<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 6, 1998
FILE NO. 1-13995
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10/A
(Amendment No. 1)
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934
CHICAGO TITLE CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 36-4217886
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
171 North Clark Street
Chicago, Illinois 60601-3294
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code (888) 431-4288
Securities to be registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
Title of each class Name of each exchange on which
to be so registered each class is to be registered
--------------- ----------------------------
Common Stock, $1.00 par value per share New York Stock Exchange
</TABLE>
Securities to be registered pursuant to Section 12(g) of the Act:
None
Copies of all communications, including all communications sent to the agent for
service, should be sent to:
<TABLE>
<S> <C>
Aileen C. Meehan, Esq. Paul T. Sands, Jr., Esq.
Dewey Ballantine LLP Executive Vice President and
1301 Avenue of the Americas General Counsel
New York, New York 10019-6092 Chicago Title Corporation
(212) 259-8000 171 North Clark Street
Chicago, Illinois 60601-3294
(312) 223-2000
</TABLE>
================================================================================
<PAGE> 2
CHICAGO TITLE CORPORATION
Information Included in Information Statement and Incorporated in Form 10
By Reference
Cross-Reference Sheet Between Information Statement and Items of Form 10
<TABLE>
<CAPTION>
ITEM ITEM CAPTION LOCATION IN INFORMATION STATEMENT
- ---- ------------ ---------------------------------
<C> <S> <C>
1 Business................................... Summary; Management's Discussion And
Analysis Of Financial Condition And Results
Of Operations; Business.
2 Financial Information...................... Summary; Pro Forma Consolidated Financial
Data; Selected Financial Data; Management's
Discussion And Analysis Of Financial
Condition And Results Of Operations.
3 Properties................................. Business -- Properties.
4 Security Ownership of Certain Beneficial
Owners and Management...................... Securities Ownership of Directors and
Executive Officers; Principal Stockholders.
5 Directors and Executive Officers........... Management; Description of Capital Stock --
Limited Liability And Indemnification
Provisions.
6 Executive Compensation..................... Management.
7 Certain Relationships and Related
Transactions............................... Summary; The Spin-Off; Arrangements Between
Alleghany And Chicago Title Relating To The
Spin-Off.
8 Legal Proceedings.......................... Business -- Legal Proceedings.
9 Market Price of and Dividends on the
Registrant's Common Equity and Related
Stockholder Matters........................ Summary; Market Uncertainties With Respect
to Chicago Title Common Stock; Market for
Chicago Title Common Stock; Dividend
Policy.
10 Recent Sales of Unregistered Securities.... Not Applicable.
11 Description of Registrant's Securities to
be Registered.............................. Description of Capital Stock; Market for
Chicago Title Common Stock.
12 Indemnification of Directors and
Officers................................... Description of Capital Stock -- Limited
Liability And Indemnification Provisions.
13 Financial Statements and Supplementary
Data....................................... Summary; Pro Forma Consolidated Financial
Data; Selected Financial Data; Management's
Discussion And Analysis Of Financial
Condition And Results Of Operations;
Chicago Title Corporation And Subsidiaries
Index To Financial Statements.
14 Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure................................. Not Applicable.
15 Financial Statements and Exhibits.......... Chicago Title Corporation And Subsidiaries
Index To Financial Statements; Index to
Exhibits.
</TABLE>
i
<PAGE> 3
ALLEGHANY CORPORATION
------------------------
SPIN-OFF OF CHICAGO TITLE CORPORATION
THROUGH A COMMON STOCK DISTRIBUTION
------------------------
To Our Stockholders:
In December 1997, the Board of Directors of Alleghany Corporation announced
that it intended to establish the title insurance and real estate-related
services business conducted by its wholly owned subsidiary, Chicago Title and
Trust Company ("CT&T"), as an independent, publicly traded company through a
spin-off to Alleghany stockholders of shares of Chicago Title Corporation, a
newly formed Delaware holding corporation for CT&T. We are pleased to announce
that the Spin-Off will be effective on May , 1998. The financial services
business conducted through CT&T's former subsidiary, Alleghany Asset Management,
Inc., is not part of the distribution and will remain with Alleghany.
If you own Alleghany common stock as of the close of business on May ,
1998, you will receive three shares of Chicago Title common stock for each share
of Alleghany common stock that you own. You should receive these Chicago Title
shares in early June, 1998. The Internal Revenue Service has ruled that the
Spin-Off will be tax-free to Alleghany's stockholders.
No Alleghany stockholder action is required, and you do not need to
surrender your shares of Alleghany common stock to receive such shares of
Chicago Title common stock. You will continue to hold the same number of shares
of Alleghany common stock after the Spin-Off. We have applied to list the
Chicago Title common stock on the New York Stock Exchange, and we expect it will
trade under the symbol "CTZ."
This information statement contains detailed information about Chicago
Title and the Spin-Off, which we encourage you to read carefully.
Yours Sincerely,
President Chairman of the Board
May , 1998
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary..................................................... 5
Introduction................................................ 5
Questions and Answers About Chicago Title and the
Spin-Off.................................................. 5
What is the business of Chicago Title?.................... 5
What do I have to do to participate in the Spin-Off?...... 5
Please explain the Distribution Ratio..................... 5
Will my dividends change?................................. 6
What are the risks involved in owning Chicago Title Common
Stock?................................................. 6
Will shares trade any differently as a result of the
Spin-Off?.............................................. 6
Is the Spin-Off Taxable for United States Federal income
tax purposes?.......................................... 7
Will Alleghany and Chicago Title be related in any way
after the Spin-Off?.................................... 7
What We Have Done to Prepare for the Spin-Off............... 8
Board Appointments........................................ 8
Senior Management......................................... 8
United States Federal Income Tax Ruling................... 8
New York Stock Exchange Listing........................... 8
Regulatory Approvals...................................... 8
Key Terms of the Spin-Off Transaction....................... 8
No Stockholder Action Required............................ 8
Record Date............................................... 9
Distribution Ratio........................................ 9
Shares to be Distributed.................................. 9
Mailing Date.............................................. 9
Information Regarding the Spin-Off and Chicago Title........ 9
Chicago Title Corporation................................... 10
Business.................................................. 10
Financial Highlights...................................... 10
Alleghany Corporation....................................... 10
Selected Financial Data..................................... 11
Risk Factors................................................ 12
Competition............................................... 12
Interest Rate Levels; Seasonality......................... 12
Reserve for Title Losses.................................. 12
Regulation................................................ 12
Holding Company Structure................................. 13
Tax Treatment of the Spin-Off............................. 13
Market Uncertainties With Respect to Chicago Title Common
Stock.................................................. 13
Anti-Takeover Provisions.................................. 14
Forward-Looking Information................................. 14
The Spin-Off................................................ 15
Background and Purposes of the Spin-Off................... 15
Manner of Effecting the Spin-Off.......................... 15
Results of the Spin-Off................................... 15
Certain Federal Income Tax Consequences................... 16
</TABLE>
2
<PAGE> 5
<TABLE>
<S> <C>
Regulatory Approvals...................................... 16
Market for Chicago Title Common Stock..................... 16
Conditions Precedent to the Spin-Off...................... 17
Arrangements Between Alleghany and Chicago Title Relating to
the Spin-Off.............................................. 17
Distribution Agreement.................................... 18
Tax Sharing Agreement..................................... 18
Agreements Between Alleghany Asset Management and Chicago
Title.................................................. 19
Investment Management Agreement........................ 19
Transitional Services Agreement........................ 19
Sublease............................................... 19
Reasons for Furnishing this Information Statement........... 19
Selected Financial Data..................................... 20
Pro Forma Consolidated Financial Data....................... 21
Pro Forma Results of Operations............................. 21
Pro Forma Consolidated Balance Sheet and Capitalization..... 21
Dividend Policy............................................. 24
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 25
General................................................... 25
Forward Looking Statements............................. 25
Overview............................................... 25
Operating Revenues..................................... 26
Investment Income...................................... 26
Operating Expenses..................................... 26
Provision for Title Losses............................. 26
Income Taxes........................................... 27
Seasonality............................................ 27
Contingencies.......................................... 27
New Accounting Standards............................... 28
Year 2000 Issues....................................... 28
Results Of Operations..................................... 29
Comparison of Three Months Ended March 31, 1998 and March
31, 1997............................................... 29
Net Income............................................. 29
Operating Revenues..................................... 29
Investment Income...................................... 29
Expenses............................................... 29
Comparison of Years Ended December 31, 1997, December 31,
1996 and December 31, 1995............................. 30
Net Income............................................. 30
Operating Revenues..................................... 31
Investment Income...................................... 31
Expenses............................................... 31
Liquidity and Capital Resources........................... 32
Quarterly Financial Information (Unaudited)............... 34
Business.................................................... 35
Chicago Title............................................. 35
The Title Insurance Industry.............................. 35
Strategy.................................................. 36
Financial Ratings......................................... 37
</TABLE>
3
<PAGE> 6
<TABLE>
<S> <C>
Investment Operations..................................... 37
Reserve for Title Losses.................................. 39
Business Conditions; Seasonality.......................... 40
Competition............................................... 41
Regulation................................................ 41
Employees................................................. 42
Properties................................................ 42
Legal Proceedings......................................... 42
Management.................................................. 43
Directors................................................. 43
Compensation of Directors................................. 45
Executive Officers........................................ 46
Executive Compensation.................................... 47
Summary Compensation Table............................. 47
Long-Term Incentive Plan -- Awards In Last Fiscal
Year.................................................. 49
Chicago Title Compensation Arrangements................... 50
The 1998 Long-Term Incentive Plan...................... 50
New Plan Benefits under the 1998 Plan.................. 54
Annual Bonus Plan...................................... 54
Employment Contracts, Termination of Employment and
Change-in-Control Agreements.......................... 55
Pension Plan Table..................................... 56
Executive Salary Continuation Plan..................... 57
Compensation Committee Interlocks and Insider
Participation......................................... 57
Securities Ownership of Directors and Executive Officers.... 57
Principal Stockholders...................................... 58
Description of Capital Stock................................ 61
Introduction.............................................. 61
Comparison of Rights of Stockholders of Alleghany and
Chicago Title.......................................... 61
Authorized and Outstanding Capital Stock.................. 61
Chicago Title Common Stock; Delaware Anti-Takeover
Provisions............................................. 61
Preferred Stock........................................... 62
Certain Anti-Takeover Provisions -- Chicago Title
Certificate and By-Laws................................ 62
Classified Board of Directors.......................... 62
Number of Directors; Removal of Directors; Vacancies... 63
Business Conducted at Meetings; Director Nominations... 63
Special Meeting of Stockholders........................ 64
No Stockholder Action by Written Consent; Stockholder
Action at Meetings.................................... 64
Supermajority Voting................................... 64
Stockholder Rights Plans and related matters........... 65
Other Constituencies................................... 65
Limited Liability And Indemnification Provisions.......... 65
Shares Eligible for Future Sale............................. 66
Additional Information...................................... 66
Chicago Title and Trust Company and Subsidiaries Index to
Consolidated Financial Statements...................... F-1
</TABLE>
4
<PAGE> 7
SUMMARY
This summary highlights selected information from this document, but does
not contain all details concerning the Spin-Off, including information that may
be important to you. To better understand the Spin-Off and Chicago Title, you
should carefully review this entire document. References in this document to
"we," "us," "our" or "Chicago Title" mean Chicago Title Corporation and its
subsidiaries. References in this document to "Alleghany" mean Alleghany
Corporation and its subsidiaries and division. References in this document to
Alleghany Stock mean Alleghany common stock.
INTRODUCTION
In December 1997, Alleghany announced its intention to establish the title
insurance and real estate-related services business conducted by Chicago Title
and Trust Company ("CT&T") as an independent, publicly traded company. This will
be accomplished by the Spin-Off. The title insurance industry is undergoing a
period of consolidation and rapid change, and Alleghany believes that
establishing Chicago Title as an independent company will enhance its ability to
focus on operating efficiencies and strategic initiatives that are required to
respond to a changing marketplace. Also, in the current competitive environment,
it is more important than ever to foster development of an entrepreneurial
culture at Chicago Title. As an independent public company, Chicago Title will
be able to provide equity-based compensation and incentives that should enable
it to retain and recruit senior management and motivate employees throughout the
organization. After the Spin-Off, Chicago Title will continue under the current
management of CT&T. The Alleghany Board of Directors believes that this action
is in the best interest of Alleghany stockholders.
This summary includes cross-references to other portions of the document to
help you find more detailed information about the Spin-Off and Chicago Title. We
encourage you to read the entire document.
QUESTIONS AND ANSWERS ABOUT CHICAGO TITLE AND THE SPIN-OFF
What is the business of
Chicago Title?............. Chicago Title is one of the nation's largest
providers of title insurance and other related
services for residential and commercial real
estate transactions. One of the pioneers of the
title insurance industry over a century ago,
Chicago Title currently has more than 300 full
service offices and 3,800 policy-issuing agents
in 49 states, Puerto Rico, the Virgin Islands,
Guam, and Canada. Chicago Title believes that its
brand name, national distribution network,
financial position and experienced management
have enabled it to become one of the premier
companies participating in the title insurance
and real estate-related services industry.
What do I have to do to
participate in the
Spin-Off?.................. Nothing. No proxy or vote is necessary for the
Spin-Off. If you own Alleghany Stock as of the
close of business on May , 1998 (the "Record
Date"), Chicago Title Common Stock will be mailed
to you or credited to your brokerage account in
early June 1998. You need not mail in Alleghany
Stock certificates to receive Chicago Title
Common Stock certificates. You will not receive
new Alleghany Stock certificates.
Please explain the
Distribution Ratio......... Three shares of Chicago Title Common Stock will be
distributed in the Spin-Off for every share of
Alleghany Stock you own on the Record Date. For
example, if you own 100 shares of Alleghany Stock
as of the close of business on May , 1998, you
will receive 300 shares of Chicago Title Common
Stock through the Spin-Off.
5
<PAGE> 8
Will my dividends
change?.................... Because of the Spin-Off, Alleghany has determined
not to pay a stock dividend in 1998. Since 1987,
Alleghany had paid an annual two-percent stock
dividend. Alleghany has not determined whether it
will resume paying stock dividends after 1998. In
anticipation of the Spin-Off, Chicago Title has
adopted a policy with regard to the payment of
dividends. Under this policy, Chicago Title
currently intends to pay a regular quarterly cash
dividend of $0.34 per share of Chicago Title
Common Stock. The first regular quarterly cash
dividend is expected to be paid in the third
quarter of 1998. The actual timing and amount of
dividends, if any, will depend on various factors
and are subject to change at the discretion of
the Chicago Title Board of Directors (the
"Chicago Title Board").
What are the risks involved
in owning Chicago Title
Common Stock?.............. The Chicago Title business is subject to risks
related to competition in the title insurance
industry and to fluctuations in interest rates
and their effect on the real estate market.
Chicago Title's separation from Alleghany
presents certain additional risks because there
is no existing market for Chicago Title Common
Stock (although we have applied to list the
Chicago Title Common Stock on the New York Stock
Exchange ("NYSE")) and a large number of shares
could be sold into the market at any given time.
Chicago Title also has anti-takeover provisions
in place that could discourage or make more
expensive a takeover attempt that is opposed by
the Chicago Title Board. In addition, the
Insurance Holding Company System Regulatory Acts
of California, Missouri and Oregon, to which
Chicago Title is subject, prohibit any person
from directly or indirectly acquiring 10% or more
of the outstanding shares of Chicago Title Common
Stock without the prior approval of the insurance
authorities in those jurisdictions. See "Risk
Factors" and "Regulation" for a more complete
discussion of certain matters which should be
considered with respect to your ownership of
Chicago Title Common Stock.
Will shares trade any
differently as a result of
the Spin-Off?.............. Yes, during part of May 1998. We expect that a
temporary form of interim trading called
"when-issued" trading will likely occur for
Chicago Title Common Stock on or shortly before
the Record Date and will continue through the
date that the Alleghany Board of Directors (the
"Alleghany Board") has determined will be the
effective date of the Spin-Off, which is May ,
1998 (the "Spin-Off Date"). A when-issued listing
can be identified by the "wi" letters next to
Chicago Title Common Stock on the NYSE. If
when-issued trading develops, you may buy Chicago
Title Common Stock in advance of the Spin-Off
Date. You may also sell Chicago Title Common
Stock in advance of the Spin-Off Date on a
when-issued basis. During this time, Alleghany
Stock will continue to trade on a "regular-way"
basis and may also trade on a when-distributed
basis, reflecting an assumed post-Spin-Off value
for Alleghany Stock. Alleghany Stock
when-distributed trading, if available, could
last from May , 1998 through the Spin-Off Date.
If this occurs, an additional listing for
Alleghany Stock, followed by the "wi" letters,
will appear on the NYSE. When-issued (and
when-distributed) trading occurs in order to
develop an orderly market and trading price for
Chicago Title
6
<PAGE> 9
Common Stock (and possibly Alleghany Stock) after
the Spin-Off. There may be temporary slight
differences between the combined value of
when-issued Chicago Title Common Stock and
when-distributed Alleghany Stock as compared to
the regular-way price of Alleghany Stock during
this period. Chicago Title and Alleghany
understand that if Alleghany Stock
when-distributed trading is not available, the
NYSE will require that shares of Alleghany Stock
that are sold or purchased from the period
beginning on May , 1998, and ending on the
Spin-Off Date, be accompanied by due-bills
representing the Chicago Title Common Stock
distributable with respect to such shares, and
that during such period neither the Alleghany
Stock nor the due bills may be purchased or sold
separately.
Is the Spin-Off taxable for
United States Federal
income tax purposes?....... The Internal Revenue Service (the "IRS") has ruled
that the Spin-Off will be tax-free to Alleghany
stockholders and to Alleghany. The IRS ruling is
based upon the accuracy of numerous
representations made by Alleghany and Chicago
Title. In of 1998, Alleghany will send
a letter to stockholders that will explain the
way to allocate your tax basis between Alleghany
Stock and the shares of Chicago Title Common
Stock received in the Spin-Off based upon the
average trading values of Alleghany Stock and
Chicago Title Common Stock on the Spin-Off Date.
See "Risk Factors -- Tax Treatment of the
Spin-Off" and "The Spin-Off -- Certain Federal
Income Tax Consequences" for more complete
discussions of the United States Federal income
tax consequences of the Spin-Off to holders of
Alleghany Stock.
Will Alleghany and Chicago
Title be related in any way
after the Spin-Off?........ After the Spin-Off, Alleghany will no longer own
any Chicago Title Common Stock. However, the
identity of the stockholders of Chicago Title
immediately after the Spin-Off will be
substantially the same as those of Alleghany. In
addition, the fourteen member Chicago Title Board
will include four persons who are directors
and/or senior executive officers of Alleghany,
and one person who is a senior executive officer
of Alleghany Asset Management, Inc., ("Alleghany
Asset Management") which on the Spin-Off Date
will be a subsidiary of Alleghany. See
"Management -- Directors" for information
regarding the Chicago Title Board and "Principal
Stockholders" for information regarding the
projected ownership of Chicago Title Common Stock
by Chicago Title's principal stockholders. In
addition, Alleghany and Chicago Title have
entered into certain agreements to define their
ongoing relationship and to allocate
responsibility for past obligations and certain
obligations that might arise in the future. See
"Arrangements Between Alleghany and Chicago Title
Relating to the Spin-Off" for a more complete
discussion of the ongoing relationship between
Alleghany and Chicago Title.
7
<PAGE> 10
WHAT WE HAVE DONE TO PREPARE FOR THE SPIN-OFF
Board Appointments......... After the Spin-Off, the Chicago Title Board will
consist of fourteen directors, eight of whom
previously served on the board of directors of
CT&T. See "Management -- Directors."
Senior Management.......... John Rau, who joined CT&T as Chief Executive
Officer on January 1, 1997, has been appointed as
President and Chief Executive Officer of Chicago
Title. Mr. Rau will be supported by a management
group which includes the senior executives
currently responsible for CT&T's operations. See
"Management -- Executive Officers."
United States Federal
Income Tax Ruling.......... Alleghany has received a tax ruling (the "Tax
Ruling") from the IRS concerning the United
States Federal income tax consequences of the
Spin-Off. The Tax Ruling states that the
distribution of Chicago Title Common Stock in the
Spin-Off will be tax-free to Alleghany
stockholders and to Alleghany for United States
Federal income tax purposes. The IRS ruling is
based upon the accuracy of numerous
representations made by Alleghany and Chicago
Title. Furthermore, the occurrence of certain
transactions involving Chicago Title within two
years after the Spin-Off could cause the Spin-Off
to become taxable.
The Tax Ruling provides that Alleghany stockholders
should apportion their tax basis in Alleghany
Stock held immediately before the Spin-Off
between Alleghany Stock and the Chicago Title
Common Stock received in the Spin-Off. In
of 1998, Alleghany will send a letter
to stockholders that explains how to allocate
your tax basis between Alleghany Stock and the
shares of Chicago Title Common Stock received in
the Spin-Off based upon the average trading
values of Alleghany Stock and of Chicago Title
Common Stock on the Spin-Off Date.
New York Stock Exchange
Listing.................... We have applied to list the Chicago Title Common
Stock on the NYSE and expect that it will begin
trading on the NYSE in May 1998. There is not
currently a public market for Chicago Title
Common Stock, although a when-issued trading
market is expected to develop on or shortly
before May , 1998. We anticipate that the
Chicago Title Common Stock will be traded on the
NYSE under the symbol "CTZ," and regular-way
trading of Chicago Title Common Stock is expected
to begin on June , 1998.
Regulatory Approvals....... Alleghany has provided appropriate notifications
regarding the Spin-Off to, and prior to the
Spin-Off Date expects that it will have received
all required approvals from, the state regulatory
authorities in Arizona, California, Illinois,
Missouri, Oregon and Texas. See "The Spin-
Off -- Regulatory Approvals."
KEY TERMS OF THE SPIN-OFF TRANSACTION
No Stockholder Action
Required................... No action is required by Alleghany stockholders to
receive Chicago Title Common Stock in the
Spin-Off.
8
<PAGE> 11
You do not need to surrender Alleghany Stock to
receive Chicago Title Common Stock in the
Spin-Off.
The number of shares of Alleghany Stock you own
will not change as a result of the Spin-Off.
Record Date................ If you are a holder of record of Alleghany Stock as
of the close of business on the Record Date (May
, 1998), you will be entitled to receive
Chicago Title Common Stock in the Spin-Off.
Distribution Ratio......... You will receive three shares of Chicago Title
Common Stock for every share of Alleghany Stock
you own as of the close of business on May ,
1998.
Shares to be Distributed... All Chicago Title Common Stock owned by Alleghany
will be distributed in the Spin-Off. Based on
7,171,957 shares of Alleghany Stock outstanding
as of April 28, 1998, 21,515,871 shares of
Chicago Title Common Stock will be distributed in
the Spin-Off. Immediately prior to the Spin-Off,
an additional 364,746 shares of Chicago Title
Common Stock will be issued as shares of
restricted stock to senior management of Chicago
Title and its subsidiaries, and immediately after
the Spin-Off an additional 16,000 shares will be
issued to the non-employee directors of Chicago
Title.
Mailing Date............... The distribution agent will mail Chicago Title
Common Stock certificates to Alleghany
stockholders in early June 1998.
INFORMATION REGARDING THE SPIN-OFF AND CHICAGO TITLE
Before the Spin-Off, inquiries relating to the Spin-Off should be directed
to:
<TABLE>
<S> <C>
Harris Trust and Savings Bank Alleghany Corporation
Shareholder Services Division Secretary
311 West Monroe Street 375 Park Avenue
P.O. Box A3504 New York, New York 10152
Chicago, Illinois 60690-9502 (212) 752-1356
(800) 461-6001
</TABLE>
After the Spin-Off, inquiries relating to an investment in Chicago Title
Common Stock should be directed to:
Chicago Title Corporation
Investor Relations Department
171 North Clark Street
Chicago, Illinois 60601-3294
(888) 431-4288
The distribution agent for the distribution of Chicago Title Common Stock
and, after the Spin-Off, the transfer agent and registrar for Chicago Title
Common Stock is:
Harris Trust and Savings Bank
Shareholder Services Division
311 West Monroe Street
P.O. Box A3504
Chicago, Illinois 60690-9502
(800) 461-6001
9
<PAGE> 12
CHICAGO TITLE CORPORATION
Business................... Chicago Title is one of the nation's largest
providers of title insurance and other related
services for residential and commercial real estate
transactions. One of the pioneers of the title
insurance industry over a century ago, Chicago
Title currently has more than 300 full service
offices and 3,800 policy-issuing agents in 49
states, Puerto Rico, the Virgin Islands, Guam, and
Canada. Chicago Title believes that its brand name,
national distribution network, financial position
and experienced management have enabled it to
become one of the premier companies participating
in the title insurance and real estate-related
services industry. Chicago Title's strategy is to
improve its market share and earnings growth by:
(i) focusing its marketing efforts to serve three
distinct customer sectors -- Institutional
Partners, Core Local Operations, and National
Commercial & Industrial; (ii) pursuing growth
opportunities, including through select acquisition
opportunities; and (iii) generating operating
efficiencies and cost improvements through
promotion of "best practices" throughout the
organization and development of an "electronic
spine" that will fully integrate Chicago Title's
services and offices.
Financial Highlights....... Prior to the Spin-Off Date, Alleghany will
contribute the Stock of CT&T to Chicago Title. The
title insurance and real estate-related services
business which will be included in the ongoing
operations of Chicago Title had pre-tax earnings of
$32.0 million on revenues of $401.0 million for the
first quarter of 1998, compared with pre-tax
earnings of $8.4 million on revenues of $310.3
million for the first quarter of 1997, and pre-tax
earnings of $83.6 million on revenues of $1.47
billion for the year ended December 31, 1997,
compared with pre-tax earnings of $69.7 million on
revenues of $1.33 billion for the year ended
December 31, 1996. In 1997, a dividend of $32.1
million was paid to Alleghany, and in 1996 a
payment of $30.0 million was made to Alleghany to
redeem shares of CT&T stock. On April 28, 1998, the
CT&T Board of Directors declared as a dividend to
Alleghany a promissory note payable in the amount
of $7.5 million on December 31, 1998.
ALLEGHANY CORPORATION
After the Spin-Off, Alleghany will continue to engage in the property and
casualty reinsurance and insurance, industrial minerals and financial services
businesses conducted by its subsidiaries Underwriters Re Group, Inc. (the
"Underwriters Re Group"), World Minerals Inc. ("World Minerals") and Alleghany
Asset Management. (Alleghany Asset Management is currently a subsidiary of CT&T;
however, prior to the Spin-Off, all of the outstanding stock of Alleghany Asset
Management will be distributed by CT&T to Alleghany (the "AAM Distribution")).
Alleghany also will continue to operate a steel fastener importing and
distribution business through its Heads and Threads division.
As of March 31, 1998, Alleghany beneficially owned approximately 7.43
million shares, or 4.7 percent, of Burlington Northern Santa Fe Corporation,
which owns one of the largest railroad networks in North America, with 34,000
route miles covering 28 states and two Canadian provinces.
10
<PAGE> 13
SELECTED FINANCIAL DATA
The following table sets forth a summary of selected financial data for
Chicago Title. The historical financial information below may not necessarily be
indicative of the results of operations or financial position that would have
been obtained if Chicago Title had been a separate, independent company during
the periods shown or of Chicago Title's future performance as an independent
company. The financial data set forth below should be read in conjunction with
CT&T's Consolidated Financial Statements and the notes thereto found elsewhere
in this Information Statement. See "Selected Financial Data," "Pro Forma
Consolidated Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and CT&T's Consolidated Financial
Statements and notes thereto. Earnings per share data are presented elsewhere in
this Information Statement on a pro forma basis only. See "Pro Forma
Consolidated Financial Data."
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, AS OF AND FOR THE YEARS ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(UNAUDITED) (IN 000S)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS DATA:
Revenues:
Title, escrow, trust and
other revenue............. $ 385,804 298,408 1,411,496 1,278,590 1,082,008 1,283,970 1,359,955
Investment income........... 14,805 11,762 52,266 47,658 46,661 44,913 49,290
Net realized investment
gains (losses)............ 371 155 3,684 1,436 3,697 (5,447) 7,058
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues............ 400,980 310,325 1,467,446 1,327,684 1,132,366 1,323,436 1,416,303
Expenses:
Salaries and other employee
benefits.................. 127,603 100,477 454,648 411,815 344,767 368,097 393,418
Commissions paid to
agents.................... 131,490 114,400 526,324 484,351 420,555 549,990 545,552
Provision for title
losses.................... 26,279 21,772 102,324 83,023 81,385 94,845 121,865
Interest expense............ 1,295 1,156 4,644 5,566 6,456 6,859 9,572
Other operating and
administrative expenses... 82,273 64,118 295,903 273,236 242,380 244,655 263,057
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total expenses............ 368,940 301,923 1,383,843 1,257,991 1,095,543 1,264,446 1,333,464
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income from
continuing operations before
income taxes................ 32,040 8,402 83,603 69,693 36,823 58,990 82,839
Income taxes.................. 10,799 2,474 27,894 23,115 11,889 18,854 26,329
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income from continuing
operations.................. $ 21,241 5,928 55,709 46,578 24,934 40,136 56,510
========== ========== ========== ========== ========== ========== ==========
Dividends paid to
Alleghany(1)................ $ 0(2) 0 32,105 30,000(3) 29,515 66,527 235,470
========== ========== ========== ========== ========== ========== ==========
BALANCE SHEET DATA:
Total assets.................. $1,812,464 1,428,542 1,702,207 1,482,697 1,447,351 1,389,700 1,500,390
Notes payable and other
obligations................. 32,851 43,282 32,443 43,282 55,043 64,441 74,966
</TABLE>
- ---------------
(1) Historical dividends and distributions to Alleghany may not be indicative of
future dividends to common stockholders. See "Dividend Policy." Most of the
$235.5 million dividend paid by CT&T to Alleghany in 1993 was used by
Alleghany for acquisition purposes.
(2) In April 1998, the CT&T Board of Directors declared as a dividend to
Alleghany a promissory note payable in the amount of $7.5 million on
December 31, 1998. This dividend represents a distribution by CT&T of a
portion of its earnings for the period during 1998 that it was held as a
subsidiary of Alleghany.
(3) Includes the repurchase of common stock from Alleghany in 1996 for $30
million.
11
<PAGE> 14
RISK FACTORS
Holders of shares of Chicago Title Common Stock should carefully consider
all information contained in this Information Statement, especially the matters
described or referred to in the following paragraphs.
