-----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, FhouLyYFKOo5bzmEuuUj98rAs/Hh7OmK08lWtwlvzkI5PKJgSeBF52/kTBJDS3KM g3RuHR/wPuGRhUPlFh1E1A== 0000892569-98-000845.txt : 19980331 0000892569-98-000845.hdr.sgml : 19980331 ACCESSION NUMBER: 0000892569-98-000845 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 31 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 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: SEC FILE NUMBER: 001-09396 FILM NUMBER: 98577539 BUSINESS ADDRESS: STREET 1: 17911 VON KARMAN AVE STREET 2: STE 300 CITY: IRVINE STATE: CA ZIP: 92614 BUSINESS PHONE: 7146224333 MAIL ADDRESS: STREET 1: MLISS JONES KANE STREET 2: 17911 VON KARMAN AVE STE 300 CITY: IRVINE STATE: CA ZIP: 92614 10-K 1 FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 31, 1997 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, 1997 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 IDENTIFICATION NO.) ORGANIZATION) 17911 VON KARMAN AVENUE 92614 (714) 622-4333 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, $.0001 PAR VALUE NEW YORK STOCK EXCHANGE LIQUID YIELD OPTION NOTES, DUE 2009, NEW YORK STOCK EXCHANGE ZERO COUPON, CONVERTIBLE SUBORDINATED
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K, or any amendment to this Form 10-K. [ ] As of March 26, 1998, 22,736,836 shares of Common Stock ($.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 $672,838,000. 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 . 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, 1997, 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................................. 11 Item 4 Submission of Matters to a Vote of Security Holders................................................ 11 PART II Item 5 Market for Registrant's Common Stock and Related Stockholder Matters.................................... 12 Item 6 Selected Financial Data........................... 13 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations............. 17 Item 8 Financial Statements and Supplementary Data....... 30 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............. 66 PART III Item 10 Directors and Executive Officers of the Registrant............................................. 66 Item 11 Executive Compensation........................... 66 Item 12 Security Ownership of Certain Beneficial Owners and Management......................................... 66 Item 13 Certain Relationships and Related Transactions... 66 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.................................... 66
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, credit reporting, attorney services, flood certification, tax monitoring, reconveyances, recordings, foreclosure publishing and posting services and exchange intermediary services in connection with real estate transactions. Title insurance services are provided through the Company's direct operations and otherwise through independent title insurance agents who issue title policies on behalf of the underwriting subsidiaries. Title insurance is generally accepted as the most efficient means of determining title to, and the priority of interests in, real estate in nearly all parts of the United States. Today, virtually all real property mortgage lenders require their borrowers to obtain a title insurance policy at the time a mortgage loan is made or to allow the sale of loans in the secondary market. The Company's principal subsidiaries consist of Fidelity National Title Insurance Company ("Fidelity Title"), which, in turn, is the parent company of Fidelity National Title Insurance Company of Tennessee ("Fidelity Tennessee"), and was the parent company of Fidelity National Title Insurance Company of California ("Fidelity California"), which was merged into Fidelity Title as of August 7, 1997, and was the parent company of Nations Title Insurance Company ("Nations Title"), which was merged into Fidelity Title as of December 29, 1997; 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"); Fidelity National Title Insurance Company of Pennsylvania ("Fidelity Pennsylvania"), which was merged into Fidelity New York as of April 11, 1997, which in turn, was the parent company of American Title Insurance Company ("ATIC"), which was merged into Fidelity Pennsylvania as of November 21, 1996; (collectively, the "Insurance Subsidiaries"); its wholly-owned underwritten title companies (collectively, the "UTCs"); and its network of wholly-owned title-related ancillary service companies known as Fidelity's Lender Express Network ("FLEXNet"). Nations Title Insurance Company, Nations Title Insurance of New York Inc. and National Title Insurance of New York Inc. were acquired, along with Nations Title Inc. ("NTI," collectively, "Nations Title Inc.") in a transaction which closed on April 1, 1996. Certain of the ancillary service companies were acquired in separate transactions during 1997. On November 17, 1997, Fidelity National Financial, Inc. signed an Agreement and Plan of Merger ("Merger Agreement") to merge a newly-formed subsidiary of the Company into Granite Financial, Inc. ("Granite"). Granite, located in Golden, Colorado, is a rapidly expanding speciality finance company engaged in the business of originating, funding, purchasing, selling, securitizing and servicing equipment leases for a broad range of businesses located throughout the United States. Granite is a prominent consolidator in the $48 billion small-ticket lease finance market with the acquisitions of Global Finance & Leasing in March, 1997; SFR Funding, Inc., in June, 1997; and North Pacific Funding, Inc. (dba C&W Leasing), a privately held corporation based in Seattle, Washington, and its wholly-owned subsidiary, in December, 1997. This transaction closed on February 26, 1998. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Recent Developments" and Notes B and O 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. 1 4 Title insurance is different from other types of insurance because it relates to past events which affect title to property at the time of closing and not unforeseen future events. Prior to issuing policies, underwriters can reduce or eliminate future losses by accurately performing searches and examinations. Title insurance policies are issued on the basis of a preliminary title report or commitment. These reports are prepared after a search of public records, maps and other relevant documents to ascertain title ownership and the existence of easements, restrictions, rights of way, conditions, encumbrances or other matters affecting the title to, or use of, real property. A visual inspection or survey of the property may also be made prior to the issuance of certain title insurance policies. To facilitate the preparation of preliminary reports without the necessity of manually searching public records, copies of public records, maps and other relevant historical documents are compiled and indexed in a "title plant." Each title plant relates to a particular county and is kept current on a daily or other periodic basis by the continual addition of copies of recorded documents which affect real property in the particular county. Title companies often subscribe to independent title information services to assist in the updating of their title plants and the maintenance of title records. The major expense of a title company is the search and examination function in preparing preliminary title reports, commitments and title policies; and not from claim losses associated with the issuance of said policies. The premium for title insurance is due in full at the closing of the real estate transaction and is based upon the purchase price of the property insured or the amount of the mortgage loan. Coverage under the policy generally terminates upon resale or refinance of the property. The terms of coverage have become relatively standardized in accordance with forms approved by state or national trade associations. 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 2 5 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. The overall economic environment, stable mortgage interest rates and strength in the real estate market, especially in California and on the West Coast, contributed to very positive conditions for the industry throughout 1996 and 1997 and into the first quarter of 1998. It is impossible to predict in what future direction interest rates and the real estate market may move or fluctuate. TITLE INSURANCE OPERATIONS The Insurance Subsidiaries are currently licensed to issue title insurance policies through direct operations and independent agents in all states (with the exception of Iowa) and the District of Columbia, the Bahamas, the Virgin Islands and Puerto Rico. The Company maintains direct operations in Arizona, California, Florida, Georgia, Hawaii, Nevada, New Jersey, New Mexico, New York, North Carolina, Oregon, Pennsylvania, Tennessee, Texas and Washington. Direct operations are divided into approximately 70 branches consisting of more than 350 offices. Each branch processes title insurance transactions within its geographical area, which is usually a county boundary. Each branch is operated as a separate profit center. The Company also transacts title insurance business through a network of approximately 2,200 agents, primarily in those areas in which agents are the more accepted title insurance provider. The following table sets forth for the years 1997, 1996 and 1995, respectively, the approximate dollars and percentages of title insurance premium revenue by state according to records maintained by the Company:
YEAR ENDED DECEMBER 31, ----------------------------------------------------------- 1997 1996 1995 ----------------- ----------------- ----------------- AMOUNT % AMOUNT % AMOUNT % -------- ----- -------- ----- -------- ----- (DOLLARS IN THOUSANDS) California................ $202,848 38.0% $183,108 38.5% $124,407 43.6% New York.................. 60,022 11.3 45,938 9.7 17,436 6.1 Texas..................... 47,051 8.8 42,122 8.9 28,761 10.1 Florida................... 29,457 5.5 25,444 5.3 16,141 5.7 Pennsylvania.............. 26,318 5.0 25,441 5.3 13,751 4.8 Arizona................... 24,431 4.6 23,865 5.0 15,462 5.4 All others................ 143,093 26.8 130,043 27.3 69,594 24.3 -------- ----- -------- ----- -------- ----- Totals.......... $533,220 100.0% $475,961 100.0% $285,552 100.0% ======== ===== ======== ===== ======== =====
For the entire title insurance industry, 12 states accounted for 72.1% of title premiums written in the United States in 1996. California represented the single largest state with 17.5%. 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 3 6 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 -- 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 below and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview and Recent Developments." The Company's direct operations generate higher margins than agency operations because the Company retains the entire premium from each transaction instead of paying commissions to agents and claim losses are less than in agency based operations because the Company controls the issuance of the title policy. Direct operations also provide additional sources of income, such as escrow fees, collection and trust fees, real estate information and technology service fees, trustee sale guarantee fees, credit reporting fees, attorney service fees, flood certification fees, tax monitoring fees, reconveyance fees, recording fees, foreclosure publishing and posting service fees and exchange intermediary service fees in connection with real estate transactions. In 1997, 46.9% of the Company's title insurance premiums were generated by direct operations. In 1996 and 1995, 49.8% and 62.1%, respectively, of title insurance premiums were generated by direct operations. The percentage of title insurance premiums generated by agency operations was 53.1%, 50.2% and 37.9% in 1997, 1996 and 1995, respectively. The average percentage of premiums generated by agents and retained by the Company was 20.9%, 21.3% and 23.7% in 1997, 1996 and 1995, respectively. See "Management's Discussion and Analysis of Financial Condition and 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 (which was merged into Fidelity Title as of December 29, 1997), Nations Title Insurance of New York Inc. and National Title Insurance of New York Inc., from Nations Holding Group for a purchase price of $19.3 million plus 212,960 shares, $2.1 million, of Fidelity National Financial, Inc.'s common stock, subject to certain adjustments. 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. During 1997, the Nations Title Inc. purchase price was reduced $749,000, pursuant to certain terms and conditions contained in the acquisition agreement. The purchase price adjustment resulted in Nations Holding Group returning 26,499 shares of Company common stock. The returned shares were subsequently cancelled. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview, Revenue and Recent Developments." 4 7 ESCROW, TRUST AND OTHER TITLE-RELATED SERVICES. The Company holds funds and documents in real estate transactions for delivery upon closing pursuant to the instructions of the respective parties to an escrow. The Company derives revenue from other ancillary services generated from direct operations, such as collection and trust fees, real estate information and technology service fees, trustee sale guarantee fees, credit reporting fees, attorney service fees, flood certification fees, tax monitoring fees, reconveyance fees, recording fees, foreclosure publishing and posting service fees and exchange intermediary service fees in connection with real estate transactions. In a few cases, the Company leases its title plants to independent agents for their examination of title records for a rental or usage fee. 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. 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 historical 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 $35.3 million, $37.3 million and $26.2 million in 1997, 1996 and 1995, respectively, representing 6.6%, 7.8% and 9.2% of title insurance premium revenue during such periods. The 1997 and 1996 claims paid include Nations Title Inc. claims paid (since April 1, 1996 for the year ended December 31, 1996) totalling $8.5 million and $9.3 million, respectively. 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 year the loss is paid, the net claims paid ratio increases as a simple percentage. The inverse occurs when the payments to premiums relationship is reversed. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Expenses." There can be no assurance that the Company's current paid loss experience will continue at these levels. 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 5 8 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, 1997, the amount of these interests was $8.8 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 regional and 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 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, Fidelity Title and Fidelity New York, as opposed to the current five, which is down from eight underwriters at the end of 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, 1997, the combined statutory unearned premium reserve required and reported for the Insurance Subsidiaries was $174.5 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 Title (1996), Fidelity New York (1996), Nations New York (1996), National (1996) and ATIC (1994). The Company has not received preliminary reports of examination for Fidelity Title, Fidelity New York, Nations New York or National, as the examinations are currently ongoing. The Department of Insurance of the State of Florida has completed the field portion of its triennial examination of ATIC, which was merged into Fidelity Pennsylvania as of November 21, 1996, which was in turn merged into Fidelity New York as of April 11, 1997; as of and for the three-year period ended 6 9 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 and subsequently, Fidelity Pennsylvania, its former parent company, and ultimately Fidelity New York. Certain of these adjustments have not been included in the 1997 Fidelity New York 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. Examinations have been completed for Fidelity Pennsylvania (1995), Fidelity Tennessee (1995) and Nations Title (1996). All adjustments proposed by the examiners have been recorded by the Company for Fidelity Pennsylvania, Fidelity Tennessee and Nations Title, and are included in the calculation of dividend capability, statutory surplus and statutory income (loss) reported below. Statutorily calculated net worth determines the maximum insurable amount under any single title insurance policy. As of January 1, 1998, the Company's self-imposed single policy maximum insurable amounts, which comply with all statutory limitations, for Fidelity Title, Fidelity New York and Fidelity Tennessee were $42.0 million, $80.0 million and $6.0 million, respectively. The self-imposed single policy maximum insurable amounts for Nations New York and National were $20.0 million and $6.7 million, respectively. The Insurance Subsidiaries are subject to regulations that restrict their ability to pay dividends or make other distributions of cash or property to their immediate parent company without prior approval from the Department of Insurance of their respective states of domicile. In the case of Fidelity Title, the total amount of dividends made in any twelve-month period may not exceed the greater of 10% of the surplus as regards policyholders as of the last day of the preceding year or net 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, 1998, Fidelity Title could pay dividends or make other distributions to the Company of $6,823,000. Fidelity New York does not have any dividend paying capability as of January 1, 1998. The combined statutory capital and surplus of the Insurance Subsidiaries was $94,101,000, $73,326,000 and $67,174,000 as of December 31, 1997, 1996 and 1995, respectively. The combined statutory income (loss) of the Insurance Subsidiaries was $21,500,000, $6,052,000 and $(1,533,000) for the years ended December 31, 1997, 1996 and 1995, respectively. These amounts do not include certain of the proposed ATIC examination adjustments previously discussed. As a condition to continued authority to underwrite policies in the states in which the Insurance Subsidiaries conduct their business, the Insurance Subsidiaries are required to pay certain fees and file information regarding their officers, directors and financial condition. In addition, the Company's escrow and trust business is subject to regulation by various state banking authorities. 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, 1997. See Note K of Notes to Consolidated Financial Statements. 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. 7 10 RATINGS The Insurance Subsidiaries are regularly assigned ratings by independent agencies designed to indicate their financial condition and/or claims paying ability. Financial data and other information is supplied to the rating agencies and subjected to quantitative and qualitative analyses from which the ratings were derived. Ratings of the Company's principal Insurance Subsidiaries, as assigned by Demotech, Inc. during 1997, are listed below. DEMOTECH, INC. (FINANCIAL STABILITY RATING) ------------------------------------ Fidelity Title 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. The Company also makes investments in certain equity securities in order to take advantage of perceived value and for strategic purposes. Most of the Company's investment assets qualify as "admitted assets" and for purposes of capital and surplus and unearned premium reserves as prescribed by various state insurance regulations. These investments are restricted by the state insurance regulations of their domiciliary states and are limited primarily to cash and cash equivalents, federal and municipal governmental securities, mortgage loans, certain investment grade debt securities, equity securities and real estate. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." As of December 31, 1997 and 1996, the carrying amount, which approximates the fair value, of total investments was $326.3 million and $227.7 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, 1997 and 1996:
DECEMBER 31, ---------------------------------------------------------------------------------- 1997 1996 --------------------------------------- -------------------------------------- % % % % AMORTIZED OF FAIR OF AMORTIZED OF FAIR OF RATINGS(1) COST TOTAL VALUE TOTAL COST TOTAL VALUE TOTAL ---------- --------- ----- -------- ----- --------- ----- -------- ----- (DOLLARS IN THOUSANDS) AAA.................. $103,187 48.3% $104,488 48.2% $110,718 66.0% $109,956 66.1% AA................... 36,484 17.1 37,141 17.1 10,485 6.3 10,572 6.3 A.................... 66,215 31.0 66,655 30.7 40,587 24.2 40,007 24.1 Other................ 7,703 3.6 8,717 4.0 5,822 3.5 5,794 3.5 -------- ----- -------- ----- -------- ----- -------- ----- Total........... $213,589 100.0% $217,001 100.0% $167,612 100.0% $166,329 100.0% ======== ===== ======== ===== ======== ===== ======== =====
- --------------- (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, 1997. 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 $17,640,000 and a fair value of $18,159,000 were callable at December 31, 1997:
DECEMBER 31, 1997 --------------------------------------- % % AMORTIZED OF FAIR OF MATURITY COST TOTAL VALUE TOTAL -------- --------- ----- -------- ----- (DOLLARS IN THOUSANDS) One year or less.............................. $ 5,180 2.4% $ 5,188 2.4% After one year through five years............. 120,134 56.2 121,780 56.1 After five years through ten years............ 76,760 35.9 78,346 36.1 After ten years............................... 11,515 5.5 11,687 5.4 -------- ----- -------- ----- Total............................... $213,589 100.0% $217,001 100.0% ======== ===== ======== =====
Equity securities at December 31, 1997 and 1996 consist of investments in various industry groups as follows:
DECEMBER 31, ---------------------------------------- 1997 1996 ------------------ ------------------ FAIR FAIR COST VALUE COST VALUE ------- ------- ------- ------- (DOLLARS IN THOUSANDS) Banks, trust and insurance companies........ $ 50 $ 50 $ 800 $ 863 Industrial, miscellaneous and all other..... 35,826 70,368 19,349 41,475 ------- ------- ------- ------- Total............................. $35,876 $70,418 $20,149 $42,338 ======= ======= ======= =======
The Company's investment results for the years ended December 31, 1997, 1996 and 1995 were as follows:
DECEMBER 31, -------------------------------- 1997 1996 1995 -------- -------- -------- (DOLLARS IN THOUSANDS) Net investment income(1)(2)........................ $ 18,275 $ 15,523 $ 15,014 Average invested assets(1)......................... 328,172 266,480 233,831 Effective return on average invested assets(1)..... 5.6% 5.8% 6.4%
- --------------- (1) Excludes investments in real estate. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Revenue." (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 net realized capital gains on the sale of investments. Net realized capital gains totalled $16,988,000, $2,625,000 and $5,213,000 in 1997, 1996 and 1995, respectively. REAL ESTATE AND PROPERTY MANAGEMENT OPERATIONS The Company, principally through Manchester Development Corporation ("Manchester"), currently doing business as Orion Realty Group, a wholly-owned subsidiary, previously invested in various real estate projects directly and through partnerships. Some of these partnerships involve related parties. See Notes D and E of Notes to Consolidated Financial Statements. Manchester currently assists in the identification and leasing of space for operating purposes and manages property owned by the Company. The Company's investments in real estate and partnerships represented approximately 1.0% of the Company's assets at December 31, 1997. 9 12 EMPLOYEES As of December 31, 1997, the Company had approximately 5,200 full-time equivalent employees. The Company believes that its relations with employees are generally good. YEAR 2000 ISSUES The Company has reviewed its information systems hardware, operations and application software relative to their compliance with potential Year 2000 issues. The Company believes that it has identified substantially all of the application software programs which require modification in order to become Year 2000 compliant and has a formal plan to correct and test the programs affected by the conversion of a two-digit year to a four-digit year. The Company expects the early phases of the project to be completed during the middle of 1998. The final phase of the project is scheduled to be completed by mid-1999. The review of systems also included the identification of vendors that may have a significant impact on the Company's operations and their expected completion of any conversions. The Company believes that its information systems operations and those of its significant vendors are or will become Year 2000 compliant such that there will not be any material adverse impact on the Company's results of operations or financial condition. The Company estimates costs to be incurred prior to December 31, 1999 to be approximately $200,000 to complete all programming changes, related testing and implementation. CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION The Company wishes to caution readers that the forward-looking statements contained in this Form 10-K under "Item 1. Business," "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Form 10-K involve known and unknown risks and uncertainties which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by any forward-looking statements made by or on behalf of the Company. In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company is filing the following cautionary statements identifying important factors that in some cases have affected, and in the future could cause the Company's actual results to differ materially from those expressed in any such forward-looking statements. The factors that could cause the Company's results to differ materially include, but are not limited to, general economic and business conditions, including interest rate fluctuations; the impact of competitive products and pricing; success of operating initiatives; adverse publicity; changes in business strategy or development plans; quality of management; availability, terms, and deployment of capital; the results of financing efforts; business abilities and judgment of personnel; availability of qualified personnel; employee benefit costs and changes in, or the failure to comply with government regulations. ITEM 2. PROPERTIES During 1997, the Company sold its corporate home office building in Irvine, California, which housed the Company's corporate departments and certain operating subsidiaries, recording a net realized gain of $4.3 million, prior to applicable income taxes. Also during 1997, a subsidiary of the Company completed the purchase of a building in Santa Barbara, California, which houses certain of the Company's corporate departments. The majority of the branch offices of the Company are leased from third parties. The remainder are owned by the Company or leased from partnerships in which the Company has an interest or leased from affiliates. 10 13 As of December 31, 1997, the Company leased office and storage spaces as follows:
NUMBER OF LOCATIONS --------- California.................................................. 197 Florida..................................................... 36 Texas....................................................... 33 Arizona..................................................... 29 Oregon...................................................... 19 Pennsylvania and Tennessee.................................. 8 New Jersey, New York and Washington......................... 7 Nevada, New Mexico and North Carolina....................... 6 Georgia, Hawaii and Michigan................................ 4 Connecticut................................................. 2 One each in: Alabama, Colorado, Illinois, Kansas, Maryland, Massachusetts, Minnesota, Missouri, Ohio, Rhode Island and Virginia.
See Note J of Notes to Consolidated Financial Statements. ITEM 3. LEGAL PROCEEDINGS In the ordinary course of business, the Company is involved in various pending and threatened litigation matters related to its operations, some of which include claims for punitive or exemplary damages. Management believes that no actions depart from customary litigation incidental to the business of the Company and that resolution of all such litigation will not have a material adverse effect on the Company. See Note J of Notes to Consolidated Financial Statements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company did not submit any matters to a vote of security holders in the fourth quarter of 1997. See "Management's Discussion and Analysis of Financial Condition -- Recent Developments" and Note O of Notes to Consolidated Financial Statements. 11 14 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, 1997 First quarter............................................. $14.09 $10.91 $.064 Second quarter............................................ $15.34 $10.45 $.064 Third quarter............................................. $21.59 $14.44 $.064 Fourth quarter............................................ $31.25 $18.64 $ .07 Year ended December 31, 1996 First quarter............................................. $14.67 $12.39 $.058 Second quarter............................................ $12.91 $10.33 $.058 Third quarter............................................. $13.33 $11.26 $.058 Fourth quarter............................................ $13.98 $12.60 $.064
On March 26, 1998, the last reported sale price of the common stock on the New York Stock Exchange Composite Tape was $36.00 per share. As of March 26, 1998, 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 19, 1998, the Company's Board of Directors declared a cash dividend of $.07 per share which will be payable on May 1, 1998 to stockholders of record on April 10, 1998. The continued payment of dividends will depend upon operating results, business requirements, contractual restrictions, regulatory considerations and other factors. The Company anticipates the continued payment of dividends. See "Business -- Regulation" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." Contractual Restrictions on Dividend Payments. The Company's ability to pay dividends on its common stock and make certain payments is restricted by provisions contained in the Company's various debt agreements. The Company believes that amounts to fund currently anticipated dividends and certain payments are available pursuant to the terms and conditions of its various debt agreements. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" and Notes G and O of Notes to Consolidated Financial Statements. 12 15 ITEM 6. SELECTED FINANCIAL DATA The historical operating results data, per share data and balance sheet data set forth below are derived from the Consolidated Financial Statements of the Company. Per share data has been retroactively adjusted for stock dividends and splits since the Company's inception. The Consolidated Financial Statements for the years ended December 31, 1997, 1996, 1995, 1994 and 1993 have been audited by KPMG Peat Marwick LLP, independent certified public accountants. Audited Consolidated Balance Sheets at December 31, 1997 and 1996 and Consolidated Statements of Earnings, Stockholders' Equity and Cash Flows for the years ended December 31, 1997, 1996, and 1995, 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.
YEAR ENDED DECEMBER 31, -------------------------------------------------------- 1997 1996 1995 1994 (3)(4)(5)(6) (3)(4) (2) (1) 1993 ------------ -------- -------- -------- -------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA) OPERATING RESULTS DATA: Revenue: Title insurance premiums............. $533,220 $475,961 $285,552 $369,275 $429,772 Escrow fees.......................... 81,241 66,927 49,723 52,260 69,982 Other fees and revenue............... 98,695 76,333 56,954 59,351 60,958 Interest and investment income, including realized gains (losses)........................... 33,556 17,692 17,616 11,918 14,671 -------- -------- -------- -------- -------- 746,712 636,913 409,845 492,804 575,383 -------- -------- -------- -------- -------- Expenses: Personnel costs...................... 240,223 211,668 165,514 181,953 196,470 Other operating expenses............. 161,200 154,043 123,888 129,367 137,125 Agent commissions.................... 223,797 187,901 82,713 132,713 147,427 Provision for claim losses........... 38,661 33,302 19,031 27,838 39,220 Interest expense..................... 9,401 9,446 9,239 8,594 2,587 -------- -------- -------- -------- -------- 673,282 596,360 400,385 480,465 522,829 -------- -------- -------- -------- -------- Earnings before income taxes and extraordinary item................... 73,430 40,553 9,460 12,339 52,554 Income tax expense...................... 31,959 16,216 1,828 2,594 16,259 -------- -------- -------- -------- -------- Earnings before extraordinary item...... 41,471 24,337 7,632 9,745 36,295 Extraordinary item, net of income taxes (1)(2)(6)............................ (1,700) -- (813) 2,400 -- -------- -------- -------- -------- -------- Net earnings......................... $ 39,771 $ 24,337 $ 6,819 $ 12,145 $ 36,295 ======== ======== ======== ======== ======== Diluted net earnings................. $ 42,913 $ 27,533 $ 6,819 $ 15,201 $ 36,295 ======== ======== ======== ======== ======== PER SHARE DATA: Net diluted earnings per share before extraordinary item................... $ 2.08 $ 1.34 $ .49 $ .51 $ 1.78 Extraordinary item, net of income taxes, diluted basis........................ (.08) -- (.05) .10 -- -------- -------- -------- -------- -------- Net earnings per share, diluted basis ................................... $ 2.00 $ 1.34 $ .44 $ .61 $ 1.78 ======== ======== ======== ======== ======== Weighted average shares outstanding, diluted basis (000's)................ 21,483 20,484 15,694 24,864 20,365 Dividends per share..................... $ .26 $ .24 $ .22 $ .20 $ .18
13 16
YEAR ENDED DECEMBER 31, -------------------------------------------------------- 1997 1996 1995 1994 (3)(4)(5)(6) (3)(4) (2) (1) 1993 ------------ -------- -------- -------- -------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA) OTHER DATA: Direct operations market share(7)....... 21.3% 21.0% 20.3% 20.6% 18.3% Orders closed by direct operations...... 406,000 394,000 302,000 335,000 464,000 Average fee per file(8)................. $ 853 $ 806 $ 790 $ 750 $ 710 Provision for claim losses to title insurance premiums................... 7.3% 7.0% 6.7% 7.5% 9.1% Net claims paid ratio(9)................ 6.6% 7.8% 9.2% 6.3% 4.2% Title-related revenue: Percentage direct operations......... 57.5% 59.5% 71.1% 62.6% 65.3% Percentage agency operations......... 42.5% 40.5% 28.9% 37.4% 34.7% Employees at year end................... 5,200 4,500 4,100 3,500 4,700 Number of licensed states at year end... 49 49 49 49 48 Return on average equity before extraordinary item(1)(2)(6)(10)...... 27.1% 25.9% 10.0% 10.3% 40.3% Return on average equity including extraordinary item(1)(2)(6)(10)...... 25.9% 25.9% 9.0% 12.9% 40.3% BALANCE SHEET DATA: Investments............................. $326,277 $227,674 $180,082 $217,648 $236,533 Cash and cash equivalents............... 54,005 63,971 47,431 34,689 42,731 Total assets............................ 600,559 509,296 405,063 418,119 396,279 Notes payable........................... 123,023 148,922 136,047 142,129 52,769 Reserve for claim losses................ 190,747 187,245 146,094 153,306 142,512 Minority interest....................... 3,614 1,287 393 616 22,424 Stockholders' equity.................... 196,319 110,251 77,947 73,954 114,926
- --------------- (1) During 1994, the Company recognized a $2.4 million extraordinary gain, net of related income taxes of $1.3 million, related to the early retirement of $48 million maturity value of the Company's Liquid Yield Option Notes (the "LYONs"). (2) During 1995, the Company recognized an $813,000 extraordinary loss, net of related income taxes of $437,000, related to the early retirement of its Senior Secured Notes. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Extraordinary Item." (3) 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, 1997 and 1996 and the results of its operations for the year ended December 31, 1997 and for the nine-month period ended December 31, 1996. (4) The Company acquired 80% of 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 Company's interest in the balance sheet accounts of CRM at December 31, 1997 and 1996 and the Company's interest in the results of its operations for the year ended December 31, 1997 and for the two-month period ended December 31, 1996. (5) On July 3, 1997, the Company converted an outstanding note balance in conjunction with the exercise of warrants into a 51% ownership interest of National Alliance Marketing Group ("National Alliance"), subject to certain regulatory approvals. The selected financial data above includes the Company's 14 17 interest in the balance sheet accounts of National Alliance at December 31, 1997 and the Company's interest in the results of operations for the period from July 3, 1997 through December 31, 1997. On August 22, 1997, the Company acquired First Title Corporation ("First Title"). The selected financial data above includes the balance sheet accounts of First Title at December 31, 1997 and the results of its operations for the period from August 22, 1997 through December 31, 1997. The Company acquired Ifland Credit Services ("ICS") on September 18, 1997. The selected financial data above includes the balance sheet accounts of ICS at December 31, 1997 and the results of its operations for the period from September 18, 1997 through December 31, 1997. The Company acquired Credit Reports, Inc. ("CRI") and Express Network, Inc. ("ENI") on October 9, 1997. The selected financial data above includes the balance sheet accounts of CRI and ENI at December 31, 1997 and the results of their operations for the period from October 9, 1997 through December 31, 1997. The Company acquired Classified Credit Data, Inc. ("CCD") on October 21, 1997. The selected financial data above includes the balance sheet accounts of CCD at December 31, 1997 and the results of their operations for the period from October 21, 1997 through December 31, 1997. The Company acquired Bron Research, Inc. ("BRON") on October 1, 1997. This acquisition has been accounted for as a pooling-of-interests. The selected financial data above includes the balance sheet accounts of BRON at December 31, 1997 and the results of its operations for the year ended December 31, 1997. BRON's financial position and results of operations prior to 1997 were insignificant, and as such, the selected financial data above has not been restated for prior years. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Recent Developments" and Note B of Notes to Consolidated Financial Statements. (6) During 1997, the Company recognized an extraordinary loss of $1.7 million, net of related income taxes of $1.1 million, related to the early retirement of $45 million maturity value of the Company's LYONs. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Extraordinary Item and Recent Developments." (7) 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 certain 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. (8) 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. (9) The net claims paid ratio is the percentage resulting from total title claims paid, net of recoupments, divided by title insurance premiums. (10) 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. 15 18 QUARTERLY FINANCIAL DATA Selected quarterly financial data is as follows:
QUARTER ENDED ------------------------------------------------------ MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, --------- -------- ------------- ------------ (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1997 Revenue......................................... $153,192 $178,458 $197,915 $217,147 Earnings before income taxes and extraordinary loss.......................................... 5,123 15,075 27,271 25,961 Earnings before extraordinary loss.............. 3,023 9,105 15,857 13,486 Extraordinary loss, net of income taxes......... -- -- -- (1,700) Net earnings basic basis........................ 3,023 9,105 15,857 11,786 Net earnings diluted basis...................... 3,831 9,913 16,675 12,494 Earnings per share before extraordinary item, basic basis................................... .20 .60 1.03 .76 Extraordinary loss, net of income taxes, basic basis......................................... -- -- -- (.09) Basic earnings per share........................ .20 .60 1.03 .67 Earnings per share before extraordinary item, diluted basis................................. .18 .48 .78 .62 Extraordinary loss net of income taxes, diluted basis......................................... -- -- -- (.07) Diluted earnings per share...................... .18 .48 .78 .55 Dividends paid per share........................ .06 .06 .06 .07 1996 Revenue......................................... $126,398 $171,628 $166,692 $172,195 Earnings before income taxes.................... 8,300 11,757 10,623 9,873 Net earnings, basic basis....................... 5,145 6,946 6,317 5,929 Net earnings, diluted basis..................... 5,985 7,720 7,102 6,726 Basic earnings per share........................ .35 .46 .42 .39 Diluted earnings per share...................... .29 .38 .35 .33 Dividends paid per share........................ .06 .06 .06 .06 1995 Revenue......................................... $ 83,059 $ 95,494 $113,471 $117,821 Earnings (loss) before income taxes and extraordinary loss............................ (4,737) 1,322 7,831 5,044 Earnings (loss) before extraordinary loss....... (2,447) 1,021 5,873 3,185 Extraordinary loss, net of income taxes......... (813) -- -- -- Net earnings (loss), basic basis................ (3,260) 1,021 5,873 3,185 Net earnings (loss), diluted basis.............. (3,260) 1,021 6,677 4,000 Earnings (loss) per share before extraordinary item, basic basis............................. (.15) .07 .40 .21 Extraordinary loss, net of income taxes, basic basis......................................... (.05) -- -- -- Basic earnings (loss) per share................. (.20) .07 .40 .21 Earnings (loss) per share before extraordinary item, diluted basis........................... (.15) .06 .33 .20 Extraordinary loss net of income taxes, diluted basis......................................... (.05) -- -- -- Diluted earnings (loss) per share............... (.20) .06 .33 .20 Dividends paid per share........................ .05 .05 .05 .06
16 19 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:
YEAR ENDED DECEMBER 31, -------------------------------- 1997 1996 1995 -------- -------- -------- (DOLLARS IN THOUSANDS) Total revenue...................................... $746,712 $636,913 $409,845 Total expenses..................................... $673,282 $596,360 $400,385 Earnings before extraordinary item................. $ 41,471 $ 24,337 $ 7,632 Extraordinary item -- loss on early retirement of debt, net of income taxes........................ (1,700) -- (813) -------- -------- -------- Net earnings..................................... $ 39,771 $ 24,337 $ 6,819 ======== ======== ======== Net claims paid ratio(1)........................... 6.6% 7.8% 9.2% Return on average equity before extraordinary item(2).......................................... 27.1% 25.9% 10.0% Return on average equity including extraordinary item(2).......................................... 25.9% 25.9% 9.0%
- --------------- (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. The overall economic environment, stable mortgage interest rates and strength in the real estate market, especially in California and on the West Coast, contributed to very positive conditions for the industry throughout 1996 and 1997 and into the first quarter of 1998. It is impossible to predict in what future direction interest rates and the real estate market may move or fluctuate. Additionally, during 1997, the Company acquired certain ancillary service companies in various separate transactions. See "Recent Developments." The acquired ancillary service companies have been bundled with other existing lender services to form Fidelity's Lender Express Network ("FLEXNet"). FLEXNet provides a complete range of real estate transactional services, leading to a broader base of services provided and increased other fees and revenue. Also, during 1997 the Company sold a majority interest of its subsidiary American Title Company ("ATC"), an underwritten title company, to certain members of ATC's management. See "Recent Developments." ATC functions as an exclusive agent of the Company, and represents one of the Company's largest agents. The conversion of ATC business from direct to agency resulted in a continued increase in the 17 20 percentage of title-related revenue generated from agency operations to 42.5% in 1997 compared to 40.5% in 1996. The following table sets forth information regarding title-related revenue derived from direct operations and title-related revenue derived from agency operations:
YEAR ENDED DECEMBER 31, ----------------------------------------------------------------- % % % 1997 OF TOTAL 1996 OF TOTAL 1995 OF TOTAL -------- -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) Revenue from direct operations: Title insurance premiums.... $250,314 37.6% $237,244 40.2% $177,202 47.3% Escrow fees................. 81,241 12.2 66,927 11.4 49,723 13.3 Other title-related fees and revenue.................. 50,899 7.7 46,762 7.9 39,117 10.5 -------- ----- -------- ----- -------- ----- Total............... 382,454 57.5 350,933 59.5 266,042 71.1 Revenue from agency operations: Title insurance premiums.... 282,906 42.5 238,717 40.5 108,350 28.9 -------- ----- -------- ----- -------- ----- Total title-related revenue........... $665,360 100.0% $589,650 100.0% $374,392 100.0% ======== ===== ======== ===== ======== =====
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 (which was subsequently merged into Fidelity Title), Nations Title Insurance of New York Inc. and National Title Insurance of New York Inc., expanded the Company's national agency network and increased its market share in the more traditional agency driven states. The Nations Title Inc. acquisition resulted in additional agency business and a shift in the mix of business from direct to agency during 1996. The revenue and expense information presented in Management's Discussion and Analysis of Financial Condition and Results of Operations includes 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 40.5% from 28.9% in 1995. During 1995, 71.1% 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 Company's strategy of expanding into selected markets continues. 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. 18 21 RESULTS OF OPERATIONS REVENUE. The following table presents information regarding the components of the Company's revenue:
YEAR ENDED DECEMBER 31, ----------------------------------- 1997 1996 1995 --------- --------- --------- (DOLLARS IN THOUSANDS, OTHER THAN FEE PER FILE) Title insurance premiums........................... $533,220 $475,961 $285,552 Escrow fees........................................ 81,241 66,927 49,723 Other fees and revenue............................. 98,695 76,333 56,954 Interest and investment income, including realized gains (losses)................................... 33,556 17,692 17,616 -------- -------- -------- Total revenue.................................... $746,712 $636,913 $409,845 ======== ======== ======== Orders closed by direct operations................. 406,000 394,000 302,000 Average fee per file from direct operations........ $ 853 $ 806 $ 790
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, order counts and closed orders. The overall economic environment, stable mortgage interest rates in the seven percent range and strength in the real estate market, especially in California, the Company's strongest market, and on the West Coast, were positive factors through 1996 and 1997 and into the first quarter of 1998. These factors and the Company's acquisition of Nations Title Inc., which was completed on April 1, 1996, have resulted in title premiums of $533.2 million, $476.0 million and $285.6 million, for 1997, 1996 and 1995, respectively. The difference in title insurance premiums between 1997 and 1996 of $57.2 million represents an increase of 12.0%. Title insurance premiums increased $190.4 million, or 66.7%, in 1996 from 1995. The average fee per file increased to $853 in 1997 from $806 in 1996, which had previously increased from $790 in 1995. The increase in fee per file in 1997 over 1996 and 1996 over 1995 is the result of increased fee revenue attributable to higher fees charged per policy due to appreciated property values, particularly in California, an overall rate increase and an expansion in the commercial business sector offset by an increase in refinancing transactions. Title business 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 real estate information and technology service fees, trustee sale guarantee fees, credit reporting fees, attorney service fees, flood certification fees, tax monitoring fees, reconveyance fees, recording fees, foreclosure publishing and posting service fees and exchange intermediary service fees in connection with real estate transactions. The trends in escrow fees are primarily related to the title insurance activity generated by the Company's direct operations. Escrow fees have fluctuated during the 1997, 1996 and 1995 years in a pattern generally consistent with the fluctuation in title insurance premiums. Escrow fees increased $14.3 million to $81.2 million in 1997, a 21.4% increase from $66.9 million in 1996. This increase is consistent with the trend in title premiums but is also due to the Company's focused efforts to expand its escrow market presence in certain areas, such as Southern California. Escrow fees increased $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 19 22 percentage increase in title premiums due to the change in the direct operation/agency business mix. See "Overview." Agency title insurance premiums do not generate escrow fees for the Company. Other fees and revenue trend closely with the level and mix of business, as well as the performance of certain of the Company's title-related subsidiaries. During 1997, the Company acquired certain ancillary service companies in various separate transactions. See "Recent Developments." The acquired ancillary service companies have been bundled with other existing lender services to form Fidelity's Lender Express Network ("FLEXNet"). FLEXNet provides a complete range of real estate transactional services, leading to increased other fees and revenues in 1997 as compared to 1996. 1997 other fees and revenue were $98.7 million, an increase of $22.4 million, or 29.4%, over 1996 other fees and revenue of $76.3 million. 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 related to the increase in title premiums and escrow fees generated by the Company's direct operations. Direct operations generate other fees and income. Additionally, over the past two years the Company's ancillary service businesses have significantly expanded their market presence and revenue, which are included in other fees and revenue. The Company continues to make a concerted effort to expand and develop the ancillary service contribution to title-related operations. Interest and investment income levels are primarily a function of securities markets, interest rates and the amount of cash available for investment. In 1997 investment income increased $15.9 million, or 89.8%, to $33.6 million compared to $17.7 million in 1996. Average invested assets, excluding real estate, increased 23.2% to $328.2 million in 1997 from $266.5 million in 1996, while the tax equivalent yield decreased to 5.6% in 1997 from 5.8% in 1996 due to declining interest rates, which resulted in an increase in interest and dividend income of approximately $1.5 million. The Company shifted the emphasis in its fixed income portfolio from taxable to non-taxable securities during 1997. The difference in investment income results is primarily attributable to the substantial increase in net realized capital gains during 1997 compared to 1996. In 1997, net realized capital gains totalled approximately $17.0 million compared to $2.6 million in 1996. The primary components of 1997 capital gains, prior to applicable income taxes, are the following: $10.5 million in capital gains from the sale of investment securities, $4.3 million in capital gain from the sale of the Company's former home office building, $1.3 million from the sale of a majority interest in American Title Company and approximately $800,000 in capital gain from the sale of the Company's former small business investment company subsidiary, FNF Ventures, Inc. During 1996, interest and investment income increased .6% to $17.7 million from $17.6 million in 1995. As interest rates declined during 1996 from 1995, the tax adjusted yield decreased to 5.8% 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 income 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. Included in the 1995 gain amount is a $3.4 million net gain realized upon the sale of the Company's common stock holdings in US Facilities Corporation during the third quarter of 1995. EXPENSES. The following table presents the components of the Company's expenses:
YEAR ENDED DECEMBER 31, -------------------------------- 1997 1995 1996 -------- -------- -------- (DOLLARS IN THOUSANDS) Personnel costs............................ $240,223 $211,668 $165,514 Other operating expenses................... 161,200 154,043 123,888 Agent commissions.......................... 223,797 187,901 82,713 Provision for claim losses................. 38,661 33,302 19,031 Interest expense........................... 9,401 9,446 9,239 -------- -------- -------- Total expenses................... $673,282 $596,360 $400,385 ======== ======== ========
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 20 23 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 $240.2 million, $211.7 million and $165.5 million for the years ended December 31, 1997, 1996 and 1995, respectively. See "Overview" and "Revenue." Personnel costs, as a percentage of total revenue, have decreased to 32.2% from 33.2% in 1996, which had previously decreased from 40.4% in 1995. 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, postage and courier services, computer services, professional services, advertising expenses, general insurance, trade and notes receivable allowances and depreciation. Other operating expenses decreased as a percentage of total revenue to 21.6% in 1997 from 24.2% in 1996, which had previously decreased from 30.2% in 1995. 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 $161.2 million, $154.0 million and $123.9 million in 1997, 1996 and 1995, 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, the impact of the continued implementation of the Company's proprietary title and escrow related technology on productivity and efficiency, as well as the changes in the direct operation and agency operation title premium mix and the effect of the newly acquired ancillary service companies on personnel and other operating expenses. Additionally, the sale of ATC has shifted certain costs from personnel and other operating expenses to commissions. 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. 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:
YEAR ENDED DECEMBER 31, ----------------------------------------------------------- 1997 1996 1995 ----------------- ----------------- ----------------- AMOUNT % AMOUNT % AMOUNT % -------- ----- -------- ----- -------- ----- (DOLLARS IN THOUSANDS) Agent premiums.................... $282,906 100.0% $238,717 100.0% $108,350 100.0% Agent commissions................. 223,797 79.1 187,901 78.7 82,713 76.3 -------- ----- -------- ----- -------- ----- Premiums retained by the Company.................... $ 59,109 20.9% $ 50,816 21.3% $ 25,637 23.7% ======== ===== ======== ===== ======== =====
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. During 1997, the Company sold a majority interest in its underwritten title company subsidiary ATC resulting in the transfer of premiums from direct operations to agency operations and increased commission expense in 1997 compared to 21 24 1996, as well as a decrease in premiums retained by the Company on a year over year basis. Commission rates paid to ATC are higher than average commission rates paid to the 1996 agent base. The 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 since the sale of ATC and by the Nations Title Inc. acquisition have resulted in higher overall commissions in 1997 and 1996. 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 1997, 1996 and 1995, 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 7.3%, 7.0% and 6.7% in 1997, 1996 and 1995, respectively. A summary of the reserve for claim losses follows:
YEAR ENDED DECEMBER 31, -------------------------------- 1997 1996 1995 -------- -------- -------- (DOLLARS IN THOUSANDS) Beginning balance.................................. $187,245 $146,094 $153,306 Reserves assumed from First Title Corp........... 284 -- -- Reserves relinquished due to the sale of American Title Company................................. (160) -- -- Reserves assumed from Nations Title Inc.......... -- 45,171 -- Title claim loss provision related to: Current year.................................. 36,404 32,505 23,901 Prior years................................... 2,257 797 (4,870) -------- -------- -------- Total title claim loss provision................. 38,661 33,302 19,031 Title claims paid, net of recoupments related to: Current year.................................. (2,376) (2,430) (2,818) Prior years................................... (32,907) (34,892) (23,425) -------- -------- -------- Total title claims paid, net of recoupments...... (35,283) (37,322) (26,243) -------- -------- -------- Ending balance..................................... $190,747 $187,245 $146,094 ======== ======== ======== Provision for title claim losses to title insurance premiums......................................... 7.3% 7.0% 6.7% Net claims paid ratio.............................. 6.6% 7.8% 9.2%
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 Liquid Yield Option Notes due 2009 ("LYONs") issued in February 1994. Interest expense on non-LYONs debt totalled $4.1 million, $4.2 million and $4.3 million for the years 1997, 1996 and 1995, respectively. The LYONs-related component of interest expense amounted to $5.3 million, $5.2 million and $4.9 million for 1997, 1996 and 1995, respectively. Interest expense was comparable over the three-year period 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. See "Extraordinary Item and Recent Developments." 22 25 Income tax expense for 1997, 1996 and 1995, as a percentage of earnings before income taxes, including the extraordinary losses in 1997 and 1995, was 43.6%, 40.0% and 16.9%, respectively. See "Extraordinary Item." The fluctuations in income tax expense as a percentage of earnings before income taxes, including the extraordinary item, are attributable to the effect of state income taxes on the Company's wholly-owned underwritten title companies and ancillary service companies; a change in the amount and characteristics of net income, operating income versus investment income; and the tax treatment of certain items. See Note H of Notes to Consolidated Financial Statements for additional information regarding income taxes. EXTRAORDINARY ITEM. In an effort to reduce the leverage of the Company while taking advantage of the favorable environment relative to the Company's common stock, on October 17, 1997, the Company, in a private transaction, purchased $45 million aggregate principal amount at maturity of its outstanding Liquid Yield Option Note due 2009 from Merrill Lynch, Pierce, Fenner & Smith Incorporated for an aggregate purchase price of $27.2 million (or $605 per $1,000 principal amount at maturity of LYONs), which exceeded the accreted value recorded by the Company pursuant to the LYONs Indenture at that date. The purchase price was paid in the form of 1,267,619 shares, $26.4 million, of the Company's common stock and $790,000 in cash. The purchase of the LYONs increased stockholders' equity by approximately $24.7 million while reducing outstanding debt by approximately $24.3 million. An extraordinary loss due to the early retirement of debt of approximately $1.7 million, net of applicable income taxes, related to this transaction has been recorded in the Consolidated Statement of Earnings for the year ended December 31, 1997. See "Recent Developments." 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, $813,000, net of applicable 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 the Insurance Subsidiaries is invested primarily in short-term investments and medium-term bonds. Short-term investments held by the Company's Insurance Subsidiaries provide liquidity for projected claims and operating expenses. The Insurance Subsidiaries are restricted by state regulations in their ability to pay dividends and make distributions. Each state of domicile regulates the extent to which the Company's title underwriters can pay dividends or make other distributions to the Company. The UTCs are also regulated by insurance regulatory or banking authorities. The Company's ancillary service subsidiaries collect revenue and pay operating expenses; however, they are not regulated by insurance regulatory or banking authorities. Positive cash flow from the UTCs and ancillary service subsidiaries is invested primarily in cash and cash equivalents. The short- and long-term liquidity requirements of the Company, Insurance Subsidiaries and UTCs are monitored regularly to match cash inflows with cash requirements. The Company, Insurance Subsidiaries, UTCs and ancillary service subsidiaries forecast their daily cash needs and periodically review their short- and 23 26 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, 1997, the fair value of the Company's total investment securities was approximately $326.3 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 was available for general corporate purposes. This credit facility was terminated and paid subsequent to year end with proceeds from a new credit facility containing terms more favorable to the Company. 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 "Recent Developments" and 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 Note J of Notes to Consolidated Financial Statements. RECENT ACCOUNTING PRONOUNCEMENTS. In March 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"), effective for fiscal years ending after December 15, 1997. SFAS 128 introduces and requires the presentation of "basic" earnings per share which represents net earnings divided by the weighted average shares outstanding excluding all common stock equivalents. Dual presentation of "diluted" earnings per share, reflecting the dilutive effects of all common stock equivalents, is also required. The diluted presentation is similar to the former presentation of fully diluted earnings per share. All quarterly and annual per share data have been restated to reflect the impact of SFAS 128. The adoption of SFAS 128 did not have a material impact on the Consolidated Financial Statements of the Company. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes standards for the reporting and display of comprehensive income and its components (revenue, expenses, gains and losses) in a full set of general- purpose financial statements. SFAS 130 requires all items that are necessary to be recognized under accounting standards as components of comprehensive income to be reported in a financial statement that is displayed with the same prominence as other financial statements. SFAS 130 does not require a specific format for that financial statement, but requires that an enterprise display an amount representing total comprehensive income for the period covered by that financial statement. SFAS 130 requires an enterprise to (a) classify items of other comprehensive income by their nature in a financial statement and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. SFAS 130 is effective for fiscal years beginning after December 15, 1997. The adoption of SFAS 130 will not have a material impact on the Company's financial reporting. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes standards for public business enterprises to report information about operating segments in annual financial statements 24 27 and requires that those enterprises report selected information about operating segments in interim financial reports issued to stockholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. This statement supersedes FASB Statement No. 14, "Financial Reporting for Segments of a Business Enterprise," but retains the requirement to report information about major customers. It amends FASB Statement No. 94, "Consolidation of All Majority-Owned Subsidiaries," to remove the special disclosure requirements for previously unconsolidated subsidiaries. SFAS 131 requires, among other items, that a public business enterprise report a measure of segment profit or loss, certain specific revenue and expense items, segment assets, information about the revenues derived from the enterprise's products or services and major customers. SFAS 131 also requires that the enterprise report descriptive information about the way that the operating segments were determined and the products and services provided by the operating segments. SFAS 131 is effective for financial statements for periods beginning after December 15, 1997. In the initial year of application, comparative information for earlier years is to be restated. SFAS 131 need not be applied to interim financial statements in the initial year of its application, but comparative information for interim periods in the initial year of application is to be reported in financial statements for interim periods in the second year of application. Management has not determined whether the adoption of SFAS 131 will have a material impact on the Company's financial reporting. RECENT DEVELOPMENTS 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 whollyowned subsidiaries Nations Title Insurance Company (which was merged into Fidelity Title as of December 29, 1997), Nations Title Insurance of New York Inc. and National Title Insurance of New York Inc. from Nations Holding Group for a purchase price of $19.3 million plus 212,960 shares, $2.1 million, of the Company's common stock, subject to certain adjustments. 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. During 1997, the Nations Title Inc. purchase price was reduced $749,000, pursuant to certain terms and conditions contained in the acquisition agreement. The purchase price adjustment resulted in Nations Holding Group returning 26,499 shares of common stock to the Company. The returned shares were subsequently cancelled. 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 Alliance"), a California corporation, for $566,667; together with a warrant to acquire an additional 14% of National Alliance common stock. In addition, the Company loaned $1,200,000 to National Alliance at closing at a rate of prime plus one percent. Subsequently, the Company agreed to increase the credit facility from $1,200,000 to $1,700,000. In consideration for the increase in the credit facility National Alliance agreed to increase the warrant shares which the Company could purchase. If the entire $1,700,000 was borrowed the Company could purchase an additional 34% of the outstanding shares of National Alliance. After receiving approval of the transaction from the California Department of Insurance, the transaction closed on July 12, 1996. National Alliance is the parent company of Alliance Home Warranty 25 28 Company ("Alliance"), a California insurance company. Alliance sells home warranty plans to buyers of resale homes, primarily in the Central and Southern California markets. A home warranty contract generally promises the repair or replacement of major operating systems and built-in appliances inside a home for a period of one year. On July 3, 1997, the Company converted the outstanding note balance in conjunction with the exercise of the warrants and now owns 51% of the outstanding common stock of National Alliance, subject to certain regulatory approvals. The outstanding balance of the notes receivable due from National Alliance at conversion was approximately $1.6 million. See Note B of Notes to Consolidated Financial Statements. 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 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 191,169 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. Effective July 1, 1997, the Company sold a majority interest (60%) of its subsidiary American Title Company ("ATC"), an underwritten title company, to certain members of ATC's management. ATC will function as an exclusive agent of the Company. The sale price of the 60% interest was $6.0 million resulting in a realized gain of approximately $1.3 million before applicable income taxes. On July 10, 1997, the Company sold its former home office building in Irvine, California for a purchase price of $16.2 million, resulting in a net realized gain of $4.3 million, before applicable income taxes. On July 22, 1997, the Company purchased 1,000,000 shares of common stock of GB Foods Corporation, which represents approximately 15.5% of the outstanding common stock of GB Foods Corporation, for a purchase price of $5.0 million. Additionally, the Company purchased warrants to acquire an additional 3,500,000 shares of GB Foods Corporation at various prices ranging from $5.00 -- $7.50 for a purchase price of $800,000, 1,500,000 warrants are exercisable at $5.00 per share, 1,000,000 warrants are exercisable at $7.00 per share and 1,000,000 warrants are exercisable at $7.50 per share. In conjunction with the common stock purchase, the Company gained control of three seats on the GB Foods Corporation Board of Directors. The purpose of the investment is consistent with the Company's strategic goal to diversify into noninterest rate sensitive businesses. The Company has announced that it expects to exercise 1,000,000 of the $5.00 warrants in conjunction with a previously announced GB Foods Corporation acquisition, in order to provide GB Foods Corporation additional capital. The GB Foods acquisition is expected to close during the second quarter of 1998. The Company's investment in GB Foods Corporation is accounted for under the equity method. On August 22, 1997, the Company acquired the common stock of First Title Corporation ("First Title"), a title company with fourteen offices throughout the southeastern United States. First Title has been merged into a subsidiary of the Company. First Title was acquired for $4.7 million; payable in 80% common stock of the Company (253,398 shares or $3.8 million) and 20% cash (approximately $900,000). This transaction has been accounted for as a purchase. See Note B of Notes to Consolidated Financial Statements. 26 29 On September 18, 1997, the Company acquired the common stock of Ifland Credit Services ("ICS"), a credit reporting company headquartered in Lexington, Kentucky, for a purchase price of $3.75 million. ICS has been merged with Credit Reports, Inc. The purchase price was payable 80% in common stock of the Company (170,155 shares or $3.0 million) and 20% cash ($750,000). This transaction has been accounted for as a purchase. See Note B of Notes to Consolidated Financial Statements. Effective as of October 1, 1997, the Company acquired Bron Research, Inc. ("BRON"), a flood certification company headquartered in Austin, Texas. The purchase price paid by the Company for the acquisition was $9.85 million, paid in 523,272 shares of Company common stock. BRON now operates as Fidelity National Flood, Inc. This transaction has been accounted for as a pooling-of-interests. See Note B of Notes to Consolidated Financial Statements. On October 9, 1997, the Company acquired the common stock of Credit Reports, Inc. ("CRI"), a credit reporting company headquartered in Scottsdale, Arizona, with operations in California, Colorado, Nevada and Oregon. CRI has been merged with ICS. The purchase price for CRI was $200,000, subject to certain purchase price adjustments based on the combined equity of CRI and Express Network, Inc., its affiliate, payable in 11,455 shares of Company common stock. This transaction has been accounted for as a purchase. See Note B of Notes to Consolidated Financial Statements. Also on October 9, 1997, the Company acquired the common stock of Express Network, Inc. ("ENI"), a provider of attorney services such as courier, messenger, courthouse filing, process serving, investigation and reprographics. ENI provides services to legal firms in Los Angeles, Orange County, San Diego, Riverside and San Francisco, California. The purchase price for ENI was $10.55 million; subject to certain purchase price adjustments based on the combined equity of ENI and CRI, its affiliate, payable in 50% common stock of the Company (302,158 shares or $5.275 million) and 50% cash (approximately $5.275 million). Approximately $2.8 million of the cash portion of the purchase price will be paid in equal installments over a four-year period. This transaction has been accounted for as a purchase. See Note B of Notes to Consolidated Financial Statements. On October 17, 1997, the Company in a private transaction, purchased $45 million aggregate principal amount at maturity of its outstanding Liquid Yield Option Notes due 2009 from Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") for an aggregate purchase price of $27.2 million (or $605 per $1,000 principal amount at maturity of LYONs). The purchase price was paid in the form of 1,267,619 shares, $26.4 million, of the Company's common stock (the "Exchange Shares"). The Company also paid Merrill Lynch, the excess of a base price of $21.48 per Exchange Share over the actual sales price (less $0.05 per share in commissions) realized by Merrill Lynch for sales of up to 552,619 Exchange Shares. The Company also paid Merrill Lynch, for each day, an amount in cash to be determined by multiplying the Net Carry Amount (number of Exchange Shares multiplied by $21.48) by the Applicable Rate (LIBOR plus 2.50%). The Company's payment obligations were subject to reduction for dividends on Exchange Shares received by Merrill Lynch during the period. The Company paid the foregoing amounts to Merrill Lynch in cash of approximately $790,000 on November 7, 1997. The purchase of the LYONs increased stockholders' equity by approximately $24.7 million while reducing outstanding debt by approximately $24.3 million. Additionally, an extraordinary loss due to the early retirement of debt of approximately $1.7 million, net of applicable income taxes, was recorded in the fourth quarter of 1997. The maturity value of LYONs outstanding at December 31, 1997 is approximately $140.6 million. On October 21, 1997, the Company acquired 100% of the common stock of Classified Credit Data, Inc. ("CCD") a credit reporting company headquartered in Orange County, California, for a purchase price of $300,000 which was paid in cash. CCD was merged with ICS and CRI in order to form Fidelity National Credit Services. This transaction has been accounted for as a purchase. Effective October 23, 1997, the Company sold its small business investment company subsidiary FNF Ventures, Inc., to certain members of FNF Ventures, Inc.'s management. The sale price was $2.8 million, resulting in a realized gain of approximately $800,000, before applicable income taxes. 27 30 On November 17, 1997, Fidelity National Financial, Inc. signed an Agreement and Plan of Merger ("Merger Agreement") to merge a newly-formed subsidiary of the Company into Granite Financial, Inc. ("Granite"). Granite, located in Golden, Colorado, is a rapidly expanding speciality finance company engaged in the business of originating, funding, purchasing, selling, securitizing and servicing equipment leases for a broad range of businesses located throughout the United States. Granite is a prominent consolidator in the $48 billion small-ticket lease finance market with the acquisitions of Global Finance & Leasing in March, 1997; SFR Funding, Inc., in June, 1997; and North Pacific Funding, Inc. (dba C&W Leasing), a privately held corporation based in Seattle, Washington, and its wholly-owned subsidiary, in December, 1997. Under the original terms of the definitive agreement (as adjusted for the Company's recent 10% stock dividend), each share of Granite common stock would be converted into the right to receive .771 shares of Company common stock without interest, together with cash in lieu of any fractional share. The exchange ratio was collared between $20.75 and $25.94. The adjustment factor was designed to insure that the average market value of the shares of Company common stock to be issued to the stockholders of Granite is neither less than $16.00 nor more than $20.00 per share of Granite common stock. The market value was determined based on the average closing price of Company common stock during the 20 day trading period ending on the third business day prior to the date of the shareholder meetings to be held to approve the transaction. Below $20.75 Fidelity could make up the difference in additional shares of its common stock at its option and above $25.94 Granite shareholders would have the exchange ratio reduced pro rata. Such average closing price was determined to be $28.48, resulting in an adjusted exchange ratio of .702 shares of Company common stock for each share of Granite common stock. The merger will be treated as a reorganization pursuant to Section 368(a)(1) of the Internal Revenue Code of 1986, as amended, and be accounted for as a "pooling-of-interests" for accounting purposes. The shareholders of Granite approved the merger, and the Company shareholders approved the issuance of shares in connection with the merger, at special shareholders' meetings on Tuesday, February 24, 1998. The merger was completed Thursday, February 26, 1998. Under the terms of the definitive agreement, shareholders of Granite Financial, Inc. common stock receive .702 shares of Fidelity National Financial, Inc. common stock for each share of Granite Financial, Inc. common stock, with fractional shares to be paid in cash, resulting in the issuance of approximately 4.4 million shares of Fidelity National Financial, Inc. common stock. Fidelity National Financial, Inc. common stock, as reported by the New York Stock Exchange, closed at $28.69 on February 26, 1998. The Company believes that the acquisition of Granite Financial, Inc. complements its core title operations and is a significant step in realizing its previously stated goal of positioning the Company as a diversified financial services company. See Note O of Notes to Consolidated Financial Statements. On March 18, 1998, the Company announced that it had entered into an agreement to sell National Title Insurance of New York Inc. to American Title Company, subject to regulatory approval and certain other conditions. The purchase price is structured at a premium to book value. National was acquired in April 1996, as part of the Nations Title Inc. acquisition and has not been actively underwriting policies since the transaction closed. American Title Company is an underwritten title company which was formerly a wholly-owned subsidiary of the Company. Effective July 1, 1997, 60% of ATC was sold to certain members of ATC management. The Company will continue to own 40% of ATC, and ultimately National, following the transaction. See Note O of Notes to Consolidated Financial Statements. On March 19, 1998, the Company's Board of Directors declared a cash dividend of $.07 per share which will be payable on May 1, 1998, to stockholders of record on April 10, 1998. On March 25, 1998, the Company closed a new credit facility, the proceeds of which were used to terminate and pay the Company's credit agreement dated as of September 21, 1995. Additional amounts available under the new credit facility are available for general corporate purposes. See Notes G and O of Consolidated Financial Statements. Also, on March 25, 1998, the Company announced that it had executed an agreement to merge Matrix Capital Corporation ("Matrix") with a newly-formed subsidiary of the Company. The merger is subject to due diligence, regulatory approvals and other customary conditions, and requires approval of the merger by the 28 31 shareholders of Matrix and approval of the issuance of Company common stock in connection with the merger by the shareholders of the Company. Matrix, through its subsidiaries, focuses on mortgage merchant banking by purchasing and selling residential mortgage loans and servicing rights; offering brokerage, consulting, and analytical services to other financial services companies and financial institutions; originating and servicing residential mortgage portfolios and providing real estate management and disposition services. Matrix also provides trust administration and broker-dealer services. Matrix is structured to provide these services through a combination of a mortgage banking firm, a mortgage servicing brokerage and consulting firm, a federally chartered banking institution, a real estate and disposition firm, a trust company and a broker-dealer. Under the terms of the definitive agreement, each share of Matrix stock will be converted into the right to receive .80 shares of Company common stock without interest, together with cash in lieu of any fractional share. The exchange ratio has been collared between $28.75 and $35.00 per Company share. The market value is to be determined based on the average closing price of Company stock during the 20 day trading period ending on the third business day immediately prior to the last of the stockholders' meetings held to approve the transaction (the "Average Stock Price"). Below $28.75 the Company may make up the difference in additional shares at its option and above $35.00 the exchange ratio would be adjusted to a number equal to $28.00 plus fifty percent of the amount by which the Average Stock Price exceeds $35.00 divided by the Average Stock Price. It is intended that the merger be treated as a reorganization pursuant to Section 368(a)(1) of the Internal Revenue Code and be accounted for as a "pooling-of-interests." See Note O of Notes to Consolidated Financial Statements. SEASONALITY. Historically, the greatest volume of residential resale activity has occurred in the spring and summer months. However, events during the past five years, including numerous actions taken by the Federal Reserve Board, have caused unusual fluctuations in real estate activity, particularly in the seasonal pattern of 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. 29 32 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES INDEX TO FINANCIAL INFORMATION
PAGE NO. -------- Independent Auditors' Report................................ 31 Consolidated Balance Sheets as of December 31, 1997 and 1996...................................................... 32 Consolidated Statements of Earnings for the years ended December 31, 1997, 1996 and 1995.......................... 33 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1997, 1996 and 1995.............. 34 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995.......................... 35 Notes to Consolidated Financial Statements.................. 36
30 33 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, 1997 and 1996 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, 1997. 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, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1997 in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Los Angeles, California February 16, 1998, except as to Note O of the Consolidated Financial Statements, which is as of March 25, 1998 31 34 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, -------------------- 1997 1996 -------- -------- ASSETS Investments: Fixed maturities available for sale, at fair value........ $217,001 166,329 Equity securities, at fair value.......................... 70,418 42,338 Other long-term investments, at cost, which approximates fair value............................................. 15,864 6,782 Short-term investments, at cost, which approximates fair value.................................................. 17,793 873 Investments in real estate and partnerships, net.......... 5,201 11,352 -------- -------- Total investments................................. 326,277 227,674 Cash and cash equivalents (including certificates of deposit of $5,219 in 1997 and $4,057 in 1996)..................... 54,005 63,971 Trade receivables (less allowance of $5,153 in 1997 and $6,822 in 1996)........................................... 52,650 54,355 Notes receivable, net (including $1,366 in 1997 and $1,996 in 1996 with affiliated parties).......................... 8,898 11,317 Prepaid expenses and other assets........................... 70,213 55,072 Title plants................................................ 51,756 50,701 Property and equipment, net................................. 36,760 38,617 Income taxes receivable..................................... -- 7,589 -------- -------- $600,559 $509,296 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable and accrued liabilities.................. $ 63,312 $ 53,987 Notes payable............................................. 123,023 148,922 Reserve for claim losses.................................. 190,747 187,245 Deferred income taxes..................................... 13,422 7,604 Income taxes payable...................................... 10,122 -- -------- -------- 400,626 397,758 Minority interest......................................... 3,614 1,287 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 1997 and 1996; issued, 24,055,755 in 1997 and 21,353,963 in 1996..................................... 2 2 Additional paid-in capital................................ 101,735 61,271 Retained earnings......................................... 126,535 91,019 -------- -------- 228,272 152,292 Net unrealized gains on investments....................... 22,422 12,334 Less treasury stock, 6,041,352 shares in 1997 and 1996, at cost................................................... 54,375 54,375 -------- -------- 196,319 110,251 Commitments and contingencies............................. Subsequent events......................................... -------- -------- $600,559 $509,296 ======== ========
See Notes to Consolidated Financial Statements. 32 35 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, -------------------------------- 1997 1996 1995 -------- -------- -------- REVENUE: Title insurance premiums................................. $533,220 $475,961 $285,552 Escrow fees.............................................. 81,241 66,927 49,723 Other fees and revenue................................... 98,695 76,333 56,954 Interest and investment income, including realized gains (losses).............................................. 33,556 17,692 17,616 -------- -------- -------- 746,712 636,913 409,845 -------- -------- -------- EXPENSES: Personnel costs.......................................... 240,223 211,668 165,514 Other operating expenses................................. 161,200 154,043 123,888 Agent commissions........................................ 223,797 187,901 82,713 Provision for claim losses............................... 38,661 33,302 19,031 Interest expense......................................... 9,401 9,446 9,239 -------- -------- -------- 673,282 596,360 400,385 -------- -------- -------- Earnings before income taxes and extraordinary item...... 73,430 40,553 9,460 Income tax expense....................................... 31,959 16,216 1,828 -------- -------- -------- Earnings before extraordinary item.................... 41,471 24,337 7,632 Extraordinary item -- loss on early retirement of debt, net of applicable income tax benefit of $1,180 in 1997 and $437 in 1995...................................... (1,700) -- (813) -------- -------- -------- Net earnings.......................................... $ 39,771 $ 24,337 $ 6,819 ======== ======== ======== Basic net earnings....................................... $ 39,771 $ 24,337 $ 6,819 ======== ======== ======== Basic earnings per share before extraordinary item....... $ 2.61 $ 1.62 $ .50 Extraordinary item -- loss on early retirement of debt, net of applicable income tax benefit, basic basis..... (.11) -- (.05) -------- -------- -------- Basic net earnings per share............................. $ 2.50 $ 1.62 $ .45 ======== ======== ======== Weighted average shares outstanding, basic basis......... 15,911 15,037 15,131 ======== ======== ======== Diluted net earnings..................................... $ 42,913 $ 27,533 $ 6,819 ======== ======== ======== Diluted net earnings per share before extraordinary item.................................................. $ 2.08 $ 1.34 $ .49 Extraordinary item -- loss on early retirement of debt net of applicable income tax benefit, diluted basis... (.08) -- (.05) -------- -------- -------- Diluted net earnings per share........................... $ 2.00 $ 1.34 $ .44 ======== ======== ======== Weighted average shares, diluted basis................... 21,483 20,484 15,694 ======== ======== ========
See Notes to Consolidated Financial Statements. 33 36 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, 1994............. 20,845 $2 $ 56,659 $ 66,668 $(8,914) 4,396 $(40,461) Exercise of stock options............ 204 -- 1,439 -- -- -- -- Net unrealized gains on investments....................... -- -- -- -- 14,780 -- -- Purchase of treasury stock........... -- -- -- -- -- 1,859 (15,831) ACS Systems, Inc. purchase price adjustment........................ 53 -- -- -- -- -- -- Cash dividends ($.22 per share)...... -- -- -- (3,214) -- -- -- Net earnings......................... -- -- -- 6,819 -- -- -- ------ ---- -------- -------- ------- ----- -------- Balance, December 31, 1995............. 21,102 2 58,098 70,273 5,866 6,255 (56,292) ------ ---- -------- -------- ------- ----- -------- Exercise of stock options............ 61 -- 440 -- -- -- -- Net unrealized gains on investments....................... -- -- -- -- 6,468 -- -- Acquisitions......................... 191 -- 2,733 -- -- (214) 1,917 Cash dividends ($.24 per share)...... -- -- -- (3,591) -- -- -- Net earnings......................... -- -- -- 24,337 -- -- -- ------ ---- -------- -------- ------- ----- -------- Balance, December 31, 1996............. 21,354 2 61,271 91,019 12,334 6,041 (54,375) ------ ---- -------- -------- ------- ----- -------- Exercise of stock options............ 145 -- 1,412 -- -- -- -- Net unrealized gains on investments....................... -- -- -- -- 10,088 -- -- Acquisitions......................... 1,260 -- 12,450 -- -- -- -- LYONs retirement and conversion...... 1,323 -- 27,351 -- -- -- -- Nations Title Inc. purchase price adjustment........................ (26) -- (749) -- -- -- -- Cash dividends ($.26 per share)...... -- -- -- (4,255) -- -- -- Net earnings......................... -- -- -- 39,771 -- -- -- ------ ---- -------- -------- ------- ----- -------- Balance, December 31, 1997............. 24,056 $2 $101,735 $126,535 $22,422 6,041 $(54,375) ====== ==== ======== ======== ======= ===== ========
See Notes to Consolidated Financial Statements. 34 37 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ----------------------------------- 1997 1996 1995 --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings.............................................. $ 39,771 $ 24,337 $ 6,819 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Extraordinary item: Loss on early retirement of LYONs... 2,090 -- -- Depreciation and amortization........................... 14,123 12,814 13,410 Net increase (decrease) in reserve for claim losses..... 3,382 (4,020) (7,212) Amortization of LYONs original issue discount and other debt issuance costs.................................. 5,939 5,295 4,916 Provision for losses on real estate and notes receivable........................................... 600 775 783 Equity in (gains) losses of unconsolidated partnerships......................................... (488) 520 (72) Gain on sales of investments............................ (10,534) (3,713) (5,023) (Gain) loss on sale of real estate and other assets..... (6,454) 1,088 (190) Changes in assets and liabilities, net of effects from acquisitions: Net (increase) decrease in trade receivables............ 2,757 (7,030) (11,306) Net increase in prepaid expenses and other assets....... (1,664) (5,434) (6,268) Net increase (decrease) in accounts payable and accrued liabilities.......................................... 6,422 (509) (4,797) Net increase in income taxes............................ 16,793 3,417 7,673 --------- --------- --------- Net cash provided by (used in) operating activities....................................... 72,737 27,540 (1,267) --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from investment securities: Held to maturity (principally maturities of securities).......................................... -- -- 2,310 Available for sale...................................... 272,766 182,512 214,524 Proceeds from sales of other assets....................... 15,756 3,700 3,442 Proceeds from sales of real estate........................ 6,407 917 -- Collections of notes receivable........................... 4,142 14,645 3,035 Additions to title plants................................. (830) (1,011) (1,719) Additions to property and equipment....................... (19,680) (14,085) (9,655) Additions to notes receivable............................. (3,415) (8,470) (5,980) Purchases of investment securities: Held to maturity........................................ -- -- (1,941) Available for sale...................................... (350,503) (183,788) (151,305) Investments in real estate and partnerships............... (1,048) -- (100) Sale of subsidiary, net of cash........................... 5,934 -- -- Acquisitions of businesses, net of cash acquired.......... (7,055) (10,138) (11,363) --------- --------- --------- Net cash provided by (used in) investing activities....................................... (77,526) (15,718) 41,248 --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings................................................ 11,226 22,904 48,285 Debt service payments..................................... (14,626) (17,066) (59,150) Extraordinary items: Early retirement of LYONs............................... 790 -- -- Early retirement of debt................................ -- -- 1,250 Dividends paid............................................ (3,979) (3,477) (3,232) Exercise of stock options................................. 1,412 440 1,439 Issuance (purchase) of treasury stock, net................ -- 1,917 (15,831) --------- --------- --------- Net cash provided by (used in) financing activities....................................... (5,177) 4,718 (27,239) --------- --------- --------- Net increase (decrease) in cash and cash equivalents...... (9,966) 16,540 12,742 Cash and cash equivalents at beginning of year............ 63,971 47,431 34,689 --------- --------- --------- Cash and cash equivalents at end of year.................. $ 54,005 $ 63,971 $ 47,431 ========= ========= =========
See Notes to Consolidated Financial Statements. 35 38 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 (collectively, the "Company"), is 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, credit reporting, attorney services, flood certification, tax monitoring, reconveyance fees, recording fees, 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. 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 Tennessee ("Fidelity Tennessee"), and was the parent company of Fidelity National Title Insurance Company of California ("Fidelity California"), which was merged into Fidelity Title as of August 7, 1997, and was the parent company of Nations Title Insurance Company ("Nations Title"), which was merged into Fidelity Title as of December 29, 1997; 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"); Fidelity National Title Insurance Company of Pennsylvania ("Fidelity Pennsylvania"), which was merged into Fidelity New York as of April 11, 1997, which in turn, was the parent company of American Title Insurance Company ("ATIC"), which was merged into Fidelity Pennsylvania as of November 21, 1996; (collectively, the "Insurance Subsidiaries"); its wholly-owned underwritten title companies (collectively, the "UTCs"); and its network of wholly-owned title-related ancillary service companies known as Fidelity's Lender Express Network ("FLEXNet"). Nations Title Insurance Company, Nations Title Insurance of New York Inc. and National Title Insurance of New York Inc. were acquired, along with Nations Title Inc. ("NTI," collectively, "Nations Title Inc.") in a transaction which closed on April 1, 1996. Certain of the ancillary service companies were acquired in separate transactions during 1997. See Note B. On November 17, 1997, Fidelity National Financial, Inc. signed an Agreement and Plan of Merger ("Merger Agreement") to merge a newly-formed subsidiary of the Company into Granite Financial, Inc. ("Granite"). Granite, located in Golden, Colorado, is a rapidly expanding speciality finance company engaged in the business of originating, funding, purchasing, selling, securitizing and servicing equipment leases for a broad range of businesses located throughout the United States. This transaction closed on February 26, 1998. See Note 0. 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. 36 39 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Cash and cash equivalents For purposes of reporting cash flows, highly liquid instruments purchased with original maturities of three months or less are considered cash equivalents. The carrying amounts reported in the Consolidated Balance Sheets for these instruments approximate their fair value. Investments Fixed maturity securities are purchased to support the investment strategies of the Company, which are developed based on many factors including rate of return, maturity, credit risk, tax considerations and regulatory requirements. Fixed maturity securities which may be sold prior to maturity to support the Company's investment strategies are carried at fair value and are classified as available for sale as of the balance sheet dates. Fair values for fixed maturity securities are principally a function of current interest rates and are based on quoted market prices. Equity securities are considered to be available for sale and carried at fair value as of the balance sheet dates. Fair values are based on quoted market prices. Other long-term investments, which consist of a limited partnership investment in an investment fund, as well as certain other debt instruments and equity investments, are carried at cost, 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 and G. 37 40 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Title plants Title plants are recorded at the cost incurred to construct or obtain and organize historical title information to the point it can be used to perform title searches. Costs incurred to maintain, update and operate title plants are expensed as incurred. Title plants are not amortized as they are considered to have an indefinite life if maintained. Sales of title plants are reported at the amount received net of the adjusted costs of the title plant sold. Sales of title plant copies are reported at the amount received. No cost is allocated to the sale of copies of title plants unless the value of the title plant is diminished. Property and equipment Property and equipment are recorded at cost, less depreciation. Depreciation is computed primarily using the straight-line method based on the estimated useful lives of the related assets which range from three to thirty years. Leasehold improvements are amortized on a straight-line basis over the lesser of the term of the applicable lease or the estimated useful lives of such assets. 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 three to forty years. Intangible assets at December 31, 1997 consist of cost in excess of net assets acquired of $28,977,000 less accumulated amortization of $2,394,000, capitalized licensing costs of $2,500,000 less accumulated amortization of $159,000, capitalized software of $12,326,000 less accumulated amortization of $4,636,000 and capitalized debt offering costs of $4,163,000 less accumulated amortization of $2,008,000. At December 31, 1996, intangible assets 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. 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 38 41 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) amounts greater than $500,000 are reserved for as they become known because the unique circumstances surrounding most major claims make it inherently impractical to predict the incidence and amount of such claims. The occurrence of a significant major claim in any given period could have a material adverse effect on the Company's financial condition and results of operations for such period. Escrow losses are expensed when they become known and are included in other operating expenses. See Note I. If a loss is related to a policy issued by an independent agent, the Company may proceed against the independent agent pursuant to the terms of the agency agreement. In any event, the Company may proceed against third parties who are responsible for any loss under the title insurance policy under rights of subrogation. Reinsurance In the ordinary course of business, the Company reinsures certain risks with other insurers for the purpose of limiting its maximum loss exposure and also assumes reinsurance for certain risks of other insurers for the purpose of earning additional revenue. The Company cedes or assumes a portion of certain policy liabilities under agent fidelity, excess of loss and case-by-case reinsurance agreements. Reinsurance agreements provide that in the event of a loss (including costs, attorneys' fees and expenses) exceeding the retained amounts, the reinsurer is liable for the excess amount assumed. However, the ceding company remains primarily liable in the event the reinsurer does not meet its contractual obligations. Reinsurance activity is not considered significant. Title, escrow, other fees and revenue and agent commissions Title insurance premiums, escrow fees and other fees and revenue are recognized as revenue at the time of closing of the related real estate transaction. Title insurance commissions earned by the Company's agents are recognized as an expense concurrently with premium recognition. 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. 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. On December 17, 1997, the Company declared a 10% stock dividend, to shareholders of record on December 29, 1997, distributed January 14, 1998. 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, 1997. 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 Basic earnings per share is computed by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding during the period. Dilutive earnings per share is 39 42 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) calculated by dividing net earnings available to common shareholders plus the impact of assumed conversions by dilutive potential securities. The Company has granted certain options and warrants which have been treated as common share equivalents for purposes of calculating diluted earnings per share. The Liquid Yield Option Notes ("LYONs") are considered other dilutive securities for purposes of calculating diluted earnings per share to the extent that they are not antidilutive. In March 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"), effective for fiscal years ending after December 15, 1997. SFAS 128 introduces and requires the presentation of "basic" earnings per share which represents net earnings divided by the weighted average shares outstanding excluding all common stock equivalents. Dual presentation of "diluted" earnings per share, reflecting the dilutive effects of all common stock equivalents, is also required. The diluted presentation is similar to the former presentation of fully diluted earnings per share. All quarterly and annual per share data have been restated to reflect the impact of SFAS 128. The adoption of SFAS 128 did not have a material impact on the Consolidated Financial Statements of the Company. The following table sets forth the calculation of basic and diluted earnings per share for each of the years in the three-year period ended December 31, 1997:
YEAR ENDED DECEMBER 31, ------------------------------------- 1997 1996 1995 ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Basic earnings per share calculation Earnings before extraordinary loss........................ $41,471 $24,337 $ 7,632 Extraordinary loss, net of applicable income tax benefit of $1,180 in 1997 and $437 in 1995..................... (1,700) -- (813) ------- ------- ------- Net earnings.............................................. $39,771 $24,337 $ 6,819 ======= ======= ======= Weighted average shares........................... 15,911 15,037 15,131 ======= ======= ======= Basic earnings per share Earnings before extraordinary loss........................ 2.61 1.62 0.50 Extraordinary loss........................................ (0.11) -- (0.05) ------- ------- ------- Net earnings.............................................. $ 2.50 $ 1.62 $ 0.45 ======= ======= =======
40 43 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED DECEMBER 31, ------------------------------------- 1997 1996 1995 ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Diluted earnings per share calculation Earnings before extraordinary loss........................ $41,471 $24,337 $ 7,632 Plus: Impact of assumed conversion of LYONs............... 3,142 3,196 --(1) ------- ------- ------- Earnings before extraordinary loss plus assumed conversion............................................. 44,613 27,533 7,632 Extraordinary loss, net of applicable income tax benefit of $1,180 in 1997 and $437 in 1995..................... (1,700) -- (813) ------- ------- ------- Net earnings plus assumed conversions..................... $42,913 $27,533 $ 6,819 ======= ======= ======= Weighted average shares................................... 15,911 15,037 15,131 Plus: Incremental shares from assumed conversions LYONs................................................ 4,553 4,793 --(1) Options.............................................. 1,019 654 563 ------- ------- ------- Dilutive potential shares................................. 21,483 20,484 15,694 ======= ======= ======= Diluted earnings per share Earnings before extraordinary loss plus assumed conversions............................................ $ 2.08 $ 1.34 $ 0.49 Extraordinary loss........................................ (0.08) -- (0.05) ------- ------- ------- Net earnings.............................................. $ 2.00 $ 1.34 $ 0.44 ======= ======= =======
- --------------- (1) As the conversion of the Liquid Yield Option Notes ("LYONs") have an antidilutive effect in 1995, the assumed conversion is not considered in the Diluted Earnings Per Share Calculation. Assumed conversion of the LYONs would result in additional net earnings of $3,245,000 and 4,793,000 additional dilutive potential shares. 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 1996 and 1995 Consolidated Financial Statements to conform to the classifications used in 1997. B. ACQUISITIONS On April 1, 1996, the Company completed its acquisition of Nations Title Inc. from Nations Holding Group for a purchase price of $19.3 million plus 212,960 shares, $2.1 million, of the Company's common stock, subject to certain adjustments. This transaction has been accounted for as a purchase. During 1997, the Nations Title Inc. purchase price was reduced $749,000, pursuant to certain terms and conditions contained in the acquisition agreement. The purchase price adjustment resulted in Nations Holding Group returning 26,499 shares of common stock to the Company. The returned shares were subsequently cancelled. 41 44 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 April 4, 1996, the Company purchased 17% of the outstanding common stock of National Alliance Marketing Group, Inc. ("National Alliance"), a California corporation, for $566,667; together with a warrant to acquire an additional 14% of National Alliance common stock. In addition, the Company loaned $1,200,000 to National Alliance at closing at a rate of prime plus one percent. Subsequently, the Company agreed to increase the credit facility from $1,200,000 to $1,700,000. In consideration for the increase in the credit facility National Alliance agreed to increase the warrant shares which the Company could purchase. If the entire $1,700,000 was borrowed, the Company could purchase an additional 34% of the outstanding shares of National Alliance. After receiving approval of the transaction from the California Department of Insurance, the transaction closed on July 12, 1996. National Alliance is the parent company of Alliance Home Warranty Company ("Alliance"), a California insurance company. Alliance sells home warranty plans to buyers of resale homes, primarily in the Central and Southern California markets. A home warranty contract generally promises the repair or replacement of major operating systems and built-in appliances inside a home for a period of one year. On July 3, 1997, the Company converted the outstanding note balance in conjunction with the exercise of the warrants and now owns 51% of the outstanding common stock of National Alliance, subject to certain regulatory approvals. The outstanding balance of the notes receivable due from National Alliance at conversion was approximately $1.6 million. The assets acquired, including cost in excess of net assets acquired, and liabilities assumed in the National Alliance acquisition were as follows (dollars in thousands): Tangible assets acquired at fair value..................... $ 3,200 Cost in excess of net assets acquired...................... 3,150 Liabilities assumed at fair value.......................... (1,809) Minority interest.......................................... (2,224) ------- Total purchase price............................. $ 2,317 =======
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 191,169 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........................... (263) Minority interest........................................... (880) ------ Total purchase price.............................. $3,520 ======
42 45 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) On August 22, 1997, the Company acquired the common stock of First Title Corporation ("First Title"), a title company with fourteen offices throughout the southeastern United States. First Title has been merged into a subsidiary of the Company. First Title was acquired for $4.7 million; payable in 80% common stock of the Company (253,398 shares or $3.8 million) and 20% cash (approximately $900,000). This transaction has been accounted for as a purchase. The assets acquired, including cost in excess of net assets acquired, and liabilities assumed in the First Title Corporation acquisition were as follows (dollars in thousands): Tangible assets acquired at fair value...................... $1,294 Cost in excess of net assets acquired....................... 4,033 Liabilities assumed at fair value........................... (627) ------ Total purchase price.............................. $4,700 ======
