS 15174 JEFFERSON STREET 09/23/96 9609-005 I 10/23 225.00 TOTAL DUE: 225.00 225.00 1CAB CABLE & WIRELESS COMM, INC. 09/16/96 8237479 I 10/16 5.91 TOTAL DUE: 5.91 5.91 1CAL CALIFORNIA TRUST DEED BROKERS 09/30/96 1056 I 10/30 120.00 TOTAL DUE: 120.00 120.00 1CFI CFI PROSERVICES, INC. 09/30/96 190948 I 10/30 256.25 TOTAL DUE: 256.25 256.25 1CLAN CLARK COUNTY TREASURER 09/19/96 FEB DATA I 10/19 111.01 TOTAL DUE: 111.01 111.01 1CRM CRM PROFIT SHARING PLAN & TR 09/30/96 PEN LOAN I 10/30 4,766.08 TOTAL DUE: 4,766.08 4,766.08 1DAT DATAQUICK 09/30/96 NO2883 I 10/30 459.25 TOTAL DUE: 459.25 459.25 1DFS DIGITAL FINANCIAL SERVICES 09/22/96 18023897 I 10/22 2,652.60 TOTAL DUE: 2,652.60 2,652.60 1FED FEDERAL EXPRESS CORP 09/30/96 67979491 I 10/30 12.40 TOTAL DUE: 12.40 12.40 1GTE GTE CALIFORNIA 09/16/96 182-1096 I 10/16 150.38 09/30/96 351-5060 I 10/30 2,283.06 TOTAL DUE: 2,494.42 2,494.42
47 10/10/96 at 10:18 AM CRM, Inc. Page 2 VENDOR AGED PAYABLES AGING DATE: 09/30/96
VENDOR ---------------------- AGED BALANCE --------------------- INV DATE REF NO. T DUE CURRENT 31-60 61 - 90 90 + - -------- ------- - --- ---------- ----------- ------------- ------------ 1HAW RON HAWKINS 09/30/96 9/96 I 09/30 1,752.00 TOTAL DUE: 1,752.00 1,752.00 1HOR KOBEY HORN 09/30/96 SEP 96 I 10/30 279.20 TOTAL DUE: 279.20 279.20 1INF INFORMATION SERVICES & SUPPORT 09/30/96 808 I 10/30 100.00 TOTAL DUE: 100.00 100.00 1INK INK SPOT LITHOGRAPHY 09/30/96 3728 I 10/30 297.88 TOTAL DUE: 297.88 297.88 1LAC LA CELLULAR TELEPHONE CO 09/30/96 14325922 I 10/30 54.32 TOTAL DUE: 54.32 54.32 1LACT LOS ANGELES COUNTY TAX 09/30/96 MO64 I 10/30 358.00 TOTAL DUE: 358.00 358.00 1LIT WILLIAM LITTLE 09/30/96 9/96 I 10/30 116.20 TOTAL DUE: 116.20 116.20 1NFS NATIONAL FLOOD SERVICE 09/30/96 VA PROJ I 10/30 32,580.00 TOTAL DUE: 32,580.00 32,580.00 1RES RESSAC 09/30/96 27041 I 10/30 100.00 09/30/96 26288 I 10/30 100.00 TOTAL DUE: 200.00 200.00 1ROS ROSS DIVERSIFIED 09/30/96 9/96 I 10/30 11,000.00 TOTAL DUE: 11,000.00 11,000.00 1SCH SCHWAAB 09/19/96 L424320 I 10/19 30.80 TOTAL DUE: 30.80 30.80 1SEC SECURITY UNION TITLE INSURANCE 09/30/96 DP0012 I 10/30 785.79 09/30/96 196058 I 10/30 632.12 TOTAL DUE: 1,417.91 1,417.91 1SEPH SEPHTON ELECTRICAL SERVICES 09/27/96 1523 I 10/27 221.25 TOTAL DUE: 221.25 221.25
48 10/10/96 at 10:19 AM CRM, Inc. Page 3 VENDOR AGED PAYABLES AGING DATE: 09/30/96
VENDOR ---------------------- AGED BALANCE --------------------- INV DATE REF NO. T DUE CURRENT 31-60 61 - 90 90 + - -------- ------- - --- ---------- ----------- ------------- ------------ 1STATE STATE COMPENSATION INS 09/26/96 1320155 I 10/26 1,161.25 TOTAL DUE: 1,161.25 1,161.25 1UNI UNIDEN VALENCIA INC. 09/25/96 4015 I 10/25 404.14 TOTAL DUE: 404.14 404.14 1VEN VENTURA COUNTY 09/18/96 01247 I 10/18 355.00 09/25/96 01250 I 10/25 355.00 TOTAL DUE: 710.00 710.00 1WEL WELLS FARGO BANK 09/30/96 MCARD I 10/30 1,937.98 TOTAL DUE: 1,937.98 1,937.98 1WRD WESTERN REGIONAL DATA 09/30/96 11781 I 10/30 100.00 09/30/96 12093 I 10/30 15.00 TOTAL DUE: 415.00 415.00 1WYL WYLE EMG-LOS ANGELES 09/20/96 055921 I 10/20 3,527.41 09/30/96 055616 I 10/30 4,328.25 TOTAL DUE: 7,855.66 7,855.66 2DIR DIRECTORS MORTGAGE LOAN 09/30/96 A317722 I 10/30 62.82 09/30/96 A318088 I 10/30 307.78 09/30/96 5511 I 10/30 1,578.04 09/30/96 2735 I 10/30 2,434.10 TOTAL DUE: 4,382.74 4,382.74 2NOR NORTH AMERICAN MORTGAGE 09/30/96 I 10/30 120.00 TOTAL DUE: 120.00 120.00 2SEC SECURED BANKERS MORTGAGE 09/30/96 5700 I 10/30 1,058.24 09/30/96 9401362 I 10/30 322.57 TOTAL DUE: 1,380.81 1,380.81 2WEST WESTERN FINANCIAL SAVINGS 09/30/96 399 I 10/30 3,758.51 09/30/96 539080 I 10/30 563.84 09/30/96 2735 I 10/30 2,432.17 TOTAL DUE: 6,754.52 6,754.52 3MED ANGEL MEDINA 09/30/96 EXP RPRT I 10/30 74.80 TOTAL DUE: 74.80 74.80