COMPETITION
The title insurance industry is competitive throughout the United States,
with large title insurance firms such as the title insurance subsidiaries of
Chicago Title competing on a national basis, while smaller firms have
significant market shares on a regional basis. Chicago Title's title insurance
subsidiaries also compete with abstractors, attorneys issuing opinions and, in
some areas, state land registration systems. The removal of regulatory barriers
in the future might result in new competitors, including financial institutions,
entering the title insurance business. Chicago Title believes that competition
in the title insurance industry is primarily on the basis of expertise, service
and price. In addition, the financial strength of the insurer has become an
increasingly important factor in decisions relating to the purchase of title
insurance, particularly in multi-site transactions and in situations involving
real estate-related investment vehicles such as real estate investment trusts
and real estate mortgage investment conduits.
INTEREST RATE LEVELS; SEASONALITY
The title insurance industry is highly dependent upon the volume of real
estate transactions occurring within the market. In turn, the volume of real
estate transactions is highly sensitive to interest rate levels and general
economic conditions. Because these factors can be volatile, revenue levels for
the title industry also can be volatile. In addition, the title insurance
business is seasonal, since real estate activity is seasonal. The first calendar
quarter is typically the weakest quarter in terms of revenue due to the
generally low volume of home sales during the winter. The fourth calendar
quarter is typically the strongest in terms of revenue due to the desire of
commercial entities to complete transactions by year end. These traditional
seasonal patterns can be altered if there is a significant change in the level
of mortgage refinancing, since refinancing activity is correlated with movements
in the level of interest rates and is not tied to a seasonal pattern.
RESERVE FOR TITLE LOSSES
The largest single liability of Chicago Title is the reserve for title
losses, which also covers losses arising from the escrow, closing and
disbursement functions due to fraud or operational error, and includes costs of
external legal defense. The establishment of appropriate loss reserves is an
inherently uncertain process, particularly due to the long-term nature of most
title insurance business. Loss reserves represent Chicago Title's estimates, at
a given point in time, of the ultimate settlement and legal costs of losses
incurred (including incurred but not reported losses). Chicago Title's reserves
are reviewed regularly by management and are certified by an independent actuary
on an annual basis. Whenever Chicago Title determines that any existing loss
reserves are inadequate, Chicago Title is required to increase its loss reserves
with a corresponding reduction, which could be material, in Chicago Title's
operating results in the period in which the deficiency is identified. The
establishment of new reserves, or the adjustment of reserves could have a
material effect on Chicago Title's financial condition and results of operations
in any particular period and would reduce the amount of earnings (if any)
available for dividends. See "Business -- Reserve for Title Losses."
REGULATION
Chicago Title and its title insurance subsidiaries are subject to state
insurance regulations in the states in which they do business. Such regulations,
among other things, affect statutory reserves, limit the amount of dividends and
other payments that can be made by Chicago Title's title insurance subsidiaries
without prior regulatory approval, and impose restrictions on the amount and
type of investments they may hold. Certain states also regulate the rates
charged for various title insurance products. Chicago Title cannot predict the
effect that any proposed or future regulations may have on the financial
condition or operations of Chicago Title. See "Business -- Regulation."
12
<PAGE> 15
HOLDING COMPANY STRUCTURE
Chicago Title is a holding company that conducts no operations of its own.
After the Spin-Off, the assets of Chicago Title will essentially consist of its
equity interest in CT&T. Chicago Title will rely on cash dividends and other
permitted payments from CT&T to pay cash dividends, if any, to the holders of
Chicago Title Common Stock. The payment of dividends by CT&T to Chicago Title
and by CT&T's title insurance subsidiaries to CT&T is limited by state insurance
regulations in the states in which they do business. See "Dividend Policy,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources," and "Business -- Regulation."
TAX TREATMENT OF THE SPIN-OFF
Alleghany has received the Tax Ruling from the IRS concerning the United
States Federal income tax consequences of the Spin-Off. The Tax Ruling states
that, because the Spin-Off will qualify under Section 355 of the Internal
Revenue Code of 1986, as amended (the "Code"), the distribution is tax-free to
Alleghany's stockholders and to Alleghany. The Tax Ruling also states that the
AAM Distribution is tax-free to Alleghany. Nevertheless, the Tax Ruling is based
upon the accuracy of representations made by Alleghany and Chicago Title as to
numerous factual matters and as to the intention to take (or to refrain from
taking) certain future action. The inaccuracy of any of those factual
representations or the failure to take the intended action (or the taking of
action which was represented as not intended to be taken) could cause the IRS to
revoke the Tax Ruling retroactively. In that event, the IRS might assert that
the Spin-Off was taxable, in which case both Alleghany and its stockholders
could be subject to tax on the Spin-Off, which tax could be material. The Tax
Sharing Agreement between Alleghany and Chicago Title provides that if Alleghany
is subject to any tax attributable to the Spin-Off, including by reason of the
Spin-Off's failure to qualify under Section 355 of the Code as a tax-free
distribution, then Chicago Title is obligated to indemnify and to hold Alleghany
harmless from any such tax unless such tax arises solely by reason of certain
actions taken, or certain misrepresentations made, by Alleghany or by Alleghany
Asset Management. Any such obligation of Chicago Title would have a material
adverse effect on Chicago Title. The Tax Sharing Agreement further obligates
Chicago Title to indemnify and to hold Alleghany harmless from any tax
attributable to the AAM Distribution if the AAM Distribution does not qualify as
a tax-free distribution under Section 355 of the Code because of any
misrepresentations made by Chicago Title upon which the Tax Ruling is based or
because of any actions taken by Chicago Title which are inconsistent with the
treatment of the AAM Distribution as a tax-free distribution. In the Tax Sharing
Agreement, Chicago Title also has agreed not to take certain actions which might
adversely affect the tax-free status of the Spin-Off or the AAM Distribution.
Among other things, Chicago Title has agreed that during the two-year period
after the Spin-Off Date, Chicago Title will not liquidate or merge with another
corporation; issue more than 20% of its capital stock in one or more
transactions; redeem, purchase or otherwise reacquire more than 5% of its
capital stock in one or more transactions (except for acquisitions of stock
related to employee benefit plans); or sell or otherwise dispose of the assets
constituting, or discontinue the active conduct of, certain businesses of CT&T.
See "Arrangements Between Alleghany and Chicago Title Relating to the
Spin-Off -- Tax Sharing Agreement" and "Certain Federal Income Tax
Consequences."
MARKET UNCERTAINTIES WITH RESPECT TO CHICAGO TITLE COMMON STOCK
There is no existing market for Chicago Title Common Stock. Although we
have applied to list the Chicago Title Common Stock on the NYSE, we cannot
predict, estimate or give assurances about the trading prices for Chicago Title
Common Stock before or after the Spin-Off Date. Until the Chicago Title Common
Stock is fully distributed and an orderly market develops, the trading prices
for Chicago Title Common Stock may fluctuate significantly. Prices for the
Chicago Title Common Stock will be determined in the trading markets and may be
influenced by many factors, including the depth and liquidity of the market for
Chicago Title Common Stock, investor perceptions of Chicago Title and its
business, changes in interest rates and the level of activity in real estate
markets, Chicago Title's results, Chicago Title's dividend policy, and general
economic and market conditions. The Chicago Title Common Stock distributed to
Alleghany stockholders in the Spin-Off generally will be freely transferable
under the Securities Act of 1933, as amended (the
13
<PAGE> 16
"Securities Act"), and the sale of a substantial number of shares of Chicago
Title Common Stock after the Spin-Off could adversely affect the market price of
the Chicago Title Common Stock. See "The Spin-Off -- Market for Chicago Title
Common Stock."
ANTI-TAKEOVER PROVISIONS
Certain provisions of Chicago Title's Certificate of Incorporation (the
"Chicago Title Certificate") and By-Laws may have the effect of delaying,
deferring, or preventing a change of control of Chicago Title without further
action by the stockholders, may discourage bids for Chicago Title Common Stock
at a premium over the market price of Chicago Title Common Stock, and may
adversely affect the market price of, and the voting and other rights of, the
holders of Chicago Title Common Stock. These provisions, which are substantially
the same as provisions contained in Alleghany's Restated Certificate of
Incorporation and By-Laws, include, for example, terms in the Chicago Title
Certificate providing for (i) the issuance of blank check preferred stock by the
Chicago Title Board without stockholder approval, (ii) higher stockholder voting
requirements for certain transactions such as business combinations, (iii)
classification of the Chicago Title Board into three classes and (iv) the
removal only for cause of directors by a vote of 75% of Chicago Title's
outstanding voting power. In addition, certain "anti-takeover" provisions of the
Delaware General Corporation Law, including Section 203, may restrict the
ability of stockholders to effect a merger or business combination or obtain
control of Chicago Title, and may be considered disadvantageous by a
stockholder. See "Description of Capital Stock -- Chicago Title Common Stock;
Delaware Anti-takeover Provisions" and "-- Certain Anti-Takeover
Provisions -- Chicago Title Certificate and By-Laws."
In addition, provisions in the Tax Sharing Agreement, which are intended to
preserve the tax-free status of the Spin-Off and the AAM Distribution for
Federal income tax purposes, could discourage certain takeover proposals or make
them more expensive. See "Arrangements Between Alleghany and Chicago Title
Relating to the Spin-Off -- Tax Sharing Agreement."
FORWARD-LOOKING INFORMATION
This document contains, and other materials filed or to be filed by Chicago
Title with the Securities and Exchange Commission (as well as information
included in oral statements or other written statements made or to be made by
Chicago Title) contain or will contain, disclosures which are forward-looking
statements. Forward looking statements include all statements that do not relate
solely to historical or current facts, and can be identified by the use of words
such as "may," "will," "expect," "project," "estimate," "anticipate," "plan" or
"continue." These forward-looking statements address, among other things,
strategic initiatives and the anticipated effects of the Spin-Off. See
"Summary -- Introduction,-- Questions and Answers About Chicago Title and the
Spin-Off," "The Spin-Off -- Background and Purposes of the Spin-Off,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Strategy." These forward-looking statements are
based upon Chicago Title's current plans or expectations and are subject to a
number of uncertainties and risks that could significantly affect current plans
and anticipated actions and Chicago Title's future financial condition and
results. These uncertainties and risks include, but are not limited to, those
relating to conducting operations in a competitive environment; the effect of
fluctuations in the volume of, and the seasonal nature of, real estate
transactions; acquisition activities (including uncertainties associated with
anticipating the use of Chicago Title Common Stock as consideration for
acquisitions when there has been no historic trading market for such stock);
general economic conditions; the relatively high costs of producing title
evidence when premiums are subject to regulatory and competitive restraints; the
effect of interest rate levels and general economic conditions on the volume of
real estate transactions occurring within the market and on Chicago Title's
investment portfolio; the effect of state regulations requiring maintenance of
minimum levels of capital and surplus and restricting the payment of dividends;
and the risk of substantial claims by large classes of claimants, such as
aboriginal title claims of Native Americans. As a consequence, current plans,
anticipated actions and future financial condition and results may differ from
those expressed in any forward-looking statements made by or on behalf of
Chicago Title.
14
<PAGE> 17
THE SPIN-OFF
BACKGROUND AND PURPOSES OF THE SPIN-OFF
In December 1997, Alleghany announced its intention to establish the title
insurance and real estate-related services business conducted by CT&T as an
independent, publicly traded company. This will be accomplished by the Spin-Off.
The title insurance industry is undergoing a period of consolidation and rapid
change, and Alleghany believes that establishing Chicago Title as an independent
company will enhance its ability to focus on operating efficiencies and
strategic initiatives that are required to respond to a changing marketplace.
Also, in the current competitive environment, it is more important than ever to
foster development of an entrepreneurial culture at Chicago Title. As an
independent public company, Chicago Title will be able to provide equity-based
compensation and incentives that should enable it to retain and recruit senior
management and to motivate employees throughout the organization. After the
Spin-Off, Chicago Title will continue under the current management of CT&T. The
Alleghany Board of Directors believes that this action is in the best interest
of stockholders.
MANNER OF EFFECTING THE SPIN-OFF
The general terms and conditions relating to the Spin-Off are set forth in
a Distribution Agreement (the "Distribution Agreement") between Alleghany and
Chicago Title. See "Arrangements Between Alleghany and Chicago Title Relating to
the Spin-Off -- Distribution Agreement."
On the Spin-Off Date, Alleghany will effect the Spin-Off by delivering all
of the outstanding shares of Chicago Title Common Stock owned by Alleghany to
Harris Trust and Savings Bank, as distribution agent (the "Distribution Agent"),
for distribution to the holders of record of Alleghany Stock as of the close of
business on the Record Date. The Spin-Off will be made on the basis of three
shares of Chicago Title Common Stock for every share of Alleghany Stock held as
of the close of business on the Record Date. The actual total number of shares
of Chicago Title Common Stock to be distributed will depend on the number of
shares of Alleghany Stock outstanding on the Record Date. The shares to be
distributed to Alleghany stockholders do not include an additional 364,746
shares of Chicago Title Common Stock to be issued immediately prior to the
Spin-Off as restricted stock to senior management of Chicago Title and its
subsidiaries, and an additional 16,000 shares to be issued immediately after the
Spin-Off as restricted stock to non-employee directors of Chicago Title. The
shares of Chicago Title Common Stock will be fully paid and nonassessable, and
the holders of Chicago Title Common Stock will not be entitled to preemptive
rights. See "Description of Capital Stock." It is expected that certificates
representing shares of Chicago Title Common Stock will be mailed to Alleghany
stockholders in early June 1998.
RESULTS OF THE SPIN-OFF
After the Spin-Off, Chicago Title will be a separate public company. The
number and identity of stockholders of Chicago Title immediately after the
Spin-Off will be the same as the number and identity of stockholders of
Alleghany on the Record Date (except in respect of the additional shares of
Chicago Title Common Stock to be issued as restricted stock to senior management
of Chicago Title and its subsidiaries and to non-employee directors of Chicago
Title). Immediately after the Spin-Off, Chicago Title expects to have
approximately 2,000 holders of record of Chicago Title Common Stock and
approximately 21,896,617 shares of Chicago Title Common Stock outstanding, based
on the number of record stockholders and issued and outstanding shares of
Alleghany Stock as of the close of business on April 28, 1998, the distribution
ratio of three shares of Chicago Title Common Stock for every share of Alleghany
Stock, and the additional shares of Chicago Title Common Stock to be issued as
restricted stock to senior management of Chicago Title and its subsidiaries and
to non-employee directors of Chicago Title. The actual number of shares of
Chicago Title Common Stock to be distributed will be determined as of the Record
Date. The Spin-Off will not affect the number of outstanding shares of Alleghany
Stock or the rights of Alleghany stockholders.
15
<PAGE> 18
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Alleghany has received the Tax Ruling from the IRS to the effect, among
other things, that, as the Spin-Off will qualify as a tax-free spin-off under
Section 355 of the Code, for Federal income tax purposes:
1. No gain or loss will be recognized by Alleghany upon the
distribution of the Chicago Title Common Stock to Alleghany's stockholders.
2. No gain or loss will be recognized (and no amount will be included
in income) by the Alleghany stockholders as a result of their receipt of
Chicago Title Common Stock in the Spin-Off.
3. As a result of the Spin-Off, a stockholder's tax basis in Alleghany
Stock will be apportioned between Alleghany Stock and Chicago Title Common
Stock received in the Spin-Off in accordance with relative fair market
values of such shares at the time of the Spin-Off.
4. The holding period of the Chicago Title Common Stock received in
the Spin-Off will include the holding period of the Alleghany Stock with
respect to which the Chicago Title Common Stock will be distributed,
provided the Alleghany Stock is held as a capital asset on the Spin-Off
Date.
5. No gain or loss will be recognized by CT&T upon the distribution of
Alleghany Asset Management to Alleghany.
6. No gain or loss will be recognized (and no amount will be included
in income) by Alleghany as a result of the AAM Distribution.
The Tax Ruling is based upon the accuracy of representations made by
Alleghany and Chicago Title as to numerous factual matters and as to the
intention to take (or to refrain from taking) certain future action. The
inaccuracy of any of those factual representations or the failure to take the
intended action (or the taking of action which was represented as not intended
to be taken) could cause the IRS to revoke the Tax Ruling retroactively. In that
event, the IRS might assert that the Spin-Off was taxable. See "Risk
Factors -- Tax Treatment of the Spin-Off" and "Arrangements Between Alleghany
and Chicago Title Relating to the Spin-Off -- Tax Sharing Agreement."
The foregoing is a general description of the material United States
Federal income tax consequences associated with the Spin-Off. It is not intended
to address every stockholder's tax consequences and does not purport to address
all tax consequences applying to every Alleghany stockholder. In particular,
this summary description does not cover state, local, or foreign income and
other tax consequences. Consequently, stockholders are strongly encouraged to
consult their individual tax advisors for relevant particular tax consequences
concerning the Spin-Off. In addition, stockholders residing outside of the
United States are encouraged to seek tax advice regarding tax implications of
the Spin-Off.
REGULATORY APPROVALS
Alleghany has provided appropriate notifications regarding the Spin-Off to,
and prior to the Spin-Off Date expects that it will have received all required
approvals from, the state regulatory authorities in Arizona, California,
Illinois, Missouri, Oregon and Texas.
MARKET FOR CHICAGO TITLE COMMON STOCK
There is no existing market for Chicago Title Common Stock. Although we
have applied to list the Chicago Title Common Stock on the NYSE, we cannot
predict, estimate or give assurances about the trading prices for Chicago Title
Common Stock before or after the Spin-Off Date. A when-issued trading market for
Chicago Title Common Stock is expected to develop on or shortly before the
Record Date. The term "when-issued" means that shares can be traded prior to the
time certificates are actually available or issued. Until the Chicago Title
Common Stock is fully distributed and an orderly market develops, the trading
prices for Chicago Title Common Stock may fluctuate significantly. Prices for
the Chicago Title Common Stock will be determined in the trading markets and may
be influenced by many factors, including the depth and liquidity of
16
<PAGE> 19
the market for Chicago Title Common Stock, investor perceptions of Chicago Title
and its business, changes in interest rates and the level of activity in real
estate markets, Chicago Title's results, Chicago Title's dividend policy, and
general economic and market conditions. It is anticipated that Chicago Title
Common Stock will be publicly traded on the NYSE under the symbol "CTZ."
Alleghany Stock will continue to trade on a regular-way basis and may also
trade on a when-distributed basis, reflecting an assumed post-Spin-Off value for
Alleghany Stock. Alleghany Stock when-distributed trading, if available, could
last from May , 1998 through the Spin-Off Date. Chicago Title and Alleghany
understand that if Alleghany Stock when-distributed trading is not available,
the NYSE will require that shares of Alleghany Stock that are sold or purchased
from the period beginning on May , 1998, and ending on the Spin-Off Date, be
accompanied by due-bills representing the Chicago Title Common Stock
distributable with respect to such shares, and that during such period neither
the Alleghany Stock nor the due bills may be purchased or sold separately.
The Transfer Agent and Registrar for the Chicago Title Common Stock will be
Harris Trust and Savings Bank.
For certain information regarding awards of restricted shares of Chicago
Title Common Stock and options to purchase Chicago Title Common Stock that will
be granted in connection with the Spin-Off, see "Chicago Title Compensation
Arrangements -- The 1998 Long-Term Incentive Plan."
Shares of Chicago Title Common Stock distributed to Alleghany stockholders
in the Spin-Off will be freely transferable under the Securities Act, except for
shares received by persons who may be deemed to be affiliates of Chicago Title.
After Chicago Title becomes a publicly traded company, shares of Chicago Title
Common Stock held by persons who are affiliates of Chicago Title (generally,
individuals or entities that control, are controlled by, or are under common
control with Chicago Title) will be subject to resale restrictions under the
Securities Act. Such affiliates are permitted to sell their shares of Chicago
Title Common Stock only pursuant to an effective registration statement or an
exemption from the registration requirements of the Securities Act, such as the
exemption afforded by Rule 144 under the Securities Act.
CONDITIONS PRECEDENT TO THE SPIN-OFF
It is expected that the Spin-Off will be effective on the Spin-Off Date,
provided that:
1. all necessary permits, registrations and consents required under
the insurance, securities or blue sky laws of states or other political
subdivisions of the United States in connection with the Spin-Off shall
have been received or become effective;
2. the Chicago Title Common Stock shall have been approved for listing
on the NYSE, subject to official notice of issuance;
3. CT&T shall have distributed all of the outstanding stock of
Alleghany Asset Management to Alleghany; and
4. the Tax Ruling shall not have been revoked or modified in any
material respect.
ARRANGEMENTS BETWEEN ALLEGHANY AND CHICAGO TITLE
RELATING TO THE SPIN-OFF
Immediately prior to the Spin-Off, Alleghany and Chicago Title will enter
into certain agreements to define their ongoing relationship after the Spin-Off.
These agreements are summarized below and have been filed as exhibits to the
Registration Statement on Form 10 (the "Form 10 Registration Statement") filed
by Chicago Title with the Securities and Exchange Commission (the "Commission")
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
following descriptions include a summary of all material terms of these
agreements but do not purport to be complete and are qualified in their entirety
by reference to the filed agreements.
17
<PAGE> 20
DISTRIBUTION AGREEMENT
Chicago Title and Alleghany will enter into the Distribution Agreement
which will provide for, among other things, cooperation regarding past matters
and the allocation of responsibility for past obligations and certain
obligations that may arise in the future. The Distribution Agreement provides
that each of Alleghany and Chicago Title will indemnify the other party and its
affiliates from and against any and all damage, loss, liability and expense
arising out of or due to the failure of the indemnitor or any of its
subsidiaries to pay, perform or otherwise discharge any of the liabilities or
obligations for which it is responsible under the terms of the Distribution
Agreement, which include, subject to certain exceptions, all liabilities and
obligations arising out of the conduct or operation of their respective
businesses before, on or after the Spin-Off Date. The Distribution Agreement
also provides that Chicago Title will bear the expenses incurred in connection
with the Spin-Off, including fees, costs and expenses related to the preparation
and filing of the Form 10 Registration Statement and the mailing of this
Information Statement, compliance with the securities and insurance laws, the
listing of the Chicago Title Common Stock on the NYSE, and the preparation and
negotiation of all of the documentation related to the Spin-Off, except that
Alleghany will bear certain identified legal fees and expenses (including all
fees and expenses incurred in connection with the Tax Ruling), and Alleghany
also will bear the fees and expenses incurred as a result of the engagement of
Merrill Lynch & Co. as financial advisor to Alleghany in connection with the
Spin-Off. The Distribution Agreement includes procedures for notice and payment
of indemnification claims and provides that the indemnifying party may assume
the defense of the claim or suit brought by a third party.
TAX SHARING AGREEMENT
Chicago Title and Alleghany will enter into a Tax Sharing Agreement (the
"Tax Sharing Agreement") to allocate certain tax liabilities between Chicago
Title and Alleghany and their respective subsidiaries and to allocate
responsibilities with respect to tax returns. Under the Tax Sharing Agreement,
Chicago Title will bear (i) its separately computed share of Alleghany's
consolidated Federal income tax liability for each taxable period for which
Chicago Title or any of its subsidiaries was a member of the Alleghany
consolidated group for Federal income tax purposes (except that Chicago Title is
not liable for taxes in respect of Alleghany Asset Management and its
subsidiaries for any period) and (ii) the appropriate part of any state or local
tax imposed based on receipts, income, capital or net worth and computed on a
consolidated, unitary or combined basis by reference to the assets and/or
activities of Chicago Title. Chicago Title is also responsible for any tax
liability resulting from any action necessary to implement the Spin-Off and its
associated events, including the AAM Distribution and the transfer of a business
previously conducted by a subsidiary of Alleghany Asset Management to Chicago
Title. All other taxes are allocated between Chicago Title and Alleghany based
on the legal entity on which the tax is imposed.
The Tax Sharing Agreement provides that if Alleghany is subject to any tax
attributable to the Spin-Off, including by reason of the Spin-Off's failure to
qualify under Section 355 of the Code as a tax-free distribution, then Chicago
Title is obligated to indemnify and to hold Alleghany harmless from any such tax
unless such tax arises solely by reason of certain actions taken, or certain
misrepresentations made, by Alleghany. Any such obligation of Chicago Title
would have a material adverse effect on Chicago Title. The Tax Sharing Agreement
further obligates Chicago Title to indemnify and to hold Alleghany harmless from
any tax attributable to the AAM Distribution if the AAM Distribution does not
qualify as a tax-free distribution under Section 355 of the Code because of any
misrepresentations made by Chicago Title upon which the Tax Ruling will be based
or because of any actions taken by Chicago Title which are inconsistent with the
treatment of the AAM Distribution as a tax-free distribution. In the Tax Sharing
Agreement, Chicago Title also has agreed not to take certain specified actions
which might adversely affect the tax-free status of the Spin-Off or the AAM
Distribution. Among other things, Chicago Title has agreed that during the
two-year period after the Spin-Off Date, Chicago Title will not liquidate or
merge with another corporation; issue more than 20% of its capital stock in one
or more transactions; redeem, purchase or otherwise reacquire more than 5% of
its capital stock in one or more transactions (except for acquisitions of stock
related to employee benefits plans); or sell or otherwise dispose of the assets
constituting, or discontinue the active
18
<PAGE> 21
conduct of, certain businesses of CT&T. See "Arrangements Between Alleghany and
Chicago Title Relating to the Spin-Off -- Tax Sharing Agreement."
AGREEMENTS BETWEEN ALLEGHANY ASSET MANAGEMENT AND CHICAGO TITLE
Prior to the Spin-Off Date, certain agreements will be entered into between
Chicago Title (or Chicago Title's subsidiary CT&T) and Alleghany Asset
Management (or Alleghany Asset Management's subsidiary The Chicago Trust
Company) in connection with the AAM Distribution.
Investment Management Agreement. Chicago Title and The Chicago Trust
Company will enter into an Investment Management Agreement providing for the
management by The Chicago Trust Company of substantially all of the long-term
investable assets and certain of the short-term investable assets of CT&T and
its subsidiaries. The term of the agreement will be five years, with automatic
one year renewals unless either party terminates within three months of the end
of any such term. The agreement also may be terminated by Chicago Title in the
event that investment performance is unsatisfactory. The investment management
fees to be charged under the Investment Management Agreement generally will be
based on market rates and, based on the level of assets under management at
March 31, 1998, would be approximately $1.2 million per year.
Transitional Services Agreement. CT&T and Alleghany Asset Management will
enter into an agreement pursuant to which CT&T will continue to furnish various
administrative services to Alleghany Asset Management. The initial term of the
agreement will end on December 31, 1998, and is subject to renewal thereafter by
mutual agreement. Fees payable by Alleghany Asset Management to CT&T for
performance of such services are expected to be at the annual rate of
approximately $1.1 million.
Sublease. The Chicago Trust Company will sublease space at the principal
headquarters building of Chicago Title from CT&T at a rent and on such other
terms as are currently applicable to CT&T for such space. Total charges related
to this sublease are expected to be at the annual rate of approximately $1.5
million.
REASONS FOR FURNISHING THIS INFORMATION STATEMENT
This Information Statement is being furnished by Alleghany solely to
provide information to Alleghany stockholders who will receive Chicago Title
Common Stock in the Spin-Off. It is not, and is not to be construed as, an
inducement or encouragement to buy or sell any securities of Alleghany or
Chicago Title. Chicago Title believes that the information presented herein is
accurate as of the date hereof. Changes will occur after the date hereof, and
neither Alleghany nor Chicago Title will update the information except to the
extent required in the normal course of their respective public disclosure
practices.
19
<PAGE> 22
SELECTED FINANCIAL DATA
The following table sets forth a summary of selected financial data for
Chicago Title. The historical financial information below may not necessarily be
indicative of the results of operations or financial position that would have
been obtained if Chicago Title had been a separate, independent company during
the periods shown or of Chicago Title's future performance as an independent
company. The financial data set forth below should be read in conjunction with
CT&T's Consolidated Financial Statements and the notes thereto found elsewhere
in this Information Statement. See "Selected Financial Data," "Pro Forma
Consolidated Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and CT&T's Consolidated Financial
Statements and notes thereto. Earnings per share data are presented elsewhere in
this Information Statement on a pro forma basis only. See "Pro Forma
Consolidated Financial Data."
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, AS OF AND FOR THE YEARS ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(UNAUDITED) (IN 000S)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS DATA:
Revenues:
Title, escrow, trust and
other revenue............. $ 385,804 298,408 1,411,496 1,278,590 1,082,008 1,283,970 1,359,955
Investment income........... 14,805 11,762 52,266 47,658 46,661 44,913 49,290
Net realized investment
gains (losses)............ 371 155 3,684 1,436 3,697 (5,447) 7,058
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues............ 400,980 310,325 1,467,446 1,327,684 1,132,366 1,323,436 1,416,303
Expenses:
Salaries and other employee
benefits.................. 127,603 100,477 454,648 411,815 344,767 368,097 393,418
Commissions paid to
agents.................... 131,490 114,400 526,324 484,351 420,555 549,990 545,552
Provision for title
losses.................... 26,279 21,772 102,324 83,023 81,385 94,845 121,865
Interest expense............ 1,295 1,156 4,644 5,566 6,456 6,859 9,572
Other operating and
administrative expenses... 82,273 64,118 295,903 273,236 242,380 244,655 263,057
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total expenses............ 368,940 301,923 1,383,843 1,257,991 1,095,543 1,264,446 1,333,464
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income from
continuing operations before
income taxes................ 32,040 8,402 83,603 69,693 36,823 58,990 82,839
Income taxes.................. 10,799 2,474 27,894 23,115 11,889 18,854 26,329
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income from continuing
operations.................. $ 21,241 5,928 55,709 46,578 24,934 40,136 56,510
========== ========== ========== ========== ========== ========== ==========
Dividends paid to
Alleghany(1)................ $ 0(2) 0 32,105 30,000(3) 29,515 66,527 235,470
========== ========== ========== ========== ========== ========== ==========
BALANCE SHEET DATA:
Total assets.................. $1,812,464 1,428,542 1,702,207 1,482,697 1,447,351 1,389,700 1,500,390
Notes payable and other
obligations................. 32,851 43,282 32,443 43,282 55,043 64,441 74,966
</TABLE>
- ---------------
(1) Historical dividends and distributions to Alleghany may not be indicative of
future dividends to common stockholders. See "Dividend Policy." Most of the
$235.5 million dividend paid by CT&T to Alleghany in 1993 was used by
Alleghany for acquisition purposes.
(2) In April 1998, the CT&T Board of Directors declared as a dividend to
Alleghany a promissory note payable in the amount of $7.5 million on
December 31, 1998. This dividend represents a distribution by CT&T of a
portion of its earnings for the period during 1998 that it was held as a
subsidiary of Alleghany.
(3) Includes the repurchase of common stock from Alleghany in 1996 for $30
million.
20
<PAGE> 23
PRO FORMA CONSOLIDATED FINANCIAL DATA
The unaudited pro forma consolidated financial data set forth below should
be read in conjunction with the historical consolidated financial data presented
elsewhere herein. The pro forma consolidated financial data is presented for
informational purposes only and may not reflect the future results of operations
or financial position of Chicago Title or what the results of operations would
have been had Chicago Title been operated as an independent, public company
during 1997 and the first quarter of 1998.