On September 18, 1997, the Company acquired the common stock of Ifland Credit Services ("ICS"), a credit reporting company headquartered in Lexington, Kentucky, for a purchase price of $3.75 million. ICS has been merged with Credit Reports, Inc. ("CRI") and Classified Credit Data, Inc. ("CCD") in order to form Fidelity National Credit Services. The purchase price was payable 80% in common stock of the Company (170,155 shares or $3.0 million) and 20% cash ($750,000). This transaction has been accounted for as a purchase. The assets acquired, including cost in excess of net assets acquired, and liabilities assumed in the Ifland Credit Services acquisition were as follows (dollars in thousands): Tangible assets acquired at fair value...................... $ 618 Cost in excess of net assets acquired....................... 3,517 Liabilities assumed at fair value........................... (385) ------ Total purchase price.............................. $3,750 ======
Effective as of October 1, 1997, the Company acquired Bron Research, Inc. ("BRON"), a flood certification company headquartered in Austin, Texas. The purchase price paid by the Company for the acquisition was $9.85 million, paid in 523,272 shares of Company common stock. BRON now operates as Fidelity National Flood, Inc. This transaction has been accounted for as a pooling-of-interests. BRON's financial position and results of operations as of and for the year ended December 31, 1997 are included in the Consolidated Financial Statements. Prior to 1997, BRON's financial position and results of operations were insignificant, and as such, the Consolidated Financial Statements have not been restated. On October 9, 1997, the Company acquired the common stock of Credit Reports, Inc. a credit reporting company headquartered in Scottsdale, Arizona, with operations in California, Colorado, Nevada and Oregon. CRI has been merged with ICS and CCD in order to form Fidelity National Credit Services. The purchase price for CRI was $200,000, subject to certain purchase price adjustments based on the combined equity of CRI and Express Network, Inc., its affiliate, payable in 11,455 shares of Company common stock. This transaction has been accounted for as a purchase. The assets acquired, including cost in excess of net assets acquired, and liabilities assumed in the Credit Reports, Inc. acquisition were as follows (dollars in thousands): Tangible assets acquired at fair value...................... $2,559 Cost in excess of net assets acquired....................... 139 Liabilities assumed at fair value........................... (2,498) ------ Total purchase price.............................. $ 200 ======
43 46 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Also on October 9, 1997, the Company acquired the common stock of Express Network, Inc. ("ENI"), a provider of attorney services such as courier, messenger, courthouse filing, process serving, investigation and reprographics. ENI provides services to legal firms in Los Angeles, Orange County, San Diego, Riverside and San Francisco, California. The purchase price for ENI was $10.55 million; subject to certain purchase price adjustments based on the combined equity of ENI and CRI, its affiliate, payable in 50% common stock of the Company (302,158 shares or $5.275 million) and 50% cash (approximately $5.275 million). Approximately $2.8 million of the cash portion of the purchase price will be paid in equal installments over a four-year period. This transaction has been accounted for as a purchase. The assets acquired, including cost in excess of net assets acquired, and liabilities assumed in the Express Network, Inc. acquisition were as follows (dollars in thousands): Tangible assets acquired at fair value..................... $ 3,018 Cost in excess of net assets acquired...................... 9,640 Liabilities assumed at fair value.......................... (2,108) ------- Total purchase price............................. $10,550 =======
On October 21, 1997, the Company acquired 100% of the common stock of Classified Credit Data, Inc., a credit reporting company headquartered in Orange County, California, for a purchase price of $300,000, which was paid in cash. CCD was merged with ICS and CRI in order to form Fidelity National Credit Services. This transaction has been accounted for as a purchase. The assets acquired, including cost in excess of net assets acquired, and liabilities assumed in the Classified Credit Data acquisition were as follows (dollars in thousands): Tangible assets acquired at fair value...................... $385 Cost in excess of net assets acquired....................... 386 Liabilities assumed at fair value........................... (471) ---- Total purchase price.............................. $300 ====
Selected unaudited pro forma combined results of operations for the years ended December 31, 1997, 1996 and 1995, assuming the Nations Title Inc. and Fidelity National Tax acquisitions occurred on January 1, 1997, 1996 and 1995, and assuming the National Alliance, First Title, ICS, CRI, ENI and CCD acquisitions occurred on January 1, 1997 and 1996, are presented as follows:
YEAR ENDED DECEMBER 31, ----------------------------------------- 1997 1996 1995 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Total revenue.............................. $776,109 $720,118 $588,759 Basic earnings before extraordinary item... 42,294 22,001 7,395 Basic net earnings......................... 40,594 22,001 6,582 Basic earnings per share................... $ 2.47 $ 1.39 $ .42 Diluted earnings before extraordinary item..................................... $ 45,436 $ 25,197 $ 7,395 Diluted net earnings....................... 43,736 25,197 6,582 Diluted earnings per share................. $ 1.99 $ 1.19 $ .41
44 47 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, 1997 and 1996 are as follows:
DECEMBER 31, 1997 --------------------------------------------------------- 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......... $ 36,869 $ 36,537 $ 373 $ (41) $ 36,869 States and political subdivisions.... 122,164 119,626 2,545 (7) 122,164 Corporate securities................. 52,810 52,308 532 (30) 52,810 Mortgage-backed securities........... 5,158 5,118 60 (20) 5,158 -------- -------- ------ ------- -------- $217,001 $213,589 $3,510 $ (98) $217,001 ======== ======== ====== ======= ========
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 ======== ======== ====== ======= ========
The change in unrealized gains (losses) on fixed maturities for the years ended December 31, 1997, 1996, and 1995 was $4,695,000, $(3,255,000) and $13,025,000, respectively. The amortized cost and estimated fair value of fixed maturity securities, which are classified as available for sale at December 31, 1997, 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:
DECEMBER 31, 1997 --------------------------------------------- AMORTIZED % FAIR % COST OF TOTAL VALUE OF TOTAL --------- -------- -------- -------- (DOLLARS IN THOUSANDS) Maturity One year or less......................... $ 5,180 2.4% $ 5,188 2.4% After one year through five years........ 120,134 56.2 121,780 56.1 After five years through ten years....... 76,760 35.9 78,346 36.1 After ten years.......................... 11,515 5.5 11,687 5.4 -------- -------- -------- -------- Total............................ $213,589 100.0% $217,001 100.0% ======== ======== ======== ======== Subject to call............................ $ 17,640 8.3% $ 18,159 8.4%
45 48 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Fixed maturity securities valued at approximately $18,881,000 and $17,670,000 were on deposit with various governmental authorities at December 31, 1997 and 1996, respectively, as required by law. Equity securities at December 31, 1997 and 1996 consist of investments in various industry groups as follows:
DECEMBER 31, --------------------------------------- 1997 1996 ------------------ ----------------- FAIR FAIR COST VALUE COST VALUE ------- ------- ------- ------- (DOLLARS IN THOUSANDS) Banks, trust and insurance companies.......... $ 50 $ 50 $ 800 $ 863 Industrial, miscellaneous and all other....... 35,826 70,368 19,349 41,475 ------- ------- ------- ------- Total....................................... $35,876 70,418 $20,149 $42,338 ======= ======= ======= =======
The carrying value of the Company's investment in equity securities is fair value. As of December 31, 1997, gross unrealized gains and gross unrealized losses on equity securities were $36,774,000 and $2,232,000, respectively. Gross unrealized gains and gross unrealized losses on equity securities were $22,912,000 and $723,000, respectively, as of December 31, 1996. Included in equity securities at December 31, 1997 and 1996, is an investment in a certain equity security, CKE Restaurants, Inc., with a cost basis of $3,366,000 and a fair value of $31,404,000 at December 31, 1997 and a cost basis of $3,366,000 and a fair value of $17,892,000 at December 31, 1996. The change in unrealized gains on equity securities for the years ended December 31, 1997, 1996 and 1995 was $12,353,000, $15,245,000 and $9,369,000, respectively. Interest and investment income, including realized gains (losses), consists of the following:
YEAR ENDED DECEMBER 31, ----------------------------- 1997 1996 1995 ------- ------- ------- (DOLLARS IN THOUSANDS) Cash and cash equivalents..................... $ 1,103 $ 1,666 $ 1,571 Fixed maturity securities..................... 10,098 9,431 8,254 Equity securities............................. 11,664 4,823 5,091 Short-term investments........................ 1,891 165 155 Notes receivable.............................. 2,369 2,675 2,355 Other......................................... 6,431 (1,068) 190 ------- ------- ------- $33,556 $17,692 $17,616 ======= ======= =======
Net realized gains included in interest and investment income amounted to $16,988,000, $2,625,000 and $5,213,000 for the years ended December 31, 1997, 1996 and 1995, respectively. Included in net realized gains for the year ended December 31, 1997, are net realized gains from the sales of investments of approximately $10,500,000, a net realized gain from the sale of the Company's former home office building of approximately $4,300,000, and net realized gains on the sale of 60% of American Title Company, a former wholly-owned underwritten title company subsidiary, and the sale of FNF Ventures, Inc., a small business investment company subsidiary of approximately $1,300,000 and $800,000, respectively. All amounts are before applicable income taxes. During the years ended December 31, 1997, 1996 and 1995, gross realized gains on sales of fixed maturity securities considered available for sale were $735,000, $452,000 and $1,700,000, respectively; and gross realized losses were $429,000, $714,000 and $1,331,000, respectively. Gross proceeds from the sale of fixed 46 49 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) maturity securities considered available for sale amounted to $137,019,000, $93,108,000 and $188,902,000, during the years ended December 31, 1997, 1996 and 1995, respectively. During the years ended December 31, 1997, 1996 and 1995, gross realized gains on sales of equity securities considered available for sale were $12,658,000, $5,937,000 and $5,111,000, respectively; and gross realized losses were $2,430,000, $1,962,000 and $457,000, respectively. Gross proceeds from the sale of equity securities amounted to $135,747,000, $89,404,000 and $25,622,000 during the years ended December 31, 1997, 1996 and 1995, respectively. D. NOTES RECEIVABLE Notes receivable consist of the following:
DECEMBER 31, ------------------ 1997 1996 ------- ------- (DOLLARS IN THOUSANDS) Mortgage notes, secured by various deeds of trust, installments due monthly including interest at rates ranging from 7.0% to 10%, due through 2022................ $ 426 $ 512 Promissory notes, secured by various assets and unsecured, installments due monthly including interest at rates ranging from 7.4% to 13%, due through 2008................ 8,876 11,463 Promissory note due from the Company's Chief Executive Officer, secured by a deed of trust, in monthly installments including interest at 9.5%, paid in November 1997...................................................... -- 471 Officer and employee secured and unsecured notes receivable at rates ranging from 7.0% to 10.0%, due through 2004..... 1,346 1,525 ------- ------- 10,648 13,971 Allowance for doubtful receivables.......................... (1,750) (2,654) ------- ------- $ 8,898 $11,317 ======= =======
The allowance for doubtful receivables is primarily related to promissory notes at December 31, 1997 and 1996. 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, 1997 and 1996 (dollars in thousands):
DECEMBER 31, ----------------------------------------- 1997 1996 ------------------ ------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- ------ -------- ------- Mortgage notes........................................ $ 426 $ 426 $ 412 $ 412 Other promissory notes................................ 7,365 7,365 8,909 8,909 Affiliated notes...................................... 1,107 1,107 1,996 1,996 ------ ------ ------- ------- $8,898 $8,898 $11,317 $11,317 ====== ====== ======= =======
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. 47 50 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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. In connection with the sale, the existing leases of space by the Company were amended thereby increasing rental rates approximately 20%. The terms of the agreement between Manchester and Folco provide that each of the subordinated deeds of trust will be released and reconveyed upon payment to Manchester of 15% of the net sales proceeds from the sale of the property encumbered by the subordinated deeds of trust. The note was paid on November 10, 1997. At December 31, 1996, the balance outstanding on the note approximated $471,000 and one property remained unsold. E. INVESTMENTS IN REAL ESTATE AND PARTNERSHIPS At December 31, 1997 and 1996, the Company had financial interests ranging from 22% to 50% in three real estate partnerships which were accounted for under the equity method. These partnerships are involved in the ownership and management of commercial office buildings, retail facilities and have acquired specific parcels of real property for investment purposes. The Company, through Manchester Development Corporation ("Manchester"), a wholly-owned subsidiary, had a general partnership interest in one of the three real estate partnerships at December 31, 1997 and 1996. 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:
YEAR ENDED DECEMBER 31, --------------------------- 1997 1996 1995 ------ ------ ------- (DOLLARS IN THOUSANDS) Total assets, primarily land, development and improvement costs............................. $3,922 $3,960 $14,096 Total liabilities, primarily notes and mortgages payable....................................... 819 841 12,664 ------ ------ ------- Partners' equity................................ $3,103 $3,119 $ 1,432 ====== ====== ======= Revenue......................................... $ 47 $ 378 $ 1,568 ====== ====== ======= Net income (loss)............................... $ 22 $ (73) $ (515) ====== ====== =======
48 51 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) At December 31, 1997 and 1996, the Company had a 92.5% and a 76.3% interest in real estate partnerships which are consolidated with the Company. 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, ---------------------- 1997 1996 --------- --------- (DOLLARS IN THOUSANDS) Investments in real estate: Land................................................... $ 4,291 $ 7,476 Commercial buildings, net of accumulated depreciation of $67 and $2,925................................... 663 6,537 Investments in unconsolidated partnerships............... 1,714 1,806 ------- ------- 6,668 15,819 Valuation allowance...................................... (1,467) (4,467) ------- ------- $ 5,201 $11,352 ======= =======
During 1997, the Company sold an investment in real estate at a purchase price that approximated book value. F. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
DECEMBER 31, ---------------------- 1997 1996 --------- --------- (DOLLARS IN THOUSANDS) Land..................................................... $ 4,863 $ 4,370 Buildings................................................ 7,148 14,700 Leasehold improvements................................... 11,427 9,452 Furniture, fixtures and equipment........................ 85,788 71,365 ------- ------- 109,226 99,887 Accumulated depreciation and amortization................ (72,466) (61,270) ------- ------- $36,760 $38,617 ======= =======
49 52 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) G. NOTES PAYABLE Notes payable consist of the following:
DECEMBER 31, ---------------------- 1997 1996 --------- --------- (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% (7.63% at December 31, 1997), due September 2001, paid subsequent to year end.................................................. $ 15,250 $ 18,250 Bank revolving credit facility, secured by common stock of certain Insurance Subsidiaries, with interest due quarterly at LIBOR plus 2.0% (7.63% at December 31, 1997), principal due quarterly beginning April 1998, due September 2001, unused portion of $8 million at December 31, 1997 and 1996, paid subsequent to year end............ 5,000 5,000 Equipment line of credit, secured by equipment, with interest due monthly at prime rate plus 1.00% (9.50% at December 31, 1997), principal, due May 1998, unused portion of $3,970 and $414 at December 31, 1997 and 1996...................................................... 4,030 5,586 Bank promissory note, secured by equipment, with principal and interest due monthly at LIBOR plus 1.77%, paid in September 1997............................................ -- 2,760 Bank promissory note, secured by equipment, with principal and interest due monthly at LIBOR plus 1.77% (7.40% at December 31, 1997), due October 1998...................... 2,134 4,787 Bank promissory note, secured by equipment, with principal and interest due monthly at LIBOR plus 2.10% (7.73% at December 31, 1997), due June 1999......................... 2,052 3,282 Bank promissory note, secured by equipment, with principal and interest at 30 day commercial paper rate plus 2.44% (8.02% at December 31, 1997), due September 2000.......... 5,000 7,031 Bank promissory note, secured by equipment, with principal and interest due monthly at LIBOR plus 1.84% (7.47% at December 31, 1997), due May 2001.......................... 4,042 -- Bank promissory note, secured by equipment, with principal and interest due monthly at LIBOR plus 1.84% (7.47% at December 31, 1997), due September 2001.................... 5,784 -- Promissory note, guaranteed by United States Small Business Administration, with interest only at 7.59% due monthly and principal due at maturity, September 2006, liability assumed by purchaser when subsidiary sold in October 1997...................................................... -- 3,000 Promissory note, secured by real estate, with principal and interest due monthly at 9.875%, due April 1998............ 1,693 1,723 Liquid Yield Option Notes, zero coupon, convertible subordinated notes due 2009 with interest at 5.5%......... 76,635 97,013 Other promissory notes with various interest rates and maturities................................................ 1,403 490 -------- -------- $123,023 $148,922 ======== ========
50 53 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Principal maturities, including accretion of original issue discount, are as follows (dollars in thousands): 1998...................................................... $ 18,354 1999...................................................... 10,806 2000...................................................... 9,715 2001...................................................... 6,491 2002...................................................... 937 Thereafter................................................ 140,657 -------- $186,960 ========
The Company's credit agreement, dated as of September 21, 1995, included a $22 million term loan and a $13 million revolving credit facility, is and was collateralized by the common stock of certain Insurance Subsidiaries. This credit facility was terminated and paid subsequent to year end with the proceeds from a new credit facility. Additionally, the Company must comply with certain affirmative and negative covenants related to its debt agreements 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 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 Liquid Yield Options Notes due February 2009 ("LYONs") at an interest rate of 5.5% with a principal amount at maturity of $235,750,000. Net proceeds to the Company were approximately $101,000,000. The proceeds were used for investment and general corporate purposes, including the repurchase of treasury shares. See Note K. On October 17, 1997, the Company in a private transaction, purchased $45 million aggregate principal amount at maturity of its outstanding Liquid Yield Option Notes due 2009 from Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") for an aggregate purchase price of $27.2 million (or $605 per $1,000 principal amount at maturity of LYONs). The purchase price was paid in the form of 1,267,619 shares, $26.4 million, of the Company's common stock (the "Exchange Shares"). The Company also paid Merrill Lynch, the excess of a base price of $21.48 per Exchange Share over the actual sales price (less $0.05 per share in commissions) realized by Merrill Lynch for sales of up to 552,619 Exchange Shares. The Company also paid Merrill Lynch, for each day, an amount in cash to be determined by multiplying the Net Carry Amount (number of Exchange Shares multiplied by $21.48) by the Applicable Rate (LIBOR plus 2.50%). The Company's payment obligations were subject to reduction for dividends on Exchange Shares received by Merrill Lynch during the period. The Company paid the foregoing amounts to Merrill Lynch in cash of approximately $790,000 on November 7, 1997. The purchase of the LYONs increased stockholders' equity by approximately $24.7 million while reducing outstanding debt by approximately $24.3 million. Additionally, an extraordinary loss due to the early retirement of debt of approximately $1.7 million, net of applicable income taxes, was recorded in the fourth quarter of 1997. The maturity value of LYONs outstanding at December 31, 1997 is approximately $140.6 million. 51 54 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The carrying amounts and estimated fair values of the Company's notes payable were as follows at December 31, 1997 and 1996 (dollars in thousands):
DECEMBER 31, -------------------------------------------- 1997 1996 -------------------- -------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- -------- -------- -------- Short-term borrowings................... $ 5,158 $ 5,158 $ 5,710 $ 5,710 Long-term borrowings, variable rate..... 39,263 39,263 41,110 41,110 Long-term borrowings, fixed rate........ 78,602 113,722 102,102 93,214 -------- -------- -------- -------- $123,023 $158,143 $148,922 $140,034 ======== ======== ======== ========
Short-term borrowings approximate their fair value. The fair value of the Company's fixed rate and variable rate notes payable is estimated using discounted cash flow analyses based on current market interest rates and comparison of interest rates being paid to the Company's current incremental borrowing rates for similar types of borrowing arrangements. The LYON's fair value is calculated based on quoted market prices. H. INCOME TAXES Income tax expense (benefit) consists of the following:
YEAR ENDED DECEMBER 31, ----------------------------- 1997 1996 1995 ------- ------- ------- (DOLLARS IN THOUSANDS) Current....................................... $31,217 $ 7,886 $(2,729) Deferred...................................... (438) 8,330 4,120 ------- ------- ------- $30,779 $16,216 $ 1,391 ======= ======= =======
Total income tax expense (benefit) for the years ended December 31, 1997, 1996 and 1995 was allocated as follows:
YEAR ENDED DECEMBER 31, ----------------------------- 1997 1996 1995 ------- ------- ------- (DOLLARS IN THOUSANDS) Income from continuing operations............. $31,959 $16,216 $ 1,828 Extraordinary gain (loss)..................... (1,180) -- (437) ------- ------- ------- $30,779 $16,216 $ 1,391 ======= ======= =======
52 55 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Deferred income tax expense (benefit) consists of the following:
YEAR ENDED DECEMBER 31, ---------------------------- 1997 1996 1995 ------- ------- ------ (DOLLARS IN THOUSANDS) Provision for claim losses in excess of statutory amounts............................ $ 2,142 $ 5,108 $4,890 Employee benefit accruals...................... (3,758) (1,847) 81 (Excess) deficit book over tax bad debt expense...................................... 2,298 304 (535) Other acquisition accruals..................... 1,660 1,862 610 Statutory unearned premium reserve............. 1,313 3,624 303 Accelerated depreciation....................... (587) (1,068) -- Investments in partnerships.................... (68) (434) -- Investments in real estate..................... (624) 128 -- Section 338 (h)(10) gain deferral.............. (1,711) (153) (504) Other.......................................... (1,103) 806 (725) ------- ------- ------ $ (438) $ 8,330 $4,120 ======= ======= ======
The effective tax rate differs from the statutory income tax rate as follows:
YEAR ENDED DECEMBER 31, ------------------------ 1997 1996 1995 ----- ----- ------ Statutory income tax rate............................. 35.0% 35.0% 34.0% Tax exempt interest income............................ (1.6) (.8) (23.3) Non-deductible expenses............................... 6.2 2.0 6.5 State taxes, net of Federal deduction................. 3.6 2.7 -- Other................................................. .4 1.1 (.3) ---- ---- ----- 43.6% 40.0% 16.9% ==== ==== =====
53 56 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The deferred tax assets and liabilities at December 31, 1997 consist of the following:
DEFERRED DEFERRED TAX TAX ASSETS LIABILITIES ---------- ------------ (DOLLARS IN THOUSANDS) Provision for claim losses in excess of statutory amounts... $47,072 $ -- Employee benefit accruals................................... 8,175 -- Excess book over tax provision for bad debts................ 3,517 -- Other assets................................................ 2,165 -- Statutory unearned premium reserve.......................... -- 48,783 Accelerated depreciation.................................... 77 -- Investment securities....................................... -- 15,532 Investments in partnerships................................. -- 392 Investments in real estate.................................. -- 154 Section 338 (h)(10) gain deferral........................... -- 2,046 Other acquisition accruals.................................. -- 5,509 Other liabilities........................................... -- 2,012 Net operating loss available for carryover.................. 711 -- ------- ------- Less: valuation allowance................................... 711 -- ------- ------- Total deferred taxes........................................ $61,006 $74,428 ======= =======
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 ======= =======
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 54 57 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) planning or other strategies could be implemented, if necessary, to supplement income from operations to fully realize recorded tax benefits. The Company's 1990 through 1994 Federal income tax returns are currently under examination by the Internal Revenue Service. Based on information currently available, management does not believe the outcome of these examinations will have a material impact on the financial condition or results of operations of the Company. I. SUMMARY OF RESERVE FOR CLAIM LOSSES A summary of the reserve for claim losses follows:
YEAR ENDED DECEMBER 31, -------------------------------- 1997 1996 1995 -------- -------- -------- (DOLLARS IN THOUSANDS) Beginning balance.......................................... $187,245 $146,094 $153,306 Reserves assumed from First Title Corp................... 284 -- -- Reserves relinquished due to the sale of American Title Company .............................................. (160) -- -- Reserves assumed from Nations Title Inc.................. -- 45,171 -- Title claim loss provision related to: Current year.......................................... 36,404 32,505 23,901 Prior years........................................... 2,257 797 (4,870) -------- -------- -------- Total title claim loss provision......................... 38,661 33,302 19,031 Title claims paid, net of recoupments related to: Current year.......................................... (2,376) (2,430) (2,818) Prior years........................................... (32,907) (34,892) (23,425) -------- -------- -------- Total title claims paid, net of recoupments.............. (35,283) (37,322) (26,243) -------- -------- -------- Ending balance............................................. $190,747 $187,245 $146,094 ======== ======== ========
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. 55 58 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. Certain terms of these contracts were subsequently amended/revised effective January 1, 1997 and April 1, 1997. Additionally, effective September 15, 1997, the Company entered into a three year employment agreement with a fifth key executive. Terms and conditions of the fifth executive's contract are similar to the other four. In the ordinary course of business, the Company is involved in various pending and threatened litigation matters related to its operations, some of which include claims for punitive or exemplary damages. Management believes that no actions depart from customary litigation incidental to the business of the Company and that resolution of all such litigation will not have a material adverse effect on the Company. In conducting its operations, the Company routinely holds customers' assets in trust, pending completion of real estate transactions. Such amounts are maintained in segregated bank accounts and have not been included in the accompanying Consolidated Balance Sheets. The Company has a contingent liability relating to proper disposition of these balances for its customers which amounted to $608.6 million at December 31, 1997. 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): 1998....................................................... $22,698 1999....................................................... 16,736 2000....................................................... 11,698 2001....................................................... 8,492 2002....................................................... 5,087 Thereafter................................................. 6,610 ------- Total future minimum operating lease payments.............. $71,321 =======
Rent expense incurred under operating leases during the years ended December 31, 1997, 1996 and 1995 was $24,929,000, $23,413,000 and $21,388,000, respectively. Included in rent expense for 1997, 1996 and 1995 is $523,000 paid to related parties. K. STOCKHOLDERS' EQUITY Title insurance companies, including underwriters, underwritten title companies and independent agents, are subject to extensive regulation under applicable state laws. Each insurance underwriter is usually subject to a holding company act in its state of domicile which regulates, among other matters, the ability to pay dividends and investment policies. The laws of most states in which the Company transacts business establish supervisory agencies with broad administrative powers relating to issuing and revoking licenses to transact business, regulating trade practices, licensing agents, approving policy forms, accounting principles, financial practices, establishing reserve and capital and surplus requirements, defining suitable investments for reserves, capital and surplus and approving rate schedules. The Insurance Subsidiaries are regulated by the insurance commissioners of their respective states of domicile. Regulatory examinations usually occur at three year intervals. Examinations are currently in progress for Fidelity Title (1996), Fidelity New York (1996), Nations New York (1996), National (1996) 56 59 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) and ATIC (1994). The Company has not received preliminary reports of examination for Fidelity Title, Fidelity New York, Nations New York or National, as the examinations are currently ongoing. 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, which was in turn merged into Fidelity New York as of April 11, 1997; 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, Fidelity Pennsylvania, its former parent company, and ultimately Fidelity New York. Certain of these adjustments have not been included in the 1997 Fidelity New York 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. Examinations have been completed for Fidelity Pennsylvania (1995), Fidelity Tennessee (1995) and Nations Title (1996). All adjustments proposed by the examiners have been recorded by the Company for Fidelity Pennsylvania, Fidelity Tennessee and Nations Title, and are included in the calculation of dividend capability, statutory surplus and statutory income (loss) reported below. Statutorily calculated net worth determines the maximum insurable amount under any single title insurance policy. As of January 1, 1998, the Company's self-imposed single policy maximum insurable amounts, which comply with all statutory limitations, for Fidelity Title, Fidelity New York and Fidelity Tennessee were $42.0 million, $80.0 million and $6.0 million, respectively. The self-imposed single policy maximum insurable amounts for Nations New York and National are $20.0 million and $6.7 million, respectively. The Insurance Subsidiaries are subject to regulations that restrict their ability to pay dividends or make other distributions of cash or property to their immediate parent company without prior approval from the Department of Insurance of their respective states of domicile. In the case of Fidelity Title, the total amount of dividends made in any twelve-month period may not exceed the greater of 10% of the surplus as regards policyholders as of the last day of the preceding year or net 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, 1998, Fidelity Title could pay dividends or make other distributions to the Company of $6,823,000. Fidelity New York does not have any dividend paying capability as of January 1, 1998. The combined statutory capital and surplus of the Insurance Subsidiaries was $94,101,000, $73,326,000 and $67,174,000 as of December 31, 1997, 1996 and 1995, respectively. The combined statutory income (loss) of the Insurance Subsidiaries was $21,500,000, $6,052,000 and $(1,533,000) for the years ended December 31, 1997, 1996 and 1995, respectively. These amounts do not include certain of the proposed ATIC examination adjustments previously discussed. As a condition to continued authority to underwrite policies in the states in which the Insurance Subsidiaries conduct their business, the Insurance Subsidiaries are required to pay certain fees and file information regarding their officers, directors and financial condition. In addition, the Company's escrow and trust business is subject to regulation by various state banking authorities. 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 57 60 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) of Insurance of dividend payments by FNTC and FNCAL greater than 30% of earnings before income taxes through 1998. 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 7,986,000 shares of the Company's Common Stock available for purchase at current market prices by Company employees who meet certain vesting requirements. Pursuant to the ESPP, Company employees may contribute an amount between 5% and 15% of their base salary and certain commissions. The Company contributes varying amounts as specified in the ESPP. During the years ended December 31, 1997, 1996 and 1995, 321,449, 338,047 and 315,901 shares, respectively, were purchased and allocated to employees, based upon their contributions, at an average price of $15.10, $12.45 and $9.77 per share, respectively. The Company contributed $1.7 million or the equivalent of 111,582 shares for the year ended December 31, 1997, $1.2 million or the equivalent of 97,471 shares for the year ended December 31, 1996 and $1.4 million or the equivalent of 143,559 shares for the year ended December 31, 1995 in accordance with the employer's matching contribution. A total of 6,524,409 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 1,647,113 shares of Common Stock at not less than fair market value on the date of grant. Employees are eligible to receive incentive stock options or non-qualified stock options and non-employee directors are eligible to receive non-qualified stock options. Options available to directors or officers may not exceed one-half of the aggregate number of shares available for grant. All options granted become exercisable at the discretion of the Board of Directors and expire five to eleven years from the date of grant. Options that lapse or are cancelled prior to exercise are added to the shares authorized for future grants. The 1987 Option Plan expired December 31, 1997. In 1992, 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 2,362,525 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 998,250. The per share option price is determined at the date of grant provided that the price for incentive stock options shall not be less than 100% of their market value or award stock shares. The 1993 Plan also contains an automatic grant of non-qualified stock options to non-employee directors at an exercise price equal to 100% of fair value at date of grant, and the right to exercise such options shall vest equally over three years. Stock options granted under the 1993 Plan are exercisable subject to the terms and conditions set by the Board of Directors; however, options shall be exercisable no earlier than six months nor ten years following the grant date. 58 61 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, 1997:
1987 STOCK OPTION PLAN 1991 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............................ 4,386 545,835 $1.14-11.46 1,454,374 $ .59-7.45 69,878 $10.43-11.15 Granted in 1995................. 9,858 465,850 $ 7.61-9.77 63,030 $ 3.42-3.68 97,162 $ 7.51-8.17 Exercised in 1995............... (2,194) -- -- (237,661) $ 4.66-7.45 -- -- Expired or cancelled in 1995.... -- -- -- -- -- (6,655) $10.42-11.15 --------- ---------- ----------- -------- ----------- ---------- ------------ Outstanding at December 31, 1995............................ 12,050 1,011,685 $1.14-11.46 1,279,743 $ .59-7.45 160,385 $ 7.51-11.16 Granted in 1996................. -- 323,675 10.54 104,699 5.91-6.20 52,659 10.66-11.16 Exercised in 1996............... -- -- -- (61,287) .66-7.45 -- -- Expired or cancelled in 1996.... -- (69,878) 7.61-11.46 (33,576) 3.68-7.45 -- -- --------- ---------- ----------- -------- ----------- ---------- ------------ Outstanding at December 31, 1996............................ 12,050 1,265,482 $1.14-11.46 1,289,579 $ .59-7.29 213,044 $ 7.51-11.16 Granted in 1997................. -- 589,600 6.93-18.24 182,881 6.93-11.48 27,500 12.65 Exercised in 1997............... -- (69,575) 9.77-10.54 (52,657) .59-7.29 (22,410) 11.16 Expired or cancelled in 1997.... -- -- -- -- -- -- -- --------- ---------- ----------- -------- ----------- ---------- ------------ Outstanding at December 31, 1997............................ 12,050 1,785,507 $1.14-18.24 1,419,803 $ .59-11.48 218,134 $ 7.51-12.65 ========= ========== =========== ======== =========== ========== ============ Exercisable at December 31, 1997............................ 12,050 1,206,907 $1.14-18.24 1,400,984 $ .59-7.29 208,008 $ 7.51-12.65 ========= ========== =========== ======== =========== ========== ============ Exercisable through............... June 2005 Sept. 2007 May 2008 April 2008
- --------------- (1) This variable plan allows for exercise prices with a fixed discount from the quoted market price. 63,030 options were granted in 1995 at an exercise price of $7.70 to key employees of the Company who applied deferred bonuses expensed in 1994 amounting to $236,773 to the exercise price, reducing it to $3.95 if exercised within the first year of the grant. The exercise price of these options decreases approximately 6.0% per year through 2000 and $.16 per share from 2001 through 2006, at which time the exercise price will be $1.61. 104,699 options were granted in 1996 at an exercise price of $10.33 to key employees of the Company who applied deferred bonuses expensed in 1995 amounting to $432,640 to the exercise price, reducing it to $6.20 if exercised within the first year of the grant. The exercise price of these options decreases approximately 5.0% per year through 2001 and $.18 per share from 2002 through 2007, at which time the exercise price will be $3.64. In 1997, 182,881 options were granted at an exercise price of $11.48 to key employees of the company who applied deferred bonuses expensed in 1996 amounting to $875,730 to the exercise price, reducing it to $6.93 if exercised within the first year of the grant. The exercise price of these options decreases approximately 7% per year through 2002 and $.20 per share from 2003 through 2008, at which time the exercise price will be $4.11. 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 59 62 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions. The risk free interest rates used in the calculation is the rate on the date the options were granted. The risk free interest rate used for options granted during 1997, 1996 and 1995 were 6.0%, 6.5% and 6.9%, respectively. A volatility factor for the expected market price of the common stock of 50% was used for options granted in 1997, 1996 and 1995. The expected dividend yield used for 1997, 1996 and 1995 was 1.0%, 2.0% and 2.0%, respectively. A weighted average expected life of seven years was used in all years as the Company has little history of options being exercised. 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:
YEAR ENDED DECEMBER 31, -------------------------------- 1997 1996 1995 ------- ------- ------ (IN THOUSANDS, EXCEPT PER SHARE INFORMATION) Pro forma basic net earnings....................... $38,862 $22,390 $5,509 Pro forma diluted net earnings..................... $42,004 $25,586 $5,509 Pro forma earnings per share Basic............................................ $ 2.44 $ 1.49 $ .36 Diluted.......................................... 1.96 1.25 .35
A summary of the Company's stock option activity, and related information for the years ended December 31, 1997, 1996 and 1995 is as follows:
1997 1996 1995 ---------------------------- ---------------------------- ---------------------------- NUMBER WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE OF SHARES EXERCISE PRICE OF SHARES EXERCISE PRICE OF SHARES EXERCISE PRICE --------- ---------------- --------- ---------------- --------- ---------------- Stock options outstanding beginning of year........... 2,780,155 $ 7.39 2,463,863 $ 6.95 2,074,473 $ 6.57 Stock options granted......... 799,981 10.64 481,033 9.57 635,900 7.26 Stock options exercised....... (144,642) 8.63 (61,287) 4.26 (239,855) 4.67 Stock options cancelled....... -- -- (103,454) 9.01 (6,655) 10.78 --------- ------ --------- ------ --------- ------ Stock options outstanding, end of year..................... 3,435,494 $ 8.09 2,780,155 $ 7.39 2,463,863 $ 6.95 Exercisable at end of year.... 2,827,949 -- 2,395,853 -- 1,942,557 -- Weighted-average fair value of options granted during the year........................ -- $11.68 -- $10.59 -- $ 8.19
The weighted average remaining contractual life of the options outstanding at December 31, 1997 is 7.6 years. The following table sets forth options outstanding and exercisable by price range as of December 31, 1997: 60 63 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 - ------------------------------------------------------------------------------------------------------------------- OPTIONS OUTSTANDING OPTIONS OUTSTANDING - ----------------------------------------------------------------------------- ---------------------------- WEIGHTED WEIGHTED NUMBER OF AVERAGE AVERAGE NUMBER AVERAGE RANGE OF OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE EXERCISE PRICES AS OF 12/31/97 CONTRACTUAL LIFE PRICE AS OF 12/31/97 PRICE - --------------------- -------------- ---------------- -------- -------------- -------- $0.5940 - 2.8130 460,509 5.65 $ 1.6541 460,509 $1.6541 3.4180 - 6.0480 394,755 9.00 5.6646 394,756 5.6646 6.2550 - 6.9320 205,973 9.94 6.8883 177,373 6.8812 7.2880 - 7.2880 370,540 7.20 7.2880 370,540 7.2880 7.5130 - 7.6270 439,230 7.34 7.6116 437,012 7.6121 8.0770 - 10.5370 616,796 7.37 10.2184 616,796 10.2184 10.6150 - 11.4580 505,373 6.82 11.2324 340,373 11.3339 11.4770 - 11.4770 376,318 9.18 11.4770 0 0.0000 12.6450 - 15.9660 33,000 9.94 13.1985 19,590 12.6450 18.2390 - 18.2390 33,000 9.71 18.2390 11,000 18.2390 - --------------------- --------- ---- -------- --------- ------- $0.5940 - $18.2390 3,435,494 7.62 $ 8.0908 2,827,949 $7.3743
The Company also offers the Fidelity National Financial, Inc. 401(k) Profit Sharing Plan, a qualified voluntary contributory savings plan, available to substantially all employees. Eligible employees may contribute up to 15% of their pretax annual compensation, up to the amount allowed pursuant to the Internal Revenue Code. The Company may elect to make matching contributions. The Company has historically not made matching contributions. 61 64 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.
YEAR ENDED DECEMBER 31, ----------------------------- 1997 1996 1995 ------- ------- ------- (DOLLARS IN THOUSANDS) Cash paid (refunded) during the year: Interest............................................ $ 4,244 $ 4,766 $ 4,568 ======= ======= ======= Income taxes........................................ $13,971 $14,334 $(3,147) ======= ======= ======= Non-cash investing and financing activities: Dividends declared and unpaid....................... $ 1,254 $ 975 $ 860 ======= ======= ======= Acquisition of Nations Title Inc.................... $ -- $ 2,130 $ -- ======= ======= ======= Acquisition of Fidelity National Tax................ $ -- $ 2,520 $ -- ======= ======= ======= Acquisition of National Alliance Marketing Group, Inc.............................................. $ 2,317 $ -- $ -- ======= ======= ======= Acquisition of First Title Corporation.............. $ 3,760 $ -- $ -- ======= ======= ======= Acquisition of Ifland Credit Services............... $ 2,985 $ -- $ -- ======= ======= ======= Acquisition of Bron Research, Inc................... $ 9,850 -- -- ======= ======= ======= Acquisition of Credit Reports, Inc.................. $ 200 -- -- ======= ======= ======= Acquisition of Express Network, Inc................. $ 5,275 $ -- $ -- ======= ======= ======= Retirement of LYONs................................. $25,512 $ -- $ -- ======= ======= ======= Conversion of LYONs................................. $ 888 $ -- $ -- ======= ======= =======
N. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF RISK During 1997, the Company generated 38.0% and 11.3% of its title insurance premiums in California and New York, respectively. The Company generated a significant amount of title insurance premiums in California and Texas, 38.5% and 8.9% in 1996, and 43.6% and 10.1% in 1995, 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. 62 65 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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. O. SUBSEQUENT EVENTS On November 17, 1997, Fidelity National Financial, Inc. signed an Agreement and Plan of Merger ("Merger Agreement") to merge a newly-formed subsidiary of the Company into Granite Financial, Inc. ("Granite"). Granite, located in Golden, Colorado, is a rapidly expanding speciality finance company engaged in the business of originating, funding, purchasing, selling, securitizing and servicing equipment leases for a broad range of businesses located throughout the United States. Under the original terms of the definitive agreement (as adjusted for the Company's recent 10% stock dividend), each share of Granite common stock would be converted into the right to receive .771 shares of Company common stock without interest, together with cash in lieu of any fractional share. The exchange ratio was collared between $20.75 and $25.94. The adjustment factor was designed to insure that the average market value of the shares of Company common stock to be issued to the stockholders of Granite is neither less than $16.00 nor more than $20.00 per share of Granite common stock. The market value was determined based on the average closing price of Company common stock during the 20 day trading period ending on the third business day prior to the date of the shareholder meetings to be held to approve the transaction. Below $20.75 Fidelity could make up the difference in additional shares of its common stock at its option and above $25.94 Granite shareholders would have the exchange ratio reduced pro rata. Such average closing price was determined to be $28.48, resulting in an adjusted exchange ratio of .702 shares of Company common stock for each share of Granite common stock. The merger will be treated as a reorganization pursuant to Section 368(a)(1) of the Internal Revenue Code of 1986, as amended, and be accounted for as a "pooling-of-interests" for accounting purposes. The shareholders of Granite approved the merger, and the Company shareholders approved the issuance of shares in connection with the merger, at special shareholders' meetings on Tuesday, February 24, 1998. The merger was completed Thursday, February 26, 1998. Under the terms of the definitive agreement, shareholders of Granite Financial, Inc. common stock receive .702 shares of Fidelity National Financial, Inc. common stock for each share of Granite Financial, Inc. common stock, with fractional shares to be paid in cash, resulting in the issuance of approximately 4.4 million shares of Fidelity National Financial, Inc. common stock. Fidelity National Financial, Inc. common stock, as reported by the New York Stock Exchange, closed at $28.69 on February 26, 1998. 63 66 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Selected unaudited pro forma combined financial position and results of operations as of and for the years ending December 31, 1997, 1996 and 1995, assuming the Granite Financial, Inc. acquisition occurred on January 1, 1997, 1996 and 1995, are presented as follows:
DECEMBER 31, ----------------------------------------- 1997 1996 1995 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Total assets....................................... $679,592 $546,883 $405,670 Total liabilities.................................. 447,762 424,578 327,495 Total stockholders' equity......................... 231,830 122,305 78,175 Total revenue...................................... $763,181 $642,377 $410,798 Basic earnings before extraordinary item........... $ 44,797 $ 25,384 $ 7,690 Basic net earnings................................. 43,097 25,384 6,877 Basic earnings per share........................... 2.12 1.31 .35 Diluted earnings before extraordinary item......... $ 47,939 $ 28,580 $ 7,690 Diluted net earnings............................... 46,239 28,580 6,877 Diluted earnings per share......................... 1.79 1.15 .34
On March 18, 1998, the Company announced that it had entered into an agreement to sell National Title Insurance of New York Inc. to American Title Company, subject to regulatory approval and certain other conditions. The purchase price is structured at a premium to book value. National was acquired in April 1996, as part of the Nations Title Inc. acquisition and has not been actively underwriting policies since the transaction closed. American Title Company is an underwritten title company which was formerly a wholly-owned subsidiary of the Company. Effective July 1, 1997, 60% of ATC was sold to certain members of ATC management. The Company will continue to own 40% of ATC, and ultimately National, following the transaction. On March 19, 1998, the Company's Board of Directors declared a cash dividend of $.07 per share which will be payable on May 1, 1998, to stockholders of record on April 10, 1998. On March 25, 1998, the Company closed a new credit facility, the proceeds of which were used to terminate and pay the Company's credit agreement dated as of September 21, 1995. Additional amounts available under the new credit facility are available for general corporate purposes. Also, on March 25, 1998, the Company announced that it had executed an agreement to merge Matrix Capital Corporation ("Matrix") with a newly-formed subsidiary of the Company. The merger is subject to due diligence, regulatory approvals and other customary conditions, and requires approval of the merger by the shareholders of Matrix and approval of the issuance of Company common stock in connection with the merger by the shareholders of the Company. Under the terms of the definitive agreement, each share of Matrix stock will be converted into the right to receive .80 shares of Company common stock without interest, together with cash in lieu of any fractional share. The exchange ratio has been collared between $28.75 and $35.00 per Company share. The market value 64 67 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) is to be determined based on the average closing price of Company stock during the 20 day trading period ending on the third business day immediately prior to the last of the stockholders' meetings held to approve the transaction (the "Average Stock Price"). Below $28.75 the Company may make up the difference in additional shares at its option and above $35.00 the exchange ratio would be adjusted to a number equal to $28.00 plus fifty percent of the amount by which the Average Stock Price exceeds $35.00 divided by the Average Stock Price. It is intended that the merger be treated as a reorganization pursuant to Section 368(a)(1) of the Internal Revenue Code and be accounted for as a "pooling-of-interests." 65 68 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, 1997 and 1996. Consolidated Statements of Earnings for the years ended December 31, 1997, 1996 and 1995. Consolidated Statements of Stockholders' Equity for the years ended December 31, 1997, 1996 and 1995. Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995. 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. 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.
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EXHIBIT NUMBER DESCRIPTION - -------- ----------- 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, incorporated by reference from Form 10-K filed March 31, 1997. 10.1.2 Employment Agreements effective as of January 1, 1996 between four key executives and Fidelity National Financial, Inc., incorporated by reference from Form 10-K filed March 31, 1997. 10.1.2.1 First amendments revisions to Employment Agreements between four key executives and Fidelity National Financial, Inc., effective January 1, 1997 and April 1, 1997. 10.1.3 Employment Agreement effective September 15, 1997 between a key executive and Fidelity National Financial, Inc.
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EXHIBIT NUMBER DESCRIPTION - -------- ----------- 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. 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 31, 1997. 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, incorporated by reference from Form 10-K filed March 31, 1997. 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, incorporated by reference from Form 10-K filed March 31, 1997.
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EXHIBIT NUMBER DESCRIPTION - -------- ----------- 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, incorporated by reference from Form 10-K filed March 31, 1997. 10.8.3.5 Amendment No. 5, dated as of March 31, 1997, to the Fidelity National Financial, Inc. Credit Agreement dated as of September 21, 1995. 10.8.3.6 Amendment No. 6, dated as of August 5, 1997, to the Fidelity National Financial, Inc. Credit Agreement dated as of September 21, 1995. 10.8.3.7 Amendment No. 7, dated as of September 16, 1997, to the Fidelity National Financial, Inc. Credit Agreement dated as of September 21, 1995. 10.8.3.8 Amendment No. 8, dated as of November 21, 1997, to the Fidelity National Financial, Inc. Credit Agreement dated as of September 21, 1995. 10.8.3.9 Amendment No. 9, dated as of February 17, 1998, to the Fidelity National Financial, Inc. Credit Agreement dated as of September 21, 1995. 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.
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EXHIBIT NUMBER DESCRIPTION - -------- ----------- 10.19.1 Amendment to Agreement of Limited Partnership of Tustin Retail by and among Manchester Development Corporation, Vistar Financial, Inc., William P. Foley, II, Frank P. Willey, John E. Hock, Robert A. Diemer, Gerald S. Misurek and Stuart R. Boesche, incorporated by reference from Form 10-K filed March 29, 1993. 10.19.2 Promissory Note dated May 1, 1988 in the original principal amount of $700,000 to Manchester Development Corporation by Tustin Retail, incorporated by reference from Form 10-K filed March 29, 1993. 10.19.3 Fixed Rate Promissory Note dated March 1, 1992 in the original principal amount of $303,500 to Manchester Development Corporation by Tustin Retail, incorporated by reference from Form 10-K filed March 29, 1993. 10.19.4 Modification Agreement dated November 30, 1992 between Manchester Development Corporation and Tustin Retail, incorporated by reference from Form 10-K filed March 29, 1993. 10.25 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., incorporated by reference from Form 10-K filed March 31, 1997. 10.39.3 Variable Rate Promissory Note dated April 30, 1997 in the principal amount of $4,767,422 to Fleet Capital Leasing by Fidelity Asset Management, Inc. 10.39.4 Variable Rate Promissory Note dated July 29, 1997 in the principal amount of $8,000,000 to Imperial Bank by Fidelity Asset Management, Inc.
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EXHIBIT NUMBER DESCRIPTION - -------- ----------- 10.39.5 Variable Rate Promissory Note dated September 30, 1997 in the principal amount of $6,131,283 to Fleet Capital Leasing by Fidelity Asset Management, Inc. 10.41 Stock Purchase Agreement dated February 14, 1995 by and among Fidelity National Financial, Inc., Raul Costelo, Jeff A. Sanderson and Mark J. Attaway to acquire outstanding capital stock of ACS Systems, Inc., incorporated by reference from Form 10-K filed March 30, 1995. 10.42 Stock Purchase Agreement by and among Ronald G. Bridge (selling shareholder); Western Title Co. of Washington, Inc. and Fidelity National Financial, Inc. to acquire Western Title Co. of Washington, Inc., incorporated by reference from Form 10-K filed March 30, 1995. 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., incorporated by reference from Form 10-K filed March 31, 1997. 10.46 Stock Purchase and Loan Agreement by and among ATC Holdings, Inc., Fidelity National Financial, Inc., and American Title Company. 10.47 Agreement and Plan of Reorganization dated as of August 15, 1997 by and among Fidelity National Financial, Inc., First Title Corporation, Ernest N. Moore, Jeanene S. Moore and T. Frank Jordan and First Title Acquisition Corporation. 10.48 Agreement and Plan of Reorganization dated September 1997 by and among Fidelity National Financial, Inc., ICS Ifland Credit Services, Inc., Rick W. Ifland and ICS Acquisition Corporation. 10.49 Agreement and Plan of Reorganization by and among Fidelity National Financial, Inc.; Bron Acquisition Corporation, Bron Research, Inc., and the Shareholders of Bron Research, Inc., dated as of September 24, 1997. 10.50 Agreement and Plan of Reorganization dated as of September 12, 1997, by and among Fidelity National Financial, Inc., Credit Reports, Inc., Colin Howard Friedman and Hedy Kramer Friedman, as trustees of the Friedman Family Trust UDT, dated July 23, 1987, Colin H. Friedman, Farid Meshkatai and CRI Acquisition Corporation. 10.51 Agreement and Plan of Reorganization dated as of September 12, 1997 by and among Fidelity National, Inc., Express Network, Inc., Colin Howard Friedman and Hedy Kramer Friedman, as trustees of the Friedman Family Trust UDT, dated July 23, 1987, Farid Meshkatai, and Anita Kramer Meshkatai, as Trustee of the Anita Kramer Living Trust, dated July 23, 1987, Colin H. Friedman, and ENI Acquisition Corporation. 10.52 Fidelity National Financial, Inc. Liquid Yield Option Notes, due 2009 (zero coupon-subordinated) Exchange Agreement dated October 17, 1997. 10.53 Stock and Asset Purchase Agreement dated as of May 22, 1997, by and between Randall F. Zurbach and John C. Wilbur, Jr. and Fidelity National Financial, Inc. 10.54 Agreement and Plan of Merger, dated November 17, 1997 by and among Fidelity National Financial, Inc.; Granite Acquisition Corporation and Granite Financial, Inc., incorporated by reference from Form S-4, Registration No. 333-44153. 11 Computation of Basic and Diluted Earnings per Share
71 74
EXHIBIT NUMBER DESCRIPTION - -------- ----------- 21 List of Subsidiaries 23 Independent Auditors' Consent 27 1997 Financial Data Schedule 27.1 1996 Financial Data Schedule -- Restated 27.2 1995 Financial Data Schedule -- Restated 27.3 1997 1Q Financial Data Schedule -- Restated 27.4 1997 2Q Financial Data Schedule -- Restated 27.5 1997 3Q Financial Data Schedule -- Restated 27.6 1996 1Q Financial Data Schedule -- Restated 27.7 1996 2Q Financial Data Schedule -- Restated 27.8 1996 3Q Financial Data Schedule -- Restated
(b) REPORTS ON FORM 8-K. The Company filed reports on Form 8-K during the fourth quarter ending December 31, 1997 as follows: Current report on Form 8-K dated November 3, 1997, relating to Fidelity National Financial, Inc.'s purchase of $45 million face amount of its outstanding Liquid Yield Option Notes. Current report on Form 8-K dated November 5, 1997, relating to the combined financial results of Fidelity National Financial, Inc. and Bron Research, Inc. for the month ended October 31, 1997. Combined report on Form 8-K dated November 21, 1997, relating to Fidelity National Financial, Inc.'s signing of a Merger Agreement with Granite Financial, Inc. 72 75 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FIDELITY NATIONAL FINANCIAL, INC. By: /s/ WILLIAM P. FOLEY, II ------------------------------------ William P. Foley, II Chief Executive Officer Date: March 19, 1998 ---------------------------- 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 19, 1998 - --------------------------------------------------- Executive Officer (Principal William P. Foley, II Executive Officer) /s/ FRANK P. WILLEY President and Director March 19, 1998 - --------------------------------------------------- Frank P. Willey /s/ ALLEN D. MEADOWS Executive Vice President and March 19, 1998 - --------------------------------------------------- Chief Financial Officer Allen D. Meadows (Principal Financial and Accounting Officer) /s/ WILLIAM A. IMPARATO Director March 19, 1998 - --------------------------------------------------- William A. Imparato /s/ DONALD M. KOLL Director March 19, 1998 - --------------------------------------------------- Donald M. Koll Director March 19, 1998 - --------------------------------------------------- Daniel D. (Ron) Lane /s/ GENERAL WILLIAM LYON Director March 19, 1998 - --------------------------------------------------- General William Lyon /s/ STEPHEN C. MAHOOD Director March 19, 1998 - --------------------------------------------------- Stephen C. Mahood /s/ J. THOMAS TALBOT Director March 19, 1998 - --------------------------------------------------- J. Thomas Talbot /s/ CARY H. THOMPSON Director March 19, 1998 - --------------------------------------------------- Cary H. Thompson /s/ WILLIAM W. WEHNER Director March 19, 1998 - --------------------------------------------------- William W. Wehner
73 76 INDEPENDENT AUDITORS' REPORT The Board of Directors Fidelity National Financial, Inc.: Under date of February 16, 1998, except as to Note O to the Consolidated Financial Statements, which is as of March 25, 1998, we reported on the Consolidated Balance Sheets of Fidelity National Financial, Inc. and subsidiaries as of December 31, 1997 and 1996, 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, 1997 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 Los Angeles, California February 16, 1998, except as to Note O to the Consolidated Financial Statements, which is as of March 25, 1998 74 77 SCHEDULE I FIDELITY NATIONAL FINANCIAL, INC. (PARENT COMPANY) BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, -------------------- 1997 1996 -------- -------- ASSETS Cash........................................................ $ -- $ 2,922 Investment securities available for sale, at fair value..... 46,811 31,569 Trade receivables, net...................................... 20 20 Notes receivable, net....................................... 2,500 4,535 Investment in subsidiaries.................................. 278,430 215,253 Investments in real estate and partnerships, net............ 1,435 1,435 Income taxes receivable..................................... -- 7,589 Prepaid expenses and other assets........................... 4,290 6,083 -------- -------- $333,486 $269,406 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable and accrued liabilities.................. $ 7,466 $ 2,935 Notes payable............................................. 96,885 120,263 Accounts payable to subsidiaries.......................... 9,272 28,353 Deferred income taxes..................................... 13,422 7,604 Income taxes payable...................................... 10,122 -- -------- -------- 137,167 159,155 -------- -------- 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 1997 and 1996; issued 24,055,755 in 1997 and 21,353,963 in 1996..................................... 2 2 Additional paid-in capital................................ 101,735 61,271 Retained earnings......................................... 126,535 91,019 -------- -------- 228,272 152,292 Net unrealized gains on investments....................... 22,422 12,334 Less treasury stock, 6,041,352 shares in 1997 and 1996, at cost................................................... 54,375 54,375 -------- -------- 196,319 110,251 Commitments and contingencies............................. Subsequent events......................................... -------- -------- $333,486 $269,406 ======== ========
See accompanying Notes to Financial Statements. (Schedule continued on following page.) 75 78 FIDELITY NATIONAL FINANCIAL, INC. (PARENT COMPANY) STATEMENTS OF EARNINGS AND RETAINED EARNINGS (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, ------------------------------ 1997 1996 1995 -------- ------- ------- REVENUE: Other fees and revenue.................................... $ 13 $ 1,617 $ 583 Interest and investment income............................ 1,868 227 2,563 -------- ------- ------- 1,881 1,844 3,146 -------- ------- ------- EXPENSES: Other operating expenses.................................. 9,645 2,288 204 Interest expense.......................................... 7,163 7,177 8,427 -------- ------- ------- 16,808 9,465 8,631 -------- ------- ------- Losses before income tax benefit, equity in earnings of subsidiaries and extraordinary item....................... (14,927) (7,621) (5,485) Income tax benefit.......................................... 6,493 3,048 899 -------- ------- ------- Losses before equity in earnings of subsidiaries and extraordinary item........................................ (8,434) (4,573) (4,586) Equity in earnings of subsidiaries.......................... 49,905 28,910 12,218 -------- ------- ------- Earnings before extraordinary item.......................... 41,471 24,337 7,632 Extraordinary item -- loss on early retirement of debt, net of applicable income tax benefit of $1,180 in 1997 and $437 in 1995.............................................. (1,700) -- (813) -------- ------- ------- Net earnings................................................ $ 39,771 $24,337 $ 6,819 ======== ======= ======= Basic net earnings.......................................... $ 39,771 $24,337 $ 6,819 ======== ======= ======= Basic earnings per share before extraordinary item.......... $ 2.61 $ 1.62 $ .50 Extraordinary item -- loss on early retirement of debt, net of applicable income tax benefit.......................... (.11) -- (.05) -------- ------- ------- Basic net earnings per share................................ $ 2.50 $ 1.62 $ .45 ======== ======= ======= Weighted average shares outstanding, basic basis............ 15,911 15,037 15,131 ======== ======= ======= Diluted net earnings........................................ $ 42,913 $27,533 $ 6,819 Diluted net earnings per share before extraordinary item.... $ 2.08 $ 1.34 $ .49 Extraordinary item -- loss on early retirement of debt net of applicable income tax benefit.......................... (.08) -- (.05) -------- ------- ------- Diluted net earnings per share.............................. $ 2.00 $ 1.34 $ .44 ======== ======= ======= Weighted average shares, diluted basis...................... 21,483 20,484 15,694 ======== ======= ======= Dividends per share......................................... $ .26 $ .24 $ .22 ======== ======= ======= Retained earnings, beginning of year........................ $ 91,019 $70,273 $66,668 Dividends declared........................................ (4,255) (3,591) (3,214) Net earnings.............................................. 39,771 24,337 6,819 -------- ------- ------- Retained earnings, end of year.............................. $126,535 $91,019 $70,273 ======== ======= =======
See accompanying Notes to Financial Statements. (Schedule continued on following page.) 76 79 FIDELITY NATIONAL FINANCIAL, INC. (PARENT COMPANY) STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, -------------------------------- 1997 1996 1995 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings............................................. $ 39,771 $ 24,337 $ 6,819 Adjustments to reconcile net earnings to net cash provided by operating activities: Extraordinary item: Loss on early retirement of LYONs............................................... 2,090 -- -- Depreciation and amortization......................... -- 90 98 Amortization of LYONs original issue discount and issuance costs...................................... 5,939 5,295 4,916 Provision for losses on notes receivable.............. 195 240 (80) Net equity in earnings of subsidiaries................ (49,905) (28,910) (12,218) (Gain) loss on sale of investments.................... (746) 1,625 (639) Net increase (decrease) in income taxes............... 16,793 3,417 7,673 Net (increase) decrease in prepaid expenses and other assets.............................................. (99) (1,470) 4,397 Net increase (decrease) in accounts payable and accrued liabilities................................. 3,553 (1,380) (2,584) -------- -------- -------- Net cash provided by operating activities........ 17,591 3,244 8,382 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of investments....................... 7,491 8,699 25,112 Purchase of investments.................................. (12,217) (8,814) (7,471) Additions to notes receivable............................ -- (4,350) -- Collections on notes receivable.......................... 1,590 393 106 Additions to investment in subsidiaries.................. (7,055) (10,699) (7,034) Investment in real estate and partnerships, net.......... -- -- (53) -------- -------- -------- Net cash provided by (used in) investing activities..................................... (10,191) (14,771) 10,660 -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings............................................... -- 5,000 33,772 Debt service payments.................................... (3,000) (3,000) (46,814) Extraordinary items: Early retirement of LYON's............................ 790 -- -- Early retirement of debt.............................. -- -- 1,250 Dividends paid........................................... (3,979) (3,477) (3,232) Issuance (acquisition) of treasury stock, net............ -- 1,917 (15,831) Exercise of stock options................................ 1,412 440 1,439 Net borrowings from (payments to) subsidiaries........... (5,545) 13,325 10,618 -------- -------- -------- Net cash provided by (used in) financing activities..................................... (10,322) 14,205 (18,798) -------- -------- -------- Net increase (decrease) in cash and cash equivalents....... (2,922) 2,678 244 Cash and cash equivalents at beginning of year............. 2,922 244 -- -------- -------- -------- Cash and cash equivalents at end of year................... $ -- $ 2,922 $ 244 ======== ======== ========
See accompanying Notes to Financial Statements. (Schedule continued on following page.) 77 80 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, ---------------------- 1997 1996 --------- ---------- (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% (7.63% at December 31, 1997), due September 2001, paid subsequent to year end.................................................. $15,250 $ 18,250 Bank revolving credit facility, secured by common stock of certain Insurance Subsidiaries, with interest due quarterly at LIBOR rate plus 2.0% (7.63% at December 31, 1997) principal due quarterly beginning April 1998, due September 2001, unused portion of $8 million at December 31, 1997 and 1996, paid subsequent to year end............ 5,000 5,000 Liquid Yield Option Notes, zero coupon, convertible subordinated notes due 2009 with interest at 5.5%......... 76,635 97,013 ------- -------- $96,885 $120,263 ======= ========
Principal maturities, including accretion of original issue discount, are as follows (dollars in thousands): 1998...................................................... $ 3,563 1999...................................................... 5,250 2000...................................................... 5,500 2001...................................................... 5,000 2002...................................................... 938 Thereafter................................................ 140,572 -------- $160,823 ========
78 81 FIDELITY NATIONAL FINANCIAL, INC. (PARENT COMPANY) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) C. SUPPLEMENTARY CASH FLOW INFORMATION:
YEAR ENDED DECEMBER 31, ----------------------------- 1997 1996 1995 ------- ------- ------- (DOLLARS IN THOUSANDS) Cash paid (refunded) during the year: Interest.................................................. $ 1,931 $ 1,953 $ 3,126 ======= ======= ======= Income taxes.............................................. $13,971 $14,334 $(3,147) ======= ======= ======= Non-cash investing and financing activities: Dividends declared and unpaid............................. $ 1,254 $ 975 $ 860 ======= ======= ======= Acquisition of Nations Title Inc.......................... $ -- $ 2,130 $ -- ======= ======= ======= Acquisition of Fidelity National Tax...................... $ -- $ 2,520 $ -- ======= ======= ======= Acquisition of National Alliance Marketing Group, Inc..... $ 2,317 $ -- $ -- ======= ======= ======= Acquisition of First Title Corporation.................... $ 3,760 $ -- $ -- ======= ======= ======= Acquisition of Ifland Credit Services..................... $ 2,985 $ -- $ -- ======= ======= ======= Acquisition of Bron Research, Inc......................... $ 9,850 $ -- $ -- ======= ======= ======= Acquisition of Credit Reports, Inc........................ $ 200 $ -- $ -- ======= ======= ======= Acquisition of Express Network, Inc....................... $ 5,275 $ -- $ -- ======= ======= ======= Retirement of LYONs....................................... $25,512 $ -- $ -- ======= ======= ======= Conversion of LYONs....................................... $ 888 $ -- $ -- ======= ======= =======
79 82 SCHEDULE II FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS YEAR ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS)
COL. A COL. B COL. C COL. D COL. E - ---------------------------------------- ---------- ----------------------- ---------- --------- ADDITIONS ----------------------- BALANCE AT CHARGED TO BALANCE BEGINNING COSTS AND OTHER DEDUCTIONS AT END DESCRIPTION OF PERIOD EXPENSES (DESCRIBE) (DESCRIBE) OF PERIOD ----------- ---------- ---------- ---------- ---------- --------- Year ended December 31, 1997: Reserve for claim losses.............. $187,245 $38,661 $ 124(1) $35,283(2) $190,747 Allowance on: Trade receivables.................. 6,822 1,920 204(1) 3,793(3) 5,153 Notes receivable................... 2,654 270 (153)(1) 1,021(3) 1,750 Real estate allowance................. 4,467 330 -- 3,330(4) 1,467 Amortization of cost in excess of net assets acquired and other intangible assets.................. 6,309 2,888 -- -- 9,197 Year ended December 31, 1996: Reserve for claim losses.............. $146,094 $33,302 $45,171 $37,322(2) $187,245 Allowance on: Trade Receivables.................. 3,471 2,644 3,091(1) 2,384(3) 6,822 Notes Receivable................... 2,941 775 153(1) 1,215(3) 2,654 Real estate allowance................. 3,467 -- 1,000(1) -- 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(2) $146,094 Allowance on: Trade receivables.................. 2,029 1,701 -- 259(3) 3,471 Notes receivable................... 2,783 612 -- 454(3) 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
- --------------- (1) Represents net reserve for claim losses and other allowances assumed from sales and acquisitions during the year. (2) Represents payments of claim losses, net of recoupments. (3) Represents uncollectible accounts written off, change in reserve due to reevaluation of specific items and change in reserve due to sale of certain assets. (4) Represents reduction in the reserve balance due to the sale of a real estate property. 80 EX-10.1.2.1 2 EMPLOYMENT AGREEMENTS FIRST AMENDMENTS REVISIONS 1 EXHIBIT 10.1.2.1 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT, effective as of January 1, 1997, is entered into by and between FIDELITY NATIONAL FINANCIAL, INC., a Delaware corporation (the "Company"), and PATRICK F. STONE ("the Employee") and amends the current Employment Agreement between the Company and Employee, which current Employment Agreement was effective January 1, 1996. WHEREAS, the Company and Employee are parties to an Employment Agreement ("Agreement") effective January 1, 1996 with a one year term which expires December 31, 1996 ("Agreement"), and WHEREAS, the Company and Employee wish to amend such Agreement as set forth below, NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, the parties agree as follows: 1. Section I of the Agreement, entitled "Employment and Duties" is amended to delete the current section 1 and replace it with the following: "1. Employment and Duties. Subject to the terms and conditions of this Agreement, the Company employs the Employee to serve in an executive and managerial capacity as the Chief Operating Officer of the Company, and the Employee accepts such employment and agrees to perform such reasonable responsibilities and duties commensurate with the aforesaid position, as directed by the Chief Executive Officer and as set forth in the Articles of Incorporation and the Bylaws of the Company. Any change in such title or delegation of duties inconsistent with such title shall be deemed a Termination Without Cause under section 7 (b) of this Agreement." 2. Section 2 of the Agreement, entitled "Term" is amended to delete the current section 2 and replace it with the following: 1 2 "2. Term. The term of the Agreement shall be for a period of three (3) years commencing January 1, 1997 and ending December 31, 1999, subject to termination as set forth in Section 7 hereof." 3. Section 3 of the Agreement entitled "Salary" is amended to delete the current section 3 and replace it with the following: "3. Salary. During the term of this Agreement, the Company shall pay Employee a minimum base annual salary, before deducting all applicable withholdings, of $325,000 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 (but not decreased) 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. Section 7 of the Agreement entitled "Termination" and subsection (b) thereof entitled "Without Cause" is amended to delete the current subsection (b) and replace it with the following: "(b) Without Cause. Either party may terminate this Agreement immediately without cause by giving written notice to the other. (i) If the Company terminates hereunder, it shall pay to the Employee an amount equal to the product of (A) the Employee's minimum base annual salary rate in effect as of the date of termination plus the bonus paid for calender year 1996 and paid in 1997 (base year bonus), 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, or as otherwise directed by Employee. 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 2 3 participation is possible under the general terms and provisions of such plans and programs. In the event that the Employee's participation in any such plan or program is prohibited, the Company shall, at the Company's expense, arrange to provide the Employee with or, if not possible to arrange, to pay Employee the economic value of 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. (ii) If the Employee terminates hereunder, the Company shall be obligated to pay the Employee the minimum base annual salary and a prorated annual bonus as set forth in Sections 3 and 4 due him through the date of termination." 5. Section 8 of the Agreement entitled "Severance Payment," and subsection (b) (ii) thereof is amended to delete the current subsection (b) (ii) and replace it with the following: (ii) in lieu of any further salary and bonus payments or other payments due to the Employee for periods subsequent to the date of termination, the Company shall pay as severance to the Employee an amount equal to the product of (A) the Employee's annual salary rate in effect as of the date of termination plus the base year bonus, 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 6. A new section 9 (a) shall be added to the Agreement entitled "Relocation" stating as follows: "9. Relocation. At the Company's request, Employee has relocated to and agreed to reside in Santa Barbara County, California to perform his duties hereunder. Employee shall not be required to move from Santa Barbara County, California to perform his duties hereunder during the term of this Agreement." 3 4 7. In the seventh line of section 8 (b) (iii) of the Agreement, the word "at the Company's expense" shall be added after the word "shall" and before the word "arrange." 8. 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/ WILLIAM P. FOLEY ----------------------------------- By: William P. Foley, II Its: Chairman of the Board and Chief Executive Officer PATRICK F. STONE /s/ PATRICK F. STONE ----------------------------------- 4 5 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT, effective as of January 1, 1997, is entered into by and between FIDELITY NATIONAL FINANCIAL, INC., a Delaware corporation (the "Company"), and FRANK P. WILEY ("the Employee") and amends the current Employment Agreement between the Company and Employee, which current Employment Agreement was effective January 1, 1996. WHEREAS, the Company and Employee are parties to an Employment Agreement ("Agreement") effective January 1, 1996 with a one year term which expires December 31, 1996 ("Agreement"), and WHEREAS, the Company and Employee wish to amend such Agreement as set forth below, NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, the parties agree as follows: 1. Section I of the Agreement, entitled "Employment and Duties" is amended to delete the current section I and replace it with the following: " 1. Employment and Duties. Subject to the terms and conditions of this Agreement, the Company employs the Employee to serve in an executive and managerial capacity as the President of the Company, and the Employee accepts such employment and agrees to perform such reasonable responsibilities and duties commensurate with the aforesaid position, as directed by the Chief Executive Officer and as set forth in the Articles of Incorporation and the Bylaws of the Company. Any change in such title or delegation of duties inconsistent with such title shall be deemed a Termination Without Cause under section 7 (b) of this Agreement." 2. Section 2 of the Agreement, entitled "Term" is amended to delete the current section 2 and replace it with the following: 1 6 "2. Term. The term of the Agreement shall be for a period of three (3) years commencing January 1, 1997 and ending December 31, 1999, subject to termination as set forth in Section 7 hereof." 3. Section 7 of the Agreement entitled "Termination" and subsection (b) thereof entitled "Without Cause" is amended to delete the current subsection (b) and replace it with the following: "(b) Without Cause. Either party may terminate this Agreement immediately without cause by giving written notice to the other. (i) If the Company terminates hereunder, it shall pay to the Employee an amount equal to the product of (A) the Employee's minimum base annual salary rate in effect as of the date of termination plus the bonus paid for calender year 1996 and paid in 1997 (base year bonus), 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, or as otherwise directed by Employee. 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, at the Company's expense, arrange to provide the Employee with or, if not possible to arrange, to pay Employee the economic value of 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. (ii) If the Employee terminates hereunder, the Company shall be obligated to pay the Employee the minimum base annual salary and a prorated annual bonus as set forth in Sections 3 and 4 due him through the date of termination." 2 7 4. Section 8 of the Agreement entitled "Severance Payment," and subsection (b) (ii) thereof is amended to delete the current subsection (b) (ii) and replace it with the following: (ii) in lieu of any further salary and bonus payments or other payments due to the Employee for periods subsequent to the date of termination, the Company shall pay as severance to the Employee an amount equal to the product of (A) the Employee's annual salary rate in effect as of the date of termination plus the base year bonus, 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 5. A new section 9 (a) shall be added to the Agreement entitled "Relocation" stating as follows: "9. Relocation. Employee shall not be required to move from the State of California to perform his duties hereunder during the term of this Agreement." 6. In the seventh line of section 8 (b) (iii) of the Agreement, the word "at the Company's expense" shall be added after the word "shall" and before the word "arrange." 7. Effect on Employment Agreement. Except as herein amended, all provisions of the Agreement shall remain in full force and effect. 3 8 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/ WILLIAM P. FOLEY ---------------------------------------- By: William P. Foley Its: Chairman of the Board and Chief Executive Officer FRANK P. WILEY /s/ FRANK P. WILEY ---------------------------------------- 4 9 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("AGREEMENT") is effective as of April 1, 1997, 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: 1. Employment and Duties. Subject to the terms and conditions of this Agreement, the Company employs the Employee to serve in an executive and managerial capacity as 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 the aforesaid position, as directed by the Chief Executive Officer and as set forth in the Articles of Incorporation and the Bylaws of the Company. Any change in such title or delegation of duties inconsistent with such title shall be deemed a Termination Without Cause under section 7 (b) of this Agreement. 2. Term. The term of this Agreement shall be for a period of three (3) years commencing on the date hereof and continuing for three (3) years until March 31, 2000, 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 $150,000 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 (but not decreased) 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: 1 10 (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. (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 $5,000 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 $5,000 to determine the amount of such bonus ( for example, an 11.5% return on equity would result in a $7,500 bonus). Said bonus shall be paid no later than March 31st of each year and is fully vested in the 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. Notwithstanding the effective date of this Agreement, the start date for the 1997 bonus calculation shall be January 1, 1997. (f) Options. Employee and the Company executed a letter entitled "Terms of Employment" under which Employee received certain options and the right to earn certain options (the "Letter"). A copy of the Letter is attached hereto as Exhibit "A" Employee 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 2 11 expressed in the Letter. Employee 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. (i) If the Company terminates hereunder, it shall pay to the Employee an amount equal to the product of (A) the Employee's minimum base annual salary rate in effect as of the date of termination plus the bonus paid for calender year 1996 and paid in 1997 (base year bonus), 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, or as otherwise directed by Employee. The Company shall maintain in full force and effect, for the continued benefit of the Employee for the greater of the number of 3 12 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, at the Company's expense, arrange to provide the Employee with or, if not possible to arrange, to pay Employee the economic value of 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. (ii) If the Employee terminates hereunder, the Company shall be obligated to pay the Employee the minimum base annual salary and a prorated annual bonus as set forth in Sections 3 and 4 due him through the date of termination." (c) Disability. If the Employee fails to perform his duties hereunder on account of illness or other incapacity for a period of 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 and the base year bonus without offset prorated through the date of termination 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 and the minimum annual bonus without offset prorated through the date of termination in a lump sum or as otherwise directed by Employee's legal representative. (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-today duties as an employee. 8. Severance Payment. 4 13 (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; 5 14 (ii) in lieu of any further salary and bonus payments or other payments due to the Employee for periods subsequent to the date of termination, the Company shall pay as severance to the Employee an amount equal to the product of (A) the Employee's annual salary rate in effect as of the date of termination plus the base year bonus, 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, at the Company's expense, arrange to provide the Employee with or, if not possible, to arrange to pay Employee the economic value of 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 6 15 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 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 (except as noted in section 4(f) above and section 14 below). 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. 7 16 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. 14. Employment by CKE Restaurants, Inc. Anything to the contrary hereinabove notwithstanding, Company acknowledges that Employee is also the General Counsel of CKE Restaurants, Inc. ("CKE") and will direct a reasonable portion of his time to fulfilling his duties as an officer of CKE. Company further acknowledges that Employee may become an employee of CKE in addition to the 8 17 Company and that such employment shall not be a violation of this agreement so long as employee dedicates a reasonable amount of his time to his duties hereunder. For purposes of Sections 11, "Company" shall include CKE. Notwithstanding time spent on matters involving CKE, Employee shall continue to be considered a full time employee of the Company. 15. Relocation. Prior to July 30, 1997, or as soon thereafter as the Company has office space available, Employee shall move to Santa Barbara County, California to perform his duties hereunder. The Company shall cover the reasonable expenses of such move. Employee shall not be required to move from Santa Barbara County, California to perform his duties hereunder during the term of this Agreement. 16. 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. 17. 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 parties 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. 9 18 18. 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. 19. 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. 20. 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. 21. 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. 22. 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 10 19 Irvine, California 92714 Attention: Frank P. Willey President To Employee: Andrew F. Puzder 25761 Pecos Road Laguna Hills, California 92653 23. Waiver of Breach. The waiver by any party of any provisions of this Agreement shall not operate or be construed as a waiver of any prior or subsequent breach by the other party. IN WITNESS WHEREOF the parties have executed this Employment Agreement as of the date set forth herein above. FIDELITY NATIONAL FINANCIAL, INC. /s/ WILLIAM P. FOLEY --------------------------------------- By: William P. Foley Its: Chairman of the Board and Chief Executive Officer ANDREW F. PUZDER /s/ ANDREW F. PUZDER --------------------------------------- 11 20 Fidelity National Financial, Inc. FRANK P. WILLEY PRESIDENT January 1, 1995 Mr. Andrew F. Puzder 25761 Pecos Road Laguna Hills, California 92653 Re: Terms of Employment Dear Andy: The purpose of this letter is to set forth the terms pursuant to which you will be employed by Fidelity National Financial, Inc. ("FNFI") as Executive Vice President and General Counsel. 1. You will be paid a salary of $18,000 per month ($9,000) paid twice monthly) - From this amount FNFI will deduct (i) a minimum of $1,000 per month as a contribution to FNFI's Employee Stock Option Plan (you may contribute more at your option) , (ii) an employee contribution for medical insurance in accordance with FNFI's normal practice, and (iii) withholding taxes and other required deductions (Federal, State, FICA, and State Disability Insurance). 2. You will be entitled to the benefits enjoyed by FNFI's other top executives including an annual bonus based on performance (comparable to the bonuses received by FNFI's other top executives), annual grants of stock options pursuant to FNFI's Stock Option Plan(s) in effect at the time of the grant (in amounts comparable to FNFI's other top executives), monthly club dues at one club of your choice, and life, health and disability insurance coverage. FNFI will also cover all bar dues and costs of continuing legal education to keep your bar association memberships current. 3. Your employment will commence on January 1, 1995. At the time your employment commences, you will receive options for 50,000 shares of FNFI stock at the closing market price on December 30, 1994. These options will vest as follows: (i) 16,667 shares on January 1, 1995; (ii) 16,667 shares on January 1, 1996; and (iii) 16,666 shares on January 1. 1997. These options shall be incentive stock options as defined by section 422 of the Internal Revenue Code (to the maximum extent possible), and will be exercisable for 10 years from the date of grant. 4. For the first three years of your employment, on the date your annual bonus is granted, in lieu of $25,000 of such bonus, you may elect to take options, for 25,000 shares of FNFI stock at the 21 average closing price for FNFI stock for the twelve month period ending December 31st of the year for which the bonus is granted. These options will vest immediately upon your making the election. This will result in a maximum of an additional 75,000 options over three years. These options shall be incentive stock options as defined by section 422 of the Internal Revenue Code (to the maximum extent possible) and will be exercisable for 10 years from the date of grant. 5. During the term of your employment, you shall be permitted to continue to represent Carl N. Karcher so long as your representation of Mr. Karcher does not materially interfere with your duties as Executive Vice President and General Counsel of FNFI. You may bill Mr. Karcher directly for your services and retain any amounts collected. 6. If FNFI terminates your employment at any time during the first two years of such employment (i.e., between January 1, 1995 and January 1, 1997), you shall be entitled to your salary, as set forth in paragraph 1 above, and your stock options, as set forth in paragraph 3 above, for the period from the date of such termination through January 1, 1997. If the foregoing is acceptable, please sign the enclosed copy of this letter in the space provided below and return it to me at your earliest convenience. This letter sets forth the terms of your employment and shall not be construed as, and is not intended to be a contract of employment. /s/ FRANK P. WILLEY ------------------------------------ Frank P. Willey President Fidelity National Financial, Inc. Accepted: /s/ ANDREW F. PUZDER ----------------------------- Andrew F. Puzder 22 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is effective as of April 1, 1997, 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: 1. Employment and Duties. Subject to the terms and conditions of this Agreement, the Company employs the Employee to serve in an executive and managerial capacity as the Chief Financial Officer and Executive Vice President of the Company, and the Employee accepts such employment and agrees to perform such reasonable responsibilities and duties commensurate with the aforesaid position, as directed by the Chief Executive Officer and as set forth in the Articles of Incorporation and the Bylaws of the Company. Any change in such title or delegation of duties inconsistent with such title shall be deemed a Termination Without Cause under section 7 (b) of this Agreement. 2. Term. The term of this Agreement shall be for a period of three (3) years commencing on the date hereof and continuing for three (3) years until March 31, 2000, 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 $150,000 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 (but not decreased) 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: 1 23 (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. (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 $5,000 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 $5,000 to determine the amount of such bonus (for example, an 11.5% return on equity would result in a $7,500 bonus). Said bonus shall be paid no later than March 31st of each year and is fully vested in the 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. Notwithstanding the effective date of this Agreement, the start date for the 1997 bonus calculation shall be January 1, 1997. 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. 2 24 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. (i) If the Company terminates hereunder, it shall pay to the Employee an amount equal to the product of (A) the Employee's minimum base annual salary rate in effect as of the date of termination plus the bonus paid for calender year 1996 and paid in 1997 (base year bonus), 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, or as otherwise directed by Employee. 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, at the Company's 3 25 expense, arrange to provide the Employee with or, if not possible to arrange, to pay Employee the economic value of 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. (ii) If the Employee terminates hereunder, the Company shall be obligated to pay the Employee the minimum base annual salary and a prorated annual bonus as set forth in Sections 3 and 4 due him through the date of termination." (c) Disability. If the Employee fails to perform his duties hereunder on account of illness or other incapacity for a period of 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 and the base year bonus without offset prorated through the date of termination 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 and the minimum annual bonus without offset prorated through the date of termination in a lump sum or as otherwise directed by Employee's legal representative. (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 4 26 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; (ii) in lieu of any further salary and bonus payments or other payments due to the Employee for periods subsequent to the date of termination, the Company shall pay as severance to the Employee an amount equal to the product of (A) the Employee's annual salary rate in effect as of the date of termination plus the base year bonus, multiplied by (B) the greater of the number of years (including partial 5 27 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, at the Company's expense, arrange to provide the Employee with or, if not possible, to arrange to pay Employee the economic value of 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, 6 28 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 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 (except as noted in section 14 below). 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 7 29 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. 14. Employment by CKE Restaurants, Inc. Anything to the contrary hereinabove notwithstanding, Company acknowledges that Employee is also the Chief Financial Officer of CKE Restaurants, Inc. ("CKE") and will direct a reasonable portion of his time to fulfilling his duties as an officer of CKE. Company further acknowledges that Employee may become an employee of CKE in addition to the Company and that such employment shall not be a violation of this agreement so long as employee dedicates a reasonable amount of his time to his duties hereunder. For purposes of Sections 11, "Company" shall include CKE. Notwithstanding time spent on matters involving CKE, Employee shall continue to be considered a full time employee of the Company. 8 30 15. Relocation.- Prior to July 30, 1997, or as soon thereafter as the Company has office space available, Employee shall move to Santa Barbara County, California to perform his duties hereunder. The Company shall cover the reasonable expenses of such move. Employee shall not be required to move from Santa Barbara County, California to perform his duties hereunder during the term of this Agreement. 16. 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. 17. 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 parties 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. 18. 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. 9 31 19. 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. 20. 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. 21. 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. 22. 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 10 32 General Counsel To Employee: Carl A. Strunk 563 Promontory Drive East Newport Beach, California 92660 23. Waiver of Breach. The waiver by any party of any provisions of this Agreement shall not operate or be construed as a waiver of any prior or subsequent breach by the other party. IN WITNESS WHEREOF the parties have executed this Employment Agreement as of the date set forth herein above. FIDELITY NATIONAL FINANCIAL, INC. /s/ WILLIAM P. FOLEY ----------------------------------- By: William P. Foley Its: Chairman of the Board and Chief Executive Officer CARL A. STRUNK /s/ CARL A. STRUNK ----------------------------------- 11 EX-10.1.3 3 EMPLOYMENT AGREEMENT EFFECTIVE SEPTEMBER 15, 1997 1 EXHIBIT 10.1.3 Meadows Employment Agreement (page 1) EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is effective as of September 15, 1997, by and between FIDELITY NATIONAL FINANCIAL, INC., a Delaware corporation (the "Company"), and ALLEN D. MEADOWS (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: 1. Employment and Duties. Subject to the terms and conditions of this Agreement, the Company employs the Employee to serve in an executive and managerial capacity as the Chief Financial Officer 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 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 three (3) years commencing on the date hereof and continuing for three (3) years until September 15, 2000, 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 $200,000 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. 2 Meadows Employment Agreement (page 2) (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 dependants commencing on the date of the 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 $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 stockholder's 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 in the event of a non-renewal of this Agreement or is vested prorata in the event you are employed for a partial year (for example, the first year for which you will be entitled to a bonus, you will have been employed for 3 and 1/2 months or 29% of the year and will thus received 29% of the annual bonus amount calculated as set forth above for 1997) or 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. (f) The Company will cover the expenses of Employee's move to Santa Barbara County. Such expenses will include moving expenses as charged by a moving company selected by the Company, title and closing costs for the sale of your current home, and any real estate commissions as may be due on the sale of your current home. 3 Meadows Employee Agreement (page 3) For the period from September 15, 1997 through June 30, 1998, the Company will reimburse Employee for apartment rental in the amount of $500.00 per month. 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 pay to the Employee an amount equal to the product of (A) the Employee's minimum base 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 or as otherwise directed by Employee. 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 Employee was entitled to participate immediately prior to the date of termination provided that the Employee's continued participation is possible under the general terms and provisions of such plans and programs. In the event that the Employee's 4 Meadows Employment Agreement (page 4) participation in any such plan or program is prohibited, the Company shall, at the Company's expense, arrange to provide the Employee with benefits substantially similar to those which the employee would otherwise have been entitled to receive under such plans and programs from which his continued participation is prohibited. If the Employee terminates hereunder, the Company shall be obligated to pay the Employee the minimum base compensation and a prorated minimum annual bonus as set forth in Sections 3 and 4 due him through the date of termination. (c) Disability. If the Employee fails to perform his duties hereunder on account of illness or other incapacity for a period of 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 and the minimum annual bonus without offset prorated through the date of termination in a lump sum or as otherwise directed by Employee's legal representative. (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 5 Meadows Employment Agreement (page 5) 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, (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 thereof, 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: (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 severanace pay to the Employee an amount equal to the product of (A) the Employee's minimum base annual salary rate in effect as of the date of termination plus the total bonus which would have been paid to Employee had he been an employee of the Company for all of 1997 and had he been entitled to a bonus calculated pursuant to paragraph 4(e) above, 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 folowing the date of termination, or as otherwise directed by Employee; 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 6 Meadows Employment Agreement (page 6) (including partial years) remaining in the term of employment hereunder or the number 2, all employee benefit plans and programs in which the Employee was entitled to participate immediately prior to the date of termination provided that the Employee's continued participation is possible under the general terms and provisions of such plans and programs. In the event that the Employee participation in any such plan or program is prohibited, the Company shall, at the Company's expense, arrange to provide the Employee with benefits substantially similar to those which the Employee would otherwise have been entitled to receive under such plans and programs from which his continued participation is prohibited. (c) The employee shall not be required to mitigate the amount of any payment provided for in this Section 8 or Section 7(b) above by seeking other employment or otherwise, nor shall any compensation or other payments received by the Employee after the date of termination reduce any payments due under this Section 8 or Section 7(b). (d) Notwithstanding the provision hereinabove, if any payment pursuant to this Section 8 would be a "parachute payment" (defied 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 purchase, 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 7 Meadows Employment Agreement (page 7) 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 employoment 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 solict any person or busienss 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 foreoging 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 of the Company without cause; 8 Meadows Employment Agreement (page 8) (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. 14. Improvement 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 parties that, in the event of a 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 time 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 conducted 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. 9 Meadows Employment Agreement (9) 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 courts located in California. 18. Attorneys Fees. If any party finds it necessary to employ legal counsel or to bring an action a law or other proceedings against the other party to enforce any of the terms hereof, the party prevailing in any such action or other proceedings 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 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. 3916 State Street Santa Barbara, CA 93105 Attention: Andrew F. Puzder Executive Vice President 10 Meadows Employment Agreement (page 10) To Employee: Allen D. Meadows 20160 Allentown Drive Woodland Hills, CA 01364 21. Waiver of Breach. The waiver by any part of any provisions of this Agreement shall not operate or be construed as a waiver of any prior or subsequent breach by the other party. IN WITNESS WHEREOF, the parties have executed this Employment Agreement as of the date set forth herein above. FIDELITY NATIONAL FINANCIAL, INC. By: /s/ Andrew F. Puzder Its: Executive Vice President ALLEN D. MEADOWS /s/ Allen D. Meadows EX-10.8.3.5 4 AMENDMENT NO. 5 1 EXHIBIT 10.8.3.5 EXECUTION COPY AMENDMENT NO. 5 AMENDMENT NO. 5 dated as of March 31, 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. 