49 AGREEMENT FOR PURCHASE AND SALE OF STOCK SCHEDULE 4(k) CRM Trade Names, Trademarks, Logos, Patents CRM, Inc. is doing business under the name CRM Real Estate Tax Services CRM, Inc. is doing business under the name CRM Credit Services 32 50 AGREEMENT FOR PURCHASE AND SALE OF STOCK SCHEDULE 4(n) CRM Employees
Employee Hourly Rate Monthly Salary - -------- ----------- -------------- Susan Miyadi Salary $4,200.00 Elizabeth Sia $11.03 $1,911.86 Angel Medina Salary $2,154.24 Armando Perez Salary $2,527.92 Amy Quach $14.71 $2,549.73 Natalie Dankenbring $10.45 $ 905.67 Part Time Olivia Medina $ 8.10 $1,404.00 Samantha Singh $ 6.65 $1,037.40 Part Time Manolito Garcia $11.50 $1,993.33 Candy Ng $20.83 $3,610.53 Theu Vu Salary $2,500.00 Katie Hartnett Salary $2,500.00 Frank Flores $ 5.50 $ 953.33 Part Time William McCreary, Jr. Salary $7,150.00 Dean McCreary Salary $7,150.00 Chris McCreary Salary $7,150.00 Alan Martin Salary $7,150.00 Mark Johnson Salary $7,150.00
33 51 AGREEMENT FOR PURCHASE AND SALE OF STOCK SCHEDULE 4(p) CRM Insurance Policies Errors and Omissions Insurance National Union Fire Insurance Company of Pittsburgh, PA Policy No. 482-92-99 Property Insurance Northbrook Property & Casualty Company Policy No. 95-450456 Automobile Insurance Northbrook Property & Casualty Company Policy No. CA0450458 Health Insurance Blue Cross of California 34 52 AGREEMENT FOR PURCHASE AND SALE OF STOCK SCHEDULE 4(q) CRM Contracts 1. Agreement for Marketing and Servicing Real Estate Tax Service Business with Chicago Title Company. 2. Independent Contractors Agreement with Ron Hawkins. 3. Agreement with National Flood Information Services, Inc. 4. Title Plant Agreement with Safeco Title Insurance Company. 5. Agreement with TRW REDI Texas Tax System Access. 6. Data Base Agreement with Security Union Title Insurance Company. 7. Master Lease Agreement with Digital Financial Services. 8. Support Quotation from Forest Computer. 9. Master Maintenance Agreement with Dover Elevators. 10. Equipment Lease with Inter-tel. 11. Agreement with Computer Development Services, Inc. 12. CRM's Profit Sharing and Trust Schedule of Contributions and Forfeitures. 13. Service Agreement with Digital Financial Services. 14. Real Estate Tax Reporting and Payment of Service Agreement with Cache Mortgage. 15. Real Estate Tax Reporting and Payment of Service Agreement with LTC Properties, Inc. 16. Real Estate Tax Reporting and Payment of Service Agreement with Bankers Mutual. 17. Real Estate Tax Reporting and Payment of Service Agreement with Metrobank. 18. Real Estate Tax Reporting and Payment of Service Agreement with California United Bank. 19. Real Estate Tax Reporting and Payment of Service Agreement with Hawthorne Savings and Loan Association. 20. Real Estate Tax Reporting and Payment of Service Agreement with Kaweah National Bank. 35 53 21. Real Estate Tax Reporting and Payment of Service Agreement SESLOC Federal Credit Union. 22. Real Estate Tax Reporting and Payment of Service Agreement with Pacific Crest Investment and Loan. 23. Form Real Estate Tax Reporting and Payment of Service Agreement with Western Financial Savings Bank. 24. Real Estate Tax Reporting and Payment of Service Agreement with Wallace Moir Company. 25. Tax Services for Multifamily and Commercial Loans with GMAC Commercial Mortgage Corporation. 