PRO FORMA RESULTS OF OPERATIONS
During 1997 and the three months ended March 31, 1998, Chicago Title
operated on a separate, stand-alone basis in terms of capital funding and did
not receive any material services from its parent or affiliates. As a result,
the unaudited 1997 and first quarter 1998 pro forma consolidated results of
operations would be reflective of the historical based results.
For purposes of presenting pro forma earnings per share, it is assumed that
the Spin-Off had taken place on January 1, 1997. The number of shares used to
compute earnings per share is based upon the assumed distribution of 21,515,871
shares using the ratio of three shares of Chicago Title Common Stock for every
share of Alleghany Stock and taking into account an estimated 364,746 shares of
restricted Chicago Title Common Stock to be issued to employees immediately
prior to the Spin-Off and an additional 16,000 shares which will be issued to
the non-employee directors of Chicago Title immediately after the Spin-Off.
Pro forma earnings per share for the three months ended March 31, 1998 and
for the year ended December 31, 1997 was $1.20 and $2.54 per share based upon
21,896,617 shares outstanding for each period as described above.
PRO FORMA CONSOLIDATED BALANCE SHEET AND CAPITALIZATION
The following tables set forth the unaudited pro forma consolidated balance
sheet and capitalization of Chicago Title at March 31, 1998. The tables should
be read in conjunction with the introduction to the pro forma financial
statements above. The pro forma capitalization table has been derived from the
historical financial statements and reflects certain pro forma adjustments as if
the Spin-Off had been consummated as of March 31, 1998. The pro forma
information may not reflect the capitalization of Chicago Title in the future or
as it would have been had Chicago Title been an independent, public company at
March 31, 1998.
21
<PAGE> 24
CHICAGO TITLE CORPORATION
AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(IN 000s)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Cash on hand and in banks........................... $ 35,887 -- 35,887
Cash pledged to secure trust and escrow deposits.... 263,199 -- 263,199
Total marketable securities......................... 975,899 -- 975,899
Receivables......................................... 71,412 -- 71,412
Deferred Federal income taxes....................... 81,204 -- 81,204
Fixed assets, net................................... 97,357 -- 97,357
Title plants........................................ 150,771 -- 150,771
Net assets from discontinued operations............. 19,825 (19,825)(1) --
Other assets........................................ 116,910 -- 116,910
---------- ------- ---------
Total assets................................... $1,812,464 (19,825) 1,792,639
========== ======= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable.................................... $ 120,366 -- 120,366
Accrued expenses and other liabilities.............. 101,208 15,000(2) 116,208
Dividend payable to Alleghany (promissory note)..... -- 7,500(4) 7,500
Notes payable and other obligations................. 32,851 -- 32,851
Reserve for title losses............................ 569,829 -- 569,829
Trust and escrow deposits secured by pledged
assets............................................ 558,403 -- 558,403
---------- ------- ---------
Total liabilities.............................. 1,382,657 22,500 1,405,157
---------- ------- ---------
Stockholders' equity:
Preferred stock................................... -- -- --
Common stock...................................... 13,676 8,221(3) 21,897
Additional paid-in capital........................ 117,381 (8,221)(3) 109,160
Retained earnings................................. 287,645 (42,325)(1)(2)(4) 245,320
Accumulated other comprehensive income(5)......... 11,105 -- 11,105
---------- ------- ---------
Total stockholders' equity..................... 429,807 (42,325) 387,482
---------- ------- ---------
Total liabilities and stockholders'
equity.................................. $1,812,464 (19,825) 1,792,639
========== ======= =========
</TABLE>
- ---------------
(1) Net assets of Alleghany Asset Management aggregating $19.8 million to be
distributed to Alleghany immediately prior to the Spin-Off.
(2) To record $15.0 million in estimated direct costs associated with the
Spin-Off, including professional fees, printing costs, listing fees, and
executive compensation (tax effected).
(3) To record the par value of shares of Chicago Title Common Stock distributed
to holders of Alleghany Stock and to record the recapitalization of Chicago
Title based upon the par value of the newly issued shares. The pro forma
amounts assume that the Spin-Off had taken place on March 31, 1998. The
number of shares used to compute stockholders' equity-common stock is based
upon the assumed distribution of 21,515,871 shares of Chicago Title Common
Stock to Alleghany stockholders (based upon the distribution ratio of three
shares of Chicago Title Common Stock for every share of Alleghany Stock) and
the issuance of an additional 380,746 shares of Chicago Title Common Stock
to senior management of Chicago Title and its subsidiaries and to the
non-employee directors of Chicago Title.
(4) To record the $7.5 million dividend declared by CT&T payable to Alleghany in
the form of a promissory note which represents a distribution by CT&T of a
portion of its earnings for the period in 1998 during which it was held as a
subsidiary of Alleghany.
(5) For information on the change in the description for this line item from the
year end financial statements, see "Notes to Consolidated Quarterly
Financial Statements."
22
<PAGE> 25
CHICAGO TITLE CORPORATION
AND SUBSIDIARIES
PRO FORMA CONSOLIDATED CAPITALIZATION
MARCH 31, 1998
(IN 000s, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Notes payable and other obligations..................... $ 32,851 -- 32,851
Stockholders' equity
Preferred stock, par value $1.00, authorized 8,000,000
shares, none issued and outstanding................ -- -- --
Common stock, par value $1.00, authorized 66,000,000
shares, 21,896,617 issued and outstanding shares... 13,676 8,221(1) 21,897
Additional paid in capital............................ 117,381 (8,221)(1) 109,160
Retained earnings..................................... 287,645 (42,325)(2) 245,320
Accumulated other comprehensive income(3)............. 11,105 -- 11,105
-------- ------- -------
Total pro forma consolidated capitalization... $462,658 (42,325) 420,333
======== ======= =======
</TABLE>
- ---------------
(1) To record the par value of shares of Chicago Title Common Stock distributed
to holders of Alleghany Stock and to record the recapitalization of Chicago
Title based upon the par value of the newly issued shares. The pro forma
amounts assume that the Spin-Off had taken place on March 31, 1998. The
number of shares used to compute stockholders' equity-common stock is based
upon the assumed distribution of 21,515,871 shares of Chicago Title Common
Stock to Alleghany stockholders (based upon the distribution ratio of three
shares of Chicago Title Common Stock for every share of Alleghany Stock) and
the issuance of an additional 380,746 shares of Chicago Title Common Stock
to senior management of Chicago Title and its subsidiaries and to the
non-employee directors of Chicago Title.
(2) To record $15.0 million in estimated direct costs associated with the
Spin-Off, including professional fees, printing costs, listing fees and
executive compensation (tax effected), net assets of Alleghany Asset
Management aggregating $19.8 million to be distributed to Alleghany, and the
$7.5 million dividend declared by CT&T payable to Alleghany in the form of a
promissory note which represents a distribution by CT&T of a portion of its
earnings for the period in 1998 during which it was held as a subsidiary of
Alleghany.
(3) For information on the change in the description for this line item from the
year end financial statements, see "Notes to Consolidated Quarterly
Financial Statements."
23
<PAGE> 26
DIVIDEND POLICY
CT&T has regularly paid cash dividends and has made certain other cash
distributions to Alleghany. In 1997, a dividend of $32.1 million was paid to
Alleghany, and in 1996 a payment of $30.0 million was made to Alleghany to
redeem shares of CT&T stock. On April 28, 1998, the CT&T Board of Directors
declared as a dividend to Alleghany a promissory note payable in the amount of
$7.5 million on December 31, 1998. The $7.5 million promissory note paid to
Alleghany as a dividend represents a distribution by CT&T of a portion of its
earnings for the period during 1998 that it was held as a subsidiary of
Alleghany. At maturity, the principal amount of the promissory note will be paid
out of internally generated cash flow.
In anticipation of the Spin-Off, Chicago Title has adopted a policy with
regard to the payment of dividends. Under this policy, Chicago Title currently
intends to pay a regular quarterly cash dividend of $0.34 per share of Chicago
Title Common Stock. This dividend policy is consistent with the aggregate amount
of distributions generally paid to Alleghany in recent years. See "Selected
Financial Data." The first regular quarterly cash dividend is expected to be
paid to stockholders of Chicago Title in the third quarter of 1998. The actual
timing and amount of dividends, if any, will depend on various factors as
described in the following paragraph and are subject to change at the discretion
of the Chicago Title Board from time to time.
Notwithstanding the dividend policy described above, dividends will be paid
only when, as and if determined by the Chicago Title Board out of funds legally
available for the payment of dividends. The actual amount and timing of
dividends, if any, will depend on Chicago Title's financial condition, results
of operations, business prospects and such other matters as the Chicago Title
Board may deem relevant. Even if earnings are available for dividends, the
Chicago Title Board could determine that such earnings should be retained for an
extended period of time in order to replenish Chicago Title's capital base, to
expand its business, to enhance its competitive position, or for any other
purpose deemed appropriate by the Chicago Title Board. In addition, in order to
pay cash dividends, Chicago Title, as a holding company, will depend on payment
of dividends by CT&T to Chicago Title and by CT&T's title insurance subsidiaries
to CT&T. The payment of dividends by CT&T to Chicago Title and by CT&T's title
insurance subsidiaries to CT&T is limited by state insurance regulations in the
states in which they do business. Consequently, there can be no assurance as to
the amount or timing of dividend payments, and Chicago Title's dividend policy
is subject to change. See "Risk Factors -- Reserve for Title Losses" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
24
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
This discussion and analysis of financial results should be read together
with the selected financial data and the Consolidated Financial Statements and
Notes of CT&T included elsewhere herein.
Forward Looking Statements
This "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contains disclosures which are forward-looking
statements. Forward looking statements include all statements that do not relate
solely to historical or current facts, and can be identified by the use of words
such as "may," "will," "expect," "project," "estimate," "anticipate," "plan" or
"continue." These forward-looking statements are based upon Chicago Title's
current plans or expectations and are subject to a number of uncertainties and
risks that could significantly affect current plans and anticipated actions and
Chicago Title's future financial condition and results. These uncertainties and
risks include, but are not limited to, those relating to conducting operations
in a competitive environment; the effect of fluctuations in the volume of, and
the seasonal nature of, real estate transactions; acquisition activities
(including uncertainties associated with anticipating the use of Chicago Title
Common Stock as consideration for acquisitions when there has been no historic
trading market for such stock); general economic conditions; the relatively high
costs of producing title evidence when premiums are subject to regulatory and
competitive restraints; the effect of interest rate levels and general economic
conditions on the volume of real estate transactions occurring within the market
and on Chicago Title's investment portfolio; the effect of state regulations
requiring maintenance of minimum levels of capital and surplus and restricting
the payment of dividends; and the risk of substantial claims by large classes of
claimants, such as aboriginal title claims of Native Americans. As a
consequence, current plans, anticipated actions and future financial condition
and results may differ from those expressed in any forward-looking statements
made by or on behalf of Chicago Title.
Overview
In December 1997, Alleghany announced its intention to establish the title
insurance and real estate-related services business now conducted by CT&T as an
independent, publicly traded company. This will be accomplished by the Spin-Off.
The title insurance industry is undergoing a period of consolidation and rapid
change, and Alleghany believes that establishing Chicago Title (sometimes herein
referred to as the "Company") as an independent company will enhance its ability
to focus on operating efficiencies and strategic initiatives that are required
to respond to a changing marketplace. Also, in the current competitive
environment, it is more important than ever to foster development of an
entrepreneurial culture at Chicago Title. As an independent public company,
Chicago Title will be able to provide equity-based compensation and incentives
that should enable it to retain and recruit senior management and to motivate
employees throughout the organization. After the Spin-Off, Chicago Title will
continue under the current management of CT&T.
The financial services business conducted through Alleghany Asset
Management, currently a subsidiary of CT&T, will not be part of the
distribution. Prior to the Spin-Off, all of the outstanding stock of Alleghany
Asset Management will be distributed by CT&T to Alleghany. Therefore, the
operating results of the financial services business are classified as a
"discontinued operation" in the financial statements included elsewhere herein.
Chicago Title reported net income from continuing operations of $55.7
million in 1997, $46.6 million in 1996 and $24.9 million in 1995. Chicago
Title's results of operations during this three-year period benefited from
healthy economic conditions that positively influenced real estate markets. In
particular, residential refinancing activity and commercial transactions have
shown strong growth during this three-year period. Along with the growth in
total revenue, pre-tax income as a percentage of revenues has also improved.
25
<PAGE> 28
Operating Revenues
Chicago Title's business is highly dependent upon the volume of real estate
transactions occurring within the market. In turn, the volume of real estate
transactions is highly sensitive to interest rate levels and general economic
conditions. Because these factors can be volatile, revenue levels for Chicago
Title are also volatile.
Premiums and related fees are determined by competitive factors and in many
states are also subject to regulation. Title insurance premiums are recognized
as revenues principally at the time of the real estate closing and escrow fees
principally when billed. As a result, there is typically a lag of about two
months between the time that a title insurance order is placed, at which time
work commences, and the time that Chicago Title recognizes the revenues
associated with the order. Revenues from title policies issued by independent
agents are generally recorded when notice of issuance is received from the
agent.
Investment Income
In addition to income from title insurance premiums and related fees,
Chicago Title earns dividends and interest income from its portfolio of fixed
maturity and equity securities. Chicago Title's current investment policy is (i)
to minimize the cyclical volatility of the portfolio, (ii) to maintain stability
of principal, (iii) to maintain consistency of cash flow and liquidity and (iv)
to earn a favorable total return. See "Business -- Investment Operations" for
more detailed information regarding Chicago Title's investment portfolio.
Operating Expenses
Chicago Title's profit margins are affected by several factors, including
the volume, size and mix of real estate transactions. Volume is an important
determinant of profitability because Chicago Title, like any other title
insurance company, has a significant level of fixed costs arising from
personnel, occupancy costs and maintenance of title plants.
Chicago Title's principal variable expense is commissions paid to agents.
Chicago Title regularly reviews the performance of its agents, adjusting
commission levels or canceling agents that do not meet objectives.
Chicago Title's next largest category of expense is salaries and other
employee benefits. Due to the volatility of real estate transaction volumes
driving Chicago Title's revenue, proper management of staff levels and other
components of labor expense is critical to the optimization of operating
results. To increase the sensitivity of employee-related costs to changing
business conditions, Chicago Title strives to emphasize variable forms of
compensation such as commissions, bonuses and incentive compensation programs
for large segments of the employee population.
The most significant components of other operating and administrative
expenses are occupancy, purchased property information, computer-related
expenses, telecommunications and supplies.
Provision for Title Losses
Generally, title insurance claim rates are lower than for other types of
insurance because title insurance policies generally insure against prior events
affecting the quality of real estate titles, rather than against unforeseen, and
therefore less predictable, future events. A provision is made for estimated
future claim payments at the time revenue is recognized. Initial reserve
provisions are derived directly from premium revenues, based upon anticipated
loss ratios. Claims payments generally result from either judgment errors or
mistakes made in the title search and examination process or the escrow process,
or from other problems such as fraud or incapacity of persons transferring
property rights.
When a claim is reported, Chicago Title establishes a "case" reserve, based
upon the best estimate of the total amount necessary to settle the claim and to
provide for allocated loss adjustment expenses, including legal defense costs
("LAE"). These reserves are periodically adjusted by Chicago Title based on its
evaluation of subsequent developments regarding the reported claim.
In addition to "case" reserves, Chicago Title also maintains reserves for
title losses that are incurred but not yet reported ("IBNR reserves"). These
reserves are particularly significant in long tail lines of insurance,
26
<PAGE> 29
such as title insurance, for which the claim and the circumstances causing the
claim may be separated by a long period of time. Unlike most other types of
insurance, the event giving rise to a possible future claim under a title
insurance policy, the defect in the title, occurred before issuance of the
policy but may not be discovered, if ever, until a future date.
Chicago Title establishes IBNR reserves by using actuarial principles and
procedures commonly used in the title insurance industry to estimate the
ultimate liability for losses and LAE. The actuarial procedures use historic
patterns of claims to predict likely future claims. Projections are analyzed in
the context of changing economic conditions, and the projections and related
reserves are modified when appropriate.
IBNR reserves are also established for very large or unusual claims which
might fall outside the normal distribution of expected claims experience.
Reserves for these claims are based on an analysis of the experience of both
Chicago Title and the title insurance industry.
Chicago Title's reserves are reviewed regularly by management and are
certified by an independent actuary on an annual basis. Chicago Title does not
discount its reserves for anticipated investment income.
Because of the long-term nature of most title insurance business exposures,
there is inherent uncertainty in estimating reserves. Actual losses may deviate,
perhaps substantially, from reserves on Chicago Title's financial statements,
which could have a material effect on Chicago Title's financial condition and
results of operations. Based on current information, Chicago Title management
believes the reserve for losses at March 31, 1998 is adequate.
Income Taxes
Chicago Title pays United States Federal and state income taxes based on
laws in the jurisdictions in which it operates. The effective Federal tax rates
reflected in the statement of income for continuing operations amounted to 32.4%
in 1997, 32.8% in 1996, and 31.6% in 1995. The effective Federal tax rates are
lower than the United States Federal statutory rate of 35% principally due to
tax-exempt income received from the holding of state and municipal securities.
At December 31, 1997 Chicago Title had recorded net deferred tax assets of
$76.0 million related primarily to the reserve for title losses. Chicago Title
reassesses the realization of net deferred tax assets quarterly and, if
necessary, adjusts its valuation allowance accordingly. Substantially all of the
net deferred tax asset balance could be realized in the future through the
reversal of existing temporary taxable differences. Accordingly, it is more
likely than not that the income tax benefits will be realized for all the
temporary deductible differences existing at December 31, 1997, and as of that
date there was no valuation allowance.
Seasonality
The title insurance industry is highly dependent upon the volume of real
estate transactions occurring within the market. In turn, the volume of real
estate transactions is highly sensitive to interest rate levels and general
economic conditions. Because these factors can be volatile, revenue levels for
the title industry also can be volatile. In addition, the title insurance
business is seasonal, since real estate activity is seasonal. The first calendar
quarter is typically the weakest quarter in terms of revenue due to the
generally low volume of home sales during the winter. The fourth calendar
quarter is typically the strongest in terms of revenue due to the desire of
commercial entities to complete transactions by year end. These traditional
seasonal patterns can be altered if there is a significant change in the level
of mortgage refinancing, since refinancing activity is correlated with movements
in the level of interest rates and is not tied to a seasonal pattern.
Contingencies
Chicago Title is a party to pending litigation and claims in connection
with the ordinary course of its business. Provision is made on its books, in
accordance with generally accepted accounting principles, for estimated losses
to be incurred in such litigation and claims, including legal costs. In the
opinion of management, such provision is adequate.
27
<PAGE> 30
Alleghany has received the Tax Ruling from the IRS concerning the United
States Federal income tax consequences of the Spin-Off. The Tax Ruling states
that, because the Spin-Off will qualify under Section 355 of the Code, the
distribution is tax-free to Alleghany's stockholders and to Alleghany. The Tax
Ruling also states that the AAM Distribution is tax-free to Alleghany.
Nevertheless, the Tax Ruling is based upon the accuracy of representations made
by Alleghany and Chicago Title as to numerous factual matters and as to the
intention to take (or to refrain from taking) certain future action. The
inaccuracy of any of those factual representations or the failure to take the
intended action (or the taking of action which was represented as not intended
to be taken) could cause the IRS to revoke the Tax Ruling retroactively. In that
event, the IRS might assert that the Spin-Off was taxable, in which case both
Alleghany and its stockholders could be subject to tax on the Spin-Off, which
tax could be material. The Tax Sharing Agreement between Alleghany and Chicago
Title provides that if Alleghany is subject to any tax attributable to the
Spin-Off, including by reason of the Spin-Off's failure to qualify under Section
355 of the Code as a tax-free distribution, then Chicago Title is obligated to
indemnify and to hold Alleghany harmless from any such tax, unless such tax
arises solely by reason of certain actions taken, or certain misrepresentations
made, by Alleghany or by Alleghany Asset Management. Any such obligation of
Chicago Title would have a material adverse effect on Chicago Title. The Tax
Sharing Agreement further obligates Chicago Title to indemnify and to hold
Alleghany harmless from any tax attributable to the AAM Distribution if the AAM
Distribution does not qualify as a tax-free distribution under Section 355 of
the Code because of any misrepresentations made by Chicago Title upon which the
Tax Ruling is based or because of any actions taken by Chicago Title which are
inconsistent with the treatment of the AAM Distribution as a tax-free
distribution. In the Tax Sharing Agreement, Chicago Title also has agreed not to
take certain actions which might adversely affect the tax-free status of the
Spin-Off or the AAM Distribution. See "Arrangements Between Alleghany and
Chicago Title Relating to the Spin-Off -- Tax Sharing Agreement."
New Accounting Standards
Note 2 to the Consolidated Financial Statements included elsewhere herein
describes several new accounting standards which Chicago Title either has
adopted in 1997 or intends to adopt in 1998. Adoption of these new accounting
standards has not had, or is not expected to have, as the case may be, a
material effect on Chicago Title's financial reporting.
Year 2000 Issues
Many computer programs utilized by Chicago Title use only two digits to
identify a year in the date field. Failure to correct this situation could
result in a significant disruption to business operations. Chicago Title has
undertaken a program to determine the extent of "Year 2000" compliance issues
within each of its significant computer systems and to take appropriate remedial
action. Included within the scope of this review are systems utilized on a
Company-wide basis in title plants, title production units, claim processing,
human resources, financial management and company-wide infrastructure. Costs of
approximately $1.0 million were incurred in 1997 and another $2.2 million is
expected to be spent in 1998 in performing this review and all related remedial
work on these centralized systems. By the end of 1998, it is expected that each
of the significant Company-wide systems will have been reviewed and remedied for
Year 2000 issues, thus allowing sufficient time in 1999 for further testing.
In addition to the company-wide systems, there are various other computer
systems used by Chicago Title's business units on a local basis. Regional
managers report on the status of Year 2000 compliance activities within their
area of responsibility to Chicago Title's senior management on a regular basis.
To assist in their compliance programs, a comprehensive questionnaire which
incorporates recommendations of the American Land Title Association has been
developed by Chicago Title's Information Services Division. Due to the diverse
nature of the computer systems used on a local basis, it is difficult to
estimate the total costs to be incurred in performing the necessary review and
remediation activity for Year 2000 issues. However, based upon the results of
reviews that have taken place to date, Chicago Title's management believes that
such costs will not exceed $5.0 million in total over the years 1998 and 1999.
28
<PAGE> 31
In addition to the review of internal systems, Chicago Title is also in
contact with third parties with which it does business to coordinate action with
respect to Year 2000 issues and to receive confirmation that plans are being
developed to address Year 2000 compliance. Failure by third parties with which
Chicago Title has important business relationships to resolve their Year 2000
issues could have a significant adverse effect on Chicago Title's operations.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 AND MARCH 31, 1997
Net Income
Chicago Title reported record earnings of $21.2 million from continuing
operations in the first quarter of 1998. This compares to net income from
continuing operations of $5.9 million in the same period in 1997. Total revenue
amounted to $401.0 million, an increase of 29.2% over the prior year.
Exceptionally strong mortgage refinance activity, along with high levels of new
and existing home sales and commercial transactions, fueled the increase in
revenue in what is normally the title industry's seasonal low period. The surge
in revenue allowed pre-tax income from continuing operations as a percentage of
revenue to improve to 8.0% in 1998 from 2.7% in 1997.
Net income from discontinued operations amounted to $5.0 million in the
first quarter of 1998 and $2.2 million in the first quarter of 1997. The
increase in net income from discontinued operations in the first quarter of 1998
as compared to the first quarter of 1997 reflects the continued strength of
financial markets and the corresponding growth of assets under management.
Chicago Title's net income, including income from discontinued operations,
totaled $26.2 million in the first quarter of 1998 and $8.1 million in the first
quarter of 1997.
Operating Revenues
Real estate markets in the first quarter of 1998 benefited from favorable
economic conditions marked by low levels of unemployment and benign inflationary
pressures. The resulting combination of low interest rates and high consumer
confidence lead to an increase in residential refinance transactions and
promoted healthy increases in residential purchases and commercial transactions.
Title, escrow, trust and other revenue increased $87.4 million from the
first quarter of 1997 to the first quarter of 1998. Approximately 25% of this
increase was attributable to an increase in gross agent revenues, 24% was due to
an increase in direct residential refinance title premiums, 14% was due to
higher escrow and closing fees, 10% was attributable to higher commercial title
premiums, and the remainder was due to various other items. In the first
quarters of 1998 and 1997, approximately 64% and 60%, respectively, of Chicago
Title's direct title premiums were attributable to residential transactions; in
each period the remainder was related to commercial transactions.
Investment Income
Pre-tax investment income totaled $14.8 million in the first quarter of
1998 compared to $11.8 million for the same period in 1997. The increased level
of income was attributable to higher levels of investment assets. The average
duration of the portfolio as of March 31, 1998 was 2.5 years as compared to
2.2 years at December 31, 1997.
Expenses
COMMISSIONS PAID TO AGENTS. Payment of commissions to title insurance
agents constitutes the largest single expense incurred by Chicago Title. The
commission rate varies by geographic area, primarily due to competitive factors,
in which the commission is earned. The percentage of premiums retained by agents
amounted to 75.9% in the first quarter of 1998, as compared to 75.7% in the
first quarter of 1997. Chicago Title reports amounts retained by agents as
commissions paid to agents, along with amounts paid to approved attorneys, in
the consolidated statements of income.
29
<PAGE> 32
SALARIES AND OTHER EMPLOYEE BENEFITS. This category of expense represents
the cost of salaries, incentive compensation and benefits paid to employees. One
key ratio monitored by management is the amount of these expenses as a
percentage of revenue, net of commissions paid to agents. The following table
summarizes this ratio for the first quarter:
<TABLE>
<CAPTION>
FIRST QUARTER
------------------------------------
(DOLLARS IN THOUSANDS) 1998 1997
---------------------- --------------- ---------------
<S> <C> <C>
Total revenue........................................ $ 400,980 $ 310,325
Commissions paid to agents........................... (131,490) (114,400)
--------------- ---------------
Net revenue.......................................... 269,490 195,925
Total salaries and other employee benefits........... 127,603 100,477
Percentage........................................... 47.3% 51.3%
</TABLE>
The level of total salaries and other employee benefits as a percentage of
net revenue decreased in the first quarter of 1998 from the same period a year
earlier because the significant increase in revenue earned in the 1998 period
allowed greater leveraging of fixed cost components of labor expense. In
addition, management is maintaining an increased focus on controlling this
expense.
PROVISIONS FOR TITLE LOSSES. The following table summarizes key
information pertaining to Chicago Title's provisions for title losses:
<TABLE>
<CAPTION>
FIRST QUARTER
------------------------------------
(DOLLARS IN THOUSANDS) 1998 1997
---------------------- --------------- ---------------
<S> <C> <C>
Provision for title losses - current period.......... $ 26,279 $ 21,772
Title, escrow, trust and other revenue............... 385,804 298,408
Ratio................................................ 6.8% 7.3%
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
--------------- -----------------
<S> <C> <C>
Reserve for title losses at period-end.............. $ 569,829 $ 564,334
Paid losses, net of recoveries - trailing 12
months............................................ 70,796 70,913
Reserve coverage of paid losses - trailing 12
months............................................ 8.0 8.0
</TABLE>
The provision for title losses as a percentage of operating revenue was
reduced in the first quarter of 1998 from the prior year level in recognition of
a continued downward trend in claims paid.
OTHER OPERATING AND ADMINISTRATIVE EXPENSES. Other operating and
administrative expense increased $18.2 million from the first quarter of 1997 to
the first quarter of 1998. The increased level of expenses are primarily
attributable to variable expenses such as property information expense, contract
labor, premium taxes, and supplies rising to support the significantly higher
business volumes in the first quarter of 1998.
COMPARISON OF YEARS ENDED DECEMBER 31, 1997, DECEMBER 31, 1996 AND DECEMBER 31,
1995
Net Income
Chicago Title reported a strong increase in net income from continuing
operations in 1997, rising 19.6% from the prior year level on an increase in
total revenue of 10.5%. Net income from continuing operations recorded in 1996
increased by 86.8% over Chicago Title's depressed results in 1995 on an increase
in total revenue of 17.2%. As noted above, results in 1995 were negatively
impacted by the rising interest rate environment, which prevailed throughout
1994 and early 1995. For both 1997 and 1996, the improved operating results were
primarily attributable to higher revenue levels resulting from improved real
estate markets. Residential refinancing activity and commercial transactions
showed considerable strength as a result of favorable economic conditions
highlighted by low interest rates and low levels of unemployment. Improved
expense levels relative to revenue also bolstered profitability in both 1997 and
1996. Pre-tax income from continuing operations, as a percentage of revenue,
amounted to 5.7% in 1997, 5.2% in 1996 and 3.3% in 1995.
Chicago Title's 1996 results from continuing operations were adversely
impacted by a $4.2 million pre-tax charge associated with a write down of the
carrying value of title plants and goodwill in connection with the
implementation of Statement of Financial Accounting Standards No. 121. Operating
results for 1996 were
30
<PAGE> 33
favorably impacted by an increase in pre-tax income of $8.0 million resulting
from a reduction in the reserve for title losses for prior years. The reduction
in the reserve for title losses was due to a downward trend in claims paid and
an assessment that the mix of business written between 1993 and 1995 presented a
lower level of risk than previously anticipated.
Operating Revenues
The year 1995 marked a trough for real estate markets, reflecting the
impact of actions to increase interest rates begun by the Federal Reserve Board
in 1994. Beginning in the second half of 1995, economic conditions improved and
interest rates began to decline, resulting in exceptional growth in the
commercial and industrial ("C&I") real estate business and providing a strong
boost to residential refinance transactions.
Title, escrow, trust and other revenue increased $132.9 million from 1996
to 1997 and $196.6 million from 1995 to 1996. With regard to the 1997 increase,
approximately 38% was attributable to an increase in gross agent revenues, 26%
was due to an increase in direct commercial title premiums, 11% was related to
higher direct residential title premiums, 10% was attributable to higher real
estate related service fees, 9% was due to higher escrow and closing fees, and
the remainder was due to various other items. With regard to the 1996 increase,
approximately 42% was due to an increase in gross agent revenues, 16% was due to
higher residential title premiums, 12% was due to higher commercial title
premiums, 12% was due to higher escrow and closing fees, 9% was due to higher
real estate related service fees, and the remainder was due to various other
items. In 1997, 1996 and 1995, approximately 62%, 65% and 66%, respectively, of
Chicago Title's direct title premiums were attributable to residential
transactions; in each year, the remainder was attributable to commercial
transactions.
Investment Income
Pre-tax investment income totaled $52.3 million in 1997, compared with
$47.7 million in 1996 and $46.7 million in 1995. These increases were due
principally to higher levels of investment assets. Chicago Title also recorded a
pre-tax gain of $3.7 million on investment transactions in 1997, compared with
pre-tax gains of $1.4 million in 1996 and $3.7 million in 1995.