5, 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 8.06 of the Credit Agreement shall be amended by (i) deleting the "and" at the end of clause (j) thereof, (ii) replacing the period at the end of clause (k) thereof with a semicolon and the word "and" and (iii) adding the following new clause (l) thereto: "(l) liens on the property of any Subsidiary of the Company securing obligations of such Subsidiary under letters of credit permitted by Section 8.07(i) hereof plus additional obligations of such Subsidiary to the issuer of such letter Amendment No. 5 2 - 2 - of credit incurred in connection with such issuance and not exceeding 20% of the amount of such letter of credit." 2.03. Section 8.07 of the Credit Agreement shall be amended by (i) deleting the word "and" at the end of clause (g) thereof, (ii) replacing the period at the end of clause (h) thereof with a semicolon and the word "and" and (iii) adding the following new clause (i) thereto: "(i) Indebtedness under letters of credit for the account of (x) any of the Subsidiaries of Nations Title in an aggregate amount not exceeding $27,000,000 or (y) any of the Subsidiaries of the Company (other than Nations Title or any of its Subsidiaries) in an aggregate amount not exceeding $55,000,000, which letters of credit in any such case are issued to reinsurers in connection with aggregate excess of loss reinsurance transactions to cover funds held liabilities of such reinsurers in connection with such transactions; provided that such reinsurance transactions result in an increase in the statutory surplus of Nations Title or the Company, as the case may be, in accordance with Chapter 22 of the Accounting Practices and Procedures Manual for Property and Casualty Insurers published by the National Association of Insurance Commissioners." 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. 5. 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. 5 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. 5 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. 5 by signing any such counterpart. This Amendment No. 5 shall be governed by, and construed in accordance with, the law of the State of New York. Amendment No. 5 3 - 3 - IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 5 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 BANKS THE CHASE MANHATTAN BANK By /s/ David W. Nelson -------------------------------- Title: Managing Director IMPERIAL BANK By /s/ Jeff Thomas -------------------------------- Title: Vice President SANWA BANK CALIFORNIA By /s/ John C. Hyche -------------------------------- Title: Vice President WELLS FARGO BANK, N.A. By /s/ Michael Sullivan -------------------------------- Title: Vice President Amendment No. 5 4 - 4 - THE CHASE MANHATTAN BANK, as Administrative Agent By /s/ David W. Nelson -------------------------------- Title: Managing Director Amendment No. 5 EX-10.8.3.6 5 AMENDMENT NO. 6 1 EXHIBIT 10.8.3.6 AMENDMENT NO. 6 AMENDMENT NO. 6 dated as of August 5, 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. 6, 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 6 below, but effective as of June 30, 1997, 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 8.12 of the Credit Agreement shall be amended by replacing "$25,000,000" with "$35,000,000". 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. 6. Amendment No. 6 2 - 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 June 30, 1997, upon receipt by the Administrative Agent of duly executed counterparts of this Amendment No. 6 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. 6 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. 6 by signing any such counterpart. This Amendment No. 6 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. 6 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 BANKS THE CHASE MANHATTAN BANK By /s/ Heather Lindstrom -------------------------------- Title: Vice President Amendment No. 6 3 - 3 - IMPERIAL BANK By /s/ Jeff Thomas -------------------------------- Title: Vice President SANWA BANK CALIFORNIA By /s/ John C. Hyche -------------------------------- Title: Vice President WELLS FARGO BANK, N.A. By /s/ Sandra D. Martin -------------------------------- Title: Vice President THE CHASE MANHATTAN BANK, as Administrative Agent By /s/ Heather Lindstrom -------------------------------- Title: Vice President Amendment No. 6 EX-10.8.3.7 6 AMENDMENT NO. 7 1 EXHIBIT 10.8.3.7 AMENDMENT NO. 7 AMENDMENT NO. 7 dated as of September 16, 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. 7, 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, 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. The definition of "Revolving Credit Commitment Termination Date" in Section 1.01 of the Credit Agreement shall be hereby amended to read in its entirety as follows: "'Revolving Credit Commitment Termination Date' shall mean November 21, 1997, subject to extension as provided in Section 2.09 hereof." 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 Amendment No. 7 2 - 2 - said Section 7 to "this Agreement" included reference to this Amendment No. 7. 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 upon receipt by the Administrative Agent of duly executed counterparts of this Amendment No. 7 by the Company and the Banks. Section 5. Miscellaneous. Except as herein provided, the Credit Agreement shall remain unchanged and in full force and effect. This Amendment No. 7 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. 7 by signing any such counterpart. This Amendment No. 7 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. 7 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: BANKS THE CHASE MANHATTAN BANK By /s/ Peter Platten -------------------------------- Title: Vice President Amendment No. 7 3 - 3 - IMPERIAL BANK By /s/ Jeff Thomas -------------------------------- Title: Vice President SANWA BANK CALIFORNIA By /s/ John C. Hyche -------------------------------- Title: Vice President WELLS FARGO BANK, N.A. By /s/ Sandra D. Martin -------------------------------- Title: Vice President THE CHASE MANHATTAN BANK, as Administrative Agent By /s/ Peter Platten -------------------------------- Title: Vice President Amendment No. 7 EX-10.8.3.8 7 AMENDMENT NO. 8 1 EXHIBIT 10.8.3.8 AMENDMENT NO. 8 AMENDMENT NO. 8 dated as of November 21, 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. 8, 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, 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. The definition of "Revolving Credit Commitment Termination Date" in Section 1.01 of the Credit Agreement shall be hereby amended to read in its entirety as follows: "'Revolving Credit Commitment Termination Date' shall mean February 18, 1998, subject to extension as provided in Section 2.09 hereof." Section 3. Representations and Warranties. The Company represents and warrants to the Banks that: (a) 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. 8 2 - 2 - Amendment No. 8 and (b) no Default shall have occurred and be continuing. 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 upon receipt by the Administrative Agent of: (a) duly executed counterparts of this Amendment No. 8 by the Company and the Banks and (b) evidence reasonably satisfactory to the Administrative Agent that the Company has duly authorized the amendments contemplated by this Amendment No. 8. Section 5. Miscellaneous. Except as herein provided, the Credit Agreement shall remain unchanged and in full force and effect. This Amendment No. 8 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. 8 by signing any such counterpart. This Amendment No. 8 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. 8 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 BANKS THE CHASE MANHATTAN BANK By /s/ Laurence Karp -------------------------------- Title: Associate Amendment No. 8 3 - 3 - IMPERIAL BANK By /s/ Jeff Thomas -------------------------------- Title: Vice President SANWA BANK CALIFORNIA By /s/ Steve Skelton -------------------------------- Title: Vice President WELLS FARGO BANK, N.A. By /s/ Sandra Martin -------------------------------- Title: Vice President THE CHASE MANHATTAN BANK, as Administrative Agent By /s/ Laurence Karp -------------------------------- Title: Associate Amendment No. 8 EX-10.8.3.9 8 AMENDMENT NO. 9 1 EXHIBIT 10.8.3.9 MTH&M DRAFT 2/6/98 AMENDMENT NO. 9 AMENDMENT NO. 9 dated as of February __, 1998, 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. 9, 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, 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 be adding the following new definition in the appropriate alphabetical order: "'Granite' shall mean Granite Financial, Inc., a Delaware corporation." 2.02. The definition of "Revolving Credit Commitment Termination Date" in Section 1.01 of the Credit Agreement shall be hereby amended to read in its entirety as follows: Amendment No. 9 2 - 2 - "'Revolving Credit Commitment Termination Date' shall mean April 15, 1998, subject to extension as provided in Section 2.09 hereof." 2.03. The parenthetical in Section 8.08(d) of the Credit Agreement shall be amended by adding the words "and other than Investments in Granite unless expressly permitted by Section 8.08(l) hereof" immediately after the word "hereof" in the third line thereof. 2.04. Section 8.08 of the Credit Agreement shall be amended by adding a new clause (m) thereto to read as follows: "(m) Investments in the capital stock of Granite, provided that (i) such Investments shall not have an aggregate purchase price in excess of $137,000,000, (ii) after giving effect thereto, Granite shall be a Wholly Owned Subsidiary of the Company but not a Restricted Subsidiary and (iii) the Company shall forthwith amend the Pledge Agreement to add all of the shares of such capital stock to the Collateral provided for therein, deliver to the Administrative Agent the certificates evidencing such shares, accompanied by undated stock powers executed in blank and take such other action as the Administrative Agent shall request to perfect the security interest created therein pursuant to the Pledge Agreement, as so amended." 2.05. Section 8.17 of the Credit Agreement shall be amended by adding the following language immediately after the word "Affiliate" and immediately before the period in the last line thereof: ", provided that neither the Company nor any of its Affiliates may lease, as lessee, at any time, more than 10% of the fair market value of all assets then leased, directly or indirectly, by Granite or any of its Subsidiaries or by any trust or other Person in which Granite or any of its Subsidiaries holds any equity or residual interest". Section 3. Representations and Warranties. The Company represents and warrants to the Banks that: (a) 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. 9 and (b) no Default shall have occurred and be continuing. Amendment No. 9 3 - 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 upon receipt by the Administrative Agent of: (a) duly executed counterparts of this Amendment No. 9 by the Company and the Banks and (b) evidence reasonably satisfactory to the Administrative Agent that the Company has duly authorized the amendments contemplated by this Amendment No. 9. Section 5. Miscellaneous. Except as herein provided, the Credit Agreement shall remain unchanged and in full force and effect. This Amendment No. 9 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. 9 by signing any such counterpart. This Amendment No. 9 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. 9 to be duly executed and delivered as of the day and year first above written. FIDELITY NATIONAL FINANCIAL, INC. By /s/ A. D. Mead -------------------------------- Title: Executive Vice President and Chief Financial Officer BANKS THE CHASE MANHATTAN BANK By /s/ Helen L. Newcomb -------------------------------- Title: Vice President Amendment No. 9 4 - 4 - IMPERIAL BANK By /s/ Jeff Thomas -------------------------------- Title: Vice President SANWA BANK CALIFORNIA By /s/ Craig M. Ciebiera -------------------------------- Title: Vice President / Manager WELLS FARGO BANK, N.A. By /s/ Sandra Martin -------------------------------- Title: Vice President THE CHASE MANHATTAN BANK, as Administrative Agent By /s/ Helen L. Newcomb -------------------------------- Title: Vice President Amendment No. 9 EX-10.39.3 9 VARIABLE RATE PROMISSORY NOTE 1 EXHIBIT 10.39.3 (FLEET LETTERHEAD) PROMISSORY NOTE Floating Rate (LIBOR)/ Scheduled Principal Payments $4,767,422.00 April 30, 1997 For value received, the undersigned (jointly and severally if more than one) promises to pay to the order of Fleet Capital Corporation ("LENDER"), having its principal place of business in Providence, Rhode Island (together with any other holder of this Note, hereinafter referred to as the "HOLDER"), the principal sum of $4,767,422.00 together with interest thereon as provided herein. This Promissory Note is one of the "NOTES," and the obligations of the undersigned hereunder are "OBLIGATIONS" secured by the "COLLATERAL," as such terms are defined or referred to in Equipment Security Agreement Schedule No. 31831-00006 by and between the undersigned and Lender dated as of March 14, 1997 (the "SECURITY AGREEMENT"). This Note shall be payable by the undersigned to Holder in 48 consecutive installments of principal and interest (the "PAYMENTS") commencing on June 1, 1997 and continuing monthly thereafter through and including May 1, 2001 (the "MATURITY DATE"). Each succeeding Payment shall be due and payable on the same day of the month as the initial Payment set forth above in each succeeding payment period during the term of this Note (each, a "PAYMENT DATE"). The principal amount of this Note shall be payable by the undersigned to Holder in 48 consecutive monthly installments (the "PRINCIPAL INSTALLMENTS") in the amounts set forth in and corresponding to each of the numbered Payments listed in Schedule A attached hereto and incorporated herein by this reference. Interest shall accrue on the entire principal amount of this Note outstanding from time to time as provided below, from the date hereof until the principal amount of this Note is paid in full, and shall be due and payable together in the Principal Installments on each Payment Date. The final Payment due and payable on the Maturity Date shall in any event be equal to the entire outstanding and unpaid principal amount of this Note, together with all accrued and unpaid interest, charges and other amounts owing hereunder and under the Security Agreement. Interest shall accrue on the outstanding principal balance of this Note at a variable rate of interest, adjusted monthly equal to the Index Rate (as hereinafter defined) plus 1.84% per annum (the "INTEREST RATE"). The "INDEX RATE" for the calculation of interest payable with any Payment shall be the one-month London Interbank Offered Rate (LIBOR) as published in the Wall Street Journal in effect as of the 15th day of the month preceding the applicable Payment Date. All interest hereunder shall be calculated on the basis of a year of 360 days comprised of 12 months of 30 days each. The entire unpaid principal balance of this Note may be prepaid in full (but not in part) upon thirty days prior written notice to Holder, provided that any such prepayment shall be made together with (a) all accrued interest and other charges owing hereunder or under the Security Agreement, and (b) a prepayment fee equal to: 1% of such prepayment if made prior to the first anniversary of this Note and thereafter no prepayment fee shall be required. Time is of the essence in the payment and performance of those Obligations which are evidenced by this Note. In the event any amount due hereunder is not paid within ten (10) days of the date when due, the undersigned agrees to pay an administrative and late charge equal to the lesser of (a) five percent (5%) on and in addition to the amount of such overdue amount, or (b) the maximum charges allowable under applicable law. In addition, the undersigned shall pay overdue interest on any delinquent Payment or other Obligation due (by reason of acceleration or otherwise) from thirty (30) days after the due date thereof through the date of payment thereof at a rate of interest equal to the lesser of: (a) 1.5% per month, or (b) the maximum rate of interest allowable under then applicable law. Each payment hereunder shall be made in lawful money of the United States and shall be payable to such account or address as Holder shall from time to time direct the undersigned. Whenever any payment to be made under this Note shall be stated to be due on a Saturday, Sunday or a public holiday, or the equivalent for banks generally under the laws of the State of Rhode Island, such payment shall be made on the next succeeding Business Day, and such extension of time shall be included in the computation of the payment of interest. All amounts received hereunder or in respect of this Note shall be applied first, to accrued late charges and any other costs or expenses due and owing hereunder or under the terms of the Security Agreement; second, to accrued interest; and third, to unpaid principal. It is the intention of Holder to comply with all applicable usury laws. Accordingly, it is agreed that notwithstanding anything to the contrary contained herein, in no event shall any provision contained herein require or permit interest in excess of the maximum amount permitted by applicable law to be paid by the undersigned. If necessary to give effect to these provisions, Holder will, at its option, in accordance with applicable law, either refund any amount to the undersigned to the extent that it was in excess of that allowed by applicable law or credit such excess amount against the then unpaid principal balance hereunder. Failure to pay this Note or any installment hereunder promptly when due, or the occurrence of an "EVENT OF DEFAULT" under the Security Agreement, or default or failure in the performance or due observance of any of the terms, conditions or obligations under any other agreement or instrument between the undersigned (or any endorser, guarantor, surety or other party liable for the undersigned's obligations hereunder, or any other entity controlling, controlled by, or under common control with the undersigned) and Holder (or any other entity controlling, controlled by or under common control with Holder), shall constitute a default hereunder and entitle Holder to accelerate the maturity of this Note and to declare the entire unpaid principal balance and all accrued interest and other charges hereunder (including prepayment fees calculated as of the date of default) and under the Security Agreement to be immediately due and payable, and to proceed at once to exercise each and every one of the remedies provided in the Security Agreement or otherwise available at law or in equity. The undersigned and all other parties who may be liable (whether as endorsers, guarantors, sureties or otherwise) for payment of any sum or sums due or to become due under the terms of this Note waive diligence, presentment, demand, protest, notice of dishonor, notice of intention to accelerate, notice of acceleration and notice of any other kind whatsoever and agree to pay all costs incurred by Holder in enforcing its rights under this Note or the Security Agreement, including reasonable attorney's fees, and they do hereby consent to any number of renewals or extensions at any time in the payment of this Note. No extension of time for payment of this Note made by any agreement with any person now or hereafter liable for payment of this Note shall operate to release, discharge, modify, change or affect the original liability of the undersigned under this Note, either in whole or in part. No delay or failure by Holder hereof in exercising any right, power, privilege or remedy shall be deemed to be a waiver of the same or any part thereof; nor shall any single or partial exercise thereof or any failure to exercise the same in any instance preclude any future exercise thereof, or exercise of any other right, power, privilege or remedy available at law or in equity. The Holder of this Note may proceed against all or any of the Collateral securing this Note or against any guarantor hereof, or may proceed contemporaneously or in the first instance against the undersigned, in such order and at such times following default hereunder as Holder may determine in its sole discretion. All of the undersigned's obligations under this Note are absolute and unconditional, and shall not be subject to any offset or deduction whatsoever. The undersigned waives any right to assert, by way of counterclaim or affirmative defense in any action to enforce the undersigned's obligations hereunder, any claim whatsoever against the Holder of this Note. THIS NOTE AND THE LEGAL RELATIONS OF THE UNDERSIGNED AND HOLDER SHALL IN ALL RESPECTS BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF RHODE ISLAND. WITHOUT REGARD TO PRINCIPLES REGARDING THE CHOICE OF LAW. The UNDERSIGNED HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OR RHODE ISLAND AND THE FEDERAL DISTRICT COURT FOR THE DISTRICT OF RHODE ISLAND FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF ITS OBLIGATIONS HEREUNDER, AND EXPRESSLY WAIVES ANY OBJECTIONS THAT IT MAY HAVE TO THE VENUE OF SUCH COURTS. THE UNDERSIGNED HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION BROUGHT ON OR WITH RESPECT TO THIS NOTE. IN WITNESS WHEREOF, the undersigned has caused this Note to be executed by its duly authorized representative as of the date first above written. ATTEST/WITNESS: MAKER: FIDELITY ASSET MANAGEMENT, INC. /s/ DAVID N. KENNEALLY By: /s/ CARL A. STRUNK - ------------------------------- ----------------------------- Name: DAVID N. KENNEALLY Name: CARL A. STRUNK - ------------------------------- ----------------------------- Title: PRES. ----------------------------- EX-10.39.4 10 VARIABLE RATE PROMISSORY NOTE 1 EXHIBIT 10.39.4 [LOGO] IMPERIAL BANK Member FDIC NOTE $8,000,000.00 San Jose, California July 29, 1997 On May 4, 1998, and as hereinafter provided, for value received, the undersigned promises to pay to IMPERIAL BANK ("Bank"), a California banking corporation, or order, at its Santa Clara Valley Regional office, the principal sum of $8,000,000.00 MAXIMUM or such sums up to the maximum if so stated, as the Bank may now or hereafter advance to or for the benefit of the undersigned in accordance with the terms hereof, together with interest from date of disbursement or N/A, whichever is later, on the unpaid principal balance [ ] at the rate of ___ % per year [X] at the rate of 0.500% per year in excess of the rate of interest which Bank has announced as its prime lending rate (the "Prime Rate"), which shall vary concurrently with any change in such Prime Rate, or $250.00, whichever is greater. Interest shall be computed at the above rate on the basis of the actual number of days during which the principal balance is outstanding, divided by 360, which shall, for interest computation purposes, be considered one year. Interest shall be payable [X] monthly [ ] quarterly [ ] included with principal [ ] in addition to principal [ ] _____, beginning September 2, 1997, and if not so paid shall become a part of the principal. All payments shall be applied first to interest, and the remainder, if any, on principal. [ ] (If checked), Principal shall be payable in installments of $ __________, or more, each installment on the _____ day of each __________, beginning _______________. Advances not to exceed any unpaid balance owing at any one time equal to the maximum amount specified above, may be made at the option of Bank. Any partial prepayment shall be applied to the installments, if any, in inverse order of maturity. Should default be made in the payment of principal or interest when due, or in the performance or observance, when due, of any item, covenant or condition of any deed of trust, security agreement or other agreement (including amendments or extensions thereof) securing or pertaining to this note, at the option of the holder hereof and without notice or demand, the entire balance of principal and accrued interest then remaining unpaid shall (a) become immediately due and payable, and (b) thereafter bear interest, until paid in full, at the increased rate of 5% per year in excess of the rate provided for above, as it may vary from time to time. Defaults shall include, but not be limited to, the failure of the maker(s) to pay principal or interest when due; the filing as to each person obligated hereon, whether as maker, co-maker, endorser or guarantor (individually or collectively referred to as the "Obligor") of a voluntary or involuntary petition under the provisions of the Federal Bankruptcy Act; the issuance of any attachment or execution against any asset of any Obligor; the death of any Obligor; or any deterioration of the financial condition of any Obligor which results in the holder hereof considering itself, in good faith, insecure. [X] If any installment payment or principal balance payment due hereunder is delinquent ten or more days, Obligor agrees to pay a late charge in the amount of 5% of the payment so due and unpaid, in addition to the payment; but nothing in this paragraph is to be construed as any obligation on the part of the holder of this note to accept payment of any installment past due or less than the total unpaid principal balance after maturity. If this note is not paid when due, each Obligor promises to pay all costs and expenses of collection and reasonable attorney's fees incurred by the holder hereof on account of such collection, plus interest at the rate applicable to principal, whether or not suit is filed hereon. Each Obligor shall be jointly and severally liable hereon and consents to renewals, replacements and extensions of time for payment hereof, before, at, or after maturity; consents to the acceptance, release or substitution of security for this note; and waives demand and protest and the right to assert any statute of limitations. Any married person who signs this note agrees that recourse may be had against separate property for any obligations hereunder. The indebtedness evidenced hereby shall be payable in lawful money of the United States. In any action brought under or arising out of this note, each Obligor, including successor(s) or assign(s) hereby consents to the application of California law, to the jurisdiction of any competent court within the State of California, and to service of process by any means authorized by California law. No single or partial exercise of any power hereunder, or under any deed of trust, security agreement or other agreement in connection herewith shall preclude other or further exercises thereof or the exercise of any other such power. The holder hereof shall at all times have the right to proceed against any portion of the security for this note in such order and in such manner as such holder may consider appropriate, without waiving any rights with respect to any of the security. Any delay or omission on the part of the holder hereof in exercising any right hereunder, or under any deed of trust, security agreement or other agreement, shall not operate as a waiver of such right, or of any other right, under this note or any deed of trust, security agreement or other agreement in connection herewith. See attached Reference Provision Fidelity Asset Management, Inc. - ---------------------------------- ----------------------------------- BY /s/ CARL A. STRUNK Pres. - ---------------------------------- ----------------------------------- CARL A. STRUNK - ---------------------------------- ----------------------------------- L 494 E (Rev 10/92) 2 [LOGO] IMPERIAL BANK Member FDIC CORPORATE RESOLUTION REGARDING CREDIT OFFICE: Santa Clara Valley Regional Address: 226 Airport Parkway San Jose, California 95110 RESOLVED, that Fidelity Asset Management, Inc. borrow from IMPERIAL BANK, hereinafter referred to as "Bank", from time to time, such sums of money as, in the judgement of the officer or officers hereinafter authorized, this corporation may require; provided that the aggregate amount of such borrowing, pursuant to this resolution, shall not at any one time exceed the principal sum of Eight Million and No/100 DOLLARS ($8,000,000.00), in addition to such amount as may be otherwise authorized; RESOLVED FURTHER, that any 1 of the following named officers ---------- (Specify Number) Carl Strunk the President/CFO/Treas - ------------------------ ------------------------------ William P. Foley the Chairman - ------------------------ ------------------------------ Frank P. Willey the Vice President - ------------------------ ------------------------------ the - ------------------------ ------------------------------ the - ------------------------ ------------------------------ of this corporation (the officer or officers acting in combination, authorized to act pursuant hereto being hereinafter designated as "authorized officers"), be and they are hereby authorized, directed and empowered, for and on behalf and in the name of this corporation (1) to execute and deliver to the Bank such notes or other evidences of indebtedness of this corporation for the monies so borrowed, with interest thereon, as the Bank may require, and to execute and deliver, from time to time, renewals or extensions of such notes or other evidences of indebtedness; (2) to grant a security interest in, transfer, or otherwise hypothecate or deed in trust for Bank's benefit and deliver by such instruments in writing or otherwise as may be demanded by the Bank, any of the property of this corporation as may be required by the Bank to secure the payment of any notes or other indebtedness of this corporation or third parties to the Bank, whether arising pursuant to this resolution or otherwise; and (3) to perform all acts and execute and deliver all instruments which the Bank may deem necessary to carry out the purposes of this resolution; RESOLVED FURTHER, that said authorized officers be and they are hereby authorized and empowered, and that any one of said authorized officers be and he/she is hereby authorized and empowered (1) to discount with or sell to the Bank conditional sales contracts, notes, acceptances, drafts, bailment agreements, leases, receivables and evidences of indebtedness payable to this corporation, upon such terms as may be agreed upon by them and the Bank, and to endorse in the name of this corporation said notes, acceptances, drafts, bailment agreements, leases, receivables and evidences of indebtedness so discounted, and to guarantee the payment of the same to the Bank, and (2) to apply for and obtain from the Bank letters of credit and in connection therewith to execute such agreement, applications, guarantees, indemnities and other financial undertakings as Bank may require; RESOLVED FURTHER, that said authorized officers are also authorized to direct the disposition of the proceeds of any such obligation, and to accept or direct delivery from the Bank of any property of this corporation at any time held by the Bank; RESOLVED FURTHER, that the authority given hereunder shall be deemed retroactive and any and all acts authorized hereunder performed prior to the passage of this resolution are hereby ratified and affirmed; RESOLVED FURTHER, that this resolution will continue in full force and effect until the Bank shall receive official notice in writing from this corporation of the revocation thereof by a resolution duly adopted by the Board of Directors of this corporation, and that the certification of the Secretary of this corporation as to the signatures of the above named persons shall be binding on this corporation. I, M'Liss Jones Kane, Secretary of the above named corporation, duly organized and existing under the laws of the State of California, do hereby certify that the foregoing is a full, true and correct copy of a resolution of the Board of Directors of said corporation, duly and regularly passed and adopted by the Board of Directors of said corporation. I further certify that said resolution is still in full force and effect and has not been amended or revoked, and that the specimen signatures appearing below are the signatures of the officers authorized to sign for this corporation by virtue of said resolution. EXECUTED ON July 29, 1997 AUTHORIZED SIGNATURES --------------------- Signature: /s/ CARL STRUNK ----------------------------- Carl Strunk Signature: /s/ WILLIAM P. FOLEY /s/ M'LISS JONES KANE ----------------------------- ----------------------------- William P. Foley (Secretary) M'Liss Jones Kane Signature: /s/ FRANK P. WILLEY ----------------------------- Frank P. Willey Signature: ----------------------------- Signature: ----------------------------- L 550 E (Rev 10/92) EX-10.39.5 11 VARIABLE RATE PROMISSORY NOTE 1 EXHIBIT 10.39.5 [FLEET CAPITAL LEASING LOGO] 50 Kennedy Plaza Providence, Rhode Island 02903-2305 PROMISSORY NOTE Floating Rate (LIBOR)/ Scheduled Principal Payments $6,131,283.00 September 30, 1997 For value received, the undersigned (jointly and severally, if more than one) promises to pay to the order of Fleet Capital Corporation ("LENDER"), having its principal place of business in Providence, Rhode Island (together with any other holder of this Note, hereinafter referred to as the "HOLDER"), the principal sum of $6,131,283.00 together with interest thereon as provided herein. This Promissory Note is one of the "NOTES," and the obligations of the undersigned hereunder are "OBLIGATIONS" secured by the "COLLATERAL," as such terms are defined or referred to in Equipment Security Agreement Schedule No. 31831-00007 by and between the undersigned and Lender dated as of September 25, 1997 (the "SECURITY AGREEMENT"). This Note shall be payable by the undersigned to Holder in 48 consecutive installments of principal and interest (the "PAYMENTS") commencing on OCTOBER 30, 1997 and continuing monthly thereafter through and including SEPTEMBER 30, 2001 (the "MATURITY DATE"). Each succeeding Payment shall be due and payable on the same day of the month as the initial Payment set forth above in each succeeding payment period during the term of this Note (each, a "PAYMENT DATE"). The principal amount of this Note shall be payable by the undersigned to Holder in 48 consecutive monthly installments (the "PRINCIPAL INSTALLMENTS") in the amounts set forth in and corresponding to each of the numbered Payments listed in Schedule A attached hereto and incorporated herein by this reference. Interest shall accrue on the entire principal amount of this Note outstanding from time to time as provided below, from the date hereof until the principal amount of this Note is paid in full, and shall be due and payable together with the Principal Installments on each Payment Date. The final Payment due and payable on the Maturity Date shall in any event be equal to the entire outstanding and unpaid principal amount of this Note, together with all accrued and unpaid interest, charges and other amounts owing hereunder and under the Security Agreement. Interest shall accrue on the outstanding principal balance of this Note at a variable rate of interest, adjusted monthly equal to the Index Rate (as hereinafter defined) plus 2.10% per annum (the "INTEREST RATE"). The "INDEX RATE" for the calculation of interest payable with any Payment shall be the one-month London Interbank Offered Rate (LIBOR) as published in the Wall Street Journal in effect as of the 15th day of the month preceding the applicable Payment Date. All interest hereunder shall be calculated on the basis of a year of 360 days comprised of 12 months of 30 days each. The entire unpaid principal balance of this Note may be prepaid in full (but not in part) upon thirty days prior written notice to Holder, provided that any such prepayment shall be made together with (a) all accrued interest and other charges owing hereunder or under the Security Agreement, and (b) a prepayment fee equal to: 1% of such prepayment if made prior to the first anniversary of this Note and thereafter no prepayment fee shall be required. Time is of the essence in the payment and performance of those Obligations which are evidenced by this Note. In the event any amount due hereunder is not paid within ten (10) days of the date when due, the undersigned agrees to pay an administrative and late charge equal to the lesser of (a) five percent (5%) of the overdue amount in addition to the amount of such overdue amount, or (b) the maximum charges allowable under applicable law. In addition, the undersigned shall pay overdue interest on any delinquent Payment or other Obligation due (by reason of acceleration or otherwise) from thirty (30) days after the due date thereof through the date of payment thereof at a rate of interest equal to the lesser of: (a) 1.5% per month, or (b) the maximum rate of interest allowance under then applicable law. Each payment hereunder shall be made in lawful money of the United States and shall be payable to such account or address as Holder shall from time to time direct the undersigned. Whenever any payment to be made under this Note shall be stated to be due on a Saturday, Sunday or a public holiday, or the equivalent for banks generally under the laws of the State of Rhode Island, such payment shall be made on the next succeeding Business Day, and such extension of time shall be included in the computation of the payment of interest. All amounts received hereunder or in respect of this Note shall be applied first, to accrued late charges and any other costs or expenses due and owing hereunder or under the terms of the Security Agreement; second, to accrued interest; and third, to unpaid principal. It is the intention of Holder to comply with all applicable usury laws. Accordingly, it is agreed that notwithstanding anything to the contrary contained herein, in no event shall any provision contained herein require or permit interest in excess of the maximum amount permitted by applicable law to be paid by the undersigned. If necessary to give effect to these provisions, Holder will, at its option, in accordance with applicable law, either refund any amount to the undersigned to the extent that it was in excess of that allowed by applicable law or credit such excess amount against the then unpaid principal balance hereunder. Failure to pay this Note or any installment hereunder promptly when due, or the occurrence of an "EVENT OF DEFAULT" under the Security Agreement, or default or failure in the performance or due observance of any of the terms, conditions or obligations under any other agreement or instrument between the undersigned (or any endorser, guarantor, surety or other party, liable for the undersigned's obligations hereunder, or any other entity controlling, controlled by, or under common control with the undersigned) and Holder (or any other entity controlling, controlled by or under common control with Holder), shall constitute a default hereunder and entitle Holder to accelerate the maturity of this Note and to declare the entire unpaid principal balance and all accrued interest and other charges hereunder (including prepayment fees calculated as of the date of default) and under the Security Agreement to be immediately due and payable, and to proceed at once to exercise each and every one of the remedies provided in the Security Agreement or otherwise available at law or in equity. 2 The undersigned and all other parties who may be liable (whether as endorsers, guarantors, sureties or otherwise) for payment of any sum or sums due or to become due under the terms of this Note waive diligence, presentment, demand, protest, notice of dishonor, notice of intention to accelerate, notice of acceleration and notice of any other kind whatsoever and agree to pay all costs incurred by Holder in enforcing its rights under this Note or the Security Agreement, including reasonable attorney's fees, and they do hereby consent to any number of renewals or extensions at any time in the payment of this Note. No extension of time for payment of this Note made by any agreement with any person now or hereafter liable for payment of this Note shall operate to release, discharge, modify, change or affect the original liability of the undersigned under this Note, either in whole or in part. No delay or failure by Holder hereof in exercising any right, power, privilege or remedy shall be deemed to be a waiver of the same or any part thereof; nor shall any single or partial exercise thereof or any failure to exercise the same in any instance preclude any future exercise thereof, or exercise of any other right, power, privilege or remedy available at law or in equity. The Holder of this Note may proceed against all or any of the Collateral securing this Note or against any guarantor hereof, or may proceed contemporaneously or in the first instance against the undersigned, in such order and at such times following default hereunder as Holder may determine in its sole discretion. All of the undersigned's obligations under this Note are absolute and unconditional, and shall not be subject to any offset or deduction whatsoever. The undersigned waives any right to assert, by way of counterclaim or affirmative defense in any action to enforce the undersigned's obligations hereunder, any claim whatsoever against the Holder of this Note. THIS NOTE AND THE LEGAL RELATIONS OF THE UNDERSIGNED AND HOLDER SHALL IN ALL RESPECTS BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF RHODE ISLAND. WITHOUT REGARD TO PRINCIPLES REGARDING THE CHOICE OF LAW. The UNDERSIGNED HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OR RHODE ISLAND AND THE FEDERAL DISTRICT COURT FOR THE DISTRICT OF RHODE ISLAND FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF ITS OBLIGATIONS HEREUNDER, AND EXPRESSLY WAIVES ANY OBJECTIONS THAT IT MAY HAVE TO THE VENUE OF SUCH COURTS. THE UNDERSIGNED HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION BROUGHT ON OR WITH RESPECT TO THIS NOTE. IN WITNESS WHEREOF, the undersigned has caused this Note to be executed by its duly authorized representative as of the date first above written. ATTEST/WITNESS: MAKER: FIDELITY ASSET MANAGEMENT, INC. /s/ M'LISS JONES KANE By: /s/ CARL A. STRUNK - ------------------------------- ----------------------------- Name: M'LISS JONES KANE Name: CARL A. STRUNK - ------------------------------- ----------------------------- Title: PRES. ----------------------------- EX-10.46 12 STOCK PURCHASE AND LOAN AGREEMENT 1 EXHIBIT 10.46 STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AND LOAN AGREEMENT (the "Agreement") is entered into as of this ___ day of January, 1997, by and among ATC HOLDINGS, INC., a California corporation ("Purchaser"), or its assigns, FIDELITY NATIONAL FINANCIAL, INC., a Delaware corporation ("Parent"), and AMERICAN TITLE COMPANY, a California underwritten title company ("Subsidiary"). RECITALS: Parent desires to sell to Purchaser and Purchaser desires to purchase from Parent shares of the Common Stock of Subsidiary, in the amount and for the purchase price set forth herein (the "Stock Acquisition"). NOW, THEREFORE, IN CONSIDERATION OF THE MUTUAL AGREEMENTS AND COVENANTS CONTAINED HEREIN, THE PARTIES AGREE AS FOLLOWS: 1. Purchase and Sale of Securities. 1.1 Securities. Subject to the terms and conditions of this Agreement, Parent hereby agrees to sell to Purchaser, and Purchaser hereby agrees to purchase from Parent, one thousand eight hundred (1,800) shares of the Common Stock of Subsidiary (the "Shares"), which Shares shall constitute sixty percent (60%) of the issued and outstanding Common Stock of Subsidiary, on a fully diluted basis, immediately after the Closing. 1.2 Consideration. The consideration for the sale and issuance of the Shares to Purchaser shall consist of Six Million Dollars ($6,000,000) (the "Consideration"). 1.3 Option to Purchase. Parent grants Purchaser an option to purchase the remaining forty percent (40%) of the Common Stock of Subsidiary (the "Ownership Interest") under the following terms and conditions: (a) in the event that there is a change of control (a controlling interest of Parent is sold to an independent third party unaffiliated with Parent or its subsidiaries) or there is a merger between Parent and an independent third party unaffiliated with Parent or its subsidiaries, Purchaser shall have the right to purchase the Ownership Interest at 125% of the then net book value of the Ownership Interest, (b) in the event 2 that Parent contemplates the sale of its Ownership Interest during the term of the Underwriting Agreements or any renewals thereof (see Section 5.1(m)), then Purchaser shall have the right to purchase the Ownership Interest for 125% of the net book value of the Ownership Interest, or (c) in the event that after the expiration of the Underwriting Agreements, should Parent determine to sell the Ownership Interest, Parent must first offer such Ownership Interest to Purchaser at a price selected by Parent (the "Sale Price"). Purchaser will have the right, for 30 days commencing on the date of its receipt of Parent's offer to sell to Purchaser said Ownership Interest, at the Sale Price. If Purchaser fails to complete such purchase within the 30 day period, Parent may sell its Ownership Interest to a third party at or above the Sale Price for 180 days commencing on the date Purchaser's 30-day option period expires. 2. Closing; Termination. 2.1 Closing. The purchase and sale of the Shares shall take place on or before the tenth business day after all of the conditions provided for in Section 5 below have been satisfied, at the offices of Fidelity National Financial, Inc., 17911 Von Karman, Suite 300, Irvine, California, or at such other time and place as the Purchaser and Parent mutually agree (which time and place are designated as the "Closing"). At the Closing, Parent shall deliver to Purchaser (i) a stock certificate evidencing the Shares, against delivery to the Parent by Purchaser of the amount equal to the purchase price for the Shares, and (ii) such other documents and instruments as are provided for in this Agreement or are reasonably requested by Purchaser. 2.2 Business Consulting Agreement. The parties agree to continue to be bound by the terms of the Business Consulting Agreement attached hereto as EXHIBIT "A" until the Closing. 2.3 Termination. If the Closing has not occurred by June 30, 1997, either party may terminate this Agreement upon written notice to the other party, provided that such terminating party is not then in breach of any of its covenants, representations or warranties contained in this Agreement. Notwithstanding the foregoing, Purchaser may, at its sole election, extend such date for up to three additional 30-day increments by giving Parent and Subsidiary notice of any such extension on or before this Agreement is otherwise terminated. Any such termination shall not relieve any party of any liability for any breach which occurred prior to such termination. With respect to any party not then in breach of this Agreement at the time of such termination, such party shall have no further obligations or liabilities under this Agreement. 2 3 3. Representations and Warranties of Parent and Subsidiary. Parent and Subsidiary, jointly and severally, make the following representations and warranties to Purchaser as of the date hereof and as of the date of Closing which are true and correct except as otherwise set forth in the attached disclosure schedules: 3.1 Organization and Standing; Articles and Bylaws. Parent is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware, and has full power and authority to own and operate its properties and assets and to carry on its business as presently conducted. Subsidiary is a corporation duly organized, validly existing, and in good standing under the laws of the State of California, and has full power and authority to own and operate its properties and assets and to carry on its business as presently conducted. Subsidiary is duly qualified and authorized to do business, and is in good standing as a foreign corporation, in each jurisdiction where the nature of its activities and of its properties (both owned and leased) makes such qualification necessary, except where the failure to so qualify would not have a material adverse effect upon its business and operations. Each of Parent and Subsidiary has furnished Purchaser or its counsel with copies of its Articles of Incorporation and Bylaws, as amended to the date hereof. Said copies are true, correct, and complete and contain all amendments through the date of the Closing. 3.2 Capitalization. The authorized capital stock of Subsidiary consists solely of three thousand (3,000) shares of common stock, with no par value which shares are 100% owned by Parent. All issued and outstanding shares of the capital stock of each have been duly authorized and validly issued, and are fully paid and nonassessable. There are no outstanding rights of first refusal, preemptive rights or other rights, options, warrants, conversion rights, or other agreements either directly or indirectly for the purchase or acquisition of any shares of the capital stock of either. All of the outstanding shares of the Subsidiary have been duly and validly issued in compliance with all applicable federal and state securities laws. 3.3 Subsidiaries. Subsidiary does not presently own or control, directly or indirectly, any equity interest in any corporation, association or business entity. Subsidiary is not, directly or indirectly, a participant in any joint venture or partnership. 3.4 Authorization. All corporate action on the part of Parent and Subsidiary, their officers, directors and shareholders necessary for the authorization, execution and delivery of this Agreement and the documents contemplated hereby and the performance of all of their obligations hereunder and thereunder and for the authorization, issuance, sale and delivery of the Shares 3 4 have been taken or will be taken prior to the Closing. This Agreement and the documents contemplated hereby, when executed and delivered, shall constitute valid and legally binding obligations of Parent and Subsidiary enforceable in accordance with their respective terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and subject to the availability of equitable remedies. 3.5 Validity of Shares. The sale of each of the Shares will not be, subject to any preemptive rights or rights of first refusal and, when issued, sold and delivered in compliance with the provisions of this Agreement and the Shares will be validly issued, fully paid and nonassessable, and will be free of any liens or encumbrances; provided, however, that the Shares may be subject to restrictions on transfer under state and/or federal securities laws as set forth herein or as otherwise required by such laws at the time a transfer is proposed. 3.6 Financial Statements. To the best of Parent's knowledge and belief, the balance sheet and statement of stockholder's equity of Subsidiary as of December 31, 1996 (collectively, the "Financial Statements") are complete and correct, and present fairly, in all material respects, the financial condition as of the date referred to and have been prepared in accordance with generally accepted accounting principles. 3.7 Contracts and Agreements. To the best of Parent's knowledge, based on the representation of management of Subsidiary at December 31, 1996, all contracts, agreements, and instruments to which Subsidiary is a party are valid and binding and in full force and effect in all material respects, and to the best of knowledge of Parent and Subsidiary, no other party thereto is in material breach thereof. 3.8 Title to Properties and Assets; Liens, etc. To the best of Parent's knowledge, based on the representation of management of Subsidiary at December 31, 1996, Subsidiary has good and marketable title to its properties and assets, and good title to all its leasehold estates, subject to no mortgage, pledge, lien, lease, encumbrance, or charge, other than (a) liens resulting from taxes which have not yet become delinquent, or (b) minor liens, encumbrances, or defects of title which do not, individually or in the aggregate, materially detract from the value of the property subject thereto or materially impair their operations. With respect to property leases, Subsidiary is in compliance with all such leases. 3.9 Compliance with Other Instruments. To the best of Parent's knowledge, based on the representation of management of Subsidiary at December 31, 1996, Subsidiary is not in violation of any term of its articles of incorporation or bylaws, any mortgage, indenture, contract, agreement, 4 5 instrument, judgment, decree, order or any statute, rule or regulation applicable to it. The execution, delivery, and performance of and compliance with this Agreement, and the issuance and sale of the Shares, will not result in any violation of any term of the articles of incorporation or bylaws or any mortgage, indenture, contract, agreement, instrument, judgment, decree or order, or be in conflict with or constitute a default under any such term, or result in the creation of any mortgage, pledge, lien, encumbrance, or charge upon any of the properties or assets; and there is no term of the articles of incorporation or bylaws of either Parent or Subsidiary or any mortgage, indenture, contract, agreement, instrument, judgment, decree or order which materially adversely affects, or, so far as may now reasonably be foreseen, in the future may materially adversely affect, Subsidiary's business, prospects, conditions, affairs, operations or any of its properties or assets. 3.10 Litigation, etc. To the best of Parent's knowledge, there is no action, suit, proceeding, or investigation currently pending against Subsidiary. 3.11 Taxes. To the best of Parent's knowledge, Subsidiary has paid, or has provided adequate reserves (in the good faith judgment of the management) for the payment of all federal and state income taxes applicable to the year ended December 31, 1996, its first year of operations, and for the current fiscal year to the date hereof. 3.12 Insurance. Subsidiary has adequate insurance, with financially sound and reputable insurers, with respect to its properties that are of a character customarily insured by entities engaged in the same or a similar business similarly situated, against loss or damage of the kinds customarily insured against by such entities, which insurance is of such types (including public liability insurance) as are customarily carried under similar circumstances by such other entities. 3.13 Operating Rights. Subsidiary has all operating authority, licenses, franchises, permits, certificates, consents, rights and privileges (collectively "Licenses") as are necessary or appropriate to the operation of its business as now conducted and as proposed to be conducted. Such Licenses are in full force and effect, no violations have been or are expected to have been recorded in respect of any such Licenses, and no proceeding is pending or threatened that could result in the revocation or limitation of any of such Licenses. Subsidiary has conducted its business so as to comply in all material respects with all such Licenses. 3.14 Full Disclosure. Neither this Agreement, the representations and warranties by each contained herein, the exhibits hereto, nor any other written statement or certificate delivered or to be furnished to Purchaser in 5 6 connection herewith, when read together, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading. There is no fact known which has not been disclosed to Purchaser that would materially adversely affect its business or financial condition or its ability to perform its obligations under this Agreement. 3.15 Officers and Directors. Set forth in the disclosure schedule is a list of all officers and directors of Parent and Subsidiary, which list is full, complete and correct. 3.16 Voting Agreements. There exists no voting agreements or voting trusts involving shares of stock of each or any shareholder of Subsidiary. 3.17 Books and Records. The minute book of the Subsidiary contains accurate records of all meetings of and corporate actions or written consents by the shareholders and boards of directors of the Subsidiary. Subsidiary does not have any of its respective records, systems, controls, data or information recorded, stored, maintained, operated or otherwise wholly or partly dependent upon or held by any means (including any electronic, mechanical or photographic process, whether computerized or not) which (including all means of access thereto and therefrom) are not under the exclusive ownership and direct control of the Subsidiary. 3.18 Bank Accounts. Schedule 3.19 hereto sets forth a complete list of each bank and its address in which the Subsidiary has accounts (giving the account numbers) or safe deposit boxes or lock boxes, the names of the persons currently authorized to draw thereon or to have access thereto, and the current balances in such accounts. 3.19 Powers of Attorney; Guarantees. There are no outstanding powers of attorney executed on behalf of the Subsidiary. The Subsidiary is not a guarantor or otherwise liable for any material indebtedness of any other person or entity. 4. Representations and Warranties of Purchaser. Purchaser hereby represents and warrants as follows: 4.1 Organization and Standing; Articles and Bylaws. Purchaser is a corporation duly organized, validly existing, and in good standing under the laws of the State of California, and has full power and authority to own and operate its properties and assets and to carry on its business as presently conducted. Purchaser is duly qualified and authorized to do business, and is in good standing 6 7 as a foreign corporation, in each jurisdiction where the nature of its activities and of its properties (both owned and leased) makes such qualification necessary, except where the failure to so qualify would not have a material adverse effect upon its business and operations. Purchaser has provided Parent or its counsel with copies of its Articles of Incorporation and Bylaws, as amended to the date hereof. Said copies are true, correct, and complete and contain all amendments through the date of the Closing. 4.2 Legal Power. Purchaser has the requisite legal power to enter into this Agreement, to purchase the Shares and to carry out and perform its obligations under the terms of this Agreement. 4.3 Authorization. All corporate action on the part of Purchaser necessary for the authorization, execution and delivery of this Agreement and the documents contemplated hereby and the performance of all of their obligations hereunder and thereunder have been taken or will be taken prior to the Closing. This Agreement and the documents contemplated hereby, when executed and delivered, shall constitute valid and legally binding obligations of Purchaser enforceable in accordance with its respective terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and subject to the availability of equitable remedies. 4.4 Compliance with Other Instruments. Purchaser is not in violation of any term of its articles of incorporation or bylaws, any mortgage, indenture, contract, agreement, instrument, judgment, decree, order or any statute, rule or regulation applicable to it. The execution, delivery, and performance of and compliance with this Agreement, and the purchase of the Shares, will not result in any violation of any term of the articles of incorporation or bylaws or any mortgage, indenture, contract, agreement, instrument, judgment, decree or order, or be in conflict with or constitute a default under any such term, or result in the creation of any mortgage, pledge, lien, encumbrance, or charge upon any of the properties or assets. 4.5 Litigation, etc. There is no action, suit, proceeding, or investigation currently pending against Purchaser which would prevent the transactions from closing. 4.6 Full Disclosure. Neither this Agreement, the representations and warranties by each contained herein, the exhibits hereto, nor any other written statement or certificate delivered or to be furnished in connection herewith, when read together, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading. There is no fact known which has not 7 8 been disclosed to Parent that would materially adversely affect its business or financial condition or its ability to perform its obligations under this Agreement. 4.7 Investment Representations. (a) Purchaser is acquiring the Shares for its own account, not as nominee or agent, for investment and not with a view to, or for resale in connection with, any distribution or public offering thereof within the meaning of the 1933 Act. (b) Purchaser understands that (i) the Shares have not been registered under the 1933 Act by reason of a specific exemption therefrom, that they must be held by it indefinitely, and that it must, therefore, bear the economic risk of such investment indefinitely, unless a subsequent disposition thereof is registered under the 1933 Act or is exempt from such registration; and (ii) each certificate representing the Shares will be endorsed with legends to such effect. (c) Purchaser acknowledges that it is able to fend for itself, can bear the economic risk of its investment and has such knowledge and experience in financial or business matters and that it is capable of evaluating the merits and risks of the investment in the Shares. (d) Purchaser understands that the Shares it is purchasing are characterized as "restricted securities" under the federal securities laws inasmuch as they are being acquired from Parent in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the 1933 Act, only in certain limited circumstances, and it represents that it is familiar with SEC Rule 144 and Rule 144A, as presently in effect, and understands the resale limitations imposed thereby and by the 1933 Act. (e) Purchaser was not formed for the specific purpose of acquiring the Shares offered hereunder. (f) Purchaser's principal business address is as set forth on the signature page hereto. 5. Conditions to Closing. 5.1 Conditions to Obligations of the Purchaser. The Closing, the Purchaser's obligation to purchase the Shares from Parent and Parent's obligation to sell such Shares as provided in this Agreement are conditioned on and subject 8 9 to satisfaction of each of the following conditions (which conditions are for the benefit of and may be unilaterally waived by the Buyer): (a) No Misrepresentation or Breach of Covenants and Representations and Warranties. There shall have been no breach by Parent or the Subsidiary in the performance of any of their respective covenants, representations and warranties, and agreements contained or referred to in this Agreement, and each of the Parent and the Subsidiary shall have performed all obligations required to be performed by them under this Agreement prior to or at the Closing; each of the representations and warranties of each of the Parent and the Subsidiary contained or referred to in this Agreement shall be true and correct in all respects at the Closing as though made at the Closing, except for changes therein specifically permitted by this Agreement or resulting from any transaction expressly consented to in writing by the Buyer or any transaction contemplated by this Agreement; and there shall have been delivered to the Purchaser a certificate or certificates to such effect, dated the date of the Closing, signed by the Parent and the Subsidiary. (b) Authorizations and Approvals. All authorizations, approvals, or permits of any governmental authority or regulatory body of the United States or of any state specifically including, but not limited to, the California Department of Insurance, that are required in connection with the transactions contemplated by this Agreement shall have been duly obtained and shall be effective on and as of the Closing. No stop order or other order enjoining the sale of the Shares shall have been issued and no proceedings for such purpose shall be pending or threatened by the California Commissioner of Insurance, the Securities and Exchange Commission, the California Commissioner of Corporations, or any similar officer of any other Federal or state agency having jurisdiction over this transaction. (c) No Restraint or Litigation. No order, decree or ruling of any court shall have been entered, and no action, suit or proceeding before any court or governmental or regulatory authority or body shall have been instituted (or threatened if the Purchaser reasonably believes that such threat will result in institution of an action, suit or proceeding) by any person or by any governmental or regulatory authority or agency, to restrain, prohibit, challenge or invalidate any of the transactions contemplated by this Agreement or which might adversely affect the right of the Purchaser to own the Shares, or which might adversely affect the right of the Subsidiary to carry out its respective businesses after the date of the Closing. (d) Necessary Consents. The parties shall have received consents, in form and substance satisfactory to counsel for the Purchaser, to the 9 10 transactions contemplated hereby by all appropriate third parties to all contracts, leases, agreements and permits material to the operations of the Subsidiary and the Assets to which the Subsidiary is a party or by which it is affected and which requires such consent prior to the Closing. (e) Transfer of 100% of the Outstanding Stock of Nations Title of Arizona, Inc. to Subsidiary. Parent shall have caused the transfer of all of the outstanding stock of Nations Title of Arizona to Subsidiary prior to Closing. (f) Transfer of 100% of the Outstanding Common Stock of Fidelity Asset Recovery Services, Inc. Parent shall have caused the transfer of all of the outstanding Common Stock of Fidelity Asset Recovery Services, Inc. to subsidiary prior to Closing. (g) Liens. The Purchaser shall have received reports, satisfactory to the Purchaser, from the Secretary of State of California indicating that there are no liens of record as of a date not more than two days before the Closing with respect to the Assets. (h) Execution of Documents. Purchaser shall have executed all documents required by this Agreement to be executed by it. (i) Use of Title Plant. Subsidiary shall have negotiated for access to the title plants necessary to its business, the terms of which are acceptable to all parties. (j) Closing Deliveries. In addition to the other deliveries referenced in this Article 5, on the date of the Closing, Parent and Subsidiary shall deliver to the Purchaser: (i) Stock Certificates. Stock certificates representing in the aggregate sixty percent (60%) of the outstanding shares of the Subsidiary, together with duly executed and witnessed stock powers (in blank) attached thereto. (ii) Books. The books, records, customer lists, files, reports, surveys, studies, projections, budgets and strategic plans in connection with the ownership, operation, development, maintenance and management of the Assets and the businesses of the Subsidiary. (iii) Certificate. A certificate from and executed by the Parent dated the date of the Closing certifying that the conditions specified in Sections 5.1(b), 5.1(e), and 5.1(f), hereof have been fulfilled. 10 11 (iv) Secretary's Certificate. A certificate dated the date of the Closing and signed by the secretary of the Subsidiary setting forth a copy of the resolutions adopted by the board of directors of the Subsidiary authorizing the transactions contemplated in this Agreement. (v) Additional Documents. Such other instruments and documents which the Purchaser shall reasonably request in furtherance of the purposes of this Agreement and executed by the Parent and/or the Subsidiary. (k) Financing. Purchaser shall be able to obtain in its sole discretion acceptable financing for the completion of this acquisition of the Shares. In the event Purchaser does not obtain acceptable financing, Purchaser shall be under no obligation to close. (l) Performance by Parent and Subsidiary. Parent and Subsidiary shall have performed, satisfied and complied with all covenants, agreements and conditions required by this Agreement to be performed and complied with by them or any of them, on or before the Closing. (m) Underwriting Agreement. Parent shall cause Subsidiary to enter into underwriting agreements with Fidelity National Title Insurance Company and Fidelity National Title Insurance Company of California or their successors in interest including but not limited to Fidelity National Title Insurance Company of New York for initial five (5) year terms with an option to renew on the 5th anniversary of the effective date of the agreements, as attached hereto as EXHIBIT "C". All of the foregoing instruments shall be in form and substance reasonably satisfactory to the Purchaser and its counsel. 5.2 Conditions to Obligations of Parent at the Closing. Parent's obligations hereunder are subject to the fulfillment, at or prior to the Closing, of all of the following conditions: (a) Representations and Warranties True; Performance of Obligations. The representations and warranties made by Purchaser in Section 4 hereof shall be true and correct at the date of the Closing, with the same force and effect as if they had been made on and as of said date; and Purchaser shall have performed all obligations herein required to be performed by it at or prior to the Closing. (b) Authorizations and Approvals. All authorizations, approvals, or permits of any governmental authority or regulatory body of the United States or of any state specifically including, but not limited to, the 11 12 California Department of Insurance, that are required in connection with the transactions contemplated by this Agreement shall have been duly obtained and shall be effective on and as of the Closing. No stop order or other order enjoining the sale of the Shares shall have been issued and no proceedings for such purpose shall be pending or threatened by the California Commissioner of Insurance, the Securities and Exchange Commission, the California Commissioner of Corporations, or any similar officer of any other Federal or state agency having jurisdiction over this transaction. (c) Necessary Consents. The parties shall have received consents, in form and substance satisfactory to counsel for the Parent, to the transactions contemplated hereby by all appropriate third parties to all contracts, leases, agreements and permits material to the operations of the Subsidiary and the Assets to which the Subsidiary is a party or by which it is affected and which requires such consent prior to the Closing. (d) Execution of Documents. Purchaser shall have executed all documents required by this Agreement to be executed by it. (c) Certificate. The President and CEO of Subsidiary shall have delivered to Purchaser a certificate in which they represent that all the representations and warranties stated in Sections 3.7, 3.8, 3.9, 3.10, 3.11 and 3.15 are true and correct. 6. Indemnification. 6.1 Parent's and Subsidiary's Indemnity. Parent will make no claim on Subsidiary for liquidated damages for Fidelity National Title Insurance Company claims arising from policies written prior to January 1, 1997. Subsidiary will not be responsible for any escrow or policy files associated with American Title Insurance Company. 6.2 Purchaser's Indemnity. Purchaser and Subsidiary (as constituted after the Closing) shall indemnify, defend and hold Parent and Subsidiary (as constituted prior to the Closing) harmless from and against any and all liabilities, losses, damages, claims, causes of action, costs and expenses (including, without limitation, reasonable attorneys' fees), arising out of or relating to any breach of any representation, warranty or any other material covenant, term or condition and for any actions brought against Parent or Subsidiary after Closing which are due to the actions of Purchaser. 6.3 Procedures. In the event any third party asserts any claim with respect to any matter as to which the indemnities in this Agreement relate, the 12 13 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. If the Indemnifying Party 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 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 6, 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 any 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. 7. Covenants. 7.1 Covenants of Parent and Subsidiary. Parent and Subsidiary covenant as more specifically set forth below to the following actions from the date of execution of this Agreement until the Closing: 7.1.1 Corporate Existence and Foreign Qualification. Parent and Subsidiary will do and cause to be done all things necessary to (i) preserve Subsidiary's corporate existence and for Subsidiary to remain in good standing in the state of its incorporation, (ii) for Subsidiary to become or remain qualified to do business and to remain in good standing in each jurisdiction where the nature of its business makes such qualification necessary. 7.1.2 Dividends. Parent will not cause and Subsidiary shall not (i) declare, pay or make any dividends or other distribution, whether in cash or in property, with respect to any class of its common stock or right to acquire its common stock now or hereafter outstanding, (ii) issue any warrants, options or other right to acquire any share of Subsidiary's common stock now or hereafter authorized, (iii) purchase, acquire, redeem, retire, or cancel any of Subsidiary's common stock now or hereafter outstanding, or set aside any property or assets for such purpose. 7.1.3 Merger. Parent will not cause and Subsidiary shall not merge or consolidate with or agree to merge or consolidate with, nor purchase or 13 14 agree to purchase all or substantially all of the assets of, nor otherwise acquire any corporation, partnership or other business organization or any portion thereof. 7.1.4 Additional Stock. Parent will not cause and Subsidiary shall not authorize for issuance, issue, sell or deliver any additional shares of its capital stock of any class or issue or grant any option, warrant or other right to purchase any shares of its capital stock of any class. 7.1.5 Recapitalization. Parent will not cause and Subsidiary shall not split, combine or reclassify any shares of its capital stock of any class or redeem or otherwise acquire, directly or indirectly any shares of its capital stock of any class. 7.1.6 Additional Debt. Parent will not cause and Subsidiary shall not incur or become subject to, nor agree to incur or become subject to, any debt, obligation or liability, contingent or otherwise, except current liabilities and contractual obligations incurred in or arising in the usual and ordinary course of business. In addition, Parent will not cause and Subsidiary shall not guaranty or otherwise become liable with respect to the obligations of any other person (other than endorsements in the ordinary course of business of negotiable instruments for deposit or collection). 7.1.7 Payment of Taxes and Other Charges. Parent shall pay or cause to be paid or discharged, all before the same become delinquent and prior to December 31, 1996, (i) all taxes, assessments and governmental charges levied or assessed against Subsidiary on its gross receipts, income, profits, assets and properties and (ii) all lawful claims against Subsidiary for labor, materials, supplies, goods and services; provided, however, that Purchaser shall be required to pay, perform or discharge any sales tax directly related to the transfer of the Shares to Purchaser as contemplated herein which does not result, directly or indirectly, from the breach of any representation, warranty or covenant of Parent or Subsidiary set forth herein. 7.1.8 Financial Statements Records. Parent will not cause and Subsidiary will not make any material change in the methods of accounting or accounting practices applied in connection with the Financial Statements or any of the accounting records of Subsidiary. 8. Miscellaneous. 8.1 Governing Law. This Agreement shall be governed by and construed under the laws of the State of California as applied to agreements 14 15 among California residents, made and to be performed entirely within the State of California. 8.2 Survival. The representations, warranties, covenants, and agreements made herein shall survive any investigation made by any party and the closing of the transactions contemplated hereby. All statements as to factual matters contained in any certificate or other instrument delivered by or on behalf of Parent and Subsidiary pursuant hereto or in connection with the transactions contemplated hereby shall be deemed to be representations and warranties by them hereunder as of the date of such certificate or instrument. 8.3 Home Office Rights. Parent agrees to grant home office rights to subsidiary in connection with customer multiple state transactions. Parent will insure that an underwriter of parent will underwrite such transaction on a case by case basis with prior approval of underwriting counsel at Parent's corporate offices. Subsidiary will prepare all documentation on said home office transactions and Subsidiary will receive the fees generated by the transaction. 8.4 Starter Exchange Program. Parent agrees to cause its underwriting subsidiaries to provide starters to Subsidiary upon request for $5 per starter requested. 8.5 Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors, and administrators of the parties hereto. 8.6 Entire Agreement. This Agreement, the Exhibits hereto, and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement among the parties with regard to the subjects hereof and no party shall be liable or bound to any other party in any manner by any representations, warranties, covenants, or agreements except as specifically set forth herein or therein. Purchaser did a thorough investigation and was familiar with the company and obtained all information considered necessary to close, including but not limited to a complete financial review of the Company. Nothing in this Agreement, express or implied, is intended to confer upon any party, other than the parties hereto and their respective successors and assigns, any rights, remedies, obligations, or liabilities under or by reason of this agreement, except as expressly provided herein. 8.7 Severability. In case any provision of this Agreement shall be invalid, illegal, or unenforceable, it shall, to the extent practicable, be modified so as to make it valid, legal and enforceable and to retain as nearly as practicable the 15 16 intent of the parties, and the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 8.8 Amendment and Waiver. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived only with the written consent of the parties hereto. 8.9 Notices, etc. All notices and other communications required or permitted hereunder shall be in writing and shall be deemed effectively given upon personal delivery or on the third day following mailing by registered or certified mail, return receipt requested, postage prepaid, addressed: (a) if to Purchaser, at its address as set forth under such Purchaser's signature at the end of this Agreement, or at such other address as such Purchaser shall have furnished to the Subsidiary in writing or (b) if to Parent and Subsidiary, at their addresses as set forth at the end of this Agreement, or at such other addresses as they shall have furnished to Purchaser in writing. 8.10 Finders' Fees. Each party hereto represents and warrants that it has retained no finder or broker in connection with the transactions contemplated by this Agreement and hereby agrees to indemnify and to hold harmless the other party from any liability for any commission or compensation in the nature of a finder's fee to any broker or other person or firm (and the costs and expenses, including reasonable attorneys' fees, of defending against such liability or asserted liability) for which such other party or any of its employees or representatives is responsible. 8.11 Fees and Expenses. Each party shall be responsible for such party's outside legal and accounting fees and other expenses incurred by such party in connection with this transaction. 8.12 Headings. The headings of the paragraphs and subparagraphs of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 8.13 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument. 8.14 Assignment. No party to this Agreement may assign all or any part of its interest in this Agreement except Purchaser may assign its rights under this Agreement to a commonly held entity for tax purposes, in which event this Agreement shall still be binding on all parties and any successors or assigns. 16 17 8.16 Attorney's Fee Clause. If either party to this Agreement shall bring any action, suit, counterclaim, appeal, arbitration, or mediation for any relief against the other, declaratory or otherwise, to enforce the terms hereof or to declare rights hereunder (collectively, an "Action"), the losing party shall pay to the prevailing party a reasonable sum for attorneys' fees and costs (at the prevailing party's attorneys' then-prevailing rates as increased from time to time by the giving of advance written notice by such counsel to such party) incurred in bringing and prosecuting such Action and/or enforcing any judgment, order, ruling, or award (collectively, a "Decision") granted therein, all of which shall be deemed to have accrued on the commencement of such Action and shall be paid whether or not such Action is prosecuted to a Decision. Any Decision entered in such Action shall contain a specific provision providing for the recovery of attorneys' fees and costs incurred in enforcing such Decision. The court or arbitrator may fix the amount of reasonable attorneys' fees and costs on the request of either party. For the purposes of this paragraph, attorneys' fees shall include, without limitation, fees incurred in the following: (1) postjudgment motions and collection actions; (2) contempt proceedings; (3) garnishment, levy, and debtor and third party examination; (4) discovery; and (5) bankruptcy litigation. "Prevailing party" within the meaning of this paragraph includes, without limitation, a party who agrees to dismiss an Action on the other party's payment of the sums allegedly due or performance of the covenants allegedly breached, or who obtains substantially the relief sought by it. 8.17 Construction. The parties have participated jointly in the negotiation and drafting of this Agreement and have had competent counsel of their own choosing. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context otherwise requires. The word "including" shall mean including without limitation. 17 18 IN WITNESS WHEREOF, the foregoing Agreement is hereby executed as of the date first above written. Address: ATC HOLDINGS, INC., a California Corporation By: /s/ Michael C. Lowther -------------------------------- Its: Address: FIDELITY NATIONAL FINANCIAL, INC., a Delaware Corporation 17911 Von Karman Avenue By: /s/ Carl A. Strunk Irvine, CA 92614 -------------------------------- Its: Address: AMERICAN TITLE COMPANY, a California Corporation 17911 Von Karman Avenue Irvine, CA 92614 By: /s/ Wayne Diaz -------------------------------- Its: 18 EX-10.47 13 AGREEMENT AND PLAN OF REORGANIZATION 1 EXHIBIT 10.47 AGREEMENT AND PLAN OF REORGANIZATION DATED AS OF AUGUST 15, 1997 BY AND AMONG FIDELITY NATIONAL FINANCIAL, INC., FIRST TITLE CORPORATION, ERNEST N. MOORE, JEANENE S. MOORE AND T. FRANK JORDAN AND FIRST TITLE ACQUISITION CORPORATION 2 AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and entered into as of this __ day of August, 1997, by and among FIDELITY NATIONAL FINANCIAL, INC., a Delaware corporation ("FNFI"); FIRST TITLE CORPORATION, a Tennessee corporation ("Company"); ERNEST N. MOORE, JEANENE S. MOORE, and T. FRANK JORDAN (collectively,"Shareholders"); and FIRST TITLE ACQUISITION CORPORATION, a Tennessee corporation that is a newly-formed, wholly-owned subsidiary of FNFI ("Newco"). FNFI, Company, Shareholders and Newco are referred to collectively herein as the "Parties" or singularly as a"Party." RECITALS A. Shareholders are the record and beneficial owner of 1,836 shares of Company Common Stock (the "Company Shares"), which represents all the issued and outstanding shares of capital stock of Company. B. The respective Boards of Directors of FNFI, Company and Newco deem it advisable and in the best interests of their respective shareholders that Newco merge with and into Company (the "Merger") pursuant to this Agreement, the Articles of Merger substantially in the form attached hereto as Exhibit A (the "Articles of Merger") and the applicable provisions of the laws of the State of Tennessee. C. The Parties hereto expect that the Merger will further certain of their business objectives, including, without limitation, increased market share, reduced administrative costs and volume efficiencies. D. The Boards of Directors of FNFI, Company and Newco have approved and adopted this Agreement as a plan of reorganization within the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). NOW, THEREFORE, in consideration of the premises and the respective representations, warranties, covenants, agreements and conditions hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows: 1 3 ARTICLE I DEFINITIONS Unless otherwise defined herein or the context otherwise requires, the terms defined in this Section 1 shall have the meanings herein specified for all purposes of this Agreement, applicable to both the singular and the plural forms of any of the terms herein defined. "Action" shall mean any actual or threatened claim, action, suit, arbitration, hearing, inquiry, proceeding, complaint, charge or investigation by or before any Governmental Entity or arbitrator and any appeal from any of the foregoing. "Adverse Consequences" means all actions, suits, proceedings, hearings, investigations, charges, complaints, claims, demands, injunctions, judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid in settlement, Liabilities, obligations, Taxes, Liens, losses, expenses, and fees, including court costs and attorneys' fees and expenses, in each case (i) net of any insurance recoveries (except to the extent such recoveries increase the cost of insurance, through retrospective adjustments or otherwise); and (ii) net of any Tax benefit, after taking into account any Tax detriment of any indemnity. "Affiliate" shall mean, with respect to a Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such Person. "Articles of Merger" has the meaning set forth in Recital B, above. "Basis" means any past or present fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction that forms or would reasonably form the basis for any specified consequence. "Benefit Arrangement" shall mean any form of current or deferred compensation, bonus, stock option, stock appreciation right, severance pay, salary continuation, pension, profit-sharing, retirement or incentive plan, practice or arrangement, any group or individual disability, medical, dental, health, hospitalization, life insurance or other insurance plans or related benefits, or any other welfare or similar plan or arrangement for the benefit of any director, officer or employee, whether active or retired, or for any class or classes of such directors, officers or employees. "Cash Consideration" has the meaning set forth in Section 2.2(d), below. "Closing" has the meaning set forth in Section 3.1, below. "Closing Calculated Shares" means the number of shares of Fidelity Common Stock equal to $3,760,000 divided by the Closing Fidelity Price. 2 4 "Closing Date" has the meaning set forth in Section 3.1, below. "Closing Fidelity Price" means the average of the per share closing sales price of FNFI's Common Stock publicly traded on the New York Stock Exchange for the ten (10) consecutive trading days ending two (2) days prior to the Closing. "Code" has the meaning set forth in Recital D, above. "Company Shares" has the meaning set forth in Recital A. "Company Stock" means shares of common stock, no par value per share, of Company. "Confidential Information" means any information concerning the businesses and affairs of any of the Parties that is not already generally available to the public. "Damages" shall mean any and all losses, liabilities, obligations, costs, expenses, damages or judgments of any kind or nature, whatsoever (including reasonable attorneys,' accountants' and experts' fees, disbursements of counsel, and other costs and expenses incurred pursuing indemnification claims under Section 10 hereof). "Effective Time" has the meaning set forth in Section 3.1, below. "Employee Plan" shall mean any "employee benefit plan," as defined in Section 3(3) of ERISA, which is subject to any provisions of ERISA and covers any employee, whether active or retired, of the Company. "Environmental, Health, and Safety Laws" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Resource Conservation and Recovery Act of 1976, and the Occupational Safety and Health Act of 1970, each as amended, together with all other laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder) of federal, state, local, and foreign governments (and all agencies thereof) concerning pollution or protection of the environment, public health and safety, or employee health and safety, including laws relating to emissions, discharges, releases, or threatened releases of pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials or wastes into ambient air, surface water, ground water, or lands or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials or wastes. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. 3 5 "Fidelity Common Stock" means the shares of restricted common stock, par value of $0.0001 per share, of FNFI. "Fidelity Shares" means the shares of Fidelity Common Stock, either held in treasury and transferred to Shareholders or newly issued by FNFI to Shareholders, to which Shareholders shall become entitled to receive pursuant to Section 2.2(d) and (e), below. "GAAP" means, subject to Schedule 1, at any particular time, generally accepted accounting principles, consistently applied on a going concern basis without regard to the pendency of the transactions contemplated hereby and using audit scope and materiality standards used in the past and, with respect to interim financial statements, subject to normal year-end adjustment. "Governmental Entity" shall mean any court, federal, state, local or foreign government or any administrative agency or commission or any other governmental authority or instrumentality whatsoever. "Hazardous Substances" shall mean any hazardous, toxic or infectious substance, material, gas or waste which is regulated by any local, state or federal Governmental Entity. "Indebtedness" shall mean, when used with reference to any Person, without duplication, (i) any liability of such Person created or assumed by such Person, or any Subsidiary thereof, (a) for borrowed money, (b) evidenced by a bond, note, debenture, or similar instrument (including a purchase money obligation, deed of trust or mortgage) given in connection with the acquisition of, or exchange for, any property or assets (other than inventory or similar property acquired and consumed in the Ordinary Course of Business), including securities and other indebtedness, (c) in respect of letters of credit issued for such Person's account and "swaps" of interest and currency exchange rates (and other interest and currency exchange rate hedging agreements) to which such Person is a party or (d) for the payment of money as lessee under leases that should be, in accordance with GAAP, recorded as capital leases for financial reporting purposes; (ii) any liability of others described in the preceding clause (I) guaranteed as to payment of principal or interest by such Person or in effect guaranteed by such Person through an agreement, contingent or otherwise, to purchase, repurchase, or pay the related Indebtedness or to acquire the security therefor; (iii) all liabilities or obligations secured by a Lien upon property owned by such Person and upon which liabilities or obligations such Person customarily pays interest or principal, whether or not such Person has assumed or become liable for the payment of such liabilities or obligations; and (iv) any amendment, renewal, extension, revision or refunding of any such liability or obligation. "Initial Calculated Shares" means 230,322 shares of Fidelity Common Stock. "Intellectual Property" means (i) all inventions (whether patentable or unpatentable and whether or not reduced to practice), all improvements thereto, and all patents, patent 4 6 applications, and patent disclosures, together with all reissuances, continuations, continuations-in-part, revisions, extensions, and reexaminations thereof; (ii) all trademarks, service marks, trade dress, logos, trade names, and corporate names, together with all translations, adaptations, derivations, and combinations thereof and including all goodwill associated therewith, and all applications, registrations, and renewals in connection therewith; (iii) all copyrightable works, all copyrights, and all applications, registrations, and renewals in connection therewith; (iv) all trade secrets and confidential business information (including ideas, research and development, know-how, formulas, compositions, manufacturing and production processes and techniques, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information, and business and marketing plans and proposals); (v) all computer software (including data and related documentation); (vi) all other proprietary rights; and (vii) all copies and tangible embodiments thereof (in whatever form or medium). "Legal Requirement" shall mean any statute, law, ordinance, rule, regulation, permit, order, writ, judgment, injunction, decree or award issued, enacted or promulgated by any Governmental Entity or any arbitrator. "Liability" means any liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due), including any liability for Taxes. "Licenses" has the meaning set forth in Section 4.14, below. "Lien" shall mean all liens (including judgment and mechanics' liens, regardless of whether liquidated), mortgages, assessments, security interests, easements, claims, pledges, trusts (constructive or otherwise), deeds of trust, options or other charges, encumbrances or restrictions. "Lower Limit Price" shall mean $14.325 per share of Fidelity Common Stock. "Lower Limit Shares" means the number of shares of Fidelity Common Stock equal to $3,760,000 divided by the Lower Limit Price, or 262,478 Fidelity Shares. "Material Adverse Effect" means any event, effect, development, occurrence or circumstance, individually or when taken together with all other such events, effects, developments, occurrences or circumstances, causing, resulting in or having a material adverse effect on (I) the business, assets, results of operations, business relationships, properties, condition (financial or otherwise), insurability or prospects of Company; (ii) the ability of the Parties to consummate the transactions contemplated by this Agreement; or (iii) the legal right or authorization of Company to continue to operate its business. "Material Contracts" has the meaning set forth in Section 4.9, below. 5 7 "Merger" has the meaning set forth in Recital B, above. "Ordinary Course of Business" means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency and, where appropriate, in accordance with formula). "Party" has the meaning set forth in the preamble to this Agreement. "Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, or a governmental entity (or any department, agency, or political subdivision thereof), or any other legal entity. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Securities Exchange Act" means the Securities Exchange Act of 1934, as amended. "Security Interest" means any mortgage, pledge, Lien, other than (i) mechanic's, materialmen's, and similar liens; (ii) liens for Taxes not yet due and payable or for Taxes that the taxpayer is contesting in good faith through appropriate proceedings; (iii) purchase money liens and liens securing rental payments under capital lease arrangements; and (iv) other liens arising in the Ordinary Course of Business and not incurred in connection with the borrowing of money. "Subsidiary" means any corporation with respect to which a specified Person (or a Subsidiary thereof) owns a majority of the common stock or has the power to vote or direct the voting of sufficient securities to elect a majority of the directors. "Tax" means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs, duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax or contribution of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not. "Tax Return" means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. "Upper Limit Price" shall mean $18.325 per share of Fidelity Common Stock. 6 8 "Upper Limit Shares" means the number of shares of Fidelity Common Stock equal to $3,760,000 divided by the Upper Limit Price, or 205,184 Fidelity Shares. ARTICLE 2 PLAN OF REORGANIZATION 2.1 The Merger. (a) The Merger. At the Effective Time (as defined in Section 3.1, below), Newco shall be merged with and into Company pursuant to this Agreement and the Articles of Merger, and the separate existence of Newco shall cease, all in accordance with the general corporation laws of the State of Tennessee (the "Tennessee Statute"). Company, as it exists from and after the Effective Time, is sometimes referred to herein as the "Surviving Corporation". (b) Effect of the Merger. Subject to the terms and conditions of this Agreement and the Articles of Merger, at the Effective Time (i) the separate existence of Newco shall cease and Newco shall be merged with and into Company, and (ii) the Merger shall have all the effects provided by the Tennessee Statute, this Agreement and the Articles of Merger. (c) Articles of Incorporation; Bylaws; Directors and Officers. The Articles of Incorporation of Surviving Corporation from and after the Effective Time shall be the Articles of Incorporation of Company until thereafter amended in accordance with the provisions therein and as provided by the Tennessee Statute. The Bylaws of Surviving Corporation from and after the Effective Time shall be the Bylaws of Company as in effect immediately prior to the Effective Time, continuing until thereafter amended in accordance with their terms and the Articles of Incorporation of Surviving Corporation and as provided by the Tennessee Statute. The initial directors of Surviving Corporation shall be the individuals referred to in Schedule 2.1(c)(1), in each case until their successors are elected and qualified. The initial officers of Surviving Corporation shall be those individuals holding such titles set forth in Schedule 2.1(c)(2), in each case until their successors are duly elected and qualified. 2.2 Conversion of Securities. At the Effective Time, by virtue of the Merger and without any action on the part of FNFI, Newco, Company or Shareholders, the shares of capital stock of Newco and Company shall be converted as follows: (a) Capital Stock of Newco. Each issued and outstanding share of capital stock of Newco shall continue to be issued and outstanding and shall be converted into one (1) share of validly issued, fully paid and non-assessable Common Stock of Company. Each stock certificate of Newco evidencing ownership of any such shares shall continue to evidence ownership of such shares of Common Stock of Surviving Corporation. 7 9 (b) Cancellation of Certain Shares of Capital Stock of Company. All shares of capital stock of Company that are owned directly or indirectly by Company, including all treasury shares and all capital stock which has been authorized but not issued, shall be canceled and no Fidelity Shares or Cash Consideration shall be delivered in exchange therefore. (c) Conversion of Company Shares. The Company Shares shall automatically be canceled, extinguished and converted, without any action on the part of the holder thereof, into the right to receive the Cash Consideration and the Fidelity Shares, as more fully described in subsections (d) and (e), below. All Company Shares, when so converted, shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each Shareholder shall cease to have any rights with respect thereto, except the right to receive the Cash Consideration and the Fidelity Shares to be paid or issued in consideration therefor upon the surrender of such certificate in accordance with subsection (g), below. (d) Consideration. In consideration for the cancellation and exchange by Shareholders of the Company Shares, (I) Newco shall pay to Shareholders the cash sum of Nine Hundred Forty Thousand Dollars ($940,000) (the "Cash Consideration"), and (ii) FNFI shall issue to Shareholders the Initial Calculated Shares, subject to adjustment pursuant to subsection (e), below. (e) Adjustments to Initial Calculated Shares. No adjustment shall be made to the number of Initial Calculated Shares to be issued Shareholders at Closing if the Closing Fidelity Price is (i) equal to or less than the Upper Limit Price; and (ii) equal to or greater than the Lower Limit Price. If the Closing Fidelity Price exceeds the Upper Limit Price, then Shareholders shall receive that number of Fidelity Shares equal to the difference between (i) the Initial Calculated Shares, minus (ii) the Upper Limit Shares minus the Closing Calculated Shares. If the Closing Fidelity Price is less than the Lower Limit Price, then Shareholders shall receive the number of Fidelity Shares equal to the sum of (I) the Initial Calculated Shares, plus (ii) the Closing Calculated Shares minus the Lower Limit Shares. Schedule 2.2 (e) hereto sets forth examples for the above formulas. (f) Payment and Allocation of Consideration. Provided that all of the conditions to the Closing set forth in Article 8, below, have been satisfied or waived by the party benefitting therefrom, (i) Newco shall, immediately after the Effective Time and on the Closing Date, pay to Shareholders the Cash Consideration by delivery, at Newco's Option, of a cashier's or certified bank check, or by wire transfer to an account or accounts designated by Shareholders; and (ii) FNFI shall, as soon as practicable after the Effective Time, issue and deliver the Fidelity Shares to Shareholders. The Cash Consideration and the Fidelity Shares shall be allocated among the Shareholders pro rata in accordance with their respective ownership interest in the Company. 8 10 (g) Certificate Delivery Requirement. At the Effective Time, Shareholders shall deliver to FNFI the certificates (the "Certificates") representing the Company Shares, duly endorsed in blank by the Shareholders, or accompanied by blank stock powers, and with all necessary transfer tax and other revenue stamps affixed and canceled. The Certificates so delivered shall be promptly canceled. Until delivered as contemplated by this subsection (g), each Certificate shall be deemed at any time after the Effective Time to represent the right to receive upon such surrender the Cash Consideration and the Fidelity Shares as provided for and allocated in accordance with this Article 2. ARTICLE 3 CLOSING 3.1 Closing. The consummation of the Merger and the other transactions contemplated by this Agreement (the "Closing") shall take place at the offices of FNFI, located at 3916 State Street, Suite 300, Santa Barbara, California 93105, on such date (the "Closing Date") and at such time as may be mutually designated by the Parties within five (5) business days following the satisfaction or waiver of the conditions set forth in Article 8, below (including, without limitation, the Requisite Regulatory Approvals), or such other date, time, place and manner as the Parties may mutually agree. On the Closing Date, the Articles of Merger and any required officers' certificates, shall be filed with the Secretary of State of the State of Tennessee in accordance with the provisions of the Tennessee Statute. The Merger shall become effective upon such filing or such later time on the Closing Date as may be specified in the filing with the Secretary of State of the State of Tennessee. 3.2 Termination. If the Closing has not occurred by September 1, 1997, either Party may terminate this Agreement upon written notice to the other Party, provided that such terminating Party is not then in breach of any of its covenants, representations or warranties contained in this Agreement. Notwithstanding the foregoing, FNFI may, at its sole discretion, terminate this Agreement prior to September 1, 1997, if it is unsatisfied with (i) its due diligence investigation of Company described in Section 8.1(d), below; or (ii) its review of the Schedules to the Agreement described in Section 8.1 (f), below. 3.3 Mutual Deliveries at Closing. Provided that all of the conditions to the Closing set forth in Section 8, below, have been satisfied or waived by the Party benefitting therefrom, the appropriate Parties or Persons shall execute and deliver or cause to be delivered to the appropriate parties at Closing the following: (a) The Employment Agreements in substantially the form of Exhibits B, C, D, E and K hereto; (b) The Lease Agreement in substantially the form of Exhibit F hereto; and 9 11 (c) The Registration Rights Agreement substantially in the form of Exhibit G hereto. 3.4 Shareholders' Deliveries at Closing. Provided that all of the conditions to the Closing set forth in Section 8, below, have been satisfied or waived by the Party benefiting therefrom, Shareholders shall execute and deliver or cause to be delivered to FNFI at the Closing the following documents: (a) The Certificates, in accordance with Section 2(g), above; (b) Company's original minute book, such minute book to contain (i) original Articles of Incorporation and all amendments thereto, or copies thereof if the originals are unavailable; (ii) the Company's Bylaws presently in effect; (iii) the Company's stock transfer records together with all available canceled stock certificates; and (iv) all minutes of meetings or consents in lieu of such meetings of the Company's Board of Directors and shareholders; and (c) Such other documents and instruments as may be specified in this Agreement or otherwise reasonably requested by FNFI in order to consummate the transactions contemplated hereby. 3.5 Company's Deliveries at Closing. Provided that all of the conditions to the closing set forth in section 8, below, have been satisfied or waived from the Party benefitting therefrom, Company shall execute and deliver or cause to be delivered to FNFI at the Closing the following: (a) An Officer's Certificate dated the Closing Date substantially in the form of Exhibit H hereto; (b) A Secretary's Certificate dated the Closing Date substantially in the form of Exhibit I hereto; (c) An opinion of counsel substantially in the form of Exhibit J hereto; (d) A good standing certificate of Company, dated within fifteen (15) business days of the Closing Date, for each jurisdiction in which Company is required to be qualified and authorized to do business; (e) Minutes of the Board of Directors and shareholders of Company authorizing and approving this agreement and the transactions contemplated herein; and (f) Resignations of all of the directors of Company effective as of the Closing Date. 10 12 3.6 FNFI's Deliveries at Closing. Provided that all of the conditions to the Closing set forth in Section 8, below, have been satisfied or waived by the Party benefiting therefrom, FNFI shall execute and deliver or cause to be delivered to Shareholders at the Closing the following: (a) The Fidelity Shares in accordance with Section 2.2 (f), above; and (b) Such other documents and instruments as may be specified in this Agreement or otherwise reasonably requested by Shareholder in order to consummate the transactions contemplated hereby. 3.7 Newco's Deliveries. Provided that all of the conditions to the Closing set forth in Section 8, below, have been satisfied or waived by the Party benefitting therefrom, Newco shall deliver to Shareholders the Cash Consideration in accordance with Section 2.2 (f), above. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF COMPANY AND SHAREHOLDERS Company and Shareholders hereby make the following representations and warranties to FNFI and Newco as of the date hereof and as of the Closing Date: 4.1 Organization and Standing; Articles and Bylaws. Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Tennessee, has full power and authority to own its properties and to carry on its business as presently conducted. Company is duly qualified and authorized to do business, and is in good standing as a foreign corporation, in each jurisdiction where the nature of its activities and of its properties (both owned and leased) make such qualification necessary, except where the failure to so qualify would not have a Material Adverse Effect upon Company. Company has furnished FNFI with copies of its Articles of Incorporation and Bylaws, as amended to the date hereof. Said copies are true, correct and complete and contain all amendments through the Closing Date. 4.2 Authorization. All corporate action on the part of Company, its officers, directors and shareholders necessary for the authorization, execution and delivery of this Agreement and the documents contemplated hereby, the performance of all of Company's and Shareholders' obligations hereunder and thereunder, and for the authorization, issuance, sale and delivery of the Company Shares have been taken or will be taken prior to the Closing. This Agreement and the documents contemplated hereby, when executed and delivered, shall constitute valid and legally binding obligations of Company and Shareholders enforceable in accordance with their respective terms, subject to laws of general application relating to bankruptcy, 11 13 insolvency and the relief of debtors and subject to the availability of equitable remedies. 4.3 Subsidiaries. Company does not presently own or control, directly or indirectly, any equity interest in any corporation, association, or business entity. Company is not directly or indirectly a participant in any joint venture or partnership. 4.4 Capitalization. The authorized capital stock of Company consists of 2000 shares of Common Stock, no par value, of which 1,836 shares are issued and outstanding. All of the Company Shares have been duly authorized and validly issued, are fully paid and non-assessable and are owned of record and beneficially by each Shareholder in the amounts set forth in Schedule 4.4 hereto, free and clear of all Liens and claims of every kind. All of the Company Shares were offered, issued, sold and delivered by Company in compliance with all applicable state and federal laws concerning the issuance of securities. None of the Company Shares were issued in violation of any preemptive rights created by statue, or by Company's charter document, or by any agreement to which Company may be bound. Schedule 4.4 hereto contains a complete list of, and the number of shares owned of record by, the holders of the issued and outstanding Company Stock. Other than as described in this Section 4.4, there are no outstanding shares of Company Stock, preferred stock or any other equity securities of Company, and there are no options, warrants, calls, conversion rights, commitments or agreements of any character to which Company or any Shareholder may be bound that do or may obligate Company to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of Company Stock, preferred stock or other equity securities or that do or may obligate Company to grant, extend or enter into any such option, warrant, call, conversion right, commitment or agreement. There are no outstanding arrangements, agreements, commitments or understandings of any kind affecting or relating to the voting, issuance, purchase, redemption, repurchase or transfer of any capital stock of Company or any other securities of Company. Other than as provided in or contemplated by this Agreement, neither Company nor Shareholders have, or prior to the Effective Time will have, become a party to or subject to any contract or obligation wherein any Person has a right or option to purchase or acquire any rights in any additional capital stock or securities of Company. As a result of the Merger, FNFI will be the record and beneficial owner of all outstanding capital stock of Company and rights to acquire capital stock of Company. 