26. Private Label Agreement with Lawyers Title Insurance Company. 27. Letter from the Department of Veterans Affairs dated May 14, 1996. 28. Electronic Product Annual Lease Agreement with TRW-REDI. 29. Standard Office Lease - Net between Glen Gary Partners, as Lessor, and CRM, Inc., as Lessee, for the property located at 468 Rosemead Blvd., Pasadena, CA. 30. Standard Office Lease - Gross, between CRM, Inc. and Edwards, Eichel and Beranek. 31. Indemnification Agreement, between CRM, Inc. And William H. Little. 32. Indemnification Agreement between DRM, Inc. And Norman M. Coulson. 33. Commission Agreement with Ross Diversified. 34. Commission Agreement with William H. Little. 35. Automobile Payment Agreement for Bill McCreary Vehicle Lease Agreement. 36. Automobile Payment Agreement for Christopher McCreary Vehicle Lease Agreement. 37. Automobile Payment Agreement for Dean McCreary Vehicle Lease Agreement. 38. Automobile Payment Agreement for Alan Martin Vehicle Lease Agreement. Defaults CRM, Inc. has not provided financial statements to Lawyers Title Insurance Company as provided in Section 9 of the Private Label Agreement. CRM, Inc. has not received any notice of default from Lawyers Title Insurance Company. 36 54 AGREEMENT FOR PURCHASE AND SALE OF STOCK SCHEDULE 5(f) FNTS Contracts Office Lease for 1698 Greenbriar Lane, Brea California Tax Service Agreement between World Tax Services, Inc. and Coast Federal Bank FSB Tax Service Agreement between World Tax Services, Inc. and Eldorado Bank Tax Service Agreement between World Tax Services, Inc. and First Republic Thrift & Loan Tax Service Agreement between World Tax Services, Inc. and Long Beach Bank Tax Service Agreement between World Tax Services, Inc. and National Pacific Mortgage Tax Service Agreement between World Tax Services, Inc. and Stockton Savings Bank Tax Service Agreement between Fidelity National Tax Service and California State Bank Tax Service Agreement between Fidelity National Tax Service and Glendale Federal Bank Tax Service Agreement between Fidelity National Tax Service and Mountain States Mortgage Center Property Tax Service Agreement between Fidelity National Tax Service and Wells Fargo Bank, National Association Oral Tax Service Agreement between Fidelity National Tax Service and First Mortgage Corporation Other oral agreements to render tax services which have less than one hundred (100) orders per month 37 EX-11 11 EXHIBIT 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, 1996 1995 1994 ------------ ------------ ------------ Earnings before extraordinary item ......................... $24,337 $ 7,632 $ 9,745 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 ....................................... 24,337 6,819 12,145 Add: Interest expense and amortization of debt issuance costs, net of income tax effect, applicable to LYONs.................................... 3,196 3,245 3,056 ------- ------- -------- Fully diluted net earnings ................................. $27,533 $10,064 $15,201 ======= ======= ======= Weighted average shares outstanding during the period (1) .................................... 13,670 13,755 17,555 Common stock equivalent shares-primary ..................... 595 512 569 ------- ------- -------- Common and common stock equivalent shares outstanding for purpose of calculating primary net earnings per share ................................................ 14,265 14,267 18,124 Incremental shares to reflect full dilution................. 