Expenses
Commissions Paid to Agents. Payment of commissions to title insurance
agents constitutes the largest single expense incurred by Chicago Title.
Commission rates vary by geographic area, primarily due to competitive factors,
in which the commission is earned. The percentage of premiums retained by agents
amounted to 76.2% in 1997, 75.7% in 1996 and 75.3% in 1995. Chicago Title
reports amounts retained by agents as commissions paid to agents, along with
amounts paid to approved attorneys, in the consolidated statements of income.
Salaries and Other Employee Benefits. This category of expense represents
the cost of salaries, incentive compensation and benefits paid to employees. One
key ratio monitored by Company management is the level of these expenses as of
percentage of revenue, net of commissions paid to agents. The following table
summarizes this ratio for the past three years:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Total revenue.......................... $1,467,446 $1,327,684 $1,132,366
Commissions paid to agents............. (526,324) (484,351) (420,555)
---------- ---------- ----------
Net revenue............................ 941,122 843,333 711,811
Total salaries and other employee
benefits............................. 454,648 411,815 344,767
Ratio.................................. 48.3% 48.8% 48.4%
</TABLE>
The level of total salaries and other employee benefits as a percentage of
net revenue increased slightly in 1996 as compared to 1995 because many of
Chicago Title's variable compensation programs are tied in some way to Chicago
Title's net income performance. In 1997, the level of total salaries and other
employee benefits
31
<PAGE> 34
as a percentage of net revenue was reduced due to several factors including an
improved mix of higher margin business, increased leveraging of fixed cost
components of labor expense with higher volumes of business, and increased
management focus on controlling expenses.
Management intends to seek to reduce the ratio of labor expense to revenue
through the transfer of best practices throughout Chicago Title, increased
automation, and continued consolidation of title plants, production centers and
staff functions.
Provision for Title Losses. The following table summarizes key information
pertaining to Chicago Title's provision for title losses:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Provision for title losses -- current
year................................. $ 102,324 $ 91,023 $ 81,385
Title, escrow, trust and other
revenue.............................. 1,411,496 1,278,590 1,082,008
Ratio.................................. 7.2% 7.1% 7.5%
Reserve for title losses at year-end... $ 564,334 $ 532,923 $ 529,915
Paid losses, net of recoveries......... 70,913 80,015 87,538
Reserve coverage of paid losses........ 8.0x 6.7x 6.1x
</TABLE>
As previously discussed, Chicago Title's 1996 results include an $8.0
million reduction in the provision for title losses for prior years. This
reduction in title loss reserves was due to a downward trend in claims paid and
an assessment that the mix of business written between 1993 and 1995 presented a
lower level of risk.
Interest Expense. Interest expense amounted to $4.6 million in 1997
compared to $5.6 million in 1996 and $6.5 million in 1995. The year-to-year
declines are primarily associated with principal payments on Chicago Title's
long-term debt.
Other Operating and Administrative Expenses. Other operating and
administrative expenses increased $22.7 million from 1996 to 1997 and increased
$30.9 million from 1995 to 1996. Slightly over half of the increase in 1997 was
due to an increase in property information expense. Of the 1996 increase,
property information expense was slightly less than half of the increase and
contract labor represented slightly more than one third of the increase. In each
year, the higher expense levels were primarily due to increased business
volumes.
LIQUIDITY AND CAPITAL RESOURCES
Cash utilized by continuing operations amounted to $70.6 million in the
first quarter of 1998 and $57.6 million for the same period in 1997. Cash flow
in the first quarter typically is negatively impacted by the disbursement of
annual incentive payments to employees. In the first quarter of 1998, cash flow
from operations was also negatively impacted by period-end fluctuations in the
level of escrow deposits and related short-term investment programs.
Cash provided by continuing operations amounted to $255.6 million, $84.1
million and $21.0 million for the fiscal years ended December 31, 1997, 1996 and
1995, respectively.
At March 31, 1998, CT&T (on a stand-alone basis excluding subsidiaries) had
total cash and marketable securities of $586.9 million, $558.9 million of which
were pledged to secure escrow and other liabilities. At December 31, 1997, CT&T
(on a stand-alone basis excluding subsidiaries) had total cash and marketable
securities of $511.9 million, $476.2 million of which were pledged to secure
escrow and other liabilities.
As described in Note 5 to the Consolidated Financial Statements, included
elsewhere herein, CT&T's title insurance subsidiaries are restricted as to the
amount of dividends that may be paid without prior regulatory approval. The
maximum amount of dividends that these subsidiaries may pay to CT&T in 1998
without prior regulatory approval is $65.4 million. The primary sources of cash
inflow to CT&T other than dividends paid by subsidiaries are investment earnings
and fees paid by subsidiaries for services provided by
32
<PAGE> 35
the parent company. The primary obligations requiring the use of parent company
cash are dividends paid to shareholders, debt service, funding for acquisitions,
capital expenditures and corporate operating expenses.
It is not anticipated that there will be any material restrictions on the
ability of CT&T to pay dividends to Chicago Title. In anticipation of the
Spin-Off, Chicago Title has adopted a policy with regard to the payment of
dividends. Under this policy, Chicago Title currently intends to pay a regular
quarterly cash dividend of $0.33 per share of Chicago Title Common Stock. The
first regular quarterly cash dividend is expected to be paid in the third
quarter of 1998. The actual timing and amount of dividends, if any, will depend
on various factors and are subject to change at the discretion of the Chicago
Title Board from time to time. In April 1998, the CT&T Board of Directors
declared as a dividend to Alleghany a promissory note payable in the amount of
$7.5 million on December 31, 1998. See "Dividend Policy."
Chicago Title spent $5.2 million and $9.2 million for capital expenditures
in the first quarter of 1998 and 1997, respectively. In addition, Chicago Title
spent an aggregate of approximately $15.8 million in the first quarter of 1998
related to the acquisition of several businesses.
In connection with the Spin-Off, Chicago Title will incur certain
non-recurring expenses including costs associated with professional fees,
printing, the listing of the Chicago Title Common Stock on the NYSE, and
executive compensation. Management currently estimates that these expenses will
total approximately $15 million on an after-tax basis. Substantially all of
these expenses will be incurred in the fiscal quarter in which the Spin-Off will
occur, i.e., the second quarter of fiscal 1998.
Chicago Title had outstanding long-term debt of $32.9 million and $32.4
million at March 31, 1998 and at December 31, 1997, respectively. Of such each
amount, $29.0 million was the outstanding balance borrowed under a credit
agreement entered into by CT&T and the banks party thereto in connection with
the acquisition of two of CT&T's title insurance subsidiaries, Security Union
Title Insurance Company ("Security Union") and Ticor Title Insurance Company
("Ticor Title"). This credit agreement provides for payments of principal of
$9.7 million annually in the years 1998 through 2000. Interest is payable
quarterly at variable rates. The credit agreement requires CT&T to meet certain
financial tests and includes certain restrictive covenants, including a
limitation on the amount of additional indebtedness that may be incurred. Among
the financial tests imposed by the credit agreement is a requirement that CT&T
maintain a consolidated net worth (excluding unrealized appreciation of
marketable securities, net of deferred taxes) of not less than $200 million. At
March 31, 1998 and December 31, 1997, CT&T satisfied all applicable financial
tests imposed by the credit agreement.
CT&T currently has two arrangements in place with banking institutions for
lines of credit for $15.0 million and $10.0 million. The two lines of credit are
scheduled to expire on May 31, 1998 and June 10, 1998, respectively. CT&T
expects to negotiate extensions of both of these lines of credit. Amounts may be
drawn under these lines of credit for general corporate purposes. No amounts
were drawn under these lines of credit during the first quarter of 1998, or
during 1997 or 1996, and no amounts were outstanding under such lines as of
March 31, 1998 and December 31, 1997.
CT&T is currently negotiating a new bank credit agreement which is expected
to provide for maximum borrowings of $50.0 million on a revolving basis.
Indebtedness under this revolving credit agreement will bear interest at a
floating rate, and will require CT&T to meet certain financial tests. The
revolving credit agreement also is expected to include customary restrictive
covenants. Borrowings under the revolving credit agreement will be available to
fund acquisitions and for general corporate purposes.
One element of Chicago Title's strategy to increase its market share and
earnings growth is the pursuit of selected acquisition opportunities intended
either to broaden Chicago Title's array of product offerings or to bolster
Chicago Title's presence in certain higher growth title insurance markets. The
scope of this acquisition program, which is expected to involve primarily
smaller companies, will be limited, and acquisition costs will be funded from
internally generated cash flow and by borrowings under the new revolving credit
agreement described above.
Another aspect of Chicago Title's strategy is to improve workflow and
productivity through the development of an electronic spine that will fully
integrate Chicago Title's services and offices. Management
33
<PAGE> 36
currently estimates that costs aggregating approximately $15 million to $25
million will be incurred in connection with construction of the electronic
spine. These costs are expected to be incurred over a three-year period and will
be funded from internally generated cash flow.
Management believes cash generated from operations, investments, and cash
available from financing activities will provide sufficient liquidity to meet
Chicago Title's anticipated needs over the next twelve to twenty-four months.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly revenues and net income included in the results of operations for
the years ended December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------
1997 MARCH 31 JUNE 30 SEPT 30 DEC 31 TOTAL
---- -------- -------- -------- -------- ----------
(IN 000S)
<S> <C> <C> <C> <C> <C>
Revenue:
Title, escrow, trust and other
revenue....................... $298,408 339,888 357,430 415,770 1,411,496
Investment income................ 11,762 12,222 13,236 15,046 52,266
Net realized investment gains.... 155 141 2,509 879 3,684
-------- -------- -------- -------- ----------
Total revenues................ 310,325 352,251 373,175 431,695 1,467,446
-------- -------- -------- -------- ----------
Net income:
From continuing operations....... 5,827 16,746 15,851 14,889 53,313
From sales of marketable
securities.................... 101 92 1,632 571 2,396
From discontinued operations..... 2,196 3,123 3,752 3,091 12,162
-------- -------- -------- -------- ----------
Total net income................... $ 8,124 19,961 21,235 18,551 67,871
======== ======== ======== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------
1996 MARCH 31 JUNE 30 SEPT 30 DEC 31 TOTAL
---- -------- -------- -------- -------- ----------
(IN 000S)
<S> <C> <C> <C> <C> <C>
Revenue:
Title, escrow, trust and other
revenue....................... $283,357 323,049 332,747 339,437 1,278,590
Investment income................ 11,328 11,627 11,852 12,851 47,658
Net realized investment gains.... 369 851 1 215 1,436
-------- -------- -------- -------- ----------
Total revenues................ 295,054 335,527 344,600 352,503 1,327,684
-------- -------- -------- -------- ----------
Net income:
From continuing operations....... 8,138 13,697 10,048 13,762 45,645
From sales of marketable
securities.................... 240 553 1 139 933
From discontinued operations..... 1,263 1,803 1,679 717 5,462
-------- -------- -------- -------- ----------
Total net income.............. $ 9,641 16,053 11,728 14,618 52,040
======== ======== ======== ======== ==========
</TABLE>
34
<PAGE> 37
BUSINESS
CHICAGO TITLE
Chicago Title is one of the nation's largest providers of title insurance
and other related services for residential and commercial real estate
transactions. One of the pioneers of the title insurance industry over a century
ago, Chicago Title currently has more than 300 full service offices and 3,800
policy-issuing agents in 49 states, Puerto Rico, the Virgin Islands, Guam, and
Canada. Chicago Title believes that its brand name, national distribution
network, financial position and experienced management have enabled it to become
one of the premier companies participating in the title insurance and real
estate-related services industry. Chicago Title's strategy is to improve its
market share and earnings growth by: (i) focusing its marketing efforts to serve
three distinct customer sectors -- Institutional Partners, Core Local
Operations, and National C&I; (ii) pursuing growth opportunities, including
through select acquisition opportunities; and (iii) generating operating
efficiencies and cost improvements through promotion of "best practices"
throughout the organization and development of an "electronic spine" that will
fully integrate Chicago Title's services and offices.
Chicago Title was organized as a Delaware corporation in 1998, to serve as
the public holding company for CT&T and its subsidiaries. CT&T was organized as
an Illinois corporation in 1912 and was acquired, along with its wholly-owned
subsidiary Chicago Title Insurance Company ("CTI"), by Alleghany in June 1985.
CTI, a Missouri corporation incorporated in 1961, succeeded to businesses
conducted by predecessor corporations since 1847, and is headquartered in
Chicago. Security Union (acquired in 1987) and Ticor Title (acquired in 1991)
were incorporated in California in 1962 and 1965, respectively. Both Security
Union and Ticor Title were parts of business organizations that had succeeded to
businesses conducted since around the turn of the century. Security Union and
Ticor Title are headquartered in Pasadena, California.
Through its subsidiaries, primarily CTI, Ticor Title and Security Union,
Chicago Title conducts title searches and issues title insurance policies in
residential and commercial real estate transactions. Policies are issued by
Chicago Title directly through branch offices, as well as through independent
agents and approved attorneys working as independent contractors. Chicago Title
manages its risk exposure through an underwriting approval system that entails
higher levels of approval for larger commitments, as well as by placing
liability caps on loss occurrences and purchasing reinsurance protection. In
addition, Chicago Title maintains a significant claims reserve against losses.
See "Business -- Reserve for Title Losses."
In addition to title production and risk assumption, Chicago Title offers
associated escrow and closing services, including managing escrow accounts;
prorating and adjusting insurance, tax and rents; preparing, reviewing and
recording documents such as deeds; clearing liens; disbursing funds and
transmitting final documents to the parties.
Chicago Title also provides other information management-based real
estate-related services. Chicago Title Flood Services, Inc., acquired in 1995,
determines flood zone status for lenders, who are required by Federal law to
determine whether real property pledged to secure a loan is in an area prone to
flooding. Chicago Title Credit Services, Inc., also acquired in 1995, uses a
state-of-the-art proprietary system that orders and prepares credit information
reports for lending institutions. Chicago Title -- Market Intelligence, Inc.,
acquired in 1996, provides detailed real estate property evaluation services to
lending institutions, utilizing artificial intelligence software, detailed real
estate database statistical analysis and physical property inspections through a
network of 15,000 real estate agents and appraisers. Chicago Title -- Market
Intelligence, Inc. also offers property appraisal services through a network of
750 state-licensed contract appraisers. Chicago Title Field Services, Inc.,
acquired in 1998, performs on-site property inspections and personal interviews
for lenders through a nationwide network of field agents. Consolidated
Reconveyance Co., also acquired in 1998, furnishes foreclosure and reconveyance
services to institutional lenders.
THE TITLE INSURANCE INDUSTRY
Chicago Title's title insurance subsidiaries protect a variety of interests
in real property by issuing insurance policies to purchasers of residential and
commercial properties, mortgagees and others with interests in real property.
These policies protect against losses suffered as a result of liens,
encumbrances and other
35
<PAGE> 38
defects to title. Prior to issuing a policy, an agent or employee of Chicago
Title conducts a title search and examination of the property. Such a search
requires review of various records providing a history of transfers of interests
in the real estate to be insured. These records are maintained by local
governmental entities, such as counties and municipalities. To facilitate
preparation of title reports, title records known as title plants are compiled
and owned by Chicago Title. These plants, which are continually updated, consist
of land title and deed information copies from public records dating back many
years.
While most other forms of insurance assume the risk of loss arising out of
unforeseen future events, title insurance protects the policy holder principally
from the risk of loss from events that predate the issuance of the policy. This
distinction explains the low claims loss experience of title insurers as
compared with other types of insurers. Losses generally result from errors made
in the title search and examination process or the escrow process, or from other
problems such as fraud or incapacity of persons transferring property rights.
Operating expenses, however, are relatively high for title insurers as compared
to other types of insurers. Considerable costs may be incurred relating to the
personnel required to process forms, search titles, collect information on
properties and prepare title insurance policies and commitments. Title insurers
also face costs associated with establishment, operation and maintenance of
title plants, or with gaining access to title plants owned by others.
In addition to title production and risk assumption, the industry provides
associated real estate closing, escrow and disbursement services such as
managing escrow accounts, clearing liens and preparing and filing closing
documents. More broadly defined, the title insurance industry also includes
other real estate-related services such as property valuation, credit reporting,
field inspection and foreclosure and reconveyance services.
STRATEGY
During 1997, Chicago Title undertook an in-depth analysis that assessed
changes within the title industry which resulted in the development of courses
of action that would enable it to succeed in a rapidly evolving environment. As
a result of this study, Chicago Title has developed a strategy to increase its
market share and earnings growth by: (i) focusing its marketing efforts to serve
three distinct customer sectors -- Institutional Partners, Core Local Operations
and National C&I; (ii) pursuing growth opportunities, including through select
acquisition opportunities; and (iii) generating operating efficiencies and cost
improvements through promotion of "best practices" throughout the organization
and development of an "electronic spine" that will fully integrate Chicago
Title's services and offices.
Marketing Focus. In the past, title insurance marketing has mainly
targeted local real estate agents, attorneys and lenders for residential real
estate transactions. While the model of the smaller, local client remains
important, large customers, such as national residential mortgage lenders, real
estate investment trusts and developers, are becoming increasingly significant.
For example, based on industry publications, the market share held by the ten
largest residential mortgage loan originators has grown from 18% in 1990 to 31%
in 1997. The buying criteria of locally based clients differ from those of
large, geographically diverse customers in that the former tend to emphasize
personal relationships and ease of transaction execution, while the latter may
place more emphasis on consistent product delivery and the ability of service
providers to meet their information systems requirements for electronic product
delivery.
Recognizing the trend toward an increasingly segmented customer base,
Chicago Title is focusing its marketing efforts and distribution network to
serve three distinct customer sectors -- Institutional Partners, Core Local
Operations and National C&I.
Institutional Partners. This sector markets its services to large
residential lenders, who emphasize cost and consistency. Toward this end, the
CastleLink sales organization was formed in 1997 to sell and deliver integrated
real estate services nationwide. Chicago Title has broadened its array of
product offerings for this customer sector, adding flood certification, credit
report and property valuation services to the traditional title, escrow and
closing services.
36
<PAGE> 39
Core Local Operations. Chicago Title intends to continue its long history
of providing relationship-based high quality service to these customers.
National C&I. This sector specializes in meeting the needs of clients
involved in large commercial transactions. Success is dependent upon integrated
relationship management on a national basis, technical excellence, services
tailored to specific customer needs and seamless national service. To achieve
this, a network of 14 National Business Unit offices throughout the country
provide these customers with specialized services, including underwriters with
expertise in large, complex transactions.
Growth Opportunities. Chicago Title believes that important market
segments of the title insurance industry remain fragmented and that, for
example, much of the competition in the title production and escrow/closing
markets consists of numerous smaller players, including small title companies,
agents, attorneys and local escrow companies. Chicago Title also believes that
the trend toward a consolidating customer base which is demanding national
presence and electronic product delivery capabilities creates an opportunity for
large service providers, such as Chicago Title, to expand market share, both
through internal growth and acquisitions. Similar opportunities to expand market
share are believed to exist for the flood certification, credit reporting and
property valuation products. Acquisitions under this initiative will be directed
towards selective acquisitions of smaller companies intended either to broaden
Chicago Title's array of product offerings or to bolster Chicago Title's
presence in certain higher growth title insurance markets. The scope of this
acquisition program will be limited and funded from Chicago Title's internally
generated cash flow and by borrowings under a new $50 million revolving bank
credit agreement that is currently being negotiated. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
Operating Efficiencies and Cost Improvements. Opportunities exist among
relatively decentralized local offices to enhance performance and reduce
operating expenses. Chicago Title has thus started a "best practices" initiative
to promote the transfer of ideas and techniques used by high performing units of
Chicago Title with the goal of standardizing excellence throughout all its
offices.
Further operating efficiencies are expected to result from development of
an "electronic spine" that will enable Chicago Title to receive, track, produce,
deliver and bill an order for any product, anywhere. Integrating the company
electronically will improve customer service while enhancing Chicago Title's
ability to consolidate facilities and allocate staffing more efficiently.
Management currently estimates that costs aggregating approximately $15 million
to $25 million will be incurred in connection with construction of the
electronic spine. These costs are expected to be incurred over a three-year
period and will be funded from internally generated cash flow.
FINANCIAL RATINGS
Each of the principal title insurance subsidiaries -- CTI, Security Union
and Ticor Title -- carries a claims-paying ability rating of "A" from Standard &
Poor's Corp. and from Duff & Phelps Credit Rating Co. In addition, Moody's
Investors Service has assigned an insurance financial strength rating of "A2" to
CTI, "A3" to Ticor Title and "BAA1" to Security Union.
These ratings reflect the rating agencies' current opinions of the
claims-paying ability, financial strength and operating performance of the rated
subsidiary, as well as its ability to meet its obligations to policyholders, and
are not evaluations directed toward the protection of investors in Chicago Title
Common Stock. The factors addressed by these ratings are of concern to
policyholders, agents and intermediaries. Such ratings should not be relied on
when making an investment decision regarding Chicago Title Common Stock.
INVESTMENT OPERATIONS
Investments held by Chicago Title or any of its subsidiaries must comply
with the insurance laws of the state of incorporation of the company holding the
investment; relevant states are Missouri, California and Oregon. These laws
prescribe the kind, quality and concentration of investments which may be made
by insurance companies. In general, these laws permit investments, within
specified limits and subject to certain
37
<PAGE> 40
qualifications, in Federal, state and municipal obligations, corporate bonds,
preferred and common stocks and real estate mortgages.
Chicago Title's current investment policy is to minimize the cyclical
volatility of the portfolio (i) to maintain stability of principal, (ii) to
maintain consistency of cash flow and liquidity and (iii) to earn a favorable
total return.
The following table summarizes the investments of Chicago Title, excluding
cash, as of December 31, 1997, with all investments carried at fair value in its
financial statements prepared in accordance with generally accepted accounting
principles (dollars in thousands):
INVESTMENTS
<TABLE>
<CAPTION>
AMORTIZED
COST OR COST FAIR VALUE
------------------------ ------------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Short-term investments....................... $ 180,710 17.22% $ 180,710 16.94%
Corporate bonds.............................. 120,046 11.44% 122,037 11.44%
United States government and government
agency bonds............................... 243,173 23.17% 248,262 23.28%
Mortgage- and asset-backed securities........ 186,276 17.74% 189,508 17.77%
Municipal bonds.............................. 267,914 25.52% 272,182 25.52%
Foreign bonds................................ 2,714 .26% 2,777 .26%
Redeemable preferred stocks.................. 15,613 1.49% 16,613 1.56%
Equity securities............................ 33,232 3.16% 34,489 3.23%
---------- ------ ---------- ------
Total.............................. $1,049,678 100.00% $1,066,578 100.00%
========== ====== ========== ======
</TABLE>
The following table indicates the composition of the long-term fixed
maturity portfolio, including preferred stock, as of December 31, 1997 by the
rating system of the National Association of Insurance Commissioners ("NAIC")
(dollars in thousands):
LONG-TERM FIXED MATURITY PORTFOLIO BY NAIC RATING
<TABLE>
<CAPTION>
FAIR VALUE PERCENTAGE
---------- ----------
<S> <C> <C>
NAIC 1................................................. $784,938 92.20%
NAIC 2................................................. 42,724 5.07%
NAIC 3................................................. 4,570 .54%
NAIC 4................................................. 2,534 .30%
NAIC A, L & P3 (Redeemable preferred stocks)........... 16,613 1.95%
-------- ------
Total........................................ $851,379 100.00%
======== ======
</TABLE>
The following table indicates the composition of the fixed maturities
portfolio, including preferred stock, by years until contractual maturity as of
December 31, 1997 (dollars in thousands). Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
38
<PAGE> 41
LONG-TERM FIXED MATURITY PORTFOLIO BY YEARS UNTIL MATURITY
<TABLE>
<CAPTION>
FAIR VALUE PERCENTAGE
---------- ----------
<S> <C> <C>
One year or less*........................................... $ 98,879 11.61%
Over one through five years................................. 399,362 46.91%
Over five through ten years................................. 57,022 6.70%
Over ten years.............................................. 106,608 12.52%
Mortgage- and asset-backed.................................. 189,508 22.26%
-------- ------
Total............................................. $851,379 100.00%
======== ======
</TABLE>
- ---------------
* Included in this category are $16,613 of preferred stock-redeemable.
The principal tangible asset of Chicago Title and its subsidiaries is the
investment portfolio. The entire investment portfolio is classified as available
for sale. Chicago Title has a conservative investment philosophy with respect to
both asset quality and maturity distribution. Chicago Title maintains a
short-term investment portfolio ranging from approximately $60 million to $250
million, consisting of top rated commercial paper (A-1/P-1), highest rated bank
certificates of deposit and institutional money market funds. The average
maturity period of securities in the short-term portfolio is typically less than
30 days. Chicago Title's long-term portfolio consists of top rated tax-exempt
bonds, United States Treasury securities, corporate bonds of United States
issuers, mortgage backed securities and a limited amount of publicly traded
common stocks. Average quality of the long-term portfolio is maintained at a
Moody's rating of Aa3 or higher, with over 98 percent of all securities rated
investment grade by Moody's and less than 1 percent in derivative instruments as
of 1997 year-end. The duration of the short term and fixed income securities in
Chicago Title's portfolio is approximately 2.2 years and is managed within a
duration range of 1.9 to 3.1 years. Duration measures a portfolio's sensitivity
to change in interest rates; a change within a range of plus or minus 1 percent
in interest rates would be expected to result in an inverse change of
approximately 2.2 percent in the value of Chicago Title's portfolio.
Chicago Title does not specifically match particular assets to related
liabilities, but instead holds the investment portfolio to a shorter maturity
than liabilities. This relatively short portfolio maturity structure is
maintained so that investment income responds to changes in the level of
interest rates, offsetting to some degree the cyclicality of title insurance
operations. However, Chicago Title regularly re-examines its portfolio
strategies and periodically modifies asset allocation and bond portfolio
maturity based on the market outlook, interest rates and/or title insurance
operating conditions.
RESERVE FOR TITLE LOSSES
The largest single liability of Chicago Title is the reserve for title
losses, which also covers losses arising from the escrow, closing and
disbursement functions due to fraud or operational error, and includes the costs
of external legal defense. Historical experience with respect to payments for
claims and external legal defense costs made under title insurance policies
indicates that, for policies issued in a given year, approximately two-thirds of
the total projected payments with respect to such policies are made within five
years of the issuance of such policies. The reserve also covers losses arising
from the escrow, closing and disbursement functions due to fraud or operational
error.
When a claim is reported, Chicago Title establishes a "case" reserve, based
upon the best estimate of the total amount necessary to settle the claim and to
provide for allocated loss adjustment expenses, including legal defense costs
("LAE"). These reserves are periodically adjusted by Chicago Title based on its
evaluation of subsequent reports regarding the reported claim.
In addition to "case" reserves, Chicago Title also maintains a reserve for
title losses that are incurred but not yet reported ("IBNR reserves"). These
reserves are particularly significant in long tail lines of insurance, such as
title insurance, for which the claim and the circumstances causing the claim may
be separated by a long period of time. Unlike most other types of insurance, the
event giving rise to a possible future claim under
39
<PAGE> 42
a title insurance policy, the defect in the title, occurred before issuance of
the policy but may not be discovered, if ever, until a future date.
Chicago Title establishes IBNR reserves by using actuarial principles and
procedures commonly used in the title insurance industry to estimate the
ultimate liability for losses and LAE. The actuarial procedures use historic
patterns of claims to predict likely future claims. Projections are analyzed in
the context of changing economic conditions, and the projections and related
reserves are modified when appropriate.
IBNR reserves are also established for very large or unusual claims which
might fall outside the normal distribution of expected claims experience.
Reserves for these claims are based on an analysis of the experience of both
Chicago Title and the title insurance industry.
Chicago Title's reserves are reviewed regularly by management and are
certified by an independent actuary on an annual basis. Chicago Title does not
discount its reserves for anticipated investment income. Initial reserve
provisions are derived directly from premium revenues, based upon anticipated
loss ratios. There are inherent uncertainties in estimating reserves primarily
due to the long-term nature of most title insurance business. Actual losses may
deviate, perhaps substantially, from reserves on Chicago Title's financial
statements, which could have a material adverse effect on Chicago Title's
financial condition and results of operations. Based on current information,
Chicago Title believes the reserve for title losses at March 31, 1998 is
adequate.
CTI, Ticor Title and Security Union each have generally restricted the size
of any one risk of loss that they will retain to $70 million, $50 million and
$30 million, respectively. The title insurance subsidiaries of Chicago Title
reinsure risks with each other and with other title insurance companies in
excess of what they are willing to retain. In addition, the title insurers have
purchased excess of loss title reinsurance coverage for losses in excess of
$12.5 million, subject to certain exclusions. This coverage will pay 90 percent
of the loss amount exceeding $12.5 million, up to $50 million. However,
reinsurance arrangements do not relieve a title insurance company that issues a
policy from its legal liability to the holder of the policy and, thus, the risk
of nonperformance by the assuming reinsurer is borne by the issuer of the
policy.
In connection with the acquisition by Alleghany of CT&T and CTI in 1985,
Lincoln National Corporation ("Lincoln"), the former owner of CT&T and CTI,
agreed to indemnify Alleghany, CT&T and CTI and its subsidiaries, in respect of
certain title insurance liabilities, up to an aggregate amount of $128 million
(of which approximately $123 million remains available). Among other
liabilities, Lincoln agreed to indemnify for 50% of the first $10 million of
liabilities, costs and expenses (including awards of attorneys' fees and a
portion of attorneys' fees incurred by Alleghany, CT&T and CTI and its
subsidiaries in the defense of such claims), and 75% of such amounts in excess
of $10 million, arising out of or relating to aboriginal land claims which were
identified in the 1985 acquisition agreement or which are commenced prior to
July 1, 2015 under policies issued prior to the 1985 acquisition. Under the
terms of the Distribution Agreement, as of the Spin-Off Date Alleghany will
transfer the benefit of its rights in respect of such indemnification to Chicago
Title.
BUSINESS CONDITIONS; SEASONALITY
The title insurance industry is highly dependent upon the volume of real
estate transactions occurring within the market. In turn, the volume of real
estate transactions is highly sensitive to interest rate levels and general
economic conditions. Because these factors can be very volatile, revenue levels
for the title industry are also very volatile. As business volume for the real
estate-related business are correlated to mortgage loan origination volumes,
revenues for these business tend to be impacted by economic factors in a fashion
similar to the title industry.
High short-term interest rates reduced the volume of real estate
transactions in the first half of 1995. Lower interest rates in the second half
of 1995 prompted an increase in refinancing and commercial transactions. The
refinance volume remained strong in the first quarter of 1996 but diminished as
interest rates leveled off. Interest rates remained relatively stable for the
remainder of 1996 resulting in an increase in the volume of real estate
construction and resale activity. 1997, particularly the second half of the
year, was marked by low inflation, unemployment rates and interest rates in the
United States, resulting in exceptional
40
<PAGE> 43
growth in the commercial and industrial segment and a resurgence in the second
half of 1997 in residential resale and refinancing transactions.