4.5 Financial Statements. The balance sheet and statements of shareholders' equity of Company as of July 31, 1997, together with statements of income for the year ending December 31, 1996, heretofore delivered to FNFI, are complete and correct in all material respects, and fairly present the financial condition of Company and the results of its operation as of the dates and for the periods referred to and have been 12 14 prepared in accordance with generally accepted accounting principles consistently applied. There are no liabilities, direct or indirect, fixed or contingent, which are not reflected in the balance sheet as of July 31, 1997, except for liabilities and obligations incurred in the ordinary course of business subsequent to July 31, 1997, which, either individually or in the aggregate, would not be material. There is no basis for any assertion against Company of any liability or obligation of any nature whatsoever that is not fully reflected in the financial statements delivered to FNFI which, either individually or in the aggregate, would be material. 4.6 Material Contracts. Schedule 4.6 hereto contains a complete and accurate list of all Material Contracts to which Company is a party or bound. Without limiting the generality of the foregoing, such list includes all such contracts and agreements and all licenses and instruments which (i) grant a Security Interest or permit or provide for the imposition of any Lien on, or provide for the sale (other than in the ordinary course of business and consistent with past practices) of, any of the assets of Company or of any of the shares of the Company Stock; (ii) require the consent of any third party to, or would interfere with, the consummation by Company or Shareholders of the transactions contemplated by this Agreement; (iii) involve the borrowing of money or provide for capital expenditures to be made in the future; or (iv) relate to Company's Intellectual Property rights. True, correct and complete copies of all Material Contracts listed on Schedule 4.6 have been furnished by Company to FNFI. Each Material Contract so listed is a valid and binding obligation of Company and is enforceable in accordance with its terms. Company has performed all material obligations required to be preformed by it to date and is not in default under or in breach of any term or provision of any Material Contract to which Company is a party, is subject or is otherwise bound, and no event has occurred that, with the giving of notice or the passage if time or both, would constitute such a default or breach under any Material Contract. To the best knowledge of Company and the Shareholders, no party with whom Company has a Material Contract is in default of its obligations thereunder. Except as set forth on Schedule 4.6, no consent or approval of any party to any of the Material Contracts is necessary in order to permit Company to consummate the transactions contemplated hereby. 4.7 Title to Assets Other Than Real Property. Except as set forth on Schedule 4.7 hereto, Company has good and marketable title to all properties and assets (other than real property which is subject to Section 4.8) owned or leased by the Company, free and clear of all Liens except for: (i) Liens for current Taxes not yet due and payable which have been fully reserved for; and (ii) Liens, if any, that are not substantial in character, amount or extent and do not detract materially from the value, or interfere with present use of the sale or other disposition, of the property subject thereto or affected thereby. The assets and properties of Company constitute all the assets, properties, rights, privileges and interests necessary for the operation of Company' business. 13 15 4.8 Real Property. Schedule 4.8 hereto contains an accurate list and general description of all real property owned or leased by Company. Company has good and marketable title to the real properties that it owns, as described in such schedule, free and clear of all Liens and Security Interests, except for (i) rights of lessors, lessees or sublessees in such matters that are reflected in a written lease; (ii) current Taxes (including assessments collected with Taxes) not yet due and payable; (iii) Liens, if any, that are not substantial in character, amount, or extent and do not materially detract from the value, or interfere with present use of the ability of Company to sell or otherwise dispose, of the property subject thereto or affected thereby; and (iv) other matters as described in Schedule 4.8 hereto. Company has valid leasehold interests in the leaseholds it holds, free and clear of all Liens and Security Interests, except for (i) claims of lessors, co-lessees or sublessees in such matters as are reflected in a written lease; (ii) title exceptions affecting the fee estate of the lessor under such leases; and (iii) other matters as described in Schedule 4.8 hereto. Company is not in default, and no facts or circumstances have occurred which, through the passage of time or both, or the giving of notice would constitute a default, under any lease under which Company possesses or uses real property. The activities of Company, with respect to all real property owned or leased by it for use in connection with its operations, are in all material respects permitted and authorized by applicable zoning laws, ordinances and regulations and all laws and regulations of any Governmental Entity. 4.9 No Conflicts. Neither the execution and delivery nor the performance of this Agreement by Company or Shareholders will result in any of the following: (i) a default or an event that, with notice or lapse of time or both, could be a default, breach or violation of (A) the Articles of Incorporation or Bylaws of Company, (B) any contract, lease, license, franchise, promissory note, conditional sales contract, commitment, indenture, mortgage, deed of trust, security or pledge agreement, or other agreement, instrument, or arrangement to which Company or any of the Shareholders is a party or by which any of their respective properties or any of their respective assets are bound and which is material to Company or such Shareholder (a "Material Contract"); (ii) the termination of any Material Contract or the acceleration of the maturity of any indebtedness or other material obligation of Company or any of the Shareholders; (iii) the creation or imposition of any Lien on any of the respective assets or properties of Company or any of the Shareholders or any of their shares of the Company Stock; (iv) a violation or breach of any writ, injunction or decree of any court or governmental instrumentality to which Company or any of the Shareholders is a party or by which any of their respective properties are bound. 4.10 Litigation. Except as set forth in Schedule 4.10 hereto, there are no actions, proceedings, or investigations before any court or administrative agency pending or currently threatened against or with respect to Company (or any basis therefor known to Company or Shareholders), which question the validity of this Agreement or any action taken or to be taken in connection herewith, or which, 14 16 Company individually or in the aggregate, might result in a Material Adverse Effect, or in any material impairment of the right or ability of each to carry on its business as now conducted or as proposed to be conducted, or in any material liability on the part of Company. Company is not a party or subject to, and none of its assets are bound by, the provisions of any order, writ, injunction, judgment, or decree of any court or governmental agency or instrumentality. 4.11 Taxes. Company has no liability for any federal, state or local Taxes, except for Taxes which have accrued and are not yet payable. Company has filed all Tax Returns required to be filed by it and has paid all income Taxes payable by it which have become due pursuant to such tax returns and all other Taxes and assessments payable by it which have become due, other than those not yet delinquent and except for those contested in good faith and for which adequate reserves have been established. Company has paid, or has provided adequate reserves (in the good faith judgment of Company and Shareholders) for the payment of, all federal and state Taxes applicable for all prior fiscal years and for the current fiscal year to the date hereof. 4.12 Employees. Schedule 4.12 hereto sets forth a complete list of all current employees of Company, together with each employee's tenure with Company, title or job classification, and the current semi-monthly rate of compensation payable to each such employee. There are no unfair labor practice complaints, strikes, slowdowns, stoppages or other controversies pending or, to the best knowledge of Company or Shareholders, attempts to unionize or controversies threatened between Company and, or relating to, any of its employees. Company is not a party to any collective bargaining agreement with respect to any of its employees or to a written employment contract with any of its employees, except as set forth on Schedule 4.12 hereto, and there are no understandings with respect to the employment of any officer or employee of Company which are not terminable by Company without liability on not more than thirty (30) days' notice. Except as set forth on Schedule 4.12 hereto, no officer, director, or employee is entitled to receive any payment of any amount under any existing agreement, severance plan or other benefit plan, or to the accrual or vesting of any other benefit or payment as a result of the consummation of any transactions contemplated by this Agreement. Company has complied with all applicable federal and state statutes and regulations which govern workers' compensation, equal employment opportunity and equal pay. 4.13 Governmental Consents. All consents, approvals, orders, or authorizations of, or registrations, qualifications, designations, declarations or filings with, any governmental authority, required on the part of Company and/or Shareholders in connection with the valid execution and delivery of this Agreement and the offer, sale or issuance of the Company Stock, or the consummation of any other transaction contemplated hereby have been obtained, or will be effective at the Closing, 15 17 except for notices required or permitted to be filed with certain state and federal securities commissions after the Closing, which notices will be filed on a timely basis. 4.14 Operating Rights. Company has all operating authority, licenses, franchises, permits, certificates, consents, rights and privileges (collectively, "Licenses") as are necessary or appropriate to the operation of its business as now conducted and as proposed to be conducted. Such Licenses are in full force and effect, no violations have been or are expected to have been recorded in respect of any such Licenses, and no proceeding is pending or threatened that could result in the revocation or limitation of any such Licenses. Company has conducted its business so as to comply in all material respects with all such Licenses. 4.15 Compliance with Applicable Laws. The business and operations of Company have been and are being conducted in compliance with all laws, ordinances, regulations, rules, orders, judgments or decrees to which Company is subject. Company holds, and the properties, assets, operations and businesses of Company have been maintained and conducted in all material respects in compliance with, all authorizations, permits, licenses, certificates, variances, exemptions, orders, franchises, rights and approvals that are necessary for the conduct of its businesses. No investigation or review by any governmental entity with respect to Company is pending or, to the best knowledge of Company or Shareholders, threatened, nor has any governmental entity indicated to Company an intention to conduct the same. 4.16 Insurance. Company has in full force and effect policies of insurance with respect to its assets and businesses against such casualties and contingencies and in such amounts, types and forms as are customarily appropriate for its businesses, operations, properties and assets. Schedule 4.16 hereto contains a list of all such policies of insurance maintained by or on behalf of Company. Company is not in default under any such policy of insurance such that it can be canceled and all claims thereunder have been filed in timely fashion. 4.17 Absence of Changes. Except as disclosed in Schedule 4.17 hereto, since January 1, 1997, there has not been (i) any change or amendment in the Articles of Incorporation, Bylaws or other governing instruments of Company; (ii) any sale or issuance of, or grant of options or rights to acquire, any shares of the Company Common Stock or other securities of Company or any declaration, setting aside, or payment of dividends or redemptions in respect of any shares of capital stock of Company, or any direct or indirect redemption, purchase, or other acquisition of such stock, or any agreement, understandings or commitments to do the same; (iii) any transfer or other disposition or pledge of, or the grant of options or rights to acquire, any of the outstanding shares of the Company Common Stock by any of the Shareholders; (iv) any amendment, termination or revocation, or any threat of any amendment, termination, or revocation having a Material Adverse Effect, of any 16 18 Material Contract; (v) any sale, transfer, mortgage, pledge, or subjection to Lien of, on or affecting any of the assets of the Company valued at or above $5,000 individually or in the aggregate; (vi) any increase in the compensation paid or payable or in the fringe benefits provided to any employee of Company, or the adoption of any employee benefit plans not in existence in the fiscal year ended December 31, 1996; (vii) any damage, destruction or loss, whether or not covered by insurance, of any of the assets of Company; or (viii) any purchase of lease, or commitment for the purchase or lease, of equipment or other capital items not disclosed in Company's financial statements which is in excess of the normal, ordinary and usual requirements of the business of Company. 4.18 Employee Plans. Schedule 4.18 hereto sets forth a complete list of all Employee Plans and Benefit Arrangements maintained, administered or contributed to, or otherwise participated in, by Company. True and complete copies of each such Employee Plan or Benefit Arrangement, including amendments thereto, have been provided to FNFI, together with true and complete copies of (i) annual reports for the most recent three (3) years (Form 5500 Series including, if applicable, Schedules A and B thereto); (ii) all plan documents and the most recent summary plan description of each such Employee Plan, together with any modifications thereto; and (iii) the most recent favorable determination letter (if applicable) from the Internal Revenue Service for each such Employee Plan. None of the Employee Plans is a "multiemployer plan" as defined in Section 3(37) of ERISA or a "multiple employer plan" as covered in Section 412(C) of the Code, and the Company has not been obligated to make a contribution to any such multiemployer or multiple employer plan. All contributions (including all employer contributions and employee salary reduction contributions) which are due have been paid to each such Employee Plan or Benefit Arrangement and all contributions for any period ending on or before the Closing Date which are not yet due have been paid to each such Employee Plan or Benefit Arrangement or accrued in accordance with past custom and practice of Company. Each Employee Plan which is intended to be qualified under Section 401(a) of the Code is so qualified and each trust maintained pursuant thereto is exempt from income tax under Section 501(a) of the Code. Neither Company nor any Employee Plan, nor any trusts created thereunder, nor any trustee, administrator nor any other fiduciary thereof, has engaged in a "prohibited transaction," as defined in Section 406 of ERISA and Section 4975 of the Code, or any breach of fiduciary duty as defined in Part 4 of Subtitle B of Title I of ERISA. 4.19 Intellectual Property Rights. 4.19.1 Company owns, or has the right to use, sell or license all Intellectual Property necessary or required for the conduct of its business as presently conducted and such rights to use, sell or license are reasonably sufficient for such conduct of Company's business. Company has taken all reasonable and practicable 17 19 action designed to safeguard and maintain the secrecy and confidentiality of, and its proprietary right in, all of its Intellectual Property. 4.19.2 Neither the manufacture, marketing, license, sale or intended use of any Intellectual Property licensed or sold by Company or currently under development by Company violates any license or agreement between Company and any third party or infringes any Intellectual Property of any other party; and there is not pending or, to the best knowledge of Company and Shareholders, threatened any claim or litigation contesting the validity, ownership or right to use, sell, license or dispose of any Intellectual Property or that the proposed use, sale, license or disposition thereof conflicts or will conflict with the rights of any other party, nor to the best knowledge of the Company and Shareholders, is there any basis for any such assertion. 4.20 Environment, Health and Safety. 4.20.1 Company has complied with all Environmental, Health and Safety Laws, except where failure to comply would not have a Material Adverse Effect, and no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or notice has been filed or commenced against it alleging any failure so to comply. Without limiting the generality of the preceding sentence, Company has obtained and been in compliance with all of the terms and conditions of all permits, licenses, and other authorizations which are required under, and has complied with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables which are contained in, all Environmental, Health, and Safety Laws, except where failure to comply would not have a Material Adverse Effect. 4.20.2 Company has not handled or disposed of any substance, arranged for the disposal of any substance, exposed any employee or other individual to any substance or condition, or owned or operated any property or facility in any manner that could form a reasonable basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand against Company giving rise to any Liability, except where having done so would not have a Material Adverse Effect. Company has no Liability for damage to any site, location, or body of water (surface or subsurface), for any illness of or personal injury to any employee or other individual, or for any reason under any Environmental, Health, and Safety Law which could have a Material Adverse Effect. 4.20.3 To the best of Company's and Shareholders' knowledge, all properties used in its business are free of Hazardous Substances, except where the existence thereof would not have a Material Adverse Effect. 18 20 4.21 Certain Transactions. There are no existing or pending transactions, nor are there any agreements or understandings, between Company, or any of the Shareholders or the officers, directors, or employees of Company, or any person or entity affiliated with any of them, including, without limitation, any transactions, arrangements or understandings relating to the purchase or sale of goods or services or the sale, lease or use of any of the assets of or by Company, with or without adequate compensation, or to any indebtedness owed to or by Company, in any amount whatsoever. 4.22 Investment Representations. Each Shareholder represents that they are receiving the Fidelity Shares for their own account for investment purposes only, and not as a nominee or agent for any other person, and not with a view to or for resale in connection with any distribution thereof. Each Shareholder hereby acknowledges that the Fidelity Shares to be issued hereunder will not be registered under the Securities Act, nor qualified under any state securities laws on the ground, among others, that no distribution or public offering is to be effected. 4.23 Absence of Claims Against Company. None of the Shareholders has any claims against the Company. 4.24 Certain Claims. Schedule 4.24 hereto lists all litigation and claim matters asserted or assertable by third Persons including, without limitation, those litigation and claim matters related to the Company's title insurance or other related services. 4.25 Tax-Free Reorganization. This Agreement, the Merger and the transactions contemplated thereby qualify, in all respects, as a tax-free reorganization pursuant to Code Section 368(a). 4.26 Brokers' Fees. Company has no liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement. 4.27 Full Disclosure. Neither this Agreement, the representations and warranties by Company and/or Shareholders contained herein, the Exhibits or Schedules hereto, nor any other written statement or certificate delivered or to be furnished to FNFI in connection herewith, when read together, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading. There is no fact known to Company or Shareholders which has not been disclosed to FNFI that would materially adversely affect Company's business or financial condition or its ability to perform its obligations under this Agreement. 19 21 ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF FNFI FNFI and Newco hereby represent and warrant to Company and Shareholders as follows: 5.1 Organization and Good Standing. FNFI and Newco are corporations duly organized, validly existing and in good standing under the laws of the States of Delaware and Tennessee, respectively, and have all requisite corporate power and authority to own, operate and lease their properties and to carry on their respective business as they are being conducted on the date of this Agreement. FNFI and Newco have all requisite corporate power and authority to enter into this Agreement and to perform their respective obligations hereunder with respect to the consummation of the transactions contemplated hereby. 5.2 Authorization. The execution and delivery of this Agreement by FNFI and Newco and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of FNFI and Newco, respectively. This Agreement has been duly executed and delivered by FNFI and Newco and constitutes a legal, valid and binding obligation of FNFI and Newco, enforceable in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting the rights of creditors generally and by general equitable principles. 5.3 Noncontravention. Neither the execution and delivery of this Agreement by FNFI and Newco nor the consummation of the transactions contemplated hereby by FNFI and Newco will (i) violate any statute, regulation, rule, injunction, judgment, order, decree, ruling charge, or other restriction of any Governmental Entity to which FNFI or Newco is subject or any provision of the charter or bylaws of FNFI and Newco; or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument or other arrangement to which either FNFI or Newco is a party or by which they are bound or to which any of their assets is subject, except where the violation, conflict, breach, default, acceleration, termination, modification, cancellation, or failure to give notice would not have a material adverse effect on the ability of FNFI and/or Newco to consummate the transactions contemplated by this Agreement. 5.4 Fidelity SEC Documents. FNFI has filed all forms, reports and documents required to be filed with the SEC (the "Fidelity SEC Documents"), all of which have been made available to Company. As of their respective dates, the Fidelity SEC Documents complied in all material respects with the requirements of the Securities Act and the Exchange Act, as the case may be, and the rules and regulations 20 22 of the SEC thereunder applicable to such Fidelity SEC Documents, and none of the Fidelity SEC Documents contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of FNFI included in the Fidelity SEC Documents comply in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with GAAP applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto, or in the case of the unaudited interim financial statements, as permitted by Form 10-Q promulgated by the SEC) and fairly present (subject, in the case of the unaudited interim financial statements, to recurring audit adjustments normal in nature and amount) the consolidated financial position of FNFI as at the dates thereof and the consolidated results of its operations and cash flows or changes in financial position for the periods then ended. 5.5 Fidelity Shares. All of the Fidelity Shares to be issued to Shareholders in connection with the Merger shall be duly authorized, validly issued, fully paid and non-assessable. Such shares shall be offered, issued, sold and delivered by FNFI in compliance with all applicable state and federal laws concerning the issuance of securities and none of such shares shall be issued in violation of the preemptive rights of any shareholder of FNFI. 5.6 Brokers' Fees. Neither FNFI nor Newco is a party to or obligated under any agreement with any broker, agent, or finder relating to the transactions contemplated hereby, and neither the execution of this Agreement nor the consummation of the transactions provided for herein will result in any liability to any broker, agent, or finder. 5.7 Disclosure. The representations and warranties contained in this Article 5 do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements and information contained herein, in light of the circumstances under which they are made, not misleading. ARTICLE 6 CONDUCT OF BUSINESS PENDING CLOSING During the period commencing on the date hereof and continuing through the Closing Date, Company and Shareholders, jointly and severally, covenant and agree that: 6.1 Qualification. Company shall maintain all qualifications to transact business and remain in good standing in its jurisdiction of incorporation and in the foreign jurisdictions in which Company owns or leases any property or conducts any business. 21 23 6.2 Ordinary Course. Company shall conduct its business in, and only in, the Ordinary Course of Business and, to the extent consistent with such business, shall not make or institute any unusual or novel methods of management, accounting, or operation that vary materially from those methods used by the Company as of the date of this Agreement. Company will use its best efforts to preserve its business organizations intact, to keep available to Company its present officers and employees, and to preserve its present relationships with suppliers, customers, and others having business relationships with the Company. Company shall maintain its properties and assets in good condition and repair. 6.3 Corporate Changes. Company shall not (i) amend its Articles of Incorporation or Bylaws (or equivalent documents); (ii) acquire by merging or consolidating with, or agreeing to merge or consolidate with, or purchase substantially all of the stock or assets of, or otherwise acquire, any business or any corporation, partnership, association or other business organization or division thereof; (iii) enter into any partnership or joint venture; (iv) declare, set aside, make or pay any dividend or other distribution in respect of its capital stock or purchase or redeem, directly or indirectly, any shares of its capital stock; (v) issue or sell any shares of its capital stock of any class or any options, warrants, conversion or other rights to purchase any such shares or any securities convertible into or exchangeable for such shares; or (vi) liquidate or dissolve or obligate itself to do so. Notwithstanding subsection (iv) of this section 6.3, FNFI understands that Company has been filing under Subchapter S of the Code and has made certain distributions of previously taxed income. Such distributions shall be allowed provided (i) they do not exceed, in the aggregate, Three Hundred Thousand Dollars ($300,000) during the period between May 31, 1997 and the Closing; and (ii) the post-distribution net worth of Company, determined in accordance with GAAP, exceeds Six Hundred Eighty-Seven Thousand Dollars ($687,000). 6.4 Indebtedness. Company shall not incur any indebtedness, sell any debt securities or lend money to or guarantee the Indebtedness of any Person. Company shall not restructure or refinance its existing Indebtedness. 6.5 Accounting. Company shall not make any change in the accounting principles, methods, records or practices followed by it or depreciation or amortization policies or rates heretofore adopted by it. Company shall maintain its books, records, and accounts in accordance with GAAP applied on a basis consistent with that of prior periods. 6.6 Compliance with Legal Requirements. Company shall comply promptly with all requirements that applicable law may impose upon it and its operations and with respect to the transactions contemplated by this Agreement, and shall cooperate promptly with, and furnish information to, FNFI in connection with any such requirements imposed upon FNFI, or upon any of its Affiliates, in connection therewith or herewith. 22 24 6.7 Disposition of Assets. Company shall not sell, transfer, license, lease or otherwise dispose of, or suffer or cause the encumbrance by any Lien upon any of its properties or assets, tangible or intangible, or upon any interest therein. 6.8 Compensation. Company shall not (i) adopt or amend in any material respect any collective bargaining, bonus, profit-sharing, compensation, stock option, pension, retirement, deferred compensation, Employee Plan, Benefit Arrangement, or any other agreement, trust, fund or arrangement for the benefit of employees other than to comply with any Legal Requirement; or (ii) pay, or make any accrual or arrangement for payment of, any increase in compensation, bonuses or special compensation of any kind, or any severance or termination pay to, or enter into any employment or loan or loan guarantee agreement with, any current or former officer, director, employee or consultant of Company. 6.9 Modification or Breach of Agreements; New Agreements. Company shall not terminate or modify, or commit or cause or suffer to be committed any act that will result in breach or violation of any term of or (with or without notice or passage of time, or both) constitute a default under or otherwise give any Person a basis for nonperformance under, any Material Contract, written or oral, disclosed in this Agreement or the Schedules hereto. Company shall refrain from becoming a party to any contract or commitment other than in the Ordinary Course of Business. Company shall meet all of its contractual obligations in accordance with their respective terms. 6.10 Capital Expenditures. Except as set forth on Schedule 6.10 hereto, except for capital expenditures or commitments necessary to maintain its properties and assets in good condition and repair (the amount of which shall not exceed $5,000 individually or in the aggregate), Company shall not purchase or enter into any contract to purchase any capital assets. 6.11 Consents. Company shall use its best efforts to obtain any consent, authorization or approval of, or exemption by, any Person required to be obtained or made by any Party hereto in connection with the transactions contemplated hereby or the taking of any action in connection with the consummation thereof. 6.12 Maintenance of Insurance. Company shall maintain its policies of insurance in full force and effect and shall not do, permit or willingly allow to be done any act by which any of said policies of insurance may be suspended, impaired or canceled. 6.13 Discharge. Company shall not cancel, compromise, release or discharge any claim of Company upon or against any Person or waive any right of Company of material value, and not discharge any Lien upon any asset of Company or compromise any debt or other obligation of Company to any Person other than Liens, debts or obligations with respect to current Liabilities of Company. 23 25 6.14 Actions. Company shall not institute, settle or agree to settle any Action before any Governmental Entity. 6.15 Taxes and Tax Assessments. Company shall pay, when due, and prior to the imposition or assessment of any interest, penalties or Liens by reason of the nonpayment of, all Taxes assessed against Company, its assets, properties or operations. Company shall furnish promptly to FNFI a copy of all notices of proposed assessment or similar notices or reports that are received from any taxing authority and which relate to Company's operations for periods ending on or prior to the Closing Date. ARTICLE 7 ADDITIONAL COVENANTS 7.1 Covenants of Company and Shareholders. During the period from the date hereof through the Closing Date, Company and Shareholders agree to: (a) Comply promptly with all applicable Legal Requirements imposed upon them with respect to the transactions contemplated by this Agreement, and shall cooperate promptly with, and furnish information to, FNFI in connection with any such requirements imposed upon FNFI or upon any of its Affiliates in connection therewith or herewith; (b) Use their reasonable best efforts to obtain (and to cooperate with FNFI in obtaining) any consent, authorization or approval of, or exemption by, any Person required to be obtained or made by Shareholders in connection with the transactions contemplated by this Agreement; (c) Use their reasonable best efforts to bring about the satisfaction of the conditions precedent to Closing set forth in Section 8.1 below; (d) Immediately advise FNFI orally and, within three (3) business days thereafter, in writing of any change in Company's business or condition that has had or may have a Material Adverse Effect; (e) Deliver to FNFI prior to the Closing a written statement disclosing any untrue statement in this Agreement or any Exhibit or Schedule hereto (or supplement thereto) or document furnished pursuant hereto, or any omission to state any material fact required to make the statements herein or therein contained complete and not misleading, immediately upon the discovery of such untrue statement or omission, accompanied by a written supplement to any Exhibit or Schedule to this Agreement that may be affected thereby; provided, however, that the disclosure of such 24 26 untrue statement or omission shall not prevent FNFI from terminating this Agreement pursuant to Section 9.1(c) hereof at any time at or prior to the Closing in respect of any original untrue or misleading statement; (f) Be responsible for the preparation and filing of all Company Subchapter S Tax returns for all periods up to and including the Closing Date, and have paid or will pay all Taxes attributable to such periods; and (g) Assume and be responsible for any and all Liability, including without limitation any and all Tax Liability, caused by, arising from, or related to the failure of the Merger to qualify, in any respects, as a tax-free reorganization pursuant to Code Section 368 (a). 7.2 Covenants of FNFI. During the period from the date hereof to the Closing Date, FNFI shall: (a) Comply promptly with all applicable Legal Requirements imposed upon it with respect to the transactions contemplated by this Agreement, and shall cooperate promptly with, and furnish information to, Shareholders in connection with any such requirements imposed upon the Shareholders or Company or upon any of Company's Affiliates in connection therewith or herewith; (b) Use its reasonable best efforts to obtain any consent, authorization or approval of, or exemption by, any Person required to be obtained or made by FNFI in connection with the transactions contemplated by this Agreement; (c) Use its reasonable best efforts to bring about the satisfaction of the conditions precedent to Closing set forth in Section 8.2 of this Agreement; and (d) Cause Surviving Corporation to continue at least one (1) significant historical business line of Company, or use at least a significant portion of Company's historical business assets in a business, in each case in accordance with Treasury Regulation Section 1.368-1. 7.3 Access and Information. (a) During the period commencing on the date hereof and continuing through the Closing Date, Shareholders shall cause Company to afford to FNFI and to FNFI's accountants, counsel, and other representatives, reasonable access to all of its properties, books, contracts, commitments, records and personnel and, during such period, to cause Company to furnish promptly to FNFI all information concerning its business, properties and personnel as FNFI may reasonably request. 25 27 (b) Except to the extent permitted by the provisions of Section 7.6 below, FNFI shall hold in confidence, and shall use reasonable efforts to ensure that its employees and representatives hold in confidence, all such information supplied to it by Shareholders or Company concerning Company and shall not disclose such information to any third party except as may be required by any Legal Requirement and except for information that (i) is or becomes generally available to the public other than as result of disclosure by FNFI or its representatives; (ii) becomes available to FNFI or its representatives from a third party other than Shareholders or Company, and FNFI or its representatives have no reason to believe that such third party is not entitled to disclose such information; (iii) is known to FNFI or its representatives on a non-confidential basis prior to its disclosure by any Shareholder or Company; or (iv) is made available by any Shareholder or Company to any other Person on a non-restricted basis. FNFI's obligations under the foregoing sentence shall expire on the Closing Date or, if the closing does not occur, one year after the date hereof. 7.4 Expenses. All costs and expenses (including, without limitation, all legal fees and expenses and costs) incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring the same. 7.5 Certain Notifications. At all times from the date hereof to the Closing Date, each Party shall promptly notify the others in writing of the occurrence of any event that will or may result in the failure to satisfy any of the conditions specified in Article 8, below. 7.6 Publicity. At all times prior to the Closing Date, each Party shall obtain the consent of all other Parties hereto prior to issuing, or permitting any of its directors, officers, employees or agents to issue, any press release or other information to the press, employees of Company or any third party with respect to this Agreement or the transactions contemplated hereby; provided, however, that no party shall be prohibited from supplying any information to any of its representatives, agents, attorneys, advisors, and others to the extent necessary to complete the transactions contemplated hereby so long as such representatives, agents, attorneys, advisors, and others are made aware of the terms of this Section 7.6. Nothing contained in this Agreement shall prevent any party to this Agreement at any time from furnishing any required information to any Governmental Entity or authority pursuant to a Legal Requirement or from complying with its legal or contractual obligations. 7.7 Further Assurances. (a) Subject to the terms and conditions of this Agreement, each of the Parties hereto agrees to use all reasonable efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary, proper or advisable under 26 28 applicable Legal Requirements, to consummate and make effective the transactions contemplated by this Agreement. (b) If at any time after the Closing any further action is necessary or desirable to carry out the purposes of this Agreement, the Shareholders and the proper officers or directors of FNFI and Company, as the case may be, shall take or cause to be taken all such necessary or convenient action and execute, and deliver and file, or cause to be executed, delivered and filed, all necessary or convenient documentation. 7.8 Competing Offers. Shareholders agree that they will not, and will cause Company not to, directly or indirectly, through an officer, director, agent, or otherwise, solicit, initiate or encourage the submissions of bids, offers or proposals by, any Person with respect to an acquisition of Company or its assets or capital stock or a merger or similar transaction, and Shareholders will not, and will not permit Company to, engage any broker, financial adviser or consultant to initiate or encourage proposals or offers from other parties. Furthermore, Shareholders shall not, and shall not permit Company to, directly or indirectly, through any officer, director, agent or otherwise, engage in negotiations concerning any such transaction with, or provide information to, any Person other than FNFI and its representatives with a view to engaging, or preparing to engage, that Person with respect to any matters in this Section 7.8. Shareholders shall ensure that Company shall not commence any proceeding to merge, consolidate or liquidate or dissolve or obligate itself to do so. 7.9 Post-Termination Employment. Company and Shareholders acknowledge and agree that after the Effective Time (i) neither FNFI nor Surviving Corporation shall be required to employ or retain any employee of Company or any other Person; and (ii) FNFI, in its sole and absolute discretion, may cause Surviving Corporation to retain all, some, or none or such employees. 7.10 Employment Agreements. On or before the Closing Date, Shareholders shall cause Company and the appropriate employee of Company to execute the Employment Agreements substantially in the forms of Exhibits B, C, D, E and K hereto. 7.11 Lease Agreement. On or before the Closing Date, Shareholders shall cause Company and Jeanene S. Moore to execute the Lease Agreement substantially in the form of Exhibit F hereto. 7.12 Registration Rights Agreement. On or before the Closing Date, Shareholders shall execute the Registration Rights Agreement substantially in the form of Exhibit G hereto. 27 29 ARTICLE 8 CONDITIONS PRECEDENT TO CLOSING 8.1. Conditions of FNFI. FNFI's obligations hereunder are subject to the satisfaction, at or prior to the Effective Time, of all of the following conditions: (a) Representations and Warranties True: Performance of Obligations. The representations and warranties made by Company and Shareholders in this Agreement shall be true and correct on and as of the Closing Date with the same force and effect as if they had been made on and as of said date; and Company and Shareholders shall have performed all of the obligations and complied with each and all of the covenants required to be performed or complied with by them on or prior to the Effective Time. (b) Material Adverse Effect. No act, event or condition shall have occurred after the date hereof which FNFI determines has had or could have a Material Adverse Effect. (c) Authorizations and Approvals. All authorizations, approvals or consents from third parties, including from any Governmental Entity, landlord or other Person, necessary for the consummation of the transactions contemplated hereby shall have been obtained. (d) Investigation of Company. FNFI shall have concluded (through its representatives, accountants, counsel and other experts) a due diligence investigation of the business, condition (financial and other), properties, assets, prospects, operations and affairs of Company and shall be satisfied, in its sole discretion, with the results thereof. (e) Deliveries. FNFI shall have received from the appropriate Party or Person, the delivery obligations set forth in Sections 3.3 through 3.5, below. (f) Schedules. Shareholders shall cause Company to deliver all of the Schedules to this Agreement set forth in Article 4 above, and FNFI shall be satisfied with such Schedules in its absolute and sole discretion. (g) No Actions. There shall not be instituted and pending or threatened any Action before any Governmental Entity (i) challenging the Merger or otherwise seeking to restrain or prohibit the consummation of the transactions contemplated hereby, or (ii) seeking to prohibit the direct or indirect ownership or operation by FNFI of all or a material portion of the business or assets of Company, or to compel FNFI or Company to dispose of or hold separate all or a material portion of the business or assets of Company or FNFI. 28 30 (h) Corporate Action. All corporate and other proceedings and actions taken in connection with the transactions contemplated hereby and all certificates, opinions, agreements, instruments, releases and documents referenced herein or incident to the transactions contemplated hereby shall be in form and substance satisfactory to FNFI and its counsel. (I) Requisite Regulatory Approvals. All notices or filings required to be made, all authorizations, permits, certificates, registrations, consents, approvals or orders required to be obtained, and all waiting periods required to expire, prior to the consummation of the transactions contemplated by this Agreement under applicable federal law of the United States or applicable laws of any state having jurisdiction over the transactions contemplated by this Agreement or the businesses conducted by the Parties or any Affiliate or Subsidiary of any Party (collectively, the "Requisite Regulatory Approvals") shall have been obtained or expired, as the case may be, without the imposition of any condition which is materially burdensome upon FNFI or any Party or Person to be affected by such condition. 8.2 Conditions of the Shareholders. Shareholders' obligations hereunder are subject to the satisfaction, at or prior to the Effective Time, of the following conditions: (a) Representations and Warranties True; Performance of Obligations. The representations and warranties made by FNFI in this Agreement shall be true and correct at the Closing Date, with the same force and effect as if they had been made on and as of said date; and FNFI shall have performed all obligations herein required to be performed by it at or prior to the Closing. (b) Authorizations and Approvals. All authorizations, approvals or consents, if any, from third parties, including from any Governmental Entity or other Person, necessary for the consummation of the transactions contemplated hereby shall have been obtained. ARTICLE 9 TERMINATION, AMENDMENT AND WAIVER 9.1 Termination. This Agreement may be terminated at any time prior to the Effective Time: (a) By mutual consent of the FNFI and Shareholders; (b) By Shareholders, acting together, or by FNFI, by written notice to the other Party or Parties hereto if the Closing has not occurred on or before 29 31 September 1, 1997, (or such later date as FNFI and Shareholders may agree), provided that in the case of a termination under this clause, the Party or parties terminating this Agreement shall not then be in material breach of any or its or their obligations under this Agreement. (c) By FNFI if (i) there has been a material misrepresentation, breach of warranty or breach of covenant by Company or any Shareholder under this Agreement; or (ii) any of the conditions precedent to Closing set forth in Section 8.1 have not been met on the Closing Date, and, in each case, FNFI is not then in material default of its obligations hereunder; or (d) By Shareholders acting together if (i) there has been a material misrepresentation, breach of warranty or breach of covenant by FNFI and Newco under this Agreement; or (ii) any of the conditions precedent to Closing set forth in Section 8.2 have not been met on the Closing Date, and, in each case, no Shareholder is then in material default of his obligations hereunder. 9.2 Effect of Termination. (a) In the case of any termination of this Agreement, the provisions of Section 7.3 and 7.4 shall remain in full force and effect. (b) Upon termination of this Agreement as provided in Section 9.1(a), except as stated in subsection (a) above, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of any Party hereto or their respective directors, officers, employees, agents or other representatives. (c) In the event of termination of this Agreement as provided in Section 9.1(b), (c) or (d) hereof, such termination shall be without prejudice to any rights that the terminating party or parties may have against the breaching party or parties or any other person under the terms of this Agreement or otherwise. 9.3 Amendment. This Agreement may be amended at any time by a written instrument executed by the Parties. Any amendment effected pursuant to this Section 9.3 shall be binding upon all Parties. 9.4 Waiver. Any term or provision of this Agreement may be waived in writing at any time by the Party or Parties entitled to the benefits thereof. Any waiver effected pursuant to this Section 9.4 shall be binding upon all Parties hereto. No failure to exercise and no delay in exercising any right, power or privilege shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege preclude the exercise of any other right, power or privilege. No waiver of any breach of any covenant or agreement hereunder shall be deemed a waiver of a 30 32 preceding or subsequent breach of the same or any other covenant or agreement. The rights and remedies of each Party under this Agreement are in addition to all other rights and remedies, whether at law, in equity or otherwise, that such Party may have against the other Parties. ARTICLE 10 INDEMNIFICATION 10.1 Survival of Representations and Warranties. The representations and warranties of Company and Shareholders hereto contained in this agreement or in any writing delivered pursuant hereto or at the Closing shall survive the Closing and the consummation of the transactions contemplated hereby until the fourth (4th) anniversary of the Closing Date; provided that the representations and warranties contained in Sections 4.2, 4.4, 4.11 and 4.20 shall not terminate but shall continue indefinitely; and provided further that Company's indemnification obligations under Section 10.2, below, shall terminate immediately subsequent to the Effective Time. 10.2 Indemnification by Company and Shareholders. Company and Shareholders, in accordance with Section 10.7, below, shall indemnify and hold harmless FNFI from and against any Damages arising out of or relating to: (i) any inaccuracy in or breach of any representation or warranty made by Company or any Shareholder in this Agreement or in any writing delivered pursuant to this Agreement or at the Closing; or (ii) the failure of Company or any Shareholder to perform or observe fully any covenant, agreement or provision to be performed or observed by Company or such Shareholder pursuant to this Agreement. 10.3 Indemnification by FNFI. FNFI shall indemnify, defend and hold harmless Shareholders from and against any Damages arising out of or related to: (i) any inaccuracy in or breach of any representation or warranty made by FNFI or Newco in this Agreement or in any writing delivered pursuant to this Agreement or at the Closing; or (ii) the failure by FNFI or Newco to perform or observe any covenant, agreement or condition to be performed or observed by it pursuant to this Agreement. 10.4 Third Party Claims. In the event any third party asserts any claim with respect to any matter as to which the indemnities in this Agreement relate, the party 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. If the Indemnifying Party does not give such notice and does not proceed diligently so to defend the third party claim within thirty (30) days after receipt of the notice of the third party claim, the Indemnifying Party shall be bound by any defense or settlement that the 31 33 Indemnified Party may 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 10.4, 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 any certificate, Schedule, Exhibit, list, summary or other information provided or delivered to a party by the Indemnifying Party or its agents and affiliates in connection with this Agreement. 10.5 Indemnification Non-Exclusive. The foregoing indemnification provisions are in addition to, and not in derogation of, any statutory, equitable or common-law remedy any Party may have for breach of representation, warranty, covenant or agreement. 10.6 Limitation on Indemnification Claims. Notwithstanding anything to the contrary in this Article 10, FNFI's indemnification claims against Shareholders or Company in connection with those litigation and claim matters specifically set forth in Schedule 4.24, shall (i) be limited to a maximum recovery of One Hundred Twenty Thousand Dollars ($120,000); and (ii) shall not arise until such time as such claims, in the aggregate, exceed Two Hundred Eighty Thousand Dollars ($280,000). 10.7 Allocation of Shareholder Indemnities. Ernest N. Moore and Jeanene S. Moore, jointly and severally, shall be responsible for ninety percent (90%) of any and all indemnity claims arising under Section 10.2, above, and T. Frank Jordan shall be responsible for ten percent (10%) of any and all such claims. ARTICLE 11 GENERAL PROVISIONS 11.1 Governing Law. This Agreement shall be governed by and construed under the laws of the State of California as applied to agreements among California residents, made and to be performed entirely within the State of California. 11.2 Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors, and administrators of the Parties hereto. 11.3 Entire Agreement. This Agreement, the exhibits and schedules hereto, and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement among the Parties with regard to the subject matter hereof and no Party shall be liable or bound to any other Party in any manner by any representations, warranties, covenants, or agreements except as specifically set forth herein or therein. Nothing in this 32 34 Agreement, express or implied, is intended to confer upon any party, other than the Parties hereto and their respective successors and assigns, any rights, remedies, obligations, or Liabilities under or by reason of this Agreement, except as expressly provided herein. 11.4 Severability. In the event any provision of this Agreement shall be invalid, illegal, or unenforceable, it shall, to the extent practicable, be modified so as to make it valid, legal and enforceable and to retain as nearly as practicable the intent of the Parties, and the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 11.5 Notice. All notices and other communications required or permitted hereunder shall be in writing and shall be deemed effectively given (i) if delivered personally (including by overnight express or messenger), upon delivery; (ii) if delivered by registered or certified mail, return receipt requested, upon the earlier of actual delivery or three (3) days after being mailed; or (iii) if given by facsimile, upon confirmation of transmission by facsimile, in each case to the Parties at the following addresses: (a) If to FNFI, addressed to: Fidelity National Financial, Inc. 3916 State Street, Suite 300 Santa Barbara, California 93105 Attn: Andrew F. Puzder Facsimile: (805) 898-7149 (b) If to Shareholders and Company, addressed to: First Title Corporation 3761 Venture Drive, Suite 210 Duluth, Georgia 30136 Attn: Ernest N. Moore Facsimile: (800) 615-7129 With a copy to: Wilton Sanders, Esq. Frantz, Sanders & Grattan 6100 Lake Forrest Drive, N.W., Suite 400 Atlanta, Georgia 30328 Facsimile (404) 257-9657 33 35 11.6 Construction. The Parties to this Agreement have participated jointly in the negotiation and drafting of this Agreement and have had competent counsel of their own choosing. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. 11.7 Headings. The headings of the paragraphs and subparagraphs of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 11.8 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument. 11.9 Recitals, Schedules, and Exhibits. The Recitals, Schedules and Exhibits to this Agreement are incorporated herein and, by this reference, made a part hereof as if fully set forth at length herein. 11.10 Covenant Not-To-Compete. Ernest N. Moore covenants and agrees that for a period of two (2) years following the Closing Date, he will not, without the prior written consent of Surviving Corporation and FNFI, directly or indirectly, engage or have an interest in (as owner, partner, shareholder, employee, director, officer, consultant or otherwise), with or without compensation, any business (i) in direct competition with the businesses being conducted by Surviving Corporation or FNFI; and (ii) within 100 miles of any office of Surviving Corporation. 34 36 IN WITNESS WHEREOF, the foregoing Agreement is hereby executed as of the date first above written. FNFI: FIDELITY NATIONAL FINANCIAL, INC., a Delaware Corporation By: /s/ ANDREW F. PUZDER ---------------------------------- Its: EXECUTIVE VICE PRESIDENT COMPANY: FIRST TITLE CORPORATION, a Tennessee Corporation By: ---------------------------------- Its: ---------------------------------- SHAREHOLDERS: ---------------------------------------- T. Frank. Jordan --------------------------------------- Jeanene S. Moore ---------------------------------------- Ernest N. Moore NEWCO: FIRST TITLE ACQUISITION CORPORATION, a Tennessee Corporation By: /s/ PATRICK F. STONE ---------------------------------- Its: President 35 37 IN WITNESS WHEREOF, the foregoing Agreement is hereby executed as of the date first above written. FNFI: FIDELITY NATIONAL FINANCIAL, INC., a Delaware Corporation By: ---------------------------------- Its: ---------------------------------- COMPANY: FIRST TITLE CORPORATION, a Tennessee Corporation By: /s/ ERNEST N. MOORE ---------------------------------- Its: Chairman/CEO SHAREHOLDERS: /s/ T. FRANK JORDAN ---------------------------------------- T. Frank. Jordan /s/ JEANENE S. MOORE BY: ERNEST N. MOORE ---------------------------------------- Jeanene S. Moore /s/ ERNEST N. MOORE ---------------------------------- Ernest N. Moore NEWCO: FIRST TITLE ACQUISITION CORPORATION, a Tennessee Corporation By: ---------------------------------- Its: ---------------------------------- 35 EX-10.48 14 AGREEMENT AND PLAN OF REORGANIZATION 1 EXHIBIT 10.48 AGREEMENT AND PLAN OF REORGANIZATION DATED: SEPTEMBER ___, 1997 BY AND AMONG FIDELITY NATIONAL FINANCIAL, INC. ICS IFLAND CREDIT SERVICES, INC. RICK W. IFLAND AND ICS ACQUISITION CORPORATION 2 EXHIBIT 10.48 AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and entered into as of this ___ day of September, 1997, by and among FIDELITY NATIONAL FINANCIAL, INC., a Delaware corporation ("FNFI"); ICS IFLAND CREDIT SERVICES, INC., a Kentucky corporation ("Company"); RICK W. IFLAND ("Shareholder"); and ICS ACQUISITION CORPORATION, a Kentucky corporation that is a newly-formed, wholly-owned subsidiary of FNFI ("Newco"). FNFI, Company, Shareholder and Newco are referred to collectively herein as the "Parties" or singularly as a"Party." RECITALS A. Shareholder is the record and beneficial owner of 1,000 shares of Company Common Stock (the "Company Shares"), which represents all the issued and outstanding shares of capital stock of Company. B. The respective Boards of Directors of FNFI, Company and Newco deem it advisable and in the best interests of their respective shareholders that Newco merge with and into Company (the "Merger") pursuant to this Agreement, the Articles of Merger substantially in the form attached hereto as Exhibit A (the "Articles of Merger") and the applicable provisions of the laws of the State of Kentucky. C. The Parties hereto expect that the Merger will further certain of their business objectives, including, without limitation, increased market share, reduced administrative costs and volume efficiencies. D. The Boards of Directors of FNFI, Company and Newco have approved and adopted this Agreement as a plan of reorganization within the provisions of Section 368 (a) of the Internal Revenue Code of 1986, as amended (the "Code"). NOW, THEREFORE, in consideration of the premises and the respective representations, warranties, covenants, agreements and conditions hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows: 3 ARTICLE I CERTAIN DEFINITIONS Unless otherwise defined herein or the context otherwise requires, the terms defined in this Section 1 shall have the meanings herein specified for all purposes of this Agreement, applicable to both the singular and the plural forms of any of the terms herein defined. "Action" shall mean any actual or threatened claim, action, suit, arbitration, hearing, inquiry, proceeding, complaint, charge or investigation by or before any Governmental Entity or arbitrator and any appeal from any of the foregoing. "Adverse Consequences" means all actions, suits, proceedings, hearings, investigations, charges, complaints, claims, demands, injunctions, judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid in settlement, Liabilities, obligations, Taxes, Liens, losses, expenses, and fees, including court costs and attorneys' fees and expenses, in each case (i) net of any insurance recoveries (except to the extent such recoveries increase the cost of insurance, through retrospective adjustments or otherwise); and (ii) net of any Tax benefit, after taking into account any Tax detriment of any indemnity. "Affiliate" shall mean, with respect to a Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such Person. "Articles of Merger" has the meaning set forth in Recital B, above. "Basis" means any past or present fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction that forms or would reasonably form the basis for any specified consequence. "Benefit Arrangement" shall mean any form of current or deferred compensation, bonus, stock option, stock appreciation right, severance pay, salary continuation, pension, profit-sharing, retirement or incentive plan, practice or arrangement, any group or individual disability, medical, dental, health, hospitalization, life insurance or other insurance plans or related benefits, or any other welfare or similar plan or arrangement for the benefit of any director, officer or employee, whether active or retired, or for any class or classes of such directors, officers or employees. "Cash Consideration" has the meaning set forth in Section 2.2 (d), below. "Claims" shall mean any and all liabilities, losses, claims, damages, causes of action, lawsuits, administrative proceedings (including informal proceedings), investigations, audits, demands, assessments, adjustments, judgments, settlement payments, deficiencies, penalties, fines, interest (including interests from the date of such damages), and costs and expenses 2 4 (including without limitation reasonable attorneys' fees and disbursements of every kind, nature and description). "Closing" has the meaning set forth in Section 3.1, below. "Closing Date" has the meaning set forth in Section 3.1, below. "Closing Fidelity Price" means the average of the per share closing sales price of FNFI's Common Stock publicly traded on the New York Stock Exchange for the ten (10) consecutive trading days ending two (2) days prior to the Closing Date. "Code" has the meaning set forth in Recital D, above. "Company Shares" has the meaning set forth in Recital A. "Company Stock" means shares of common stock, no par value per share, of Company. "Confidential Information" means any information concerning the businesses and affairs of any of the Parties that is not already generally available to the public. "Effective Time" has the meaning set forth in Section 3.1, below. "Employee Plan" shall mean any "employee benefit plan," as defined in Section 3(3) of ERISA, which is subject to any provisions of ERISA and covers any employee, whether active or retired, of the Company. "Environmental, Health, and Safety Laws" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Resource Conservation and Recovery Act of 1976, and the Occupational Safety and Health Act of 1970, each as amended, together with all other laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder) of federal, state, local, and foreign governments (and all agencies thereof) concerning pollution or protection of the environment, public health and safety, or employee health and safety, including laws relating to emissions, discharges, releases, or threatened releases of pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials or wastes into ambient air, surface water, ground water, or lands or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials or wastes. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. 3 5 "Fidelity Common Stock" means the shares of non-registered, restricted Common Stock, par value of $0.0001 per share, of FNFI. "Fidelity Shares" means $3,000,000 of Fidelity Common Stock, either held in treasury and transferred to Shareholders or newly issued by FNFI to Shareholders, the exact number of shares of which shall be equal to 3,000,000 divided by the Closing Fidelity Price. "GAAP" means, at any particular time, generally accepted accounting principles, consistently applied on a going concern basis without regard to the pendency of the transactions contemplated hereby and using audit scope and materiality standards used in the past and, with respect to interim financial statements, subject to normal year-end adjustment. "Governmental Entity" shall mean any court, federal, state, local or foreign government or any administrative agency or commission or any other governmental authority or instrumentality whatsoever. "Hazardous Substances" shall mean any hazardous, toxic or infectious substance, material, gas or waste which is regulated by any local, state or federal Governmental Entity. "Indebtedness" shall mean, when used with reference to any Person, without duplication, (i) any liability of such Person created or assumed by such Person, or any Subsidiary thereof, (a) for borrowed money, (b) evidenced by a bond, note, debenture, or similar instrument (including a purchase money obligation, deed of trust or mortgage) given in connection with the acquisition of, or exchange for, any property or assets (other than inventory or similar property acquired and consumed in the Ordinary Course of Business), including securities and other indebtedness, (c) in respect of letters of credit issued for such Person's account and "swaps" of interest and currency exchange rates (and other interest and currency exchange rate hedging agreements) to which such Person is a party or (d) for the payment of money as lessee under leases that should be, in accordance with GAAP, recorded as capital leases for financial reporting purposes; (ii) any liability of others described in the preceding clause (i) guaranteed as to payment of principal or interest by such Person or in effect guaranteed by such Person through an agreement, contingent or otherwise, to purchase, repurchase, or pay the related Indebtedness or to acquire the security therefor; (iii) all liabilities or obligations secured by a Lien upon property owned by such Person and upon which liabilities or obligations such Person customarily pays interest or principal, whether or not such Person has assumed or become liable for the payment of such liabilities or obligations; and (iv) any amendment, renewal, extension, revision or refunding of any such liability or obligation. "Intellectual Property" means (i) all inventions (whether patentable or unpatentable and whether or not reduced to practice), all improvements thereto, and all patents, patent applications, and patent disclosures, together with all reissuances, continuations, continuations-in-part, revisions, extensions, and reexaminations thereof; (ii) all trademarks, service marks, 4 6 trade dress, logos, trade names, and corporate names, together with all translations, adaptations, derivations, and combinations thereof and including all goodwill associated therewith, and all applications, registrations, and renewals in connection therewith; (iii) all copyrightable works, all copyrights, and all applications, registrations, and renewals in connection therewith; (iv) all trade secrets and confidential business information (including ideas, research and development, know-how, formulas, compositions, manufacturing and production processes and techniques, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information, and business and marketing plans and proposals); (v) all computer software (including data and related documentation); (vi) all other proprietary rights; and (vii) all copies and tangible embodiments thereof (in whatever form or medium). "Legal Requirement" shall mean any statute, law, ordinance, rule, regulation, permit, order, writ, judgment, injunction, decree or award issued, enacted or promulgated by any Governmental Entity or any arbitrator. "Liability" means any liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due), including any liability for Taxes. "Licenses" has the meaning set forth in Section 4.14, below. "Lien" shall mean all liens (including judgment and mechanics' liens, regardless of whether liquidated), mortgages, assessments, security interests, easements, claims, pledges, trusts (constructive or otherwise), deeds of trust, options or other charges, encumbrances or restrictions. "Material Adverse Effect" means any event, effect, development, occurrence or circumstance, individually or when taken together with all other such events, effects, developments, occurrences or circumstances, causing, resulting in or having a material adverse effect on (i) the business, assets, results of operations, business relationships, properties, condition (financial or otherwise), insurability or prospects of Company; (ii) the ability of the Parties to consummate the transactions contemplated by this Agreement; or (iii) the legal right or authorization of Company to continue to operate its business. "Material Contracts" has the meaning set forth in Section 4.9, below. "Merger" has the meaning set forth in Recital B, above. "Ordinary Course of Business" means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency and, where appropriate, in accordance with formula). 5 7 "Party" has the meaning set forth in the preamble to this Agreement. "Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, or a governmental entity (or any department, agency, or political subdivision thereof), or any other legal entity. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Securities Exchange Act" means the Securities Exchange Act of 1934, as amended. "Security Interest" means any mortgage, pledge, Lien, other than (i) mechanic's, materialmen's, and similar liens; (ii) liens for Taxes not yet due and payable or for Taxes that the taxpayer is contesting in good faith through appropriate proceedings; (iii) purchase money liens and liens securing rental payments under capital lease arrangements; and (iv) other liens arising in the Ordinary Course of Business and not incurred in connection with the borrowing of money. "Subsidiary" means any corporation with respect to which a specified Person (or a Subsidiary thereof) owns a majority of the common stock or has the power to vote or direct the voting of sufficient securities to elect a majority of the directors. "Tax" means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs, duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax or contribution of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not. "Tax Return" means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. 6 8 ARTICLE 2 PLAN OF REORGANIZATION 2.1 The Merger. (a) The Merger. At the Effective Time (as defined in Section 3.1, below), Newco shall be merged with and into Company pursuant to this Agreement and the Articles of Merger, and the separate existence of Newco shall cease, all in accordance with the general corporation laws of the State of Kentucky (the "Kentucky Statute"). Company, as it exists from and after the Effective Time, is sometimes referred to herein as the "Surviving Corporation." (b) Effect or of the Merger. Subject to the terms and conditions of this Agreement and the Articles of Merger, at the Effective Time (i) the separate existence of Newco shall cease and Newco shall be merged with and into Company, and (ii) the Merger shall have all the effects provided by the Kentucky Statute, this Agreement and the Articles of Merger. (c) Articles of Incorporation; Bylaws; Directors and Officers. The Articles of Incorporation of Surviving Corporation from and after the Effective Time shall be the Articles of Incorporation of Company until thereafter amended in accordance with the provisions therein and as provided by the Kentucky Statute. The Bylaws of Surviving Corporation from and after the Effective Time shall be the Bylaws of Company as in effect immediately prior to the Effective Time, continuing until thereafter amended in accordance with their terms and the Articles of Incorporation of Surviving Corporation and as provided by the Kentucky Statute. The initial directors of Surviving Corporation shall be the individuals referred to in Schedule 2.1(c)(1), in each case until their successors are elected and qualified. The initial officers of Surviving Corporation shall be those individuals holding such titles set forth in Schedule 2.1(c)(2), in each case until their successors are duly elected and qualified. 2.2 Conversion of Securities. At the Effective Time, by virtue of the Merger and without any action on the part of FNFI, Newco, Company or Shareholder, the shares of capital stock of Newco and Company shall be converted as follows: (a) Capital Stock of Newco. Each issued and outstanding share of capital stock of Newco shall continue to be issued and outstanding and shall be converted into one (1) share of validly issued, fully paid and non-assessable Common Stock of Company. Each stock certificate of Newco evidencing ownership of any such shares shall continue to evidence ownership of such shares of Common Stock of Surviving Corporation. (b) Cancellation of Certain Shares of Capital Stock of Company. All shares of capital stock of Company that are owned directly or indirectly by Company, including all treasury shares and all capital stock which has been authorized but not issued, shall be 7 9 canceled and no Fidelity Shares or Cash Consideration shall be delivered in exchange therefore. (c) Conversion of Company Shares. The Company Shares shall automatically be canceled, extinguished and converted, without any action on the part of the holder thereof, into the right to receive the Cash Consideration and the Fidelity Shares, as more fully described in subsection (d), below. All Company Shares, when so converted, shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and Shareholder shall cease to have any rights with respect thereto, except the right to receive the Cash Consideration and the Fidelity Shares to be paid or issued in consideration therefor upon the surrender of the Certificates in accordance with subsection (f), below. (d) Consideration. In consideration for the cancellation and exchange by Shareholder of the Company Shares and in accordance with subsection (e), below, (i) Newco shall pay to Shareholder the cash sum of Seven Hundred Fifty Thousand Dollars ($750,000) (the "Cash Consideration"), and (ii) FNFI shall issue to Shareholder the Fidelity Shares. (e) Payment and Allocation of Consideration. Provided that all of the conditions to the Closing set forth in Article 8, below, have been satisfied or waived by the party benefitting therefrom, (i) Newco shall, immediately after the Effective Time and on the Closing Date, pay to Shareholder the Cash Consideration by delivery, at Newco's option, of a cashier's or certified bank check, or by wire transfer to an account or accounts designated by Shareholder; and (ii) FNFI shall, as soon as practicable after the Effective Time, issue and deliver the Fidelity Shares to Shareholder. (f) Certificate Delivery Requirement. At the Effective Time, Shareholder shall deliver to FNFI the certificates (the "Certificates") representing the Company Shares, duly endorsed in blank by Shareholder, or accompanied by blank stock powers, and with all necessary transfer tax and other revenue stamps affixed and canceled. The Certificates so delivered shall be promptly canceled. Until delivered as contemplated by this subsection (f), each Certificate shall be deemed at any time after the Effective Time to represent the right to receive upon such surrender a pro rata portion of the Cash Consideration and the Fidelity Shares. ARTICLE 3 CLOSING 3.1. Closing. The consummation of the Merger and the other transactions contemplated by this Agreement (the "Closing") shall take place at the offices of FNFI, located at 3916 State Street, Suite 300, Santa Barbara, California 93105, on such date (the "Closing Date") and at such time as may be mutually designated by the Parties within five (5) business days following the satisfaction or waiver of the conditions set forth in Article 8, below 8 10 (including, without limitation, the Requisite Regulatory Approvals), or such other date, time, place and manner as the Parties may mutually agree. On the Closing Date, the Articles of Merger and any required officers' certificates, shall be filed with the Secretary of State of the State of Kentucky in accordance with the provisions of the Kentucky Statute. The Merger shall become effective upon such filing or such later time on the Closing Date as may be specified in the filing with the Secretary of State of the State of Kentucky. 3.2 Mutual Deliveries at Closing. Provided that all of the conditions to the Closing set forth in Article 8, below, have been satisfied or waived by the Party benefitting therefrom, the appropriate Parties or Persons shall execute and deliver or cause to be delivered to the appropriate Parties at Closing the following: (a) The Employment Agreement in substantially the form of Exhibit B hereto; and (b) The Registration Rights Agreement substantially in the form of Exhibit C hereto. 3.4. Shareholder's Deliveries at Closing. Provided that all of the conditions to the Closing set forth in Article 8, below, have been satisfied or waived by the Party benefiting therefrom, Shareholder shall execute and deliver or cause to be delivered to FNFI at the Closing the following documents: (a) The Certificates, in accordance with Section 2(f), above; (b) Company's original minute book, such minute book to contain (i) original Articles of Incorporation and all amendments thereto, or copies thereof if the originals are unavailable; (ii) the Company's Bylaws presently in effect; (iii) the Company's stock transfer records together with all available canceled stock certificates; and (iv) all minutes of meetings or consents in lieu of such meetings of the Company's Board of Directors and shareholders; and (c) Such other documents and instruments as may be specified in this Agreement or otherwise reasonably requested by FNFI in order to consummate the transactions contemplated hereby. 3.5 Company's Deliveries at Closing. Provided that all of the conditions to the closing set forth in Article 8, below, have been satisfied or waived from the Party benefitting therefrom, Company shall execute and deliver or cause to be delivered to FNFI at the Closing the following: (a) An Officers' Certificate dated the Closing Date substantially in the form of Exhibit D hereto; 9 11 (b) A Secretary's Certificate dated the Closing Date substantially in the form of Exhibit E hereto; (c) An opinion of counsel substantially in the form of Exhibit F hereto; (d) A Restated Amendment to Lease Agreement substantially in the form of Exhibit G hereto; (e) A good standing certificate of Company, dated within fifteen (15) business days of the Closing Date, for each jurisdiction in which Company is required to be qualified and authorized to do business; (f) Minutes of the Board of Directors and shareholders of Company authorizing and approving this agreement and the transactions contemplated herein; (g) Resignations of all of the officers and directors of Company effective as of the Closing Date; and (h) Such other documents and instruments as may be specified in this Agreement or otherwise reasonably requested by FNFI in order to consummate the transactions contemplated hereby. 3.6 FNFI's Deliveries at Closing. Provided that all of the conditions to the Closing set forth in Article 8, below, have been satisfied or waived by the Party benefiting therefrom, FNFI shall execute and deliver or cause to be delivered to Shareholder the following: (a) The Fidelity Shares in accordance with Section 2.2(e), above; and (b) Such other documents and instruments as may be specified in this Agreement or otherwise reasonably requested by Shareholder in order to consummate the transactions contemplated hereby. 3.7 Newco's Deliveries. Provided that all of the conditions to the Closing set forth in Article 8, below, have been satisfied or waived by the Party benefitting therefrom, Newco shall deliver to Shareholder at the Closing the Cash Consideration in accordance with Section 2.2(e), above. 10 12 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF COMPANY AND SHAREHOLDER Company and Shareholder, jointly and severally, represent and warrant to FNFI, Newco and Surviving Corporation that (except for changes contemplated by this Agreement), each of the following statements is true, correct and complete as of the date of this Agreement and will be true, correct and complete as of the Closing Date (each such statement to be made again by Company and Shareholder on that date with the Closing Date being substituted for the date of this Agreement throughout this Article 4): 4.1 Organization and Standing; Articles and Bylaws. Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Kentucky, has full power and authority to own its properties and to carry on its business as presently conducted. Company is duly qualified and authorized to do business, and is in good standing as a foreign corporation, in each jurisdiction where the nature of its activities and of its properties (both owned and leased) make such qualification necessary, except where the failure to so qualify would not have a Material Adverse Effect. Company has furnished FNFI with copies of its Articles of Incorporation and Bylaws, as amended to the date hereof. Said copies are true, correct and complete and contain all amendments through the Closing Date. 4.2 Authorization. All corporate action on the part of Company, its officers, directors and shareholders necessary for the authorization, execution and delivery of this Agreement and the documents contemplated hereby, the performance of all of Company's and Shareholder's obligations hereunder and thereunder, and for the exchange and cancellation of the Company Shares have been taken or will be taken prior to the Closing. This Agreement and the documents contemplated hereby, when executed and delivered, shall constitute valid and legally binding obligations of Company and Shareholder enforceable in accordance with their respective terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and subject to the availability of equitable remedies. 4.3 Subsidiaries. Company has no Subsidiaries and does not presently own, of record or beneficially, or control, directly or indirectly, any capital stock, securities convertible into capital stock or any other equity interest in any corporation, association or business entity, nor is the Company, directly or indirectly, a participant in any joint venture, partnership or other entity. 4.4 Capitalization. The authorized capital stock of Company consists of 2,000 shares of Common Stock, no par value, of which 1,000 shares are issued and outstanding. All of the Company Shares have been duly authorized and validly issued, are fully paid and non-assessable and are owned of record and beneficially by 11 13 Shareholder in the amounts set forth in Schedule 4.4 hereto, free and clear of all Liens, Indebtedness and Claims of every kind. All of the Company Shares were offered, issued, sold and delivered by Company in compliance with all applicable state and federal laws concerning the issuance of securities. None of the Company Shares were issued in violation of any preemptive rights created by statute, or by Company's charter documents, or by any agreement to which Company may be bound. Schedule 4.4 hereto contains a complete list of, and the number of shares owned of record by, the holders of the issued and outstanding Company Stock. Other than as described in this Section 4.4, there are no outstanding shares of Company Stock, preferred stock or any other equity securities of Company, and there are no options, warrants, calls, conversion rights, commitments or agreements of any character to which Company or any Shareholder may be bound that do or may obligate Company to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of Company Stock, preferred stock or other equity securities or that do or may obligate Company to grant, extend or enter into any such option, warrant, call, conversion right, commitment or agreement. There are no outstanding arrangements, agreements, commitments or understandings of any kind affecting or relating to the voting, issuance, purchase, redemption, repurchase or transfer of any capital stock of Company or any other securities of Company. Other than as provided in or contemplated by this Agreement, neither Company nor Shareholders have, or prior to the Effective Time will have, become a party to or subject to any contract or obligation wherein any Person has a right or option to purchase or acquire any rights in any additional capital stock or securities of Company. As a result of the Merger, FNFI will be the record and beneficial owner of all outstanding capital stock of Company and rights to acquire capital stock of Company. 4.5 Financial Statements. Schedule 4.5 hereto includes (i) true, complete and correct copies of Company's balance sheet as of December 31, 1996 (the end of its most recently completed fiscal year) and statements of income and retained earnings for the year ended December 31, 1996; and (ii) true, complete and correct copies of Company's balance sheet as of July 31, 1997, and statements of income and retained earnings for the period then ended. Except as set forth on Schedule 4.5 hereto, the above described financial statements have been prepared in accordance with GAAP consistently applied and fairly present the financial position of Company as of the dates thereof and the results of its operations and cash flows for the periods then ended, subject, in the case of the July 31, 1997 financial statements, to the omission of complete footnote information. There are no Company Liabilities, direct or indirect, fixed or contingent, which are not reflected in the balance sheet as of July 31, 1997, except for Liabilities incurred in the ordinary course of business subsequent to July 31, 1997, which, either individually or in the aggregate, would not be material. There is no basis for any assertion against Company of any liability or obligation of any nature whatsoever that is not fully reflected in the financial statements delivered to FNFI 12 14 which, either individually or in the aggregate, would be material. Since the date of the July 31, 1997 financial statements, there have been no material changes in Company's accounting policies. 4.6 Material Contracts. Schedule 4.6 hereto contains a complete and accurate list of all Material Contracts to which Company is a party or bound. Without limiting the generality of the foregoing, such list includes all such contracts and agreements and all licenses and instruments which (i) grant a Security Interest or permit or provide for the imposition of any Lien on, or provide for the sale (other than in the ordinary course of business and consistent with past practices) of, any of the assets of Company or of any of the shares of the Company Stock; (ii) require the consent of any third party to, or would interfere with, the consummation by Company or Shareholder of the transactions contemplated by this Agreement; (iii) involve the borrowing of money or provide for capital expenditures to be made in the future; or (iv) relate to Company's Intellectual Property rights. True, correct and complete copies of all Material Contracts listed on Schedule 4.6 have been furnished by Company to FNFI. Each Material Contract so listed is a valid and binding obligation of Company and is enforceable in accordance with its terms. Company has performed all material obligations required to be preformed by it to date and is not in default under or in breach of any term or provision of any Material Contract to which Company is a party, is subject or is otherwise bound, and no event has occurred that, with the giving of notice or the passage if time or both, would constitute such a default or breach under any Material Contract. To the best knowledge of Company and Shareholder, no party with whom Company has a Material Contract is in default of its obligations thereunder. Except as set forth on Schedule 4.6, no consent or approval of any party to any of the Material Contracts is necessary in order to permit Company to consummate the transactions contemplated hereby. 4.7 Assets Other Than Real Property. Except as set forth on Schedule 4.7 hereto, Company has good and marketable title to all properties and assets (other than real property which is subject to Section 4.8, below) owned or leased by Company, free and clear of all Liens except for: (i) Liens for current Taxes not yet due and payable which have been fully reserved for; and (ii) Liens, if any, that are not substantial in character, amount or extent and do not detract materially from the value, or interfere with present use of the sale or other disposition, of the property subject thereto or affected thereby. The assets and properties of Company constitute all the assets, properties, rights, privileges and interests necessary for the operation of Company's business. All of the vehicles, material machinery and equipment of Company are in good working order and condition, ordinary wear and tear excepted. 4.8 Real Property. Company does not own any real property. Schedule 4.8 hereto contains an accurate list and general description of all real property leases, subleases, licenses or similar agreements ("Leases") to which Company is a party 13 15 (copies of which have been previously furnished to FNFI), in each case setting forth (i) the landlord and tenant or sublessor and sublessee, as applicable, thereof and the date and term of each of the Leases; (ii) the legal description or street address of each property covered thereby; and (iii) a brief description (including size and function) of the principal improvements and buildings thereon (the "Leased Premises"). Company has valid leasehold interests in the Leased Premises, free and clear of all Liens and Security Interests, except for (i) Claims of lessors, co-lessees or sublessees in such matters as are reflected in the Leases; (ii) title exceptions affecting the fee estate of the lessor under such Leases; and (iii) other matters as described in Schedule 4.8 hereto. Company is not in default, and no facts or circumstances have occurred which, through the passage of time or both, or the giving of notice would constitute a default, under any Lease. The activities of Company, with respect to the Leased Premises, are in all material respects permitted and authorized by applicable zoning laws, ordinances and regulations and all laws and regulations of any Governmental Entity. To the best knowledge of Company and Shareholder, the portions of the buildings on the Leased Premises that are used in the business of Company are each in good repair and condition (including without limitation, the electrical, mechanical, HVAC, plumbing, elevator, other building systems and structural components serving such premises, and the roofs are water-tight), and are in the aggregate sufficient to satisfy Company's current and reasonable anticipated normal business activities as conducted thereat. 4.9 No Conflicts. Neither the execution and delivery nor the performance of this Agreement by Company or Shareholder will result in any of the following: (i) a default or an event that, with notice or lapse of time or both, could be a default, breach or violation of (A) the Articles of Incorporation or Bylaws of Company, (B) any contract, lease, license, franchise, promissory note, conditional sales contract, commitment, indenture, mortgage, deed of trust, security or pledge agreement, or other agreement, instrument, or arrangement to which Company or Shareholder is a party or by which any of their respective properties or any of their respective assets are bound and which is material to Company or Shareholder (a "Material Contract"); (ii) the termination of any Material Contract or the acceleration of the maturity of any indebtedness or other material obligation of Company or Shareholder; (iii) the creation or imposition of any Lien on any of the respective assets or properties of Company or Shareholder or any shares of the Company Stock; (iv) a violation or breach of any writ, injunction or decree of any court or governmental instrumentality to which Company or Shareholder is a party or by which any of their respective properties are bound. 4.10 Litigation. Except as set forth in Schedule 4.10 hereto, there are no actions, proceedings, or investigations before any court or administrative agency pending or currently threatened against or with respect to Company (or any basis therefor known to Company or Shareholder), which question the validity of this Agreement or any action taken or to be taken in connection herewith, or which, Company individually or in the aggregate, might result in a Material Adverse Effect, or 14 16 in any material impairment of the right or ability of each to carry on its business as now conducted or as proposed to be conducted, or in any material liability on the part of Company. Company is not a party or subject to, and none of its assets are bound by, the provisions of any order, writ, injunction, judgment, or decree of any court or governmental agency or instrumentality. 4.11 Taxes. Company has no Liability for any federal, state or local Taxes, except for Taxes which have accrued and are not yet payable. Company has filed all Tax Returns required to be filed by it and has paid all income Taxes payable by it which have become due pursuant to such tax returns and all other Taxes and assessments payable by it which have become due, other than those not yet delinquent and except for those contested in good faith and for which adequate reserves have been established. Company has paid, or has provided adequate reserves (in the good faith judgment of Company and Shareholder) for the payment of, all federal and state Taxes applicable for all prior fiscal years and for the current fiscal year to the date hereof. 4.12 Employees. Schedule 4.12 hereto sets forth a complete list of all current employees of Company, together with each employee's age, tenure with Company, title or job classification, and the current annual rate of compensation payable to each such employee. There are no unfair labor practice complaints, strikes, slowdowns, stoppages or other controversies pending or, to the best knowledge of Company or Shareholder, attempts to unionize or controversies threatened between Company and, or relating to, any of its employees. Company is not a party to any collective bargaining agreement with respect to any of its employees or to a written employment contract with any of its employees, except as set forth on Schedule 4.12 hereto, and there are no understandings with respect to the employment of any officer or employee of Company which are not terminable by Company without liability on not more than thirty (30) days' notice. Except as set forth on Schedule 4.12 hereto, no officer, director, or employee is entitled to receive any payment of any amount under any existing agreement, severance plan or other benefit plan, or to the accrual or vesting of any other benefit or payment as a result of the consummation of any transactions contemplated by this Agreement. Company has complied with all applicable federal and state statutes and regulations which govern workers' compensation, equal employment opportunity and equal pay. 4.13 Governmental Consents. All consents, approvals, orders, or authorizations of, or registrations, qualifications, designations, declarations or filings with, any governmental authority, required on the part of Company and/or Shareholder in connection with the valid execution and delivery of this Agreement and the exchange and cancellation of the Company Stock, or the consummation of any other transaction contemplated hereby have been obtained, or will be effective at the Closing, except for notices required or permitted to be filed with certain state and federal securities commissions after the Closing, which notices will be filed on a timely basis. 15 17 4.14 Operating Rights. Company has all operating authority, licenses, franchises, permits, certificates, consents, rights and privileges (collectively, "Licenses") as are necessary or appropriate to the operation of its business as now conducted and as proposed to be conducted. Such Licenses are in full force and effect, no violations have been or are expected to have been recorded in respect of any such Licenses, and no proceeding is pending or threatened that could result in the revocation or limitation of any such Licenses. Company has conducted its business so as to comply in all material respects with all such Licenses. 4.15 Compliance with Applicable Laws. The business and operations of Company have been and are being conducted in compliance with all laws, ordinances, regulations, rules, orders, judgments or decrees to which Company is subject. Company holds, and the properties, assets, operations and businesses of Company have been maintained and conducted in all material respects in compliance with, all authorizations, permits, licenses, certificates, variances, exemptions, orders, franchises, rights and approvals that are necessary for the conduct of its businesses. No investigation or review by any governmental entity with respect to Company is pending or, to the best knowledge of Company or Shareholder, threatened, nor has any governmental entity indicated to Company an intention to conduct the same. 4.16 Insurance. Schedule 4.16 hereto sets forth an accurate list, as of July 31, 1997, of all insurance policies carried by Company and all insurance loss runs or workmen's compensation claims received for the past two (2) policy years. Attached to Schedule 4.16 hereto are true, complete and correct copies of the summaries from the insurance company of all current insurance policies, all of which are in full force and effect. All premiums payable under all such policies have been paid and Company is otherwise in full compliance with the terms of such policies (or other policies providing substantially similar insurance coverage). To the best knowledge of Company and Shareholder, such policies of insurance are of the type and in amounts carried by Persons conducting businesses similar to that of Company. Neither Company nor Shareholder knows of any threatened termination of or material premium increase with respect to, any of such policies. All claims previously made under such policies have been timely filed. 4.17 Absence of Changes. Except as disclosed in Schedule 4.17 hereto, since January 1, 1997, there has not been (i) any change or amendment in the Articles of Incorporation, Bylaws or other governing instruments of Company; (ii) any sale or issuance of, or grant of options or rights to acquire, any shares of the Company Common Stock or other securities of Company or any declaration, setting aside, or payment of dividends or redemptions in respect of any shares of capital stock of Company, or any direct or indirect redemption, purchase, or other acquisition of such stock, or any agreement, understandings or commitments to do the same; (iii) any transfer or other disposition or pledge of, or the grant of options or rights to acquire, 16 18 any of the outstanding shares of the Company Common Stock by Shareholder; (iv) any amendment, termination or revocation, or any threat of any amendment, termination, or revocation having a Material Adverse Effect, of any Material Contract; (v) any sale, transfer, mortgage, pledge, or subjection to Lien of, on or affecting any of the assets of the Company valued at or above $5,000 individually or in the aggregate; (vi) any increase in the compensation paid or payable or in the fringe benefits provided to any employee of Company, or the adoption of any employee benefit plans not in existence in the fiscal year ended December 31, 1996; (vii) any damage, destruction or loss, whether or not covered by insurance, of any of the assets of Company; (viii) any purchase or lease, or commitment for the purchase or lease, of equipment or other capital items not disclosed in Company's financial statements which is in excess of the normal, ordinary and usual requirements of the business of Company; (ix) any change that by itself or together with other changes, has had a Material Adverse Effect; (x) any agreement or arrangement made by Company or Shareholder to take any action which, if taken prior to the date hereof, would have made any representation or warranty set forth in this Agreement untrue or incorrect as of the date when made; or (xi) the commencement or notice or, to the best knowledge of Company and Shareholder, threat of commencement of any lawsuit or proceeding against or investigation of Company or any of its affairs. 4.18 Employee Plans. Schedule 4.18 hereto sets forth a complete list of all Employee Plans and Benefit Arrangements maintained, administered or contributed to, or otherwise participated in, by Company. True and complete copies of each such Employee Plan or Benefit Arrangement, including amendments thereto, have been provided to FNFI, together with true and complete copies of (i) annual reports for the most recent three (3) years (Form 5500 Series including, if applicable, Schedules A and B thereto); (ii) all plan documents and the most recent summary plan description of each such Employee Plan, together with any modifications thereto; and (iii) the most recent favorable determination letter (if applicable) from the Internal Revenue Service for each such Employee Plan. None of the Employee Plans is a "multiemployer plan" as defined in Section 3(37) of ERISA or a "multiple employer plan" as covered in Section 412(c) of the Code, and the Company has not been obligated to make a contribution to any such multiemployer or multiple employer plan. All contributions (including all employer contributions and employee salary reduction contributions) which are due have been paid to each such Employee Plan or Benefit Arrangement and all contributions for any period ending on or before the Closing Date which are not yet due have been paid to each such Employee Plan or Benefit Arrangement or accrued in accordance with past custom and practice of Company. Each Employee Plan which is intended to be qualified under Section 401(a) of the Code is so qualified and each trust maintained pursuant thereto is exempt from income tax under Section 501(a) of the Code. Neither Company nor any Employee Plan, nor any trusts created thereunder, nor any trustee, administrator nor any other fiduciary thereof, has engaged in a "prohibited transaction," as defined in Section 406 of ERISA and Section 4975 of the 17 19 Code, or any breach of fiduciary duty as defined in Part 4 of Subtitle B of Title I of ERISA. 4.19 Intellectual Property Rights. 4.19.1 Company owns, or has the right to use, sell or license all Intellectual Property necessary or required for the conduct of its business as presently conducted and such rights to use, sell or license are reasonably sufficient for such conduct of Company's business. Company has taken all reasonable and practicable action designed to safeguard and maintain the secrecy and confidentiality of, and its proprietary right in, all of its Intellectual Property. 4.19.2 Neither the manufacture, marketing, license, sale or intended use of any Intellectual Property licensed or sold by Company or currently under development by Company violates any license or agreement between Company and any third party or infringes any Intellectual Property of any other party; and there is not pending or, to the best knowledge of Company and Shareholder, threatened any claim or litigation contesting the validity, ownership or right to use, sell, license or dispose of any Intellectual Property or that the proposed use, sale, license or disposition thereof conflicts or will conflict with the rights of any other party, nor to the best knowledge of the Company and Shareholder, is there any basis for any such assertion. 4.20 Environment, Health and Safety. 4.20.1 Company has complied with all Environmental, Health and Safety Laws, except where failure to comply would not have a Material Adverse Effect, and no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or notice has been filed or commenced against it alleging any failure to so comply. Without limiting the generality of the preceding sentence, Company has obtained and been in compliance with all of the terms and conditions of all permits, licenses, and other authorizations which are required under, and has complied with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables which are contained in, all Environmental, Health, and Safety Laws, except where failure to comply would not have a Material Adverse Effect. 4.20.2 Company has not handled or disposed of any substance, arranged for the disposal of any substance, exposed any employee or other individual to any substance or condition, or owned or operated any property or facility in any manner that could form a reasonable basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand against Company giving rise to any Liability, except where having done so would not have a Material Adverse Effect. Company has no Liability for damage to any site, location, 18 20 or body of water (surface or subsurface), for any illness of or personal injury to any employee or other individual, or for any reason under any Environmental, Health, and Safety Law which could have a Material Adverse Effect. 4.20.3 To the best of Company's and Shareholder's knowledge, all properties used in its business are free of Hazardous Substances, except where the existence thereof would not have a Material Adverse Effect. 4.21 Certain Transactions. There are no existing or pending transactions, nor are there any agreements or understandings, between Company, or Shareholder, or the officers, directors, or employees of Company, or any person or entity affiliated with any of them, including, without limitation, any transactions, arrangements or understandings relating to the purchase or sale of goods or services or the sale, lease or use of any of the assets of or by Company, with or without adequate compensation, or to any indebtedness owed to or by Company, in any amount whatsoever. 4.22 Investment Representations. Shareholder is receiving the Fidelity Shares for his own account for investment purposes only, and not as a nominee or agent for any other Person, and not with a view to or for resale in connection with any distribution thereof. Shareholder acknowledges that the Fidelity Shares to be issued hereunder will not be registered under the Securities Act, nor qualified under any state securities laws on the ground, among others, that no distribution or public offering is to be effected. 4.23 Absence of Claims Against Company. Shareholder has no claims against the Company. 4.24 Bank Accounts; Powers of Attorney. Schedule 4.24 hereto sets forth an accurate list, as of the date of this Agreement, of the following: (i) the name of each financial institution in which Company has any account or safe deposit box; (ii) the names in which the accounts or boxes are held; (iii) the type of account; and (iv) the name of each person authorized to draw thereon or have access thereto. Schedule 4.24 hereto also sets forth the name of each Person holding a general or special power of attorney from Company and a description of the terms of such power. 4.25 Tax-Free Reorganization. This Agreement, the Merger and the transactions contemplated thereby qualify, in all respects, as a tax-free reorganization pursuant to Code Section 368 (a). 4.26 Real Property Leased by Shareholder to Company. The Leased Premises of Company located at 2459 Nicholasville Road, Lexington, Kentucky 40503 (the "Lexington Property"), is owned by Shareholder and Neile E. Ifland. Company is not a party, whether as obligor, guarantor or otherwise, to any Indebtedness or any 19 21 other agreement or obligation (other than the Lease described in Schedule 4.8 hereto), that in any way relates to or is secured by the Lexington Property, and no assets of Company have been pledged as security for any such Indebtedness or other agreement or obligation. 4.27 Brokers' Fees. Neither Company nor Shareholder has any Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement. 4.28 Full Disclosure. Neither this Agreement, the representations and warranties by Company and/or Shareholder contained herein, the Exhibits or Schedules hereto, nor any other written statement or certificate delivered or to be furnished to FNFI in connection herewith, when read together, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading. There is no fact known to Company or Shareholder which has not been disclosed to FNFI that would materially adversely affect Company's business or financial condition or its ability to perform its obligations under this Agreement. ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF FNFI FNFI and Newco represent and warrant to Company and Shareholder that (except for changes contemplated by this Agreement) each of the following statements is true, correct and complete as of the date of this Agreement and will be true, correct and complete as of the Closing Date (each such statement to be made again by FNFI and Newco on that date with the Closing Date being substituted for the date of this Agreement throughout this Article 5): 5.1 Organization and Good Standing. FNFI and Newco are corporations duly organized, validly existing and in good standing under the laws of the States of Delaware and Kentucky, respectively, and have all requisite corporate power and authority to own, operate and lease their properties and to carry on their respective business as they are being conducted on the date of this Agreement. FNFI and Newco have all requisite corporate power and authority to enter into this Agreement and to perform their respective obligations hereunder with respect to the consummation of the transactions contemplated hereby. 5.2 Authorization. The execution and delivery of this Agreement by FNFI and Newco and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of FNFI and Newco, respectively. This Agreement has been duly executed and delivered by FNFI and 20 22 Newco and constitutes a legal, valid and binding obligation of FNFI and Newco, enforceable in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting the rights of creditors generally and by general equitable principles. 5.3 Noncontravention. Neither the execution and delivery of this Agreement by FNFI and Newco nor the consummation of the transactions contemplated hereby by FNFI and Newco will (i) violate any statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any Governmental Entity to which FNFI or Newco is subject or any provision of the charter or bylaws of FNFI and Newco; or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument or other arrangement to which either FNFI or Newco is a party or by which they are bound or to which any of their assets is subject, except where the violation, conflict, breach, default, acceleration, termination, modification, cancellation, or failure to give notice would not have a material adverse effect on the ability of FNFI and/or Newco to consummate the transactions contemplated by this Agreement. 