4,417 4,643 4,480 ------- ------- -------- Total shares for purpose of calculating fully diluted net earnings per share ....................................... 18,682 18,910 22,604 ======= ======= ======= Primary earnings per share before extraordinary item .... $ 1.71 $ .53 $ .54 Extraordinary item, gain (loss) on early retirement of debt . -- (.05) .13 ------- ------- -------- Primary net earnings per share .............................. $ 1.71 $ .48 $ .67 ======= ======= ======== Fully diluted net earnings per share ........................ $ 1.47 $ .53 (2) $ .67 ======= ======= ========
- --------------- (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 12 EXHIBIT 1 EXHIBIT 21 List of Subsidiaries 1. Manchester Development Corporation, a California corporation (d/b/a Orion Realty Group); a. Kensington Development Corporation, a California corporation, owns 90%, Fidelity National Title Insurance Company of California ("FNCAL"), a California corporation, owns 10% (see 3(d)(2) below); 2. Rocky Mountain Aviation, Inc., an Arizona corporation 3. Fidelity National Title Insurance Company, a California corporation (99.9% owned by FNFI); Material Subsidiaries: ---------------------- (a) Republic Title Insurance Agency, Inc., an Arizona corporation (inactive); (b) Fidelity National Title Insurance Company of Tennessee, a Tennessee corporation; Material Subsidiaries: ---------------------- 1. Title Services, Inc., a Tennessee corporation; 2. BHC&M, Ltd., a Virginia corporation; (c) Southern Title Holding Company, a Texas corporation (inactive); (d) Fidelity National Title Insurance Company of California, a California corporation; Material Subsidiaries: ---------------------- 1. Western Financial Trust Company, a California corporation; 2. Manchester Development Corporation, a California corporation, 10% is owned by FNTIC-CA; 90% by Kensington Development Corporation, a California corporation (see 1(a) above); 3. Fidelity National Company of Northern California, a California corporation; (e) Title Insurance Policy Co. of Pinal County, an Arizona corporation: (f) Pacific American Property Exchange Corporation, a California corporation; (g) UTC Capital Group, Inc., a Texas corporation; Material 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; (h) Fidelity Tax Service, a California corporation; (i) Fidelity National Company of California, a California corporation; (j) Nations Title Insurance Company, a Kansas corporation, subsidiaries: Material Subsidiary: -------------------- (1) Suds Car Wash, Inc., a Nevada Corporation (k) Fidelity National Title of Hawaii, Inc., a Hawaii corporation; (l) Fidelity National Title Agency of Nevada, Inc., a Nevada corporation; 2 EXHIBIT 21 (Continued) 4. Fidelity National Title Insurance Company of Pennsylvania, a Pennsylvania corporation, owned 99.9%; Material Subsidiaries: (a) American Title Insurance Company ("ATIC"), a Florida corporation (merged into Fidelity National Title Insurance Company of Pennsylvania on 11/21/96); 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); (d) Statewide Research, Inc., a Florida corporation; 5. Western Pacific Property and Casualty Agency, Inc., an Arizona corporation; 6. Lake Mortgage Corporation, an Arizona corporation (inactive); 7. FNTIC Properties, a California corporation; 8. Rocky Mountain Printing Services, Inc., a California corporation; 9. Fidelity Asset Management, Inc., a California corporation; 10. Fidelity Participations, Inc., an Arizona corporation; 11. Nationwide Recording Service, a California corporation; 12. CalWest Service Corporation, a