The business of Chicago Title's title insurance subsidiaries is seasonal,
as real estate activity is seasonal. The fourth quarter is typically the
strongest in terms of revenue due to the desire of commercial entities to
complete transactions by year-end. The first calendar quarter is typically the
weakest quarter in terms of revenue as the volume of home sales are generally at
their low point in the winter. These traditional seasonal patterns can be
altered if there is a significant change in the level of mortgage refinance
volumes. This type of activity is correlated with movements in the level of
interest rates and is not tied to a seasonal pattern.
Title insurance premiums are recognized as revenues principally at the time
of the real estate closing and escrow fees principally when billed. As a result,
there is typically a lag of about two months between the time that a title
insurance order is placed, at which time work commences, and the time that
Chicago Title recognizes the revenues associated with the order. Revenues from
title policies issued by independent agents are generally recorded when notice
of issuance is received from the agent.
COMPETITION
The title insurance industry is competitive throughout the United States,
with large title insurance firms such as the title insurance subsidiaries of
Chicago Title competing on a national basis, while smaller firms have
significant market shares on a regional basis. Based on 1996 revenues reported
in statutory filings, CTI, Security Union, Ticor Title, First American Title
Insurance Company ("First American"), Reliance Group Holdings, Inc.
("Reliance"), Stewart Title Insurance Co., Fidelity National Title Insurance
Co., Lawyers Title Insurance Corporation ("Lawyers") and Old Republic Title
Insurance Group, Inc. together accounted for about 89% of all title insurance
revenues. Chicago Title's title insurance subsidiaries had statutory title
revenues representing in the aggregate 20.5% of the industry total, followed by
First American at 20.3% and Reliance at 13.2%. In February 1998, Lawyers
acquired Reliance's title insurance units and changed its name to Land America
Financial Group Inc. ("Land America"). On a pro forma basis, for 1996, Land
America would have had a market share of 22.0%. Chicago Title's title insurance
subsidiaries also compete with abstractors, attorneys issuing opinions and, in
some areas, state land registration systems. The removal of regulatory barriers
in the future might result in new competitors, including financial institutions,
entering the title insurance business.
Chicago Title believes that competition in the title insurance industry is
primarily on the basis of expertise, service and price. In addition, the
financial strength of the insurer has become an increasingly important factor in
decisions relating to the purchase of title insurance, particularly in
multi-site transactions and in situations involving real estate-related
investment vehicles such as real estate investment trusts and real estate
mortgage investment conduits.
Chicago Title's flood certification, credit reporting, property valuation
services, field inspection services and foreclosure and reconveyance services
businesses face significant competition from other similar real estate service
providers. Mortgage lenders may choose to produce these services internally
rather than purchasing them from outside vendors.
REGULATION
Title insurance companies are subject to regulation and supervision by
state insurance regulators under the insurance statutes and regulations of
states in which they are incorporated. CTI is incorporated in Missouri, Security
Union is incorporated in California and has a title insurance subsidiary
incorporated in Oregon, and Ticor Title is incorporated in California. Each of
these companies is also regulated in each jurisdiction in which it is authorized
to write title insurance. Regulation and supervision vary from state to state,
but generally cover such matters as the standards of solvency which must be met
and maintained, the nature of limitations on investments, the amount of
dividends which may be distributed, requirements regarding reserves for
statutory premiums, the licensing of insurers and their agents, the approval of
policy forms and premium rates, periodic examinations of title insurers and
annual and other reports required to be filed on the financial condition of
title insurance companies. In addition, the market behavior of all entities
41
<PAGE> 44
involved in real estate transactions is governed by the Real Estate Settlement
Practices Act and related regulation.
Chicago Title and CT&T are also subject to the insurance holding company
regulations of Missouri, California and Oregon. The acquisition of CTI, Security
Union and Ticor Title and their respective title insurance subsidiaries by
Alleghany and/or CT&T was subject to prior notification and/or approval from the
insurance regulatory authorities in the states in which such title insurance
companies are incorporated. The Spin-Off and/or certain related transactions
were subject to prior notification and/or approval in California, Missouri,
Oregon, Illinois and Texas. Chicago Title, CT&T and their other non-insurance
subsidiaries, however, are generally not subject to restrictions on their
business activities due to their affiliation with Chicago Title's title
insurance subsidiaries.
CT&T, in its capacity as a non-depository trust company, is regulated by
the State of Illinois Office of Banks and Real Estate. Regulation covers such
matters as the fiduciary's management capabilities, the investment of funds held
for its own account, the soundness of its policies and procedures, the quality
of the services it renders to the public and the effect of its trust activities
on its financial soundness.
Alleghany is subject to a consent agreement with the Federal Trade
Commission (the "FTC") effective July 22, 1991, which settled certain antitrust
objections raised by the FTC in respect of the acquisition of Ticor Title by
CT&T, which was amended in July 1996. We expect that, as of the Spin-Off Date,
Chicago Title will become, and its subsidiaries will continue to be, subject to
the consent agreement, and Alleghany and its subsidiaries will no longer be
subject to the consent agreement. The consent agreement provided for the
divestiture by CT&T after its acquisition of Ticor Title of certain title plants
serving overlapping geographical areas. Until July 2001, Chicago Title or any of
its subsidiaries is required to give prior notification to the FTC of any
acquisitions of an ownership interest in a title plant serving the same
geographic area as a plant in which Chicago Title or any of its subsidiaries
already has an ownership interest. Chicago Title is not, however, required to
provide notice with respect to any acquisition of a copy of title records or
other information from an entity which retains the ownership and control of the
original and where competition in the ordinary course between the parties is not
otherwise restrained. Chicago Title is also required to provide notification to
the FTC in advance of any change in corporate structure, such as the creation,
dissolution or sale of subsidiaries or any other change that may affect
compliance with the consent decree.
While Chicago Title Flood Services, Inc., Chicago Title Credit Services,
Inc., Chicago Title -- Market Intelligence, Inc., Chicago Title Field Services,
Inc. and Consolidated Reconveyance Company are not subject to direct regulatory
supervision, Federal and state laws governing real estate settlement practices,
credit reporting and flood zone determinations significantly impact their
businesses.
EMPLOYEES
At December 31, 1997, Chicago Title had approximately 8,100 employees,
including full-time and part-time employees.
PROPERTIES
CT&T leases about 282,000 square feet for its headquarters and operations
in the Chicago Title and Trust Center, a 49-story office complex at 171 North
Clark Street in Chicago, Illinois.
Ticor Title's and Security Union's headquarters are in leased premises of
about 45,000 square feet in Pasadena, California. Chicago Title and its
subsidiaries own or lease buildings or office space in approximately 550
locations throughout the United States, primarily for CTI, Security Union and
Ticor Title full-service and satellite branch office operations.
LEGAL PROCEEDINGS
Chicago Title's subsidiaries are parties to pending litigation and claims
in connection with the ordinary course of their businesses. Each such operating
unit makes a provision on its books, in accordance with generally accepted
accounting principles, for estimated losses to be incurred in such litigation
and claims, including legal costs. In the opinion of management, such provision
is adequate under generally accepted accounting principles as of December 31,
1997.
42
<PAGE> 45
MANAGEMENT
DIRECTORS
On the Spin-Off Date, the directors of Chicago Title will consist of the
persons named below.
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION OR EMPLOYMENT FOR PAST FIVE YEARS AGE
---- ------------------------------------------------------ ---
<S> <C> <C>
Richard P. Toft...................... Chairman of the Board of Directors, Chicago Title, as of 61
the Spin-Off Date; Chairman and Chief Executive Officer
of Alleghany Asset Management (financial services) since
October 1995; Chairman of CT&T since January 1994 and,
until July 1996, President and Chief Executive Officer
of CT&T; Senior Vice President, Alleghany, until October
1995; and President and Chief Executive Officer of
Chicago Title Insurance Company until January 1994. Mr.
Toft is a director of Peoples Energy Corporation and
Cologne Life Reinsurance Company.
Norman R Bobins...................... President and Chief Executive Officer, LaSalle National 55
Bank and LaSalle National Corporation (commercial
banking); Chairman, LaSalle N.A. Mr. Bobins also is a
director of Ambassador Apartments, Inc. and Center Point
Properties.
John J. Burns, Jr.................... President, chief executive officer and chief operating 66
officer, Alleghany. Mr. Burns is a director of Alleghany
and Burlington Northern Santa Fe Corporation.
Peter H. Dailey...................... Chairman, Enniskerry Financial (investments). Mr. Dailey 67
is a director of Krause Furniture Co., Pinkerton's,
Inc., Sizzler, Inc. and Wirthlin Worldwide.
Robert M. Hart....................... Senior Vice President and General Counsel since 53
September 1994 and Secretary since January 1995,
Alleghany; Partner, Donovan Leisure Newton & Irvine (law
firm), prior thereto.
Philip G. Heasley.................... Vice Chairman, U.S. Bancorp (banking). Mr. Heasley is a 48
director of SunAmerica Inc.
Allan P. Kirby, Jr................... President, Liberty Square, Inc. (investments); 66
management of family and personal affairs. Mr. Kirby is
a director of Alleghany.
M. Leanne Lachman.................... Managing Director, Schroder Real Estate Associates 55
(investment management-equity real estate); and Managing
Director, Schroder Mortgage Associates (investment
management -- commercial mortgages). Ms. Lachman is a
director of Lincoln National Corporation and Liberty
Property Trust.
William K. Lavin..................... Financial Consultant; Vice Chairman of the Board and 53
Chief Executive Officer of Woolworth Corporation
(retailing) until September 1994; Chairman of the Board
and Chief Executive Officer, Woolworth Corporation, from
June 1993 to May 1994 and Executive Vice
President -- Finance and Administration and Chief
Financial Officer, Woolworth Corporation, prior thereto.
Mr. Lavin is a director of Alleghany and Stratford
Acquisition Corporation.
Lawrence F. Levy..................... Chairman of the Board and Chief Executive Officer, The 54
Levy Organization (real estate, restaurants, and food
service).
</TABLE>
43
<PAGE> 46
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION OR EMPLOYMENT FOR PAST FIVE YEARS AGE
---- ------------------------------------------------------ ---
<S> <C> <C>
Margaret MacKimm..................... Former Senior Vice President -- Communications of Kraft 64
Foods, Inc. (multinational marketer and processor of
food products) and its predecessor Kraft, Inc. Ms.
MacKimm is a director of Woolworth Corporation.
Langdon Neal......................... Attorney, Earl L. Neal and Associates. 40
Alan Prince.......................... Senior Executive Vice President, Title Operations, CTI, 59
from January 1995 until December 1997; Executive Vice
President, CTI, prior thereto.
John Rau............................. President and Chief Executive Officer, Chicago Title, as 49
of the Spin-Off Date, and President and Chief Executive
Officer, CT&T and CTI, since January 1997; Dean, School
of Business at Indiana University, from August 1993
until December 1996; President and chief executive
officer, LaSalle National Bank (banking), prior thereto.
Mr. Rau is a director of Borg-Warner Automotive, Inc.,
First Industrial Realty Trust, Inc. and LaSalle National
Bank.
</TABLE>
The Chicago Title Certificate and By-Laws provide that the Chicago Title
Board will be divided into three classes, with the classes to be as nearly equal
in number as possible and that, of the initial Chicago Title directors following
the Spin-Off, one-third will continue to serve until the 1999 Annual Meeting of
Stockholders, one-third will continue to serve until the 2000 Annual Meeting of
Stockholders, and one-third will continue to serve until the 2001 Annual Meeting
of Stockholders. Of the initial directors, Messrs. Bobins, Hart, Heasley and
Prince will serve until the 1999 Annual Meeting of Stockholders; Messrs. Lavin,
Neal, Rau, Toft and Ms. MacKimm will serve until the 2000 Annual Meeting of
Stockholders; and Messrs. Burns, Dailey, Kirby and Levy and Ms. Lachman will
serve until the 2001 Annual Meeting of Stockholders. Starting with the 1999
Annual Meeting of Stockholders, one class of directors will be elected each year
for a three-year term. See "Description of Capital Stock -- Certain
Anti-takeover Provisions -- Chicago Title Certificate and By-Laws; Classified
Board of Directors."
The Chicago Title Board has a number of standing committees, including an
Executive Committee, an Audit Committee, a Compensation Committee, a Nominating
Committee and a Real Estate Committee. See "Description of Capital
Stock -- Certain Anti-takeover Provisions -- Chicago Title Certificate and
By-Laws."
The Executive Committee may exercise certain powers of the Board of
Directors regarding the management and direction of the business and affairs of
Chicago Title when the Board of Directors is not in session. All action taken by
the Executive Committee is reported to and reviewed by the Chicago Title Board.
The members of the Executive Committee are Messrs. Burns, Lavin, Levy, Rau and
Toft, with Mr. Burns serving as Chair.
The Audit Committee of the Chicago Title Board reviews and makes reports
and recommendations to the Board of Directors with respect to the selection of
the independent auditors of Chicago Title and its subsidiaries, the arrangements
for and the scope of the audits to be performed by them and the internal audit
activities, accounting procedures and controls of Chicago Title and its
subsidiaries, and reviews the annual consolidated financial statements of
Chicago Title and its subsidiaries. The members of the Audit Committee are
Messrs. Bobins, Heasley, Kirby and Lavin and Ms. Lachman, with Mr. Lavin serving
as Chair.
The Compensation Committee of the Chicago Title Board reviews and makes
reports to the Board of Directors with respect to the compensation policies and
practices of Chicago Title. The Compensation Committee reviews the annual
recommendations of the Chief Executive Officer regarding the compensation of
officers of Chicago Title and its subsidiaries and reviews the annual
recommendation of the Chairman of the Executive Committee regarding the
compensation of the Chief Executive Officer of Chicago Title, and makes
recommendations to the Chicago Title Board with respect to such compensation. In
addition, the
44
<PAGE> 47
Compensation Committee administers Chicago Title's 1998 Long-Term Incentive Plan
and Employee Stock Purchase Plan. The members of the Compensation Committee are
Messrs. Dailey, Hart, Heasley and Kirby and Ms. MacKimm, with Mr. Hart serving
as Chair.
The Nominating Committee of the Chicago Title Board screens candidates and
makes recommendations to the Chicago Title Board as to persons to be nominated
by the Chicago Title Board for election thereto by the stockholders or to be
chosen by the Chicago Title Board to fill newly created directorships or
vacancies on the Board of Directors. The members of the Nominating Committee are
Messrs. Burns, Lavin and Toft, with Mr. Burns serving as Chair.
The Real Estate Committee of the Chicago Title Board evaluates and reviews
any real estate transaction proposed to be entered into by Chicago Title or any
of its subsidiaries as principal which involves amounts in excess of $500,000.
The members of the Real Estate Committee are Ms. Lachman, and Messrs. Levy, Neal
and Prince, with Ms. Lachman serving as Chair.
COMPENSATION OF DIRECTORS
Each director of Chicago Title who is not an employee of Chicago Title
receives an annual retainer of $21,000, payable one-half in cash and one-half in
shares of Chicago Title Common Stock (as more fully explained below), as well as
$750 for each board meeting attended in person and $375 for each conference
telephone meeting attended. The Chairman of the Chicago Title Board receives an
additional annual fee of $100,000. In addition, the Chairman of the Executive
Committee receives an annual fee of $15,000, and each other member of the
Executive Committee who is not an officer of Chicago Title receives an annual
fee of $7,500. The Chairman of the Audit Committee receives an annual fee of
$7,500, and each other member of the Audit Committee receives an annual fee of
$4,500. The Chairman of the Compensation Committee receives an annual fee of
$4,000, and each other member of the Compensation Committee receives an annual
fee of $3,000. Each member of the Nominating Committee who is not an officer of
Chicago Title receives $1,000 for each meeting attended. The Chairman of the
Real Estate Committee receives an annual fee of $4,000, and each other member of
the Real Estate Committee receives an annual fee of $3,000. Pursuant to the
Directors' Deferred Compensation Plan, a director of Chicago Title may defer all
or part of the cash portion of the retainer and committee and per meeting fees.
Pursuant to the Directors' Equity Compensation Plan, each director of
Chicago Title who is not an employee of Chicago Title or any of its subsidiaries
will receive his retainer for the following twelve-months' service as a
director, exclusive of any per meeting fees, committee fees or expense
reimbursements, payable one-half in shares of Chicago Title Common Stock, based
on the market value (as defined in the Directors' Equity Compensation Plan) of
such shares, and one-half in cash.
On the Spin-Off Date, Mr. Toft, as Chairman of the Chicago Title Board,
will receive 5,000 shares of Chicago Title Common Stock as a restricted stock
award under the 1998 Long-Term Incentive Plan, and each other director of
Chicago Title who is not an employee of Chicago Title or any of its subsidiaries
will receive 1,000 shares of restricted stock. Such shares of restricted stock
may not be transferred until, and will vest on, the third anniversary of the
Spin-Off Date. See "Chicago Title Compensation Arrangements -- The 1998
Long-Term Incentive Plan." Pursuant to the Directors' Stock Option Plan, each
director of Chicago Title who is not an employee of Chicago Title or any of its
subsidiaries will receive on the day after the Spin-Off Date and on the day
following each Annual Meeting of Stockholders until and including the Annual
Meeting of Stockholders to be held in May 2002 an option to purchase 1,000
shares of Chicago Title Common Stock (subject to antidilution adjustments) at a
price equal to the fair market value (as defined in the plan) of such shares on
the date of grant. Such options will become exercisable as to one-third of such
shares on each of the first three anniversaries of the date of grant.
As Chairman of the Board of CT&T, Mr. Toft has received an annual fee of
$100,000. Mr. Toft received payments of $1,126,090 and $313,417 in 1997 and
1998, respectively, as payouts of long-term incentive awards granted prior to
his retirement in 1996 from his executive positions with CT&T. He also received
bonuses in the amounts of $248,963 and $209,813 in 1997 and 1998, respectively.
In addition, Mr. Toft receives annual
45
<PAGE> 48
payments of $38,166 under the CT&T Executive Salary Continuation Plan. Mr. Toft
serves as Chairman and Chief Executive Officer of Alleghany Asset Management,
for which he earned in 1997 a salary of $279,760.
Mr. Prince served in 1997 as Senior Executive Vice President of CT&T, for
which he received a salary of $290,000 and a bonus of $226,236, of which $56,559
will be deferred and paid in the manner described in Note (2) to the table
relating to long-term incentive awards in the last fiscal year. Mr. Prince
received a payout in 1997 of a long-term incentive award in the amount of
$228,055. Mr. Prince also received in 1997 matching and profit sharing
contributions to his Savings and Profit Sharing 401(k) account in the amount of
$9,500 and taxable life insurance benefits valued at $2,160.
Mr. Prince has an employment agreement with CT&T, with a term ending on
December 31, 1998. The agreement entitles Mr. Prince to receive a salary at an
annual rate of $200,000 for 1998, reimbursement for the cost of leasing an
apartment in Chicago (not to exceed $3,000 per month plus an amount equal to
income taxes imposed on the amount of such rental allowance), to be deemed to
receive credit for a salary at a rate of $290,000 for 1998 for purposes of
CT&T's Executive Salary Continuation Plan, Pension Plan and Excess Benefits
Plan, and to be eligible for a special incentive opportunity of $100,000, based
upon performance of personal objectives mutually agreed to by Messrs. Prince and
Rau. The agreement also provides that Mr. Prince will be entitled to certain
severance benefits in respect of his termination of employment by reason of
retirement or otherwise, and prohibits Mr. Prince for a period extending for two
years beyond the date of his termination of employment from being associated in
any capacity with any business that competes with CT&T.
EXECUTIVE OFFICERS
The executive officers of Chicago Title are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION AND PROFESSIONAL EXPERIENCE
---- --- ------------------------------------
<S> <C> <C>
John Rau................ 49 President and Chief Executive Officer, Chicago Title, as of
the Spin-Off Date, and President and Chief Executive
Officer, CT&T and CTI, since January 1997; Dean, School of
Business at Indiana University, from August 1993 until
December 1996; President and chief executive officer,
LaSalle National Bank (banking), prior thereto.
Thomas H. Hodges........ 52 Executive Vice President, Chicago Title, as of the Spin-Off
Date, and Executive Vice President, CT&T since October 1997;
Executive Vice President, First Chicago NBD Corp. (banking),
from January 1995 until December 1996; Senior Vice
President, First Chicago NBD Corp., prior thereto.
Michael J. Keller....... 50 Executive Vice President, Chicago Title, since the Spin-Off
Date, and Executive Vice President, CT&T and CTI, since
February 1997; Executive Vice President of Mortgage Banking,
Norwest Mortgage Banking (mortgage banking), prior thereto.
Peter G. Leemputte...... 41 Executive Vice President, Chief Administrative Officer and
Chief Financial Officer, Chicago Title, as of the Spin-Off
Date, and Executive Vice President and Chief Administrative
Officer, CT&T, since January 1998, and Chief Financial
Officer, since March 1998, CT&T; Vice President, Mercer
Management Consulting, Inc. (management consulting), from
July 1996 until January 1998; Corporate Vice President and
Controller, Armco Inc. (steel manufacturing and metals
processing), prior thereto.
Paul T. Sands, Jr. ..... 55 Executive Vice President, General Counsel and Secretary,
Chicago Title, since the Spin-Off Date, and Executive Vice
President, General Counsel and Secretary, CT&T, and
Executive Vice President and General Counsel, CTI, since
January 1997; Senior Vice President, CTI and, from 1994,
CT&T, prior thereto.
Christopher Abbinante... 47 Senior Vice President and Manager, Eastern Division, Chicago
Title and CTI, as of the Spin-Off Date, and Senior Vice
President and Manager, Eastern Division, CTI, prior thereto.
</TABLE>
46
<PAGE> 49
<TABLE>
<CAPTION>
NAME AGE POSITION AND PROFESSIONAL EXPERIENCE
---- --- ------------------------------------
<S> <C> <C>
William Halvorsen....... 51 Senior Vice President and Manager, Western Division, Chicago
Title and CTI, as of the Spin-Off Date, and Senior Vice
President and Manager, Western Division, CTI, since December
1993; President, Chicago Title Technology Services Corp.,
prior thereto.
</TABLE>
EXECUTIVE COMPENSATION
The information under this heading relates to the chief executive officer
and the four other most highly compensated executive officers of Chicago Title
who served as executive officers of CT&T or a subsidiary of CT&T at the end of
1997. The information presented in the Summary Compensation Table below and in
the Long-Term Incentive Plan -- Awards in Last Fiscal Year table which follows
represents the historical compensation such persons received while CT&T was a
subsidiary of Alleghany. See "Management -- Chicago Title Compensation
Arrangements" for information regarding certain future compensation which will
be paid to such persons by Chicago Title as an independent public company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------- ---------------------
RESTRICTED
OTHER ANNUAL STOCK LTIP ALL OTHER
NAME AND PRINCIPAL COMPENSATION AWARDS($) PAYOUTS COMPENSATION
POSITION YEAR SALARY BONUS(1) (2) (3) (4) (5)
------------------ ---- -------- ---------- ------------ ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
John Rau....................... 1997 $387,692 $357,199 $1,062,869 $1,356,800 -- $575,619
President, Chief Executive
Officer and a director of
Chicago Title, CT&T and CTI
Michael J. Keller.............. 1997 $189,519 $178,020 -- -- -- $ 53,149
Executive Vice President,
Chicago Title and CT&T, since
February 1997
Paul T. Sands, Jr.............. 1997 $179,423 $ 99,272 -- -- $239,219 $ 30,949
Executive Vice President,
General Counsel and
Secretary, Chicago Title and
CT&T; Executive Vice
President, and General
Counsel, CTI
Christopher Abbinante.......... 1997 $140,000 $318,941 -- -- $117,006 $ 27,722
Senior Vice President and
Manager, Eastern Division,
Chicago Title and CTI
William Halvorsen.............. 1997 $180,000 $118,636 -- -- $153,067 $ 12,192
Senior Vice President and
Manager, Western Division,
Chicago Title and CTI
</TABLE>
- ---------------
(1) Except for Mr. Abbinante, these amounts represent bonuses paid under the
Chicago Title and Trust Company Annual Incentive Plan (the "CT&T Annual
Plan"), which is a short term incentive plan designed to reward officers and
employees of CT&T for achieving specified corporate financial performance
and specified individual objectives, operating unit objectives, or both; the
amount reported for Mr. Abbinante represents a similar bonus paid under an
individual agreement. (For Messrs. Sands and Halvorsen, such amounts do not
include additional amounts earned, payment of which was deferred and is
subject to adjustment to reflect title insurance policy claims experience in
the year of the deferral and for three years thereafter, as more fully
explained in Note (2) to the table relating to long-term incentive plans;
the deferred amount for 1997 is reported below in such table).
(2) This amount represents payments for reimbursement of taxes incurred by Mr.
Rau as a result of the award of shares of Alleghany Stock as restricted
stock, as more fully explained in Note (3) below.
47
<PAGE> 50
(3) These amounts represent 6,400 restricted shares of Alleghany Stock granted
to Mr. Rau in connection with the commencement of his term of employment as
President and Chief Executive Officer of CT&T on January 1, 1997. The
restricted shares of Alleghany Stock are valued on the date of grant. Mr.
Rau held an aggregate of 6,400 restricted shares of Alleghany Stock on
December 31, 1997, with a value on that date of $1,822,400. Dividends will
be payable on the shares of restricted stock if and to the extent paid on
Alleghany Stock generally, regardless of whether the shares are vested at
the time the dividend is paid. Of the shares awarded to Mr. Rau, 2,800
shares vested upon commencement of his employment and the remaining 3,600
shares vest at the rate of 75 shares per month over the period from January
1997 through December 2000. The restricted shares of Alleghany Stock are not
transferable by Mr. Rau during his employment with Chicago Title or for two
years thereafter. Shares of Chicago Title Common Stock distributed in
respect of these restricted shares of Alleghany Stock will be subject to the
same restrictions and vesting schedule.
(4) These amounts represent payouts in settlement of performance units awarded
under CT&T's Executive Performance Unit Incentive Plan of 1992, a long-term
incentive plan which provided for payouts in cash based upon the amount of
CT&T's operating income, the achievement of specified levels of CT&T's
return on equity and the application of a multiplier relating to CT&T's
expense ratio in each year of the award period.
(5) These amounts represent (i) benefits of a group life insurance policy
maintained by CT&T on behalf of its employees, including Messrs. Rau,
Keller, Sands, Abbinante and Halvorsen, valued at $1,855, $843, $1,262,
$557, and $1,267, respectively, (ii) $10,925, $10,925, $10,925, $9,750, and
$10,925 credited to the accounts of Messrs. Rau, Keller, Sands, Abbinante
and Halvorsen, respectively, under the CT&T Savings and Profit Sharing Plan,
which is a 401(k) plan offering CT&T employees an opportunity to save a
portion of their income on a deferred basis, and providing for matching CT&T
contributions of $0.25 for every $1.00, up to 6 percent, of salary that such
an employee contributes to the plan (within Internal Revenue Service
limits), and up to an additional $1.25 for every such $1.00, depending on
the profitability of CT&T, (iii) $31,302, $17,607, $18,762 and $17,415
accrued in respect of Messrs. Rau, Keller, Sands, and Abbinante,
respectively, under the CT&T Executive Salary Continuation Plan, which is a
retirement plan designed to encourage key employees to remain with CT&T
until retirement and which provides post-retirement monthly income of 2
percent of final monthly income at retirement multiplied by the number of
years of participation in the plan, up to a maximum of 10 percent of final
monthly salary, (iv) in the case of Mr. Rau, $47,384 contributed to an
excess benefits savings plan maintained for certain employees, representing
the amount by which CT&T's contribution to a defined contribution plan
maintained for such employees was limited by the application of certain
provisions of the Code, (v) in the case of Mr. Rau, a bonus of $360,000 paid
in connection with the commencement of his employment as President and Chief
Executive Officer of CT&T, and (vi) in the case of Messrs. Rau and Keller,
$124,153 and $23,774, respectively, in reimbursement of various costs
incurred in relocation.
48
<PAGE> 51
LONG-TERM INCENTIVE PLAN -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERFORMANCE ESTIMATED FUTURE PAYOUTS
NUMBER OF OR OTHER UNDER NON-STOCK
SHARES, UNITS PERIOD UNTIL PRICE-BASED PLANS
OR OTHER MATURATION -------------------------------
NAME RIGHTS OR PAYOUT THRESHOLD TARGET MAXIMUM
---- ------------- ------------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
John Rau............................... 2,500(1) 1995-1998 -- $726,450 --
5,000(1) 1997-2000 -- -- --
Michael J. Keller...................... 750(1) 1995-1998 -- $217,935 --
1,500(1) 1997-2000 -- $309,585 --
Paul T. Sands, Jr...................... 1,100(1) 1997-2000 -- $227,029 --
$24,818(2) 1997-2000 -- $ 81,170 $ 81,170
Christopher Abbinante.................. 1,000 1997-2000 -- $206,390 --
William Halvorsen...................... 1,600 1997-2000 -- $330,224 --
$39,545(2) 1997-2000 -- $129,337 $129,337
</TABLE>
- ---------------
(1) These amounts represent performance units awarded under the CT&T Executive
Performance Unit Plan of 1995, as such awards have been amended in
connection with the Spin-Off (the "1995 Plan"). The 1995 Plan provides for
payouts of performance units for the award period in cash based upon CT&T's
return on equity and the application of multipliers relating to dividends
paid and an expense ratio, in each year of the award period. The formula for
determining the base value of each performance unit (before the application
of the multipliers) is as follows:
<TABLE>
<CAPTION>
BASE VALUE PER $1 MILLION OF
RETURN ON EQUITY ADJUSTED NET OPERATING INCOME FOR
ANNUAL AVERAGE PERFORMANCE CYCLE
---------------- ---------------------------------
<S> <C> <C>
Below Threshold................ 6.99 or less $ 0
Threshold...................... 7.0 to 12.99 $2.00
Maximum Rate................... 13.0 or more $4.50
</TABLE>
The base value of a performance unit is increased or decreased (i) by the
application of a multiplier based on dividends paid, ranging from a maximum
of 130% for average dividends paid during the performance cycle, expressed
as a percentage of Chicago Title's stockholders' equity, of 12% or more to a
minimum of 70% for average dividends paid at a rate of 6% or less, and then
(ii) by the application of a multiplier based on the expense ratio, ranging
from a maximum of 130% for an expense ratio of 76 % or less to a minimum of
75% for an expense ratio of 81% or more. The total value of a performance
unit is the sum of its annual values (as so increased or decreased) for the
award period. The values of the performance units will be fixed at year-end
1998, unless a participant elects otherwise, in which case the values of the
performance units will be based on the actual results of Chicago Title
during the performance period. Unless a participant has made such an
election, for 1998, benefits will be calculated on the assumption that
Alleghany Asset Management had remained a subsidiary of CT&T throughout 1998
and had achieved 100% of its post-separation planned results for 1998 (i.e.,
benefits will take into account (x) actual CT&T results through December 31,
1997 and actual Chicago Title results through December 31, 1998, plus (y)
Alleghany Asset Management planned results for such portions of 1998 during
which Alleghany Asset Management is not a subsidiary of CT&T). Participants
for whom the value of their performance units is fixed at year-end 1998 also
will receive a grant of restricted stock and are expected to receive a grant
of stock options, described in the table relating to new plan benefits. See
"Management -- Chicago Title Compensation Arrangements -- The 1998 Long-Term
Incentive Plan -- New Plan Benefits under the 1998 Plan." One-quarter of the
payout in respect of such performance units initially was required to be
made in shares of Alleghany Stock, valued at the date of the award. In
addition, participants were permitted to elect to have an additional portion
of the payment (up to one-third of the total amount of the payment) applied
to the purchase of Alleghany Stock at the same price. Pursuant to agreements
entered into in connection with the Spin-Off, the portion of the payout that
would have been made in Alleghany Stock instead will be made in cash, based
upon the market value of
49
<PAGE> 52
Alleghany Stock at the time of the Spin-Off. In respect of Mr. Rau only, the
performance units for the 1997-2000 award period will be canceled on the
Spin-Off Date and no payments made in respect thereof. The target value
shown is a representative amount, calculated using planned return on equity,
dividends and an expense ratio for 1998 and assuming that each of the named
executive officers has elected to have the value of his performance units
fixed at 1998 year-end. These performance units do not have threshold or
maximum payout amounts.