5.4 Fidelity SEC Documents. FNFI has filed all forms, reports and documents required to be filed with the SEC (the "Fidelity SEC Documents"), all of which have been made available to Company. As of their respective dates, the Fidelity SEC Documents complied in all material respects with the requirements of the Securities Act and the Exchange Act, as the case may be, and the rules and regulations of the SEC thereunder applicable to such Fidelity SEC Documents, and none of the Fidelity SEC Documents contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of FNFI included in the Fidelity SEC Documents comply in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with GAAP applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto, or in the case of the unaudited interim financial statements, as permitted by Form 10-Q promulgated by the SEC) and fairly present (subject, in the case of the unaudited interim financial statements, to recurring audit adjustments normal in nature and amount) the consolidated financial position of FNFI as at the dates thereof and the consolidated results of its operations and cash flows or changes in financial position for the periods then ended. 5.5 Fidelity Shares. All of the Fidelity Shares to be issued to Shareholder in connection with the Merger shall be duly authorized, validly issued, fully paid and non-assessable. Such shares shall be offered, issued, sold and delivered by FNFI in compliance with all applicable state and federal laws concerning the issuance of 21 23 securities and none of such shares shall be issued in violation of the preemptive rights of any shareholder of FNFI. 5.6 Brokers' Fees. Neither FNFI nor Newco is a party to or obligated under any agreement with any broker, agent, or finder relating to the transactions contemplated hereby, and neither the execution of this Agreement nor the consummation of the transactions provided for herein will result in any liability to any broker, agent, or finder. 5.7 Disclosure. The representations and warranties contained in this Article 5 do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements and information contained herein, in light of the circumstances under which they are made, not misleading. ARTICLE 6 CONDUCT OF BUSINESS PENDING CLOSING During the period commencing on the date hereof and continuing through the Closing Date, Company and Shareholder, jointly and severally, covenant and agree that: 6.1 Qualification. Company shall maintain all qualifications to transact business and remain in good standing in its jurisdiction of incorporation and in the foreign jurisdictions in which Company owns or leases any property or conducts any business. 6.2 Ordinary Course. Company shall conduct its business in, and only in, the Ordinary Course of Business and, to the extent consistent with such business, shall not make or institute any unusual or novel methods of management, accounting, or operation that vary materially from those methods used by the Company as of July 31, 1997. Company will use its best efforts to preserve its business organizations intact, to keep available to Company its present officers and employees, and to preserve its present relationships with suppliers, customers, and others having business relationships with the Company. Company shall maintain its properties and assets in good condition and repair. 6.3 Corporate Changes. Company shall not (i) amend its Articles of Incorporation or Bylaws (or equivalent documents); (ii) except as provided in Section 7.1(g), below, acquire by merging or consolidating with, or agreeing to merge or consolidate with, or purchase substantially all of the stock or assets of, or otherwise acquire, any business or any corporation, partnership, association or other business organization or division thereof; (iii) enter into any partnership or joint venture; (iv) declare, set aside, make or pay any dividend or other distribution in respect of its capital stock or purchase or redeem, directly or indirectly, any shares of its capital stock; (v) issue or sell any shares of its capital stock of any class or any options, warrants, conversion or other rights to purchase any such shares or any securities 22 24 convertible into or exchangeable for such shares; or (vi) liquidate or dissolve or obligate itself to do so. 6.4 Indebtedness. Company shall not incur any Indebtedness, sell any debt securities or lend money to or guarantee the Indebtedness of any Person. Company shall not restructure or refinance its existing Indebtedness. 6.5 Accounting. Company shall not make any change in the accounting principles, methods, records or practices followed by it or depreciation or amortization policies or rates heretofore adopted by it. Company shall maintain its books, records, and accounts in accordance with GAAP applied on a basis consistent with that of prior periods. 6.6 Compliance with Legal Requirements. Company shall comply promptly with all requirements that applicable law may impose upon it and its operations and with respect to the transactions contemplated by this Agreement, and shall cooperate promptly with, and furnish information to, FNFI in connection with any such requirements imposed upon FNFI, or upon any of its Affiliates, in connection therewith or herewith. 6.7 Disposition of Assets. Company shall not sell, transfer, license, lease or otherwise dispose of, or suffer or cause the encumbrance by any Lien upon any of its properties or assets, tangible or intangible, or upon any interest therein. 6.8 Compensation. Company shall not (i) adopt or amend in any material respect any collective bargaining, bonus, profit-sharing, compensation, stock option, pension, retirement, deferred compensation, Employee Plan, Benefit Arrangement, or any other agreement, trust, fund or arrangement for the benefit of employees other than to comply with any Legal Requirement; or (ii) pay, or make any accrual or arrangement for payment of, any increase in compensation, bonuses or special compensation of any kind, or any severance or termination pay to, or enter into any employment or loan or loan guarantee agreement with, any current or former officer, director, employee or consultant of Company. 6.9 Modification or Breach of Agreements; New Agreements. Company shall not terminate or modify, or commit or cause or suffer to be committed any act that will result in breach or violation of any term of or (with or without notice or passage of time, or both) constitute a default under or otherwise give any Person a basis for nonperformance under, any Material Contract, written or oral, disclosed in this Agreement or the Schedules hereto. Company shall refrain from becoming a party to any contract or commitment other than in the Ordinary Course of Business. Company shall meet all of its contractual obligations in accordance with their respective terms. 23 25 6.10 Capital Expenditures. Except for capital expenditures or commitments necessary to maintain its properties and assets in good condition and repair (the amount of which shall not exceed $5,000 individually or in the aggregate), Company shall not purchase or enter into any contract to purchase any capital assets. 6.11 Consents. Company shall use its best efforts to obtain any consent, authorization or approval of, or exemption by, any Person required to be obtained or made by any Party hereto in connection with the transactions contemplated hereby or the taking of any action in connection with the consummation thereof. 6.12 Maintenance of Insurance. Company shall maintain its policies of insurance in full force and effect and shall not do, permit or willingly allow to be done any act by which any of said policies of insurance may be suspended, impaired or canceled. 6.13 Discharge. Company shall not cancel, compromise, release or discharge any claim of Company upon or against any Person or waive any right of Company of material value, and not discharge any Lien upon any asset of Company or compromise any debt or other obligation of Company to any Person other than Liens, debts or obligations with respect to current Liabilities of Company. 6.14 Actions. Company shall not institute, settle or agree to settle any Action before any Governmental Entity. 6.15 Taxes and Tax Assessments. Company shall pay, when due, and prior to the imposition or assessment of any interest, penalties or Liens by reason of the nonpayment of, all Taxes assessed against Company, its assets, properties or operations. Company shall furnish promptly to FNFI a copy of all notices of proposed assessment or similar notices or reports that are received from any taxing authority and which relate to Company's operations for periods ending on or prior to the Closing Date. ARTICLE 7 ADDITIONAL COVENANTS 7.1 Covenants of Company and Shareholder. During the period from the date hereof through the Closing Date, Company and Shareholder agree to: (a) Comply promptly with all applicable Legal Requirements imposed upon them with respect to the transactions contemplated by this Agreement, and shall cooperate promptly with, and furnish information to, FNFI in connection with any such requirements imposed upon FNFI or upon any of its Affiliates in connection therewith or herewith; 24 26 (b) Use their reasonable best efforts to obtain (and to cooperate with FNFI in obtaining) any consent, authorization or approval of, or exemption by, any Person required to be obtained or made by Company and/or Shareholder in connection with the transactions contemplated by this Agreement; (c) Use their reasonable best efforts to bring about the satisfaction of the conditions precedent to Closing set forth in Section 8.1 below; (d) Immediately advise FNFI orally and, within three (3) business days thereafter, in writing of any change in Company's business or condition that has had or may have a Material Adverse Effect; (e) Deliver to FNFI prior to the Closing a written statement disclosing any untrue statement in this Agreement or any Exhibit or Schedule hereto (or supplement thereto) or document furnished pursuant hereto, or any omission to state any material fact required to make the statements herein or therein contained complete and not misleading, immediately upon the discovery of such untrue statement or omission, accompanied by a written supplement to any Exhibit or Schedule to this Agreement that may be affected thereby; provided, however, that the disclosure of such untrue statement or omission shall not prevent FNFI from terminating this Agreement pursuant to Section 9.1(b) hereof at any time at or prior to the Closing in respect of any original untrue or misleading statement; (f) Obtain the release of Company or any assets of Company from any Indebtedness, Liability, Lien or Security Interest incurred by Company that in any way relates to the Lexington Property, except for any obligations expressly incurred by Company under the Lease described in Schedule 4.8 hereto; (g) Effect and consummate the merger of MicroCEL International Corp., a Kentucky corporation ("MicroCEL), with and into Company in accordance with the Kentucky Statute and upon such terms and conditions and in accordance with such documentation pre-approved by FNFI in its absolute and sole discretion. Upon the consummation of the above-described merger (i) all of the assets and liabilities of MicroCEL existing as of July 31, 1997 (other than assets and liabilities acquired or disposed of in the Ordinary Course of Business) shall be merged into Company; and (ii) all of the capital stock of MicroCEL, including all options, warrants, calls, conversions rights, commitments or agreements of any character which relate to such capital stock, shall be canceled and extinguished; and (h) Shareholder shall at or prior to the Closing pay in full all outstanding Indebtedness owed by Shareholder to Company. 25 27 7.2 Covenants of FNFI. During the period from the date hereof to the Closing Date, FNFI shall: (a) Comply promptly with all applicable Legal Requirements imposed upon it with respect to the transactions contemplated by this Agreement, and shall cooperate promptly with, and furnish information to, Shareholder in connection with any such requirements imposed upon the Shareholder or Company or upon any of Company's Affiliates in connection therewith or herewith; (b) Use its reasonable best efforts to obtain any consent, authorization or approval of, or exemption by, any Person required to be obtained or made by FNFI in connection with the transactions contemplated by this Agreement; (c) Use its reasonable best efforts to bring about the satisfaction of the conditions precedent to Closing set forth in Section 8.2 of this Agreement; and (d) Cause Surviving Corporation to continue at least one (1) significant historical business line of Company, or use at least a significant portion of Company's historical business assets in a business, in each case in accordance with Treasury Regulation Section 1.368-1. 7.3 Access and Information. (a) During the period commencing on the date hereof and continuing through the Closing Date, Shareholder shall cause Company to afford to FNFI and to FNFI's accountants, counsel, and other representatives, reasonable access to all of its properties, books, contracts, commitments, records and personnel and, during such period, to cause Company to furnish promptly to FNFI all information concerning its business, properties and personnel as FNFI may reasonably request. (b) Except to the extent permitted by the provisions of Section 7.6 below, FNFI shall hold in confidence, and shall use reasonable efforts to ensure that its employees and representatives hold in confidence, all such information supplied to it by Shareholder or Company concerning Company and shall not disclose such information to any third party except as may be required by any Legal Requirement and except for information that (i) is or becomes generally available to the public other than as result of disclosure by FNFI or its representatives; (ii) becomes available to FNFI or its representatives from a third party other than Shareholder or Company, and FNFI or its representatives have no reason to believe that such third party is not entitled to disclose such information; (iii) is known to FNFI or its representatives on a non-confidential basis prior to its disclosure by Shareholder or Company; or (iv) is made available by Shareholder or Company to any other Person on a non-restricted basis. FNFI's 26 28 obligations under the foregoing sentence shall expire on the Closing Date or, if the closing does not occur, one year after the date hereof. 7.4 Responsibility for Certain Potential Liabilities. Shareholder shall assume and be responsible for any and all Liability, including without limitation any and all Tax Liability, caused by, arising from, or related to the failure of the Merger to qualify, in any respects, as a tax-free reorganization pursuant to Code Section 368 (a). 7.5 Expenses. All costs and expenses (including, without limitation, all legal fees and expenses and costs) incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the Party incurring the same. 7.6 Certain Notifications. At all times from the date hereof to the Closing Date, each Party shall promptly notify the others in writing of the occurrence of any event that will or may result in the failure to satisfy any of the conditions specified in Article 8, below. 7.7 Publicity. At all times prior to the Closing Date, each Party shall obtain the consent of all other Parties hereto prior to issuing, or permitting any of its directors, officers, employees or agents to issue, any press release or other information to the press, employees of Company or any third party with respect to this Agreement or the transactions contemplated hereby; provided, however, that no party shall be prohibited from supplying any information to any of its representatives, agents, attorneys, advisors, and others to the extent necessary to complete the transactions contemplated hereby so long as such representatives, agents, attorneys, advisors, and others are made aware of the terms of this Section 7.7. Nothing contained in this Agreement shall prevent any party to this Agreement at any time from furnishing any required information to any Governmental Entity or authority pursuant to a Legal Requirement or from complying with its legal or contractual obligations. 7.8 Further Assurances. (a) Subject to the terms and conditions of this Agreement, each of the Parties hereto agrees to use all reasonable efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary, proper or advisable under applicable Legal Requirements, to consummate and make effective the transactions contemplated by this Agreement. (b) If at any time after the Closing any further action is necessary or desirable to carry out the purposes of this Agreement, Shareholder and the proper officers or directors of FNFI and Company, as the case may be, shall take or cause to be taken all such necessary or convenient action and execute, and deliver and file, or cause to be executed, delivered and filed, all necessary or convenient documentation. 27 29 7.9 Competing Offers. Shareholder agrees that he will not, and will cause Company not to, directly or indirectly, through an officer, director, agent, or otherwise, solicit, initiate or encourage the submissions of bids, offers or proposals by, any Person with respect to an acquisition of Company or its assets or capital stock or a merger or similar transaction, and Shareholder will not, and will not permit Company to, engage any broker, financial adviser or consultant to initiate or encourage proposals or offers from other Persons. Furthermore, Shareholder shall not, and shall not permit Company to, directly or indirectly, through any officer, director, agent or otherwise, engage in negotiations concerning any such transaction with, or provide information to, any Person other than FNFI and its representatives with a view to engaging, or preparing to engage, that Person with respect to any matters in this Section 7.9. Shareholder shall ensure that Company shall not commence any proceeding to merge, consolidate or liquidate or dissolve or obligate itself to do so. 7.10 Post-Termination Employment. Company and Shareholder acknowledge and agree that after the Effective Time (i) neither FNFI nor Surviving Corporation shall be required to employ or retain any employee of Company or any other Person; and (ii) FNFI, in its sole and absolute discretion, may cause Surviving Corporation to retain all, some, or none or such employees. 7.11 Employment Agreement. On or before the Closing Date, Shareholder and the appropriate officer of Company shall execute the Employment Agreement substantially in the form of Exhibit B hereto. 7.12 Registration Rights Agreement. On or before the Closing Date, Shareholder and FNFI shall execute the Registration Rights Agreement substantially in the form of Exhibit C hereto. 7.13 Restated Amendment to Lease Agreement. On or before the Closing Date, Company and the appropriate Persons shall execute the Restated Amendment to Lease Agreement substantially in the form of Exhibit G hereto. ARTICLE 8 CONDITIONS PRECEDENT TO CLOSING 8.1. Conditions of FNFI. FNFI's obligations hereunder to consummate the Merger are subject to the satisfaction, at or prior to the Effective Time, of all of the following conditions: (a) Representations and Warranties True: Performance of Obligations. The representations and warranties made by Company and Shareholder in this Agreement shall be true, correct and complete on and as of the Closing Date 28 30 with the same force and effect as if they had been made on and as of said date; and Company and Shareholder shall have performed all of the obligations and complied with each and all of the covenants required to be performed or complied with by them on or prior to the Effective Time. (b) Material Adverse Effect. No act, event or condition shall have occurred after the date hereof which FNFI determines in its absolute and sole discretion has had or could have a Material Adverse Effect. (c) Authorizations and Approvals. All authorizations, approvals or consents from third parties, including from any Governmental Entity, landlord or other Person, necessary for the consummation of the transactions contemplated hereby shall have been obtained. (d) Investigation of Company. FNFI shall have concluded (through its representatives, accountants, counsel and other experts) a due diligence investigation of the business, condition (financial and other), properties, assets, prospects, operations and affairs of Company and shall be satisfied, in its absolute and sole discretion, with the results thereof. (e) Deliveries. FNFI shall have received from the appropriate Party or Person, the delivery obligations set forth in Sections 3.3 through 3.5, below. (f) Schedules. Shareholder shall cause Company to deliver all of the Schedules to this Agreement set forth in Article 4 above, and FNFI shall be satisfied with such Schedules in its absolute and sole discretion. (g) No Actions. There shall not be instituted and pending or threatened any Action before any Governmental Entity (i) challenging the Merger or otherwise seeking to restrain or prohibit the consummation of the transactions contemplated hereby, or (ii) seeking to prohibit the direct or indirect ownership or operation by FNFI of all or a material portion of the business or assets of Company, or to compel FNFI or Company to dispose of or hold separate all or a material portion of the business or assets of Company or FNFI. (h) Corporate Action. All corporate and other proceedings and actions taken in connection with the transactions contemplated hereby and all certificates, opinions, agreements, instruments, releases and documents referenced herein or incident to the transactions contemplated hereby shall be in form and substance satisfactory to FNFI and its counsel. 29 31 (i) Requisite Regulatory Approvals. All notices or filings required to be made, all authorizations, permits, certificates, registrations, consents, approvals or orders required to be obtained, and all waiting periods required to expire, prior to the consummation of the transactions contemplated by this Agreement under applicable federal law of the United States or applicable laws of any state having jurisdiction over the transactions contemplated by this Agreement or the businesses conducted by the Parties or any Affiliate or Subsidiary of any Party (collectively, the "Requisite Regulatory Approvals") shall have been obtained or expired, as the case may be, without the imposition of any condition which is materially burdensome upon FNFI or any Party or Person to be affected by such condition. (j) FNFI Board Approval. The approval by the board of Directors of FNFI of this Agreement and the transactions contemplated thereby. 8.2 Conditions of Company and Shareholder. Company's and Shareholder's obligations hereunder to consummate the Merger are subject to the satisfaction, at or prior to the Effective Time, of the following conditions: (a) Representations and Warranties True; Performance of Obligations. The representations and warranties made by FNFI and Newco in this Agreement shall be true and correct at the Closing Date, with the same force and effect as if they had been made on and as of said date; and FNFI and Newco shall have performed all obligations herein required to be performed by it at or prior to the Closing. (b) Authorizations and Approvals. All authorizations, approvals or consents, if any, from third parties, including from any Governmental Entity or other Person, necessary for the consummation of the transactions contemplated hereby shall have been obtained. ARTICLE 9 TERMINATION, AMENDMENT AND WAIVER 9.1 Termination. This Agreement may be terminated at any time prior to the Effective Time: (a) By mutual consent of the FNFI and Shareholder; (b) By Shareholder and Company as a group, on the one hand, or by FNFI, on the other hand, if there has been a material breach, failure to fulfill or default on the part of the other Party of any of the representations and warranties contained herein or in the due and timely performance and satisfaction of any of the covenants, agreements or conditions contained herein; or 30 32 (c) By Shareholder and Company as a group, on the one hand, or by FNFI, on the other hand, if there shall be a final non-appealable order of a federal or state court in effect preventing consummation of the Merger; or there shall be any action taken, or any statute, rule, regulation or order enacted, promulgated or issued or deemed applicable to the Merger by any Governmental Entity which would make the consummation of the Merger illegal. 9.2 Effect of Termination. In the case of any termination of this Agreement pursuant to Section 9.1, above, this Agreement shall forthwith become void, and there shall be no Liability or obligation on the part of any Party or its officers, directors or shareholders. Notwithstanding the foregoing sentence, (i) the provisions of Section 7.3 and 7.5 shall remain in full force and effect and survive any termination of this Agreement; (ii) each Party shall remain liable for any breach of this Agreement prior to its termination; and (iii) in the event of termination pursuant to section 9.1(b), above, then notwithstanding the provisions of Section 7.5, above, the breaching Party shall be liable to the non-breaching Party to the extent of the expenses incurred by such other party in connection with this Agreement and the transactions contemplated thereby. 9.3 Amendment. This Agreement may be amended at any time by a written instrument executed by the Parties. Any amendment effected pursuant to this Section 9.3 shall be binding upon all Parties. 9.4 Waiver. Any term or provision of this Agreement may be waived in writing at any time by the Party or Parties entitled to the benefits thereof. Any waiver effected pursuant to this Section 9.4 shall be binding upon all Parties hereto. No failure to exercise and no delay in exercising any right, power or privilege shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege preclude the exercise of any other right, power or privilege. No waiver of any breach of any covenant or agreement hereunder shall be deemed a waiver of a preceding or subsequent breach of the same or any other covenant or agreement. The rights and remedies of each Party under this Agreement are in addition to all other rights and remedies, whether at law, in equity or otherwise, that such Party may have against the other Parties. ARTICLE 10 INDEMNIFICATION 10.1 Indemnification by Company and Shareholder. Company and Shareholder, jointly and severally, covenant and agree to indemnify, defend, protect and hold harmless FNFI, Newco and Surviving Corporation and their respective officers, directors, employees, shareholders, assigns, successors and affiliates (a "FNFI Indemnified Party") from, against and in respect of: 31 33 (a) All Claims suffered, sustained, incurred or paid by any FNFI Indemnified Party in connection with resulting from or arising out of, directly or indirectly: (i) any breach of any representation or warranty of Shareholder or Company set forth in this Agreement or any certificate, document or instrument delivered by or on behalf of Shareholder or Company in connection herewith; (ii) any non-fulfillment of any covenant or agreement on the part of Shareholder or Company in this Agreement; or (iii) the business, operations or assets of Company prior to the Closing Date, except as otherwise disclosed in the financial statements set forth on Schedule 4.5 hereto; and (b) Any and all Claims incident to any of the foregoing or to the enforcement of this Section 10.1. Payment shall not be a condition precedent to recovery under the above indemnities. The indemnification obligations set forth above or in any writing delivered by Company and/or Shareholder pursuant hereto or at the Closing shall survive the Closing and the consummation of the transactions contemplated hereby until the third (3rd) anniversary of the Closing Date; provided, however, that the indemnification obligations with respect to the representations and warranties contained in Sections 4.2, 4.4, 4.11 and 4.20, and the covenants contained in Sections 7.1(f), 7.1(g) and 7.4 shall not terminate but shall continue indefinitely; and provided further that Company's indemnification obligations under this Section 10.1 shall terminate immediately subsequent to the Effective Time. 10.2 Indemnification by FNFI. FNFI covenants and agrees to indemnify, defend, protect and hold harmless Shareholder and his heirs, successors and assigns (a "Shareholder Indemnified Party") from, against and in respect of: (a) All Claims suffered, sustained, incurred or paid by any Shareholder Indemnified Party in connection with resulting from or arising out of, directly or indirectly: (i) any breach of any representation or warranty of FNFI or Newco set forth in this Agreement or any certificate, document or instrument delivered by or on behalf of FNFI or Newco in connection herewith; or (ii) any non-fulfillment of any covenant or agreement on the part of FNFI or Newco in this Agreement; and 32 34 (b) Any and all Claims incident to any of the foregoing or to the enforcement of this Section 10.2. Payment shall not be a condition precedent to recovery under the above indemnities. 10.3 Third Party Claims. In the event any third party asserts any claim with respect to any matter as to which the indemnities in this Agreement relate, the Party or Person against whom the claim is asserted (the "Indemnified Party") shall give prompt notice to the other Party or Person (the "Indemnifying Party"), and the Indemnifying Party shall have the right at its election to take over the defense or settlement of the third party claim at its own expense by giving prompt notice to the Indemnified Party. If the Indemnifying Party does not give such notice and does not proceed diligently so to defend the third party claim within thirty (30) days after receipt of the notice of the third party claim, the Indemnifying Party shall be bound by any defense or settlement that the Indemnified Party may make as to those claims and shall reimburse the Indemnified Party for its losses 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 Article 10, the reference to this Agreement includes any certificate, Schedule, Exhibit, list, summary or other information provided or delivered to a party by the Indemnifying Party or its agents and affiliates in connection with this Agreement. 10.4 Indemnification Non-Exclusive. The foregoing indemnification provisions are in addition to, and not in derogation of, any statutory, equitable or common-law remedy any Party may have for breach of representation, warranty, covenant or agreement. ARTICLE 11 GENERAL PROVISIONS 11.1 Governing Law. This Agreement shall be governed by and construed under the laws of the State of California as applied to agreements among California residents, made and to be performed entirely within the State of California. 11.2 Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors, and administrators of the Parties hereto. 11.3 Entire Agreement. This Agreement, the Exhibits and Schedules hereto, and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement among the Parties with regard to the subject matter hereof and no Party shall be liable or bound to any other Party in any manner by any representations, warranties, covenants, or agreements except as specifically set forth herein or therein. Nothing in this 33 35 Agreement, express or implied, is intended to confer upon any party, other than the Parties hereto and their respective successors and assigns, any rights, remedies, obligations, or Liabilities under or by reason of this Agreement, except as expressly provided herein. 11.4 Severability. In the event any provision of this Agreement shall be invalid, illegal, or unenforceable, it shall, to the extent practicable, be modified so as to make it valid, legal and enforceable and to retain as nearly as practicable the intent of the Parties, and the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 11.5 Notice. All notices and other communications required or permitted hereunder shall be in writing and shall be deemed effectively given (i) if delivered personally (including by overnight express or messenger), upon delivery; (ii) if delivered by registered or certified mail, return receipt requested, upon the earlier of actual delivery or three (3) days after being mailed; or (iii) if given by facsimile, upon confirmation of transmission by facsimile, in each case to the Parties at the following addresses: (a) If to FNFI, addressed to: Fidelity National Financial, Inc. 3916 State Street, Suite 300 Santa Barbara, California 93105 Attn: Andrew F. Puzder Facsimile: (805) 898-7149 (b) If to Shareholder and Company, addressed to: ICS Ifland Credit Services, Inc. 2459 Nicholasville Road Lexington, Kentucky 40503 Attn: Rick Ifland Facsimile: (800) 860-8108 With a copy to: John S. Sawyer, Esq. Sawyer & Glancy PLLC 3120 Wall Street, Suite 310 Lexington, Kentucky 40513 Facsimile: (606) 223-1583 34 36 11.6 Construction. Parties to this Agreement have participated jointly in the negotiation and drafting of this Agreement and have had competent counsel of their own choosing. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. 11.7 Headings. The headings of the paragraphs and subparagraphs of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 11.8 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument. 11.9 Recitals, Schedules, and Exhibits. The Recitals, Schedules and Exhibits to this Agreement are incorporated herein and, by this reference, made a part hereof as if fully set forth at length herein. 11.10 Tax Advice. Company and Shareholder acknowledge that they have received their own independent tax advice with respect to the Merger, this Agreement and the transactions contemplated thereby, including whether the Merger qualifies as a tax free reorganization in accordance with Section 368(a) of the Code, and are not in any way relying on any statements or advice of FNFI, Newco or any of their officers, directors, employees, agents or representatives. 35 37 IN WITNESS WHEREOF, the foregoing Agreement is hereby executed as of the date first above written. FNFI: FIDELITY NATIONAL FINANCIAL, INC., a Delaware Corporation By: /s/ ANDREW F. PUZDER ----------------------------------- Its: EXECUTIVE VICE PRESIDENT ----------------------------------- COMPANY: ICS IFLAND CREDIT SERVICES, INC., a Kentucky Corporation By: /s/ RICK W. IFLAND ----------------------------------- Its: PRESIDENT ----------------------------------- SHAREHOLDER: /s/ RICK W. IFLAND ----------------------------------- Rick W. Ifland NEWCO: ICS ACQUISITION CORPORATION, a Kentucky Corporation By: /s/ ANDREW F. PUZDER ----------------------------------- Its: VICE PRESIDENT ----------------------------------- 36 EX-10.49 15 AGREEMENT AND PLAN OF REORGANIZATION 1 EXHIBIT 10.49 AGREEMENT AND PLAN OF REORGANIZATION BY AND AMONG FIDELITY NATIONAL FINANCIAL, INC. BRON ACQUISITION CORPORATION BRON RESEARCH, INC., AND THE SHAREHOLDERS OF BRON RESEARCH, INC. DATED AS OF SEPTEMBER 24, 1997 2
TABLE OF CONTENTS PAGE RECITALS.................................................................................... 1 INDEX OF EXHIBITS........................................................................... iv INDEX OF SCHEDULES.......................................................................... iv ARTICLE I Certain Definitions.................................. 2 ARTICLE 2 Plan of Reorganization................................. 7 2.1 The Merger......................................................................... 7 2.2 Conversion of Securities........................................................... 7 ARTICLE 3 Closing........................................ 9 3.1. Closing............................................................................ 9 3.2 Mutual Deliveries at Closing....................................................... 9 3.3 Shareholders' Deliveries at Closing................................................ 9 3.4 Company's Deliveries at Closing.................................................... 9 3.5 FNFI's Deliveries at Closing....................................................... 10 3.6 Conditions of FNFI................................................................. 11 3.7 Conditions of Company and Shareholders............................................. 12 ARTICLE 4 Representations and Warranties of Company and Shareholders................ 14 4.1 Representations and Warranties of Company.......................................... 14 4.1.1 Organization and Standing; Articles and Bylaws............................ 14 4.1.2 Authorization............................................................. 14 4.1.3 Subsidiaries.............................................................. 14 4.1.4 Capitalization............................................................ 14 4.1.5 Financial Statements...................................................... 15 4.1.6 Material Contracts........................................................ 16 4.1.7 Assets Other Than Real Property........................................... 16 4.1.8 Real Property............................................................. 16 4.1.9 No Conflicts.............................................................. 17 4.1.10 Litigation................................................................ 17 4.1.11 Taxes..................................................................... 17 4.1.12 Employees................................................................. 18 4.1.13 Governmental Consents..................................................... 18 4.1.14 Operating Rights.......................................................... 18
i 3 4.1.15 Compliance with Applicable Laws........................................... 18 4.1.16 Insurance................................................................. 19 4.1.17 Absence of Changes........................................................ 19 4.1.18 Employee Plans............................................................ 20 4.1.19 Intellectual Property Rights.............................................. 20 4.1.20 Environment, Health and Safety............................................ 21 4.1.21 Certain Transactions...................................................... 21 4.1.22 Bank Accounts; Powers of Attorney......................................... 21 4.1.23 Tax-Free Reorganization................................................... 22 4.1.24 Employee Loans............................................................ 22 4.1.25 Pooling................................................................... 22 4.1.26 Brokers' Fees............................................................. 22 4.1.27 Full Disclosure........................................................... 22 4.2 Representations and Warranties of Shareholders..................................... 22 4.2.1 Authority................................................................. 22 4.2.2 Ownership of Shares....................................................... 22 4.2.3 No Conflicts.............................................................. 23 4.2.4 Litigation................................................................ 23 4.2.5 Certain Transactions...................................................... 23 4.2.6 Investment Representations................................................ 23 4.2.7 Absence of Claims Against Company......................................... 24 4.2.8 Tax-Free Reorganization................................................... 24 4.2.9 Continuity of Interest.................................................... 24 4.2.10 Pooling................................................................... 24 4.2.11 Brokers' Fees............................................................. 24 4.2.12 Disclosure................................................................ 24 ARTICLE 5 Representations and Warranties of FNFI and Newco.................... 24 5.1 Organization and Standing; Articles and Bylaws..................................... 25 5.2 Authorization...................................................................... 25 5.3 No Conflicts....................................................................... 25 5.4 Fidelity SEC Documents............................................................. 25 5.5 Fidelity Common Stock.............................................................. 26 5.6 Governmental Consents.............................................................. 26 5.7 Tax-Free Reorganization............................................................ 26 5.8 Brokers' Fees...................................................................... 26 5.9 Full Disclosure.................................................................... 26 ARTICLE 6 Conduct of Business Pending Closing.......................... 27 6.1 Qualification...................................................................... 27 6.2 Ordinary Course.................................................................... 27 6.3 Corporate Changes.................................................................. 27
ii 4 6.4 Indebtedness....................................................................... 27 6.5 Accounting......................................................................... 27 6.6 Compliance with Legal Requirements................................................. 28 6.7 Disposition of Assets.............................................................. 28 6.8 Compensation....................................................................... 28 6.9 Modification or Breach of Agreements; New Agreements............................... 28 6.10 Capital Expenditures............................................................... 28 6.11 Consents........................................................................... 28 6.12 Maintenance of Insurance........................................................... 29 6.13 Discharge.......................................................................... 29 6.14 Claims............................................................................. 29 6.15 Taxes and Tax Assessments.......................................................... 29 ARTICLE 7 Additional Covenants.................................. 29 7.1 Covenants of Company and Shareholders.............................................. 29 7.2 Covenants of FNFI and Newco........................................................ 30 7.3 Tax-Free Reorganization/Tax Advice................................................. 31 7.4 Continuity of Interest............................................................. 31 7.5 Access and Information............................................................. 31 7.6 Expenses........................................................................... 32 7.7 Certain Notifications.............................................................. 32 7.8 Publicity.......................................................................... 32 7.9 Further Assurances................................................................. 32 7.10 Competing Offers................................................................... 33 7.11 Post-Termination Employment........................................................ 33 7.12 NYSE Listing....................................................................... 33 7.13 Employee Benefits.................................................................. 33 7.14 Supplements to Schedules........................................................... 34 7.15 Officer and Director Indemnity..................................................... 34 ARTICLE 8 [Omitted].......................................................................... 34 ARTICLE 9 Termination, Amendment and Waiver........................... 34 9.1 Termination........................................................................ 34 9.2 Effect of Termination.............................................................. 34 9.3 Amendment.......................................................................... 35 9.4 Waiver............................................................................. 35 ARTICLE 10 Indemnification.................................... 35 10.1 Survival of Representations and Warranties......................................... 35
iii 5 10.2 Indemnification by Company and Shareholders........................................ 35 10.3 Indemnification by FNFI............................................................ 36 10.4 Third-Party Claims................................................................. 36 10.5 Additional Indemnification Provisions.............................................. 36 10.6 Indemnification Non-Exclusive...................................................... 37 10.7 Access and Information............................................................. 37 10.8 Mitigation......................................................................... 37 10.9 Right of Set-Off................................................................... 37 ARTICLE 11 General Provisions................................... 38 11.1 Governing Law...................................................................... 38 11.2 Successors and Assigns............................................................. 38 11.3 Entire Agreement................................................................... 38 11.4 Severability....................................................................... 38 11.5 Notice............................................................................. 38 11.6 Pooling............................................................................ 40 11.7 Construction....................................................................... 40 11.8 Headings........................................................................... 40 11.9 Counterparts....................................................................... 40 11.10 Recitals, Schedules, and Exhibits.................................................. 40
INDEX OF EXHIBITS EXHIBIT A - Articles of Merger EXHIBIT B - Employment Agreement of Brian J. Balli EXHIBIT C - Employment Agreement of Ronald F. Herrman, Jr. EXHIBIT D - Registration Rights Agreement EXHIBIT E - Officer's Certificate of the Company EXHIBIT F - Secretary's Certificate of the Company EXHIBIT G - Opinion of Counsel to the Company EXHIBIT H - Officer's Certificate of FNFI EXHIBIT I - Opinion of Counsel to FNFI INDEX OF SCHEDULES Schedule 2.1(c)(1) List of Directors of Surviving Corporation Schedule 2.1(c)(2) List of Officers of Surviving Corporation Schedule 2.2(d) Allocation of Fidelity Common Stock Company Disclosure Schedule iv 6 AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and entered into as of this 24th day of September, 1997, by and among FIDELITY NATIONAL FINANCIAL, INC., a Delaware corporation ("FNFI"); BRON RESEARCH, INC., a Texas corporation ("Company"); BRIAN J. BALLI, RONALD F. HERRMAN, JR. and RYAN F. HERRMAN (collectively, "Shareholders"); and BRON ACQUISITION CORPORATION, a Texas corporation that is a newly-formed, wholly-owned subsidiary of FNFI ("Newco"). FNFI, Company, Shareholders, and Newco are sometimes referred to collectively herein as the "Parties" or singularly as a "Party." RECITALS A. Shareholders are the record and beneficial owners of all the issued and outstanding shares of capital stock of Company (the "Company Shares"). B. The respective Boards of Directors of FNFI, Company and Newco deem it advisable and in the best interests of their respective shareholders that Newco merge with and into Company (the "Merger") pursuant to this Agreement, the Articles of Merger substantially in the form attached hereto as Exhibit "A" (the "Articles of Merger") and the applicable provisions of the laws of the State of Texas. C. The Parties hereto expect that the Merger will further certain of their business objectives, including, without limitation, increased market share, reduced administrative costs and volume efficiencies. D. The Boards of Directors of FNFI, Company and Newco have approved and adopted this Agreement as a plan of reorganization within the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). E. The Parties intend that the Merger be accounted for as a pooling of interests. NOW, THEREFORE, in consideration of the premises and the respective representations, warranties, covenants, agreements and conditions hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows: 1 7 ARTICLE I CERTAIN DEFINITIONS Unless the context otherwise requires, the terms defined in this Article 1 shall have the meanings herein specified for all purposes of this Agreement, applicable to both the singular and the plural forms of any of the terms herein defined. Any capitalized term used in this Agreement and not ascribed a meaning in this Article 1 shall have the meaning ascribed to such term elsewhere in this Agreement. "Affiliate" shall mean, with respect to a Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such Person. "Articles of Merger" has the meaning set forth in Recital B, above. "Basis" means any past or present fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction that forms or would reasonably form the basis for any specified consequence. "Benefit Arrangement" shall mean any form of current or deferred compensation, bonus, stock option, stock appreciation right, severance pay, salary continuation, pension, profit-sharing, retirement or incentive plan, practice or arrangement, any group or individual disability, medical, dental, health, hospitalization, life insurance or other insurance plans or related benefits, or any other welfare or similar plan or arrangement for the benefit of any director, officer or employee, whether active or retired, or for any class or classes of such directors, officers or employees. "Claim" shall mean any actual or threatened claim, action, suit, arbitration, hearing, inquiry, proceeding (including administrative and informal proceedings), complaint, charge, investigation or audit by or before any Governmental Entity or arbitrator and any appeal from any of the foregoing. "Closing" has the meaning set forth in Section 3.1, below. "Closing Date" has the meaning set forth in Section 3.1, below. "Closing Fidelity Price" means the average of the per share closing sales price of FNFI's Common Stock publicly traded on the New York Stock Exchange for the ten (10) consecutive trading days ending September 22, 1997. "Code" has the meaning set forth in Recital D, above. "Company Shares" has the meaning set forth in Recital A. 2 8 "Company Stock" means shares of Common Stock, no par value, of Company. "Confidential Information" means any information concerning the businesses and affairs of any of the Parties that is not already generally available to the public. "Effective Time" has the meaning set forth in Section 3.1, below. "Employee Plan" shall mean any "employee benefit plan," as defined in Section 3(3) of ERISA, which is subject to any provisions of ERISA and covers any employee, whether active or retired, of the Company. "Environmental, Health, and Safety Laws" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Resource Conservation and Recovery Act of 1976, and the Occupational Safety and Health Act of 1970, each as amended, together with all other laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder) of federal, state, local, and foreign governments (and all agencies thereof) concerning pollution or protection of the environment, public health and safety, or employee health and safety, including laws relating to emissions, discharges, releases, or threatened releases of pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials or wastes into ambient air, surface water, ground water, or lands or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials or wastes. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Fidelity Common Stock" means the shares of Common Stock, par value of $0.0001 per share, of FNFI. "GAAP" means United States generally accepted accounting principles. "Governmental Entity" shall mean any court, federal, state, local or foreign government or any administrative agency or commission or any other governmental authority or instrumentality whatsoever. "Hazardous Substances" shall mean any hazardous, toxic or infectious substance, material, gas or waste which is regulated by any local, state or federal Governmental Entity. "Indebtedness" shall mean, when used with reference to any Person, without duplication, (i) any liability of such Person created or assumed by such Person, or any Subsidiary thereof, (a) for borrowed money, (b) evidenced by a bond, note, debenture, or similar instrument (including a purchase money obligation, deed of trust or mortgage) given in connection with the acquisition of, or exchange for, any property or assets (other than inventory or similar property 3 9 acquired and consumed in the Ordinary Course of Business), including securities and other indebtedness, (c) in respect of letters of credit issued for such Person's account and "swaps" of interest and currency exchange rates (and other interest and currency exchange rate hedging agreements) to which such Person is a party or (d) for the payment of money as lessee under leases that should be, in accordance with GAAP, recorded as capital leases for financial reporting purposes; (ii) any Liability of others described in the preceding clause (i) guaranteed as to payment of principal or interest by such Person or in effect guaranteed by such Person through an agreement, contingent or otherwise, to purchase, repurchase, or pay the related Indebtedness or to acquire the security therefor; (iii) all Liabilities or obligations secured by a Lien upon property owned by such Person and upon which Liabilities or obligations such Person customarily pays interest or principal, whether or not such Person has assumed or become liable for the payment of such liabilities or obligations; and (iv) any amendment, renewal, extension, revision or refunding of any such Liability or obligation. "Intellectual Property" means (i) all inventions (whether patentable or unpatentable and whether or not reduced to practice), all improvements thereto, and all patents, patent applications, and patent disclosures, together with all reissuances, continuations, continuations-in-part, revisions, extensions, and reexaminations thereof; (ii) all trademarks, service marks, trade dress, logos, trade names, and corporate names, together with all translations, adaptations, derivations, and combinations thereof and including all goodwill associated therewith, and all applications, registrations, and renewals in connection therewith; (iii) all copyrightable works, all copyrights, and all applications, registrations, and renewals in connection therewith; (iv) all trade secrets and confidential business information (including ideas, research and development, know-how, formulas, compositions, manufacturing and production processes and techniques, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information, and business and marketing plans and proposals); (v) all computer software (including data and related documentation); (vi) all other proprietary rights; and (vii) all copies and tangible embodiments thereof (in whatever form or medium). "Knowledge" with respect to Company means that Brian J. Balli or Ronald F. Herrman, Jr. is actually aware of the fact or matter in question or reasonably should be aware of the fact or matter in question after a reasonable investigation concerning such fact or matter. "Knowledge" with respect to a Shareholder means that such Shareholder is actually aware of the fact or matter in question or reasonably should be aware of the fact or matter in question after a reasonable investigation concerning such fact or matter, but only to the extent such fact or matter relates to that Shareholder individually. "Legal Requirement" shall mean any statute, law, ordinance, rule, regulation, permit, order, writ, judgment, injunction, decree or award issued, enacted or promulgated by any Governmental Entity or any arbitrator with binding authority on a Party or Parties, as the case may be. 4 10 "Liability" means any liability (whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due), including any liability for Taxes. "Licenses" has the meaning set forth in Section 4.1.4, below. "Lien" shall mean all liens (including judgment and mechanics' liens, regardless of whether liquidated), mortgages, assessments, security interests, easements, claims, pledges, trusts (constructive or otherwise), deeds of trust, options or other charges, encumbrances or restrictions. "Losses" shall mean any and all Liabilities, losses, damages, demands, assessments, adjustments, judgments, settlement payments, deficiencies, penalties, fines, interest (including interests from the date of such damages), and costs and expenses (including without limitation reasonable attorneys' fees and disbursements of every kind, nature and description). "Material Adverse Effect" means any event, effect, development, occurrence or circumstance, individually or when taken together with all other such events, effects, developments, occurrences or circumstances, causing, resulting in or having a material adverse effect on (i) the business, assets, results of operations, properties or condition (financial or otherwise) of Company or FNFI, as applicable; or (ii) the legal right or authorization of Company or FNFI, as applicable, to continue to operate its business. "Material Contracts" with respect to Company or Newco means (i) any union contract or any employment or consulting contract or arrangement providing for future compensation, written or oral, with any officer, director or employee which is not terminable on thirty (30) days notice or less without penalty or obligation to make payments related to such termination; (ii) any plan contract or arrangement, whether written or oral, providing for bonuses, pensions, deferred compensation, severance pay or benefits, retirement payments, profit sharing or the like; (iii) any existing distribution agreement, volume purchase agreement, or similar agreement (but excluding individual customer purchase orders) in which the annual amount involved in fiscal 1997 exceeded or is expected to exceed $25,000 in aggregate amount; (iv) any individual customer purchase order for the sale of goods or services in excess of $25,000; (v) except for trade indebtedness incurred in the Ordinary Course of Business, any Indebtedness incurred in the acquisition of companies or other entities or Indebtedness for borrowed money by way of direct loan, sale of debt securities, purchase money obligation, conditional sale, guarantee, leasehold obligations or otherwise; (vi) any contract containing covenants purporting to limit in any way the freedom of Newco or Company, as applicable, to compete in any line of business or in any geographic area; (vii) any agreement of indemnification other than those entered into in connection with the sale of products or services of Newco or Company, as applicable, in the Ordinary Course of Business; (viii) any agreement, contract or commitment relating to capital expenditures and which involve future payments in excess of $25,000 in the aggregate by Newco or Company, as applicable; (ix) any agreements, contracts or commitments relating to the 5 11 disposition of assets, including any intangible assets or intellectual property rights (other than inventory), which involve payments in excess of $25,000 in the aggregate by Newco or Company, as applicable; (x) any contracts with a Governmental Entity subject to price redetermination or renegotiation; or (xi) any other agreement, contract or commitment which is material to Newco or Company, as applicable. "Material Contracts" with respect to FNFI means any agreement, contract or commitment which (i) is material to FNFI or (ii) FNFI files or is requested to file with its SEC reports. "Merger" has the meaning set forth in Recital B, above. "Ordinary Course of Business" means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency and, where appropriate, in accordance with formula). "Party" has the meaning set forth in the preamble to this Agreement. "Permitted Liens" means (i) mechanic's, materialmen's, and similar liens; (ii) liens for Taxes not yet due and payable or for Taxes that the taxpayer is contesting in good faith through appropriate proceedings; (iii) purchase money liens and liens securing rental payments under capital lease arrangements; and (iv) liens arising in the Ordinary Course of Business and not incurred in connection with the borrowing of money. "Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, or a governmental entity (or any department, agency, or political subdivision thereof), or any other legal entity. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Securities Exchange Act" means the Securities Exchange Act of 1934, as amended. "Security Interest" means any mortgage, pledge or Lien, other than Permitted Liens. "Subsidiary" means any corporation with respect to which a specified Person (or a Subsidiary thereof) owns a majority of the common stock or has the power to vote or direct the voting of sufficient securities to elect a majority of the directors. "Surviving Corporation" has the meaning set forth in Section 2.1(a), below. "Tax" means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, 6 12 customs, duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax or contribution of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not. "Tax Return" means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. "TBCA" means the Texas Business Corporation Act, as amended. ARTICLE 2 PLAN OF REORGANIZATION 2.1 The Merger. (a) The Merger. At the Effective Time (as defined in Section 3.1, below), Newco shall be merged with and into Company pursuant to this Agreement and the Articles of Merger, and the separate existence of Newco shall cease, all in accordance with the TBCA. Company, as it exists from and after the Effective Time, is sometimes referred to herein as the "Surviving Corporation." (b) Effect of the Merger. Subject to the terms and conditions of this Agreement and the Articles of Merger, at the Effective Time (i) the separate existence of Newco shall cease and Newco shall be merged with and into Company; and (ii) the Merger shall have all the effects provided by the TBCA, this Agreement and the Articles of Merger. (c) Articles of Incorporation; Bylaws; Directors and Officers. The Articles of Incorporation of Surviving Corporation from and after the Effective Time shall be the Articles of Incorporation of Company until thereafter amended in accordance with the provisions therein and as provided by the TBCA. The Bylaws of Surviving Corporation from and after the Effective Time shall be the Bylaws of Company as in effect immediately prior to the Effective Time, continuing until thereafter amended in accordance with their terms and the Articles of Incorporation of Surviving Corporation and as provided by the TBCA. The initial directors of Surviving Corporation shall be the individuals set forth on Schedule 2.1(c)(1) hereto, in each case until their successors are elected and qualified. The initial officers of Surviving Corporation shall be those individuals holding such titles set forth on Schedule 2.1(c)(2) hereto, in each case until their successors are duly elected and qualified. 2.2 Conversion of Securities. At the Effective Time, by virtue of the Merger and without any action on the part of FNFI, Newco, Company or Shareholders, the shares of capital stock of Newco and Company shall be converted as follows: 7 13 (a) Capital Stock of Newco. Each issued and outstanding share of capital stock of Newco shall continue to be issued and outstanding and shall be converted into one (1) validly issued, fully paid and non-assessable share of Company Stock. (b) Cancellation of Certain Shares of Capital Stock of Company. All shares of capital stock of Company that are owned directly or indirectly by Company, including all treasury shares and all capital stock which has been authorized but not issued, shall be canceled and no consideration shall be delivered in exchange therefor. (c) Conversion of Company Shares. The Company Shares shall automatically be canceled, extinguished and converted, without any action on the part of the holder thereof, into the right to receive shares of Fidelity Common Stock, as more fully described in subsection (d), below. All Company Shares, when so converted, shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and Shareholders shall cease to have any rights with respect thereto, except the right to receive the shares of Fidelity Common Stock to be paid or issued in consideration therefor upon the surrender of the Certificates in accordance with subsection (e), below. (d) Consideration. In consideration for the cancellation and exchange by Shareholders of the Company Shares, FNFI shall, as soon as practicable after the Effective Time, issue and deliver to Shareholders Nine Million Eight Hundred Fifty Thousand Dollars ($9,850,000) of Fidelity Common Stock, either held in treasury and transferred to Shareholders or newly issued by FNFI to Shareholders. The exact number of shares of Fidelity Common Stock to be issued pursuant to this subsection (d) shall be determined by dividing $9,850,000 by the Closing Fidelity Price and shall be set forth on a certificate to be agreed to by the Parties at Closing. The Fidelity Common Stock due Shareholders under this subsection (d) shall be allocated among the Shareholders in accordance with Schedule 2.2(d) hereto. (e) Certificate Delivery Requirement. At the Closing, Shareholders shall deliver to FNFI, against delivery (and written confirmation thereof) by FNFI of irrevocable instructions to FNFI's transfer agent to issue the number of shares of Fidelity Common Stock determined in accordance with subsection (d), above, in the names of Shareholders in the respective amounts set forth on Schedule 2.2(d) hereto, the certificates (the "Certificates") representing the Company Shares, duly endorsed in blank by Shareholders, or accompanied by blank stock powers, and with all necessary transfer tax and other revenue stamps affixed and canceled. The Certificates so delivered shall be promptly canceled. Until delivered as contemplated by this subsection (e), each Certificate shall be deemed at any time after the Effective Time to represent the right to receive upon such surrender a pro rata portion of Fidelity Common Stock set forth in subsection (d), above. 8 14 ARTICLE 3 CLOSING 3.1. Closing. The consummation of the Merger and the other transactions contemplated by this Agreement (the "Closing") shall take place at the offices of FNFI, located at 3916 State Street, Suite 300, Santa Barbara, California 93105, on such date (the "Closing Date") and at such time as may be mutually designated by the Parties within five (5) business days following the satisfaction or waiver of the conditions set forth in Sections 3.6 and 3.7, below (including, without limitation, the Requisite Regulatory Approvals), or such other date, time, place and manner as the Parties may mutually agree. On the Closing Date, the Articles of Merger and any required officers' certificates, shall be filed with the Secretary of State of the State of Texas in accordance with the provisions of the TBCA. The Merger shall become effective upon such filing or such later time on the Closing Date as may be specified in the filing with the Secretary of State of the State of Texas (the "Effective Time"). 3.2 Mutual Deliveries at Closing. Provided that all of the conditions to the Closing set forth in Sections 3.6 and 3.7, below, have been satisfied or waived by the Party benefitting therefrom, the appropriate Parties or Persons shall execute and deliver or cause to be delivered to the appropriate Parties at Closing the following: (a) The Employment Agreements in substantially the form of Exhibits "B" and "C" hereto; and (b) The Registration Rights Agreement substantially in the form of Exhibit "D" hereto. 3.3 Shareholders' Deliveries at Closing. Provided that all of the conditions to the Closing set forth in Sections 3.6 and 3.7, below, have been satisfied or waived by the Party benefiting therefrom, Shareholders shall execute and deliver or cause to be delivered to FNFI at the Closing the following documents: (a) The Certificates, in accordance with Section 2.2(e), above; (b) Such other documents and instruments as may be specified in this Agreement or otherwise reasonably requested by FNFI in order to consummate the transactions contemplated hereby. 3.4 Company's Deliveries at Closing. Provided that all of the conditions to the closing set forth in Sections 3.6 and 3.7, below, have been satisfied or waived from the Party benefitting therefrom, Company shall execute and deliver or cause to be delivered to FNFI at the Closing the following: 9 15 (a) An Officer's Certificate of the Company dated the Closing Date substantially in the form of Exhibit "E" hereto; (b) A Secretary's Certificate of the Company dated the Closing Date substantially in the form of Exhibit "F" hereto; (c) An opinion of counsel to the Company substantially in the form of Exhibit "G" hereto; (d) Company's original minute book, such minute book to contain (i) original Articles of Incorporation and all amendments thereto, or copies thereof if the originals are unavailable; (ii) Company's Bylaws presently in effect; (iii) Company's stock transfer records together with all available canceled stock certificates; and (iv) all minutes of meetings or consents in lieu of such meetings of Company's Board of Directors and shareholders; and (e) A good standing certificate of Company, dated within fifteen (15) business days of the Closing Date, for each jurisdiction in which Company is required to be qualified and authorized to do business; (f) Minutes of the Board of Directors and shareholders of Company authorizing and approving this agreement and the transactions contemplated herein; (g) Subject to reappointment as provided in Schedule 2.1(c)(1) and Schedule 2.2(c)(2) hereto, resignations of all of the officers and directors of Company effective as of the Closing Date; and (h) Such other documents and instruments as may be specified in this Agreement or otherwise reasonably requested in writing by FNFI at least five (5) days prior to the Closing Date in order to consummate the transactions contemplated hereby. 3.5 FNFI's Deliveries at Closing. Provided that all of the conditions to the Closing set forth in Sections 3.6 and 3.7, below, have been satisfied or waived by the Party benefiting therefrom, FNFI shall execute and deliver or cause to be delivered to Shareholders as soon as practicable following the Effective Time the following: (a) The Fidelity Common Stock in accordance with Section 2.2(d), above; (b) An Officer's Certificate of FNFI and Newco dated the Closing Date substantially in the form of Exhibit "H" hereto; (c) Minutes of the Board of Directors and shareholders of FNFI and Newco authorizing and approving this agreement and the transactions contemplated herein; 10 16 (d) An opinion of counsel to FNFI substantially in the form of Exhibit "I" hereto; and (e) Such other documents and instruments as may be specified in this Agreement or otherwise reasonably requested in writing by Shareholders at least (5) days prior to the Closing Date in order to consummate the transactions contemplated hereby. 3.6 Conditions of FNFI. FNFI's obligations hereunder to consummate the Merger are subject to the satisfaction, at or prior to the Effective Time, of all of the following conditions: (a) Representations and Warranties True; Performance of Obligations. The representations and warranties made by Company and Shareholders in this Agreement shall be true, correct and complete in all material respects on and as of the Closing Date with the same force and effect as if they had been made on and as of said date; and Company and Shareholders shall have in all material respects performed all of the obligations and complied with each and all of the covenants required to be performed or complied with by them on or prior to the Effective Time. (b) Material Adverse Effect. No act, event or condition shall have occurred after the date hereof which FNFI determines in its reasonable discretion has had or could have a Material Adverse Effect on Company. (c) Authorizations and Approvals. All authorizations, approvals or consents from third parties, including from any Governmental Entity, landlord or other Person, necessary for the consummation of the transactions contemplated hereby shall have been obtained. (d) Investigation of Company. FNFI shall have concluded (through its representatives, accountants, counsel and other experts) a due diligence investigation of the business, condition (financial, legal and other), properties, assets, prospects, operations and affairs of Company and shall be satisfied, in its absolute and sole discretion, with the results thereof. (e) Deliveries. FNFI shall have received from the appropriate Party or Person, the delivery obligations set forth in Sections 3.2 through 3.4, above. (f) Schedules. FNFI shall be satisfied in its absolute and sole discretion with any written statement and/or supplement provided by Shareholders and/or Company pursuant to Section 7.14, below. (g) No Claims. There shall not be instituted and pending or threatened any Claims before any Governmental Entity (i) challenging the Merger or otherwise seeking to restrain or prohibit the consummation of the transactions contemplated hereby, or (ii) seeking 11 17 to prohibit the direct or indirect ownership or operation by FNFI of all or a material portion of the business or assets of Company, or to compel FNFI or Company to dispose of or hold separate all or a material portion of the business or assets of Company or FNFI. (h) Corporate Action. All corporate and other proceedings and actions taken in connection with the transactions contemplated hereby and all certificates, opinions, agreements, instruments, releases and documents referenced herein or incident to the transactions contemplated hereby shall be in form and substance satisfactory to FNFI and its counsel. (i) Requisite Regulatory Approvals. All notices or filings required to be made, all authorizations, permits, certificates, registrations, consents, approvals or orders required to be obtained, and all waiting periods required to expire, prior to the consummation of the transactions contemplated by this Agreement under applicable federal law of the United States or applicable laws of any state having jurisdiction over the transactions contemplated by this Agreement or the businesses conducted by the Parties or any Affiliate or Subsidiary of any Party (collectively, the "Requisite Regulatory Approvals") shall have been obtained or expired, as the case may be, without the imposition of any condition which is materially burdensome upon FNFI or any Party or Person to be affected by such condition. (j) Pooling. FNFI shall be satisfied, upon advice from its regular outside accountants, that the business combination to be effected by the Merger and the other transactions related thereto can be accounted for as a pooling of interests. (k) Employment Agreements. Brian J. Balli and Ronald F. Herrman shall have entered into the Employment Agreements with Surviving Corporation substantially in the forms attached hereto as Exhibits "B" and "C" hereto. (l) Registration Rights Agreement. Shareholders shall have entered into the Registration Rights Agreement substantially in the form of Exhibit "D" hereto. 3.7 Conditions of Company and Shareholders. Company's and Shareholders' obligations hereunder to consummate the Merger are subject to the satisfaction, at or prior to the Effective Time, of the following conditions: (a) Representations and Warranties True; Performance of Obligations. The representations and warranties made by FNFI and Newco in this Agreement shall be true, correct and complete in all material respects on and as of the Closing Date with the same force and effect as if they had been made on and as of said date; and FNFI and Newco shall have in all material respects performed all of the obligations and complied with each and all of the covenants required to be performed or complied with by them on or prior to the Effective Time. 12 18 (b) Material Adverse Effect. No act, event or condition shall have occurred after the date hereof which Company determines in its reasonable discretion has had or could have a Material Adverse Effect on FNFI. (c) Authorizations and Approvals. All authorizations, approvals or consents, if any, from third parties, including from any Governmental Entity or other Person, necessary for the consummation of the transactions contemplated hereby shall have been obtained. (d) NYSE Listing. FNFI shall have made such filings as are necessary with the New York Stock Exchange regarding the transactions contemplated hereby and the shares of Fidelity Common Stock to be issued under this Agreement shall have been filed for listing on the NYSE, subject only to official notice of issuance. (e) Deliveries. Company or Shareholders, as appropriate, shall have received from FNFI the delivery obligations set forth in Sections 3.2 and 3.5, above. (f) Corporate Action. All corporate and other proceedings and actions taken in connection with the transactions contemplated hereby and all certificates, opinions, agreements, instruments, releases and documents referenced herein or incident to the transactions contemplated hereby shall be in form and substance satisfactory to Company and its counsel. (g) No Claims. There shall not be instituted and pending or threatened any Claims before any Governmental Entity (i) challenging the Merger or otherwise seeking to restrain or prohibit the consummation of the transactions contemplated hereby, or (ii) seeking to prohibit the direct or indirect ownership or operation by FNFI of all or a material portion of the business or assets of Company, or to compel FNFI or Company to dispose of or hold separate all or a material portion of the business or assets of Company or FNFI. (h) Requisite Regulatory Approvals. The Requisite Regulatory Approvals shall have been obtained or expired, as the case may be, without the imposition of any condition which is materially burdensome upon Company or any Party or Person to be affected by such condition. (i) Employment Agreements. FNFI shall have afforded Brian J. Balli and Ronald F. Herrman, Jr. an opportunity to enter into the Employment Agreements with Surviving Corporation substantially in the forms attached hereto as Exhibits "B" and "C" hereto. (j) Registration Rights Agreement. FNFI shall have afforded Shareholders an opportunity to enter into the Registration Rights Agreement substantially in the form of Exhibit "D" hereto. 13 19 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF COMPANY AND SHAREHOLDERS 4.1 Representations and Warranties of Company. Company represents and warrants to FNFI, Newco and Surviving Corporation that (except for changes contemplated by this Agreement and except as set forth in the Disclosure Schedule attached hereto), each of the following statements is true, correct and complete in all material respects as of the date of this Agreement and will be true, correct and complete in all material respects as of the Closing Date (each such statement to be made again by Company on that date with the Closing Date being substituted for the date of this Agreement throughout this Article 4.1): 4.1.1 Organization and Standing; Articles and Bylaws. Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas, has full power and authority to own its assets and properties and to carry on its business as presently conducted. Company is duly qualified and authorized to do business, and is in good standing as a foreign corporation, in each jurisdiction where the nature of its activities and of its properties (both owned and leased) make such qualification necessary, except where the failure to so qualify would not have a Material Adverse Effect. Company has furnished FNFI with copies of its Articles of Incorporation and Bylaws, as amended to the date hereof. Said copies are true, correct and complete and contain all amendments through the Closing Date. 4.1.2 Authorization. All corporate action on the part of Company, its officers, directors and shareholders necessary for the authorization, execution and delivery of this Agreement and the documents contemplated hereby, the performance of all of Company's obligations hereunder and thereunder, and for the exchange and cancellation of the Company Shares have been taken or will be taken prior to the Closing. This Agreement and the documents contemplated hereby, when executed and delivered, shall constitute valid and legally binding obligations of Company enforceable in accordance with their respective terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and subject to the availability of equitable remedies. 4.1.3 Subsidiaries. Company has no Subsidiaries and does not presently own, of record or beneficially, or control, directly or indirectly, any capital stock, securities convertible into capital stock or any other equity interest in any corporation, association or business entity, nor is the Company, directly or indirectly, a participant in any joint venture, partnership or other entity. 4.1.4 Capitalization. The authorized capital stock of Company consists of 10,000 shares of Common Stock, no par value, of which 1,000 shares are issued and outstanding as of the date of this Agreement. All of the Company Shares have been duly authorized and validly issued and are fully paid and non-assessable. All of the Company Shares were offered, issued, sold and delivered by Company in compliance with all applicable state and federal laws 14 20 concerning the issuance of securities. None of the Company Shares were issued in violation of any preemptive rights created by statue, or by Company's charter documents, or by any agreement to which Company may be bound. Schedule 4.1.4 to the Disclosure Schedule hereto contains a complete list of, and the number of shares owned of record by, the holders of the issued and outstanding Company Stock. There are no outstanding shares of Company Stock, preferred stock or any other equity securities of Company, and there are no options, warrants, calls, conversion rights, commitments or agreements of any character to which Company may be bound that do or may obligate Company to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of Company Stock, preferred stock or other equity securities or that do or may obligate Company to grant, extend or enter into any such option, warrant, call, conversion right, commitment or agreement. There are no outstanding arrangements, agreements, commitments or understandings of any kind affecting or relating to the voting, issuance, purchase, redemption, repurchase or transfer of any capital stock of Company or any other securities of Company. Other than pursuant to the merger referenced in Section 7.1(f) or as provided in or contemplated by this Agreement, Company has not, or prior to the Effective Time will have not, become a party to or subject to any contract or obligation wherein any Person has a right or option to purchase or acquire any rights in any additional capital stock or securities of Company. As a result of the Merger, FNFI will be the record and beneficial owner of all outstanding capital stock of Company and rights to acquire capital stock of Company. 4.1.5 Financial Statements. Schedule 4.1.5 to the Disclosure Schedule hereto includes (i) true, complete and correct copies of Company's unaudited balance sheet as of December 31, 1996 (the end of its most recently completed fiscal year) and statements of income, cash flows and retained earnings for the year ended December 31, 1996; and (ii) true, complete and correct copies of Company's unaudited balance sheet as of August 31, 1997 and statements of income and cash flows for the period then ended. The above described financial statements have been prepared in accordance with GAAP consistently applied and fairly present the financial position of Company as of the dates thereof and the results of its operations and cash flows for the periods then ended, subject, in the case of all of such financial statements, to the omission of complete footnote information. There are no Company Liabilities, direct or indirect, fixed or contingent, which are not reflected in the balance sheet as of August 31, 1997, except for Liabilities incurred in the Ordinary Course of Business subsequent to August 31, 1997, which, either individually or in the aggregate, would not be material. To the Knowledge of Company, there is no Basis for any assertion against Company of any liability or obligation of any nature whatsoever that is not fully reflected in the financial statements delivered to FNFI which, either individually or in the aggregate, would be materially adverse. Since the date of the August 31, 1997 financial statements, there have been no material changes in Company's accounting policies. 15 21 4.1.6 Material Contracts. Schedule 4.1.6 to the Disclosure Schedule hereto contains a complete and accurate list of all Material Contracts to which Company is a party or bound. True, correct and complete copies of all Material Contracts listed on Schedule 4.1.6 to the Disclosure Schedule have been furnished by Company to FNFI. Each Material Contract so listed is a valid and binding obligation of Company and is enforceable against Company and, to the Knowledge of Company, against the other party or parties thereto, in accordance with its terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and subject to the availability of equitable remedies. Company has performed all material obligations required to be performed by it to date and is not in default under or in breach of any term or provision of any Material Contract to which Company is a party, is subject or is otherwise bound, and to the Knowledge of Company no event has occurred that, with the giving of notice or the passage of time or both, would constitute such a default or breach under any Material Contract. To the Knowledge of Company, no party with whom Company has a Material Contract is in default of its obligations thereunder. No consent or approval of any party to any of the Material Contracts is necessary in order to permit Company to consummate the transactions contemplated hereby. 4.1.7 Assets Other Than Real Property. Company has good and marketable title to all properties and assets (other than real property which is subject to Section 4.1.8, below) owned or leased by Company, free and clear of all Liens except for: (i) Liens for current Taxes not yet due and payable which have been fully reserved for; and (ii) Liens, if any, that are not substantial in character, amount or extent and do not detract materially from the value, or interfere with present use or the sale or other disposition, of the property subject thereto or affected thereby. The assets and properties of Company constitute all the assets, properties, rights, privileges and interests necessary for the operation of Company's business. All of the vehicles, material machinery and equipment of Company are in good working order and condition, ordinary wear and tear excepted. 4.1.8 Real Property. Company does not own any real property. Schedule 4.1.8 to the Disclosure Schedule hereto contains an accurate list and general description of all real property leases, subleases, licenses or similar agreements ("Leases") to which Company is a party (copies of which have been previously furnished to FNFI), in each case setting forth (i) the landlord and tenant or sublessor and sublessee, as applicable, thereof and the date and term of each of the Leases; (ii) the legal description or street address of each property covered thereby; and (iii) a brief description (including size and function) of the principal improvements and buildings thereon (the "Leased Premises"). Company has valid leasehold interests in the Leased Premises, free and clear of all Liens and Security Interests, except for (i) Claims of lessors, co-lessees or sublessees in such matters as are reflected in the Leases; (ii) title exceptions affecting the fee estate of the lessor under such Leases; and (iii) other matters as described in the Disclosure Schedule. Company is not in default, and no facts or circumstances have occurred which, through the passage of time or both, or the giving of notice would constitute a default, under any Lease. The activities of Company, with respect to the Leased Premises, are in all material respects permitted and authorized by applicable zoning laws, 16 22 ordinances and regulations and all laws and regulations of any Governmental Entity. To the Knowledge of Company, the portions of the buildings on the Leased Premises that are used in the business of Company are each in good repair and condition (including without limitation, the electrical, mechanical, HVAC, plumbing, elevator, other building systems and structural components serving such premises, and the roofs are water-tight), and are in the aggregate sufficient to satisfy Company's current business activities as conducted thereat. 4.1.9 No Conflicts. Neither the execution and delivery nor the performance of this Agreement by Company will result in any of the following: (i) a default or an event that, with notice or lapse of time or both, could be a default, breach or violation of (A) the Articles of Incorporation or Bylaws of Company, (B) any Material Contract; (ii) the termination of any Material Contract or the acceleration of the maturity of any Indebtedness or other material obligation of Company; (iii) the creation or imposition of any Lien (except for Permitted Liens) on any of the assets or properties of Company; (iv) the creation or imposition of any Lien on any shares of the Company Stock; or (v) a violation or breach of any writ, injunction or decree of any Governmental Entity or arbitrator to which Company is a party or by which any of its properties are bound. 4.1.10 Litigation. There are no Claims before any court or administrative agency pending or currently threatened against or with respect to Company (or to the Knowledge of Company any Basis therefor), which question the validity of this Agreement or any action taken or to be taken in connection herewith, or which, individually or in the aggregate, might result in a Material Adverse Effect, or in any material impairment of the right or ability to carry on its business as now conducted or as proposed to be conducted, or in any material Liability on the part of Company. Company is not a party or subject to, and none of its assets are bound by, the provisions of any order, writ, injunction, judgment, or decree of any Governmental Entity or arbitrator. 4.1.11 Taxes. Company has no Liability for any federal, state or local Taxes, except for Taxes which have accrued and are not yet payable. Company has filed or caused to be filed all Tax Returns required under applicable law to be filed on or before the Closing Date, Company has paid or made provision for all Taxes and other charges which have or may become due for the periods covered by such Tax Returns, and all such Tax Returns are true, correct and complete in all respects. None of the Tax Returns of Company are currently under investigation or audit, nor to the Knowledge of Company is an investigation or audit pending, and there has not been an investigation or audit of the Tax Returns of Company in the past seven (7) years. There are no outstanding agreements or waivers extending the statutory period of limitations applicable to any Tax Return for any period. The accounting treatment of all items of income, gain, loss, deduction and credit as reported on all Tax Returns and estimates filed by or on behalf of Company are true, correct and complete, and all deferred Taxes and all Taxes due for the period ending on the Closing Date have been accrued on the Balance Sheet of the August 31, 1997 Financial Statements. No Claim has ever been made by any Governmental Entity in a jurisdiction where Company does not file Tax Returns that it is or may 17 23 be subject to taxation by that jurisdiction. All taxes owed by Company or which Company is obligated to withhold from amounts owed or owing to any employee, independent contractor, stockholder, creditor or third party have been paid. There are no unresolved Claims concerning Company's Tax Liability, and no basis for any such Claims exist. 4.1.12 Employees. Schedule 4.1.12 to the Disclosure Schedule hereto sets forth a complete list of all current employees of Company, together with each employee's tenure with Company, title or job classification, and the current annual rate of compensation payable to each such employee. There are no unfair labor practice complaints, strikes, slowdowns, stoppages or other controversies pending or, to the Knowledge of Company, attempts to unionize or controversies threatened between Company and, or relating to, any of its employees. Company is not a party to any collective bargaining agreement with respect to any of its employees or to a written employment contract with any of its employees, and there are no understandings with respect to the employment of any officer or employee of Company which are not terminable by Company without liability on not more than thirty (30) days' notice. No officer, director, or employee is entitled to receive any payment of any amount under any existing agreement, severance plan or other benefit plan, or to the accrual or vesting of any other benefit or payment as a result of the consummation of any transactions contemplated by this Agreement. Company has complied with all applicable federal and state statutes and regulations which govern workers' compensation, equal employment opportunity and equal pay. Company's employment of each of its employees is in compliance with all immigration and naturalization laws of the United States. 4.1.13 Governmental Consents. All consents, approvals, orders, or authorizations of, or registrations, qualifications, designations, declarations or filings with, any Governmental Entity, required on the part of Company in connection with the valid execution and delivery of this Agreement and the exchange and cancellation of the Company Stock, or the consummation of any other transaction contemplated hereby have been obtained, or will be effective at the Closing. 4.1.14 Operating Rights. Company has all operating authority, licenses, franchises, permits, certificates, consents, rights and privileges (collectively, "Licenses") as are necessary or appropriate to the operation of its business as now conducted. Such Licenses are in full force and effect, no violations have been or are expected to have been recorded in respect of any such Licenses, and no proceeding is pending or, to the Knowledge of Company, threatened that could result in the revocation or limitation of any such Licenses. Company has conducted its business so as to comply in all material respects with all such Licenses. 4.1.15 Compliance with Applicable Laws. The properties, assets, business and operations of Company have been and are being conducted in compliance with all laws, ordinances, regulations, rules, orders, judgments or decrees to which Company is subject. Company holds, and the properties, assets, operations and businesses of Company have been maintained and conducted in all material respects in compliance with, all Licenses that are 18 24 necessary for the conduct of its businesses. No investigation or review by any Governmental Entity with respect to Company is pending or, to the best Knowledge of Company, threatened, nor has any Governmental Entity indicated to Company an intention to conduct the same. 4.1.16 Insurance. Schedule 4.1.16 to the Disclosure Schedule hereto sets forth an accurate list, as of August 31, 1997, of all insurance policies carried by Company and all insurance loss runs or workmen's compensation claims received for the past two (2) policy years. Attached to Schedule 4.1.16 to the Disclosure Schedule are true, complete and correct copies of the summaries from the insurance company of all current insurance policies, all of which are in full force and effect. All premiums payable under all such policies have been paid and Company is otherwise in full compliance with the terms of such policies (or other policies providing substantially similar insurance coverage). To the Knowledge of Company, such policies of insurance are of the type and in amounts carried by Persons conducting businesses similar to that of Company. To the Knowledge of Company, there is no threatened termination of or material premium increase with respect to, any of such policies. All claims previously made under such policies have been timely filed. 4.1.17 Absence of Changes. Since January 1, 1997, there has not been (i) any change or amendment in the Articles of Incorporation, Bylaws or other governing instruments of Company; (ii) any sale or issuance of, or grant of options or rights to acquire, any shares of the Company Stock or other securities of Company or any declaration, setting aside, or payment of dividends or redemptions in respect of any shares of capital stock of Company, or any direct or indirect redemption, purchase, or other acquisition of such stock, or any agreement, understandings or commitments to do the same; (iii) any transfer or other disposition or pledge of, or the grant of options or rights to acquire, any of the outstanding shares of the Company Stock; (iv) any amendment, termination or revocation, or any threat of any amendment, termination, or revocation having a Material Adverse Effect, of any Material Contract; (v) any sale, transfer, mortgage, pledge, or subjection to Lien (other than Permitted Liens) of, on or affecting any of the assets of Company valued at or above $25,000 individually or in the aggregate; (vi) any increase in the compensation paid or payable or in the fringe benefits provided to any employee of Company, or the adoption of any employee benefit plans not in existence in the fiscal year ended December 31, 1996; (vii) any damage, destruction or loss, whether or not covered by insurance, of any of the assets of Company; (viii) any purchase or lease, or commitment for the purchase or lease, of equipment or other capital items not disclosed in Company's financial statements which is in excess of the normal, ordinary and usual requirements of the business of Company; (ix) any change that by itself or together with other changes, has had a Material Adverse Effect; (x) any agreement or arrangement made by Company or any Shareholder to take any action which, if taken prior to the date hereof, would have made any representation or warranty set forth in this Agreement untrue or incorrect as of the date when made; or (xi) the commencement or notice or, to the Knowledge of Company, threat of commencement of any Claim against Company or any of its affairs. 19 25 4.1.18 Employee Plans. Schedule 4.1.18 to the Disclosure Schedule hereto sets forth a complete list of all Employee Plans and Benefit Arrangements maintained, administered or contributed to, or otherwise participated in, by Company. True and complete copies of each such Employee Plan or Benefit Arrangement, including amendments thereto, have been provided to FNFI, together with true and complete copies of (i) annual reports for the most recent three (3) years (Form 5500 Series including, if applicable, Schedules A and B thereto); (ii) all plan documents and the most recent summary plan description of each such Employee Plan, together with any modifications thereto; and (iii) the most recent favorable determination letter (if applicable) from the Internal Revenue Service for each such Employee Plan. None of the Employee Plans is a "multiemployer plan" as defined in Section 3(37) of ERISA or a "multiple employer plan" as covered in Section 412(c) of the Code, and the Company has not been obligated to make a contribution to any such multiemployer or multiple employer plan. All contributions (including all employer contributions and employee salary reduction contributions) which are due have been paid to each such Employee Plan or Benefit Arrangement and all contributions for any period ending on or before the Closing Date which are not yet due have been paid to each such Employee Plan or Benefit Arrangement or accrued in accordance with past custom and practice of Company. Each Employee Plan which is intended to be qualified under Section 401(a) of the Code is so qualified and each trust maintained pursuant thereto is exempt from income tax under Section 501(a) of the Code. Neither Company nor any Employee Plan, nor any trusts created thereunder, nor any trustee, administrator nor any other fiduciary thereof, has engaged in a "prohibited transaction," as defined in Section 406 of ERISA and Section 4975 of the Code, or any breach of fiduciary duty as defined in Part 4 of Subtitle B of Title I of ERISA. 4.1.19 Intellectual Property Rights. (a) Company owns, or has the right to use, sell or license all Intellectual Property necessary or required for the conduct of its business as presently conducted and such rights to use, sell or license are reasonably sufficient for such conduct of Company's business. Company has taken all reasonable and practicable action designed to safeguard and maintain the secrecy and confidentiality of, and its proprietary right in, all of its Intellectual Property. (b) Neither the manufacture, marketing, license, sale or intended use of any Intellectual Property licensed or sold by Company or currently under development by Company violates any license or agreement between Company and any third party or infringes any Intellectual Property of any other party; and there is not pending or, to the Knowledge of Company, threatened any Claim contesting the validity, ownership or right to use, sell, license or dispose of any Intellectual Property or that the proposed use, sale, license or disposition thereof conflicts or will conflict with the rights of any other party, nor to the Knowledge of Company, is there any Basis for any such assertion. 20 26 4.1.20 Environment, Health and Safety. (a) Company has complied with all Environmental, Health and Safety Laws, except where failure to comply would not have a Material Adverse Effect, and no Claim or notice has been filed or commenced against it alleging any failure to so comply. Without limiting the generality of the preceding sentence, Company has obtained and been in compliance with all of the terms and conditions of all permits, licenses, and other authorizations which are required under, and has complied with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables which are contained in, all Environmental, Health, and Safety Laws, except where failure to comply would not have a Material Adverse Effect. (b) Company has not handled or disposed of any substance, arranged for the disposal of any substance, exposed any employee or other individual to any substance or condition, or owned or operated any property or facility in any manner that could form a reasonable basis for any present or future Claim against Company giving rise to any Liability, except where having done so would not have a Material Adverse Effect. Company has no Liability for damage to any site, location, or body of water (surface or subsurface), for any illness of or personal injury to any employee or other individual, or for any reason under any Environmental, Health, and Safety Law which could have a Material Adverse Effect. (c) To the Knowledge of Company (with the understanding that no investigation was attempted or performed), all properties used in its business are free of Hazardous Substances, except where the existence thereof would not have a Material Adverse Effect. 4.1.21 Certain Transactions. There are no existing or pending transactions, nor are there any agreements or understandings, between Company, on the one hand, and any Shareholder, officer or director of Company, or any person or entity affiliated with any of them, on the other hand, including, without limitation, any transactions, arrangements or understandings relating to the purchase or sale of goods or services or the sale, lease or use of any of the assets of or by Company, with or without adequate compensation, or to any indebtedness owed to or by Company, in any amount whatsoever. 4.1.22 Bank Accounts; Powers of Attorney. The Disclosure Schedule hereto sets forth an accurate list, as of the date of this Agreement, of the following: (i) the name of each financial institution in which Company has any account or safe deposit box; (ii) the names in which the accounts or boxes are held; (iii) the type of account; and (iv) the name of each person authorized to draw thereon or have access thereto. The Disclosure Schedule hereto also sets forth the name of each Person holding a general or special power of attorney from Company and a description of the terms of such power. 21 27 4.1.23 Tax-Free Reorganization. Company has taken all action necessary to ensure that, from the Company standpoint, the Merger qualifies, in all respects, as a tax-free reorganization pursuant to Code Section 368(a). 4.1.24 Employee Loans. There are no outstanding loans and/or other advances made by Company to any of its officers, directors, employees, agents or consultants. 4.1.25 Pooling. Company is not actually aware of any event or condition that would adversely affect the ability of FNFI to account for the business combination to be effected by the Merger as a pooling of interests, it being understood, however, that neither Company nor any Shareholder has engaged an accounting firm with respect to such matters and that neither Company, nor any of its officers, directors, employees, Shareholders or representatives is qualified to render advice with respect to pooling-of-interests accounting. 4.1.26 Brokers' Fees. Company has no Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement. 4.1.27 Full Disclosure. Neither this Agreement, the representations and warranties by Company contained herein, the Exhibits or Schedules hereto, nor any other written statement or certificate delivered or to be furnished to FNFI in connection herewith, when read together, contain any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading. 4.2 Representations and Warranties of Shareholders. Each Shareholder, severally and not jointly, represents and warrants to FNFI, Newco and Surviving Corporation that (except for changes contemplated by this Agreement and except as set forth in the Disclosure Schedule attached hereto), each of the following statements is true, correct and complete in all material respects as of the date of this Agreement and will be true, correct and complete in all material respects as of the Closing Date (each such statement to be made again by each Shareholder on that date with the Closing Date being substituted for the date of this Agreement throughout this Article 4.2): 4.2.1 Authority. Such Shareholder has all the power to execute and deliver this Agreement and to carry out and perform such Shareholder's respective obligations under the terms of this Agreement; such Shareholder has the sole power to dispose of his Company Shares, either as his sole and separate property or as community property, as may be applicable to each Shareholder; and this Agreement, when executed and delivered by such Shareholder, will constitute such Shareholder's valid and binding obligation, enforceable against him in accordance with the terms of this Agreement. 4.2.2 Ownership of Shares. Such Shareholder owns of record and beneficially, and has good and marketable title to, that number of Company Shares set forth in Schedule 4.1.4 22 28 to the Disclosure Schedule hereto, free and clear of all Liens, Indebtedness and Claims of every kind. There are no options, warrants, calls, conversion rights, commitments or agreements of any character to which such Shareholder may be bound that do or may obligate such Shareholder to issue, deliver or sell, or cause to be issued, delivered or sold, shares of such Shareholder's Company Stock, preferred stock or other equity securities or that do or may obligate such Shareholder to grant, extend or enter into any such option, warrant, call, conversion right, commitment or agreement. Other than as provided in or contemplated by this Agreement, such Shareholder has not, or prior to the Effective Time will have not, become a party to or subject to any contract or obligation wherein any Person has a right or option to purchase or acquire from such Shareholder any rights in any of such Shareholder's capital stock or securities of Company. 4.2.3 No Conflicts. Neither the execution and delivery nor the performance of this Agreement by such Shareholder will result in any of the following: (i) a default or an event that, with notice or lapse of time or both, could be a default, breach or violation of any Material Contract to which such Shareholder is a party or by which such Shareholder is bound; (ii) the termination of any Material Contract or the acceleration of the maturity of any Indebtedness or other material obligation of such Shareholder; (iii) the creation or imposition of any Lien (except for Permitted Liens) on any of the assets or properties of such Shareholder; (iv) the creation or imposition of any Lien on any shares of the Company Stock owned by such Shareholder; or (v) a violation or breach of any writ, injunction or decree of any Governmental Entity or arbitrator to which such Shareholder is a party or by which any of his properties are bound. 4.2.4 Litigation. To the Knowledge of such Shareholder, there are no Claims before any Governmental Entity or arbitrator pending or currently threatened against or with respect to such Shareholder relating to or affecting such Shareholder's Company Shares (or any Basis therefor), which question the validity of this Agreement or any action taken or to be taken in connection herewith, or which, individually or in the aggregate, might result in a Material Adverse Effect, or in any material impairment of the right or ability of such Shareholder to enter into or perform under this Agreement. 4.2.5 Certain Transactions. There are no existing or pending transactions, nor are there any agreements or understandings, between Company, on the one hand, and such Shareholder, on the other hand, including, without limitation, any transactions, arrangements or understandings relating to the purchase or sale of goods or services or the sale, lease or use of any of the assets of or by Company, with or without adequate compensation, or to any Indebtedness owed to or by Company, in any amount whatsoever. 4.2.6 Investment Representations. Such Shareholder is receiving the Fidelity Common Stock for his own account for investment purposes only, and not as a nominee or agent for any other Person, and not with a view to or for resale in connection with any distribution thereof. Such Shareholder acknowledges that the Fidelity Common Stock to be issued hereunder 23 29 will not be registered under the Securities Act, nor qualified under any state securities laws on the ground, among others, that no distribution or public offering is to be effected. 4.2.7 Absence of Claims Against Company. Such Shareholder has no Claims against the Company. 4.2.8 Tax-Free Reorganization. Such Shareholder has taken all action necessary to ensure that, from such Shareholder's standpoint, the Merger qualifies, in all respects, as a tax-free reorganization pursuant to Code Section 368(a). 4.2.9 Continuity of Interest. Such Shareholder has no present plan, intention or arrangement to dispose of any of the shares of Fidelity Common Stock issued to him hereunder in a manner that would cause the Merger to violate the continuity of shareholder interest requirement set forth in Treasury Regulation Section 1.368-1. 4.2.10 Pooling. Neither such Shareholder nor any of his Affiliates is aware of any event or condition that would adversely affect the ability of FNFI to account for the business combination to be effected by the Merger as a pooling of interests, it being understood, however, that neither Company nor any Shareholder has engaged an accounting firm with respect to such matters and that neither Company, nor any of its officers, directors, employees, shareholders or representatives is qualified to render advice with respect to pooling-of-interests accounting. 4.2.11 Brokers' Fees. Such Shareholder has no Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement. 