California corporation; 13. Fidelity National Title Insurance Company of New York, a New York corporation; Material Subsidiaries: (a) Nations Title Insurance of New York, Inc., a New York corporation; Material Subsidiaries: (1) Maryland Abstract, Inc., a Maryland corporation; (2) Nations Title of Arizona, Inc., an Arizona corporation; (b) National Title Insurance of New York, Inc., a New York corporation; 14. Agency Sales and Posting, Inc., a California corporation; 15. Arizona Sales and Posting, Inc., an Arizona corporation; 16. Pente Enterprises, Inc., a California corporation; 17. Rocky Mountain Support Services, Inc., an Arizona corporation; 3 EXHIBIT 21 (Continued) Material Subsidiary: (a) ACS Systems, Inc., a California corporation; 18. Fidelity National Title Company of Washington, a Washington corporation; 19. FNF Ventures, Inc., a California corporation; 20. Fidelity National Title Company of California, a California corporation; 21. Fidelity National Title Company, a California corporation; 22. Fidelity National Title Insurance Agency of Coconino, Inc., an Arizona corporation; 23. Fidelity National Title Agency, Inc., an Arizona corporation; 24. Fidelity National Title Agency of Pinal County, Inc., an Arizona corporation; 25. Fidelity National Title Company of Oregon, an Oregon corporation; Material Subsidiary: a. Professional Escrow, Inc., an Oregon corporation; 26. Fidelity National Title Agency of Nevada, Inc., a Nevada corporation; 27. American Title Company, a California corporation; 28. Fidelity National Title Company of El Paso, a Texas corporation; 29. Western American Exchange Corporation, a California corporation; 30. Nations Title, Inc., a Kansas corporation; Material Subsidiaries (a) Fidelity National Appraisal Services, Inc., a Kansas corporation; (b) Landmark REO Management Services, Inc., a Kansas corporation; (c) Nations Post and Pub Services, Inc., a Kansas corporation; (d) Nations Title Insurance Company, a Kansas corporation; Material Subsidiary: 1. Suds Car Wash, Inc., a Nevada corporation; 31. Nations Title Insurance Company of Arizona, Inc., an Arizona corporation; 32. Fidelity Asset Management, Inc., an Arizona corporation; 33. Fidelity National Information Services, Inc., a California corporation; 34. Fidelity National Tax Service, Inc., a California corporation (100% of the Preferred stock is owned by FNFI); 4 EXHIBIT 21 (Continued) 35. San Joaquin Title Company, a California corporation; 36. Title Insurance and Escrow Services, Inc., an Oregon corporation; 37. WAEC, Inc., a California corporation; 38. WAEC Apartments, Inc., a California corporation: ALL SUBSIDIARIES ARE 100% OWNED BY THE PARENT LISTED UNLESS OTHERWISE NOTED. EX-23.1 13 EXHIBIT 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 reports dated February 24, 1997, relating to the Consolidated Balance Sheets of Fidelity National Financial, Inc. and subsidiaries as of December 31, 1996, 1995 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, 1996 which reports appear in the December 31, 1996 Annual Report on Form 10-K of Fidelity National Financial, Inc. KPMG PEAT MARWICK LLP Orange County, California March 28, 1997 EX-27 14 FINANCIAL DATA SCHEDULE
7 1,000 U.S. DOLLARS YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 1 166,329 0 0 43,578 0 11,352 227,674 63,971 0 0 509,296 187,245 0 0 0 148,922 0 0 2 110,249 509,296 475,961 15,067 2,625 143,260 33,302 0 563,058 40,553 16,216 24,337 0 0 0 24,337 1.71 1.47 0 0 0 0 0 0 0
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