(2) These amounts represent the portion of the cash bonus earned by Messrs.
Sands and Halvorsen under the CT&T Annual Plan which was deferred and is
subject to reduction to reflect unfavorable title insurance claims
experience during 1997-2000 for policies written in 1997. If such experience
compares favorably with (i) a pre-established hypothetical claims experience
deemed acceptable by the Board of Directors of CT&T, and/or (ii) the
historical claims experience during 1994-1999 for policies written in 1994,
1995 and 1996, Messrs. Sands and Halvorsen will be entitled to receive such
deferred amount in full with interest. In addition, Messrs. Sands and
Halvorsen will be entitled to a related incentive payment, limited to two
times the amount of the deferral. The target value shown is a representative
amount assuming that title insurance policy claims experience in 1997-2000
for policies written in 1997 will be identical to such experience in
1994-1997 for policies written in 1994 and further assuming identical
interest rates in the two periods. This award does not have threshold payout
amounts.
In connection with the commencement of his employment, Mr. Rau was granted
an option to purchase for $3.5 million one percent of the outstanding common
stock of CT&T. On the Spin-Off Date, the option will be repurchased by Chicago
Title for a cash purchase price equal to the market value of one percent of the
outstanding shares of Chicago Title Common Stock measured as of the first
trading day after Spin-Off Date, less $3.5 million, subject to tax withholding.
In connection with the commencement of their employment, Messrs. Keller and
Hodges were granted an option, exercisable in the event of a sale or public
offering of CT&T, to acquire 0.285% of the outstanding common stock of CT&T for
$1.0 million. In lieu thereof, they will receive restricted shares of Chicago
Title Common Stock under the 1998 Long-Term Incentive Plan, and they also are
expected to receive options to purchase shares of Chicago Title Common Stock
under such Plan. See "Chicago Title Compensation Arrangements -- The 1998
Long-Term Incentive Plan."
CHICAGO TITLE COMPENSATION ARRANGEMENTS
THE 1998 LONG-TERM INCENTIVE PLAN
Chicago Title has adopted the 1998 Long-Term Incentive Plan (the "1998
Plan") to provide long-term incentives to officers and employees of Chicago
Title and its subsidiaries and to directors of Chicago Title. The 1998 Plan
permits Chicago Title to provide incentive compensation of the types commonly
known as restricted stock, stock options, stock appreciation rights, stock
awards and cash bonuses, as well as other types of incentive compensation. No
awards may be granted under the 1998 Plan after April 30, 2003.
The 1998 Plan will be administered by the Compensation Committee of the
Chicago Title Board (the "Committee"), which has the authority to select the
individuals to whom awards will be made and to interpret the 1998 Plan's
provisions. The Committee also will determine the type, size and terms of the
awards to be made, whether and to what extent to permit transferability of
awards, and whether to set objective performance goals that must be met in order
for the employee to receive the compensation payable under the awards. Except to
the extent prohibited by law or the rules of a stock exchange, the Committee may
delegate its responsibilities and powers to one or more persons selected by it.
All officers and employees of Chicago Title and its subsidiaries, including
executive officers named in the Summary Compensation Table, as well as certain
other persons who provide services to Chicago Title and its subsidiaries and
directors of Chicago Title, are eligible to participate in the 1998 Plan.
Chicago Title estimates that, at the Spin-Off Date, there will be approximately
285 persons eligible to receive awards under the 1998 Plan.
Subject to adjustment for corporate transactions involving Chicago Title,
such as stock splits, stock dividends, spin-offs, capital reorganizations and
similar types of events, a maximum of 2,230,000 shares of Chicago Title Common
Stock may be issued under the 1998 Plan, of which a maximum of 1,580,000 shares
50
<PAGE> 53
may be issued in connection with awards of stock options and stock appreciation
rights and a maximum of 650,000 shares may be issued as shares of restricted
stock and pursuant to other types of stock-based awards. No adjustment may be
made which would adversely affect the status of any outstanding Qualifying Award
(described below) as "performance-based compensation" under Section 162(m) of
the Code. Shares subject to awards which are forfeited or are not issued under
such award, because of settlement in cash or otherwise, will be available to be
awarded again under the 1998 Plan. The Chicago Title Board may amend or
terminate or suspend the 1998 Plan in any manner and at any time, except that no
such amendment or termination shall adversely affect outstanding awards without
the written consent of the holder of such award.
The 1998 Plan authorizes grants of options at exercise prices to be
determined by the Committee. The Committee will determine the persons to whom
options will be granted, the dates of grant, the number of shares to be subject
to each option, the duration, and the other terms and conditions of the options,
including any restrictions to be placed on transferability of shares upon
exercise of options. The Committee will determine whether to grant options
qualifying as "incentive stock options" under Section 422 of the Code ("ISOs"),
or options which do not so qualify ("non-qualified options"), or a combination
of both. Only employees of Chicago Title or its majority owned subsidiaries are
eligible to receive ISOs, and the exercise price of an ISO must be not less than
the fair market value of a share of Chicago Title Common Stock on the date of
grant. The Committee may establish conditions precedent to the vesting of the
right to exercise options, including continued employment with Chicago Title.
The Federal income tax consequences of the grant and exercise of options
under the 1998 Plan will depend upon the terms and conditions of particular
options as determined by the Committee, and upon the provisions of law as then
in effect. Under the Code as currently in effect, an optionee will not recognize
income upon the grant or, if he has been an employee of Chicago Title or its
majority owned subsidiaries throughout the period from the date of grant of the
ISO until three months prior to its exercise, upon the exercise of an ISO,
except that the excess of the fair market value of the shares at the time of
exercise over the option price is a tax preference item. As an item of tax
preference, such excess would be included in the alternative minimum tax
calculation for the year in which the ISO is exercised. If the optionee holds
the shares for at least two years after the date of grant of the ISO and one
year after the date the shares are transferred to the optionee, any difference
between the option price and amount received upon a sale or exchange is treated
as capital gain or loss. If the optionee does not comply with such holding
periods, ordinary income is recognized in the year of disposition of the shares
in an amount equal to the sale price (or, for other transfers, the fair market
value on the date of transfer) or the fair market value on the date of exercise
(whichever is less) less the option price. Chicago Title will not be allowed a
deduction for Federal income tax purposes in connection with the grant or
exercise of any ISO, if the requisite employment period is satisfied. If the
shares acquired are disposed of during the one-year or two-year holding periods
described above, Chicago Title generally will be entitled to a tax deduction
with respect to the ordinary income recognized by the optionee.
As to non-qualified options (or an ISO where the requisite employment
period is not satisfied), the optionee will recognize ordinary income upon the
exercise of the option to the extent that the fair market value of the shares at
the time of exercise exceeds the option price. Chicago Title is generally
entitled to a deduction for Federal income tax purposes equal to the amount of
income recognized by the optionee. The optionee's cost basis for the stock is
equal to the option price plus any amount recognized as ordinary income, and the
holding period for the stock commences with the exercise of the option.
With respect to other awards (including stock appreciation rights) granted
under the 1998 Plan that may be settled either in cash or in Chicago Title
Common Stock or other property that is either transferable or not subject to a
substantial risk of forfeiture under Section 83(c) of the Code, the participant
will realize compensation income (subject to withholding taxes) equal to the
amount of cash or the fair market value of the Chicago Title Common Stock or
other property received. Chicago Title will be entitled to a deduction in the
same amount and at the same time as the compensation income is realized by the
participant.
With respect to awards including Chicago Title Common Stock or other
property that is both nontransferable and subject to a substantial risk of
forfeiture under Section 83(c) of the Code, unless an election is made under
Section 83(b) of the Code, as described below, the participant will realize
51
<PAGE> 54
compensation income equal to the fair market value of the Chicago Title Common
Stock or other property received at the first time the Chicago Title Common
Stock or other property is either transferable or not subject to a substantial
risk of forfeiture. Chicago Title will be entitled to a deduction in the same
amount and at the same time as the compensation income is realized by the
participant.
Even though Chicago Title Common Stock or other property may be
nontransferable and subject to a substantial risk of forfeiture, a participant
may elect (within 30 days of receipt of the Chicago Title Common Stock or other
property) to include in gross income the fair market value (determined without
regard to such restrictions) of such Chicago Title Common Stock or other
property at the time received. In that event, the participant will not realize
any income at the time the Chicago Title Common Stock or other property either
becomes transferable or is not subject to a substantial risk of forfeiture, but
if the participant subsequently forfeits such Chicago Title Common Stock or
other property, the participant's loss would be limited to the amount actually
paid for the Chicago Title Common Stock or other property. While such Chicago
Title Common Stock or other property remains nontransferable and subject to a
substantial risk of forfeiture, any dividends or other income will be taxable as
additional compensation income. Finally, special rules may apply with respect to
participants subject to Section 16(b) of the Exchange Act.
The Committee may condition the payment, exercise or vesting of any award
on the payment of the withholding taxes and may provide that a portion of the
Common Stock or other property to be distributed will be withheld (or previously
acquired stock or other property surrendered by the participant) to satisfy such
withholding and other tax obligations.
Finally, amounts paid pursuant to an award which vests or becomes
exercisable, or with respect to which restrictions lapse, upon a change in
control may constitute "parachute payments" under Section 280G of the Code. To
the extent any such payment constitutes an "excess parachute payment," Chicago
Title would not be entitled to deduct such payment and the participant would be
subject to a 20 percent excise tax (in addition to regular income tax).
The Committee may grant an award which is intended to qualify as
"performance-based compensation" under Section 162(m) of the Code (a "Qualifying
Award"). If the Committee grants an award as a Qualifying Award, the right to
receive payment of such award will be conditional upon the achievement of
performance goals established by the Committee in writing at the time such
Qualifying Award is granted. Such performance goals, which may vary from
participant to participant and from award to award, shall be based upon the
attainment of specific amounts of, or increases or decreases in, one or more of
the following: revenues, market share, title losses, claims ratios, expense
ratios, paid losses, contribution margins, reserves, return on expenses,
operating income, cash flow, income before income taxes, net income, earnings or
earnings per share, net worth, stockholders' equity, market value, return on
equity or assets or total return to stockholders, whether applicable to Chicago
Title or any relevant subsidiary or business unit or entity in which Chicago
Title has a significant investment, or any other company or companies, or any
combination thereof as the Committee may deem appropriate. Before any Qualifying
Award is paid, the Committee will certify in writing that the performance goals
applicable to the Qualifying Award were satisfied. The maximum amount which may
be granted as Qualifying Awards to any participant in any calendar year shall
not exceed the aggregate of (i) for stock-based awards, 150,000 shares of
Chicago Title Common Stock (whether payable in cash or shares of Chicago Title
Common Stock), subject to adjustment for certain corporate transactions
involving Chicago Title, and (ii) for awards payable in cash, a tax bonus
payable with respect to such stock-based awards which are Qualifying Awards, and
cash payments (other than tax bonuses) of $1,000,000.
In the event of a "change of control" of Chicago Title, all awards granted
under the 1998 Plan (including Qualifying Awards) that are outstanding and not
yet vested or exercisable or which are subject to restrictions, immediately will
become 100% vested in each participant or will be free of any restrictions as of
the date the change of control is effective, and will be exercisable for the
remaining duration of the award. All awards that are exercisable as of the
effective date of the change of control will remain exercisable for the
remaining duration of the award.
Under the 1998 Plan, a "change of control" occurs upon: (i) acquisition by
any individual, entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Exchange Act) of beneficial ownership (within
52
<PAGE> 55
the meaning of Rule 13d-3 under the Exchange Act) of 50% or more of either (x)
the then outstanding shares of capital stock of Chicago Title or (y) the
combined voting power of the then outstanding voting securities of Chicago Title
in a tender offer or exchange offer made to all of the stockholders of Chicago
Title, provided, however, that a change of control shall not include any of the
following transactions: (a) any acquisition by or from Chicago Title or any of
its subsidiaries; (b) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by Chicago Title or any of its subsidiaries; (c)
any acquisition by any corporation with respect to which, following such
acquisition, more than 50% of the then outstanding shares of capital stock of
such corporation and the combined voting power of the then outstanding voting
securities of such corporation is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who were
the beneficial owners, respectively, of the outstanding shares of capital stock
of Chicago Title and the outstanding voting securities of Chicago Title
immediately prior to such acquisition, in substantially the same proportion as
their ownership immediately prior to such acquisition of the outstanding shares
of capital stock of Chicago Title and outstanding voting securities of Chicago
Title, as the case may be; (ii) approval by the stockholders of Chicago Title of
a reorganization, merger or consolidation with respect to which all or
substantially all of the individuals and entities who were the respective
beneficial owners of the outstanding shares of capital stock of Chicago Title
and the outstanding voting securities of Chicago Title immediately prior to such
reorganization, merger or consolidation do not, following such reorganization,
merger or consolidation, beneficially own, directly or indirectly, more than 50%
of, respectively, the then outstanding shares of capital stock and the combined
voting power of the then outstanding voting securities, as the case may be, of
the corporation resulting from such reorganization, merger or consolidation, in
substantially the same proportion as their ownership immediately prior to such
reorganization, merger or consolidation of the outstanding shares of capital
stock of Chicago Title and the outstanding voting securities of Chicago Title,
as the case may be; (iii) the approval by the stockholders of Chicago Title of a
sale or other disposition of all or substantially all of the assets of Chicago
Title, other than to a corporation with respect to which, following such sale or
disposition, more than 50% of, respectively, the then outstanding shares of
capital stock and the combined voting power of the then outstanding voting
securities is then owned beneficially, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the outstanding shares of capital stock of Chicago
Title and the outstanding voting securities of Chicago Title immediately prior
to such sale or disposition, in substantially the same proportion as their
ownership immediately prior to such sale or disposition of the outstanding
shares of capital stock of Chicago Title and the outstanding voting securities
of Chicago Title, as the case may be; or (iv) approval by the stockholders of
Chicago Title of a complete liquidation or dissolution of Chicago Title.
Prior to the Spin-Off Date, Chicago Title plans to grant up to an aggregate
of 364,746 restricted shares of Chicago Title Common Stock to 19 employees of
Chicago Title and its subsidiaries, including the executive officers named in
the Summary Compensation Table (assuming that all such eligible executive
officers and employees elect to receive such shares, as further described in
Note (1) to the table relating to long-term incentive awards in the last fiscal
year). Immediately after the Spin-Off, Chicago Title intends to issue an
additional 16,000 shares of restricted stock to 12 non-employee directors of
Chicago Title. Chicago Title also expects to grant non-qualified Options to
purchase up to an aggregate of about 860,000 shares of Chicago Title Common
Stock to approximately 285 employees, including the executive officers named in
the Summary Compensation Table and, under the Directors Stock Option Plan, to
the non-employee directors of Chicago Title. The exercise prices of these
non-qualified Options will be equal to the fair market value of the Chicago
Title Common Stock on the Spin-Off Date. In connection with the restricted stock
awards, each of the executive officers and employees are expected to make an
election under Section 83(b) of the Code, and, in return, Chicago Title will
reimburse such persons for income and employment taxes imposed on the value of
the restricted stock award and the amount of the payment.
The following table sets forth information regarding restricted stock
awards to be granted under the 1998 Plan by Chicago Title prior to the Spin-Off
Date and the stock options expected to be granted immediately after the Spin-Off
Date to (i) each of the executive officers named in the Summary Compensation
Table, (ii) each of the directors, (iii) all executive officers as a group, and
(iv) all employees who are not executive officers. The information set forth in
the table includes stock options to be awarded on the day after the Spin-
53
<PAGE> 56
Off Date to the non-employee Directors of Chicago Title under the Directors'
Stock Option Plan (see "Compensation of Directors" above).
NEW PLAN BENEFITS UNDER THE 1998 PLAN
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF NUMBER OF SHARES OF
UNDERLYING OPTIONS TOTAL OPTIONS RESTRICTED STOCK
NAME AND POSITION TO BE GRANTED TO BE GRANTED(2) TO BE GRANTED
----------------- ------------------ ---------------- -------------------
<S> <C> <C> <C>
John Rau.................................. 109,403(1) 12.7% 109,246(1)
Michael J. Keller......................... 30,000 3.5% 30,000
Paul T. Sands, Jr. ....................... 30,000 3.5% 30,000
Christopher Abbinante..................... 30,000 3.5% 30,000
William Halvorsen......................... 30,000 3.5% 30,000
Richard P. Toft........................... 1,000 0.1% 5,000
John J. Burns, Jr. ....................... 1,000 0.1% 1,000
Peter H. Dailey........................... 1,000 0.1% 1,000
Robert M. Hart............................ 1,000 0.1% 1,000
Allan P. Kirby, Jr. ...................... 1,000 0.1% 1,000
M. Leanne Lachman......................... 1,000 0.1% 1,000
William K. Lavin.......................... 1,000 0.1% 1,000
Lawrence F. Levy.......................... 1,000 0.1% 1,000
Margaret MacKimm.......................... 1,000 0.1% 1,000
Alan Prince............................... 15,000 1.7% 15,000
Philip G. Heasley......................... 1,000 0.1% 1,000
Norman R Bobins........................... 1,000 0.1% 1,000
Langdon Neal.............................. 1,000 0.1% 1,000
Non-Executive Officer Director Group...... 27,000 3.1% 31,000
Executive Officer Group................... 289,403 33.6% 289,246
Employee Group............................ 543,597(2) 63.2% 60,500
</TABLE>
- ---------------
(1) Estimated. The actual number of shares underlying options is expected to be
an amount equal to 0.5% of the number of outstanding shares of Chicago Title
Common Stock as of the close of business on the Spin-Off Date. The actual
number of restricted shares will be an amount equal to 0.5% of the number of
outstanding shares of Chicago Title Common Stock on the Spin-Off Date,
exclusive of the restricted shares granted to members of senior management
of Chicago Title on the Spin-Off Date, plus an additional number of shares
having a value of $50,000 based on the market price of Chicago Title Common
Stock on the Spin-Off Date.
(2) Estimated, based on options being granted to purchase 860,000 shares of
Chicago Title Common Stock.
ANNUAL BONUS PLAN
Chicago Title also has adopted the Chicago Title Corporation Annual
Incentive Plan (the "Annual Plan") to provide short-term incentives to officers
and employees of Chicago Title.
Plan participants are provided an incentive opportunity based on the higher
of a variable percentage of the participant's annual salary or salary range
mid-point, with the precise opportunity keyed to corporate financial
performance; certain participants may have their bonus opportunity modified
based on the attainment of special personal and/or operating unit objectives.
The incentive opportunity dependent on financial performance is determined by
multiplying (i) an incentive factor based on cyclical net revenue margin,
ranging from a threshold incentive factor of 0.5 to a maximum incentive factor
of 1.5, by (ii) a payout percentage based on cyclical earnings, ranging from a
threshold of 25 percent to a maximum of 100 percent. The result is then
multiplied by the incentive opportunity to determine the payout to the
participant.
54
<PAGE> 57
Cyclical earnings represent pre-tax earnings from Chicago Title's title and
real estate services operations, but exclude earnings, net of expenses,
associated with Chicago Title's investment portfolio. Cyclical net revenues
represent total revenues from Chicago Title's title and real estate services
operations, reduced by agents' commissions and excluding corporate investment
income.
Earned incentive payments will be made in a combination of cash and Chicago
Title common stock, in proportions determined by the Compensation Committee. No
incentive payments are made for financial results which fall below a
pre-established threshold.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL AGREEMENTS
Mr. Rau has an employment agreement with Chicago Title, with an initial
term from January 1, 1997 to December 31, 2001. Thereafter, the agreement will
be automatically extended from year to year unless either party gives notice to
the contrary at least nine months before the initial term or any subsequent
renewal date. The agreement may be terminated on or after January 1, 1999, by
Mr. Rau or by Chicago Title, without cause on sixty days written notice.
However, if Chicago Title terminates his employment without cause, Mr. Rau will
receive severance benefits based upon the remaining term of the agreement. Such
severance benefits will consist of continuation of Mr. Rau's base salary and
annual bonuses for that remaining term, at the rate of his then current annual
base salary and 60% of his maximum annual bonus, pro rata distribution of his
long-term incentive awards, and continuation of all employee benefits for that
remaining term. If Mr. Rau resigns due to a reduction in base salary or a
material reduction in his duties or authority, or if he resigns within ninety
days after Chicago Title gives notice that the agreement will not be renewed,
such resignation will be deemed a termination by Chicago Title without cause.
Mr. Rau's employment may also be terminated for cause (defined as willful
failure to perform his duties after written notice from the Chicago Title Board,
gross misconduct or conviction of a felony involving personal dishonesty), or
disability (inability to perform his duties for ninety or more days within any
twelve-month period). In the event of termination for cause or disability or
death or voluntary resignation, Mr. Rau is not entitled to further compensation
except as provided under the terms of the various incentive and benefit plans in
which he participates at the time of termination.
The agreement entitles Mr. Rau to be employed as President and Chief
Executive Officer of Chicago Title, to receive a salary at an annual rate of at
least $400,000 for 1998 (to be adjusted thereafter as periodically recommended
by the Compensation Committee), to participate in all Chicago Title incentive
and benefit plans for which he is eligible, to be credited under qualified and
non-qualified defined contribution plans with years of service credit beginning
in June 1972, and to receive vacation and all other benefits normally provided
to senior executives of Chicago Title. Mr. Rau will participate in Chicago
Title's Annual Incentive Plan with the opportunity to earn each year an annual
bonus at a maximum amount equal to not less than 150% of his base salary. For
calendar year 1998, his bonus opportunity will be equal to 150% of his base
salary, with two-thirds of such bonus opportunity dependent upon the
accomplishment of specified corporate financial goals, and one-third of such
bonus opportunity dependent upon the accomplishment of personal objectives, to
be agreed to by Mr. Rau and the Compensation Committee. Such annual bonuses will
be paid in a combination of cash and shares of Chicago Title Common Stock, as
determined by the Chicago Title Board or the Compensation Committee. In
addition, prior to the Spin-Off Date, Mr. Rau will enter into an agreement
modifying the terms of performance units awarded to him under CT&T's Executive
Performance Unit Plan of 1995, described as so amended in Note (1) to the table
relating to long-term incentive awards in the last fiscal year, which agreement
will provide that, on the Spin-Off Date, Chicago Title will grant to Mr. Rau an
award of shares of restricted stock in an amount equal to 0.5% of the
outstanding shares of Chicago Title Common Stock at the close of business on the
Spin-Off Date, exclusive of restricted shares granted to members of senior
management of Chicago Title, plus an additional number of shares of restricted
Stock having a value of $50,000 based on the market price of the Chicago Title
Common Stock on the Spin-Off Date. On the day after the Spin-Off Date, the
Compensation Committee will consider a recommendation to award non-qualified
stock options to purchase shares of Chicago Title Common Stock, in an amount
equal to 0.5% of the outstanding shares of Chicago Title Common Stock at the
close of business on the Spin-Off Date. Such awards will be governed by separate
agreements and by the provisions of the 1998 Plan. In connection with the
restricted stock award, Mr. Rau will make an election under Section 83(b) of the
Code,
55
<PAGE> 58
and Chicago Title will make a payment to, Mr. Rau to reimburse him for income
and employment taxes imposed on the value of the restricted stock award and the
amount of the payment.
In connection with the commencement of Mr. Rau's employment as President
and Chief Executive Officer of CT&T in January 1997, he received a bonus of
$360,000 and a restricted stock award of 6,400 shares of Alleghany Stock (the
"Alleghany Restricted Stock"), which are described in Notes (2) and (3) to the
Summary Compensation Table. In the event of termination of his employment, any
unvested shares of Alleghany Restricted Stock, or Chicago Title Common Stock
distributed in respect thereof, will be subject to mandatory sale at $0.66 per
share of Alleghany Restricted Stock or $0.34 per share of Chicago Title Common
Stock, to Alleghany or Chicago Title, as the case may be. Vesting of all of his
shares of Alleghany Restricted Stock and shares of Chicago Title Common Stock
distributed in respect thereof will be accelerated if the Chicago Title Board
approves an acquisition of Chicago Title prior to January 1, 2001. Mr. Rau also
was granted an option in respect of the outstanding common stock of CT&T which,
as previously described, will be settled in cash on the Spin-Off Date.
Mr. Rau is prohibited, for a period of two years from any termination of
his employment, from soliciting the employment or engagement of any employees or
agents of Chicago Title and, at any time, from disclosing any confidential
information of Chicago Title. In addition, he is prohibited from competing with
the title insurance business, or title related businesses, of Chicago Title for
one year after any termination of his employment. However, at any time following
termination by Chicago Title without cause, Mr. Rau may elect to waive further
payment of all severance benefits described above and be released from his
covenant not to compete.
PENSION PLAN TABLE
CT&T maintains a pension plan for eligible employees hired before January
1, 1995. Messrs. Sands, Halvorsen and Abbinante participate in CT&T's Pension
Plan, which provides eligible employees with retirement income in the form of
monthly life annuity payments after their retirement. CT&T's Excess Benefits
Pension Plan restores benefits to certain employees whose benefits are limited
under the Pension Plan due to provisions in the Code regarding the maximum
amount of benefits payable under qualified plans. For employees hired after
January 1, 1995, including Messrs. Rau and Keller, CT&T maintains a defined
contribution plan, contributions to which are based upon salary and length of
service and are reflected, when paid, in the Summary Compensation Table.
The following table shows the estimated annual retirement benefit payable
under CT&T's Pension Plan (reflecting the Social Security offset described
below) to a participant who, upon retirement on January 1, 1997 at age 65, had
achieved the final average annual covered remuneration and years of service
indicated. The amounts shown include the additional sums payable under CT&T's
Excess Benefits Pension Plan. The amounts shown assume payment in the form of a
straight life annuity, with payment continuing for a period of ten years from
retirement if the participant dies during such period.
<TABLE>
<CAPTION>
FINAL AVERAGE YEARS OF SERVICE
ANNUAL COVERED --------------------------------------------------------
REMUNERATION 15 20 25 30 35
- ---------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$125,000.................... $ 28,666 $ 38,221 $ 47,776 $ 57,332 $ 66,887
150,000.................... 35,041 46,721 58,401 70,062 81,762
175,000.................... 41,416 55,221 69,026 82,832 96,637
200,000.................... 47,791 63,721 79,651 95,582 111,512
225,000.................... 54,196 72,221 90,276 108,332 126,387
250,000.................... 60,541 80,721 100,901 121,082 141,262
300,000.................... 73,291 97,721 122,151 146,582 171,012
400,000.................... 98,791 131,721 164,651 197,382 230,512
500,000.................... 124,291 165,721 207,151 248,582 290,012
</TABLE>
A participant's accrued benefit under CT&T's Pension Plan, expressed as a
monthly annuity starting at age 65, is calculated by multiplying his final
average annual covered remuneration by 1.7 percent, dividing by
56
<PAGE> 59
twelve and multiplying the result by his years of credited service not exceeding
thirty-five. Final average annual covered remuneration is defined as the highest
average monthly base salary (excluding bonuses and overtime pay and subject to
certain tax limitations, but including any amount by which an employee's
compensation is reduced to make before-tax contributions under CT&T's Savings
and Profit Sharing Plan or any similar plan) over a consecutive 60-month period
during the last 120 months of employment, multiplied by twelve. Pursuant to
CT&T's Pension Plan and Excess Benefits Pension Plan, such salary is determined
using amounts which would appear in the salary column in the Summary
Compensation Table for the relevant years. The benefit is reduced by a portion
of the participant's Social Security benefits. A participant may retire as early
as age 55, but the benefit payable to him at that time will be actuarially
reduced to reflect the commencement of benefit payments prior to age 65, unless
he has reached age 62 and has at least twenty years of service.
As of December 31, 1997, the credited years of service for Messrs. Sands,
Halvorsen and Abbinante were 28.8, 24.8 and 21.8. As of December 31, 1997, the
average annual covered remuneration for Messrs. Sands, Halvorsen and Abbinante
was $145,592, $150,550 and $115,483.
EXECUTIVE SALARY CONTINUATION PLAN
Messrs. Rau, Keller, Sands and Abbinante participate in Chicago Title's
Executive Salary Continuation Plan, which is a retirement plan designed to
encourage key employees to remain with Chicago Title until retirement. The plan
provides post-retirement monthly income of two percent of final monthly income
at retirement multiplied by the number of years of participation in the plan, up
to a maximum of 10 percent of final monthly salary. Benefits are actuarially
reduced for early retirement between the ages of 55 and 65. Payments under the
plan are payable for life or ten years, whichever is greater. If a participant
dies prior to retirement, annual payments of 25 percent of final salary are
payable until what would have been the employee's 65th birthday or for ten
years, whichever is greater. Based upon their current salaries, Messrs. Rau,
Keller, Sands and Abbinante would be entitled to an annual benefit at their
normal retirement age of $40,000, $22,500, $18,000 and $14,000, respectively.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee of the Board of Directors
are Mr. Hart (Chairman), Mr. Heasley, Mr. Kirby and Ms. MacKimm.
In 1997, the committee of the CT&T Board of Directors which served as a
Compensation Committee, included Messrs. Rau and Toft. Mr. Rau has been
President and Chief Executive Officer of CT&T and CTI since January 1997. Since
October 1995, Mr. Toft has served as Chairman and Chief Executive Officer of
Alleghany Asset Management, currently a subsidiary of CT&T. Mr. Toft also served
as President and Chief Executive Officer of CT&T until July 1996 and as
President and Chief Executive Officer of CTI until January 1994.