4.2.12 Disclosure. Nothing has come to the attention of such Shareholder that would lead such Shareholder to believe that the representations and warranties by such Shareholder contained herein, the Exhibits or Schedules hereto, or any other written statement or certificate delivered or to be furnished by such Shareholder to FNFI in connection herewith, when read together, contain any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading. ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF FNFI AND NEWCO FNFI and Newco represent and warrant to Company and Shareholders that (except for changes contemplated by this Agreement) each of the following statements is true, correct and complete in all material respects as of the date of this Agreement and will be true, correct and complete in all material respects as of the Closing Date (each such statement to be made again 24 30 by FNFI and Newco on that date with the Closing Date being substituted for the date of this Agreement throughout this Article 5): 5.1 Organization and Standing; Articles and Bylaws. FNFI and Newco are corporations duly organized, validly existing and in good standing under the laws of the States of Delaware and Texas, respectively, have full power and authority to own their respective assets and properties and to carry on their respective businesses as presently conducted. FNFI and Newco are duly qualified and authorized to do business, and are in good standing as foreign corporations, in each jurisdiction where the nature of their respective activities and of their respective properties (both owned and leased) make such qualification necessary, except where the failure to so qualify would not have a Material Adverse Effect. FNFI and Newco have furnished Company with copies of their respective Articles of Incorporation and Bylaws, as amended to the date hereof. Said copies are true, correct and complete and contain all amendments through the Closing Date. 5.2 Authorization. All corporate action on the part of FNFI and Newco, and their respective officers, directors and shareholders necessary for the authorization, execution and delivery of this Agreement and the documents contemplated hereby, the performance of all of FNFI's and Newco's obligations hereunder and thereunder, and for the exchange and cancellation of the Company Shares have been taken or will be taken prior to the Closing. This Agreement and the documents contemplated hereby, when executed and delivered by FNFI and Newco, shall constitute valid and legally binding obligations of FNFI and Newco enforceable in accordance with their respective terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and subject to the availability of equitable remedies. 5.3 No Conflicts. Neither the execution and delivery nor the performance of this Agreement by FNFI or Newco will result in any of the following: (i) a default or an event that, with notice or lapse of time or both, could be a default, breach or violation of (A) the Articles of Incorporation or Bylaws of FNFI or Newco, (B) any Material Contract of FNFI or Newco; (ii) the termination of any Material Contract of FNFI or Newco or the acceleration of the maturity of any Indebtedness or other material obligation of FNFI or Newco; (iii) the creation or imposition of any Lien (except for Permitted Liens) on any of the respective assets or properties of FNFI or Newco; (iv) the creation or imposition of any Lien on any shares of the Fidelity Common Stock; or (v) a violation or breach of any writ, injunction or decree of any Governmental Entity to which FNFI or Newco is a party or by which any of their respective properties are bound. 5.4 Fidelity SEC Documents. FNFI has filed all forms, reports and documents required to be filed with the SEC (the "Fidelity SEC Documents"), all of which have been made available to Company. As of their respective dates, the Fidelity SEC Documents complied in all material respects with the requirements of the Securities Act and the Exchange Act, as the case may be, and the rules and regulations of the SEC thereunder applicable to such Fidelity 25 31 SEC Documents, and none of the Fidelity SEC Documents contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of FNFI included in the Fidelity SEC Documents comply in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with GAAP applied on a consistent basis during the periods involved (except in the case of the unaudited interim financial statements, as permitted by Form 10-Q promulgated by the SEC) and fairly present (subject, in the case of the unaudited interim financial statements, to recurring audit adjustments normal in nature and amount) the consolidated financial position of FNFI as at the dates thereof and the consolidated results of its operations and cash flows or changes in financial position for the periods then ended. There has been no Material Adverse Effect on FNFI since the filing of FNFI's most recent Form 10-Q and there is no Basis for believing that there will be a Material Adverse Effect on FNFI's results to be stated in FNFI's Form 10-Q for the third quarter of 1997. 5.5 Fidelity Common Stock. All of the shares of Fidelity Common Stock to be issued to Shareholders in connection with the Merger will be duly authorized, validly issued, fully paid and non-assessable. Such shares, when issued in accordance with the terms hereof, will have been offered, issued, sold and delivered by FNFI in compliance with all applicable state and federal laws, free and clear of all Liens and Claims and none of such shares shall be issued in violation of the preemptive rights, rights of first offer, or other rights of any shareholder of FNFI. 5.6 Governmental Consents. All consents, approvals, orders, or authorizations of, or registrations, qualifications, designations, declarations or filings with, any Governmental Entity, required on the part of FNFI and/or Newco in connection with the valid execution and delivery of this Agreement and the issuance of Fidelity Common Stock, or the consummation of any other transaction contemplated hereby have been obtained, or will be effective at the Closing. 5.7 Tax-Free Reorganization. FNFI and Newco have taken all action necessary to ensure that, from FNFI's and Newco's standpoint, the Merger qualifies, in all respects, as a tax-free reorganization pursuant to Code Section 368(a). 5.8 Brokers' Fees. Neither FNFI nor Newco is a party to or obligated under any agreement with any broker, agent, or finder relating to the transactions contemplated hereby, and neither the execution of this Agreement nor the consummation of the transactions provided for herein will result in any liability to any broker, agent, or finder. 5.9 Full Disclosure. Neither this Agreement, the representations and warranties by FNFI and/or Newco contained herein, the Exhibits or Schedules hereto, nor any other written statement or certificate delivered or to be furnished to Company in connection herewith, when 26 32 read together, contain any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading. ARTICLE 6 CONDUCT OF BUSINESS PENDING CLOSING During the period commencing on the date hereof and continuing through the Closing Date, Company and Shareholders, jointly and severally, covenant and agree that, except for (i) the necessary, reasonable, ordinary and anticipated effects of the merger described in Section 7.1(f), below, and (ii) changes contemplated by this Agreement: 6.1 Qualification. Company shall maintain all qualifications to transact business and remain in good standing in its jurisdiction of incorporation and in the foreign jurisdictions in which Company owns or leases any property or conducts any business. 6.2 Ordinary Course. Company shall conduct its business in, and only in, the Ordinary Course of Business and, to the extent consistent with such business, shall not make or institute any unusual or novel methods of management, accounting, or operation that vary materially from those methods used by the Company as of July 31, 1997. Company will use commercially reasonable efforts to preserve its business organization intact, to keep available to Company its present officers and employees, and to preserve its present relationships with suppliers, customers, and others having business relationships with the Company. Company shall maintain its properties and assets in good condition and repair. 6.3 Corporate Changes. Company shall not (i) amend its Articles of Incorporation or Bylaws (or equivalent documents); (ii) acquire by merging or consolidating with, or agreeing to merge or consolidate with, or purchase substantially all of the stock or assets of, or otherwise acquire, any business or any corporation, partnership, association or other business organization or division thereof; (iii) enter into any partnership or joint venture; (iv) declare, set aside, make or pay any dividend or other distribution in respect of its capital stock or purchase or redeem, directly or indirectly, any shares of its capital stock; (v) issue or sell any shares of its capital stock of any class or any options, warrants, conversion or other rights to purchase any such shares or any securities convertible into or exchangeable for such shares; or (vi) liquidate or dissolve or obligate itself to do so. 6.4 Indebtedness. Company shall not incur any Indebtedness, sell any debt securities or lend money to or guarantee the Indebtedness of any Person. Company shall not restructure or refinance its existing Indebtedness. 6.5 Accounting. Company shall not make any change in the accounting principles, methods or practices followed by it or depreciation or amortization policies or rates heretofore 27 33 adopted by it. Company shall maintain its books, records, and accounts in accordance with GAAP applied on a basis consistent with that of prior periods. 6.6 Compliance with Legal Requirements. Company shall comply promptly and in all material respects with all requirements that applicable law may impose upon it, its operations and with respect to the transactions contemplated by this Agreement, and shall cooperate promptly with, and furnish information to, FNFI in connection with any such requirements imposed upon FNFI, or upon any of its Affiliates, in connection therewith or herewith. 6.7 Disposition of Assets. Except in the Ordinary Course of Business, Company shall not sell, transfer, license, lease or otherwise dispose of, or suffer or cause the encumbrance by any Lien other than Permitted Liens upon any of its properties or assets, tangible or intangible, or upon any interest therein. 6.8 Compensation. Except in the Ordinary Course of Business, Company shall not (i) adopt or amend in any material respect any collective bargaining, bonus, profit-sharing, compensation, stock option, pension, retirement, deferred compensation, Employee Plan, Benefit Arrangement, or any other agreement, trust, fund or arrangement for the benefit of employees other than to comply with any Legal Requirement; or (ii) pay, or make any accrual or arrangement for payment of, any increase in compensation, bonuses or special compensation of any kind, or any severance or termination pay to, or enter into any employment or loan or loan guarantee agreement with, any Shareholder or any current or former officer, director, employee or consultant of Company. 6.9 Modification or Breach of Agreements; New Agreements. Except in the Ordinary Course of Business, Company shall not terminate or modify, or commit or cause or suffer to be committed any act that will result in breach or violation of any term of or (with or without notice or passage of time, or both) constitute a default under or otherwise give any Person a basis for nonperformance under, any Material Contract, written or oral, disclosed in this Agreement or the Schedules hereto. Company shall refrain from becoming a party to any contract or commitment other than in the Ordinary Course of Business. Company shall meet all of its contractual obligations in accordance with their respective terms. 6.10 Capital Expenditures. Except in the Ordinary Course of Business, except for capital expenditures or commitments necessary to maintain its properties and assets in good condition and repair (the amount of which shall not exceed $15,000 individually or in the aggregate), Company shall not purchase or enter into any contract to purchase any capital assets. 6.11 Consents. Company shall use commercially reasonable efforts to obtain any consent, authorization or approval of, or exemption by, any Governmental Entity or Person required to be obtained or made by any Party hereto in connection with the transactions contemplated hereby or the taking of any action in connection with the consummation thereof. 28 34 6.12 Maintenance of Insurance. Company shall maintain its policies of insurance in full force and effect on substantially the same terms and conditions as in effect on the date of this Agreement, and shall not do, permit or willingly allow to be done any act by which any of said policies of insurance may be suspended, materially impaired or canceled. 6.13 Discharge. Company shall not cancel, compromise, release or discharge any Claim of Company upon or against any Person or waive any right of Company of material value, and not discharge any Lien upon any asset of Company or compromise any debt or other obligation of Company to any Person other than Liens, debts or obligations with respect to current Liabilities of Company. 6.14 Claims. Company shall not institute, settle or agree to settle any Claim before any Governmental Entity. 6.15 Taxes and Tax Assessments. Company shall pay, when due, and prior to the imposition or assessment of any interest, penalties or Liens by reason of the nonpayment of, all Taxes assessed against Company, its assets, properties or operations. Company shall furnish promptly to FNFI a copy of all notices of proposed assessment or similar notices or reports that are received from any taxing authority and which relate to Company's operations for periods ending on or prior to the Closing Date. ARTICLE 7 ADDITIONAL COVENANTS 7.1 Covenants of Company and Shareholders. During the period from the date hereof through the Closing Date, Company and Shareholders agree to: (a) Comply promptly with all applicable Legal Requirements imposed upon them with respect to the transactions contemplated by this Agreement, and shall cooperate promptly with, and furnish information to, FNFI in connection with any such requirements imposed upon FNFI or upon any of its Affiliates in connection therewith or herewith; (b) Use their reasonable best efforts to obtain (and to cooperate with FNFI in obtaining) any consent, authorization or approval of, or exemption by, any Person required to be obtained or made by Company and/or Shareholders in connection with the transactions contemplated by this Agreement; (c) Use their reasonable best efforts to bring about the satisfaction of the conditions precedent to Closing set forth in Section 3.6, above; 29 35 (d) Promptly advise FNFI orally and, within three (3) business days thereafter, in writing of any change in Company's business or condition that has had or would reasonably be expected to have a Material Adverse Effect on Company; (e) Deliver to FNFI prior to the Closing a written statement disclosing any untrue statement in this Agreement or any Exhibit or Schedule hereto (or supplement thereto) or document furnished pursuant hereto, or any omission to state any material fact required to make the statements herein or therein contained complete and not misleading, immediately upon the discovery of such untrue statement or omission, accompanied by a written supplement to any Exhibit or Schedule to this Agreement that may be affected thereby; provided, however, that the disclosure of such untrue statement or omission shall not prevent FNFI from terminating this Agreement pursuant to Section 9.1(b) hereof at any time at or prior to the Closing in respect of any original untrue or misleading statement; (f) Effect and consummate the merger or other business combination of Firm Computer Solutions, LTD, a Texas limited partnership ("FCS"), with and into Company in accordance with the TBCA, and upon such terms and conditions and in accordance with such documentation pre-approved by FNFI in its absolute and sole discretion. Upon the consummation of the merger or other business combination, (i) all of the assets and liabilities of FCS existing as of July 31, 1997 (including or excluding, as the case may be, assets and liabilities subsequently acquired or disposed of in the Ordinary Course of Business) shall be merged or otherwise transferred into Company; and (ii) all of the ownership interests in FCS, including all options, warrants, calls, conversion rights, commitments or agreements of any character which relate to such ownership interests, shall be canceled and extinguished. 7.2 Covenants of FNFI and Newco. During the period from the date hereof to the Closing Date, FNFI and Newco shall: (a) Comply promptly with all applicable Legal Requirements imposed upon it with respect to the transactions contemplated by this Agreement, and shall cooperate promptly with, and furnish information to, Shareholders in connection with any such requirements imposed upon the Shareholders or Company or upon any of Company's Affiliates in connection therewith or herewith; (b) Use its reasonable best efforts to obtain any consent, authorization or approval of, or exemption by, any Person required to be obtained or made by FNFI in connection with the transactions contemplated by this Agreement; (c) Use its reasonable best efforts to bring about the satisfaction of the conditions precedent to Closing set forth in Section 3.7 of this Agreement; and (d) Cause Surviving Corporation to continue at least one (1) significant historical business line of Company, or use at least a significant portion of Company's historical 30 36 business assets in a business, in each case in accordance with Treasury Regulation Section 1.368-1. (e) Promptly advise Company orally and, within three (3) business days thereafter, in writing of any change in FNFI's or Newco's business or condition that has had or would reasonably be expected to have a Material Adverse Effect on FNFI or Newco; 7.3 Tax-Free Reorganization/Tax Advice. (a) Except as a result of breaches by FNFI, Newco and/or Surviving Corporation of Section 7.3(b) below, each Shareholder shall assume and be fully responsible for any and all Liability, including without limitation any and all Tax Liability, incurred by him, which is caused by, arises from, or relates to the failure of the Merger to qualify, in any respects, as a tax-free reorganization pursuant to Code Section 368(a). Company and Shareholders acknowledge that they have received their own independent tax advice with respect to the Merger, this Agreement and the transactions contemplated thereby, including without limitation whether the Merger qualifies as a tax-free reorganization in accordance with Section 368(a) of the Code, and except as provided in Section 7.3(b) below, are not in any way relying on any statements or advice of FNFI, Newco or any of their officers, directors, employees, agents or representatives, other than the representations and warranties of FNFI and Newco contained herein or in any ancillary agreement hereto. (b) Neither FNFI, Newco, Surviving Corporation nor any Shareholder shall take any action which, alone or taken together with other actions, would result in the Merger not being treated as a tax-free reorganization, including, but not limited to, the taking of any position that would jeopardize the characterization of the Merger as a tax-free reorganization. 7.4 Continuity of Interest. Shareholders shall not dispose of any shares of Fidelity Common Stock in a manner that would cause the Merger to violate the continuity of shareholder interest requirement set forth in Treasury Regulation Section 1.368-1. 7.5 Access and Information. (a) During the period commencing on the date hereof and continuing through the Closing Date, Shareholders shall cause Company to afford to FNFI and to FNFI's accountants, counsel, and other representatives, reasonable access during regular business hours and without undue interruption to its business to all of its properties, books, contracts, commitments, records and personnel and, during such period, to cause Company to furnish promptly to FNFI all information concerning its business, properties and personnel as FNFI may reasonably request. (b) Except to the extent permitted by the provisions of Section 7.8, below, FNFI shall hold in confidence, and shall use reasonable efforts to ensure that its employees and 31 37 representatives hold in confidence, all such information supplied to it by Shareholder or Company concerning Company and shall not disclose such information to any third party except as may be required by any Legal Requirement and except for information that (i) is or becomes generally available to the public other than as result of disclosure by FNFI or its representatives; (ii) becomes available to FNFI or its representatives from a third party other than Shareholders or Company, and FNFI or its representatives have no reason to believe that such third party is not entitled to disclose such information; (iii) is known to FNFI or its representatives on a non-confidential basis prior to its disclosure by Shareholders or Company; or (iv) is made available by Shareholders or Company to any other Person on a non-restricted basis. FNFI's obligations under the foregoing sentence shall expire on the Closing Date or, if the closing does not occur, one year after the date hereof. 7.6 Expenses. All costs and expenses (including, without limitation, all legal fees and expenses and costs) incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the Party incurring the same. 7.7 Certain Notifications. At all times from the date hereof to the Closing Date, each Party shall promptly notify the others in writing of the occurrence of any event that will or reasonably would be expected to result in the failure to satisfy any of the conditions specified in Sections 3.6 and 3.7, above. 7.8 Publicity. At all times prior to the Closing Date, each Party shall obtain the consent of all other Parties hereto prior to issuing, or permitting any of its directors, officers, employees or agents to issue, any press release or other information to the press, employees of Company or any third party with respect to this Agreement or the transactions contemplated hereby; provided, however, that no party shall be prohibited from supplying any information to any of its representatives, agents, attorneys, advisors, and others to the extent necessary to complete the transactions contemplated hereby so long as such representatives, agents, attorneys, advisors, and others are made aware of the terms of this Section 7.8. Nothing contained in this Agreement shall prevent any party to this Agreement at any time from furnishing any required information to any Governmental Entity or authority pursuant to a Legal Requirement or from complying with its legal or contractual obligations; provided that the Party furnishing such information shall have used its reasonable best efforts to comply with this provision first, and in any event does so only with the advice of counsel. 7.9 Further Assurances. (a) Subject to the terms and conditions of this Agreement, each of the Parties hereto agrees to use all reasonable efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary, proper or advisable under applicable Legal Requirements, to consummate and make effective the transactions contemplated by this Agreement. 32 38 (b) If at any time after the Closing any further action is necessary or desirable to carry out the purposes of this Agreement, Shareholders and the proper officers or directors of FNFI and Company, as the case may be, shall take or cause to be taken all such necessary or convenient action and execute, and deliver and file, or cause to be executed, delivered and filed, all necessary or appropriate documentation. 7.10 Competing Offers. Shareholders agree that they will not, and will cause Company not to, directly or indirectly, through an officer, director, agent, or otherwise, solicit, initiate or encourage the submissions of bids, offers or proposals by, any Person with respect to an acquisition of Company or its assets or capital stock or a merger or similar transaction, and Shareholders will not, and will not permit Company to, engage any broker, financial adviser or consultant to initiate or encourage proposals or offers from other Persons. Furthermore, Shareholders shall not, and shall not permit Company to, directly or indirectly, through any officer, director, agent or otherwise, engage in negotiations concerning any such transaction with, or provide information to, any Person other than FNFI and its representatives with a view to engaging, or preparing to engage, that Person with respect to any matters in this Section 7.10. Shareholders shall ensure that Company shall not commence any proceeding to merge, consolidate or liquidate or dissolve or obligate itself to do so. 7.11 Post-Termination Employment. Company and Shareholders acknowledge and agree that after the Effective Time (i) neither FNFI nor Surviving Corporation shall be required to employ or retain any employee of Company or any other Person; and (ii) FNFI, in its sole and absolute discretion, may cause Surviving Corporation to retain all, some, or none or such employees. 7.12 NYSE Listing. FNFI will make such filings as are necessary with the New York Stock Exchange regarding the transactions contemplated hereby and will cause the shares of Fidelity Common Stock to be issued under this Agreement to be approved for listing on the NYSE, subject only to official notice of issuance, prior to the Effective Time. 7.13 Employee Benefits. As of the Effective Time, the Company's Benefit Arrangements and Employee Plans shall either be fully maintained or Company's employees and their eligible dependents shall be consolidated into FNFI's Benefit Arrangements and Employee Plans with full takeover provisions ("FNFI Coverage"), such that, among other things, Company employees and their eligible dependents who receive FNFI Coverage are (i) credited for service with Company to be applied against all service and waiting periods under FNFI Coverage, (ii) credited for any deductibles paid for the plan year under the Company's Benefit Arrangements and Employee Plans to be applied against any deductibles under FNFI Coverage and (iii) not excluded from FNFI Coverage for any preexisting condition if such employee or eligible dependent was entitled to coverage under the Company's Benefit Arrangements and Employee Plans as of the Closing Date. 33 39 7.14 Supplements to Schedules. Within five (5) days prior to the Closing, Company will supplement or amend the Schedules which it has delivered pursuant to this Agreement with respect to any matter hereafter arising which, if existing or occurring at the date of this Agreement, would have been required to be set forth or described in any such Schedule or which is necessary to correct any information in any such Schedule which has been rendered inaccurate thereby. 7.15 Officer and Director Indemnity. FNFI will not permit Company's organizational documents to be amended to affect adversely the provisions concerning indemnification for current indemnitees. ARTICLE 8 [Omitted] ARTICLE 9 TERMINATION, AMENDMENT AND WAIVER 9.1 Termination. This Agreement may be terminated at any time prior to the Effective Time: (a) By mutual consent of the FNFI and Shareholders; (b) By Shareholders and Company as a group, on the one hand, or by FNFI, on the other hand, if there has been a material breach, failure to fulfill or default (collectively, a "Breach") on the part of the other Party (the "Breaching Party") of any of the representations and warranties contained herein or in the due and timely performance and satisfaction of any of the covenants, agreements or conditions contained herein and such Breach is not cured by the Breaching Party within ten (10) business days of the receipt of written notice of such Breach from the other Party; or (c) By Shareholders and Company as a group, on the one hand, or by FNFI, on the other hand, if there shall be a final non-appealable order of a Governmental Entity or arbitrator in effect preventing consummation of the Merger; or there shall be any action taken, or any statute, rule, regulation or order enacted, promulgated or issued or deemed applicable to the Merger by any Governmental Entity or arbitrator which would make the consummation of the Merger illegal. 9.2 Effect of Termination. In the case of any termination of this Agreement pursuant to Section 9.1, above, this Agreement shall forthwith become void, and there shall be no Liability or obligation on the part of any Party or its officers, directors or shareholders. Notwithstanding the foregoing sentence, (i) the provisions of Section 7.5 and 7.6 shall remain 34 40 in full force and effect and survive any termination of this Agreement; (ii) each Party shall remain liable for any breach of this Agreement prior to its termination; and (iii) in the event of termination pursuant to Section 9.1(b), above, then notwithstanding the provisions of Section 7.6, above, the breaching Party shall be liable to the non-breaching Party to the extent of the expenses incurred by such other party in connection with this Agreement and the transactions contemplated thereby. 9.3 Amendment. This Agreement may be amended at any time by a written instrument executed by the Parties. Any amendment effected pursuant to this Section 9.3 shall be binding upon all Parties. 9.4 Waiver. Any term or provision of this Agreement may be waived in writing at any time by the Party or Parties entitled to the benefits thereof. Any waiver effected pursuant to this Section 9.4 shall be binding upon all Parties hereto. No failure to exercise and no delay in exercising any right, power or privilege shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege preclude the exercise of any other right, power or privilege. No waiver of any breach of any covenant or agreement hereunder shall be deemed a waiver of a preceding or subsequent breach of the same or any other covenant or agreement. The rights and remedies of each Party under this Agreement are in addition to all other rights and remedies, whether at law, in equity or otherwise, that such Party may have against the other Parties. ARTICLE 10 INDEMNIFICATION 10.1 Survival of Representations and Warranties. The representations and warranties of Company and Shareholders contained in this Agreement or in any writing delivered pursuant hereto or at the Closing shall survive the Closing and the consummation of the transactions contemplated hereby until the second (2nd) anniversary of the Closing Date; provided that the representations and warranties contained in Sections 4.1.2, 4.1.4, 4.1.11, 4.1.20, 4.2.1 and 4.2.2 shall continue until the expiration of the applicable statutes of limitations. 10.2 Indemnification by Company and Shareholders. Effective as of the Closing, Shareholders, severally in accordance with their pro rata ownership interests in Company immediately prior to the Effective Time, in consideration for the exchange of the Company Shares, covenant and agree with FNFI, Newco and Surviving Corporation and their respective officers, directors, employees, shareholders, assigns, successors and affiliates (a "FNFI Indemnified Party") to indemnify and hold harmless a FNFI Indemnified Party from, against and in respect of any and all Losses suffered, sustained, incurred or paid by any FNFI Indemnified Party in connection with resulting from or arising out of, directly or indirectly: 35 41 (a) any breach of any representation or warranty of any Shareholder or Company set forth in this Agreement or any certificate, document or instrument delivered by or on behalf of any Shareholder or Company in connection herewith; or (b) any non-fulfillment of any covenant or agreement on the part of any Shareholder or Company in this Agreement which is required to be performed after the Closing. Payment shall not be a condition precedent to recovery under the above indemnities. 10.3 Indemnification by FNFI. Effective as of the Closing, FNFI covenants and agrees with Shareholders and their respective heirs, successors and assigns (a "Shareholder Indemnified Party") to indemnify and hold harmless a Shareholder Indemnified Party from, against and in respect of any and all Losses suffered, sustained, incurred or paid by any Shareholder Indemnified Party in connection with resulting from or arising out of, directly or indirectly: (a) any breach of any representation or warranty of FNFI or Newco set forth in this Agreement or any certificate, document or instrument delivered by or on behalf of FNFI or Newco in connection herewith; or (b) any non-fulfillment of any covenant or agreement on the part of FNFI or Newco in this Agreement which is required to be performed after the Closing. Payment shall not be a condition precedent to recovery under the above indemnities. 10.4 Third-Party Claims. In the event any third party asserts any Claim with respect to any matter as to which the indemnities in this Agreement relate, the Party or Person against whom the Claim is asserted (the "Indemnified Party") shall give prompt notice to the other Party or Person (the "Indemnifying Party"), and the Indemnifying Party shall have the right at its election to take over the defense or settlement of the third-party Claim at its own expense by giving prompt notice to the Indemnified Party. If the Indemnifying Party does not give such notice and does not proceed diligently so to defend the third-party Claim within thirty (30) days after receipt of the notice of the third-party Claim, the Indemnifying Party shall be bound by any defense or settlement that the Indemnified Party may make as to those claims and shall reimburse the Indemnified Party for its Losses related to the defense or settlement of the third-party Claim. The Parties shall cooperate in defending against any asserted third-party Claims. For purposes of this Article 10, the reference to this Agreement includes any certificate, Schedule, Exhibit, list, summary or other information provided or delivered to a party by the Indemnifying Party or its agents and affiliates in connection with this Agreement. 10.5 Additional Indemnification Provisions. Notwithstanding anything to the contrary in this Article 10, (i) Shareholders aggregate Liability under Section 10.2, above, shall not exceed Two Million Dollars ($2,000,000); (ii) Shareholders shall not incur any Liability under Section 10.2, above, until the aggregate amount of indemnification obligations exceed Twenty- 36 42 Five Thousand Dollars ($25,000); (iii) subject to clause (ii) above, Shareholders shall not incur any Liability under Section 10.2, above, for an indemnifiable Loss that individually does not exceed One Thousand Dollars ($1,000); (iv) Shareholders shall have the right but not the obligation to pay any indemnification obligations owed FNFI in Fidelity Common Stock valued at the Closing Fidelity Price; and (v) the Parties will make appropriate adjustments for any Tax benefits or Tax detriments or insurance proceeds in determining the amount of any indemnification obligation under this Article 10. 10.6 Indemnification Non-Exclusive. The indemnification provisions of this Article 10 are in addition to, and not in derogation of, any statutory, equitable or common-law remedy any Party may have for breach of representation, warranty, covenant or agreement. 10.7 Access and Information. With respect to any claim for indemnification hereunder, the Indemnified Party will give to the Indemnifying Party and its counsel, accountants and other representatives full and free access during normal business hours and upon the giving of reasonable prior notice to their books and records relating to such claims, and to their employees, accountants, counsel and other representatives, all without charge to the Indemnifying Party, except for reimbursement of reasonable out-of-pocket expenses. The Indemnified Party agrees to maintain any of its books and records which may relate to a claim for indemnification hereunder for such period of time as may be necessary to enable the Indemnifying Party to resolve such claim; provided that the failure to do so shall not relieve the Indemnifying Party of any obligation hereunder unless the Indemnifying Party demonstrates that the failure to do so substantially prejudiced the Indemnifying Party in the defense of any third-party proceeding, and then only to the extent so prejudiced. 10.8 Mitigation. The Indemnified Parties agree to mitigate their Losses and use their reasonable efforts to collect any indemnifiable damages from any available insurer or third-party indemnitors before collecting from the Indemnifying Party; provided, however, nothing in the foregoing sentence shall preclude any Indemnified Party from filing a claim against the Indemnifying Party from the outset. If any amounts are recovered from an insurer or third party after payment to an Indemnified Party, the recovering party (or parties) shall promptly pay over to such Indemnifying Party (or Parties) any such recovered amounts, but only to the extent of any Losses with respect to such matter. 10.9 Right of Set-Off. Any Party to this Agreement shall be entitled to set-off against any amounts due to another Party under the terms of this Agreement or under any additional agreement, any amounts due from such other Party under the terms of this Agreement. 37 43 ARTICLE 11 GENERAL PROVISIONS 11.1 Governing Law. This Agreement shall be governed by and construed under the laws of the State of California as applied to agreements among California residents, made and to be performed entirely within the State of California. 11.2 Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors, and administrators of the Parties hereto. 11.3 Entire Agreement. This Agreement, the Exhibits and Schedules hereto, and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement among the Parties with regard to the subject matter hereof and no Party shall be liable or bound to any other Party in any manner by any representations, warranties, covenants, or agreements except as specifically set forth herein or therein. Nothing in this Agreement, express or implied, is intended to confer upon any party, other than the Parties hereto and their respective successors and assigns, any rights, remedies, obligations, or Liabilities under or by reason of this Agreement, except as expressly provided herein. 11.4 Severability. In the event any provision of this Agreement shall be invalid, illegal, or unenforceable, it shall, to the extent practicable, be modified so as to make it valid, legal and enforceable and to retain as nearly as practicable the intent of the Parties, and the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 11.5 Notice. All notices and other communications required or permitted hereunder shall be in writing and shall be deemed effectively given (i) if delivered personally (including by overnight express or messenger), upon delivery; (ii) if delivered by registered or certified mail, return receipt requested, upon the earlier of actual delivery or three (3) days after being mailed; or (iii) if given by facsimile, upon confirmation of transmission by facsimile, in each case to the Parties at the following addresses: (a) If to FNFI, Newco or Surviving Corporation, addressed to: Fidelity National Financial, Inc. 3916 State Street, Suite 300 Santa Barbara, California 93105 Attn: Andrew F. Puzder Facsimile: (805) 898-7149 38 44 With a copy to: C. Craig Carlson, Esq. Stradling, Yocca, Carlson & Rauth 660 Newport Center Drive, Suite 1600 Newport Beach, California 92660-6441 Facsimile: (714) 725-4100 (b) If to Shareholders (Pre-Closing) and/or Company (Pre-Closing), addressed to: BRON Research, Inc. P. O. Box 162094 (mailing address) Austin, Texas 78716-2094 1001 S. Capital of Texas Hwy., Building I (physical address) Austin, Texas 78746 Attn: Brian J. Balli/Ronald F. Herrman, Jr. Facsimile: (512) 329-8140 With a copy to: J. Matthew Lyons, Esq. Brobeck, Phleger & Harrison LLP 301 Congress Avenue, Suite 1200 Austin, Texas 78701 Facsimile: (512) 477-5813 (c) If to a Shareholder (Post-Closing), addressed to such Shareholder at such Shareholder's most recent address as shown on the records of the Company: With a copy to: J. Matthew Lyons, Esq. Brobeck, Phleger & Harrison LLP 301 Congress Avenue, Suite 1200 Austin, Texas 78701 Facsimile: (512) 477-5813 By its inclusion herein as a recipient of copies of notices, the parties acknowledge and agree that notwithstanding the fact that Brobeck, Phleger & Harrison LLP represented Company (which effective as of the Closing will be wholly owned by FNFI) in connection with the 39 45 transactions contemplated by this Agreement, Brobeck, Phleger & Harrison LLP shall be (i) permitted to represent the Shareholders and their respective heirs, executors, administrators, affiliates, successors and assigns in connection with any and all matters which may arise out of or in connection with this Agreement, or any ancillary agreement hereto; and (ii) upon the receipt of appropriate conflict waiver letters, if any be required, and subject to applicable ethical obligations of attorneys, entitled to represent any of the other Parties (or their respective Affiliates) on any other matters which any such Party (or its Affiliates) may request. 11.6 Pooling. If any provision of this Agreement or any ancillary agreement hereto or the application of any such provisions to any Person or circumstance precludes the use of "pooling of interests" accounting treatment in connection with the Merger, then provided the Parties mutually agree, (i) the Parties shall negotiate in good faith to agree to such amendments, modifications or supplements of or to this Agreement or such other appropriate actions in order, to the maximum extent practicable, for the Merger to be accounted for as a "pooling of interests," which amendments, modifications or supplements shall be deemed to take effect as of the date of this Agreement or any ancillary agreement hereto, as applicable; (ii) upon reading such agreement (if any), such provision shall be of no force and effect to the extent and solely to the extent necessary to preserve such accounting treatment for the Merger; and (iii) such invalidity or unenforceability shall in no way affect any of the other provisions hereof. 11.7 Construction. Parties to this Agreement have participated jointly in the negotiation and drafting of this Agreement and have had competent counsel of their own choosing. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. 11.8 Headings. The headings of the paragraphs and subparagraphs of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 11.9 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument. 11.10 Recitals, Schedules, and Exhibits. The Recitals, Schedules and Exhibits to this Agreement are incorporated herein and, by this reference, made a part hereof as if fully set forth at length herein. [SIGNATURE PAGES FOLLOW.] 40 46 IN WITNESS WHEREOF, the foregoing Agreement and Plan of Reorganization is hereby executed as of the date first above written. FNFI: FIDELITY NATIONAL FINANCIAL, INC., a Delaware Corporation By: /s/ ANDREW F. PUZDER ---------------------------------- Its: Executive Vice President COMPANY: BRON RESEARCH, INC., a Texas Corporation By: /s/ BRIAN J. BALLI ---------------------------------- Its: CEO SHAREHOLDERS: /s/ BRIAN J. BALLI ---------------------------------------- Brian J. Balli /s/ RONALD F. HERRMANN, JR. ---------------------------------------- Ronald F. Herrman, Jr. /s/ RYAN F. HERRMANN ---------------------------------------- Ryan F. Herrman NEWCO: BRON ACQUISITION CORPORATION, a Texas Corporation By: /s/ ANDREW F. PUZDER ---------------------------------------- Its: Executive Vice President EX-10.50 16 AGREEMENT AND PLAN OF REORGANIZATION 1 EXHIBIT 10.50 AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and entered into as of this 12th day of September, 1997, by and among FIDELITY NATIONAL FINANCIAL, INC., a Delaware corporation ("FNFI"); CREDIT REPORTS, INC., a California corporation ("Company"); COLIN HOWARD FRIEDMAN AND HEDY KRAMER FRIEDMAN, AS TRUSTEES OF THE FRIEDMAN FAMILY TRUST UDT, DATED JULY 23, 1987 ("Shareholder"); COLIN H. FRIEDMAN ("Friedman"); FARID MESHKATAI ("Meshkatai"); and CRI ACQUISITION CORPORATION, a California corporation that is a newly-formed, wholly-owned subsidiary of FNFI ("Newco"). FNFI, Company, Shareholder, Friedman and Newco are referred to collectively herein as the "Parties" or singularly as a "Party." RECITALS A. Shareholder is the record and beneficial owners of 1,000 shares of Company Common Stock (the "Company Shares"), which represents all the issued and outstanding shares of capital stock of Company. B. The respective Boards of Directors of FNFI, Company and Newco deem it advisable and in the best interests of their respective shareholders that Newco merge with and into Company (the "Merger") pursuant to this Agreement, the Articles of Merger substantially in the form attached hereto as Exhibit "A" (the "Articles of Merger") and the applicable provisions of the laws of the State of California. C. The Parties hereto expect that the Merger will further certain of their business objectives, including, without limitation, increased market share, reduced administrative costs and volume efficiencies. D. The Boards of Directors of FNFI, Company and Newco have approved and adopted this Agreement as a plan of reorganization within the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). NOW, THEREFORE, in consideration of the premises and the respective representations, warranties, covenants, agreements and conditions hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows: 2 ARTICLE I CERTAIN DEFINITIONS Unless the context otherwise requires, the terms defined in this Article 1 shall have the meanings herein specified for all purposes of this Agreement, applicable to both the singular and the plural forms of any of the terms herein defined. Any capitalized term used in this Agreement and not ascribed a meaning in this Article 1 shall have the meaning ascribed to such term elsewhere in this Agreement. "Action" shall mean any actual or threatened Claim, action, suit, arbitration, hearing, inquiry, proceeding, complaint, charge or investigation by or before any Governmental Entity or arbitrator and any appeal from any of the foregoing. "Affiliate" shall mean, with respect to a Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such Person. "Articles of Merger" has the meaning set forth in Recital B, above. "Basis" means any past or present fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction that forms or would reasonably form the basis for any specified consequence. "Benefit Arrangement" shall mean any form of current or deferred compensation, bonus, stock option, stock appreciation right, severance pay, salary continuation, pension, profit-sharing, retirement or incentive plan, practice or arrangement, any group or individual disability, medical, dental, health, hospitalization, life insurance or other insurance plans or related benefits, or any other welfare or similar plan or arrangement for the benefit of any director, officer or employee, whether active or retired, or for any class or classes of such directors, officers or employees. "California Statute" means the general corporation laws set forth in the California Corporations Code. "Claims" shall mean any and all liabilities, losses, claims, damages, causes of action, lawsuits, administrative proceedings (including informal proceedings), investigations, audits, demands, assessments, adjustments, judgments, settlement payments, deficiencies, penalties, fines, interest (including interests from the date of such damages), and costs and expenses (including without limitation reasonable attorneys' fees and disbursements of every kind, nature and description). "Closing" has the meaning set forth in Section 3.1, below. 2 3 "Closing Balance Sheet" has the meaning set forth in Section 2.2(e), below. "Closing Date" has the meaning set forth in Section 3.1, below. "Closing Fidelity Price" means the average of the per share closing sales price of FNFI's Common Stock publicly traded on the New York Stock Exchange for the eight (8) consecutive trading days ending on the date of this Agreement. "Code" has the meaning set forth in Recital D, above. "Company Shares" has the meaning set forth in Recital A. "Company Stock" means shares of Common Stock, no par value, of Company. "Confidential Information" means any information concerning the businesses and affairs of any of the Parties that is not already generally available to the public. "Effective Time" has the meaning set forth in Section 3.1, below. "Employee Plan" shall mean any "employee benefit plan," as defined in Section 3(3) of ERISA, which is subject to any provisions of ERISA and covers any employee, whether active or retired, of the Company. "ENI Merger Agreement" means that certain Agreement and Plan of Reorganization of even date herewith by and among FNFI, Express Network, Inc., the shareholders of Express Network, Inc., Friedman and ENI Acquisition Corporation. "ENI Net Worth Deficiency" has the meaning set forth in Section 2.2(e) of the ENI Merger Agreement. "Environmental, Health, and Safety Laws" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Resource Conservation and Recovery Act of 1976, and the Occupational Safety and Health Act of 1970, each as amended, together with all other laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder) of federal, state, local, and foreign governments (and all agencies thereof) concerning pollution or protection of the environment, public health and safety, or employee health and safety, including laws relating to emissions, discharges, releases, or threatened releases of pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials or wastes into ambient air, surface water, ground water, or lands or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials or wastes. 3 4 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Fidelity Common Stock" means the shares of non-registered, restricted Common Stock, par value of $0.0001 per share, of FNFI. "GAAP" means United States generally accepted accounting principles, as the same may change from time to time. "Governmental Entity" shall mean any court, federal, state, local or foreign government or any administrative agency or commission or any other governmental authority or instrumentality whatsoever. "Hazardous Substances" shall mean any hazardous, toxic or infectious substance, material, gas or waste which is regulated by any Governmental Entity. "Indebtedness" shall mean, when used with reference to any Person, without duplication, (i) any liability of such Person created or assumed by such Person, or any Subsidiary thereof, (a) for borrowed money, (b) evidenced by a bond, note, debenture, or similar instrument (including a purchase money obligation, deed of trust or mortgage) given in connection with the acquisition of, or exchange for, any property or assets (other than inventory or similar property acquired and consumed in the Ordinary Course of Business), including securities and other indebtedness, (c) in respect of letters of credit issued for such Person's account and "swaps" of interest and currency exchange rates (and other interest and currency exchange rate hedging agreements) to which such Person is a party or (d) for the payment of money as lessee under leases that should be, in accordance with GAAP, recorded as capital leases for financial reporting purposes; (ii) any liability of others described in the preceding clause (i) guaranteed as to payment of principal or interest by such Person or in effect guaranteed by such Person through an agreement, contingent or otherwise, to purchase, repurchase, or pay the related Indebtedness or to acquire the security therefor; (iii) all Liabilities or obligations secured by a Lien upon property owned by such Person and upon which Liabilities or obligations such Person customarily pays interest or principal, whether or not such Person has assumed or become liable for the payment of such liabilities or obligations; and (iv) any amendment, renewal, extension, revision or refunding of any such liability or obligation. "Intellectual Property" means (i) all inventions (whether patentable or unpatentable and whether or not reduced to practice), all improvements thereto, and all patents, patent applications, and patent disclosures, together with all reissuances, continuations, continuations-in-part, revisions, extensions, and reexaminations thereof; (ii) all trademarks, service marks, trade dress, logos, trade names, and corporate names, together with all translations, adaptations, derivations, and combinations thereof and including all goodwill associated therewith, and all applications, registrations, and renewals in connection therewith; (iii) all copyrightable works, all copyrights, and all applications, registrations, and renewals in 4 5 connection therewith; (iv) all trade secrets and confidential business information (including ideas, research and development, know-how, formulas, compositions, manufacturing and production processes and techniques, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information, and business and marketing plans and proposals); (v) all computer software (including data and related documentation); (vi) all other proprietary rights; and (vii) all copies and tangible embodiments thereof (in whatever form or medium). "knowledge" means, for purposes of Article 4, below, actual knowledge of any officer of Company or Shareholder to the fact or matter in question, without making any investigation. "Legal Requirement" shall mean any statute, law, ordinance, rule, regulation, permit, order, writ, judgment, injunction, decree or award issued, enacted or promulgated by any Governmental Entity or any arbitrator. "Liability" means any liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due), including any liability for Taxes. "Licenses" has the meaning set forth in Section 4.14, below. "Lien" shall mean all liens (including judgment and mechanics' liens, regardless of whether liquidated), mortgages, assessments, security interests, easements, claims, pledges, trusts (constructive or otherwise), deeds of trust, options or other charges, encumbrances or restrictions. "Material Adverse Effect" means any event, effect, development, occurrence or circumstance, individually or when taken together with all other such events, effects, developments, occurrences or circumstances, causing, resulting in or having a material adverse effect on (i) the business, assets, results of operations, business relationships, properties, condition (financial or otherwise), insurability or prospects of Company; (ii) the ability of the Parties to consummate the transactions contemplated by this Agreement; or (iii) the legal right or authorization of Company to continue to operate its business. "Material Contracts" has the meaning set forth in Section 4.9, below. "Merger" has the meaning set forth in Recital B, above. "Net Worth" means the difference between (i) the reviewed aggregate book value of the assets of Company; and (ii) the reviewed aggregate book value of the liabilities of Company as reflected on the Reviewed Closing Balance Sheet, provided that the Parties and/or a national accounting firm (as more fully explained in Section 2.2(e), below) may (i) make reasonable 5 6 adjustment to or establish reasonable reserves for uncollectible accounts receivable; (ii) adjust the book value of Company's assets or liabilities to account for under- or over-valued assets or liabilities; and/or (iii) make any other adjustments necessary or appropriate in order to state the Reviewed Closing Balance Sheet in accordance with GAAP. In addition, Net Worth shall not include any amounts stated on Company's July 31, 1997 financial statements attributable to any insurance policy transferred by Company to Shareholder, Friedman or any other Person pursuant to Section 7.1(g), below. "Ordinary Course of Business" means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency and, where appropriate, in accordance with formula). "Party" has the meaning set forth in the preamble to this Agreement. "Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, or a governmental entity (or any department, agency, or political subdivision thereof), or any other legal entity. "Reviewed Closing Balance Sheet" has the meaning set forth in Section 2.2(e), below. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Securities Exchange Act" means the Securities Exchange Act of 1934, as amended. "Security Interest" means any mortgage, pledge, Lien, other than (i) mechanic's, materialmen's, and similar liens; (ii) liens for Taxes not yet due and payable or for Taxes that the taxpayer is contesting in good faith through appropriate proceedings; (iii) purchase money liens and liens securing rental payments under capital lease arrangements; and (iv) other liens arising in the Ordinary Course of Business and not incurred in connection with the borrowing of money. "Subsidiary" means any corporation with respect to which a specified Person (or a Subsidiary thereof) owns a majority of the common stock or has the power to vote or direct the voting of sufficient securities to elect a majority of the directors. "Surviving Corporation" has the meaning set forth in Section 2.1(a), below. "Tax" means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs, duties, capital stock, franchise, profits, withholding, social security 6 7 (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax or contribution of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not. "Tax Return" means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. ARTICLE 2 PLAN OF REORGANIZATION 2.1 The Merger. (a) The Merger. At the Effective Time (as defined in Section 3.1, below), Newco shall be merged with and into Company pursuant to this Agreement and the Articles of Merger, and the separate existence of Newco shall cease, all in accordance with the California Statute. Company, as it exists from and after the Effective Time, is sometimes referred to herein as the "Surviving Corporation." (b) Effect of the Merger. Subject to the terms and conditions of this Agreement and the Articles of Merger, at the Effective Time (i) the separate existence of Newco shall cease and Newco shall be merged with and into Company; and (ii) the Merger shall have all the effects provided by the California Statute, this Agreement and the Articles of Merger. (c) Articles of Incorporation; Bylaws; Directors and Officers. The Articles of Incorporation of Surviving Corporation from and after the Effective Time shall be the Articles of Incorporation of Company until thereafter amended in accordance with the provisions therein and as provided by the California Statute. The Bylaws of Surviving Corporation from and after the Effective Time shall be the Bylaws of Company as in effect immediately prior to the Effective Time, continuing until thereafter amended in accordance with their terms and the Articles of Incorporation of Surviving Corporation and as provided by the California Statute. The initial directors of Surviving Corporation shall be the individuals set forth on Schedule 2.1(c)(1), in each case until their successors are elected and qualified. The initial officers of Surviving Corporation shall be those individuals holding such titles set forth on Schedule 2.1(c)(2), in each case until their successors are duly elected and qualified. 2.2 Conversion of Securities. At the Effective Time, by virtue of the Merger and without any action on the part of FNFI, Newco, Company or Shareholder, the shares of capital stock of Newco and Company shall be converted as follows: 7 8 (a) Capital Stock of Newco. Each issued and outstanding share of capital stock of Newco shall continue to be issued and outstanding and shall be converted into one (1) validly issued, fully paid and non-assessbale share of Common Stock of Company. Each stock certificate of Newco evidencing ownership of any such shares shall continue to evidence ownership of such shares of Common Stock of Surviving Corporation. (b) Cancellation of Certain Shares of Capital Stock of Company. All shares of capital stock of Company that are owned directly or indirectly by Company, including all capital stock which has been authorized but not issued, shall be canceled and no consideration shall be delivered in exchange therefore. (c) Conversion of Company Shares. The Company Shares shall automatically be canceled, extinguished and converted, without any action on the part of the holder thereof, into the right to receive shares of Fidelity Common Stock, as more fully described in subsections (d) and (e), below. All Company Shares, when so converted, shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and Shareholder shall cease to have any rights with respect thereto, except the right to receive the shares of Fidelity Common Stock to be paid or issued in consideration therefor upon the surrender of the Certificates in accordance with subsection (g), below. (d) Consideration. In consideration for the cancellation and exchange by Shareholder of the Company Shares, FNFI shall, immediately after the Effective Time and on the Closing Date, issue and deliver to Shareholder One Hundred Thousand Dollars ($100,000) of Fidelity Common Stock, either held in treasury and transferred to Shareholder or newly issued by FNFI to Shareholder. The consideration set forth in this subsection (d) is subject to adjustment pursuant to subsection (e), below. The exact number of shares of Fidelity Common Stock to be issued pursuant to subsection this (d) shall be based upon the Closing Fidelity Price. (e) Purchase Price Adjustments. Commencing immediately after the Closing Date, (i) Shareholder shall cause Company to prepare a balance sheet for Company as of the Closing Date (the "Closing Balance Sheet"); and (ii) within thirty (30) days of the completion of the Closing Balance Sheet, the Chief Financial Officer of Company and representatives of FNFI shall jointly and in good faith review the Closing Balance Sheet and make any adjustments necessary to state the Closing Balance Sheet in accordance with GAAP (the "Reviewed Closing Balance Sheet"). If there is a dispute between the parties with respect to any particular adjustment, then the disputed adjustment shall be submitted to a national accounting firm mutually agreed upon by the Parties, whose determination of the appropriateness and the amount of the adjustment shall be binding on the Parties. The cost of such accounting firm's services shall be divided equally between FNFI and Shareholder. If the Net Worth of Company as stated on the Reviewed Closing Balance Sheet is less than Seven Hundred Forty-Eight Thousand Dollars ($748,000) (the "CRI Net Worth Deficiency"), then the post-closing payments described in Section 2.2(f) of the ENI Merger Agreement (the 8 9 "Post-Closing Payments"), that are due on each of the first two (2) anniversaries of the Closing Date, shall each be reduced by one-half (1/2) of the amount of the CRI Net Worth Deficiency; provided, however, that if the CRI Net Worth Deficiency plus the ENI Net Worth Deficiency exceeds One Million Three Hundred Eighty-Seven Thousand Five Hundred Dollars ($1,387,500) (such excess is hereinafter referred to as the "Combined Excess Deficiency"), then there shall be no obligation to make any Post-Closing Payment on the first two (2) anniversaries of the Closing Date and the Combined Excess Deficiency shall first be deducted from the Post-Closing Payments due on the third anniversary of the Closing Date and then, if necessary, from the Post-Closing Payments due on the fourth anniversary of the Closing Date. If the Net Worth of Company as stated on the Reviewed Closing Balance Sheet is greater than Seven Hundred Forty-Eight Thousand Dollars ($748,000) (the "Net Worth Surplus"), then the Post-Closing Payments due on each of the first two (2) anniversaries of the Closing Date, shall each be increased by the amount of one-half (1/2) of the CRI Net Worth Surplus. Notwithstanding anything to the contrary above, the Parties hereto expressly agree that any downward adjustments for those items set forth on Schedule 2.2(e) hereto shall only reduce Net Worth on the Reviewed Closing Balance Sheet by one-half (1/2) of the amount of such adjustment. (f) Payment of Certain Company Obligation. Immediately after the Effective Time and on the Closing Date FNFI shall pay the principal balance of the following Company obligation: that certain Loan Agreement, dated December 13, 1994, by and between Company and the Noah Kramer Foundation in the principal amount of $500,000, a copy of which is attached hereto on Schedule 2.2(g). (g) Certificate Delivery Requirement. At the Effective Time, Shareholder shall deliver to FNFI the certificates (the "Certificates") representing the Company Shares, duly endorsed in blank by Shareholder, or accompanied by blank stock powers, and with all necessary transfer tax and other revenue stamps affixed and canceled. The Certificates so delivered shall be promptly canceled. Until delivered as contemplated by this subsection (h), each Certificate shall be deemed at any time after the Effective Time to represent the right to receive upon such surrender a pro rata portion of the consideration set forth in subsections (d) and (e), above. (h) Consideration for Non-Competition. In consideration for the covenant not to compete set forth in Section 11.11, below, FNFI shall, as soon as practicable after the Effective Time, issue and deliver to Meshkatai One Hundred Thousand Dollars ($100,000) of Fidelity Common Stock, either held in treasury and transferred to Meshkatai or newly issued by FNFI to Meshkatai. The exact number of shares of Fidelity Common Stock to be issued pursuant to subsection this (h) shall be based upon the Closing Fidelity Price. 9 10 ARTICLE 3 CLOSING 3.1. Closing. The consummation of the Merger and the other transactions contemplated by this Agreement (the "Closing") shall take place at the offices of FNFI, located at 3916 State Street, Suite 300, Santa Barbara, California 93105, on such date (the "Closing Date") and at such time as may be mutually designated by the Parties within five (5) business days following the satisfaction or waiver of the conditions set forth in Article 8, below (including, without limitation, the Requisite Regulatory Approvals), or such other date, time, place and manner as the Parties may mutually agree. On the Closing Date, the Articles of Merger and any required officers' certificates, shall be filed with the Secretary of State of the State of California in accordance with the provisions of the California Statute. The Merger shall become effective upon such filing or such later time on the Closing Date as may be specified in the filing with the Secretary of State of the State of California (the "Effective Time"). Either FNFI or Shareholder may terminate this Agreement without Liability to the other if the Closing does not occur on or before October 31, 1997. 3.2 Mutual Deliveries at Closing. Provided that all of the conditions to the Closing set forth in Article 8, below, have been satisfied or waived by the Party benefitting therefrom, the appropriate Parties or Persons shall execute and deliver or cause to be delivered to the appropriate Parties at Closing the following: (a) The Employment Agreement in substantially the form of Exhibit "B" hereto; and (b) The Registration Rights Agreement substantially in the form of Exhibit "C" hereto. 3.3 Shareholder's Deliveries at Closing. Provided that all of the conditions to the Closing set forth in Article 8, below, have been satisfied or waived by the Party benefiting therefrom, Shareholder shall execute and deliver or cause to be delivered to FNFI at the Closing the following documents: (a) The Certificates, in accordance with Section 2.2(g), above; (b) Company's original minute book, such minute book to contain (i) original Articles of Incorporation and all amendments thereto, or copies thereof if the originals are unavailable; (ii) Company's Bylaws presently in effect; (iii) Company's stock transfer records together with all available canceled stock certificates; and (iv) all minutes of meetings or consents in lieu of such meetings of Company's Board of Directors and shareholders; and 10 11 (c) Such other documents and instruments as may be specified in this Agreement or otherwise reasonably requested by FNFI in order to consummate the transactions contemplated hereby. 3.4 Company's Deliveries at Closing. Provided that all of the conditions to the closing set forth in Article 8, below, have been satisfied or waived from the Party benefitting therefrom, Company shall execute and deliver or cause to be delivered to FNFI at the Closing the following: (a) An Officer's Certificate dated the Closing Date substantially in the form of Exhibit "D" hereto; (b) A Secretary's Certificate dated the Closing Date substantially in the form of Exhibit "E" hereto; (c) An opinion of counsel substantially in the form of Exhibit "F" hereto; (d) A good standing certificate of Company, dated within fifteen (15) business days of the Closing Date, for each jurisdiction in which Company is required to be qualified and authorized to do business; (e) Minutes of the Board of Directors and shareholders of Company authorizing and approving this agreement and the transactions contemplated herein; (f) Resignations of all of the officers and directors of Company effective as of the Closing Date; and (g) Such other documents and instruments as may be specified in this Agreement or otherwise reasonably requested by FNFI in order to consummate the transactions contemplated hereby. 3.5 FNFI's Deliveries. Provided that all of the conditions to the Closing set forth in Article 8, below, have been satisfied or waived by the Party benefiting therefrom, FNFI shall execute and deliver or cause to be delivered to Shareholders at the Closing: (a) The Fidelity Common Stock in accordance with Section 2.2(d), above; (b) Such other documents and instruments as may be specified in this Agreement or otherwise reasonably requested by Shareholder in order to consummate the transactions contemplated hereby. 11 12 3.6 Newco's Deliveries. Provided that all of the conditions to the Closing set forth in Article 8, below, have been satisfied or waived by the Party benefiting therefrom, Newco shall deliver to the appropriate Person at the Closing the cash for the loan payments in accordance with Section 2.2(f), above. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF COMPANY AND SHAREHOLDER Company and Shareholder (which for purposes of this Article 4 shall include Friedman), jointly and severally, represent and warrant to FNFI, Newco and Surviving Corporation that (except for changes contemplated by this Agreement), each of the following statements is true, correct and complete as of the date of this Agreement and will be true, correct and complete as of the Closing Date (each such statement to be made again by Company and Shareholder on that date with the Closing Date being substituted for the date of this Agreement throughout this Article 4): 4.1 Organization and Standing; Articles and Bylaws. Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California, has full power and authority to own its assets and properties and to carry on its business as presently conducted. Company is duly qualified and authorized to do business, and is in good standing as a foreign corporation, in each jurisdiction where the nature of its activities and of its properties (both owned and leased) make such qualification necessary, except where the failure to so qualify would not have a Material Adverse Effect. Company has furnished FNFI with copies of its Articles of Incorporation and Bylaws, as amended to the date hereof. Said copies are true, correct and complete and contain all amendments through the Closing Date. 4.2 Authorization. All corporate action on the part of Company, its officers, directors and shareholders necessary for the authorization, execution and delivery of this Agreement and the documents contemplated hereby, the performance of all of Company's and Shareholder's obligations hereunder and thereunder, and for the exchange and cancellation of the Company Shares have been taken or will be taken prior to the Closing. This Agreement and the documents contemplated hereby, when executed and delivered, shall constitute valid and legally binding obligations of Company and Shareholder enforceable in accordance with their respective terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and subject to the availability of equitable remedies. 4.3 Subsidiaries. Company has no Subsidiaries and does not presently own, of record or beneficially, or control, directly or indirectly, any capital stock, securities convertible into capital stock or any other equity interest in any corporation, 12 13 association or business entity, nor is the Company, directly or indirectly, a participant in any joint venture, partnership or other entity. 4.4 Capitalization. The authorized capital stock of Company consists of 100,000 shares of Common Stock, of which 1,000 shares are issued and outstanding. All of the Company Shares have been duly authorized and validly issued, are fully paid and non-assessable and are owned of record and beneficially by Shareholder, free and clear of all Liens, Indebtedness and Claims of every kind. All of the Company Shares were offered, issued, sold and delivered by Company in compliance with all applicable state and federal laws concerning the issuance of securities. None of the Company Shares were issued in violation of any preemptive rights created by statute, or by Company's charter documents, or by any agreement to which Company may be bound. Schedule 4.4 hereto contains a complete list of, and the number of shares owned of record by, the holders of the issued and outstanding Company Stock. Other than as described in this Section 4.4, there are no outstanding shares of Company Stock, preferred stock or any other equity securities of Company, and there are no options, warrants, calls, conversion rights, commitments or agreements of any character to which Company or Shareholder may be bound that do or may obligate Company to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of Company Stock, preferred stock or other equity securities or that do or may obligate Company to grant, extend or enter into any such option, warrant, call, conversion right, commitment or agreement. There are no outstanding arrangements, agreements, commitments or understandings of any kind affecting or relating to the voting, issuance, purchase, redemption, repurchase or transfer of any capital stock of Company or any other securities of Company. Other than as provided in or contemplated by this Agreement, neither Company nor Shareholder have, or prior to the Effective Time will have, become a party to or subject to any contract or obligation wherein any Person has a right or option to purchase or acquire any rights in any additional capital stock or securities of Company. As a result of the Merger, FNFI will be the record and beneficial owner of all outstanding capital stock of Company and rights to acquire capital stock of Company. 4.5 Financial Statements. Schedule 4.5 hereto includes (i) true, complete and correct copies of Company's balance sheet as of December 31, 1996 (the end of its most recently completed fiscal year) and statements of income, cash flows and retained earnings for the year ended December 31, 1996; and (ii) true, complete and correct copies of Company's balance sheet as of July 31, 1997 and statements of income, cash flows and retained earnings for the period then ended. The above described financial statements have been prepared in accordance with GAAP consistently applied and fairly present the financial position of Company as of the dates thereof and the results of its operations and cash flows for the periods then ended, subject, in the case of the July 31, 1997 financial statements to the omission of complete footnote information and 13 14 Liabilities that under GAAP would not be included in a balance sheet not bearing footnotes. Except as set forth above and on the Schedules hereto, there are no material Company Liabilities, direct or indirect, fixed or contingent, which are not reflected (i) in the balance sheet as of July 31, 1997, except for Liabilities incurred in the ordinary course of business subsequent to July 31, 1997, which, either individually or in the aggregate, are not material; and (ii) in the Closing Balance Sheet. Except as set forth above, there is no basis for any assertion against Company of any Liability or obligation of any nature whatsoever that is not fully reflected in the financial statements delivered to FNFI which, either individually or in the aggregate, would have a Material Adverse Effect. Since the date of the July 31, 1997 financial statements, there have been no material changes in Company's accounting policies. 4.6 Material Contracts. Schedule 4.6 hereto contains a complete and accurate list of all Material Contracts to which Company is a party or bound. Without limiting the generality of the foregoing, such list includes all such contracts and agreements and all licenses and instruments which (i) grant a Security Interest or permit or provide for the imposition of any Lien on, or provide for the sale (other than in the Ordinary Course of Business) of, any of the assets of Company or of any of the shares of the Company Stock; (ii) require the consent of any third party to, or would interfere with, the consummation by Company or Shareholder of the transactions contemplated by this Agreement; (iii) involve the borrowing of money or provide for capital expenditures to be made in the future; or (iv) relate to Company's Intellectual Property rights. True, correct and complete copies of all Material Contracts listed on Schedule 4.6 have been furnished by Company to FNFI. Each Material Contract so listed is a valid and binding obligation of Company and is enforceable in accordance with its terms. Company has performed all material obligations required to be preformed by it to date and is not in default under or in breach of any term or provision of any Material Contract to which Company is a party, is subject or is otherwise bound, and no event has occurred that, with the giving of notice or the passage of time or both, would constitute such a default or breach under any Material Contract. To the best knowledge of Company and Shareholder, no party with whom Company has a Material Contract is in default of its obligations thereunder. Except as set forth on Schedule 4.6, no consent or approval of any party to any of the Material Contracts is necessary in order to permit Company to consummate the transactions contemplated hereby. 4.7 Assets Other Than Real Property. Except as set forth on Schedule 4.7 hereto, Company has good and marketable title to all properties and assets (other than real property which is subject to Section 4.8, below) owned or leased by Company, free and clear of all Liens except for: (i) Liens for current Taxes not yet due and payable which have been fully reserved for; and (ii) Liens, if any, that are not substantial in character, amount or extent and do not detract materially from the value, or interfere with present use or the sale or other disposition, of the property subject thereto or affected thereby. The assets and properties of Company constitute all the 14 15 assets, properties, rights, privileges and interests necessary for the operation of Company's business. All of the vehicles, material machinery and material equipment of Company are in good working order and condition, ordinary wear and tear excepted. 4.8 Real Property. Company does not own any real property. Schedule 4.8 hereto contains an accurate list and general description of all real property leases, subleases, licenses or similar agreements ("Leases") to which Company is a party (copies of which have been previously furnished to FNFI), in each case setting forth (i) the landlord and tenant or sublessor and sublessee, as applicable, thereof and the date and term of each of the Leases; (ii) the legal description or street address of each property covered thereby; and (iii) a brief description (including size and function) of the principal improvements and buildings thereon (the "Leased Premises"). Company has valid leasehold interests in the Leased Premises, free and clear of all Liens and Security Interests, except for (i) Claims of lessors, co-lessees or sublessees in such matters as are reflected in the Leases; (ii) title exceptions affecting the fee estate of the lessor under such Leases; (iii) Liens for taxes not yet due; and (iv) other matters as described in Schedule 4.8 hereto. Company is not in default, and no facts or circumstances have occurred which, through the passage of time or both, or the giving of notice would constitute a default, under any Lease. To the knowledge of Company and Shareholder, the activities of Company with respect to the Leased Premises, are in all material respects permitted and authorized by applicable zoning laws, ordinances and regulations and all laws and regulations of any Governmental Entity. To the knowledge of Company and Shareholder, the portions of the buildings on the Leased Premises that are used in the business of Company are each in good repair and condition (including without limitation, the electrical, mechanical, HVAC, plumbing, elevator, other building systems and structural components serving such premises, and the roofs are water-tight), and are in the aggregate sufficient to satisfy Company's current and reasonable anticipated normal business activities as conducted thereat. 4.9 No Conflicts. Neither the execution and delivery nor the performance of this Agreement by Company or Shareholder will result in any of the following: (i) a default or an event that, with notice or lapse of time or both, could be a default, breach or violation of (A) the Articles of Incorporation or Bylaws of Company, (B) any contract, lease, license, franchise, promissory note, conditional sales contract, commitment, indenture, mortgage, deed of trust, security or pledge agreement, or other agreement, instrument, or arrangement to which Company or Shareholder is a party or by which any of their respective properties or any of their respective assets are bound and which is material to Company or Shareholder (a "Material Contract"); (ii) the termination of any Material Contract or the acceleration of the maturity of any indebtedness or other material obligation of Company or Shareholder; (iii) the creation or imposition of any Lien on any of the respective assets or properties of Company or Shareholder or any shares of the Company Stock; (iv) a violation or breach of any writ, 15 16 injunction or decree of any Governmental Entity to which Company or Shareholder is a party or by which any of their respective properties are bound. 4.10 Litigation. Except as set forth in Schedule 4.10 hereto, to the knowledge of Company or Shareholder there are no actions, proceedings, or investigations before any court or administrative agency pending or currently threatened against or with respect to Company (or to the knowledge of Company and Shareholder any Basis therefor), which question the validity of this Agreement or any action taken or to be taken in connection herewith, or which, individually or in the aggregate, might result in a Material Adverse Effect, or in any material impairment of the right or ability of each to carry on its business as now conducted or as proposed to be conducted, or in any material Liability on the part of Company. Company is not a party or subject to, and none of its assets are bound by, the provisions of any order, writ, injunction, judgment, or decree of any Governmental Entity. 4.11 Taxes. Company has no Liability for any federal, state or local Taxes, except for Taxes which have accrued and are not yet payable. Company has filed or caused to be filed all Tax Returns required under applicable law to be filed on or before the Closing Date, Company has paid or made provision for all Taxes and other charges which have or may become due for the periods covered by such Tax Returns, and all such Tax Returns are true, correct and complete in all respects. Except as set forth on Schedule 4.11 hereto, none of the Tax Returns of Company are currently under investigation or audit, nor to the knowledge of Company or Shareholder is an investigation or audit pending, and there has not been an investigation or audit of the Tax Returns of Company in the past seven (7) years. There are no outstanding agreements or waivers extending the statutory period of limitations applicable to any Tax Return for any period. The accounting treatment of all items of income, gain, loss, deduction and credit as reported on all Tax Returns and estimates filed by or on behalf of Company are true, correct and complete, and all deferred Taxes and all Taxes due for the period ending on the Closing Date have been accrued on the Balance Sheet of the July 31, 1997 Financial Statements and will be on the Closing Balance Sheet. No Claim has ever been made by any Governmental Entity in a jurisdiction where Company does not file Tax Returns that it is or may be subject to taxation by that jurisdiction. All taxes owed by Company or which Company is obligated to withhold from amounts owed or owing to any employee, independent contractor, stockholder, creditor or third party have been paid or withheld. There are no unresolved Claims concerning Company's Tax Liability, and no basis for any such Claims exist. 4.12 Employees. Schedule 4.12 hereto sets forth a complete list of all current employees of Company, together with each employee's age, tenure with Company, title or job classification, and the current annual rate of compensation payable to each such employee. There are no unfair labor practice complaints, strikes, slowdowns, stoppages or other controversies to the knowledge of Company or Shareholder pending 16 17 or attempts to unionize or controversies threatened between Company and, or relating to, any of its employees. Company is not a party to any collective bargaining agreement with respect to any of its employees or to a written employment contract with any of its employees, except as set forth on Schedule 4.12 hereto, and there are no understandings or agreements with respect to the employment of any officer or employee of Company which are not terminable by Company without liability on not more than thirty (30) days' notice. Except as set forth on Schedule 4.12 hereto, no officer, director, or employee is entitled to receive any payment of any amount under any existing agreement, severance plan or other benefit plan, or to the accrual or vesting of any other benefit or payment as a result of the consummation of any transactions contemplated by this Agreement. Company has complied with all applicable federal and state statutes and regulations which govern workers' compensation, equal employment opportunity and equal pay. Company's employment of each of its employees is in compliance with all immigration and naturalization laws of the United States. 4.13 Governmental Consents. All consents, approvals, orders, or authorizations of, or registrations, qualifications, designations, declarations or filings with, any governmental authority, required on the part of Company and/or Shareholder in connection with the valid execution and delivery of this Agreement and the exchange and cancellation of the Company Stock, or the consummation of any other transaction contemplated hereby have been obtained, or will be effective at the Closing. 4.14 Operating Rights. Company has all operating authority, licenses, franchises, permits, certificates, consents, rights and privileges (collectively, "Licenses") as are necessary or appropriate to the operation of its business as now conducted and as proposed to be conducted the absence of which will cause a Material Adverse Effect. Such Licenses are in full force and effect, no violations have been or, to the knowledge of Company and Shareholder, are expected to have been recorded in respect of any such Licenses, and no proceeding is threatened or, to the knowledge of Company of Shareholder, pending that could result in the revocation or limitation of any such Licenses. Company has conducted its business so as to comply in all material respects with all such Licenses. 4.15 Compliance with Applicable Laws. The business and operations of Company have been and are being conducted in all material respects in compliance with all laws, ordinances, regulations, rules, orders, judgments or decrees to which Company is subject. Company holds, and the properties, assets, operations and businesses of Company have been maintained and conducted in all material respects in compliance with, all authorizations, permits, licenses, certificates, variances, exemptions, orders, franchises, rights and approvals that are necessary for the conduct of its businesses. No investigation or review by any Governmental Entity with respect to Company is threatened or, to the best knowledge of Company or Shareholder, 17 18 pending, nor has any Governmental Entity indicated to Company an intention to conduct the same. 4.16 Insurance. Schedule 4.16 hereto sets forth an accurate list, as of August 30, 1997, of all insurance policies carried by Company and all insurance loss runs or workers' compensation claims received for the past two (2) policy years. Attached to Schedule 4.16 hereto are true, complete and correct copies of the summaries from the insurance company agent of all current insurance policies, all of which are in full force and effect. All premiums payable under all such policies have been paid and Company is otherwise in full compliance with the terms of such policies (or other policies providing substantially similar insurance coverage). Neither Company nor Shareholder knows of any threatened termination of or material premium increase with respect to, any of such policies. All claims previously made under such policies have been timely filed. 4.17 Absence of Changes. Except as disclosed in Schedule 4.17 hereto, since January 1, 1997, there has not been (i) any change or amendment in the Articles of Incorporation, Bylaws or other governing instruments of Company; (ii) any sale or issuance of, or grant of options or rights to acquire, any shares of the Company Stock or other securities of Company or any declaration, setting aside, or payment of dividends or redemptions in respect of any shares of capital stock of Company, or any direct or indirect redemption, purchase, or other acquisition of such stock, or any agreement, understandings or commitments to do the same; (iii) any transfer or other disposition or pledge of, or the grant of options or rights to acquire, any of the outstanding shares of the Company Common Stock by Shareholder; (iv) any amendment, termination or revocation, or any threat of any amendment, termination, or revocation having a Material Adverse Effect, of any Material Contract; (v) any sale, transfer, mortgage, pledge, or subjection to Lien of, on or affecting any of the assets of the Company out of the Ordinary Course of Business; (vi) any increase in the compensation paid or payable or in the fringe benefits provided to any employee of Company out of the Ordinary Course of Business, or the adoption of any employee benefit plans not in existence in the fiscal year ended December 31, 1996; (vii) any damage, destruction or loss, whether or not covered by insurance, of any of the assets of Company that has a Material Adverse Effect; (viii) any purchase or lease, or commitment for the purchase or lease, of equipment or other capital items not disclosed in Company's financial statements which is in excess of the normal, ordinary and usual requirements of the business of Company; (ix) any change that by itself or together with other changes, has had a Material Adverse Effect; (x) any agreement or arrangement made by Company or Shareholder to take any action which, if taken prior to the date hereof, would have made any representation or warranty set forth in this Agreement untrue or incorrect as of the date when made; or (xi) the commencement or notice or, to the best knowledge of Company and Shareholder, threat of 18 19 commencement of any lawsuit or proceeding against or investigation of Company or any of its affairs. 4.18 Employee Plans. Schedule 4.18 hereto sets forth a complete list of all Employee Plans and Benefit Arrangements maintained, administered or contributed to, or otherwise participated in, by Company. A true and complete copy of each such Employee Plan or Benefit Arrangement, including amendments thereto, have been provided to FNFI, together with true and complete copies of (i) annual reports for the most recent three (3) years (Form 5500 Series including, if applicable, Schedules A and B thereto); (ii) all plan documents and the most recent summary plan description of each such Employee Plan, together with any modifications thereto; and (iii) the most recent favorable determination letter (if applicable) from the Internal Revenue Service for each such Employee Plan. None of the Employee Plans is a "multiemployer plan" as defined in Section 3(37) of ERISA or a "multiple employer plan" as covered in Section 412(c) of the Code, and the Company has not been obligated to make a contribution to any such multiemployer or multiple employer plan. All contributions (including all employer contributions and employee salary reduction contributions) which are due have been paid to each such Employee Plan or Benefit Arrangement and all contributions for any period ending on or before the Closing Date which are not yet due have been paid to each such Employee Plan or Benefit Arrangement or accrued in accordance with past custom and practice of Company. Each Employee Plan which is intended to be qualified under Section 401(a) of the Code is so qualified and each trust maintained pursuant thereto is exempt from income tax under Section 501(a) of the Code. Neither Company nor any Employee Plan, nor any trusts created thereunder, nor any trustee, administrator nor any other fiduciary thereof, has engaged in a "prohibited transaction," as defined in Section 406 of ERISA and Section 4975 of the Code, or any breach of fiduciary duty as defined in Part 4 of Subtitle B of Title I of ERISA. 4.19 Intellectual Property Rights. 4.19.1 Company owns, or has the right to use, sell or license all Intellectual Property necessary or required for the conduct of its business as presently conducted and such rights to use, sell or license are reasonably sufficient for such conduct of Company's business. To the knowledge of Company and Shareholder, Company has taken all reasonable and practicable action designed to safeguard and maintain the secrecy and confidentiality of, and its proprietary right in, all of its Intellectual Property. 4.19.2 Neither the manufacture, marketing, license, sale or intended use of any Intellectual Property licensed or sold by Company or currently under development by Company violates any license or agreement between Company and any third party or infringes any Intellectual Property of any other party; and there is not 19 20 threatened or, to the best knowledge of Company and Shareholder, pending any claim or litigation contesting the validity, ownership or right to use, sell, license or dispose of any Intellectual Property or that the proposed use, sale, license or disposition thereof conflicts or will conflict with the rights of any other party, nor to the best knowledge of the Company and Shareholder, is there any basis for any such assertion. 4.20 Environment, Health and Safety. 4.20.1 Company has complied with all Environmental, Health and Safety Laws, except where failure to comply would not have a Material Adverse Effect, and no Claim has been filed or commenced against it alleging any failure to so comply. Without limiting the generality of the preceding sentence, Company has obtained and been in compliance with all of the terms and conditions of all permits, licenses, and other authorizations which are required under, and has complied with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables which are contained in, all Environmental, Health, and Safety Laws, except where failure to comply would not have a Material Adverse Effect. 4.20.2 Company has not handled or disposed of any substance, arranged for the disposal of any substance, exposed any employee or other individual to any substance or condition, or owned or operated any property or facility in any manner that could form a reasonable Basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand against Company giving rise to any Liability, except where having done so would not have a Material Adverse Effect. Company has no Liability for damage to any site, location, or body of water (surface or subsurface), for any illness of or personal injury to any employee or other individual, or for any reason under any Environmental, Health, and Safety Law which could have a Material Adverse Effect. 4.20.3 To the best of Company's and Shareholder's knowledge, all properties used in its business are free of Hazardous Substances, except where the existence thereof would not have a Material Adverse Effect. 4.21 Certain Transactions. There are no existing or pending transactions, nor are there any agreements or understandings, between Company and Shareholder, or the officers, directors, or employees of Company, or any Person affiliated with any of them, including, without limitation, any transactions, arrangements or understandings relating to the purchase or sale of goods or services or the sale, lease or use of any of the assets of or by Company, with or without adequate compensation, or to any indebtedness owed to or by Company, in any amount whatsoever. 20 21 4.22 Investment Representations. Each Shareholder is receiving the Fidelity Common Stock for his, her or its own account for investment purposes only, and not as a nominee or agent for any other Person, and not with a view to or for resale in connection with any distribution thereof. Each Shareholder acknowledges that the Fidelity Common Stock to be issued hereunder will not be registered under the Securities Act, nor qualified under any state securities laws on the ground, among others, that no distribution or public offering is to be effected. 4.23 Absence of Claims Against Company. No Shareholder has any Claims against the Company. 4.24 Bank Accounts; Powers of Attorney. Schedule 4.24 hereto sets forth an accurate list, as of the date of this Agreement, of the following: (i) the name of each financial institution in which Company has any account or safe deposit box; (ii) the names in which the accounts or boxes are held; (iii) the type of account; and (iv) the name of each person authorized to draw thereon or have access thereto. Schedule 4.24 hereto also sets forth the name of each Person holding a general or special power of attorney from Company and a description of the terms of such power. 4.25 Tax-Free Reorganization. This Agreement, the Merger and the transactions contemplated thereby qualify, in all respects, as a tax-free reorganization pursuant to Code Section 368(a). 4.26 Continuity of Interest. No Shareholder has any present plan, intention or arrangement to dispose of any of the shares of Fidelity Common Stock issued hereunder in a manner that would cause the Merger to violate the continuity of shareholder interest requirement set forth in Treasury Regulation Section 1.368-1. 4.27 Brokers' Fees. Neither Company nor Shareholder has any Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement. 4.28 Full Disclosure. Neither this Agreement, the representations and warranties by Company and/or Shareholder contained herein, the Exhibits or Schedules hereto, nor any other written statement or certificate delivered or to be furnished to FNFI in connection herewith, when read together, contain any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading. There is no fact known to Company or Shareholder which has not been disclosed to FNFI that would have a Material Adverse Effect on Company's business or financial condition or its ability to perform its obligations under this Agreement. 21 22 ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF FNFI AND NEWCO FNFI and Newco represent and warrant to Company and Shareholder that (except for changes contemplated by this Agreement) each of the following statements is true, correct and complete as of the date of this Agreement and will be true, correct and complete as of the Closing Date (each such statement to be made again by FNFI and Newco on that date with the Closing Date being substituted for the date of this Agreement throughout this Article 5): 5.1 Organization and Good Standing. FNFI and Newco are corporations duly organized, validly existing and in good standing under the laws of the States of Delaware and California, respectively, and have all requisite corporate power and authority to own, operate and lease their properties and to carry on their respective business as they are being conducted on the date of this Agreement. FNFI and Newco have all requisite corporate power and authority to enter into this Agreement and to perform their respective obligations hereunder with respect to the consummation of the transactions contemplated hereby. 5.2 Authorization. The execution and delivery of this Agreement by FNFI and Newco and the consummation of the transactions contemplated hereby will be duly authorized by all necessary corporate action on the part of FNFI and Newco, respectively, prior to the Closing Date. This Agreement has been duly executed and delivered by FNFI and Newco and constitutes a legal, valid and binding obligation of FNFI and Newco, enforceable in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting the rights of creditors generally and by general equitable principles. 5.3 Noncontravention. Neither the execution and delivery of this Agreement by FNFI and Newco nor the consummation of the transactions contemplated hereby by FNFI and Newco will (i) violate any statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any Governmental Entity to which FNFI or Newco is subject or any provision of the charter or bylaws of FNFI and Newco; or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument or other arrangement to which either FNFI or Newco is a party or by which they are bound or to which any of their assets is subject, except where the violation, conflict, breach, default, acceleration, termination, modification, cancellation, or failure to give notice would not have a material adverse effect on the ability of FNFI and/or Newco to consummate the transactions contemplated by this Agreement. 22 23 5.4 Fidelity SEC Documents. FNFI has filed all forms, reports and documents required to be filed with the SEC (the "Fidelity SEC Documents"), all of which have been made available to Company. As of their respective dates, the Fidelity SEC Documents complied in all material respects with the requirements of the Securities Act and the Exchange Act, as the case may be, and the rules and regulations of the SEC thereunder applicable to such Fidelity SEC Documents, and none of the Fidelity SEC Documents contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of FNFI included in the Fidelity SEC Documents comply in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with GAAP applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto, or in the case of the unaudited interim financial statements, as permitted by Form 10-Q promulgated by the SEC) and fairly present (subject, in the case of the unaudited interim financial statements, to recurring audit adjustments normal in nature and amount) the consolidated financial position of FNFI as at the dates thereof and the consolidated results of its operations and cash flows or changes in financial position for the periods then ended. 5.5 Fidelity Common Stock. All of the shares of Fidelity Common Stock to be issued to Shareholder in connection with the Merger shall be duly authorized, validly issued, fully paid and non-assessable. Such shares shall be offered, issued, sold and delivered by FNFI in compliance with all applicable state and federal laws concerning the issuance of securities and none of such shares shall be issued in violation of the preemptive rights of any shareholder of FNFI. 5.6 Brokers' Fees. Neither FNFI nor Newco is a party to or obligated under any agreement with any broker, agent, or finder relating to the transactions contemplated hereby, and neither the execution of this Agreement nor the consummation of the transactions provided for herein will result in any liability to any broker, agent, or finder. 5.7 Disclosure. The representations and warranties contained in this Article 5 do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements and information contained herein, in light of the circumstances under which they are made, not misleading. 23 24 ARTICLE 6 CONDUCT OF BUSINESS PENDING CLOSING During the period commencing on the date hereof and continuing through the Closing Date, Company and Shareholder (which for purposes of this Article 6 shall include Friedman), jointly and severally, covenant and agree that: 6.1 Qualification. Company shall maintain all qualifications to transact business and remain in good standing in its jurisdiction of incorporation and in the foreign jurisdictions in which Company owns or leases any property or conducts any business. 6.2 Ordinary Course. Company shall conduct its business in, and only in, the Ordinary Course of Business and, to the extent consistent with such business, shall not make or institute any unusual or novel methods of management, accounting, or operation that vary materially from those methods used by the Company as of July 31, 1997. Company will use its reasonable business efforts to preserve its business organizations intact, to keep available to Company its present officers and employees, and to preserve its present relationships with suppliers, customers, and others having business relationships with the Company. Company shall maintain its properties and assets in good condition and repair. 6.3 Corporate Changes. Company shall not (i) amend its Articles of Incorporation or Bylaws (or equivalent documents); (ii) acquire by merging or consolidating with, or agreeing to merge or consolidate with, or purchase substantially all of the stock or assets of, or otherwise acquire, any business or any corporation, partnership, association or other business organization or division thereof; (iii) enter into any partnership or joint venture; (iv) declare, set aside, make or pay any dividend or other distribution in respect of its capital stock or purchase or redeem, directly or indirectly, any shares of its capital stock; (v) issue or sell any shares of its capital stock of any class or any options, warrants, conversion or other rights to purchase any such shares or any securities convertible into or exchangeable for such shares; or (vi) liquidate or dissolve or obligate itself to do so. 6.4 Indebtedness. Company shall not incur any Indebtedness, sell any debt securities or, except in the Ordinary Course of Business, lend money to or guarantee the Indebtedness of any Person. Company shall not restructure or refinance its existing Indebtedness. Notwithstanding anything to the contrary in this Section 6.4, Company may borrow under its line of credit as needed in the Ordinary Course of Business. 6.5 Accounting. Company shall not make any change in the accounting principles, methods, records or practices followed by it or depreciation or amortization policies or rates heretofore adopted by it. Company shall maintain its books, records, and accounts in accordance with GAAP applied on a basis consistent with that of prior periods. 24 25 6.6 Compliance with Legal Requirements. Company shall comply promptly with all requirements that applicable law may impose upon it and its operations and with respect to the transactions contemplated by this Agreement, and shall cooperate promptly with, and furnish information to, FNFI in connection with any such requirements imposed upon FNFI, or upon any of its Affiliates, in connection therewith or herewith. 6.7 Disposition of Assets. Other than in the Ordinary Course of Business, Company shall not sell, transfer, license, lease or otherwise dispose of, or suffer or cause the encumbrance by any Lien upon any of its properties or assets, tangible or intangible, or upon any interest therein. 6.8 Compensation. Company shall not (i) adopt or amend in any material respect any collective bargaining, bonus, profit-sharing, compensation, stock option, pension, retirement, deferred compensation, Employee Plan, Benefit Arrangement, or any other agreement, trust, fund or arrangement for the benefit of employees other than to comply with any Legal Requirement; or (ii) other than in the Ordinary Course of Business, pay, or make any accrual or arrangement for payment of, any increase in compensation, bonuses or special compensation of any kind, or any severance or termination pay to, or enter into any employment or loan or loan guarantee agreement with, any current or former officer, director, employee or consultant of Company. 6.9 Modification or Breach of Agreements; New Agreements. Company shall not terminate or modify, or commit or cause or suffer to be committed any act that will result in breach or violation of any term of or (with or without notice or passage of time, or both) constitute a default under or otherwise give any Person a basis for nonperformance under, any Material Contract, written or oral, disclosed in this Agreement or the Schedules hereto. Company shall refrain from becoming a party to any contract or commitment other than in the Ordinary Course of Business. Company shall meet all of its contractual obligations in accordance with their respective terms. 6.10 Capital Expenditures. Except for capital expenditures or commitments in the Ordinary Course of Business necessary to maintain its properties and assets in good condition and repair (the amount of which shall not exceed $25,000 in the aggregate), Company shall not purchase or enter into any contract to purchase any capital assets. 6.11 Consents. Company shall use its reasonable efforts to obtain any consent, authorization or approval of, or exemption by, any Governmental Entity or Person required to be obtained or made by any Party hereto in connection with the transactions contemplated hereby or the taking of any action in connection with the consummation thereof. 6.12 Maintenance of Insurance. Company shall maintain its policies of insurance in full force and effect and shall not do, permit or willingly allow to be done any act by which any of said policies of insurance may be suspended, impaired or canceled. 25 26 6.13 Discharge. Company shall not cancel, compromise, release or discharge any Claim of Company upon or against any Person or waive any right of Company of material value, and not discharge any Lien upon any asset of Company or compromise any debt or other obligation of Company to any Person other than Liens, debts or obligations with respect to current Liabilities of Company. 6.14 Actions. Company shall not institute, settle or agree to settle any Action before any Governmental Entity. 6.15 Taxes and Tax Assessments. Company shall pay, when due, and prior to the imposition or assessment of any interest, penalties or Liens by reason of the nonpayment of, all Taxes assessed against Company, its assets, properties or operations, except for Taxes contested by Company in good faith. Company shall furnish promptly to FNFI a copy of all notices of proposed assessment or similar notices or reports that are received from any taxing authority and which relate to Company's operations for periods ending on or prior to the Closing Date. ARTICLE 7 ADDITIONAL COVENANTS 7.1 Covenants of Company and Shareholder. During the period from the date hereof through the Closing Date, Company and Shareholder (which for purposes of this Article 7 shall include Friedman) agree to: (a) Comply promptly with all applicable Legal Requirements imposed upon them with respect to the transactions contemplated by this Agreement, and shall cooperate promptly with, and furnish information to, FNFI in connection with any such requirements imposed upon FNFI or upon any of its Affiliates in connection therewith or herewith; (b) Use their reasonable efforts to obtain (and to cooperate with FNFI in obtaining) any consent, authorization or approval of, or exemption by, any Person required to be obtained or made by Company and/or Shareholder in connection with the transactions contemplated by this Agreement; (c) Use their reasonable efforts to bring about the satisfaction of the conditions precedent to Closing set forth in Section 8.1, below; (d) Immediately advise FNFI orally and, within three (3) business days thereafter, in writing of any change in Company's business or condition that has had or may have a Material Adverse Effect; 26 27 (e) Deliver to FNFI prior to the Closing a written statement disclosing any untrue statement in this Agreement or any Exhibit or Schedule hereto (or supplement thereto) or document furnished pursuant hereto, or any omission to state any material fact required to make the statements herein or therein contained complete and not misleading, immediately upon the discovery of such untrue statement or omission, accompanied by a written supplement to any Exhibit or Schedule to this Agreement that may be affected thereby; provided, however, that the disclosure of such untrue statement or omission shall not prevent FNFI from terminating this Agreement pursuant to Section 9.1(b) hereof at any time at or prior to the Closing in respect of any original untrue or misleading statement; (f) All Company indebtedness owed to Colin H. Friedman, Farid Meshkatai and Anita Meshkatai, or any trust of which any of them serve as trustee, shall be converted to Company Stock on or prior to the Closing Date upon such terms and conditions and in a manner pre-approved by FNFI; and (g) The following Split Dollar Executive Retirement Policies shall be transferred by Company to the insured on or prior to the Closing Date: (i) Policy No. 2221416, issued on June 24, 1993, Julius Segal the insured party, in the face amount of One Million Dollars ($1,000,000); (ii) Policy No. 2222292, issued on July 14, 1993, Colin and Hedy Friedman the insured parties, in the face amount of Two Million Dollars ($2,000,000); and (iii) Policy No. 2222595, issued on July 1, 1993, Norman Ross the insured party, in the face amount of Three Hundred Sixty-One Thousand Six-Hundred Dollars ($361,600). 7.2 Covenants of FNFI. During the period from the date hereof to the Closing Date, FNFI shall: (a) Comply promptly with all applicable Legal Requirements imposed upon it with respect to the transactions contemplated by this Agreement, and shall cooperate promptly with, and furnish information to, Shareholder in connection with any such requirements imposed upon the Shareholder or Company or upon any of Company's Affiliates in connection therewith or herewith; (b) Use its reasonable efforts to obtain any consent, authorization or approval of, or exemption by, any Person required to be obtained or made by FNFI in connection with the transactions contemplated by this Agreement; (c) Use its reasonable efforts to bring about the satisfaction of the conditions precedent to Closing set forth in Section 8.2 of this Agreement; and 27 28 (d) Cause Surviving Corporation to continue at least one (1) significant historical business line of Company, or use at least a significant portion of Company's historical business assets in a business, in each case in accordance with Treasury Regulation Section 1.368-1. 7.3 Responsibility for Certain Potential Liabilities. Company and Shareholder shall assume and be jointly and severally responsible for any and all Liability, including without limitation any and all Tax Liability, caused by, arising from, or related to the failure of the Merger to qualify, in any respects, as a tax-free reorganization pursuant to Code Section 368(a). 7.4 Continuity of Interest. Shareholder shall not dispose of any shares of Fidelity Common Stock in a manner that would cause the Merger to violate the continuity of shareholder interest requirement set forth in Treasury Regulation Section 1.368-1. 7.5 Access and Information. (a) During the period commencing on the date hereof and continuing through the Closing Date, Shareholder shall cause Company to afford to FNFI and to FNFI's accountants, counsel, and other representatives, reasonable access to all of its properties, books, contracts, commitments, records and personnel and, during such period, to cause Company to furnish promptly to FNFI all information concerning its business, properties and personnel as FNFI may reasonably request. (b) Except to the extent permitted by the provisions of Section 7.8, below, FNFI shall hold in confidence, and shall use reasonable efforts to ensure that its employees and representatives hold in confidence, all such information supplied to it by Shareholder or Company concerning Company and shall not disclose such information to any third party except as may be required by any Legal Requirement and except for information that (i) is or becomes generally available to the public other than as result of disclosure by FNFI or its representatives; (ii) becomes available to FNFI or its representatives from a third party other than Shareholder or Company, and FNFI or its representatives have no reason to believe that such third party is not entitled to disclose such information; (iii) is known to FNFI or its representatives on a non-confidential basis prior to its disclosure by Shareholder or Company; or (iv) is made available by Shareholder or Company to any other Person on a non-restricted basis. FNFI's obligations under the foregoing sentence shall expire on the Closing Date or, if the Closing does not occur, one year after the date hereof. If the Merger is not consummated, then all information received by FNFI from CRI and all copies thereof shall be returned or delivered to CRI, all computations or other studies relating to CRI prepared by FNFI, its representatives or Affiliates shall be destroyed, and FNFI shall supply CRI a sworn certificate that such delivery or destruction has taken place and that 28 29 FNFI, its representatives and/or Affiliates no longer have in their possession any such documents, copies, computations or other studies. 7.6 Expenses. All costs and expenses (including, without limitation, all legal fees and expenses and costs) incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the Party incurring the same. 7.7 Certain Notifications. At all times from the date hereof to the Closing Date, each Party shall promptly notify the others in writing of the occurrence of any event that will or may result in the failure to satisfy any of the conditions specified in Article 8, below. 7.8 Publicity. At all times prior to the Closing Date, each Party shall obtain the consent of all other Parties hereto prior to issuing, or permitting any of its directors, officers, employees agents or Affiliates to issue, any press release or other information to the press, employees of Company or any third party with respect to this Agreement or the transactions contemplated hereby; provided, however, that no party shall be prohibited from supplying any information to any of its representatives, agents, attorneys, advisors, and others to the extent necessary to complete the transactions contemplated hereby so long as such representatives, agents, attorneys, advisors, and others are made aware of the terms of this Section 7.8. Nothing contained in this Agreement shall prevent any party to this Agreement at any time from furnishing any required information to any Governmental Entity or authority pursuant to a Legal Requirement or from complying with its legal or contractual obligations. 7.9 Further Assurances. (a) Subject to the terms and conditions of this Agreement, each of the Parties hereto agrees to use all reasonable efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary, proper or advisable under applicable Legal Requirements, to consummate and make effective the transactions contemplated by this Agreement. (b) If at any time after the Closing any further action is necessary or desirable to carry out the purposes of this Agreement, Shareholder and the proper officers or directors of FNFI and Company, as the case may be, shall take or cause to be taken all such necessary or convenient action and execute, and deliver and file, or cause to be executed, delivered and filed, all necessary or convenient documentation, all at FNFI's expense. 7.10 Competing Offers. Shareholder agrees that it will not, and will cause Company not to, directly or indirectly, through an officer, director, agent, or otherwise, solicit, initiate or encourage the submissions of bids, offers or proposals by, 29 30 any Person with respect to an acquisition of Company or its assets or capital stock or a merger or similar transaction, and Shareholder will not, and will not permit Company to, engage any broker, financial adviser or consultant to initiate or encourage proposals or offers from other Persons. Furthermore, Shareholder shall not, and shall not permit Company to, directly or indirectly, through any officer, director, agent or otherwise, engage in negotiations concerning any such transaction with, or provide information to, any Person other than FNFI and its representatives with a view to engaging, or preparing to engage, that Person with respect to any matters in this Section 7.10. Shareholder shall ensure that Company shall not commence any proceeding to merge, consolidate or liquidate or dissolve or obligate itself to do so. 7.11 Post-Closing Employment. Except as provided in the Employment Agreement attached hereto as Exhibit "B," Company and Shareholder acknowledge and agree that after the Effective Time (i) neither FNFI nor Surviving Corporation shall be required to employ or retain any employee of Company or any other Person; and (ii) FNFI, in its sole and absolute discretion, may cause Surviving Corporation to retain all, some, or none or such employees; provided, however, that all such post-closing terminations shall be in accordance with all applicable laws, rules and regulations. 7.12 Employment Agreement. On or before the Closing Date, Friedman and the appropriate officer of Company shall execute the Employment Agreement substantially in the form of Exhibit "B" hereto. 7.13 Registration Rights Agreement. On or before the Closing Date, Shareholder and the appropriate officer of FNFI shall execute the Registration Rights Agreement substantially in the form of Exhibit "C" hereto. 7.14 NYSE Listing. FNFI will make such filings as are necessary with the New York Stock Exchange regarding the transactions contemplated hereby and will cause the shares of Fidelity Common Stock to be issued under this Agreement to be approved for listing on the NYSE, subject only to official notice of issuance, prior to the Effective Time. ARTICLE 8 CONDITIONS PRECEDENT TO CLOSING 8.1. Conditions of FNFI. FNFI's obligations hereunder to consummate the Merger are subject to the satisfaction, at or prior to the Effective Time, of all of the following conditions: 30 31 (a) Representations and Warranties True: Performance of Obligations. The representations and warranties made by Company and Shareholder in this Agreement shall be true, correct and complete on and as of the Closing Date with the same force and effect as if they had been made on and as of said date; and Company and Shareholder shall have performed all of the obligations and complied with each and all of the covenants required to be performed or complied with by them on or prior to the Effective Time. (b) Material Adverse Effect. No act, event or condition shall have occurred after the date hereof which FNFI determines in its reasonable discretion has had or could have a Material Adverse Effect. (c) Authorizations and Approvals. All authorizations, approvals or consents from third parties, including from any Governmental Entity, landlord or other Person, necessary for the consummation of the transactions contemplated hereby shall have been obtained. (d) Investigation of Company. FNFI shall have concluded (through its representatives, accountants, counsel and other experts) a due diligence investigation of the business, condition (financial, legal and other), properties, assets, prospects, operations and affairs of Company and shall be satisfied, in its reasonable discretion, with the results thereof. (e) Deliveries. FNFI shall have received from the appropriate Party or Person, the delivery obligations set forth in Sections 3.2 through 3.4, below. (f) Schedules. Shareholder shall cause Company to deliver all of the Schedules to this Agreement set forth herein, and FNFI shall be reasonably satisfied with such Schedules. (g) No Actions. There shall not be instituted and pending or threatened any Action before any Governmental Entity (i) challenging the Merger or otherwise seeking to restrain or prohibit the consummation of the transactions contemplated hereby, or (ii) seeking to prohibit the direct or indirect ownership or operation by FNFI of all or a material portion of the business or assets of Company, or to compel FNFI or Company to dispose of or hold separate all or a material portion of the business or assets of Company or FNFI. (h) Corporate Action. All corporate and other proceedings and actions taken in connection with the transactions contemplated hereby and all certificates, opinions, agreements, instruments, releases and documents referenced herein or incident to the transactions contemplated hereby shall be in form and substance satisfactory to FNFI and its counsel. Notwithstanding the foregoing, FNFI 31 32 shall advise Company and Shareholder of any perceived deficiencies and provide Company and Shareholders with a reasonable period of time to cure such deficiencies. (i) Requisite Regulatory Approvals. All notices or filings required to be made, all authorizations, permits, certificates, registrations, consents, approvals or orders required to be obtained, and all waiting periods required to expire, prior to the consummation of the transactions contemplated by this Agreement under applicable federal law of the United States or applicable laws of any state having jurisdiction over the transactions contemplated by this Agreement or the businesses conducted by the Parties or any Affiliate or Subsidiary of any Party (collectively, the "Requisite Regulatory Approvals") shall have been obtained or expired, as the case may be, without the imposition of any condition which is materially burdensome upon FNFI or any Party or Person to be affected by such condition. (j) ENI. All of the conditions to close set forth in Article 8.1 of that certain Agreement and Plan of Reorganization of even date herewith, by and among FNFI, Express Network, Inc., a California corporation ("ENI"), the shareholders of ENI, Friedman and ENI Acquisition Corporation shall have been satisfied at or prior to the Effective Time. In addition, the Closing of this Merger is conditioned upon the closing of the ENI merger and vice versa. (k) Classified Credit Data, Inc. Either (i) Friedman shall have sold all of his ownership interest in Classified Credit Data, Inc, a California corporation, to FNFI in accordance with the terms and conditions set forth in that certain letter dated August 18, 1997, a copy of which is attached hereto as Exhibit "G;" or (ii) Candy Marshall shall have exercised her right of first refusal to acquire such ownership interest in accordance with the terms and conditions of that certain Shareholders Agreement, dated May 9, 1988, by and among CCD, Friedman and Ms. Marshall, and Friedman and Ms. Marshall shall have completed such transfer of ownership interest. (m) Board Approval. The Board of Directors of FNFI shall have approved this Agreement and the transactions contemplated thereby. 8.2 Conditions of Company and Shareholder. Company's and Shareholder's obligations hereunder to consummate the Merger are subject to the satisfaction, at or prior to the Effective Time, of the following conditions: (a) Representations and Warranties True; Performance of Obligations. The representations and warranties made by FNFI and Newco in this Agreement shall be true and correct at the Closing Date, with the same force and effect as if they had been made on and as of said date; and FNFI and Newco shall have performed all obligations herein required to be performed by them at or prior to the Closing. 32 33 (b) Authorizations and Approvals. All authorizations, approvals or consents, if any, from third parties, including from any Governmental Entity or other Person, necessary for the consummation of the transactions contemplated hereby shall have been obtained. (c) Tax-Free Reorganization. Shareholder shall be satisfied in its reasonable discretion that the Merger qualifies as a tax-free reorganization under Section 368(a) of the Code. (d) Material Adverse Effect. No act, event or condition shall have occurred after the date hereof which Company and Shareholder determines in their reasonable discretion has had or could have a material adverse effect on FNFI. (e) Deliveries. Shareholders shall have received from the appropriate Party or Person, the delivery obligations set forth in Sections 3.2 and 3.5, above. (f) No Actions. There shall not be instituted and pending or threatened any Action before any Governmental Entity (i) challenging the Merger or otherwise seeking to restrain or prohibit the consummation of the transactions contemplated hereby, or (ii) seeking to prohibit the direct or indirect ownership or operation by FNFI of all or a material portion of the business or assets of Company, or to compel FNFI or Company to dispose of or hold separate all or a material portion of the business or assets of Company or FNFI. (g) Corporate Action. All corporate and other proceedings and actions taken in connection with the transactions contemplated hereby and all certificates, opinions, agreements, instruments, releases and documents referenced herein or incident to the transactions contemplated hereby shall be in form and substance satisfactory to Company and Shareholders and their counsel. Notwithstanding the foregoing, Company and Shareholders shall advise FNFI of any perceived deficiencies and provide FNFI with a reasonable period of time to cure such deficiencies. (h) ENI. All of the conditions to close set forth in Article 8.2 of that certain Agreement and Plan of Reorganization of even date herewith, by and among FNFI, Express Network, Inc., a California corporation ("ENI"), the shareholders of ENI, Friedman and ENI Acquisition Corporation shall have been satisfied at or prior to the Effective Time. In addition, the Closing of this Merger is conditioned upon the closing of the ENI merger and vice versa. 33 34 ARTICLE 9 TERMINATION, AMENDMENT AND WAIVER 9.1 Termination. This Agreement may be terminated at any time prior to the Effective Time: (a) By mutual consent of the FNFI and Shareholder; (b) By Shareholder and Company as a group, on the one hand, or by FNFI, on the other hand, if there has been a material breach, failure to fulfill or default on the part of the other Party of any of the representations and warranties contained herein or in the due and timely performance and satisfaction of any of the covenants, agreements or conditions contained herein; or (c) By Shareholder and Company as a group, on the one hand, or by FNFI, on the other hand, if there shall be a final non-appealable order of a federal or state court in effect preventing consummation of the Merger; or there shall be any action taken, or any statute, rule, regulation or order enacted, promulgated or issued or deemed applicable to the Merger by any Governmental Entity which would make the consummation of the Merger illegal. 9.2 Effect of Termination. In the case of any termination of this Agreement pursuant to Section 9.1, above, this Agreement shall forthwith become void, and there shall be no Liability or obligation on the part of any Party or its officers, directors or shareholders. Notwithstanding the foregoing sentence, (i) the provisions of Section 7.5(b) and 7.6 shall remain in full force and effect and survive any termination of this Agreement; (ii) each Party shall remain liable for any breach of this Agreement prior to its termination; and (iii) in the event of termination pursuant to section 9.1(b), above, then notwithstanding the provisions of Section 7.6, above, the breaching Party shall be liable to the non-breaching Party to the extent of the expenses incurred by such other party in connection with this Agreement and the transactions contemplated thereby. 9.3 Amendment. This Agreement may be amended at any time by a written instrument executed by the Parties. Any amendment effected pursuant to this Section 9.3 shall be binding upon all Parties. 9.4 Waiver. Any term or provision of this Agreement may be waived in writing at any time by the Party or Parties entitled to the benefits thereof. Any waiver effected pursuant to this Section 9.4 shall be binding upon all Parties hereto. No failure to exercise and no delay in exercising any right, power or privilege shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege preclude the exercise of any other right, power or privilege. No waiver of 34 35 any breach of any covenant or agreement hereunder shall be deemed a waiver of a preceding or subsequent breach of the same or any other covenant or agreement. The rights and remedies of each Party under this Agreement are in addition to all other rights and remedies, whether at law, in equity or otherwise, that such Party may have against the other Parties. ARTICLE 10 INDEMNIFICATION 10.1 Survival of Representations and Warranties. The representations and warranties of Company and Shareholder (which for purposes of this Article 10 shall include Friedman) contained in this Agreement or in any writing delivered pursuant hereto or at the Closing and the indemnification obligations set forth in Section 10.2, below, shall survive the Closing and the consummation of the transactions contemplated hereby until the second (2nd) anniversary of the Closing Date; provided that the representations and warranties contained in Sections 4.2, 4.4, 4.11 and 4.20 and the indemnification obligations related thereto shall not terminate but shall until the expiration of the applicable statutes of limitations; and provided further that Company's indemnification obligations under Section 10.2, below, shall terminate immediately subsequent to the Effective Time. 10.2 Indemnification by Company and Shareholder. Company and Shareholder, jointly and severally, covenant and agree to indemnify, defend, protect and hold harmless FNFI, Newco and Surviving Corporation and their respective officers, directors, employees, shareholders, assigns, successors and affiliates (a "FNFI Indemnified Party") from, against and in respect of all Claims suffered, sustained, incurred or paid by any FNFI Indemnified Party in connection with resulting from or arising out of, directly or indirectly: (a) any breach of any representation or warranty of any Shareholder or Company set forth in this Agreement or any certificate, document or instrument delivered by or on behalf of Shareholder or Company in connection herewith; or (b) any non-fulfillment of any covenant or agreement on the part of Shareholder or Company in this Agreement. 10.3 Indemnification by FNFI. FNFI covenants and agrees to indemnify, defend, protect and hold harmless Shareholder and its respective heirs, successors and assigns (a "Shareholder Indemnified Party") from, against and in respect of all Claims suffered, sustained, incurred or paid by any Shareholder Indemnified Party in connection with resulting from or arising out of, directly or indirectly: 35 36 (a) any breach of any representation or warranty of FNFI or Newco set forth in this Agreement or any certificate, document or instrument delivered by or on behalf of FNFI or Newco in connection herewith; or (b) any non-fulfillment of any covenant or agreement on the part of FNFI or Newco in this Agreement. 10.4 Third Party Claims. In the event any third party asserts any Claim with respect to any matter as to which the indemnities in this Agreement relate, the Party or Person against whom the Claim is asserted (the "Indemnified Party") shall give prompt notice to the other Party or Person (the "Indemnifying Party"), and the Indemnifying Party shall have the right at its election to take over the defense or settlement of the third party Claim at its own expense by giving prompt notice to the Indemnified Party. If the Indemnifying Party does not give such notice and does not proceed diligently so to defend the third party Claim within thirty (30) days after receipt of the notice of the third party Claim, the Indemnifying Party shall be bound by any defense or settlement that the Indemnified Party may make as to those claims and shall reimburse the Indemnified Party for its losses 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 Article 10, the reference to this Agreement includes any certificate, Schedule or Exhibit delivered to a Party by the Indemnifying Party or its agents and affiliates in connection with this Agreement. The election by the Indemnifying Party to take over a defense or settlement of the third party Claim shall not constitute an admission that the Claim is indemnified against under this Agreement; the question of whether the Claim is one which is subject to indemnity under this Article 10 shall be determined separately from the assumption of the defense. If the Indemnifying Party asserts in a notice to the Indemnified Party that it does not believe that the Claim is one which it has agreed to indemnify the Indemnified Party under this Agreement and it is later determined that the Claim was in fact not subject to the indemnities provided for in this Article 10, then the Indemnified Party will indemnify, reimburse and hold harmless the Indemnifying Party against all Liability under the third party Claim and the costs and expenses (including reasonable attorneys' fees) which the Indemnifying Party incurs by reason of defense of the third party Claim. 10.5 Indemnification Non-Exclusive. The foregoing indemnification provisions are in addition to, and not in derogation of, any statutory, equitable or common-law remedy any Party may have for breach of representation, warranty, covenant or agreement. 10.6 Additional Indemnification Provisions. Notwithstanding anything to the contrary in this Article 10, (i) Shareholder's aggregate Liability under Section 10.2, above, shall not exceed Two Million Five Hundred Thousand Dollars ($2,500,000); (ii) Shareholder shall not incur any Liability under section 10.2, above, until the aggregate amount of indemnification obligations exceed Ten Thousand Dollars ($10,000); and (iii) subject to clause 36 37 (ii) above, Shareholder shall not incur any Liability under Section 10.2, above, for indemnification obligations that individually do not exceed One Thousand Dollars ($1,000). ARTICLE 11 GENERAL PROVISIONS 11.1 Governing Law. This Agreement shall be governed by and construed under the laws of the State of California as applied to agreements among California residents, made and to be performed entirely within the State of California. 11.2 Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors, and administrators of the Parties hereto. 11.3 Entire Agreement. This Agreement, the Exhibits and Schedules hereto, and the other documents delivered at the Closing pursuant hereto constitute the full and entire understanding and agreement among the Parties with regard to the subject matter hereof and no Party shall be liable or bound to any other Party in any manner by any representations, warranties, covenants, or agreements except as specifically set forth herein or therein. Nothing in this Agreement, express or implied, is intended to confer upon any party, other than the Parties hereto and their respective successors and assigns, any rights, remedies, obligations, or Liabilities under or by reason of this Agreement, except as expressly provided herein. 11.4 Severability. In the event any provision of this Agreement shall be invalid, illegal, or unenforceable, it shall, to the extent practicable, be modified so as to make it valid, legal and enforceable and to retain as nearly as practicable the intent of the Parties, and the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 11.5 Notice. All notices and other communications required or permitted hereunder shall be in writing and shall be deemed effectively given (i) if delivered personally (including by overnight express or messenger), upon delivery; (ii) if delivered by registered or certified mail, return receipt requested, upon the earlier of actual delivery or three (3) days after being mailed; or (iii) if given by facsimile, upon confirmation of transmission by facsimile, in each case to the Parties at the following addresses: 37 38 (a) If to FNFI, addressed to: Fidelity National Financial, Inc. 3916 State Street, Suite 300 Santa Barbara, California 93105 Attn: Andrew F. Puzder Facsimile: (805) 898-7149 With a copy to: C. Craig Carlson, Esq. Stradling, Yocca, Carlson & Rauth 660 Newport Center Drive, Suite 1600 Newport Beach, California 92660-6441 Facsimile: (714) 725-4100 (b) If to Shareholders, addressed to: Colin H. Friedman Farid Meshkatai 12428 N. 136th Place 9332 N. 71st Street Scottsdale, Arizona 85253 Paradise Valley, Arizona 85253 Facsimile: (602) 905-7337 Facsimile (602) 905-7337 With a copy to: David D. Wexler, Esq. Rosenfeld, Meyer & Susman 9601 Wilshire Boulevard, Fourth Floor Beverly Hills, California 90210-5288 Facsimile: (310) 271-6430 11.6 Tax Advice. Company, Shareholder and Friedman acknowledge that they have received their own independent tax advice with respect to the Merger, this Agreement and the transactions contemplated thereby, including whether the Merger qualifies as a tax free reorganization in accordance with Section 368(a) of the Code, and are not in any way relying on any statements or advice of FNFI, Newco or any of their officers, directors, employees, agents or representatives. 11.7 Construction. The Parties to this Agreement have participated jointly in the negotiation and drafting of this Agreement and have had competent counsel of their own choosing. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden 38 39 of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. 11.8 Headings. The headings of the Articles and Sections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 11.9 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument. 11.10 Recitals, Schedules, and Exhibits. The Recitals, Schedules and Exhibits to this Agreement are incorporated herein and, by this reference, made a part hereof as if fully set forth at length herein. Anything referenced on any Schedule hereto shall be deemed incorporated into any other Schedule requesting the same or similar information. 11.11 Non-Competition. For a period of five (5) years from and after the Closing Date, Meshkatai will not, for any reason whatsoever, directly or indirectly, for the himself or on behalf of or in conjunction with any other person, persons, company, partnership, corporation or business of whatever nature: (a) engage as an officer, director, stockholder, owner, partner, joint venturer, or in a managerial capacity, whether as an employee, independent contractor, consultant or advisor, or as a sales representative, in any business selling any products or services in direct competition with the current business or any related business of Surviving Corporation, or any business to which it is reasonably foreseeable that Surviving Corporation will enter, within 100 miles of where the Company anywhere conducts such business (the "Territory"); (b) call upon any person who is, at that time, within the Territory, an employee of Surviving Corporation in a managerial capacity for the purpose or with the intent of enticing such employee away from or out of the employ of Surviving Corporation; (c) call upon any person or entity which is, at that time, or which has been within one (1) year prior to that time, a customer of Surviving Corporation within the Territory for the purpose of soliciting or selling products or services in competition with Surviving Corporation within the Territory; or (d) call upon any prospective acquisition candidate, on Meshkatai's own behalf or on behalf of any competitor, which candidate was either called upon by Surviving Corporation or for which Surviving Corporation made an acquisition analysis, for any purpose other than providing products or services of Surviving Corporation. 39 40 Notwithstanding the above, the foregoing covenant shall not be deemed to prohibit Meshkatai from acquiring as an investment not more than one percent (1%) of the capital stock of a competing business whose stock is traded on a national securities exchange or over-the-counter. Meshkatai expressly agrees that the foregoing covenants impose a reasonable restraint on Meshkatai in light of the activities and business of Company on the date of the execution of this Agreement and the current plans of Company and/or Surviving Corporation; but it is also the intent of Surviving Corporation and Meshkatai that such covenants be construed and enforced in accordance with the changing activities and business of Surviving Corporation throughout the term of the covenants. The covenants in this Section 11.11 are severable and separate, and the unenforceability of any specific covenant shall not affect the provisions of any other covenant. Moreover, in the event any court of competent jurisdiction shall determine that the scope, time or territorial restrictions set forth are unreasonable, then it is the intention of the Parties that such restrictions be enforced to the fullest extent which the court deems reasonable, and this Section 11.11 shall thereby be reformed. All of the covenants in this Section 11.11 shall be construed as an agreement independent of any other provision of this Agreement, and the existence of any Claim by Meshkatai against FNFI or Surviving Corporation, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by FNFI or Surviving Corporation of such covenants. Meshkatai specifically agrees that the period of five (5) years stated at the beginning of this Section 11.11 shall be computed by adding to such five (5) year period any time during which Meshkatai is found by a court of competent jurisdiction to have been in violation of any provision of this Section 11.11. Meshkatai expressly agrees that the covenants set forth in this Section 11.11 are a material and substantial part of this Agreement. 40 41 IN WITNESS WHEREOF, the foregoing Agreement is hereby executed as of the date first above written. FNFI: FIDELITY NATIONAL FINANCIAL, INC., a Delaware Corporation By: /s/ ANDREW F. PUZDER ---------------------------------- Its: EXECUTIVE VICE PRESIDENT COMPANY: CREDIT REPORTS, INC., a California Corporation By: /s/ COLIN H. FRIEDMAN ---------------------------------- Its: PRESIDENT SHAREHOLDER: COLIN HOWARD FRIEDMAN AND HEDY KRAMER FRIEDMAN, AS TRUSTEES OF THE FRIEDMAN FAMILY TRUST UDT, DATED JULY 23, 1987 /s/ COLIN H. FRIEDMAN ---------------------------------- Colin H. Friedman, Trustee /s/ HEDY KRAMER FRIEDMAN ---------------------------------- Hedy Kramer Friedman, Trustee FRIEDMAN: /s/ COLIN H. FRIEDMAN ---------------------------------- Colin H. Friedman, Individually 41 EX-10.51 17 AGREEMENT AND PLAN OF REORGANIZATION 1 EXHIBIT 10.51 AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and entered into as of this 12th day of September, 1997, by and among FIDELITY NATIONAL FINANCIAL, INC., a Delaware corporation ("FNFI"); EXPRESS NETWORK, INC., a California corporation ("Company"); COLIN HOWARD FRIEDMAN AND HEDY KRAMER FRIEDMAN, AS TRUSTEES OF THE FRIEDMAN FAMILY TRUST UDT, DATED JULY 23, 1987, FARID MESHKATAI, and ANITA KRAMER MESHKATAI, AS TRUSTEE OF THE ANITA KRAMER LIVING TRUST, DATED JULY 23, 1987 (collectively, "Shareholders"); COLIN H. FRIEDMAN ("Friedman"); and ENI ACQUISITION CORPORATION, a California corporation that is a newly-formed, wholly-owned subsidiary of FNFI ("Newco"). FNFI, Company, Shareholders, Friedman and Newco are referred to collectively herein as the "Parties" or singularly as a"Party." RECITALS A. Shareholders are the record and beneficial owners of 2,000 shares of Company Common Stock (the "Company Shares"), which represents all the issued and outstanding shares of capital stock of Company. B. The respective Boards of Directors of FNFI, Company and Newco deem it advisable and in the best interests of their respective shareholders that Company merge with and into Newco (the "Merger") pursuant to this Agreement, the Articles of Merger substantially in the form attached hereto as Exhibit "A" (the "Articles of Merger") and the applicable provisions of the laws of the State of California. C. The Parties hereto expect that the Merger will further certain of their business objectives, including, without limitation, increased market share, reduced administrative costs and volume efficiencies. D. The Boards of Directors of FNFI, Company and Newco have approved and adopted this Agreement as a plan of reorganization within the provisions of Section 368(a)(2)(D) of the Internal Revenue Code of 1986, as amended (the "Code"). NOW, THEREFORE, in consideration of the premises and the respective representations, warranties, covenants, agreements and conditions hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows: 2 ARTICLE I CERTAIN DEFINITIONS Unless the context otherwise requires, the terms defined in this Article 1 shall have the meanings herein specified for all purposes of this Agreement, applicable to both the singular and the plural forms of any of the terms herein defined. Any capitalized term used in this Agreement and not ascribed a meaning in this Article 1 shall have the meaning ascribed to such term elsewhere in this Agreement. "Action" shall mean any actual or threatened Claim, action, suit, arbitration, hearing, inquiry, proceeding, complaint, charge or investigation by or before any Governmental Entity or arbitrator and any appeal from any of the foregoing. "Affiliate" shall mean, with respect to a Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such Person. "Articles of Merger" has the meaning set forth in Recital B, above. "Basis" means any past or present fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction that forms or would reasonably form the basis for any specified consequence. "Benefit Arrangement" shall mean any form of current or deferred compensation, bonus, stock option, stock appreciation right, severance pay, salary continuation, pension, profit-sharing, retirement or incentive plan, practice or arrangement, any group or individual disability, medical, dental, health, hospitalization, life insurance or other insurance plans or related benefits, or any other welfare or similar plan or arrangement for the benefit of any director, officer or employee, whether active or retired, or for any class or classes of such directors, officers or employees. "California Statute" means the general corporation laws set forth in the California Corporations Code. "Claims" shall mean any and all liabilities, losses, claims, damages, causes of action, lawsuits, administrative proceedings (including informal proceedings), investigations, audits, demands, assessments, adjustments, judgments, settlement payments, deficiencies, penalties, fines, interest (including interests from the date of such damages), and costs and expenses (including without limitation reasonable attorneys' fees and disbursements of every kind, nature and description). "Closing" has the meaning set forth in Section 3.1, below. 2 3 "Closing Balance Sheet" has the meaning set forth in Section 2.2(e), below. "Closing Date" has the meaning set forth in Section 3.1, below. "Closing Fidelity Price" means the average of the per share closing sales price of FNFI's Common Stock publicly traded on the New York Stock Exchange for the eight (8) consecutive trading days ending on the date of this Agreement. "Code" has the meaning set forth in Recital D, above. "Company Shares" has the meaning set forth in Recital A. "Company Stock" means shares of Common Stock, no par value, of Company. "Confidential Information" means any information concerning the businesses and affairs of any of the Parties that is not already generally available to the public. "CRI Net Worth Deficiency" has the meaning set forth in Section 2.2(e) of that certain Agreement and Plan of Reorganization of even date herewith by and among FNFI, Credit Reports, Inc., the shareholder of Credit Reports, Inc., Friedman and CRI Acquisition corporation (the "CRI Merger Agreement"). "Effective Time" has the meaning set forth in Section 3.1, below. "Employee Plan" shall mean any "employee benefit plan," as defined in Section 3(3) of ERISA, which is subject to any provisions of ERISA and covers any employee, whether active or retired, of the Company. "Environmental, Health, and Safety Laws" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Resource Conservation and Recovery Act of 1976, and the Occupational Safety and Health Act of 1970, each as amended, together with all other laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder) of federal, state, local, and foreign governments (and all agencies thereof) concerning pollution or protection of the environment, public health and safety, or employee health and safety, including laws relating to emissions, discharges, releases, or threatened releases of pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials or wastes into ambient air, surface water, ground water, or lands or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials or wastes. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. 3 4 "Fidelity Common Stock" means the shares of non-registered, restricted Common Stock, par value of $0.0001 per share, of FNFI. "GAAP" means United States generally accepted accounting principles, as the same may change from time to time. "Governmental Entity" shall mean any court, federal, state, local or foreign government or any administrative agency or commission or any other governmental authority or instrumentality whatsoever. "Hazardous Substances" shall mean any hazardous, toxic or infectious substance, material, gas or waste which is regulated by any Governmental Entity. "Indebtedness" shall mean, when used with reference to any Person, without duplication, (i) any liability of such Person created or assumed by such Person, or any Subsidiary thereof, (a) for borrowed money, (b) evidenced by a bond, note, debenture, or similar instrument (including a purchase money obligation, deed of trust or mortgage) given in connection with the acquisition of, or exchange for, any property or assets (other than inventory or similar property acquired and consumed in the Ordinary Course of Business), including securities and other indebtedness, (c) in respect of letters of credit issued for such Person's account and "swaps" of interest and currency exchange rates (and other interest and currency exchange rate hedging agreements) to which such Person is a party or (d) for the payment of money as lessee under leases that should be, in accordance with GAAP, recorded as capital leases for financial reporting purposes; (ii) any liability of others described in the preceding clause (i) guaranteed as to payment of principal or interest by such Person or in effect guaranteed by such Person through an agreement, contingent or otherwise, to purchase, repurchase, or pay the related Indebtedness or to acquire the security therefor; (iii) all Liabilities or obligations secured by a Lien upon property owned by such Person and upon which Liabilities or obligations such Person customarily pays interest or principal, whether or not such Person has assumed or become liable for the payment of such liabilities or obligations; and (iv) any amendment, renewal, extension, revision or refunding of any such liability or obligation. "Intellectual Property" means (i) all inventions (whether patentable or unpatentable and whether or not reduced to practice), all improvements thereto, and all patents, patent applications, and patent disclosures, together with all reissuances, continuations, continuations-in-part, revisions, extensions, and reexaminations thereof; (ii) all trademarks, service marks, trade dress, logos, trade names, and corporate names, together with all translations, adaptations, derivations, and combinations thereof and including all goodwill associated therewith, and all applications, registrations, and renewals in connection therewith; (iii) all copyrightable works, all copyrights, and all applications, registrations, and renewals in connection therewith; (iv) all trade secrets and confidential business information (including ideas, research and development, know-how, formulas, compositions, manufacturing and 4 5 production processes and techniques, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information, and business and marketing plans and proposals); (v) all computer software (including data and related documentation); (vi) all other proprietary rights; and (vii) all copies and tangible embodiments thereof (in whatever form or medium). "knowledge" means, for purposes of Article 4, below, actual knowledge of any officer of Company or Shareholders to the fact or matter in question, without making any investigation. "Legal Requirement" shall mean any statute, law, ordinance, rule, regulation, permit, order, writ, judgment, injunction, decree or award issued, enacted or promulgated by any Governmental Entity or any arbitrator. "Liability" means any liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due), including any liability for Taxes. "Licenses" has the meaning set forth in Section 4.14, below. "Lien" shall mean all liens (including judgment and mechanics' liens, regardless of whether liquidated), mortgages, assessments, security interests, easements, claims, pledges, trusts (constructive or otherwise), deeds of trust, options or other charges, encumbrances or restrictions. "Material Adverse Effect" means any event, effect, development, occurrence or circumstance, individually or when taken together with all other such events, effects, developments, occurrences or circumstances, causing, resulting in or having a material adverse effect on (i) the business, assets, results of operations, business relationships, properties, condition (financial or otherwise), insurability or prospects of Company; (ii) the ability of the Parties to consummate the transactions contemplated by this Agreement; or (iii) the legal right or authorization of Company to continue to operate its business. "Material Contracts" has the meaning set forth in Section 4.9, below. "Merger" has the meaning set forth in Recital B, above. "Net Worth" means the difference between (i) the reviewed aggregate book value of the assets of Company; and (ii) the reviewed aggregate book value of the liabilities of Company as reflected on the Reviewed Closing Balance Sheet, provided that the Parties and/or a national accounting firm (as more fully explained in Section 2.2(e), below) may (i) make reasonable adjustment to or establish reasonable reserves for uncollectible accounts receivable; (ii) adjust the book value of Company's assets or liabilities to account for under- or over-valued assets or 5 6 liabilities; and/or (iii) make any other adjustments necessary or appropriate in order to state the Reviewed Closing Balance Sheet in accordance with GAAP. "Ordinary Course of Business" means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency and, where appropriate, in accordance with formula). "Party" has the meaning set forth in the preamble to this Agreement. "Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, or a governmental entity (or any department, agency, or political subdivision thereof), or any other legal entity. "Reviewed Closing Balance Sheet" has the meaning set forth in Section 2.2(e), below. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Securities Exchange Act" means the Securities Exchange Act of 1934, as amended. "Security Interest" means any mortgage, pledge, Lien, other than (i) mechanic's, materialmen's, and similar liens; (ii) liens for Taxes not yet due and payable or for Taxes that the taxpayer is contesting in good faith through appropriate proceedings; (iii) purchase money liens and liens securing rental payments under capital lease arrangements; and (iv) other liens arising in the Ordinary Course of Business and not incurred in connection with the borrowing of money. "Subsidiary" means any corporation with respect to which a specified Person (or a Subsidiary thereof) owns a majority of the common stock or has the power to vote or direct the voting of sufficient securities to elect a majority of the directors. "Surviving Corporation" has the meaning set forth in Section 2.1(a), below. "Tax" means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs, duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax or contribution of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not. 6 7 "Tax Return" means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. ARTICLE 2 PLAN OF REORGANIZATION 2.1 The Merger. (a) The Merger. At the Effective Time (as defined in Section 3.1, below), Company shall be merged with and into Newco pursuant to this Agreement and the Articles of Merger, and the separate existence of Company shall cease, all in accordance with the California Statute. Newco, as it exists from and after the Effective Time, is sometimes referred to herein as the "Surviving Corporation." Promptly after the Effective Time, Surviving Corporation shall change its name to Fidelity National Express Network, Inc. (b) Effect or of the Merger. Subject to the terms and conditions of this Agreement and the Articles of Merger, at the Effective Time (i) the separate existence of Company shall cease and Company shall be merged with and into Newco; and (ii) the Merger shall have all the effects provided by the California Statute, this Agreement and the Articles of Merger. (c) Articles of Incorporation; Bylaws; Directors and Officers. The Articles of Incorporation of Surviving Corporation from and after the Effective Time shall be the Articles of Incorporation of Newco until thereafter amended in accordance with the provisions therein and as provided by the California Statute. The Bylaws of Surviving Corporation from and after the Effective Time shall be the Bylaws of Newco as in effect immediately prior to the Effective Time, continuing until thereafter amended in accordance with their terms and the Articles of Incorporation of Surviving Corporation and as provided by the California Statute. The initial directors of Surviving Corporation shall be the individuals set forth on Schedule 2.1(c)(1), in each case until their successors are elected and qualified. The initial officers of Surviving Corporation shall be those individuals holding such titles set forth on Schedule 2.1(c)(2), in each case until their successors are duly elected and qualified. 2.2 Conversion of Securities. At the Effective Time, by virtue of the Merger and without any action on the part of FNFI, Newco, Company or Shareholders, the shares of capital stock of Newco and Company shall be converted as follows: (a) Capital Stock of Newco. Each issued and outstanding share of capital stock of Newco shall continue to be issued and outstanding. 7 8 (b) Cancellation of Certain Shares of Capital Stock of Company. All shares of capital stock of Company that are owned directly or indirectly by Company, including all capital stock which has been authorized but not issued, shall be canceled and no consideration shall be delivered in exchange therefore. (c) Conversion of Company Shares. The Company Shares shall automatically be canceled, extinguished and converted, without any action on the part of the holder thereof, into the right to receive the cash and the shares of Fidelity Common Stock, as more fully described in subsections (d), (e) and (f), below. All Company Shares, when so converted, shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and Shareholders shall cease to have any rights with respect thereto, except the right to receive the cash and the shares of Fidelity Common Stock to be paid or issued in consideration therefor upon the surrender of the Certificates in accordance with subsection (h), below. (d) Consideration at Closing. In consideration for the cancellation and exchange by Shareholders of the Company Shares (i) Newco shall, immediately after the Effective Time and on the Closing Date, pay to Shareholders the cash sum of Two Million Five Hundred Thousand Dollars ($2,500,000) by delivery, at Newco's option, of a cashier's or certified bank check, or by wire transfer to an account or accounts designated by Shareholders; and (ii) FNFI shall, immediately after the Effective Time and on the Closing Date, issue and deliver to Shareholders Five Million Two Hundred Seventy-Five Thousand Dollars ($5,275,000) of Fidelity Common Stock, either held in treasury and transferred to Shareholders or newly issued by FNFI to Shareholders. The consideration set forth in this subsection (d) is subject to adjustment pursuant to subsection (e), below. The exact number of shares of Fidelity Common Stock to be issued pursuant to this subsection (d) shall be based upon the Closing Fidelity Price. The cash and Fidelity Common Stock due Shareholders under this subsection (d) and subsections (e) and (f), below, shall be allocated among the Shareholders in accordance with Schedule 2.2(d) hereto. (e) Purchase Price Adjustments. Commencing immediately after the Closing Date, (i) Shareholders shall cause Company to prepare a balance sheet for Company as of the Closing Date (the "Closing Balance Sheet"); and (ii) within thirty (30) days following the completion of the Closing Balance Sheet, the Chief Financial Officer of Company and representatives of FNFI shall jointly and in good faith review the Closing Balance Sheet and make any adjustments necessary to state the Closing Balance Sheet in accordance with GAAP (the "Reviewed Closing Balance Sheet"). If there is a dispute between the Parties with respect to any particular adjustment, then the disputed adjustment shall be submitted to a national accounting firm mutually agreed upon by the Parties, whose determination of the appropriateness and the amount of the adjustment shall be binding on the Parties. The cost of such accounting firm's services shall be divided equally between FNFI, on the one hand, and the Shareholders, on the other hand. If the Net Worth of Company as stated on the Reviewed Closing Balance Sheet is less than One Million Two Hundred Forty-Five Thousand 8 9 ($1,245,000) (the "ENI Net Worth Deficiency"), then the post-closing payments described in subsection (f), below (the "Post-Closing Payments"), that are due on each of the first two (2) anniversaries of the Closing Date, shall each be reduced by one-half (1/2) of the amount of the ENI Net Worth Deficiency; provided, however, that if the ENI Net Worth Deficiency plus the CRI Net Worth Deficiency exceeds One Million Three Hundred Eighty-Seven Thousand Five Hundred Dollars ($1,387,500) (such excess is hereinafter referred to as the "Combined Excess Deficiency"), then their shall be no obligation to make the Post-Closing Payments on the first two (2) anniversaries of the Closing Date and the Combined Excess Deficiency shall first be deducted from the Post-Closing Payments due on the third anniversary of the Closing Date and then, if necessary, from the Post-Closing Payments due on the fourth anniversary of the Closing Date. If the Net Worth of Company as stated on the Reviewed Closing Balance Sheet is greater than One Million Two Hundred Forty-Five Thousand Dollars ($1,245,000) (the "Net Worth Surplus"), then the Post-Closing Payments due on each of the first two (2) anniversaries of the Closing Date, shall each be increased by the amount of one-half (1/2) of the Net Worth Surplus. Notwithstanding anything to the contrary above, the Parties hereto expressly agree that any downward adjustments for those items set forth on Schedule 2.2(e) hereto shall only reduce Net Worth on the Reviewed Closing Balance Sheet by one-half (1/2) of the amount of such adjustment. (f) Post-Closing Consideration. Subject to Section 2.2(d), above, and Section 2.2(d) of the CRI Merger Agreement, in the event the Merger is consummated, on each of the first four (4) anniversaries of the Closing Date, Surviving Corporation shall pay to Shareholders in cash and without interest the sum of Six Hundred Ninety-Three Thousand Seven Hundred Fifty Dollars ($693,750). (g) Payment of Certain Company Obligations. Immediately after the Effective Time and on the Closing Date FNFI shall pay the principal balance of the following Company obligations: (i) that certain Loan Agreement, dated November 3, 1995, by and between Company and the FKN Organization Ltd. in the principal amount of $500,000, a copy of which is attached hereto on Schedule 2.2(g)(1); and (ii) a series of loans made by Noah Kramer to Company in the aggregate outstanding principal amount of $415,000, evidence for which are attached hereto on Schedule 2.2(g)(2). (h) Certificate Delivery Requirement. At the Effective Time, Shareholders shall deliver to FNFI the certificates (the "Certificates") representing the Company Shares, duly endorsed in blank by Shareholders, or accompanied by blank stock powers, and with all necessary transfer tax and other revenue stamps affixed and canceled. The Certificates so delivered shall be promptly canceled. Until delivered as contemplated by this subsection (h), each Certificate shall be deemed at any time after the Effective Time to represent the right to receive upon such surrender a pro rata portion of the consideration set forth in subsections (d), (e) and (f), above. 9 10 ARTICLE 3 CLOSING 3.1. Closing. The consummation of the Merger and the other transactions contemplated by this Agreement (the "Closing") shall take place at the offices of FNFI, located at 3916 State Street, Suite 300, Santa Barbara, California 93105, on such date (the "Closing Date") and at such time as may be mutually designated by the Parties within five (5) business days following the satisfaction or waiver of the conditions set forth in Article 8, below (including, without limitation, the Requisite Regulatory Approvals), or such other date, time, place and manner as the Parties may mutually agree. On the Closing Date, the Articles of Merger and any required officers' certificates, shall be filed with the Secretary of State of the State of California in accordance with the provisions of the California Statute. The Merger shall become effective upon such filing or such later time on the Closing Date as may be specified in the filing with the Secretary of State of the State of California (the "Effective Time"). Either FNFI or Shareholders may terminate this Agreement without Liability to the other if the Closing does not occur on or before October 31, 1997. 3.2 Mutual Deliveries at Closing. Provided that all of the conditions to the Closing set forth in Article 8, below, have been satisfied or waived by the Party benefitting therefrom, the appropriate Parties or Persons shall execute and deliver or cause to be delivered to the appropriate Parties at Closing the following: (a) The Employment Agreement in substantially the form of Exhibit "B" hereto; and (b) The Registration Rights Agreement substantially in the form of Exhibit "C" hereto. 3.3 Shareholders' Deliveries at Closing. Provided that all of the conditions to the Closing set forth in Article 8, below, have been satisfied or waived by the Party benefiting therefrom, Shareholders shall execute and deliver or cause to be delivered to FNFI at the Closing the following documents: (a) The Certificates, in accordance with Section 2.2(h), above; (b) Company's original minute book, such minute book to contain (i) original Articles of Incorporation and all amendments thereto, or copies thereof if the originals are unavailable; (ii) Company's Bylaws presently in effect; (iii) Company's stock transfer records together with all available canceled stock certificates; and (iv) all minutes of meetings or consents in lieu of such meetings of Company's Board of Directors and shareholders; and 10 11 (c) Such other documents and instruments as may be specified in this Agreement or otherwise reasonably requested by FNFI in order to consummate the transactions contemplated hereby. 3.4 Company's Deliveries at Closing. Provided that all of the conditions to the closing set forth in Article 8, below, have been satisfied or waived from the Party benefitting therefrom, Company shall execute and deliver or cause to be delivered to FNFI at the Closing the following: (a) An Officer's Certificate dated the Closing Date substantially in the form of Exhibit "D" hereto; (b) A Secretary's Certificate dated the Closing Date substantially in the form of Exhibit "E" hereto; (c) An opinion of counsel substantially in the form of Exhibit "F" hereto; (d) A good standing certificate of Company, dated within fifteen (15) business days of the Closing Date, for each jurisdiction in which Company is required to be qualified and authorized to do business; (e) Minutes of the Board of Directors and shareholders of Company authorizing and approving this agreement and the transactions contemplated herein; (f) Resignations of all of the officers and directors of Company effective as of the Closing Date; and (g) Such other documents and instruments as may be specified in this Agreement or otherwise reasonably requested by FNFI in order to consummate the transactions contemplated hereby. 3.5 FNFI's Deliveries. Provided that all of the conditions to the Closing set forth in Article 8, below, have been satisfied or waived by the Party benefiting therefrom, FNFI shall execute and deliver or cause to be delivered to the Shareholders at the Closing: (a) The Fidelity Common Stock in accordance with Section 2.2(d), above; and (b) Such other documents and instruments as may be specified in this Agreement or otherwise reasonably requested by Shareholders in order to consummate the transactions contemplated hereby. 11 12 3.6 Newco's Deliveries at Closing. Provided that all of the conditions to the Closing set forth in Article 8, below, have been satisfied or waived by the Party benefitting therefrom, Newco shall deliver to the appropriate Party or Person at the Closing: (a) The cash consideration in accordance with Section 2.2(d), above; and (b) The cash for the loan payments in accordance with Section 2.2(g), above. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF COMPANY AND SHAREHOLDERS Company and Shareholders (which for purposes of this Article 4 shall include Friedman), jointly and severally, represent and warrant to FNFI, Newco and Surviving Corporation that (except for changes contemplated by this Agreement), each of the following statements is true, correct and complete as of the date of this Agreement and will be true, correct and complete as of the Closing Date (each such statement to be made again by Company and Shareholders on that date with the Closing Date being substituted for the date of this Agreement throughout this Article 4): 4.1 Organization and Standing; Articles and Bylaws. Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California, has full power and authority to own its assets and properties and to carry on its business as presently conducted. Company is duly qualified and authorized to do business, and is in good standing as a foreign corporation, in each jurisdiction where the nature of its activities and of its properties (both owned and leased) make such qualification necessary, except where the failure to so qualify would not have a Material Adverse Effect. Company has furnished FNFI with copies of its Articles of Incorporation and Bylaws, as amended to the date hereof. Said copies are true, correct and complete and contain all amendments through the Closing Date. 4.2 Authorization. All corporate action on the part of Company, its officers, directors and shareholders necessary for the authorization, execution and delivery of this Agreement and the documents contemplated hereby, the performance of all of Company's and Shareholders' obligations hereunder and thereunder, and for the exchange and cancellation of the Company Shares have been taken or will be taken prior to the Closing. This Agreement and the documents contemplated hereby, when executed and delivered, shall constitute valid and legally binding obligations of Company and Shareholders enforceable in accordance with their respective terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and subject to the availability of equitable remedies. 12 13 4.3 Subsidiaries. Company has no Subsidiaries and does not presently own, of record or beneficially, or control, directly or indirectly, any capital stock, securities convertible into capital stock or any other equity interest in any corporation, association or business entity, nor is the Company, directly or indirectly, a participant in any joint venture, partnership or other entity. 4.4 Capitalization. The authorized capital stock of Company consists of 10,000 shares of Common Stock, of which 2,000 shares are issued and outstanding. All of the Company Shares have been duly authorized and validly issued, are fully paid and non-assessable and are owned of record and beneficially by Shareholders in the amounts set forth in Schedule 4.4 hereto, free and clear of all Liens, Claims, Indebtedness and Security Interests of every kind. All of the Company Shares were offered, issued, sold and delivered by Company in compliance with all applicable state and federal laws concerning the issuance of securities. None of the Company Shares were issued in violation of any preemptive rights created by statue, or by Company's charter documents, or by any agreement to which Company may be bound. Schedule 4.4 hereto contains a complete list of, and the number of shares owned of record by, the holders of the issued and outstanding Company Stock. Other than as described in this Section 4.4, there are no outstanding shares of Company Stock, preferred stock or any other equity securities of Company, and there are no options, warrants, calls, conversion rights, commitments or agreements of any character to which Company or any Shareholders may be bound that do or may obligate Company to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of Company Stock, preferred stock or other equity securities or that do or may obligate Company to grant, extend or enter into any such option, warrant, call, conversion right, commitment or agreement. There are no outstanding arrangements, agreements, commitments or understandings of any kind affecting or relating to the voting, issuance, purchase, redemption, repurchase or transfer of any capital stock of Company or any other securities of Company. Other than as provided in or contemplated by this Agreement, neither Company nor Shareholders have, or prior to the Effective Time will have, become a party to or subject to any contract or obligation wherein any Person has a right or option to purchase or acquire any rights in any additional capital stock or securities of Company. 4.5 Financial Statements. Schedule 4.5 hereto includes (i) true, complete and correct copies of Company's balance sheet as of December 31, 1996 (the end of its most recently completed fiscal year) and statements of income, cash flows and retained earnings for the year ended December 31, 1996; and (ii) true, complete and correct copies of Company's balance sheet as of July 31, 1997 and statements of income, cash flows and retained earnings for the period then ended. The above described financial statements have been prepared in accordance with GAAP consistently applied and fairly present the financial position of Company as of the dates thereof and the results of its 13 14 operations and cash flows for the periods then ended, subject, in the case of the July 31, 1997 financial statements to the omission of complete footnote information and Liabilities that under GAAP would not be included in a balance sheet not bearing footnotes. Except as set forth above and in the Schedules hereto, there are no material Company Liabilities, direct or indirect, fixed or contingent, which are not reflected (i) in the balance sheet as of July 31, 1997, except for Liabilities incurred in the ordinary course of business subsequent to July 31, 1997, which, either individually or in the aggregate, are not material; and (ii) in the Closing Balance Sheet. Except as set forth above, there is no basis for any assertion against Company of any Liability or obligation of any nature whatsoever that is not fully reflected in the financial statements delivered to FNFI which, either individually or in the aggregate, would have a Material Adverse Effect. Since the date of the July 31, 1997 financial statements, there have been no material changes in Company's accounting policies. 4.6 Material Contracts. Schedule 4.6 hereto contains a complete and accurate list of all Material Contracts to which Company is a party or bound. Without limiting the generality of the foregoing, such list includes all such contracts and agreements and all licenses and instruments which (i) grant a Security Interest or permit or provide for the imposition of any Lien on, or provide for the sale (other than in the Ordinary Course of Business) of, any of the assets of Company or of any of the shares of the Company Stock; (ii) require the consent of any third party to, or would interfere with, the consummation by Company or Shareholders of the transactions contemplated by this Agreement; (iii) involve the borrowing of money or provide for capital expenditures to be made in the future; or (iv) relate to Company's Intellectual Property rights. True, correct and complete copies of all Material Contracts listed on Schedule 4.6 have been furnished by Company to FNFI. Each Material Contract so listed is a valid and binding obligation of Company and is enforceable in accordance with its terms. Company has performed all material obligations required to be preformed by it to date and is not in default under or in breach of any term or provision of any Material Contract to which Company is a party, is subject or is otherwise bound, and no event has occurred that, with the giving of notice or the passage of time or both, would constitute such a default or breach under any Material Contract. To the best knowledge of Company and Shareholders, no party with whom Company has a Material Contract is in default of its obligations thereunder. Except as set forth on Schedule 4.6, no consent or approval of any party to any of the Material Contracts is necessary in order to permit Company to consummate the transactions contemplated hereby. 4.7 Assets Other Than Real Property. Except as set forth on Schedule 4.7 hereto, Company has good and marketable title to all properties and assets (other than real property which is subject to Section 4.8, below) owned or leased by Company, free and clear of all Liens except for: (i) Liens for current Taxes not yet due and payable which have been fully reserved for; and (ii) Liens, if any, that are not 14 15 substantial in character, amount or extent and do not detract materially from the value, or interfere with present use or the sale or other disposition, of the property subject thereto or affected thereby. The assets and properties of Company constitute all the assets, properties, rights, privileges and interests necessary for the operation of Company's business. All of the vehicles, material machinery and material equipment of Company are in good working order and condition, ordinary wear and tear excepted. 4.8 Real Property. Company does not own any real property. Schedule 4.8 hereto contains an accurate list and general description of all real property leases, subleases, licenses or similar agreements ("Leases") to which Company is a party (copies of which have been previously furnished to FNFI), in each case setting forth (i) the landlord and tenant or sublessor and sublessee, as applicable, thereof and the date and term of each of the Leases; (ii) the legal description or street address of each property covered thereby; and (iii) a brief description (including size and function) of the principal improvements and buildings thereon (the "Leased Premises"). Company has valid leasehold interests in the Leased Premises, free and clear of all Liens and Security Interests, except for (i) Claims of lessors, co-lessees or sublessees in such matters as are reflected in the Leases; (ii) title exceptions affecting the fee estate of the lessor under such Leases; (iii) Liens for taxes not yet due; and (iv) other matters as described in Schedule 4.8 hereto. Company is not in default, and no facts or circumstances have occurred which, through the passage of time or both, or the giving of notice would constitute a default, under any Lease. To the knowledge of Company and Shareholders, the activities of Company, with respect to the Leased Premises, are in all material respects permitted and authorized by applicable zoning laws, ordinances and regulations and all laws and regulations of any Governmental Entity. To the knowledge of Company and Shareholders, the portions of the buildings on the Leased Premises that are used in the business of Company are each in good repair and condition (including without limitation, the electrical, mechanical, HVAC, plumbing, elevator, other building systems and structural components serving such premises, and the roofs are water-tight), and are in the aggregate sufficient to satisfy Company's current and reasonable anticipated normal business activities as conducted thereat. 4.9 No Conflicts. Neither the execution and delivery nor the performance of this Agreement by Company or Shareholders will result in any of the following: (i) a default or an event that, with notice or lapse of time or both, could be a default, breach or violation of (A) the Articles of Incorporation or Bylaws of Company, (B) any contract, lease, license, franchise, promissory note, conditional sales contract, commitment, indenture, mortgage, deed of trust, security or pledge agreement, or other agreement, instrument, or arrangement to which Company or any Shareholder is a party or by which any of their respective properties or any of their respective assets are bound and which is material to Company or any Shareholder (a "Material Contract"); (ii) the termination of any Material Contract or the acceleration of the maturity of any 15 16 indebtedness or other material obligation of Company or any Shareholder; (iii) the creation or imposition of any Lien on any of the respective assets or properties of Company or any Shareholder or any shares of the Company Stock; (iv) a violation or breach of any writ, injunction or decree of any Governmental Entity to which Company or any Shareholder is a party or by which any of their respective properties are bound. 4.10 Litigation. Except as set forth in Schedule 4.10 hereto, to the knowledge of Company or Shareholders there are no actions, proceedings, or investigations before any court or administrative agency pending or currently threatened against or with respect to Company (or to the knowledge of Company and Shareholders any Basis therefor), which question the validity of this Agreement or any action taken or to be taken in connection herewith, or which, individually or in the aggregate, might result in a Material Adverse Effect, or in any material impairment of the right or ability of each to carry on its business as now conducted or as proposed to be conducted, or in any material Liability on the part of Company. Company is not a party or subject to, and none of its assets are bound by, the provisions of any order, writ, injunction, judgment, or decree of any Governmental Entity. 4.11 Taxes. Company has no Liability for any federal, state or local Taxes, except for Taxes which have accrued and are not yet payable. Company has filed or caused to be filed all Tax Returns required under applicable law to be filed on or before the Closing Date, Company has paid or made provision for all Taxes and other charges which have or may become due for the periods covered by such Tax Returns, and all such Tax Returns are true, correct and complete in all respects. Except as set forth on Schedule 4.11 hereto, none of the Tax Returns of Company are currently under investigation or audit, nor to the knowledge of Company or Shareholders is an investigation or audit pending, and there has not been an investigation or audit of the Tax Returns of Company in the past seven (7) years. There are no outstanding agreements or waivers extending the statutory period of limitations applicable to any Tax Return for any period. The accounting treatment of all items of income, gain, loss, deduction and credit as reported on all Tax Returns and estimates filed by or on behalf of Company are true, correct and complete, and all deferred Taxes and all Taxes due for the period ending on the Closing Date have been accrued on the Balance Sheet of the July 31, 1997 Financial Statements and will be on the Closing Balance Sheet. No Claim has ever been made by any Governmental Entity in a jurisdiction where Company does not file Tax Returns that it is or may be subject to taxation by that jurisdiction. All taxes owed by Company or which Company is obligated to withhold from amounts owed or owing to any employee, independent contractor, stockholder, creditor or third party have been paid or withheld. There are no unresolved Claims concerning Company's Tax Liability, and no basis for any such Claims exist. 16 17 4.12 Employees. Schedule 4.12 hereto sets forth a complete list of all current employees of Company, together with each employee's age, tenure with Company, title or job classification, and the current annual rate of compensation payable to each such employee. There are no unfair labor practice complaints, strikes, slowdowns, stoppages or other controversies to the best knowledge of Company or Shareholders pending or attempts to unionize or controversies threatened between Company and, or relating to, any of its employees. Company is not a party to any collective bargaining agreement with respect to any of its employees or to a written employment contract with any of its employees, except as set forth on Schedule 4.12 hereto, and there are no understandings or agreements with respect to the employment of any officer or employee of Company which are not terminable by Company without liability on not more than thirty (30) days' notice. Except as set forth on Schedule 4.12 hereto, no officer, director, or employee is entitled to receive any payment of any amount under any existing agreement, severance plan or other benefit plan, or to the accrual or vesting of any other benefit or payment as a result of the consummation of any transactions contemplated by this Agreement. Company has complied with all applicable federal and state statutes and regulations which govern workers' compensation, equal employment opportunity and equal pay. Company's employment of each of its employees is in compliance with all immigration and naturalization laws of the United States. 4.13 Governmental Consents. All consents, approvals, orders, or authorizations of, or registrations, qualifications, designations, declarations or filings with, any Governmental Entity, required on the part of Company and/or any Shareholder in connection with the valid execution and delivery of this Agreement and the exchange and cancellation of the Company Stock, or the consummation of any other transaction contemplated hereby have been obtained, or will be effective at the Closing. 4.14 Operating Rights. Company has all operating authority, licenses, franchises, permits, certificates, consents, rights and privileges (collectively, "Licenses") as are necessary or appropriate to the operation of its business as now conducted and as proposed to be conducted the absence of which will cause a Material Adverse Effect. Such Licenses are in full force and effect, no violations have been or, to the knowledge of Company or Shareholders, are expected to have been recorded in respect of any such Licenses, and no proceeding is threatened or, to the knowledge of Company or Shareholders, pending that could result in the revocation or limitation of any such Licenses. Company has conducted its business so as to comply in all material respects with all such Licenses. 4.15 Compliance with Applicable Laws. The business and operations of Company have been and are being conducted in all material respects in compliance with all laws, ordinances, regulations, rules, orders, judgments or decrees to which Company is subject. Company holds, and the properties, assets, operations and 17 18 businesses of Company have been maintained and conducted in all material respects in compliance with, all authorizations, permits, licenses, certificates, variances, exemptions, orders, franchises, rights and approvals that are necessary for the conduct of its businesses. No investigation or review by any Governmental Entity with respect to Company is threatened or, to the best knowledge of Company or Shareholders, pending, nor has any Governmental Entity indicated to Company an intention to conduct the same. 4.16 Insurance. Schedule 4.16 hereto sets forth an accurate list, as of August 30, 1997, of all insurance policies carried by Company and all insurance loss runs or workers' compensation claims received for the past two (2) policy years. Attached to Schedule 4.16 hereto are true, complete and correct copies of the summaries from the insurance company agent of all current insurance policies, all of which are in full force and effect. All premiums payable under all such policies have been paid and Company is otherwise in full compliance with the terms of such policies (or other policies providing substantially similar insurance coverage). Neither Company nor Shareholders knows of any threatened termination of or material premium increase with respect to, any of such policies. All claims previously made under such policies have been timely filed. 4.17 Absence of Changes. Except as disclosed in Schedule 4.17 hereto, since January 1, 1997, there has not been (i) any change or amendment in the Articles of Incorporation, Bylaws or other governing instruments of Company; (ii) any sale or issuance of, or grant of options or rights to acquire, any shares of the Company Common Stock or other securities of Company or any declaration, setting aside, or payment of dividends or redemptions in respect of any shares of capital stock of Company, or any direct or indirect redemption, purchase, or other acquisition of such stock, or any agreement, understandings or commitments to do the same; (iii) any transfer or other disposition or pledge of, or the grant of options or rights to acquire, any of the outstanding shares of the Company Common Stock by any Shareholder; (iv) any amendment, termination or revocation, or any threat of any amendment, termination, or revocation having a Material Adverse Effect, of any Material Contract; (v) any sale, transfer, mortgage, pledge, or subjection to Lien of, on or affecting any of the assets of the Company out of the Ordinary Course of Business; (vi) any increase in the compensation paid or payable or in the fringe benefits provided to any employee of Company out of the Ordinary Course of Business, or the adoption of any employee benefit plans not in existence in the fiscal year ended December 31, 1996; (vii) any damage, destruction or loss, whether or not covered by insurance, of any of the assets of Company that has a Material Adverse Effect; (viii) any purchase or lease, or commitment for the purchase or lease, of equipment or other capital items not disclosed in Company's financial statements which is in excess of the normal, ordinary and usual requirements of the business of Company; (ix) any change that by itself or together with other changes, has had a Material Adverse Effect; (x) any agreement or 18 19 arrangement made by Company or any Shareholder to take any action which, if taken prior to the date hereof, would have made any representation or warranty set forth in this Agreement untrue or incorrect as of the date when made; or (xi) the commencement or notice or, to the best knowledge of Company and Shareholders, threat of commencement of any lawsuit or proceeding against or investigation of Company or any of its affairs. 4.18 Employee Plans. Schedule 4.18 hereto sets forth a complete list of all Employee Plans and Benefit Arrangements maintained, administered or contributed to, or otherwise participated in, by Company. A true and complete copy of each such Employee Plan or Benefit Arrangement, including amendments thereto, have been provided to FNFI, together with true and complete copies of (i) annual reports for the most recent three (3) years (Form 5500 Series including, if applicable, Schedules A and B thereto); (ii) all plan documents and the most recent summary plan description of each such Employee Plan, together with any modifications thereto; and (iii) the most recent favorable determination letter (if applicable) from the Internal Revenue Service for each such Employee Plan. None of the Employee Plans is a "multiemployer plan" as defined in Section 3(37) of ERISA or a "multiple employer plan" as covered in Section 412(c) of the Code, and the Company has not been obligated to make a contribution to any such multiemployer or multiple employer plan. All contributions (including all employer contributions and employee salary reduction contributions) which are due have been paid to each such Employee Plan or Benefit Arrangement and all contributions for any period ending on or before the Closing Date which are not yet due have been paid to each such Employee Plan or Benefit Arrangement or accrued in accordance with past custom and practice of Company. Each Employee Plan which is intended to be qualified under Section 401(a) of the Code is so qualified and each trust maintained pursuant thereto is exempt from income tax under Section 501(a) of the Code. Neither Company nor any Employee Plan, nor any trusts created thereunder, nor any trustee, administrator nor any other fiduciary thereof, has engaged in a "prohibited transaction," as defined in Section 406 of ERISA and Section 4975 of the Code, or any breach of fiduciary duty as defined in Part 4 of Subtitle B of Title I of ERISA. 4.19 Intellectual Property Rights. 4.19.1 Company owns, or has the right to use, sell or license all Intellectual Property necessary or required for the conduct of its business as presently conducted and such rights to use, sell or license are reasonably sufficient for such conduct of Company's business. To the knowledge of Company and Shareholder, Company has taken all reasonable and practicable action designed to safeguard and maintain the secrecy and confidentiality of, and its proprietary right in, all of its Intellectual Property. 19 20 4.19.2 Neither the manufacture, marketing, license, sale or intended use of any Intellectual Property licensed or sold by Company or currently under development by Company violates any license or agreement between Company and any third party or infringes any Intellectual Property of any other Person; and there is not pending or, to the best knowledge of Company and Shareholders, threatened any claim or litigation contesting the validity, ownership or right to use, sell, license or dispose of any Intellectual Property or that the proposed use, sale, license or disposition thereof conflicts or will conflict with the rights of any other party, nor to the best knowledge of the Company and Shareholders, is there any basis for any such assertion. 4.20 Environment, Health and Safety. 4.20.1 Company has complied with all Environmental, Health and Safety Laws, except where failure to comply would not have a Material Adverse Effect, and no Claim has been filed or commenced against it alleging any failure to so comply. Without limiting the generality of the preceding sentence, Company has obtained and been in compliance with all of the terms and conditions of all permits, licenses, and other authorizations which are required under, and has complied with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables which are contained in, all Environmental, Health, and Safety Laws, except where failure to comply would not have a Material Adverse Effect. 4.20.2 Company has not handled or disposed of any substance, arranged for the disposal of any substance, exposed any employee or other individual to any substance or condition, or owned or operated any property or facility in any manner that could form a reasonable Basis for any present or future Claim against Company giving rise to any Liability, except where having done so would not have a Material Adverse Effect. Company has no Liability for damage to any site, location, or body of water (surface or subsurface), for any illness of or personal injury to any employee or other individual, or for any reason under any Environmental, Health, and Safety Law which could have a Material Adverse Effect. 4.20.3 To the best of Company's and Shareholders' knowledge, all properties used in its business are free of Hazardous Substances, except where the existence thereof would not have a Material Adverse Effect. 4.21 Certain Transactions. There are no existing or pending transactions, nor are there any agreements or understandings, between Company and any Shareholder, or the officers, directors, or employees of Company, or any Person affiliated with any of them, including, without limitation, any transactions, arrangements or understandings relating to the purchase or sale of goods or services or the sale, lease or 20 21 use of any of the assets of or by Company, with or without adequate compensation, or to any indebtedness owed to or by Company, in any amount whatsoever. 4.22 Investment Representations. Each Shareholder is receiving the Fidelity Common Stock for his, her or its own account for investment purposes only, and not as a nominee or agent for any other Person, and not with a view to or for resale in connection with any distribution thereof. Each Shareholder acknowledges that the Fidelity Common Stock to be issued hereunder will not be registered under the Securities Act, nor qualified under any state securities laws on the ground, among others, that no distribution or public offering is to be effected. 4.23 Absence of Claims Against Company. No Shareholder has any Claims against the Company. 4.24 Bank Accounts; Powers of Attorney. Schedule 4.24 hereto sets forth an accurate list, as of the date of this Agreement, of the following: (i) the name of each financial institution in which Company has any account or safe deposit box; (ii) the names in which the accounts or boxes are held; (iii) the type of account; and (iv) the name of each person authorized to draw thereon or have access thereto. Schedule 4.24 hereto also sets forth the name of each Person holding a general or special power of attorney from Company and a description of the terms of such power. 4.25 Tax-Free Reorganization. This Agreement, the Merger and the transactions contemplated thereby qualify, in all respects, as a tax-free reorganization pursuant to Code Section 368(a)(2)(D). 4.26 Continuity of Interest. No Shareholder has any present plan, intention or arrangement to dispose of any of the shares of Fidelity Common Stock issued hereunder in a manner that would cause the Merger to violate the continuity of shareholder interest requirement set forth in Treasury Regulation Section 1.368-1. 4.27 Line of Credit. The outstanding balance under that certain Business Loan Agreement, dated March 1, 1996, as amended, a copy of which is attached to Schedule 4.28 hereto is less than One Million Dollars ($1,000,000). 4.28 Brokers' Fees. Neither Company nor any Shareholder has any Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement. 4.29 Full Disclosure. Neither this Agreement, the representations and warranties by Company and/or Shareholders contained herein, the Exhibits or Schedules hereto, nor any other written statement or certificate delivered or to be furnished to FNFI in connection herewith, when read together, contain any untrue 21 22 statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading. There is no fact known to Company or Shareholders which has not been disclosed to FNFI that would have a Material Adverse Effect on Company's business or financial condition or its ability to perform its obligations under this Agreement. ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF FNFI AND NEWCO FNFI and Newco represent and warrant to Company and Shareholders that (except for changes contemplated by this Agreement) each of the following statements is true, correct and complete as of the date of this Agreement and will be true, correct and complete as of the Closing Date (each such statement to be made again by FNFI and Newco on that date with the Closing Date being substituted for the date of this Agreement throughout this Article 5): 5.1 Organization and Good Standing. FNFI and Newco are corporations duly organized, validly existing and in good standing under the laws of the States of Delaware and California, respectively, and have all requisite corporate power and authority to own, operate and lease their properties and to carry on their respective business as they are being conducted on the date of this Agreement. FNFI and Newco have all requisite corporate power and authority to enter into this Agreement and to perform their respective obligations hereunder with respect to the consummation of the transactions contemplated hereby. 5.2 Authorization. The execution and delivery of this Agreement by FNFI and Newco and the consummation of the transactions contemplated hereby will be duly authorized by all necessary corporate action on the part of FNFI and Newco, respectively, prior to the Closing Date. This Agreement has been duly executed and delivered by FNFI and Newco and constitutes a legal, valid and binding obligation of FNFI and Newco, enforceable in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting the rights of creditors generally and by general equitable principles. 5.3 Noncontravention. Neither the execution and delivery of this Agreement by FNFI and Newco nor the consummation of the transactions contemplated hereby by FNFI and Newco will (i) violate any statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any Governmental Entity to which FNFI or Newco is subject or any provision of the charter or bylaws of FNFI and Newco; or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, 22 23 instrument or other arrangement to which either FNFI or Newco is a party or by which they are bound or to which any of their assets is subject, except where the violation, conflict, breach, default, acceleration, termination, modification, cancellation, or failure to give notice would not have a material adverse effect on the ability of FNFI and/or Newco to consummate the transactions contemplated by this Agreement. 5.4 Fidelity SEC Documents. FNFI has filed all forms, reports and documents required to be filed with the SEC (the "Fidelity SEC Documents"), all of which have been made available to Company. As of their respective dates, the Fidelity SEC Documents complied in all material respects with the requirements of the Securities Act and the Exchange Act, as the case may be, and the rules and regulations of the SEC thereunder applicable to such Fidelity SEC Documents, and none of the Fidelity SEC Documents contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of FNFI included in the Fidelity SEC Documents comply in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with GAAP applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto, or in the case of the unaudited interim financial statements, as permitted by Form 10-Q promulgated by the SEC) and fairly present (subject, in the case of the unaudited interim financial statements, to recurring audit adjustments normal in nature and amount) the consolidated financial position of FNFI as at the dates thereof and the consolidated results of its operations and cash flows or changes in financial position for the periods then ended. 5.5 Fidelity Common Stock. All of the shares of Fidelity Common Stock to be issued to Shareholders in connection with the Merger shall be duly authorized, validly issued, fully paid and non-assessable. Such shares shall be offered, issued, sold and delivered by FNFI in compliance with all applicable state and federal laws concerning the issuance of securities and none of such shares shall be issued in violation of the preemptive rights of any shareholder of FNFI. 5.6 Brokers' Fees. Neither FNFI nor Newco is a party to or obligated under any agreement with any broker, agent, or finder relating to the transactions contemplated hereby, and neither the execution of this Agreement nor the consummation of the transactions provided for herein will result in any liability to any broker, agent, or finder. 5.7 Disclosure. The representations and warranties contained in this Article 5 do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements and information contained herein, in light of the circumstances under which they are made, not misleading. 23 24 ARTICLE 6 CONDUCT OF BUSINESS PENDING CLOSING During the period commencing on the date hereof and continuing through the Closing Date, Company and Shareholders (which for purposes of this Article 6 shall include Friedman), jointly and severally, covenant and agree that: 6.1 Qualification. Company shall maintain all qualifications to transact business and remain in good standing in its jurisdiction of incorporation and in the foreign jurisdictions in which Company owns or leases any property or conducts any business. 6.2 Ordinary Course. Company shall conduct its business in, and only in, the Ordinary Course of Business and, to the extent consistent with such business, shall not make or institute any unusual or novel methods of management, accounting, or operation that vary materially from those methods used by the Company as of July 31, 1997. Company will use its reasonable business efforts to preserve its business organizations intact, to keep available to Company its present officers and employees, and to preserve its present relationships with suppliers, customers, and others having business relationships with the Company. Company shall maintain its properties and assets in good condition and repair. 6.3 Corporate Changes. Company shall not (i) amend its Articles of Incorporation or Bylaws (or equivalent documents); (ii) except as required by Section 7.1(g), below, acquire by merging or consolidating with, or agreeing to merge or consolidate with, or purchase substantially all of the stock or assets of, or otherwise acquire, any business or any corporation, partnership, association or other business organization or division thereof; (iii) enter into any partnership or joint venture; (iv) declare, set aside, make or pay any dividend or other distribution in respect of its capital stock or purchase or redeem, directly or indirectly, any shares of its capital stock; (v) issue or sell any shares of its capital stock of any class or any options, warrants, conversion or other rights to purchase any such shares or any securities convertible into or exchangeable for such shares; or (vi) liquidate or dissolve or obligate itself to do so. 6.4 Indebtedness. Company shall not incur any Indebtedness, sell any debt securities or, except in the Ordinary Course of Business, lend money to or guarantee the Indebtedness of any Person. Company shall not restructure or refinance its existing Indebtedness. Notwithstanding anything to the contrary in this Section 6.4, Company may, subject to Section 6.16, below, borrow under its line of credit as needed in the Ordinary Course of Business. 6.5 Accounting. Company shall not make any change in the accounting principles, methods, records or practices followed by it or depreciation or amortization policies or rates heretofore adopted by it. Company shall maintain its books, records, and accounts in accordance with GAAP applied on a basis consistent with that of prior periods. 24 25 6.6 Compliance with Legal Requirements. Company shall comply promptly with all requirements that applicable law may impose upon it and its operations and with respect to the transactions contemplated by this Agreement, and shall cooperate promptly with, and furnish information to, FNFI in connection with any such requirements imposed upon FNFI, or upon any of its Affiliates, in connection therewith or herewith. 6.7 Disposition of Assets. Other than in the Ordinary Course of Business, Company shall not sell, transfer, license, lease or otherwise dispose of, or suffer or cause the encumbrance by any Lien upon any of its properties or assets, tangible or intangible, or upon any interest therein. 6.8 Compensation. Company shall not (i) adopt or amend in any material respect any collective bargaining, bonus, profit-sharing, compensation, stock option, pension, retirement, deferred compensation, Employee Plan, Benefit Arrangement, or any other agreement, trust, fund or arrangement for the benefit of employees other than to comply with any Legal Requirement; or (ii) other than in the Ordinary Course of Business, pay, or make any accrual or arrangement for payment of, any increase in compensation, bonuses or special compensation of any kind, or any severance or termination pay to, or enter into any employment or loan or loan guarantee agreement with, any current or former officer, director, employee or consultant of Company. 6.9 Modification or Breach of Agreements; New Agreements. Company shall not terminate or modify, or commit or cause or suffer to be committed any act that will result in breach or violation of any term of or (with or without notice or passage of time, or both) constitute a default under or otherwise give any Person a basis for nonperformance under, any Material Contract, written or oral, disclosed in this Agreement or the Schedules hereto. Company shall refrain from becoming a party to any contract or commitment other than in the Ordinary Course of Business. Company shall meet all of its contractual obligations in accordance with their respective terms. 6.10 Capital Expenditures. Except for capital expenditures or commitments in the Ordinary Course of Business necessary to maintain its properties and assets in good condition and repair (the amount of which shall not exceed $25,000 in the aggregate), Company shall not purchase or enter into any contract to purchase any capital assets. 6.11 Consents. Company shall use its reasonable efforts to obtain any consent, authorization or approval of, or exemption by, any Governmental Entity or Person required to be obtained or made by any Party hereto in connection with the transactions contemplated hereby or the taking of any action in connection with the consummation thereof. 6.12 Maintenance of Insurance. Company shall maintain its policies of insurance in full force and effect and shall not do, permit or willingly allow to be done any act by which any of said policies of insurance may be suspended, impaired or canceled. 25 26 6.13 Discharge. Company shall not cancel, compromise, release or discharge any Claim of Company upon or against any Person or waive any right of Company of material value, and not discharge any Lien upon any asset of Company or compromise any debt or other obligation of Company to any Person other than Liens, debts or obligations with respect to current Liabilities of Company without the prior consent of FNFI, which consent will not be unreasonably withheld. 6.14 Actions. Company shall not institute, settle or agree to settle any Action before any Governmental Entity without the prior consent of FNFI, which consent will not be unreasonably withheld. 6.15 Taxes and Tax Assessments. Company shall pay, when due, and prior to the imposition or assessment of any interest, penalties or Liens by reason of the nonpayment of, all Taxes assessed against Company, its assets, properties or operations, except for Taxes contested by Company in good faith. Company shall furnish promptly to FNFI a copy of all notices of proposed assessment or similar notices or reports that are received from any taxing authority and which relate to Company's operations for periods ending on or prior to the Closing Date. 6.16 Line of Credit. Company shall maintain the outstanding principal balance on its line of credit with Bank of America National Trust and Savings Association, which line is evidenced by that certain Business Loan Agreement attached to Schedule 4.28 hereto, in an amount less than One Million Dollars ($1,000,000). ARTICLE 7 ADDITIONAL COVENANTS 7.1 Covenants of Company and Shareholders. During the period from the date hereof through the Closing Date, Company and Shareholders (which for purposes of this Article 7 shall include Friedman) agree to: (a) Comply promptly with all applicable Legal Requirements imposed upon them with respect to the transactions contemplated by this Agreement, and shall cooperate promptly with, and furnish information to, FNFI in connection with any such requirements imposed upon FNFI or upon any of its Affiliates in connection therewith or herewith; (b) Use their reasonable efforts to obtain (and to cooperate with FNFI in obtaining) any consent, authorization or approval of, or exemption by, any Person required to be obtained or made by Company and/or Shareholders in connection with the transactions contemplated by this Agreement; 26 27 (c) Use their reasonable efforts to bring about the satisfaction of the conditions precedent to Closing set forth in Section 8.1 below; (d) Immediately advise FNFI orally and, within three (3) business days thereafter, in writing of any change in Company's business or condition that has had or may have a Material Adverse Effect; (e) Deliver to FNFI prior to the Closing a written statement disclosing any untrue statement in this Agreement or any Exhibit or Schedule hereto (or supplement thereto) or document furnished pursuant hereto, or any omission to state any material fact required to make the statements herein or therein contained complete and not misleading, immediately upon the discovery of such untrue statement or omission, accompanied by a written supplement to any Exhibit or Schedule to this Agreement that may be affected thereby; provided, however, that the disclosure of such untrue statement or omission shall not prevent FNFI from terminating this Agreement pursuant to Section 9.1(b) hereof at any time at or prior to the Closing in respect of any original untrue or misleading statement; (f) All Company indebtedness owed to Colin H. Friedman, Hedy Kramer Friedman, Farid Meshkatai and Anita Meshkatai, or any trust of which any of them serve as trustee, shall be converted to Company Stock on or prior to the Closing Date upon such terms and conditions and in a manner pre-approved by FNFI; and (g) Effect and consummate the merger of Express Reprographics, Inc. ("ERI"), with and into Company in accordance with the California Statute and upon such terms and conditions and in accordance with such documentation pre-approved by FNFI in its absolute and sole discretion. Upon the consummation of the merger, (i) all of the assets and liabilities of ERI existing as of July 31, 1997 (other than assets or liabilities acquired or disposed of in the Ordinary Course of Business) shall be merged into Company; and (ii) all of the capital stock of ERI, including all options, warrants, calls, conversion rights, commitments or agreements of any character which relate to such capital stock, shall be canceled and extinguished. 7.2 Covenants of FNFI. During the period from the date hereof to the Closing Date, FNFI shall: (a) Comply promptly with all applicable Legal Requirements imposed upon it with respect to the transactions contemplated by this Agreement, and shall cooperate promptly with, and furnish information to, Shareholders in connection with any such requirements imposed upon Shareholders or Company or upon any of Company's Affiliates in connection therewith or herewith; 27 28 (b) Use its reasonable efforts to obtain any consent, authorization or approval of, or exemption by, any Person required to be obtained or made by FNFI in connection with the transactions contemplated by this Agreement; (c) Use its reasonable efforts to bring about the satisfaction of the conditions precedent to Closing set forth in Section 8.2 of this Agreement; and (d) Cause Surviving Corporation to continue at least one (1) significant historical business line of Company, or use at least a significant portion of Company's historical business assets in a business, in each case in accordance with Treasury Regulation Section 1.368-1. 7.3 Responsibility for Certain Potential Liabilities. Company and Shareholders shall assume and be jointly and severally responsible for any and all Liability, including without limitation any and all Tax Liability, caused by, arising from, or related to (i) the failure of the Merger to qualify, in any respects, as a tax-free reorganization pursuant to Code Section 368(a)(2)(D), including any and all Liability incurred by FNFI, Newco and Surviving Corporation as a result of such failure; and (ii) the pending Internal Revenue Service audit of Company's 1993 Tax Returns. 7.4 Continuity of Interest. Shareholders shall not dispose of any shares of Fidelity Common Stock in a manner that would cause the Merger to violate the continuity of shareholder interest requirement set forth in Treasury Regulation Section 1.368-1. If, during the first year following the Closing Date, any Shareholder desires to dispose of any shares of Fidelity Common Stock issued in connection with the Merger, then such Shareholder shall provide written notice to FNFI, not less than sixty (60) days prior to the intended date of disposition, specifying the number of shares of Fidelity Common Stock such Shareholder desires to dispose. 7.5 Access and Information. (a) During the period commencing on the date hereof and continuing through the Closing Date, Shareholders shall cause Company to afford to FNFI and to FNFI's accountants, counsel, and other representatives, reasonable access to all of its properties, books, contracts, commitments, records and personnel and, during such period, to cause Company to furnish promptly to FNFI all information concerning its business, properties and personnel as FNFI may reasonably request. (b) Except to the extent permitted by the provisions of Section 7.8, below, FNFI shall hold in confidence, and shall use reasonable efforts to ensure that its employees and representatives hold in confidence, all such information supplied to it by Shareholders or Company concerning Company and shall not disclose such information to any third Person except as may be required by any Legal Requirement and except 28 29 for information that (i) is or becomes generally available to the public other than as result of disclosure by FNFI or its representatives; (ii) becomes available to FNFI or its representatives from a third Person other than Shareholders or Company, and FNFI or its representatives have no reason to believe that such third Person is not entitled to disclose such information; (iii) is known to FNFI or its representatives on a non-confidential basis prior to its disclosure by Shareholders or Company; or (iv) is made available by Shareholders or Company to any other Person on a non-restricted basis. FNFI's obligations under the foregoing sentence shall expire on the Closing Date or, if the closing does not occur, one year after the date hereof. If the Merger is not consummated, then all information received by FNFI from CRI and all copies thereof shall be returned or delivered to CRI, all computations or other studies relating to CRI prepared by FNFI, its representatives or Affiliates shall be destroyed, and FNFI shall supply CRI a sworn certificate that such delivery or destruction has taken place and that FNFI, its representatives and/or Affiliates no longer have in their possession any such documents, copies, computations or other studies. 