SECURITIES OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the projected beneficial ownership of
Chicago Title Common Stock as of the Spin-Off Date of each of the persons who
will be a Chicago Title director as of the Spin-Off Date and each of the
executive officers named in the Summary Compensation Table below. The ownership
information presented below: (a) is based on Alleghany's knowledge of the
beneficial ownership of Alleghany Stock as of April 28, 1998, (b) reflects the
distribution ratio of three shares of Chicago Title Common Stock for each share
of Alleghany Stock, the shares of Chicago Title Common Stock to be issued as
restricted stock immediately prior to the Spin-Off to senior management of
Chicago Title and intended to be issued
57
<PAGE> 60
immediately after the Spin-Off to non-employee directors of Chicago Title, and
(c) assumes no change in beneficial ownership of Alleghany Stock between March
20, 1998 and the Record Date.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
-----------------------------------------------------------------
SOLE VOTING POWER SHARED VOTING POWER
AND SOLE AND/OR SHARED
NAME AND ADDRESS INVESTMENT INVESTMENT PERCENT
OF BENEFICIAL OWNER POWER POWER TOTAL OF CLASS
------------------- ----------------- ------------------- --------- --------
<S> <C> <C> <C> <C>
Richard P. Toft................... 25,578 -- 25,578 0.11
John J. Burns, Jr. ............... 86,682 -- 86,682(1) 0.39
Peter H. Dailey................... 1,000 -- 1,000 0.01
Robert M. Hart.................... 18,834 -- 18,834 0.08
Allan P. Kirby, Jr. .............. 1,661,179 -- 1,661,179(2) 7.59
M. Leanne Lachman................. 1,516 -- 1,516 0.01
William K. Lavin.................. 1,305 -- 1,305 0.01
Lawrence F. Levy.................. 1,000 -- 1,000 0.01
Margaret MacKimm.................. 1,000 -- 1,000 0.01
Alan Prince....................... 31,968 -- 31,968 0.14
Philip G. Heasley................. 1,000 -- 1,000 0.01
Norman R Bobins................... 1,000 -- 1,000 0.01
Langdon Neal...................... 1,000 -- 1,000 0.01
John Rau.......................... 128,446 -- 128,446(3) 0.59
Michael J. Keller................. 30,000 -- 30,000 0.13
Paul T. Sands, Jr. ............... 33,195 -- 33,195 0.15
Christopher Abbinante............. 30,237 -- 30,237 0.13
William Halvorsen................. 31,014 -- 31,014 0.14
</TABLE>
- ---------------
(1) Includes 3,063 shares projected to be owned by Mr. Burns' wife or daughter.
Mr. Burns will have no voting or investment power over these shares, and he
disclaims beneficial ownership of them.
(2) See Note (2) to the securities ownership table included in "Principal
Stockholders" below.
(3) See Note (1) to the table relating to new plan benefits under the 1998 Plan
included in "Chicago Title Compensation Arrangements" above.
On basis of the projected beneficial ownership of Chicago Title Common
Stock described above, on the Spin-Off Date, directors and executive officers of
Chicago Title as a group (20 persons) will beneficially own 2,145,954 shares, or
9.8 percent, of the outstanding Chicago Title Common Stock; such directors and
executive officers will have sole voting and investment power with respect to
2,142,891 shares, and no voting or investment power with respect to 3,063
shares.
PRINCIPAL STOCKHOLDERS
Prior to the Spin-Off, the only person who beneficially owned more than 5%
of any class of Chicago Title voting stock was Alleghany. Immediately prior to
the Spin-Off, Alleghany will own beneficially and of record approximately
21,515,871 shares of Chicago Title Common Stock, representing more than 98% of
the shares of capital stock of Chicago Title; expected to be issued and
outstanding immediately after the Spin-Off; the remaining shares will be issued
as shares of restricted stock to senior management of Chicago Title and its
subsidiaries. Alleghany has sole voting and sole investment power with respect
to the shares owned by it. After the completion of the Spin-Off, there will be
approximately 21,896,617 shares of Chicago Title Common Stock outstanding,
including 16,000 shares to be issued as restricted stock immediately after the
Spin-Off to the non-employee directors of Chicago Title, and none of the
outstanding shares of Chicago Title Common Stock will be owned by Alleghany.
58
<PAGE> 61
The following table sets forth the projected beneficial ownership of
Chicago Title Common Stock as of the Spin-Off Date of certain persons Chicago
Title believes will become the beneficial owners of more than five percent of
such class of securities. The ownership information presented below: (a) is
based on Alleghany's knowledge of the beneficial ownership of Alleghany Stock as
of April 28, 1998, (b) reflects the distribution ratio of three shares of
Chicago Title Common Stock for each share of Alleghany Stock, the shares of
Chicago Title Common Stock to be issued as restricted stock immediately prior to
the Spin-Off to senior management of Chicago Title and intended to be issued
immediately after the Spin-Off to the non-employee directors of Chicago Title,
and (c) assumes no change in beneficial ownership of Alleghany Stock between
April 28, 1998 and the Record Date.
As of April 28, 1998, approximately 35.2 percent of the outstanding
Alleghany Stock was believed to be beneficially owned, and the same percentage
of Chicago Title Common Stock is projected to be beneficially owned, by F. M.
Kirby, Allan P. Kirby, Jr., their sister, Grace Kirby Culbertson, and the
estate, or one or more beneficiaries, of Ann Kirby Kirby, primarily through a
number of family trusts. Mrs. Kirby, the sister of Messrs. Kirby and Mrs.
Culbertson, who was believed by Alleghany to be a principal stockholder of
Alleghany based on her Schedule 13D statement filed with the Commission in 1982,
died in 1996. Alleghany has not received any information from the
representatives of the estate of Mrs. Kirby, or any beneficiaries of her estate,
regarding its or their ownership of Alleghany Stock; therefore, it does not know
whether she, her estate, or any beneficiary of her estate beneficially owns more
than five percent of the outstanding Alleghany Stock.
<TABLE>
<CAPTION>
PROJECTED AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP OF CHICAGO TITLE COMMON STOCK
-----------------------------------------------------------------
SOLE VOTING POWER SHARED VOTING POWER
AND SOLE AND/OR SHARED
NAME AND ADDRESS INVESTMENT INVESTMENT PERCENT
OF BENEFICIAL OWNER POWER POWER TOTAL OF CLASS
------------------- ----------------- ------------------- --------- --------
<S> <C> <C> <C> <C>
F.M. Kirby........................ 877,287 1,856,901 2,734,188(1) 12.1
17 DeHart Street
P.O. Box 151
Morristown, NJ 07963
Allan P. Kirby, Jr. .............. 1,661,179 -- 1,661,179(2) 7.6
14 E. Main Street
P.O. Box 90
Mendham, NJ 07945
Grace Kirby Culbertson............ 423,291 756,318 1,179,609(3) 5.2
Blue Mill Road
Morristown, NJ 07960
Estate of Ann Kirby Kirby......... 953,643 1,178,358 2,132,001(4) 9.5
c/o Carter, Ledyard & Milburn
2 Wall Street
New York, NY 10005
Southeastern Asset Management,
Inc. ........................... (5) (5) 2,376,783(5) 10.6
6075 Poplar Avenue
Suite 900
Memphis, TN 38119
Sasco Capital, Incorporated....... (6) -- 1,492,242(6) 6.6
10 Sasco Hill Road
Fairfield, CT 06430
Franklin Mutual Advisers, Inc..... 1,220,085 -- 1,220,085(7) 5.4
51 John F. Kennedy Parkway
Short Hills, NJ 07078
</TABLE>
- ---------------
(1) Includes 331,032 shares projected to be held by F. M. Kirby as sole trustee
of trusts for the benefit of his children; 1,269,693 shares to be held by a
trust of which Mr. Kirby is co-trustee and primary beneficiary; and 587,208
shares to be held by trusts for the benefit of his children and his
children's descendants as to which Mr. Kirby was granted a proxy and,
therefore, would have shared voting power. Mr. Kirby has informed Chicago
Title that he intends to disclaim beneficial ownership of the shares of
Chicago Title
59
<PAGE> 62
Common Stock held for the benefit of his children and for the benefit of his
children and his children's descendants. Mr. Kirby will hold 546,255 shares
directly.
(2) Includes 104,919 shares projected to be held by a child of Allan P. Kirby,
Jr., as to which Mr. Kirby holds an irrevocable power of attorney; and
916,965 shares to be held by a trust of which of Mr. Kirby is co-trustee and
beneficiary. Mr. Kirby has informed Chicago Title that he intends to
disclaim beneficial ownership of the shares of Chicago Title Common Stock to
be held by his child. Mr. Kirby will hold 638,292 shares directly. Mr. Kirby
will also hold 1,000 shares of Chicago Title Common Stock to be granted to
him as a restricted stock award under the 1998 Long-Term Incentive Plan,
which shares of restricted stock will vest on the third anniversary of the
Spin-Off Date. See "Management -- Compensation of Directors" above.
(3) Includes 125,658 shares projected to be held by Grace Kirby Culbertson as
co-trustee of trusts for the benefit of her children; and 630,660 shares to
be held by trusts for the benefit of Mrs. Culbertson and her descendants, of
which Mrs. Culbertson is co-trustee. Mrs. Culbertson will hold 423,291
shares directly.
(4) Prior to her death in 1996, Ann Kirby Kirby had disclaimed being a
controlling person or member of a controlling group with respect to
Alleghany and had declined to supply information with respect to her
ownership of Alleghany Stock. However, Mrs. Kirby filed a statement on
Schedule 13D dated April 5, 1982 with the Commission reporting beneficial
ownership, both direct and indirect through various trusts, of 710,667
shares of the common stock of Alleghany Corporation, a Maryland corporation
and the predecessor of Alleghany ("Old Alleghany"). Upon the liquidation of
Old Alleghany in December 1986, stockholders received $43.05 in cash and one
share of Alleghany Stock for each share of Old Alleghany common stock. The
projected Chicago Title Common Stock ownership information provided herein
as to the estate of Mrs. Kirby is based solely on her statement on Schedule
13D in respect of Old Alleghany and does not reflect the two-percent stock
dividends paid in each of the years 1985 through 1997 by Old Alleghany or
Alleghany; if Mrs. Kirby, her estate and the beneficiaries of her estate had
continued to hold in the aggregate 710,667 shares of Alleghany Stock
together with all stock dividends received in consequence through the date
hereof, the beneficial ownership of Alleghany Stock would have increased by
208,649 shares and the beneficial ownership of Chicago Title Common Stock
projected herein would have increased by 625,947 shares.
(5) According to an amendment dated February 4, 1998 to a Schedule 13G statement
filed by Southeastern Asset Management, Inc. ("Southeastern"), an investment
advisor, Southeastern had sole voting power over 466,621 shares of Alleghany
Stock, shared voting power over 239,101 shares and no voting power over
86,539 shares, for a total of 792,261 shares. Its dispositive power with
respect to such shares of Alleghany Stock was reported as follows: sole
dispositive power over 553,160 shares and shared dispositive power over
239,101 shares. O. Mason Hawkins, Chairman of the Board and Chief Executive
Officer of Southeastern, joined in the filing of Southeastern's amendment to
its Schedule 13G statement in the event that he could be deemed to be a
controlling person of Southeastern as a result of his official positions
with, or ownership of, its voting securities. Mr. Hawkins expressly
disclaimed such control. Southeastern's amendment to its Schedule 13G
statement indicated that all shares of Alleghany Stock set forth therein
were owned legally by clients of Southeastern and no such shares were owned
directly or indirectly by Southeastern or Mr. Hawkins, both of whom
disclaimed beneficial ownership of such shares. The statement also indicated
that 112,128 shares of Alleghany Stock and 126,273 shares, respectively,
over which Southeastern had shared voting and dispositive power were owned
by two separate series of Longleaf Partners Funds Trust, an open-end
management investment company registered under the Investment Company Act of
1940, as amended.
(6) According to a Schedule 13G statement, which was amended January 30, 1998
filed by Sasco Capital, Incorporated ("Sasco"), Sasco had sole voting power
over 296,617 shares of Alleghany Stock and sole dispositive power over
497,414 shares.
(7) According to a Schedule 13G statement filed by Franklin Mutual Advisers,
Inc. ("Franklin"), Franklin Resources, Inc. ("FRI") and Charles B. Johnson
and Rupert H. Johnson, Jr., which was amended on January 26, 1998, Franklin
had sole voting power and sole dispositive power over 406,695 shares of
Alleghany Stock. The statement indicated that such shares were beneficially
owned by Franklin, an
60
<PAGE> 63
investment advisory subsidiary of FRI, and that, under Franklin's advisory
contracts, all voting and investment power over such shares was granted to
Franklin. The statement also indicated that Messrs. Johnson were the
principal shareholders of FRI and that Messrs. Johnson and FRI could be
deemed to be the beneficial owners of the shares of Alleghany Stock reported
therein. FRI, Franklin and Messrs. Johnson disclaimed any economic interest
or beneficial ownership of such shares.
DESCRIPTION OF CAPITAL STOCK
INTRODUCTION
We presently expect that we will have the following capital stock
authorization and terms and anti-takeover provisions in place on the Spin-Off
Date.
COMPARISON OF RIGHTS OF STOCKHOLDERS OF ALLEGHANY AND CHICAGO TITLE
Both Alleghany and Chicago Title are incorporated under the laws of the
state of Delaware. The Chicago Title Certificate and By-Laws are identical to
those of Alleghany in all material respects, except that, based upon the
distribution ratio of three shares of Chicago Title Common Stock for each share
of Alleghany Stock, the number of shares of authorized Chicago Title Common
Stock is three times the number of authorized shares of Alleghany Stock. As a
result, there are no significant differences between the rights of holders of
shares of Alleghany Stock and the rights of holders of Chicago Title Common
Stock.
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
The authorized capital stock of Chicago Title consists of 66,000,000 shares
of Chicago Title Common Stock, par value $1.00 per share, and 8,000,000 shares
of Preferred Stock, par value $1.00 per share (the "Preferred Stock"). The
authorized capital stock was determined based on the authorized capital stock of
Alleghany, with the authorized Chicago Title Common Stock increased
proportionately to reflect the distribution ratio of three shares of Chicago
Title Common Stock for each share of Alleghany Stock.
After the completion of the Spin-Off, there are expected to be
approximately 21,896,617 shares of Chicago Title Common Stock outstanding held
of record by approximately 2,000 persons, excluding shares of Chicago Title
Common Stock issuable upon the exercise of Chicago Title stock options granted
pursuant to the 1998 Plan in connection with the Spin-Off. See "The
Spin-Off -- Results of the Spin-Off" and "Chicago Title Compensation
Arrangements -- New Plan Benefits Under the 1998 Plan." In addition, up to
1,000,000 shares of Chicago Title Common Stock may be issued under the Chicago
Title Employee Stock Purchase Plan, pursuant to which eligible employees will be
offered Chicago Title Common Stock at a discount from prevailing market prices.
No shares of Preferred Stock have been issued by Chicago Title, and there is no
present intention to issue any shares of Preferred Stock.
CHICAGO TITLE COMMON STOCK; DELAWARE ANTI-TAKEOVER PROVISIONS
Holders of shares of Chicago Title Common Stock are entitled to one vote
per share on all matters to be voted upon by the stockholders and are not
entitled to cumulate votes for the election of directors. Subject to preferences
that may be applicable to any outstanding Preferred Stock, holders of shares of
Chicago Title Common Stock are entitled to receive ratably such dividends, if
any, as may be declared from time to time by the Chicago Title Board out of
funds legally available therefor. In the event of liquidation, dissolution or
winding up of Chicago Title, the holders of shares of Chicago Title Common Stock
are entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior distribution rights of Preferred Stock, if any,
then outstanding. Holders of Chicago Title Common Stock have no preemptive,
conversion or other subscription rights and there are no redemption or sinking
fund provisions applicable to the Chicago Title Common Stock.
Chicago Title is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("DGCL"). Subject to certain exceptions, Section 203 of
the DGCL prohibits a publicly-held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
61
<PAGE> 64
years after the time of the transaction in which the person became an interested
stockholder. Subject to certain exceptions, an "interested stockholder" is a
person who, together with affiliates and associates, owns, or within three years
did own, 15% or more of the corporation's voting stock. A "business combination"
includes a merger, consolidation, sale or other disposition of assets having an
aggregate value in excess of 10% of either the aggregate market value of the
consolidated assets of the corporation or the aggregate market value of all the
outstanding stock of the corporation, and certain transactions that would
increase the interested stockholder's proportionate share ownership in the
corporation or which provide the interested stockholder with a financial
benefit. These restrictions do not apply where:
(i) the business combination or the transaction in which the
stockholder becomes interested is approved by the corporation's board of
directors prior to the time the interested stockholder acquired its shares;
(ii) the interested stockholder acquired at least 85% of the
outstanding voting stock of the corporation in the transaction in which the
stockholder became an interested stockholder excluding, for determining the
number of shares outstanding, shares owned by persons who are directors as
well as officers and by employee stock plans in which participants do not
have the right to determine confidentially whether shares held subject to
the plan will be tendered in a tender or exchange offer; or
(iii) the business combination is approved by the board of directors
and the affirmative vote of two-thirds of the outstanding voting stock not
owned by the interested stockholder at an annual or special meeting.
The business combinations provisions of Section 203 of the DGCL may have
the effect of deterring merger proposals, tender offers or other attempts to
effect changes in control of Chicago Title that are not negotiated with and
approved by the Chicago Title Board.
PREFERRED STOCK
The Chicago Title Certificate provides that Chicago Title may issue up to
8,000,000 shares of Preferred Stock. The Chicago Title Board has the authority
to issue Preferred Stock in one or more series and to fix for each such series
the voting powers, full, limited or none, and the designations, preferences and
relative, participating, optional or other special rights and qualifications,
limitations or restrictions thereon, and the number of shares constituting any
series and the designations of such series, without any further vote or action
by the stockholders of Chicago Title. Because the terms of the Preferred Stock
may be fixed by the Chicago Title Board without stockholder action, the
Preferred Stock could be issued quickly with terms calculated to defeat a
proposed takeover of Chicago Title or to make the removal of management of
Chicago Title more difficult. Under certain circumstances, this could have the
effect of decreasing the market price of the Chicago Title Common Stock.
CERTAIN ANTI-TAKEOVER PROVISIONS -- CHICAGO TITLE CERTIFICATE AND BY-LAWS
Certain provisions of the Chicago Title Certificate and the By-Laws may
have the effect, either alone or in combination with each other, of making more
difficult or discouraging a tender offer, takeover attempt or change in control
that is opposed by Chicago Title's Board of Directors but that a stockholder
might consider to be in its best interest. Chicago Title believes that such
provisions are necessary to enable Chicago Title to develop its business in a
manner that will foster its long-term growth without disruption caused by the
threat of a takeover not deemed by the Chicago Title Board to be in the best
interests of Chicago Title and its stockholders. These provisions are summarized
in the following paragraphs.
Classified Board of Directors. The Chicago Title Certificate and By-Laws
provide that the Chicago Title Board will be divided into three classes of
directors, with the classes to be as nearly equal in number as possible. The
Board consists of the persons referred to in "Management -- Directors." The
Certificate and By-Laws provide that of the initial directors of Chicago Title,
one-third will continue to serve until the 1999 Annual Meeting of Stockholders,
one-third will continue to serve until the 2000 Annual Meeting of Stockholders,
and one-third will continue to serve until the 2001 Annual Meeting of
Stockholders. Of the initial directors, Messrs. Bobins, Hart, Heasley and Prince
will serve until the 1999 Annual Meeting of
62
<PAGE> 65
Stockholders; Messrs. Lavin, Neal, Rau, and Ms. MacKimm will serve until the
2000 Annual Meeting of Stockholders; and Messrs. Burns, Dailey, Kirby and Levy
and Ms. Lachman will serve until the 2001 Annual Meeting of Stockholders.
Starting with the 1999 Annual Meeting of Stockholders, one class of directors
will be elected each year for a three-year term.
The classification of directors will have the effect of making it more
difficult for stockholders to change the composition of the Chicago Title Board.
At least two annual meetings of stockholders, instead of one, will generally be
required to effect a change in a majority of the Board of Directors. Such a
delay may help ensure that Chicago Title's directors, if confronted by a holder
attempting to force a proxy contest, a tender or exchange offer, or an
extraordinary corporate transaction, would have sufficient time to review the
proposal as well as any available alternatives to the proposal and to act in
what they believe to be the best interest of the stockholders. The
classification provisions will apply to every election of directors, however,
regardless of whether a change in the composition of the Board would be
beneficial to Chicago Title and its stockholders and whether or not a majority
of Chicago Title's stockholders believe that such a change would be desirable.
The classification provisions could also have the effect of discouraging a
third party from initiating a proxy contest, making a tender offer or otherwise
attempting to obtain control of Chicago Title, even through such an attempt
might be beneficial to Chicago Title and its stockholders. The classification of
the Board could thus increase the likelihood that incumbent directors will
retain their positions. In addition, because the classification provisions may
discourage accumulations of large blocks of the Chicago Title Common Stock by
purchasers whose objective is to take control of Chicago Title and remove a
majority of the Board, the classification of the Board could tend to reduce the
likelihood of fluctuations in the market price of the Chicago Title Common Stock
that might result from accumulations of large blocks for such a purpose.
Accordingly, stockholders could be deprived of certain opportunities to sell
their shares of Chicago Title Common Stock at a higher market price than might
otherwise be the case.
Number of Directors; Removal of Directors; Vacancies. The By-Laws provide
that the number of directors of Chicago Title shall be fourteen which number (as
well as the number of each class of directors) may be increased or decreased by
a resolution adopted by the vote of in excess of 75% of the total number of
directors of Chicago Title then authorized under the By-Laws, whether or not
vacancies exist (the "Whole Board").
The Chicago Title Certificate also provides that, subject to the rights of
holders of any Preferred Stock then outstanding, directors may be removed only
for cause by the affirmative vote of the holders of at least 75% of the
outstanding shares of Chicago Title then entitled to vote generally in the
election of directors, voting as a single class (without a separate vote of the
holders of the Preferred Stock unless required pursuant to the terms of any
series of Preferred Stock). Subject to the rights of holders of any outstanding
Preferred Stock then outstanding, vacancies on the Board may be filled only by
the members of the Board then in office, whether or not they constitute of
quorum of directors.
Business Conducted at Meetings; Director Nominations. The By-Laws provide
that nominations of persons for election to the Chicago Title Board and the
proposal of business to be transacted by the stockholders may be made at an
annual meeting of stockholders (a) pursuant to Chicago Title's notice with
respect to such meeting, (b) by or at the direction of the Chicago Title Board
or (c) by any stockholder of record of Chicago Title who was a stockholder of
record at the time of the giving of the notice required by the By-Laws,
described below, who is entitled to vote at the meeting and who has complied
with the notice procedures set forth in the By-Laws. For nominations or other
business to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary of
Chicago Title, such business must be a proper matter for stockholder action
under the Delaware General Corporation Law and, if the stockholder, or the
beneficial owner on whose behalf any such proposal or nomination is made,
solicits or participates in the solicitation of proxies in support of such
proposal or nomination, the stockholder must have timely indicated such
stockholder's, or such beneficial owner's, intention to do so. To be timely, a
stockholder's notice must be delivered to the Secretary at the principal
executive offices of Chicago Title not less than 90 days prior to the first
anniversary of the preceding year's annual meeting of stockholders; provided,
however, that if the date of the annual meeting is advanced more
63
<PAGE> 66
than 30 days prior to or delayed more than 60 days after such anniversary date,
notice by the stockholder to be timely must be delivered not later than the
close of business on the later of the 90th day prior to such annual meeting or
the 10th day following the day on which public announcement of the date of such
meeting is first made. The notice must include (a) certain information as to
each person whom the stockholder proposes to nominate for election or reelection
as a director and such person's written consent to serve as a director if
elected; (b) as to any other business that the stockholder proposes to bring
before the meeting, a brief description of such business, the reasons for
conducting such business at the meeting and any material interest in such
business of such stockholder and the beneficial owner, if any, on whose behalf
the proposal is made; and (c) certain information as to the stockholder giving
the notice and the beneficial owner, if any, on whose behalf the nomination or
proposal is made, including whether either such stockholder or beneficial owner
intends to solicit or participate in the solicitation of proxies in favor of
such proposal or nominee or nominees.
In the event that the number of directors to be elected to the Chicago
Title Board is increased and there is not a public announcement naming all of
the nominees for director or specifying the size of the increased Board of
Directors made by Chicago Title at least 100 days prior to the first anniversary
of the preceding year's annual meeting, a stockholder's notice will be timely,
but only with respect to nominees for any new positions created by such
increase, if it is delivered to the Secretary at the principal executive offices
of Chicago Title not later than the close of business on the 10th day following
the day on which such public announcement is first made by Chicago Title.
Special Meeting of Stockholders. The DGCL provides that special meetings
of stockholders may be called by the Chicago Title Board or any person
authorized by the Chicago Title Certificate or By-Laws to call a special
meeting. The By-Laws provide that special meetings may be called by the Chairman
of the Board or by a majority of the Board. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to Chicago Title's notice of meeting. Nominations of
persons for election to the Chicago Title Board may be made at a special meeting
of stockholders at which directors are to be elected pursuant to Chicago Title's
notice of meeting (a) by or at the direction of the Chicago Title Board or (b)
by any stockholder of record of Chicago Title who is a stockholder of record at
the time of giving of notice required by the By-Laws, who is entitled to vote at
the meeting and who complies with the notice procedures set forth in By-Laws.
Nominations by stockholders of persons for election to the Chicago Title Board
may be made at such a special meeting of stockholders if the stockholder's
notice required by this section is delivered to the Secretary at the principal
executive offices of Chicago Title not later than the close of business on the
later of the 90th day prior to such special meeting or the 10th day following
the day on which public announcement is first made of the date of the special
meeting and of the nominees proposed by the Chicago Title Board to be elected at
such meeting.
No Stockholder Action by Written Consent; Stockholder Action at
Meetings. The By-Laws provide that stockholder action can be taken only at an
annual or special meeting of stockholders, and prohibit stockholder action by
written consent in lieu of a meeting.
Supermajority Voting. The Chicago Title Certificate requires the approval
of the holders of at least 75% of the voting power of all of the shares entitled
to vote (i) to authorize any merger, consolidation or dissolution of Chicago
Title or sale of substantially of the assets of Chicago Title, (ii) to authorize
any purchase, sale or other acquisition or disposition of assets of Chicago
Title having a value in excess of $12 million, to or from any 10% stockholder
or, subject to certain exceptions for pro rata offerings to all stockholders and
bona fide employee benefit plans, any issuance of voting stock to any 10%
stockholder which has not been approved by a majority of a quorum of the Whole
Board, such majority to consist of Continuing Directors (as defined below), or
(iii) to add, amend, alter, change or repeal any provision of the Chicago Title
Certificate and By-Laws, including the anti-takeover provisions listed above.
The Chicago Title Board may amend, supplement or repeal the By-Laws at any time,
except as limited by law. A "Continuing Director" means any member of the
Chicago Title Board who is not an affiliate of the 10% stockholder and who was a
member of the Chicago Title Board prior to, and served continuously since, the
time that the 10% stockholder first became a 10% stockholder.
64
<PAGE> 67
Stockholder Rights Plans and related matters. Although no stockholder
rights plan (or, as such plans are commonly called, "poison pill") has been
adopted, the Chicago Title Certificate affirms that the Chicago Title Board may
contest or oppose any unfair, abusive or otherwise undesirable transaction which
may result in a change in control of Chicago Title, including, without
limitation, by the adoption of such plans or the issuance of such rights,
options, stock, evidences of indebtedness or other securities of Chicago Title
which (i) may be exchangeable for or convertible into cash or other securities
and (ii) may provide for the treatment of any holder or class of holders thereof
designated by the Chicago Title Board which is different from, and unequal to,
the terms, conditions, provisions and rights applicable to all other holders
thereof.
Other Constituencies. In addition to any other considerations which the
Chicago Title Board may lawfully take into account, in determining whether to
take or to refrain from taking corporate action on any matter, including
proposing any matter to the stockholders of Chicago Title, the Board may take
into account the interests of creditors, customers, employees and other
constituencies of Chicago Title and its subsidiaries and the effect upon
communities in which Chicago Title and its subsidiaries do business.
LIMITED LIABILITY AND INDEMNIFICATION PROVISIONS
The Chicago Title Certificate eliminates to the fullest extent now or
hereafter permitted by Delaware law, liability of a director to Chicago Title or
its stockholders for monetary damages for any action taken, or failure to take
any action, as a director, except for liability:
(i) for any breach of the director's duty of loyalty to Chicago Title
or its stockholders;
(ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
(iii) under Section 174 of the DGCL, relating to prohibited dividends,
distributions and repurchases or redemptions of stock; or
(iv) for any transaction for which the director derives an improper
personal benefit (the "Exculpatory Provision").
The Exculpatory Provision is intended to afford directors additional
protection from, and limit their potential liability for, suits alleging a
breach of duty by a director. Chicago Title believes this provision will assist
it in maintaining and securing the services of directors who are not employees
of Chicago Title. As a result of the inclusion of the Exculpatory Provision,
stockholders may be unable to recover monetary damages from directors for
actions taken by them that constitute negligence or gross negligence or that are
in violation of their fiduciary duties, although it may be possible to obtain
injunctive or other equitable relief with respect to such actions, such as an
injunction or rescission based on a director's breach of the duty of care; as a
practical matter, equitable remedies may not be available (e.g., after a
transaction has already been effected). If equitable remedies are found not to
be available to stockholders for any particular case, stockholders may not have
any effective remedy against the challenged conduct.
Section 145 of the DGCL ("Section 145") permits indemnification of
directors, officers, agents and controlling persons of a corporation under
certain conditions and subject to certain limitations. Section 145 empowers a
corporation to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that such person is or was a director, officer or agent of the corporation or
another enterprise if serving at the request of the corporation. Depending on
the character of the proceeding, a corporation may indemnify against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with such action, suit or
proceeding if the person indemnified acted in good faith and in a manner such
person reasonably believed to be in or not opposed to, the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful. In the case of
an action by or in the right of Chicago Title, no indemnification may be made
with respect to any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent that
the Delaware Court of Chancery or the court in which such action or suit was
brought shall determine that despite the adjudication of liability such person
is fairly and reasonably entitled to indemnity for such expenses which the court
shall
65
<PAGE> 68
deem proper. Section 145 further provides that to the extent a director or
officer of Chicago Title has been successful in the defense of any action, suit
or proceeding referred to above or in the defense of any claim, issue or matter
therein, such person shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by such person in connection therewith.