7.6 Expenses. All costs and expenses (including, without limitation, all legal fees and expenses and costs) incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the Party incurring the same. 7.7 Certain Notifications. At all times from the date hereof to the Closing Date, each Party shall promptly notify the others in writing of the occurrence of any event that will or may result in the failure to satisfy any of the conditions specified in Article 8, below. 7.8 Publicity. At all times prior to the Closing Date, each Party shall obtain the consent of all other Parties hereto prior to issuing, or permitting any of its directors, officers, employees, agents or Affiliates to issue, any press release or other information to the press, employees of Company or any third party with respect to this Agreement or the transactions contemplated hereby; provided, however, that no party shall be prohibited from supplying any information to any of its representatives, agents, attorneys, advisors, and others to the extent necessary to complete the transactions contemplated hereby so long as such representatives, agents, attorneys, advisors, and others are made aware of the terms of this Section 7.8. Nothing contained in this Agreement shall prevent any party to this Agreement at any time from furnishing any required information to any Governmental Entity or authority pursuant to a Legal Requirement or from complying with its legal or contractual obligations. 7.9 Further Assurances. (a) Subject to the terms and conditions of this Agreement, each of the Parties hereto agrees to use all reasonable efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary, proper or advisable under 29 30 applicable Legal Requirements, to consummate and make effective the transactions contemplated by this Agreement. (b) If at any time after the Closing any further action is necessary or desirable to carry out the purposes of this Agreement, Shareholders and the proper officers or directors of FNFI and Company, as the case may be, shall take or cause to be taken all such necessary or convenient action and execute, and deliver and file, or cause to be executed, delivered and filed, all necessary or convenient documentation, all at FNFI's expense. 7.10 Competing Offers. Shareholders agree that they will not, and will cause Company not to, directly or indirectly, through an officer, director, agent, or otherwise, solicit, initiate or encourage the submissions of bids, offers or proposals by, any Person with respect to an acquisition of Company or its assets or capital stock or a merger or similar transaction, and Shareholders will not, and will not permit Company to, engage any broker, financial adviser or consultant to initiate or encourage proposals or offers from other Persons. Furthermore, Shareholders shall not, and shall not permit Company to, directly or indirectly, through any officer, director, agent or otherwise, engage in negotiations concerning any such transaction with, or provide information to, any Person other than FNFI and its representatives with a view to engaging, or preparing to engage, that Person with respect to any matters in this Section 7.10. Shareholders shall ensure that Company shall not commence any proceeding to merge, consolidate or liquidate or dissolve or obligate itself to do so. 7.11 Post-Closing Employment. Except as provided in the Employment Agreement attached hereto as Exhibit "B," Company and Shareholders acknowledge and agree that after the Effective Time (i) neither FNFI nor Surviving Corporation shall be required to employ or retain any employee of Company or any other Person; and (ii) FNFI, in its sole and absolute discretion, may cause Surviving Corporation to retain all, some, or none or such employees; provided, however, that such post-closing terminations shall be in accordance with all applicable laws, rules and regulations. 7.12 Employment Agreement. On or before the Closing Date, Farid Meshkatai and the appropriate officer of Company shall execute the Employment Agreement substantially in the form of Exhibit "B" hereto. 7.13 Registration Rights Agreement. On or before the Closing Date, Shareholders and the appropriate officer of FNFI shall execute the Registration Rights Agreement substantially in the form of Exhibit "C" hereto. 7.14 NYSE Listing. FNFI will make such filings as are necessary with the New York Stock Exchange regarding the transactions contemplated hereby and will cause the shares of Fidelity Common Stock to be issued under this Agreement to be 30 31 approved for listing on the NYSE, subject only to official notice of issuance, prior to the Effective Time. ARTICLE 8 CONDITIONS PRECEDENT TO CLOSING 8.1. Conditions of FNFI. FNFI's obligations hereunder to consummate the Merger are subject to the satisfaction, at or prior to the Effective Time, of all of the following conditions: (a) Representations and Warranties True: Performance of Obligations. The representations and warranties made by Company and Shareholders in this Agreement shall be true, correct and complete on and as of the Closing Date with the same force and effect as if they had been made on and as of said date; and Company and Shareholders shall have performed all of the obligations and complied with each and all of the covenants required to be performed or complied with by them on or prior to the Effective Time. (b) Material Adverse Effect. No act, event or condition shall have occurred after the date hereof which FNFI determines in its reasonable discretion has had or could have a Material Adverse Effect. (c) Authorizations and Approvals. All authorizations, approvals or consents from third parties, including from any Governmental Entity, landlord or other Person, necessary for the consummation of the transactions contemplated hereby shall have been obtained. (d) Investigation of Company. FNFI shall have concluded (through its representatives, accountants, counsel and other experts) a due diligence investigation of the business, condition (financial, legal and other), properties, assets, prospects, operations and affairs of Company and shall be satisfied, in reasonable discretion, with the results thereof. (e) Deliveries. FNFI shall have received from the appropriate Party or Person, the delivery obligations set forth in Sections 3.2 through 3.4, above. (f) Schedules. Shareholders shall cause Company to deliver all of the Schedules to this Agreement set forth herein, and FNFI shall be reasonably satisfied with such Schedules. (g) No Actions. There shall not be instituted and pending or threatened any Action before any Governmental Entity (i) challenging the Merger or 31 32 otherwise seeking to restrain or prohibit the consummation of the transactions contemplated hereby, or (ii) seeking to prohibit the direct or indirect ownership or operation by FNFI of all or a material portion of the business or assets of Company, or to compel FNFI or Company to dispose of or hold separate all or a material portion of the business or assets of Company or FNFI. (h) Corporate Action. All corporate and other proceedings and actions taken in connection with the transactions contemplated hereby and all certificates, opinions, agreements, instruments, releases and documents referenced herein or incident to the transactions contemplated hereby shall be in form and substance satisfactory to FNFI and its counsel. Notwithstanding the foregoing, FNFI shall advise Company and Shareholders of any perceived deficiencies and provide Company and Shareholders with a reasonable period of time to cure such deficiencies. (i) Requisite Regulatory Approvals. All notices or filings required to be made, all authorizations, permits, certificates, registrations, consents, approvals or orders required to be obtained, and all waiting periods required to expire, prior to the consummation of the transactions contemplated by this Agreement under applicable federal law of the United States or applicable laws of any state having jurisdiction over the transactions contemplated by this Agreement or the businesses conducted by the Parties or any Affiliate or Subsidiary of any Party (collectively, the "Requisite Regulatory Approvals") shall have been obtained or expired, as the case may be, without the imposition of any condition which is materially burdensome upon FNFI or any Party or Person to be affected by such condition. (j) CRI. All of the conditions to close set forth in Article 8.1 of that certain Agreement and Plan of Reorganization of even date herewith, by and among FNFI, CRI, the shareholders of CRI, Friedman, Farid Meshkatai and CRI Acquisition Corporation shall have been satisfied at or prior to the Effective Time. In addition, the Closing of this Merger is conditioned upon the closing of the CRI merger and vice versa. (k) Classified Credit Data, Inc. Either (i) Friedman shall have sold all of his ownership interest in Classified Credit Data, Inc, a California corporation, to FNFI in accordance with the terms and conditions set forth in that certain letter dated August 18, 1997, a copy of which is attached hereto as Exhibit "G;" or (ii) Candy Marshall shall have exercised her right of first refusal to acquire such ownership interest in accordance with the terms and conditions of that certain Shareholders' Agreement, dated May 9, 1988, by and among CCD, Friedman and Ms. Marshall, and Friedman and Ms. Marshall shall have completed such transfer of ownership interest. 32 33 (l) Board Approval. The Board of Directors of FNFI shall have approved this Agreement and the transactions contemplated thereby. (m) Consent to Assignment of Line of Credit. Company and Shareholders shall have obtained the consent of Bank of America National Trust and Savings Association to the assignment of that certain Business Loan Agreement described in Section 6.16, above, to Surviving Corporation, without modification, amendment, acceleration or default. FNFI shall cooperate with Company and Shareholders in obtaining the above consent. 8.2 Conditions of Company and Shareholders. Company's and Shareholders' obligations hereunder to consummate the Merger are subject to the satisfaction, at or prior to the Effective Time, of the following conditions: (a) Representations and Warranties True; Performance of Obligations. The representations and warranties made by FNFI and Newco in this Agreement shall be true and correct at the Closing Date, with the same force and effect as if they had been made on and as of said date; and FNFI and Newco shall have performed all obligations herein required to be performed by them at or prior to the Closing. (b) Authorizations and Approvals. All authorizations, approvals or consents, if any, from third parties, including from any Governmental Entity or other Person, necessary for the consummation of the transactions contemplated hereby shall have been obtained. (c) Tax-Free Reorganization. Each Shareholder shall be satisfied in his or its reasonable discretion that the Merger qualifies as a tax-free reorganization under Section 368(a)(2)(D) of the Code. (d) Material Adverse Effect. No act, event or condition shall have occurred after the date hereof which Company and Shareholder determines in their reasonable discretion has had or could have a material adverse effect on FNFI. (e) Deliveries. Shareholders shall have received from the appropriate Party or Person, the delivery obligations set forth in Sections 3.2, 3.5 and 3.6, above. (f) No Actions. There shall not be instituted and pending or threatened any Action before any Governmental Entity (i) challenging the Merger or otherwise seeking to restrain or prohibit the consummation of the transactions contemplated hereby, or (ii) seeking to prohibit the direct or indirect ownership or operation by FNFI of all or a material portion of the business or assets of Company, or 33 34 to compel FNFI or Company to dispose of or hold separate all or a material portion of the business or assets of Company or FNFI. (g) Corporate Action. All corporate and other proceedings and actions taken in connection with the transactions contemplated hereby and all certificates, opinions, agreements, instruments, releases and documents referenced herein or incident to the transactions contemplated hereby shall be in form and substance satisfactory to Company and Shareholders and their counsel. Notwithstanding the foregoing, Company and Shareholders shall advise FNFI of any perceived deficiencies and provide FNFI with a reasonable period of time to cure such deficiencies. (h) CRI. All of the conditions to close set forth in Article 8.2 of that certain Agreement and Plan of Reorganization of even date herewith, by and among FNFI, Credit Reports, Inc., a California corporation ("CRI"), the shareholders of CRI, Friedman, Farid Meshkatai and CRI Acquisition Corporation shall have been satisfied at or prior to the Effective Time. In addition, the Closing of this Merger is conditioned upon the closing of the CRI merger and vice versa. ARTICLE 9 TERMINATION, AMENDMENT AND WAIVER 9.1 Termination. This Agreement may be terminated at any time prior to the Effective Time: (a) By mutual consent of the FNFI and Shareholders; (b) By Shareholders and Company as a group, on the one hand, or by FNFI, on the other hand, if there has been a material breach, failure to fulfill or default on the part of the other Party of any of the representations and warranties contained herein or in the due and timely performance and satisfaction of any of the covenants, agreements or conditions contained herein; or (c) By Shareholders and Company as a group, on the one hand, or by FNFI, on the other hand, if there shall be a final non-appealable order of a federal or state court in effect preventing consummation of the Merger; or there shall be any action taken, or any statute, rule, regulation or order enacted, promulgated or issued or deemed applicable to the Merger by any Governmental Entity which would make the consummation of the Merger illegal. 34 35 9.2 Effect of Termination. In the case of any termination of this Agreement pursuant to Section 9.1, above, this Agreement shall forthwith become void, and there shall be no Liability or obligation on the part of any Party or its officers, directors or shareholders. Notwithstanding the foregoing sentence, (i) the provisions of Section 7.5(b) and 7.6 shall remain in full force and effect and survive any termination of this Agreement; (ii) each Party shall remain liable for any breach of this Agreement prior to its termination; and (iii) in the event of termination pursuant to section 9.1(b), above, then notwithstanding the provisions of Section 7.6, above, the breaching Party shall be liable to the non-breaching Party to the extent of the expenses incurred by such other party in connection with this Agreement and the transactions contemplated thereby. 9.3 Amendment. This Agreement may be amended at any time by a written instrument executed by the Parties. Any amendment effected pursuant to this Section 9.3 shall be binding upon all Parties. 9.4 Waiver. Any term or provision of this Agreement may be waived in writing at any time by the Party or Parties entitled to the benefits thereof. Any waiver effected pursuant to this Section 9.4 shall be binding upon all Parties hereto. No failure to exercise and no delay in exercising any right, power or privilege shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege preclude the exercise of any other right, power or privilege. No waiver of any breach of any covenant or agreement hereunder shall be deemed a waiver of a preceding or subsequent breach of the same or any other covenant or agreement. The rights and remedies of each Party under this Agreement are in addition to all other rights and remedies, whether at law, in equity or otherwise, that such Party may have against the other Parties. ARTICLE 10 INDEMNIFICATION 10.1 Survival of Representations and Warranties. The representations and warranties of Company and Shareholders (which for purposes of this Article 10 shall include Friedman) contained in this Agreement or in any writing delivered pursuant hereto or at the Closing and the indemnification obligations set forth in Section 10.2, below, shall survive the Closing and the consummation of the transactions contemplated hereby until the second (2nd) anniversary of the Closing Date; provided that the representations and warranties contained in Sections 4.2, 4.4, 4.11 and 4.20 and the indemnification obligations related thereto shall continue until the expiration of the applicable statutes of limitations; and provided further that Company's indemnification obligations under Section 10.2, below, shall terminate immediately subsequent to the Effective Time. 35 36 10.2 Indemnification by Company and Shareholders. Company and Shareholders, jointly and severally, covenant and agree to indemnify, defend, protect and hold harmless FNFI, Newco and Surviving Corporation and their respective officers, directors, employees, shareholders, assigns, successors and affiliates (a "FNFI Indemnified Party") from, against and in respect of all Claims suffered, sustained, incurred or paid by any FNFI Indemnified Party in connection with resulting from or arising out of, directly or indirectly: (a) any breach of any representation or warranty of any Shareholder or Company set forth in this Agreement or any certificate, document or instrument delivered by or on behalf of any Shareholder or Company in connection herewith; or (b) any non-fulfillment of any covenant or agreement on the part of any Shareholder or Company in this Agreement. 10.3 Indemnification by FNFI. FNFI covenants and agrees to indemnify, defend, protect and hold harmless Shareholders and their respective heirs, successors and assigns (a "Shareholder Indemnified Party") from, against and in respect of all Claims suffered, sustained, incurred or paid by any Shareholder Indemnified Party in connection with resulting from or arising out of, directly or indirectly: (a) any breach of any representation or warranty of FNFI or Newco set forth in this Agreement or any certificate, document or instrument delivered by or on behalf of FNFI or Newco in connection herewith; or (b) any non-fulfillment of any covenant or agreement on the part of FNFI or Newco in this Agreement. 10.4 Third Party Claims. In the event any third party asserts any Claim with respect to any matter as to which the indemnities in this Agreement relate, the Party or Person against whom the Claim is asserted (the "Indemnified Party") shall give prompt notice to the other Party or Person (the "Indemnifying Party"), and the Indemnifying Party shall have the right at its election to take over the defense or settlement of the third party Claim at its own expense by giving prompt notice to the Indemnified Party. If the Indemnifying Party does not give such notice and does not proceed diligently so to defend the third party Claim within thirty (30) days after receipt of the notice of the third party Claim, the Indemnifying Party shall be bound by any defense or settlement that the Indemnified Party may make as to those claims and shall reimburse the Indemnified Party for its losses 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 Article 10, the reference to this Agreement includes any certificate, Schedule or Exhibit delivered to a party by the Indemnifying Party or 36 37 its agents and affiliates in connection with this Agreement. The election by the Indemnifying Party to take over a defense or settlement of the third party Claim shall not constitute an admission that the Claim is indemnified against under this Agreement; the question of whether the Claim is one which is subject to indemnity under this Article 10 shall be determined separately from the assumption of the defense. If the Indemnifying Party asserts in a notice to the Indemnified Party that it does not believe that the Claim is one which it has agreed to indemnify the Indemnified Party under this Agreement and it is later determined that the Claim was in fact not subject to the indemnities provided for in this Article 10, then the Indemnified Party will indemnify, reimburse and hold harmless the Indemnifying Party against all Liability under the third party Claim and the costs and expenses (including reasonable attorneys' fees) which the Indemnifying Party incurs by reason of defense of the third party Claim. 10.5 Indemnification Non-Exclusive. The foregoing indemnification provisions are in addition to, and not in derogation of, any statutory, equitable or common-law remedy any Party may have for breach of representation, warranty, covenant or agreement. 10.6 Additional Indemnification Provisions. Notwithstanding anything to the contrary in this Article 10, (i) Shareholders' aggregate Liability under Section 10.2, above, shall not exceed Two Million Five Hundred Thousand Dollars ($2,500,000); (ii) Shareholders shall not incur any Liability under section 10.2, above, until the aggregate amount of indemnification obligations exceed Ten Thousand Dollars ($10,000); and (iii) subject to clause (ii) above, Shareholders shall not incur any Liability under Section 10.2, above, for indemnification obligations that individually do not exceed One Thousand Dollars ($1,000). ARTICLE 11 GENERAL PROVISIONS 11.1 Governing Law. This Agreement shall be governed by and construed under the laws of the State of California as applied to agreements among California residents, made and to be performed entirely within the State of California. 11.2 Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors, and administrators of the Parties hereto. 11.3 Entire Agreement. This Agreement, the Exhibits and Schedules hereto, and the other documents delivered at the Closing pursuant hereto constitute the full and entire understanding and agreement among the Parties with regard to the subject matter hereof and no Party shall be liable or bound to any other Party in any manner by any representations, warranties, covenants, or agreements except as specifically set forth herein or therein. Nothing in this Agreement, express or implied, is intended to confer upon any party, other 37 38 than the Parties hereto and their respective successors and assigns, any rights, remedies, obligations, or Liabilities under or by reason of this Agreement, except as expressly provided herein. 11.4 Severability. In the event any provision of this Agreement shall be invalid, illegal, or unenforceable, it shall, to the extent practicable, be modified so as to make it valid, legal and enforceable and to retain as nearly as practicable the intent of the Parties, and the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 11.5 Notice. All notices and other communications required or permitted hereunder shall be in writing and shall be deemed effectively given (i) if delivered personally (including by overnight express or messenger), upon delivery; (ii) if delivered by registered or certified mail, return receipt requested, upon the earlier of actual delivery or three (3) days after being mailed; or (iii) if given by facsimile, upon confirmation of transmission by facsimile, in each case to the Parties at the following addresses: (a) If to FNFI, addressed to: Fidelity National Financial, Inc. 3916 State Street, Suite 300 Santa Barbara, California 93105 Attn: Andrew F. Puzder Facsimile: (805) 898-7149 With a copy to: C. Craig Carlson, Esq. Stradling, Yocca, Carlson & Rauth 660 Newport Center Drive, Suite 1600 Newport Beach, California 92660-6441 Facsimile: (714) 725-4100 (b) If to Shareholders, addressed to: Colin H. Friedman Farid Meshkatai 12428 N. 136th Place 9332 N. 71st Street Scottsdale, Arizona 85253 Paradise Valley, Arizona 85253 Facsimile: (602) 905-7337 Facsimile (602) 905-7337 38 39 With a copy to: David D. Wexler, Esq. Rosenfeld, Meyer & Susman 9601 Wilshire Boulevard, Fourth Floor Beverly Hills, California 90210-5288 Facsimile: (310) 271-6430 11.6 Tax Advice. Company, Shareholders and Friedman acknowledge that they have received their own independent tax advice with respect to the Merger, this Agreement and the transactions contemplated thereby, including whether the Merger qualifies as a tax free reorganization in accordance with Section 368(a)(2)(D) of the Code, and are not in any way relying on any statements or advice of FNFI, Newco or any of their officers, directors, employees, agents or representatives. 11.7 Construction. The Parties to this Agreement have participated jointly in the negotiation and drafting of this Agreement and have had competent counsel of their own choosing. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. 11.8 Headings. The headings of the Articles and Sections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 11.9 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument. 11.10 Recitals, Schedules, and Exhibits. The Recitals, Schedules and Exhibits to this Agreement are incorporated herein and, by this reference, made a part hereof as if fully set forth at length herein. Anything referenced on any Schedule hereto shall be deemed incorporated into any other Schedule requesting the same or similar information. 39 40 IN WITNESS WHEREOF, the foregoing Agreement is hereby executed as of the date first above written. FNFI: FIDELITY NATIONAL FINANCIAL, INC., a Delaware Corporation By: /s/ ANDREW F. PUZDER ---------------------------------- Its: EXECUTIVE VICE PRESIDENT ---------------------------------- COMPANY: EXPRESS NETWORK, INC., a California Corporation By: /s/ FARID MESHKATAI ---------------------------------- Its: PRESIDENT ---------------------------------- SHAREHOLDERS: COLIN HOWARD FRIEDMAN AND HEDY KRAMER FRIEDMAN, AS TRUSTEES OF THE FRIEDMAN FAMILY TRUST UDT, DATED JULY 23, 1987 /s/ COLIN H. FRIEDMAN ---------------------------------------- Colin H. Friedman, Trustee /s/ HEDY KRAMER FRIEDMAN ---------------------------------------- Hedy Kramer Friedman, Trustee /s/ FARID MESHKATAI ---------------------------------------- Farid Meshkatai, Individually ANITA KRAMER MESHKATAI, AS TRUSTEE OF THE ANITA KRAMER LIVING TRUST, DATED JULY 23, 1987 /s/ ANITA KRAMER MESHKATATI ---------------------------------------- Anita Kramer Meshkatai, Trustee 40 EX-10.52 18 LIQUID YIELD OPTION NOTES 1 EXHIBIT 10.52 FIDELITY NATIONAL FINANCIAL, INC. Liquid Yield Option Notes Due 2009 (Zero Coupon - Subordinated) EXCHANGE AGREEMENT October 17, 1997 Merrill Lynch & Co. Merrill Lynch, Pierce, Fenner & Smith Incorporated North Tower World Financial Center New York, New York 10281-1209 Ladies and Gentlemen: In furtherance of and as contemplated in that certain letter, dated October 3, 1997, from Paul Pepe of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Holder") to Carl A. Strunk of Fidelity National Financial, Inc., a Delaware corporation (the "Company"), the Company hereby agrees with Holder as follows: 1. Certain Definitions. Unless otherwise defined herein or the context requires otherwise, capitalized terms appearing in this Agreement shall have the respective meanings ascribed to such terms in the Indenture. As used herein, the following terms shall have the following meanings: "Adjusted Minimum Price" shall mean $19.625 per share of Common Stock of the Company. "Additional Shares" shall mean the aggregate number of shares of Common Stock (rounded to the nearest whole share), if any, to which Holder may become entitled to receive pursuant to the provisions of Section 2(d)(ii), Section 2(d)(iv) and Section 2(e) below. "Agreements and Instruments" shall mean any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any Subsidiary is subject. "Applicable Margin" shall mean 1.50% per annum during the first nine (9) months of the Holding Period and 0.50% per annum thereafter; provided, however, that from and after the occurrence of a Credit Downgrade the Applicable Margin shall be 0.50% per annum. 2 "Applicable Rate" shall mean, for any date of determination, the quotient obtained by dividing (i) the sum of LIBOR plus the Applicable Margin, by (ii) 360. "Calculation Agent" shall mean Merrill Lynch, Pierce, Fenner & Smith Incorporated. "Closing Date" shall mean Wednesday, October 22, 1997, or as soon thereafter upon satisfaction of all conditions to closing set forth in Sections 6 and 7 below as is practicable, or such other date and time upon which the Company and the Holder may mutually agree. "Common Stock" shall mean the common stock, par value $.0001 per share, of the Company. "Cost of Carry" shall mean, for any date of determination during the Holding Period, the Net Carry Amount multiplied by the Applicable Rate. "Credit Downgrade" shall mean the LYONs are downgraded one notch by either Standard & Poor's, a division of the McGraw-Hill Companies (from B+ to B), or Moody's Investors Services, Inc. (from Ba3 to B1). "DTC" shall mean the Depository Trust Company. "Exchange Shares" shall mean the Initial Shares and the Additional Shares, if any, issued pursuant to Section 2(d) and Section 2(e) below. "Exchange Value" shall mean the product of the aggregate number of Initial Shares multiplied by the Initial Price. "Execution Price" of the Common Stock shall mean the amount of gross proceeds to Holder (or any Affiliate of Holder) from the sale or other disposition of one Exchange Share, reduced by $0.025 (representing the commission on such Exchange Share). "Extended Holding Period" shall mean an additional period commencing on the first day after the expiration of the Initial Holding Period and ending on the earliest to occur of (i) the date on which Holder shall have sold or otherwise disposed of all of the Initial Shares and the Additional Shares, (ii) the date on which Holder shall have received aggregate Proceeds to Holder in an amount equal to or in excess of the Net Exchange Value, or (iii) the date which is six (6) months following the expiration of the Initial Holding Period. "Holder LYONs" shall mean $45,000,000 aggregate Principal Amount at Maturity of LYONs owned by Holder for its own account. "Holding Period" shall mean the period commencing on the Closing Date and expiring as of the expiration of the Initial Holding Period or, if extended pursuant to Section 2(d)(ii) below, the Extended Holding Period. "Indenture" shall mean that certain Indenture, dated as of February 1, 1994, by and between the Company and the Trustee, and any and all amendments and indentures supplemental thereto. 2 3 "Initial Holding Period" shall mean the period commencing on the Closing Date and ending on the earliest to occur of (i) the date on which Holder or its Affiliates shall have sold or otherwise disposed of all of the Initial Shares, (ii) the date on which Holder shall have received aggregate Proceeds to Holder in an amount equal to or in excess of the Net Exchange Value, (iii) the first date on which a Credit Downgrade shall have occurred or (iv) the first anniversary date of the Closing Date. "Initial Price" shall mean $23.625 per share of Common Stock. "Initial Shares" shall mean 1,152,381 shares of Common Stock (which number of shares of Common Stock is determined by (a) multiplying $45,000,000 Principal Amount at Maturity of Holder LYONS by .605 and (b) dividing such amount by the Initial Price). "LIBOR" shall be calculated by the Calculation Agent in accordance with the following provisions: (i) After the Closing Date, on which LIBOR shall initially be calculated, LIBOR will be calculated on the first date of each calendar month during which this Agreement is in effect, or if such rate is not available on such date, the next date on which such rate is available, and will be the rate for deposits in U.S. dollars having a maturity of one (1) month, commencing on the second London Banking Day immediately following such determination date, that appears on Telerate Page 3750 as of 11:00 A.M., London time, on such determination date ("LIBOR Telerate"). "Telerate Page 3750" means the display designated as page "3750" on the Telerate Service (or such other page as may replace the 3750 page on that service or such other service or services as may be nominated by the British Bankers' Association for the purpose of displaying London interbank offered rates for U.S. dollar deposits). If no rate appears on Telerate Page 3750, LIBOR in respect of such determination date will be determined as if the parties had specified the rate described in (ii) below. (ii) With respect to a LIBOR determination date on which no rate appears on Telerate Page 3750, LIBOR will be determined on the basis of the rates at which deposits in U.S. dollars having a maturity of one (1) month are offered at approximately 11:00 A.M., London time, on such determination date by four major banks in the London interbank market selected by the Holder (the "Reference Banks") to prime banks in the London interbank market, commencing on the second London Banking Day immediately following such determination date and in a principal amount equal to an amount of not less than U.S. $1 million that is representative for a single transaction in such market at such time. The Holder will request the principal London office of each of the Reference Banks to provide a quotation of its rates. If at least two such quotations are provided, LIBOR for such determination date will be the arithmetic mean of such quotations. If fewer than two quotations are provided, LIBOR for such determination date will be the arithmetic mean of the rates quoted by 11:00 A.M., New York City time, on such determination date by three major banks in The City of New York selected by the Holder for loans in U.S. dollars to leading European banks, having a maturity of one (1) month, commencing on the second London Banking Day immediately following such determination date and in a principal amount equal to an amount of not less than U.S. $1 million that is representative for a single transaction in such market at such time; provided, however, that if the banks selected as aforesaid by the Holder are not quoting as mentioned in this sentence, LIBOR will be LIBOR in effect on such determination date. 3 4 "LYONs" shall mean $235,750,000 aggregate Principal Amount at Maturity of Liquid Yield Option Notes due February 15, 2009 issued and sold by the Company pursuant to the Indenture. "Material Adverse Effect" shall mean the occurrence of any event or circumstance which has a material adverse effect on the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise. "Minimum Price" shall mean $21.625 per share of Common Stock of the Company. "Net Carry Amount" shall mean, for any date of determination, an amount equal to the number of Exchange Shares (excluding the number of shares of Common Stock representing Holder's Short Position on the Closing Date) held (including shares of Common Stock traded but not yet settled) by Holder as of 6:00 p.m. Pacific time on the day prior to such date, multiplied by the Initial Price. "Net Exchange Value" shall mean the product of (a) the aggregate number of Initial Shares, reduced by the number of shares of Common Stock representing Holder's Short Position on the Closing Date, multiplied by (b) the Initial Price. "NYSE" shall mean the New York Stock Exchange. "Proceeds to Holder" shall mean the aggregate amount of gross proceeds to Holder (or any Affiliate of Holder) from sales or other dispositions of Exchange Shares, reduced by $0.025 for each Exchange Share (representing the commission on such Exchange Shares); provided, however, that gross proceeds received or deemed to have been received by Holder by reason of delivering Exchange Shares to close Holder's Short Position pursuant to Section 5(a) below shall not constitute Proceeds to Holder, and no commissions shall be payable by the Company to Holder in respect of Exchange Shares delivered by Holder to close its Short Position; and provided further, however, that the gross proceeds to Holder for any sale or other disposition of Exchange Shares in violation of the minimum resale price provisions of Section 2(e) below shall be deemed to be the Minimum Price or the Adjusted Minimum Price, as the case may be. "Repayment Event" shall mean any event or condition which gives the holder of any note, debenture or other evidence of indebtedness (or any person acting on such holder's behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Company or any Subsidiary. "Sale Price" of the Common Stock on any date means the closing per share sale price for the Common Stock (or, if no closing sale price is reported, the average of the bid and ask prices or, if more than one in either case, the average of the average bid and average ask prices) on the NYSE Composite Tape or, in the event the Common Stock is not listed on the NYSE, such other national or regional securities exchange upon which the Common Stock is listed, as reported in the composite transactions for the principal United States securities exchange on which the Common Stock is traded or, if the Common Stock is not listed on a United States national or regional securities exchange, as reported by NASDAQ, or, if the Common Stock is not reported by NASDAQ, the high per share bid price for the Common Stock in the over-the-counter market as reported by the National Quotation Bureau or similar organization, or, if such bid price is not available, the per share market value of the Common Stock on such date shall be determined by the Company on such basis as it deems appropriate. 4 5 "SEC Filings" shall mean the Company's Annual Report on Form 10-K for the year ended December 31, 1996, the Company's definitive proxy statement relating to its annual meeting of stockholders held June 17, 1997, and the Company's Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 1997 and June 30, 1997. "Securities Act" shall mean the Securities Act of 1933, as amended. "Short Position" shall mean 650,000 shares of Common Stock which Holder is required (irrespective of the terms of Holder's contractual delivery requirements in respect thereof) to deliver on the Closing Date in order to eliminate its short position in the Common Stock. "Subsidiary" shall mean each "significant subsidiary" of the Company (as such term is defined in Rule 1-02 of Regulation S-X). 2. Exchange of Securities. (a) Authorization of Exchange for LYONs. As of the date of this Agreement, $187,500,000 aggregate Principal Amount at Maturity of the LYONs are outstanding. The Company, upon the terms and subject to the conditions set forth herein, has duly authorized the issuance of shares of its Common Stock in exchange for the Holder LYONs. (b) Calculation Agent. The Calculation Agent shall be solely responsible for determining all amounts to be paid or transferred pursuant to the terms of this Agreement and the Calculation Agent's determinations shall be final and binding in the absence of manifest error. (c) Exchange. Upon the terms and subject to the conditions of this Agreement, on the Closing Date the Company agrees to issue to Holder the Initial Shares and the right to receive the Additional Shares, and Holder agrees to surrender to the Company the Holder LYONs in exchange therefore. The Initial Shares are being offered and sold and will be issued to Holder without being registered under the Securities Act in reliance upon the exemption therefrom provided by Section 3(a)(9) of the Securities Act. The Exchange Shares will be issued to the Holder in the manner set forth in this Agreement and the Initial Shares will be and, upon the Effective Date (as defined below), the Additional Shares will be free and clear of legend or transfer restrictions (other than those imposed * pursuant to this Agreement). (d) Adjustment Provisions. (i) Upon the expiration of the Initial Holding Period, if the aggregate amount of Proceeds to Holder arising from sales or other dispositions of the Initial Shares during the Initial Holding Period is determined to exceed the sum of the Net Exchange Value plus accrued and unpaid Cost of Carry, the Holder shall surrender to the Company for cancellation and assign to the Company, for no consideration to Holder, all of the Initial Shares then held by Holder or, if Holder shall have sold or otherwise disposed of all of the Initial Shares (including for purposes hereof Holder's surrender of its Initial Shares pursuant to the immediately preceding clause) then Holder shall acquire shares of Common Stock, and surrender to the Company for cancellation and assign to the Company, for no consideration to Holder, a number of shares of Common Stock (rounded to the nearest whole share) equal to the quotient obtained by dividing the amount of such excess by the Sale Price of the Common Stock as of the last Trading Day of the Initial Holding Period. 5 6 (ii) Upon the expiration of the Initial Holding Period, if the aggregate amount of Proceeds to Holder arising from sales or other dispositions of the Initial Shares during the Initial Holding Period is determined to be less than the sum of the Net Exchange Value plus accrued and unpaid Cost of Carry, then Holder shall be entitled to receive from the Company, and the Company shall issue to the book entry account maintained by Holder with DTC, upon the instructions of Holder, without the payment by Holder of any additional consideration other than the Holder LYONs surrendered for exchange on the Closing Date, a number of Additional Shares equal to (A) the quotient obtained by dividing (1) the aggregate amount of such deficiency, by (2) the Sale Price of the Common Stock as of last Trading Day of the Initial Holding Period, reduced by (B) the number of Initial Shares, if any, held by Holder upon the expiration of the Initial Holding Period. If the number of Additional Shares to be delivered pursuant to this Section 2(d)(ii) exceeds 10,000, or if on any day during the Initial Holding Period a Credit Downgrade shall have occurred, then the Holding Period shall be extended for the Extended Holding Period. (iii) Upon the expiration of the Extended Holding Period, if the aggregate amount of Proceeds to Holder arising from sales or other dispositions of Exchange Shares during the Extended Holding Period is determined to exceed the sum of the Net Exchange Value plus accrued and unpaid Cost of Carry, less the aggregate amount of Proceeds to Holder arising from sales or other dispositions of Exchange Shares during the Initial Holding Period, the Holder shall surrender to the Company for cancellation and assign to the Company, for no consideration to Holder, all of the remaining Exchange Shares then held by Holder or, if Holder shall have sold or otherwise disposed of all of the Initial Shares and the Additional Shares (including for purposes hereof Holder's surrender of its Initial Shares pursuant to the immediately preceding clause) then Holder shall acquire shares of Common Stock, and surrender to the Company for cancellation and assign to the Company, for no consideration to Holder, a number of shares of Common Stock (rounded to the nearest whole share) equal to the quotient obtained by dividing the amount of such excess by the Sale Price of the Common Stock as of the last Trading Day of the Extended Holding Period. (iv) Upon the expiration of the Extended Holding Period, if the aggregate amount of Proceeds to Holder arising from sales or other dispositions of Exchange Shares during the Extended Holding Period is determined to be less than the sum of the Net Exchange Value plus accrued and unpaid Cost of Carry, less the aggregate amount of Proceeds to Holder arising from sales or other dispositions of Exchange Shares during the Initial Holding Period, then Holder shall be entitled to receive from the Company, and the Company shall issue to the book entry account maintained by Holder with the DTC, upon the instructions of Holder, without the payment by Holder of any additional consideration other than the Holder LYONs surrendered for exchange on the Closing Date, a number of Additional Shares equal to (A) the quotient obtained by dividing (1) the aggregate amount of such deficiency, by (2) the Sale Price of the Common Stock as of last Trading Day of the Extended Holding Period, reduced by (B) the number of Exchange Shares, if any, held by Holder upon the expiration of the Extended Holding Period. (v) The Additional Shares, if any, to be delivered to Holder pursuant to this Section 2(d) shall be issued at such date, time and place as may be agreed upon by the Company and the Holder. In the event that Additional Shares are delivered hereunder and the Holding Period is not extended for the Extended Holding Period, then the Company shall compensate Holder in cash for any decrease in the value of the Additional Shares between the dates on which such number is determined and the later of (A) the date on which the Additional Shares are delivered, or (B) the date on which the 6 7 registration statement covering resales of such Additional Shares described in paragraph (f) below shall have become effective under the Securities Act (the "Effective Date"). Such amount shall be determined as the difference, if negative, between the Sale Price of the Common Stock on the last day of the Initial Holding Period and the Sale Price of the Common Stock on the later of (A) the date on which the Additional Shares are delivered to Holder pursuant to the terms of this Agreement, or (B) the Effective Date, and shall be paid immediately after such calculation has been made by the Calculation Agent. In the event such amount is positive, Holder shall compensate the Company in a like manner. (vi) The Company shall have the right, exercisable by delivery of written notice to Holder within two Business Days following the expiration of the Extended Holding Period, to purchase from Holder any or all Exchange Shares held by Holder at the expiration of the Extended Holding Period for an aggregate purchase price equal to the difference, if positive, of (1) the sum of the Net Exchange Value plus accrued and unpaid Cost of Carry, reduced by (2) the aggregate amount of Proceeds to Holder arising from sales or other dispositions of Exchange Shares during the Holding Period. If the Company elects not to or fails to exercise such right, Holder shall be entitled to sell or otherwise dispose of all such remaining Exchange Shares either during the five (5) Trading Day period commencing on either the expiration of the Extended Holding Period or, if later, the Effective Date. Within two (2) Business Days following the end of such five (5) Trading Day period, the Company shall compensate Holder in cash (without duplication for any compensation paid pursuant to Section 2(d)(v)) for any losses realized by Holder from such sales or dispositions of Exchange Shares and the Cost of Carry accrued during such period. Such amount shall be determined as the difference, if positive, between the Sale Price of such Exchange Shares as of the Trading Day on which such Additional Shares were delivered to Holder pursuant to Section 2(d)(iv) and the Proceeds to Holder arising from the sale or disposition thereof. In the event such amount is negative, Holder shall compensate the Company in a like manner. (e) Cost of Carry. During the Holding Period, the Company agrees to pay to the Holder the Cost of Carry for each day from (but excluding) the Closing Date to the last Trading Day of the Holding Period; provided, however, that the aggregate amount payable by the Company as the Cost of Carry shall be reduced (not below zero) by the aggregate amount of dividends in respect of the Exchange Shares which Holder shall have become entitled to receive by reason of being a holder of Exchange Shares as of any record date for the payment of dividends on the Common Stock which occurs during the Holding Period. The Cost of Carry shall become due and payable within ten (10) days after the last Trading Day of the Holding Period and may be paid, at the option of the Company, either in (i) cash, (ii) in Additional Shares as provided in Section 2(d) above, or (iii) any combination thereof. For purposes of subsection (d)(iv), the Cost of Carry shall be calculated to include the five (5) Trading Day period referenced therein. (f) Registration of Additional Shares. Any Additional Shares shall be issued pursuant to an effective registration statement or pursuant to an available exemption from the registration requirements of Section 5 of the Securities Act, the availability of which shall be confirmed by an opinion of Stradling Yocca Carlson & Rauth, or other counsel reasonably satisfactory to Holder, in form and substance reasonably satisfactory to Holder. Within six (6) months following the Closing Date, the Company shall file a registration statement with the Securities and Exchange Commission under the Securities Act, for the purpose of registering the Additional Shares, and shall use its best efforts to cause such registration statement to be declared effective under the Securities Act. 7 8 (g) Limitation on Resale Price. Holder agrees, for itself and on behalf of its Affiliates, that (i) during the period commending on the Closing Date and ending on the date which is five (5) calendar months after the Closing Date, no Exchange Shares shall be sold or otherwise disposed of for a price per share of Common Stock which is less than the Minimum Price, and (ii) during the four (4) month period thereafter, no Exchange Shares shall be sold or otherwise disposed of for a price per share of Common Stock which is less than the Adjusted Minimum Price. The provision of this paragraph (g) shall terminate and be of no further force or effect upon the occurrence of a Credit Downgrade. (h) Closing. The closing of the exchange of LYONs for Initial Shares under this Agreement (the "Closing") shall take place on the Closing Date by electronic book entry through DTC. At the Closing, the Holder LYONs shall be delivered by the Holder, and the Initial Shares by the Transfer Agent on behalf of the Company, by book entry transfer through DTC. The exchange shall not be deemed complete or the Closing to have been effected until a book entry confirmation is received by the Company and the Holder confirming that the Holder LYONs, in the case of the Company, and the Initial Shares, in the case of the Holder, have been transferred to the account of the Company (or its designee or nominee), in the case of the Holder LYONs, and the Holder (or its designee or nominee), in the case of the Initial Shares, and such exchange shall take place on the same Trading Day and as simultaneously as possible. The Company and the Holder shall cooperate and coordinate their efforts, and those of their respective agents, nominees and designees, with DTC, the Transfer Agent and the Trustee to accomplish the foregoing objective; provided, however, that neither the Company, the Holder nor the Transfer Agent, nor any designee or nominee of the foregoing, shall have any liability for the performance by DTC or its participants of their respective obligations under the rules and procedures governing their operations. (i) Cash Collateral. The Company agrees to pay to the Holder, on the 15th and 30th day of each calendar month during the Holding Period, or if there is no 30th day the last day of such calendar month (the "Deposit Date"), for deposit to an account established by and for the benefit of holder (the "Cash Collateral Account") an amount of cash, calculated by the Calculation Agent as of the third Business Day immediately preceding the Deposit Date (the "Calculation Date"), equal to: (i) the amount, if any, of any accrued and unpaid Cost of Carry; plus (ii) an amount equal to (A) the number of Exchange Shares sold or otherwise disposed of since the Closing Date multiplied by (B) the difference, if positive, of the Initial Price and the Execution Price of the Common Stock; plus (iii) an amount equal to (A) the difference, if a positive number, between (A) the Initial Price and (B) the Sale Price of the Common Stock, multiplied by (B) the number of Exchange Shares then held by Holder; minus (iv) an amount equal to (A) the number of Exchange Shares sold or otherwise disposed of since the Closing Date times (B) the difference, if positive, of the Execution Price of the Common Stock and the Initial Price; 8 9 provided, however, that the Company's obligation to pay cash into the Cash Collateral Account shall initially arise only if the net amount, calculated pursuant to this Section (i), is in excess of $500,000 and, thereafter, on each Deposit Date if the amount, calculated pursuant to this Section (i), is $500,000 in excess of the amount in the Cash Collateral Account on the date immediately preceding that Deposit Date. Holder agrees to pay interest to the Company monthly on the amount in the Cash Collateral Account at a rate equal to LIBOR. The Company's obligation to maintain the Cash Collateral Account shall continue until the Company has satisfied all of its obligations under this Agreement whereupon the entire amount of cash then on deposit in the Cash Collateral Account shall be released to the Company. The Company grants to holder a continuing security interest in the Cash Collateral Account to secure the Company's obligations under this Agreement; provided, however, that Holder shall not liquidate or apply any amount on deposit in the Cash Collateral Account unless or until (a) the Company shall have defaulted on any obligation under this Agreement, including the obligation to make payments to the Cash Collateral Account pursuant to this Section 2(i), and such default shall have continued for a period of five (5) Business Days after the Company receives written notice of such default from Holder, or (b) as of the expiration of the Holding Period, either the Common Stock is not then listed on the NYSE, any national or regional securities exchange or the NASDAQ Stock Market or trading in the Common Stock shall have been suspended by the NYSE, such securities exchange or NASDAQ for two (2) consecutive Trading Days. In the foregoing events, Holder shall be entitled to liquidate or apply amounts on deposit in the Cash Collateral Account only in an amount equal to the difference, if negative, between (1) the aggregate amount of Proceeds to Holder arising from sales or other dispositions of Exchange Shares, and (2) the sum of the Net Exchange Value plus accrued and unpaid Cost of Carry. Immediately upon such liquidation or application of the Cash Collateral Account, Holder shall (a) surrender to the Company for cancellation and assign to the Company, for no consideration to Holder, all Exchange Shares then held by Holder, (b) release to the Company the remaining amounts, if any, on deposit in the Cash Collateral Account, and (c) pay to the Company all accrued and unpaid interest on amounts theretofore held in the Cash Collateral Account. (j) Credit Downgrade. In the event of a Credit Downgrade, (i) the aggregate net accrued and unpaid obligations of the Company and the Holder, as the case may be, under Section 2(d) under this Agreement shall become due and payable within ten (10) Business Days following the Credit Downgrade, (ii) Holder shall be entitled to sell or otherwise dispose of its remaining Exchange Shares without any minimum price restrictions; provided, however, that Holder shall first offer the Company the right to purchase all or any part of such remaining Exchange Shares for cash at a purchase price equal to the Initial Price, and (iii) the Initial Holding Period shall terminate and the Extended Holding Period shall commence. 3. Representations and Warranties of the Company. Except as set forth in the SEC Filings or in the Disclosure Schedules attached hereto, the Company represents and warrants to the Holder as follows: (a) Organization and Standing of the Company. The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Delaware and has corporate power and authority to own, lease and operate its properties and to 9 10 conduct its business and to enter into and perform its obligations under this Agreement; and the Company is duly qualified as a foreign corporation to transact business and is in good standing in each other jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect. (b) Organization and Standing of Subsidiaries. Each Subsidiary has been duly organized and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has corporate power and authority to own, lease and operate its properties and to conduct its business and is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect. (c) Authorization of Agreement and Securities. This Agreement and the transactions contemplated herein have been duly authorized, executed and delivered by the Company. This Agreement is a legal, valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except as limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principals relating to or limiting creditors' rights generally. The Exchange Shares have been duly authorized for issuance and sale to the Holder pursuant to this Agreement and, when issued and delivered by the Company pursuant to this Agreement against payment of the consideration set forth herein, will be validly issued, fully paid and non-assessable; no holder of the Exchange Shares will be subject to personal liability by reason of being such a holder; and the issuance of the Exchange Shares is not subject to the preemptive or other similar rights of any securityholder of the Company. (d) Reports and Financial Statements. The SEC Filings complied when filed in all material respects with all applicable requirements of the Securities Exchange Act of 1934, as amended. None of the SEC Filings, including, without limitation, any financial statements or schedules included or incorporated by reference therein, contained when filed any untrue statement of a material fact, or omitted when filed to state a material fact required to be stated or incorporated by reference therein or necessary in order to make the statements therein, in light of the circumstances under which made, not misleading. Since the dates as of which information is given in the SEC Filings, except as otherwise stated therein, (i) there has been no material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company, whether or not arising in the ordinary course of business, (ii) there have been no transactions entered into by the Company, other than those in the ordinary course of business, which are material with respect to the Company, and (iii) except by regular dividends there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock. The audited consolidated financial statements of the Company included in its Annual Report on Form 10-K referred to in the first sentence of this paragraph (d) fairly present, in conformity with generally accepted accounting principles applied on a consistent basis (except as may be indicated in the notes thereto), the consolidated financial position of the Company and its consolidated subsidiaries as of the dates thereof and their consolidated results of operations and changes in financial position for the periods then ended. 10 11 (e) Absence of Defaults and Conflicts. Neither the Company nor any of its Subsidiaries is in violation of its charter or by-laws or in default in the performance or observance of any obligation, agreement, covenant or condition contained in any of the Agreements and Instruments, except for such defaults that would not result in a Material Adverse Effect; and the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated herein and compliance by the Company with its obligations hereunder have been duly authorized by all necessary corporate action and do not and will not, whether with or without the giving of notice or passage of time or both, conflict with or constitute a breach of, or default or Repayment Event under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any Subsidiary pursuant to, the Agreements and Instruments (except for such conflicts, breaches or defaults or liens, charges or encumbrances that would not result in a Material Adverse Effect), nor will such action result in any violation of the provisions of the charter or by-laws of the Company or any Subsidiary or any applicable law, statute, rule, regulation, judgment, order, writ or decree of any government, government instrumentality or court, domestic or foreign, having jurisdiction over the Company or any Subsidiary or any of their assets, properties or operations. (f) Absence of Proceedings. There is no action, suit, proceeding, inquiry or investigation before or brought by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of the Company, threatened, against or affecting the Company or any Subsidiary, or which might reasonably be expected to result in a Material Adverse Effect, or which might reasonably be expected to materially and adversely affect the properties or assets thereof or the consummation of the transactions contemplated in this Agreement or the performance by the Company of its obligations hereunder; the aggregate of all pending legal or governmental proceedings to which the Company or any Subsidiary is a party or of which any of their respective property or assets is the subject, including ordinary routine litigation incidental to the business, could not reasonably be expected to result in a Material Adverse Effect. (g) Absence of Further Requirements. Based upon the representations and warranties of the Holder set forth in Section 4 below, no filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any court or governmental authority or agency is necessary or required for the performance by the Company of its obligations hereunder, in connection with the offering, issuance or sale of the Exchange Shares hereunder or the consummation of the transactions contemplated by this Agreement. (h) No Investment Company. Neither the Company nor any of its Subsidiaries is an investment company within the meaning of the Investment Company Act of 1940, a amended. (i) Section 3(a)(9). The Company represents that the issuance and sale of the Initial Shares is exempt from the requirements of Section 5 of the Securities Act by reason of the exemption from registration requirements provided by Section 3(a)(9) thereunder. (j) Free Shares. Other than restrictions on transfer, if any, imposed by this Agreement, or restrictions under applicable securities laws imposed on any Additional Shares, if such Additional Shares shall have been issued pursuant to an exemption from the requirements of Section 5 of the Securities Act, there are no restrictions on the transfer of the Exchange Shares, and no legends or stop order instructions shall be placed against the certificates or book entries representing the Exchange Shares. 11 12 4. Representations and Warranties of the Holder. The Holder hereby represents and warrants to the Company as follows: (a) Authorization of Agreement. This Agreement has been duly authorized, executed and delivered by the Holder, and is a legal, valid and binding agreement of the Holder enforceable against the Holder in accordance with its terms, except as limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principals relating to or limiting creditors' rights generally. (b) Ownership of LYONs. Holder is the beneficial owner of the Holder LYONs and, upon the Closing, the Company will acquire good marketable and unencumbered tile to the Holder LYONs surrendered by the Holder for exchange, free and clear of all security interests, liens, charges, encumbrances, conditional sales agreements as other obligations relating to their sale or transfer, and subject to no adverse claim. (c) Absence of Further Requirements. No filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any court, governmental authority or agency or stock exchange is necessary or required by Holder for the performance by the Holder of its obligations hereunder or the consummation of the transactions contemplated by this Agreement, other than filings with the NYSE necessary to list the Exchange Shares on the NYSE. 5. Certain Covenants of the Holder. (a) Holder's Short Position. Within three (3) Trading Days following the Closing Date, Holder shall deliver that number of Initial Shares which is necessary to eliminate Holder's Short Position in the Common Stock. For purposes of this Agreement (specifically, for the purposes of determining Proceeds to Holder), the delivery of shares of Common Stock by Holder pursuant to this Section 5(a) shall be deemed to generate gross proceeds from sales or other dispositions of Common Stock in an amount equal to the product of the number of shares so delivered multiplied by the Initial Price. During the term of this Agreement Holder agrees that, except in connection with its normal market making activities in the LYONs or in connection with transactions for or on behalf of Holder's customers, Holder will not effect any short sales of the Common Stock. (b) Certain Information. Holder agrees to give notice to the Company, to the attention of its Executive Vice President, Finance, by facsimile transmission not later than 3:00 p.m. Pacific time on each Business Day during the Holding Period, setting forth in reasonable detail (i) the number of Exchange Shares sold or otherwise disposed of on the immediately preceding Trading Day, (ii) the number of Exchange Shares delivered to close Holder's Short Position in the Common Stock on the immediately preceding Trading Day, (iii) the gross proceeds generated from sales or other dispositions of Exchange Shares (including those described in (ii) above) on the immediately preceding Trading Day, (iv) the number of Exchange Shares held by holder as of the close of business on the immediately preceding Trading Day, and (v) LIBOR as of the day of notice. 6. Conditions of Obligations of the Holder. The obligations of the Holder hereunder are subject to the accuracy of the representations and warranties of the Company contained in Section 3 hereof, to the performance by the Company of its covenants and other obligations hereunder, and to the satisfaction, at or before the delivery of the LYONs and Initial Shares at the Closing, of each of the following conditions: 12 13 (a) Officers' Certificate. The Holder shall have received a certificate of the President or an Executive Vice President of the Company and the Chief Financial Officer of the Company, dated as of Closing Date, to the effect that (i) the representations and warranties in Section 3 hereof are true and correct with the same force and effect as though expressly made at and as of Closing Date, and (ii) the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to Closing Date. (b) Approval of Listing. The Exchange Shares shall have been approved for listing on the NYSE, subject only to official notice of issuance. (c) No Legal Restraints. There shall not be in effect on the Closing Date any order, law, rule or regulation restraining, enjoining or otherwise prohibiting or making illegal the communication of the transaction contemplated by this Agreement. (d) Opinion of Counsel. Holder shall have received an opinion of counsel for the Company, in form and substance reasonably satisfactory to the Holder, to the effect set forth in Appendix I hereto. (e) Additional Documents. Counsel for the Holder shall have been furnished with such documents as they may require for the purpose of enabling them to pass upon the exchange of securities as herein contemplated, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained. 7. Conditions of Obligations of the Company. The obligations of the Company hereunder are subject to the accuracy of the representations and warranties of the Holder contained in Section 4 hereof, to the performance by the Holder of its covenants and other obligations hereunder, and to the satisfaction, at or before the delivery of the LYONs and the Initial Shares at the Closing, of the following conditions: (a) Officers' Certificate. The Company shall have received a certificate of a duly authorized executive officer of the Holder, dated as of Closing Date, to the effect that (i) the representations and warranties in Section 4 hereof are true and correct with the same force and effect as though expressly made at and as of Closing Date, and (ii) the Holder has complied with all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to Closing Date. (b) Approval of Listing. The Exchange Shares shall have been approved for listing on the NYSE, subject only to official notice of issuance. (c) No Legal Restraints. There shall not be in effect on the Closing Date any order, law, rule or regulation restraining, enjoining or otherwise prohibiting or making illegal the communication of the transaction contemplated by this Agreement. (d) Additional Documents. Counsel for the Company shall have been furnished with such documents as they may require for the purpose of enabling them to pass upon the exchange of securities as herein contemplated, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained. 13 14 8. Representations, Warranties and Agreements to Survive Delivery. All representations, warranties and agreements contained in this Agreement shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of the Holder or any controlling person, or by or on behalf of the Company, and shall survive delivery of the Exchange Shares to the Holder. 9. Termination of Agreement. (a) Termination; General. The Holder may terminate this Agreement, by notice to the Company, at any time at or prior to Closing Date (i) if there has been, since the time of execution of this Agreement, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its Subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, or (ii) if there has occurred any material adverse change in the financial markets in the United States or the international financial markets, any outbreak of hostilities or escalation thereof or other calamity or crisis or any change or development involving a prospective change in national or international political, financial or economic conditions, in each case the effect of which is such as to make it, in the judgment of the Holder, impracticable to enforce contracts for the sale of securities, or (iii) if trading in any securities of the Company has been suspended or materially limited by the Securities and Exchange Commission or the NYSE, or if trading generally on the American Stock Exchange or the NYSE or in the Nasdaq National Market has been suspended or materially limited, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices have been required, by any of said exchanges or by such system or by order of the Commission, the National Association of Securities Dealers, Inc. or any other governmental authority, or (iv) if a banking moratorium has been declared by either Federal or New York authorities. (b) Liabilities. If this Agreement is terminated pursuant to this Section 9, such termination shall be without liability of any party to any other party; provided, that Section 12 shall survive such termination and remain in full force and effect. 10. Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Holder shall be directed to the Holder at North Tower, 5th Floor, World Financial Center, New York, New York 10281-1201, to the attention of Kathryn McAdams, Edward Weis and Paul Pepe, and to Brown & Wood LLP, One World Trade Center, New York, New York 10048-0557, to the attention of John C. Maquire; and notices to the Company shall be directed to it at 3916 State Street, Suite 300, Santa Barbara, California 93105, to the attention of Carl A. Strunk, Executive Vice President, Finance, with copies to M'Liss Jones Kane, General Counsel, and to Stradling Yocca Carlson & Rauth, a Professional Corporation, 660 Newport Center Drive, Suite 1600, Newport Beach, California 92660, to the attention of C. Craig Carlson. 11. Parties. This Agreement shall each inure to the benefit of and be binding upon the Holder and the Company and their respective successors. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation, other than the Holder and the Company and their respective successors any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. This Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the Holder and 14 15 the Company and their respective successors, and for the benefit of no other person, firm or corporation. 12. Expenses. Each of the parties to this Agreement shall bear its own expenses in connection with the preparation and negotiation of this Agreement and the consummation of the transactions contemplated hereby. 13. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. 14. Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof. If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement between the Holder and the Company in accordance with its terms. Very truly yours, FIDELITY NATIONAL FINANCIAL, INC. By: /s/ CARL A. STRUNK --------------------------------- Name: Carl A. Strunk Title: Executive Vice President, Finance CONFIRMED AND ACCEPTED, as of the date first above written: MERRILL LYNCH & CO. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By: -------------------------------- Name: Title: 15 16 the Company and their respective successors, and for the benefit of no other person, firm or corporation. 12. Expenses. Each of the parties to this Agreement shall bear its own expenses in connection with the preparation and negotiation of this Agreement and the consummation of the transactions contemplated hereby. 13. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. 14. Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof. If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement between the Holder and the Company in accordance with its terms. Very truly yours, FIDELITY NATIONAL FINANCIAL, INC. By: --------------------------------- Name: Carl A. Strunk Title: Executive Vice President, Finance CONFIRMED AND ACCEPTED, as of the date first above written: MERRILL LYNCH & CO. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By: /s/ FRANK V. MCMAHON -------------------------------- Name: Frank V. McMahon Title: Director 15 EX-10.53 19 STOCK AND ASSET PURCHASE AGREEMENT 1 EXHIBIT 10.53 EXECUTION COPY STOCK AND ASSET PURCHASE AGREEMENT THIS STOCK AND ASSET PURCHASE AGREEMENT (the "Agreement") is dated as of May 22, 1997, by and between RANDALL F. ZURBACH and JOHN C. WILBUR, JR., on behalf of a new entity formed by them for the purpose of this Agreement (collectively, the "Purchaser"), and FIDELITY NATIONAL FINANCIAL, INC. (the "Seller") with respect to the stock of FNF Ventures, Inc., a California corporation (the "Company"), and certain related assets. NOW, THEREFORE, IT IS AGREED: ARTICLE I Sale of Stock and Related Assets 1.1 Sale of Stock and Other Assets. Subject to the terms and conditions stated below, Seller agrees to sell and deliver to Purchaser and its successors and assigns forever (a) all 250 shares of Company's common stock (the "Stock") and (b) all the right, title and interest of Seller and its affiliates (including without limitation Cal-West Services, Inc.), established by a participation agreement dated January 19, 1996 granting a 25% interest in a promissory note in the original principal amount of $1,000,000, and in a right to acquire 37.5% of the shares of Falzetti Umbrella, Inc. (such interest being called the "Other Assets" for purposes of this Agreement) and the Purchaser agrees to purchase from the Seller all 250 shares of Stock, and the "Other Assets," for the purchase price hereinafter set forth, on the Closing Date. 1.2 Purchase Price. In full consideration for the purchase of the Stock and the Other Assets, the Purchaser shall (a) pay to the Seller, on the Closing Date, an aggregate amount of $2,600,000 for the Stock payable to the bank account designated by Seller in immediately available funds; (b) pay to Seller's designated affiliate the sum of $240,776 in immediately available funds as consideration for the Other Assets; 2 (c) grant to Seller or Seller's designee, as additional consideration for sale of the Stock, a participation interest representing only the right to receive 20% of any value received by Company from its existing warrants in the following companies: AMI Telecommunications, Inc. Bluebird Systems, Inc. NetPro Computing, Inc. distributable at the earlier of (x) the date such warrants or shares obtained by exercise thereof are sold for cash or for securities of another entity or (y) the date any dividends are paid or securities obtained upon exercise of the warrants are distributed to other holders or (z) after restrictions on transfer imposed in the applicable Restricted Stock Agreement lapse; and (d) pay, or cause Company to pay, the "Inter-Company Balance" described below in Section 4.2(c) on the Closing Date. 1.3 Allocation of Price. Seller and Purchaser agree that the $2,600,000 payment and the grant of a participation interest as contemplated by Section 1.2(c) represent consideration for the Stock and the sum of $240,776 represents consideration for the Other Assets. 1.4 Closing. The sale referred to in Section 1.1 shall take place at 10:00 a.m. at the offices of Paul, Hastings, Janofsky & Walker LLP, 695 Town Center Drive, 17th Floor, Costa Mesa, California 92626 on or before the thirtieth business day after receipt of the approval from the United States Small Business Administration ("SBA") for the change of control of Company, or at such other time and date as the parties hereto shall by written instrument designate. Such time and date are herein referred to as the "Closing Date." At the Closing: (a) Seller shall tender or instruct the escrow holder to tender the certificates for the Stock, together with appropriate transfer documents for the Other Assets, duly endorsed in a manner reasonably satisfactory to Purchaser, and accompanied by any necessary consents of third parties to the transfer of the Other Assets; -2- 3 (b) Seller shall deliver written resignations of William P. Foley, II, M'Liss Jones Kane, Carl A. Strunk and Frank P. Willey. (c) Seller shall deliver a certificate executed by Seller, dated as of the Closing Date, that all warranties and representations given by Seller in this Agreement are true and correct as of such date; (d) Seller shall deliver a certified copy of the resolutions of the Board of Directors of Seller authorizing the execution, delivery and consummation of this Agreement and all agreements and documents executed in connection herewith by it, sufficient in form and content to meet the requirements of the law of the state of Seller's incorporation relevant to such transactions and certified by officers of Seller to be validly adopted and in full force and effect and unamended as of the Closing; (e) Purchaser shall pay the amounts described in Sections 1.2(a) and 1.2(b), less the deposit contemplated by Section 1.5, shall cause the escrow holder to deliver the deposit, and shall provide evidence satisfactory to Seller of the participation described in Section 1.2(c); and (f) Purchaser and Seller shall agree upon the Inter-Company Balance and Purchaser shall pay such amount, if any, as is due Seller. 1.5 Deposit. Upon execution of this Agreement, Purchaser has deposited with American Title Company the sum of $100,000 and shall deposit a further $200,000 upon filing the application for change of control described in Section 4.3, which amounts shall represent a deposit against the purchase price. Such amounts shall be released from escrow to Seller not more than five (5) days after the SBA confirms receipt of the change of control application or, in any event, no later than on June 27, 1997. Such amount shall be returned to Purchaser within five days if the Closing does not occur because approval of the SBA for the transfer of control of the Company to Purchaser is not obtained, provided Purchaser has complied with its obligations under Section 4.3 to apply for and diligently prosecute the process of obtaining such approval. The deposit shall also be returned to Purchaser if Seller is unable, or fails, to make the deliveries required by Section 1.4(a) or Section 1.4(b), or if the Closing does not occur because of a material misrepresentation by Seller. If the transactions -3- 4 contemplated by this Agreement fail to close for any other reason, such deposit shall be retained by Seller. ARTICLE II Representations of the Seller The Seller hereby represents and warrants to Purchaser as follows: 2.1 Ownership of the Stock; Right to Sell. The Seller is the lawful owner of 250 validly issued shares of Company's common stock, constituting all outstanding shares of the Company, free and clear of all liens, encumbrances, restrictions and claims of every kind. Seller has full legal right, power and authority to enter into this Agreement and to sell, assign, transfer and convey the shares of Stock and to sell, or cause an affiliate to sell, the Other Assets, and has validly executed and delivered this Agreement, which is Seller's legal, valid and binding obligation, except as enforceability may be limited by (a) bankruptcy, insolvency, reorganization, moratorium or other similar laws, now or hereafter in effect, relating to or limiting creditors' rights generally, and (b) general principles of equity (whether considered in an action in equity or at law). The delivery to Purchaser of the Stock pursuant to the provisions of this Agreement will transfer to Purchaser valid title thereto, free and clear of all liens, encumbrances, restrictions and claims of every kind. Delivery of an assignment of the participation interest described in Section 1.1 will transfer to Purchaser valid title to the Other Assets. 2.2 Capitalization. There are no outstanding options, warrants, rights, calls, commitments, conversion rights, rights of exchange, plans or other agreements of any character providing for the purchase, issuance or sale of any shares of the Stock of the Company other than as contemplated by this Agreement. 2.3 Consents Required by Seller. Except for the approval of the United States Small Business Administration, no approval, authorization, consent, order or other action of, or filing with, any third party, including without limitation, any public, governmental, administrative or regulatory authority or agency, is required in connection with the execution, delivery or performance of this Agree- -4- 5 ment by Seller or the consummation of the transactions it contemplates by Seller. 2.4 No Violations; No Consents Required by the Company. To Seller's actual knowledge, neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (i) violate any provision of law applicable to the Company, the Articles of Incorporation or bylaws of the Company, or any order, judgment or decree of any court or other agency of government binding on the Company, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any contractual obligation of the Company material to the condition (financial or otherwise) of the Company's business, or (iii) result in or require the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the assets of the Company. 2.5 Litigation. To Seller's actual knowledge, there are no actions, suits, proceedings, orders or investigations pending or threatened against the Company at law or in equity, or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, and there is no basis known to Seller for any of the foregoing. 2.6 Compliance with the Law and Other Instruments. To Seller's actual knowledge, the business and operation of the Company have been and are being conducted in accordance and in full compliance with all applicable laws, ordinances, rules and regulations of all authorities, the violation of which, individually or in the aggregate, would materially and adversely affect the business of the Company. To Seller's actual knowledge, the Company has all current licenses and permits required for the conduct of its business and is in compliance with the terms of such licenses and permits and the regulations and requirements of licensing and permit authorities. 2.7 Absence of Undisclosed Liabilities. To Seller's actual knowledge, the Company has no liabilities or obligations of any nature or of any amount, whether accrued, absolute, liquidated or unliquidated, contingent or otherwise, except: (a) to the extent reflected in the Company's audited financial statements for the year ended December 31, 1996 ("Financials Date"); and -5- 6 (b) those that have been or will be incurred in or as a result of the ordinary course of business of the Company since the Financials Date, or those that are not material. 2.8 Brokers and Finders. Seller has not incurred any liability for any brokerage fees, commissions, finders' fees or similar fees or expenses for which Purchaser or the Company may be liable. ARTICLE III Representations of the Purchaser The Purchaser hereby represents and warrants to Seller as follows: 3.1 Organization. The entity being formed as the Purchaser will at the Closing be a limited partnership duly organized, existing, and in good standing under the laws of the State of California, with the power and authority to perform this Agreement and in good standing in California to the extent necessary to perform its obligations under this Agreement. 3.2 Authorization. The execution and delivery of this Agreement by Purchaser and the performance of its obligations hereunder have been duly authorized by the general partner of Purchaser and no other corporate action or approval by Purchaser or its partners is necessary for the execution, delivery or performance of this Agreement by Purchaser. This Agreement has been duly executed and delivered by Purchaser, and is a valid and binding obligation of Purchaser, enforceable against it in accordance with its terms, except as such enforceability may be limited by (a) bankruptcy, insolvency, reorganization, moratorium or other similar laws, now or hereafter in effect, relating to or limiting creditors' rights generally, and (b) general principles of equity (whether considered in an action in equity or at law). 3.3 Investment Intent. Purchaser is acquiring the Stock for purposes of investment and not with a view to resale or any distribution thereof as such term is used in federal and California securities laws. -6- 7 ARTICLE IV Covenants 4.1 Exclusive Dealings. During the period from the date of this Agreement to the Closing Date or the date of termination of this Agreement, the Seller shall not directly or indirectly, encourage, initiate or engage in discussions or negotiations with, or provide any information to, any person or entity, other than the Purchaser, concerning any purchase of the Stock or any merger, sale of substantial assets or similar transaction involving the Company. 4.2 Operating the Business Pending the Closing. From the date of execution of this Agreement, until the Closing, the business of the Company shall be operated in the ordinary course of business and Seller and Purchaser agree that the Company shall not (i) pay any dividends or redeem any shares or (ii) make any additional loans or commitments to loan funds unless either funds are available from SBA "leverage" provisions or such funds are provided by Purchaser in a form acceptable to Seller. (a) If any event such as a merger, sale of assets, initial public offering or other event which causes the prepayment of any of the Company's outstanding loans occurs, the funds derived from such prepayment shall be retained by the Company in an interest-bearing account and not distributed unless there is a corresponding dollar-for-dollar reduction in the purchase price. (b) In the event the Company receives any proceeds from any of the warrants referred to in section 1.2(c) above prior to the Closing, 20% of such amount shall be distributed to Seller immediately, and the balance shall be retained by the Company for the benefit of Purchaser. (c) Any funds needed to pay Company's normal operating costs shall continue to be advanced by Seller and its affiliates as has been the case in the past. All amounts so advanced, and any repayments, shall be recorded on the books of Company and Seller in accordance with past practice and the resulting amount (the "Inter-Company Balance") shall be due and payable from Purchaser or Company to Seller at the Closing. Seller agrees to furnish Company its computation of the Inter-Company Balance at least 24 hours prior to the Closing. -7- 8 (d) Without Purchaser's consent, Company will not change its manner of doing business, or, except for cause, its management from the date of this Agreement until the date of the Closing. (e) During the period from the date of this Agreement to the Closing Date, the Company shall not issue any capital stock or securities convertible into capital stock. (f) During the period from the date of this Agreement to the Closing Date, the Company shall not permit any increase in the salaries or other compensation payable to officers, directors or employees of the Company. 4.3 Application for Governmental Consent. Immediately upon the execution and delivery of this Agreement, Purchaser agrees to commence the preparation of the appropriate request to the United States Small Business Administration for a change in control of the Company, to complete and file such application with all reasonable promptness and not later than June 27, 1997, and to diligently pursue such approval. Seller agrees that Company may cooperate in this effort and agrees to direct Company to cooperate to the extent needed. 4.4 Confidentiality. In connection with Seller's ownership of the Stock, Company has disclosed to Seller financial and other information concerning the Company and its business, customers, vendors and future plans. All of such information shall be deemed to be Confidential Information. The parties agree that the Confidential Information was divulged in confidence, and that the Confidential Information constitutes a trade secret and proprietary information of the Company. Seller agrees: (a) Not to directly or indirectly disclose the Confidential Information, or any part thereof, to any third party, without the prior written consent of the Purchaser except for: (i) disclosure to parties assisting the Purchaser or its affiliates to prepare for the Closing; (ii) disclosure in the course of preparation or review of Seller's financial statements and tax returns or reports, (iii) any disclosure reasonably related to regulations or litigation affecting the business of Seller or its affiliates, and (iv) any disclosure related to pending or potential transactions involving Seller or its affiliates which do not violate this Agreement and in which Seller has, by -8- 9 agreement or otherwise, a reasonable expectation the Confidential information will remain non-public and confidential. (b) Not to use the Confidential Information, or any part thereof, for the benefit of the Seller or any third party except in connection with this Agreement, including after the Closing except for: (i) disclosure or use in the course of preparation or review of Seller's financial statements and tax returns or reports, (ii) any disclosure or use reasonably related to regulations or litigation affecting the business of Seller or its affiliates, and (iii) any disclosure related to pending or potential transactions involving Seller or its affiliates which do not violate this Agreement and in which Seller has, by agreement or otherwise, a reasonable expectation the Confidential information will remain non-public and confidential. (c) To the extent the Confidential Information is contained in a writing, to return all Confidential Information and copies thereof to the Company immediately upon demand made after the Closing, except for copies needed to support Seller's financial and tax reporting, or its compliance with other agreements. The parties agree that the term Confidential Information shall not include information which has become publicly known and made generally available through no wrongful act of the Seller. Each party agrees that if the Seller breaches the provisions of this Section 4.4, that it will be difficult if not impossible to determine the damages to be suffered by the Company. Accordingly, the Seller agrees that in the event of such breach, the Company shall be entitled to equitable and injunctive relief, without having to post a bond, in addition to any other relief to which it may be entitled. 4.5 Best Efforts. Purchaser and Seller agree to use best efforts to cause the satisfaction of all conditions to the Closing, including without limitation, on Seller's part, causing its subsidiaries to take any actions required to carry out the transactions contemplated by this Agreement. ARTICLE V Conditions to Purchaser's Obligations The obligation of Purchaser to consummate the purchase of the Stock pursuant to this Agreement is subject to -9- 10 the satisfaction of the following conditions, any of which may be waived in writing by Purchaser. 5.1 Truth of Representations and Warranties. The representations and warranties of the Seller contained in Article II of this Agreement shall be true and correct on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date. 5.2 No Litigation Threatened. No action or proceedings shall have been instituted or, to the best knowledge, information and belief of the Purchasers, threatened before a court or other government body or by any public authority to restrain or prohibit any of the transactions contemplated hereby. 5.3 Governmental Approvals. The approval of the United States Small Business Association for the change of control of Company from Seller to Purchaser, and all consents and appraisals necessary to permit the consummation of the transactions contemplated by this Agreement shall have been obtained and shall be in full force and effect. 5.4 Tender of Documents. Seller shall have delivered, or shall have directed the escrow holder to deliver, certificates evidencing the shares of Stock and the documents comprising the Other Assets duly endorsed and otherwise in proper form for transfer, to Purchaser's and its counsel's reasonable satisfaction. ARTICLE VI Conditions to the Seller's Obligations The obligation of Seller to consummate the sale of the Stock pursuant to this Agreement is subject to the satisfaction of the conditions set forth below. Seller may waive any condition in writing. 6.1 Truth of Representations and Warranties. The representations and warranties of the Purchaser contained in Article III of this Agreement shall be true and correct on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date. -10- 11 6.2 No Litigation Threatened. No action or proceedings shall have been instituted or, to the best knowledge, information and belief of Seller, threatened before a court or other government body or by any public authority to restrain or prohibit any of the transactions contemplated hereby. 6.3 Governmental Approvals. All governmental consents and approvals, if any, necessary to permit the consummation of the transactions contemplated by this Agreement shall have been received. 6.4 Payment. Purchaser shall at the closing on the Closing Date deliver, and direct the escrow holder to deliver, the Purchase Price for the shares of Stock owned by the Seller, and for the Other Assets in immediately available funds and shall have delivered evidence reasonably satisfactory to Purchaser that the participation interest described in Section 1.2(b) has been granted. ARTICLE VII Indemnity 7.1 Indemnification by Seller. Seller shall indemnify and hold harmless the Company and Purchaser from and against and shall reimburse the Company and Purchaser against and in respect of any and all claims, demands, losses, costs, expenses, obligations, liabilities, damages, remedies and penalties, including interest, penalties and reasonable attorneys' fees and expenses (collectively, "Losses") that Purchaser or the Company shall incur or suffer and which arise from or are attributable to, by reason of, or in connection with any breach or inaccuracy of or any failure to perform or comply with any of Seller's representations, warranties, agreements or covenants contained in this Agreement (including any exhibit, letter, schedule or certificate referred to herein). 7.2 Indemnification by Purchaser. Purchaser shall indemnify and hold harmless Seller from and against and shall reimburse Seller against and in respect of any and all Losses that Seller shall incur or suffer and which arise from or are attributable to, by reason of, or in connection with any breach or inaccuracy of or any failure to perform or comply with any of Purchaser's representations, warranties, agreements or covenants contained in this Agreement -11- 12 (including any exhibit, letter, schedule or certificate referred to herein). 7.3 Notification and Participation. Each party agrees to notify the others of any liabilities, claims, litigation or proceeding that reasonably appear to involve matters covered by the indemnities set forth in Sections 7.2 and 7.3 promptly upon its discovery or notification thereof, whether before or after the Closing Date. ARTICLE VIII Termination 8.1 Termination. Seller or Purchaser may terminate this Agreement, without liability to any party, by mutual agreement upon two (2) days' written notice or upon receipt of a formal denial from the SBA of the application to transfer control of Company. ARTICLE IX Miscellaneous 9.1 Expenses. The parties hereto shall pay all of their own expenses relating to the transactions contemplated by this Agreement, including, without limitation, the fees and expenses of their respective counsel and financial advisers. None of such expenses shall be charged to or paid by Company prior to Closing. 9.2 Governing Law. The interpretation and construction of this Agreement, and all matters relating hereto, shall be governed by the laws of the State of California applicable to agreements executed and to be performed solely within such State. 9.3 Jurisdiction; Attorneys' Fees. Any judicial proceeding brought against any of the parties to this Agreement on any dispute arising out of this Agreement or any matter related hereto shall be brought in the courts of the State of California, County of Orange, or in the United States District Court for the Central District of California, and, by execution and delivery of this Agreement, each of the parties to this Agreement accepts the exclusive jurisdiction of such courts, and irrevocably agrees to be bound by any -12- 13 final judgment rendered thereby in connection with this Agreement. The prevailing party or parties in any such litigation shall be entitled to receive from the losing party or parties all costs and expenses, including reasonable counsel fees, incurred by the prevailing party or parties. 9.4 Captions. The article and section captions used herein are for reference purposes only, and shall not in any way affect the meaning or interpretation of this Agreement. 9.5 Notices. Any notice or other communication required or permitted hereunder shall be sufficiently given if delivered in person or sent by telex, telecopy or by registered or certified mail, postage prepaid, addressed as follows: If to the Purchaser: Randall F. Zurbach c/o Pinecreek Investment Company 5000 Birch, Suite 5500 Newport Beach, California 92660 Facsimile: (714) 660-1042 With a copy to: Paul, Hastings, Janofsky & Walker LLP Attention: Peter J. Tennyson, Esq. 695 Town Center Drive, 17th Floor Costa Mesa, California 92626-1924 Facsimile: (714) 979-1921 If to the Seller: Fidelity National Financial, Inc. Attention: M'Liss Jones Kane, Esq. 17911 Von Karman Avenue, Suite 300 Irvine, California 92614 Facsimile: (714) 622-4131 or such other address or number as shall be furnished in writing by any such party, and such notice or communication shall be deemed to have been given as of the date so delivered, sent by telecopier, telex or mailed. 9.6 Parties in Interest. This Agreement may not be transferred, assigned, pledged or hypothecated by any party hereto, other than by operation of law. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors and assigns. -13- 14 9.7 Counterparts. This Agreement may be executed in two or more counterparts, all of which taken together shall constitute one instrument. 9.8 Entire Agreement. This Agreement, including the other documents referred to herein which form a part hereof, contains the entire understanding of the parties hereto with respect to the subject matter contained herein and therein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. 9.9 Access. Purchaser acknowledges that Messrs. Zurbach and Wilbur manage the business of Company and have full access to the records of Company and thus are able to make informed decisions about Company's business and the desirability of purchasing it. 9.10 Amendments. This Agreement may not be changed orally, but only by an agreement in writing signed by Purchaser and the Seller. 9.11 Severability. In case any provision in this Agreement shall be held invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions hereof will not in any way be affected or impaired thereby. 9.12 Third Party Beneficiaries. Each party hereto intends that this Agreement shall not benefit or create any right or cause of action in or on behalf of any person or entity other than the parties hereto. [SIGNATURES ON FOLLOWING PAGE] -14- 15 IN WITNESS WHEREOF, the Purchaser and the Seller have caused their names to be hereunto subscribed all as of the day and year first above written. "Purchaser" /s/ RANDALL F. ZURBACH ---------------------------------------- /s/ JOHN C. WILBUR, JR. ---------------------------------------- "Seller" FIDELITY NATIONAL FINANCIAL, INC. By: /s/ ANDREW F. PUZDER --------------------------------- Name: --------------------------------- Title: --------------------------------- -15- EX-11 20 COMPUTATION OF BASIC AND DILUTED EARNINGS/SHARE 1 EXHIBIT 11 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES COMPUTATION OF BASIC AND DILUTED EARNINGS PER SHARE (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, -------------------------------------- 1997 1995 1996 ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Basic earnings per share calculation Earnings before extraordinary loss........................ $41,471 $24,337 $ 7,632 Extraordinary loss, net of applicable income tax benefit of $1,180 in 1997 and $437 in 1995..................... (1,700) -- (813) ------- ------- ------- Net earnings.............................................. $39,771 $24,337 $ 6,819 ======= ======= ======= Weighted average shares........................... 15,911 15,037 15,131 ======= ======= ======= Basic earnings per share Earnings before extraordinary loss........................ 2.61 1.62 0.50 Extraordinary loss........................................ (0.11) -- (0.05) ------- ------- ------- Net earnings.............................................. $ 2.50 $ 1.62 $ 0.45 ======= ======= ======= Diluted earnings per share calculation Earnings before extraordinary loss........................ $41,471 $24,337 $ 7,632 Plus: Impact of assumed conversion of LYONs............... 3,142 3,196 --(1) ------- ------- ------- Earnings before extraordinary loss plus assumed conversion............................................. 44,613 27,533 7,632 Extraordinary loss, net of applicable income tax benefit of $1,180 in 1997 and $437 in 1995..................... (1,700) -- (813) ------- ------- ------- Net earnings plus assumed conversions..................... $42,913 $27,533 $ 6,819 ======= ======= ======= Weighted average shares................................... 15,911 15,037 15,131 Plus: Incremental shares from assumed conversions LYONs.................................................. 4,553 4,793 --(1) Options................................................ 1,019 654 563 ------- ------- ------- Dilutive potential shares................................. 21,483 20,484 15,694 ======= ======= ======= Diluted earnings per share Earnings before extraordinary loss plus assumed conversions............................................ $ 2.08 $ 1.34 $ 0.49 Extraordinary loss........................................ (0.08) -- (0.05) ------- ------- ------- Net earnings.............................................. $ 2.00 $ 1.34 $ 0.44 ======= ======= =======
- --------------- (1) As the conversion of the Liquid Yield Option Notes ("LYONs") have an antidilutive effect in 1995, the assumed conversion is not considered in the Diluted Earnings Per Share Calculation. Assumed conversion of the LYONs would result in additional net earnings of $3,245,000 and 4,793,000 additional dilutive potential shares. EX-21 21 LIST OF SUBSIDIARIES 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 ("FNTIC"), 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); Subsidiaries: (a) Republic Title Insurance Agency, Inc., an Arizona corporation (inactive); (b) Fidelity National Title Insurance Company of Tennessee, a Tennessee corporation; Subsidiaries: 1. Title Services, Inc., a Tennessee corporation; 2. BHC&M, Ltd., a Virginia corporation; (c) Western Financial Trust Company, a California corporation; (d) Manchester Development Corporation, a California corporation, 10% is owned by FNTIC; 90% by Kensington Development Corporation, a California corporation (see 1(a) above); (e) Fidelity National Company of Northern California, a California corporation; (f) Title Insurance Policy Co. of Pinal County, an Arizona corporation; (g) Pacific American Property Exchange Corporation, a California corporation; (h) UTC Capital Group, Inc., a Texas corporation; Subsidiaries: 1. Dallas-Fidelity National Title Agency, Inc., a Texas corporation d/b/a Fidelity National Title Agency, Inc.; 2. LRT Record Services, Inc., a Texas corporation d/b/a Land Records of Texas; (i) Fidelity Tax Service, a California corporation; (j) Fidelity National Company of California, a California corporation; (k) Fidelity National Title & Escrow of Hawaii, Inc., a Hawaii corporation; (l) Nations Title, Inc., a Kansas corporation; Subsidiaries: 1. Fidelity National Appraisal Services, Inc., a Kansas corporation; 4. Fidelity National Title Agency of Nevada, Inc., a Nevada 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; 2 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; Subsidiaries: 1. National Title Insurance Services, Inc., a North Carolina corporation (inactive) 2. Network Title Insurance Agencies of Florida, Inc., a Florida corporation (inactive); 3. Statewide Research, Inc., a Florida corporation; 4. Amtitle Company, a California corporation (inactive); 5. Gulf Stream Title Company of Miami, a Florida corporation (inactive); 6. Settlement Network of Pennsylvania, a Pennsylvania corporation (inactive); 7. Miami Title and Abstract Company, a Florida corporation (inactive); 8. National Title Insurance of New York, Inc., a New York corporation; 9. Nations Title Insurance of New York, Inc., a New York corporation; Subsidiaries: 1. Fidelity National Title and Abstract, Inc., a Maryland corporation; 2. Nations Title of Arizona, Inc., an Arizona corporation (FNFI owns 40%); 14. Agency Sales and Posting, Inc., a California corporation; 15. Arizona Sales and Posting, Inc., an Arizona corporation; 16. A.S.A.P. Legal Publication Services, Inc., a California corporation; 17. Rocky Mountain Support Services, Inc., an Arizona corporation; Subsidiary: (a) ACS Systems, Inc., a California corporation; 18. Fidelity National Title Company of Washington, a Washington corporation; 19. Fidelity National Title Company of California, a California corporation; 20. Fidelity National Title Company, a California corporation; 21. Fidelity National Title Insurance Agency of Coconino, Inc., an Arizona corporation (FNFI owns 21%); 22. Fidelity National Title Agency, Inc., an Arizona corporation; 23. Fidelity National Title Agency of Pinal County, Inc., an Arizona corporation; 24. Fidelity National Title Company of Oregon, an Oregon corporation; Subsidiary: a. Professional Escrow, Inc., an Oregon corporation; 25. Western American Exchange Corporation, a California corporation; 26. Nations Title Insurance of Arizona, Inc., an Arizona corporation; 27. Fidelity Asset Management, Inc., an Arizona corporation; 3 28. Fidelity National Information Services, Inc., a California corporation; 29. Fidelity National Tax Service, Inc., a California corporation (100% of the Preferred stock is owned by FNFI); 30. San Joaquin Title Company, a California corporation 31. Title Insurance and Escrow Services, Inc., an Oregon corporation; 32. WAEC, Inc., a California corporation; 33. WAEC Apartments, Inc., a California corporation; 34. Classified Credit Data, Inc.; 35. American Document Services, Inc.; 36. Express Network, Inc., a California corporation; 37. First Title Company; 38. Ifland Credit Services, Inc.; 39. Credit Reports, Inc.; 40. Bron Research, Inc., a Texas corporation; 41. Granite Financial, Inc., a Delaware corporation; Subsidiaries: 1. Granite Financial Acquisition Corp. I; 2. North Pacific Funding, Inc.; 3. GF Funding Corp. I; 4. GF Funding Corp. II; 5. GF Funding Corp. III; 6. GF Funding Corp. IV; 7. CKC Corporation; 42. MCC Merger Inc., a Colorado corporation; 43. American Title Company, a California corporation (FNFI owns 40%); Subsidiaries: a. Landmark REO Management Services, Inc., a Kansas corporation; b. Nations Title Insurance of Arizona, Inc., an Arizona corporation; EX-23 22 INDEPENDENT AUDITORS' CONSENT 1 EXHIBIT 23 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, 33-61983 and 333-48411) on Form S-8 of Fidelity National Financial, Inc. of our reports dated February 16, 1998, except as to Note O to the Consolidated Financial Statements, which is as of March 25, 1998, relating to the Consolidated Balance Sheets of Fidelity National Financial, Inc. and subsidiaries as of December 31, 1997 and 1996 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, 1997 which reports appear in the December 31, 1997 Annual Report on Form 10-K of Fidelity National Financial, Inc. KPMG PEAT MARWICK LLP Los Angeles, California March 27, 1998 EX-27 23 1997 FINANCIAL DATA SCHEDULE
7 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 217,001 0 0 70,418 0 5,201 326,277 54,005 0 0 600,559 190,747 0 0 0 123,023 0 0 2 196,317 600,559 533,220 16,568 16,988 179,936 38,661 0 634,621 73,430 31,959 41,471 0 (1,700) 0 39,771 2.50 2.00 0 0 0 0 0 0 0
EX-27.1 24 1996 RESTATED FINANCIAL DATA SCHEDULE
7 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 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 2,625 143,266 33,302 0 563,068 40,553 16,216 24,337 0 0 0 24,337 1.62 1.34 0 0 0 0 0 0 0
EX-27.2 25 1995 RESTATED FINANCIAL DATA SCHEDULE
7 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 129,236 0 0 31,412 0 8,659 180,082 47,431 0 0 405,063 146,094 136,047 0 0 2 77,945 405,063 285,552 12,403 5,213 106,677 19,031 0 381,354 9,460 1,828 7,632 0 (813) 0 6,819 0 0 0 .45 .44 0 0 0 0 0 0 0
EX-27.3 26 1997 1Q RESTATED FINANCIAL DATA SCHEDULE
7 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 159,800 0 0 48,695 0 7,081 224,027 49,711 0 0 496,555 188,456 0 0 0 147,059 0 0 2 109,278 0 110,914 4,528 1,567 36,183 7,066 0 141,004 5,122 2,100 3,022 0 0 0 3,022 .20 .18 0 0 0 0 0 0 0
EX-27.4 27 1997 2Q RESTATED FINANCIAL DATA SCHEDULE
7 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 167,616 0 0 59,014 0 7,767 244,678 62,731 0 0 522,150 188,351 0 0 0 149,506 0 0 2 124,081 522,150 240,372 7,944 3,893 79,441 16,060 0 295,393 20,197 8,070 12,127 0 0 0 12,127 .79 .66 0 0 0 0 0 0 0
EX-27.5 28 1997 3Q RESTATED FINANCIAL DATA SCHEDULE
7 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 174,008 0 0 84,438 0 7,175 289,759 80,329 0 0 576,259 188,333 0 0 0 150,918 0 0 2 153,787 576,259 381,432 11,431 14,342 122,360 26,041 0 456,055 47,469 19,484 27,985 0 0 0 27,985 1.83 1.45 0 0 0 0 0 0 0
EX-27.6 29 1996 1Q RESTATED FINANCIAL DATA SCHEDULE
7 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 123,338 0 0 41,867 0 8,457 179,014 45,119 0 0 406,055 145,450 0 0 0 136,272 0 0 2 79,585 406,655 89,823 2,958 1,156 32,461 6,241 0 111,857 8,300 3,155 5,145 0 0 0 5,145 .35 .29 0 0 0 0 0 0 0
EX-27.7 30 1996 2Q RESTATED FINANCIAL DATA SCHEDULE
7 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 162,076 0 0 34,195 0 13,289 213,703 53,823 0 0 480,089 189,979 0 0 0 142,492 0 0 2 90,034 480,089 219,786 6,227 2,000 70,013 15,775 0 262,194 20,057 7,966 12,091 0 0 0 12,091 .81 .67 0 0 0 0 0 0 0
EX-27.8 31 1996 3Q RESTATED FINANCIAL DATA SCHEDULE
7 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 168,381 0 0 39,159 0 13,168 225,057 56,007 0 0 491,770 188,914 0 0 0 146,659 2 0 0 98,855 491,770 346,543 9,324 2,600 106,251 25,048 0 408,990 30,680 12,272 18,408 0 0 0 18,408 1.23 1.01 0 0 0 0 0 0 0
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