The Chicago Title Certificate contains provisions for indemnification of
directors, officers, employees and agents to the fullest extent permitted by
Section 145 and Delaware law which, in general, presently requires that the
individual act in good faith and in a manner he or she reasonably believed to be
in or not opposed to Chicago Title's best interests and, in the case of any
criminal proceedings, that the individual has no reason to believe his or her
conduct was unlawful. The Chicago Title Certificate also permits Chicago Title
to purchase insurance and Chicago Title has purchased and maintains insurance on
behalf of Chicago Title directors, officers, employees and agents against any
liability asserted against such person and incurred by such person in any such
capacity, or arising out of such person's status as such, whether or not Chicago
Title would have the power to indemnify such person against such liability under
the foregoing provision of the By-Laws.
SHARES ELIGIBLE FOR FUTURE SALE
Shares of Chicago Title Common Stock distributed to Alleghany stockholders
will be freely transferable, except for shares received by persons who may be
deemed to be "affiliates" of Chicago Title under the Securities Act. Persons who
may be deemed to be affiliates of Chicago Title after the Spin-Off generally
include individuals or entities that control, are controlled by, or are under
common control with, Chicago Title. Persons who are affiliates of Chicago Title
will be permitted to sell their shares of Chicago Title Common Stock only
pursuant to an effective registration statement under the Securities Act or an
exemption from the registration requirements of the Securities Act, such as the
exemption afforded by Rule 144 under the Securities Act.
ADDITIONAL INFORMATION
Chicago Title has filed with the Commission the Form 10 Registration
Statement under the Exchange Act with respect to the shares of Chicago Title
Common Stock to be received by Alleghany stockholders in the Spin-Off. This
Information Statement does not contain all of the information set forth in the
Form 10 Registration Statement, and the exhibits and schedules relating thereto.
Statements made in this Information Statement as to the contents of any
contract, agreement, instrument or other document are not necessarily complete,
and in each instance reference is made to the copy of such contract, agreement,
instrument or document filed as an exhibit to the Form 10 Registration
Statement, each such statement being qualified in all respects by such reference
and the exhibits and schedules thereto.
For further information, reference is made to the Form 10 Registration
Statement and the exhibits and schedules filed as a part thereof, which are on
file at the offices of the Commission and may be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional
offices of the Commission in New York (Seven World Trade Center, Suite 1300, New
York, New York 10048) and Chicago (500 West Madison Street, Suite 1400, Chicago,
Illinois 60661). Copies of such materials also may be obtained at prescribed
rates from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. Such material may also be inspected at the offices
of the New York Stock Exchange, Inc. (20 Broad Street, New York, New York 10005)
or accessed electronically by means of the Commission's home page on the World
Wide Web (http://www.sec.gov).
Following the Spin-Off, Chicago Title will be required to comply with the
reporting requirements of the Exchange Act and will file annual, quarterly and
other reports with the Commission. Chicago Title also will be subject to the
proxy solicitation requirements of the Exchange Act and, accordingly, will
furnish audited financial statements to its stockholders in connection with its
annual meetings of stockholders.
No person is authorized by Alleghany or Chicago Title to give any
information or to make any representations other than those contained in this
document, and if given or made, such information or representations must not be
relied upon as having been authorized.
66
<PAGE> 69
CHICAGO TITLE AND TRUST COMPANY AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets at December 31, 1997 and
December 31, 1996......................................... F-3
Consolidated Statements of Income for the Years Ended
December 31, 1997, 1996 and 1995.......................... F-4
Consolidated Statements of Changes in Shareholder's Equity
for the Years Ended December 31, 1997, 1996 and 1995...... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995.......................... F-6
Notes To Consolidated Financial Statements.................. F-7
Consolidated Balance Sheets at March 31, 1998 (unaudited)
and December 31, 1997..................................... F-25
Consolidated Statements of Income for the Three Months Ended
March 31, 1998 and 1997 (unaudited)....................... F-26
Consolidated Statements of Changes in Shareholder's Equity
for the Three Months Ended March 31, 1998 (unaudited)..... F-27
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1998 and 1997 (unaudited)................. F-28
Notes to Consolidated Quarterly Financial Statements........ F-29
</TABLE>
Explanatory Note: The historical consolidated financial statements
presented herein are those of Chicago Title and Trust Company. Prior to the
Spin-Off Date, all of the issued and outstanding shares of stock of Chicago
Title and Trust Company will be contributed to Chicago Title Corporation, a
newly-formed Delaware holding company. On the Spin-Off Date, the shares of stock
of Chicago Title and Trust Company will constitute substantially all of the
assets of Chicago Title Corporation.
F-1
<PAGE> 70
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Chicago Title and Trust Company:
We have audited the accompanying consolidated balance sheets of Chicago
Title and Trust Company and subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of income, changes in shareholder's 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
Chicago Title and Trust Company 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.
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
February 6, 1998
F-2
<PAGE> 71
CHICAGO TITLE AND TRUST COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ---------
(IN 000s, EXCEPT SHARE
DATA)
<S> <C> <C>
ASSETS
Cash on hand and in banks................................... $ 21,219 23,072
Cash pledged to secure trust and escrow deposits............ 100,207 99,392
Marketable securities, available-for-sale:
Fixed maturities, at fair value (amortized cost of
$1,016,446 and $809,141 in 1997 and 1996,
respectively).......................................... 1,032,089 817,439
Equity securities, at fair value (cost of $33,232 and
$35,650 in 1997 and 1996, respectively)................ 34,489 33,349
---------- ---------
Total marketable securities............................ 1,066,578 850,788
Receivables, including accrued investment income, less
allowance for doubtful accounts of $7,574 and $6,456 in
1997 and 1996, respectively............................... 62,558 50,609
Deferred Federal income taxes............................... 75,997 70,275
Fixed assets, net........................................... 97,222 93,367
Title plants................................................ 150,546 152,291
Net assets of Alleghany Asset Management, Inc. to be
distributed to Alleghany Corporation...................... 18,097 15,775
Other assets................................................ 109,783 127,128
---------- ---------
Total assets...................................... $1,702,207 1,482,697
========== =========
LIABILITIES AND SHAREHOLDER'S EQUITY
Accounts payable............................................ $ 105,692 76,922
Accrued expenses and other liabilities...................... 128,638 113,264
Notes payable and other obligations......................... 32,443 43,282
Reserve for title losses.................................... 564,334 532,923
Trust and escrow deposits secured by pledged assets......... 467,553 355,711
---------- ---------
Total liabilities...................................... 1,298,660 1,122,102
---------- ---------
Shareholder's equity:
Common stock -- par value of $4,000 per share, authorized
3,722 shares; issued and outstanding 3,419 shares at
December 31, 1997 and December 31, 1996................ 13,676 13,676
Additional paid-in capital................................ 117,381 117,381
Retained earnings......................................... 261,425 225,659
Unrealized appreciation of marketable securities, net of
deferred taxes......................................... 11,065 3,879
---------- ---------
Total shareholder's equity............................. 403,547 360,595
---------- ---------
Total liabilities and shareholder's equity........ $1,702,207 1,482,697
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 72
CHICAGO TITLE AND TRUST COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ---------
(IN 000s)
<S> <C> <C> <C>
Revenues:
Title, escrow, trust and other revenue................. $1,411,496 1,278,590 1,082,008
Investment income...................................... 52,266 47,658 46,661
Net realized investment gains.......................... 3,684 1,436 3,697
---------- --------- ---------
Total revenues........................................... 1,467,446 1,327,684 1,132,366
---------- --------- ---------
Expenses:
Salaries and other employee benefits................... 454,648 411,815 344,767
Commissions paid to agents............................. 526,324 484,351 420,555
Provision for title losses............................. 102,324 83,023 81,385
Interest expense....................................... 4,644 5,566 6,456
Other operating and administrative expenses............ 295,903 273,236 242,380
---------- --------- ---------
Total expenses........................................... 1,383,843 1,257,991 1,095,543
---------- --------- ---------
Operating income from continuing operations before
income taxes........................................... 83,603 69,693 36,823
Income taxes............................................. 27,894 23,115 11,889
---------- --------- ---------
Net income from continuing operations.................... 55,709 46,578 24,934
Net income from discontinued operations.................. 12,162 5,462 5,478
---------- --------- ---------
Net income............................................... $ 67,871 52,040 30,412
========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 73
CHICAGO TITLE AND TRUST COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION OF
ADDITIONAL MARKETABLE TOTAL
COMMON PAID-IN RETAINED SECURITIES, NET OF SHAREHOLDER'S
STOCK CAPITAL EARNINGS DEFERRED TAXES EQUITY
------- ---------- -------- ------------------ -------------
(IN 000s)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994......... $14,876 121,620 191,450 (11,483) 316,463
Net income......................... -- -- 30,412 -- 30,412
Dividends paid to parent........... -- -- (29,515) -- (29,515)
Capital contributions from
parent.......................... -- 4,480 -- -- 4,480
Unrealized appreciation of
marketable securities net of
deferred tax effect............. -- -- -- 24,598 24,598
------- ------- ------- ------- -------
Balance at December 31, 1995......... 14,876 126,100 192,347 13,115 346,438
Net income......................... -- -- 52,040 -- 52,040
Purchase and retirement of common
stock........................... (1,200) (10,072) (18,728) -- (30,000)
Capital contributions from
parent.......................... -- 1,353 -- -- 1,353
Unrealized depreciation of
marketable securities net of
deferred tax effect............. -- -- -- (9,236) (9,236)
------- ------- ------- ------- -------
Balance at December 31, 1996......... 13,676 117,381 225,659 3,879 360,595
Net income......................... -- -- 67,871 -- 67,871
Dividends paid to parent........... -- -- (32,105) -- (32,105)
Unrealized appreciation of
marketable securities net of
deferred tax effect............. -- -- -- 7,186 7,186
------- ------- ------- ------- -------
Balance at December 31, 1997......... $13,676 117,381 261,425 11,065 403,547
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 74
CHICAGO TITLE AND TRUST COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------
(IN 000S)
<S> <C> <C> <C>
Cash flows from continuing operations activities:
Net income from continuing operations................... $ 55,709 46,578 24,934
Adjustments to reconcile net income from continuing
operations to net cash provided by continuing
operations activities
Depreciation and amortization........................ 31,032 27,567 23,607
Changes in assets and liabilities:
Cash pledged to secure trust and escrow deposits... (815) 7,868 (46,815)
Receivables........................................ (11,949) (2,677) (6,236)
Current and deferred Federal income taxes.......... (4,792) 488 10,065
Other assets....................................... 6,990 (9,598) (12,986)
Accounts payable and accrued expenses and other
liabilities..................................... 39,858 25,940 (11,380)
Reserves for title losses.......................... 31,411 3,090 (6,080)
Trust and escrow deposits secured by pledged
assets.......................................... 111,842 (13,740) 49,619
Gain on sale of investments.......................... (3,684) (1,436) (3,697)
--------- -------- --------
Net adjustments................................. 199,893 37,502 (3,903)
--------- -------- --------
Net cash provided by continuing operations activities..... 255,602 84,080 21,031
Dividends received from Alleghany Asset Management,
Inc.................................................. 13,300 3,401 4,202
--------- -------- --------
Net cash provided by operations........................... 268,902 87,481 25,233
--------- -------- --------
Cash flows from investing activities:
Purchases of long-term marketable securities............ (384,693) (266,808) (352,064)
Sales of long-term marketable securities................ 148,968 119,799 200,481
Maturities and redemptions of long-term marketable
securities........................................... 132,664 131,505 163,082
Net sales (purchases) of short-term investments......... (99,509) (16,318) 56,886
Net sales of other invested assets...................... 2,208 4,739 (1,869)
Net purchases of fixed assets........................... (25,833) (28,502) (9,221)
Net sales of title records and indexes.................. 1,745 3,502 1,122
Purchases of subsidiaries............................... -- (2,264) (15,108)
Cash received from sale of subsidiary................... -- 4,073 --
Cash of acquired subsidiaries........................... -- 1,700 503
--------- -------- --------
Net cash provided by (used in) investing
activities.................................... (224,450) (48,574) 43,812
--------- -------- --------
Cash flows from financing activities:
Dividends paid to parent................................ (32,105) -- (29,515)
Repurchase of common stock from parent.................. -- (30,000) --
Principal payments on notes payable and other
obligations.......................................... (10,839) (13,505) (17,450)
Proceeds of long-term debt.............................. -- 1,550 5,265
Cash remaining with discontinued operations............. (3,361) (512) 1,587
--------- -------- --------
Net cash used in financing activities..................... 46,305 42,467 40,113
--------- -------- --------
Net increase (decrease) in cash........................... (1,853) (3,560) 28,932
Cash at beginning of year................................. 23,072 26,632 (2,300)
--------- -------- --------
Cash at end of year....................................... $ 21,219 23,072 26,632
========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 75
CHICAGO TITLE AND TRUST COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(IN 000S)
(1) NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Nature of Operations
The Company issues title insurance policies and manages escrow funds
principally through three subsidiaries: Chicago Title Insurance Company (CTI),
Ticor Title Insurance Company (Ticor) and Security Union Title Insurance Company
(Security Union). Title insurance provides protection against defects in title
to owners and lenders in real estate transactions, and the Company earns escrow
fees for its role in managing escrow funds related to real estate transactions.
Business is conducted on a nationwide basis, and insurance policies are
distributed through more than 300 full service offices and 3,800 policy-issuing
agents in 49 states, Puerto Rico, the Virgin Islands, Guam, and Canada.
Customers include attorneys, real estate professionals, banks, and other parties
to real estate transactions. Other real estate related services include the
production and delivery of flood certificates, consumer credit information and
real estate valuations. These services are offered through the following
subsidiaries: Chicago Title Flood Services, Inc., Chicago Title Credit Services,
Inc. and Chicago Title-Market Intelligence, Inc.
The Company reports its financial information as one segment.
Basis of Presentation
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and include the accounts of Chicago
Title and Trust Company (a wholly-owned subsidiary of Alleghany Corporation) and
its subsidiaries (the Company). All significant intercompany transactions have
been eliminated in consolidation.
On December 17, 1997, Alleghany announced that it intends to establish the
title insurance and real estate related services businesses conducted by the
Company as an independent, publicly traded company through a spin-off to
Alleghany shareholders. The spin-off will be effected through a pro-rata
distribution to Alleghany's shareholders of shares of a newly formed holding
company, Chicago Title Corporation. The distribution is expected to be on a
tax-free basis and is expected to occur during the second quarter of 1998. The
asset management business conducted through Alleghany Asset Management Inc.
(AAM), a wholly-owned subsidiary of the Company, will not be part of the
distribution and will remain with Alleghany. Prior to the distribution to
Alleghany shareholders, the Company will dividend AAM to Alleghany. As such, in
this set of consolidated financial statements, AAM is classified as discontinued
operations.
Use of Estimates in the Preparation of Financial Statements
The preparation of 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 financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Discontinued Operations
AAM participates in the financial services and investment management
business principally through two subsidiaries: The Chicago Trust Company and
Montag & Caldwell, Inc. These companies provide investment management,
counseling and administrative services to institutional clients, pension and
profit sharing plans and high net worth individuals. The Chicago Trust Company
acts as trustee and fiduciary under various types
F-7
<PAGE> 76
CHICAGO TITLE AND TRUST COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN 000S)
of trust agreements. Another subsidiary of AAM, Chicago Deferred Exchange
Corporation, acts as an intermediary to facilitate tax free exchanges of real
and personal property.
The net assets and results of operations of AAM are shown as discontinued
operations in the accompanying consolidated financial statements. All footnote
disclosures reflect continuing operations only, unless otherwise noted. See Note
14 for further discussion.
(2) SIGNIFICANT ACCOUNTING POLICIES
Cash
For purposes of the consolidated statements of cash flows, cash includes
only funds on deposit which are available for immediate withdrawal.
Marketable Securities
Marketable securities consist of fixed maturities and equity securities.
Investments in fixed maturities consist of bonds, certificates of deposit,
commercial paper, and redeemable preferred stocks. The Company determines the
appropriate classification of marketable securities at the time of purchase. As
of December 31, 1997 and 1996, all marketable securities are classified as
available-for-sale and carried at fair value. Unrealized holding gains and
losses, net of deferred taxes, are excluded from net income and are reported as
a separate component of shareholder's equity until realized. A decline in the
market value of any marketable security below cost that is deemed other than
temporary is charged to net income, resulting in the establishment of a new cost
basis for the security. Realized gains and losses on marketable securities are
determined on the specific identification method.
Fixed Assets
Fixed assets, except land, are depreciated or amortized on a straight-line
basis using estimated lives ranging from 3 to 40 years. At December 31, 1997,
gross fixed assets consisted of land, buildings and improvements, and furniture
and equipment of $8,596, $57,553 and $89,001, respectively. At December 31,
1996, gross fixed assets consisted of land, buildings and improvements, and
furniture and equipment of $8,774, $56,435 and $77,509, respectively.
Accumulated depreciation and amortization was $57,928 and $49,351 at December
31, 1997 and 1996, respectively.
Title Plants
Title plants are carried at cost. The cost is not being amortized as
properly maintained title plants have indefinite lives. Title plants are
reviewed for impairment whenever events or circumstances provide evidence
suggesting the carrying amount of the asset may not be recoverable. Current
costs of maintaining title plants are expensed in the year incurred.
Goodwill
Goodwill is amortized over its estimated useful life on a straight-line
basis over periods ranging from 5 to 40 years. Goodwill is reviewed for
impairment whenever events or circumstances provide evidence suggesting the
carrying amount of the asset may not be recoverable. The carrying value of
goodwill included in other assets was $69,407 and $71,093 at December 31, 1997
and 1996, respectively.
F-8
<PAGE> 77
CHICAGO TITLE AND TRUST COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN 000S)
Federal Income Taxes
Revenues and expenses of the Company are included in a consolidated Federal
income tax return with its parent company and other affiliates. The tax
provisions and other tax-related balances are computed on a stand-alone basis as
if the Company filed a separate Federal income tax return.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amount of existing assets and liabilities and their respective tax
bases and operating loss and tax 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 effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Reserve for Title Losses
The reserve for title losses represents the estimated claim cost and loss
adjustment expense necessary to cover the ultimate net cost of settling all
losses incurred and unpaid. Such estimates are based on individual case
estimates for reported claims and estimates for incurred but not reported
losses. These estimates are adjusted in the aggregate for ultimate loss
expectations based on historical experience patterns, with any change in
probable ultimate liabilities being reflected in net income. In the opinion of
management, the reserve for title losses is adequate.
Fair Value Disclosures
The Company does not have a material amount of derivative financial
instruments. In addition, the carrying values and fair values of the Company's
financial instruments are disclosed in Note 13. Generally accepted accounting
principles exclude certain financial instruments and all nonfinancial
instruments from disclosure requirements.
Escrow Deposits
The title insurance subsidiaries administer escrow deposits generally
related to customers' real estate transactions. The funds are held in a
fiduciary capacity and, accordingly, amounts aggregating approximately
$1,626,000 and $1,331,000 are excluded from the accompanying consolidated
balance sheets at December 31, 1997 and 1996, respectively.
Regulatory Accounting Practices
The title insurance subsidiaries are required to file annual statements
with insurance regulatory authorities which are prepared on an accounting basis
prescribed or permitted by such authorities. Prescribed statutory accounting
principles include state laws, regulations and general administrative rules, as
well as a variety of publications of the National Association of Insurance
Commissioners (NAIC). Permitted statutory accounting practices encompass all
accounting practices that are not prescribed; such practices differ from state
to state, may differ from company to company within a state, and may change in
the future.
The title insurance subsidiaries have prepared their annual statements
using certain permitted statutory accounting practices, which differ from
prescribed statutory accounting practices, but which have been approved by their
respective insurance departments of the states of domicile. Such practices
include the recognition of a deferred tax asset attributable to net operating
loss carryforwards of a merged affiliated company, and different methodologies
in the calculation of the statutory premium reserve for three of the title
F-9
<PAGE> 78
CHICAGO TITLE AND TRUST COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN 000S)
insurers. The Company believes that such permitted practices do not have any
negative implication for the individual title insurers nor on the accompanying
consolidated financial statements.
Revenue Recognition
Title insurance premiums are recognized as revenues principally at the time
of the real estate closing and escrow fees principally when billed. Revenues
from title policies issued by independent agents are generally recorded when
notice of issuance is received from the agent.
Statements of Cash Flows
The Company has elected to use the indirect method in reporting net cash
flow from operating activities. Under this method, the following additional
disclosures are required for each of the years in the three-year period ended
December 31, 1997.
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- ------
<S> <C> <C> <C>
Interest paid.................................. $ 5,077 5,602 6,417
Income taxes paid.............................. 41,331 28,216 4,752
</TABLE>
Reclassifications
Certain reclassifications have been made to the 1996 and 1995 consolidated
financial statements to conform with the 1997 presentation.
Accounting Changes
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share." SFAS No. 128 applies only to public companies. Under SFAS No. 128, the
dual presentation of basic and diluted earnings per share (EPS) is required on
the face of the income statement for all entities with complex capital
structures. In addition, SFAS No. 128 requires a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation. Since the Company was not a public company as of
December 31, 1997, the Company was not subject to SFAS No. 128 for 1997. The
Company will be subject to SFAS No. 128 for 1998.
Also in February 1997, the FASB issued SFAS No. 129, "Disclosure of
Information about Capital Structure," which establishes standards for disclosing
information about an entity's capital structure. The Company adopted SFAS No.
129 in 1997. The adoption of SFAS No. 129 did not have any effect on the
Company's financial reporting.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." Under SFAS No. 130, for fiscal years beginning after December 15, 1997,
enterprises providing a full set of financial statements that report financial
position, results of operations and cash flows should also include a Statement
of Comprehensive Income. The Company intends to adopt SFAS No. 130 in 1998.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." Under SFAS No. 131, for
fiscal years beginning after December 31, 1997, public business enterprises are
required to provide disclosures about operating segments using the "management
approach." Since the Company manages its business as one operating segment, SFAS
No. 131 results in no change in the Company's financial reporting.
F-10
<PAGE> 79
CHICAGO TITLE AND TRUST COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN 000S)
In February 1998, the FASB issued SFAS No. 132, "Employer's Disclosure
about Pensions and Other Postretirement Benefits." SFAS No. 132 standardizes an
employer's disclosures about pension and other postretirement benefit plans,
requires additional information on the benefit obligations and fair values of
plan assets and eliminates certain disclosures. SFAS No. 132 is effective for
financial statements for periods beginning after December 15, 1997. The
provisions of SFAS No. 132 are of a reporting nature and are not expected to
have an impact on the financial position or results of operations of the
Company. The Company intends to adopt SFAS No. 132 in 1998.
(3) MARKETABLE SECURITIES
The amortized cost and fair value of those Company investments in
marketable securities included in the consolidated balance sheets which
represent fixed maturities and equity securities as of December 31, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
1997
---------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. Government
obligations............... $ 402,677 8,359 (492) 410,544
State and municipal bonds.... 267,914 4,350 (82) 272,182
Other bonds.................. 149,532 2,845 (337) 152,040
Certificates of deposit...... 30,710 -- -- 30,710
Commercial paper............. 150,000 -- -- 150,000
Redeemable preferred
stocks.................... 15,613 1,101 (101) 16,613
---------- ------ ------ ---------
Total fixed maturities.... 1,016,446 16,655 (1,012) 1,032,089
Equity securities......... 33,232 1,465 (208) 34,489
---------- ------ ------ ---------
$1,049,678 18,120 (1,220) 1,066,578
========== ====== ====== =========
</TABLE>
<TABLE>
<CAPTION>
1996
---------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. Government
obligations............... $ 363,807 5,087 (1,868) 367,026
State and municipal bonds.... 229,076 3,034 (201) 231,909
Other bonds.................. 120,942 2,222 (421) 122,743
Certificates of deposit...... 9,400 -- -- 9,400
Commercial paper............. 71,800 -- -- 71,800
Redeemable preferred
stocks.................... 14,116 645 (200) 14,561
---------- ------ ------ ---------
Total fixed maturities.... 809,141 10,988 (2,690) 817,439
Equity securities......... 35,650 4,758 (7,059) 33,349
---------- ------ ------ ---------
$ 844,791 15,746 (9,749) 850,788
========== ====== ====== =========
</TABLE>
The fair value of certain bonds is less than amortized cost. No provision
has been made for possible losses on these bonds as such declines are considered
to be temporary. Amortized cost for certain investments represents original cost
adjusted for other than temporary declines in value.
F-11
<PAGE> 80
CHICAGO TITLE AND TRUST COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN 000S)
Marketable securities with restrictions at December 31, 1997 and 1996 are
as follows:
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Pledged to secure statutory premium reserves............ $400,164 386,349
On deposit with regulatory authorities.................. 17,701 17,393
Pledged to secure trust and escrow deposits............. 374,888 261,806
======== =======
</TABLE>
The amortized cost and fair value of fixed maturities at December 31, 1997,
by contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
---------- ---------
<S> <C> <C>
Due in one year or less.............................. $ 279,401 279,588
Due after one year through five years................ 393,652 399,362
Due after five years through ten years............... 56,077 57,022
Due after ten years.................................. 101,040 106,608
---------- ---------
830,170 842,580
Mortgage-backed securities........................... 186,276 189,509
---------- ---------
$1,016,446 1,032,089
========== =========
</TABLE>
The change in net unrealized appreciation on marketable securities included
in shareholder's equity for each of the years in the three-year period ended
December 31, 1997 was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Change in unrealized appreciation on
marketable securities -- continuing
operations.................................. $10,903 (14,081) 37,624
Income tax benefit (expense) -- continuing
operations.................................. (3,816) 4,928 (13,168)
Change in unrealized appreciation on
marketable securities -- discontinued
operations, net of income tax benefit
(expense)................................... 99 (83) 142
------- ------- -------
Change in net unrealized appreciation on
marketable securities....................... $ 7,186 (9,236) 24,598
======= ======= =======
</TABLE>
Net investment income from marketable securities included in the results of
operations for each of the years in the three-year period ended December 31,
1997, was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Interest on fixed maturities.................... $50,481 46,679 45,794
Dividends on equity securities.................. 1,785 979 867
------- ------ ------
Investment income............................... $52,266 47,658 46,661
======= ====== ======
</TABLE>
Investment expenses are included in other operating and administrative
expenses and are immaterial.
F-12
<PAGE> 81
CHICAGO TITLE AND TRUST COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN 000S)
Proceeds from sales of marketable securities were $148,968, $119,799, and
$200,481 during 1997, 1996, and 1995, respectively. The components of net gains
on sales of those marketable securities included in the results of operations
for each of the years in the three-year period ended December 31, 1997 were as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ----- -----
<S> <C> <C> <C>
Fixed maturities:
Gains........................................... $ 1,514 1,446 1,073
Losses.......................................... (45) (10) (102)
Equity securities:
Gains........................................... 8,097 -- 2,906
Losses.......................................... (5,882) -- (180)
------- ----- -----
Net gains on sales of marketable securities....... $ 3,684 1,436 3,697
======= ===== =====
</TABLE>
(4) NOTES PAYABLE AND OTHER OBLIGATIONS
Notes payable and other obligations included in the consolidated balance
sheets at December 31, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
------- ------
<S> <C> <C>
Bank borrowing at 6.00% to 8.60% during 1997 and 6.00% to
8.73% during 1996....................................... $29,000 39,500
Unsecured promissory notes at 6.00% to 10.75% during 1997
and 6.00% to 9.25% during 1996.......................... 3,443 3,782
------- ------
Total notes payable and other obligations................. $32,443 43,282
======= ======
</TABLE>
The bank borrowing represents the outstanding balance borrowed in
connection with the acquisition of two of the Company's subsidiaries, Security
Union and Ticor. The credit agreement on the bank borrowing provides for
reductions of principal of $9,667 annually in 1998 through 2000 and bears
interest at floating rates payable quarterly. In prior years, interest on a
portion of the bank borrowing was effectively fixed at 8.73% by means of an
interest rate swap. The swap agreement terminated in 1997.
The credit agreement requires the Company to maintain certain financial
ratios and balances and places limitations on the amount of additional
indebtedness, dividends and future mergers and acquisitions. The agreement also
contains restrictions with respect to the mortgaging or pledging of assets. In
addition, the Company's consolidated shareholder's equity (excluding unrealized
appreciation of marketable securities, net of deferred taxes) can be no less
than $200,000. At December 31, 1997, the Company's consolidated shareholder's
equity as defined was $392,482.
The Company currently has two arrangements in place with banking
institutions for lines of credit for $15.0 million and $10.0 million expiring on
May 31, 1998 and June 10, 1998, respectively. The Company expects to negotiate
extensions of both of these lines of credit. Amounts may be drawn under these
lines of credit for general corporate purposes. No amounts were drawn under
these lines of credit during 1997 or 1996 and no amounts were outstanding under
such lines as of December 31, 1997.
Maturities of notes payable and other obligations are $10,927 in 1998,
$10,258 in 1999, $10,269 in 2000, $488 in 2001, $208 in 2002 and $293
thereafter.
F-13
<PAGE> 82
CHICAGO TITLE AND TRUST COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN 000S)
(5) STATUTORY SURPLUS AND NET INCOME
The Company's title insurance subsidiaries are restricted as to the amount
of dividends that may be paid without prior regulatory approval. The maximum
amount of dividends that these subsidiaries may pay to the Company in 1998
without prior regulatory approval is $65,432.
The statutory surplus of the direct insurance subsidiaries as reported to
regulatory authorities was $251,996, $243,093 and $230,834 as of December 31,
1997, 1996 and 1995, respectively. The statutory net income of the direct
insurance subsidiaries as reported to regulatory authorities was $72,683,
$56,038 and $49,716 for the years ended December 31, 1997, 1996 and 1995,
respectively.
(6) SHAREHOLDER'S EQUITY
Dividends declared and paid to the Company by title insurance subsidiaries,
other continuing subsidiaries and Alleghany Asset Management, Inc. for each of
the years in the three-year period ended December 31, 1997 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Title insurance subsidiaries.................... $46,700 32,200 35,000
Other continuing subsidiaries................... 5,000 700 700
Alleghany Asset Management, Inc. ............... 13,300 3,401 4,202
------- ------ ------
Total dividends declared and paid to the Company
by subsidiaries............................... $65,000 36,301 39,902
======= ====== ======
</TABLE>
The Company paid $32,105, $0 and $29,515 in dividends to its parent in
1997, 1996 and 1995, respectively.
During 1996 the Company purchased 300 shares of its common stock from
Alleghany for $30,000, and retired the shares. Common stock was reduced by the
par value of the shares, and additional paid-in capital and retained earnings
have been reduced on a pro-rata basis for the cost of the repurchased shares.
Also in 1996, Alleghany transferred its ownership interest in Chicago
Title-Market Intelligence, Inc. and Chicago Title of Colorado to the Company in
the form of a capital contribution valued at $307 and $687, respectively.
In 1995, Alleghany transferred its ownership interest in Chicago Title
Credit Services, Inc. to the Company in the form of a capital contribution
valued at $4,480. This contribution was increased by $359 during 1996 upon
resolution of a related contingent liability.
(7) BENEFIT PLANS
Pension and Other Retirement Plans
The Company sponsors a contributory defined contribution savings and profit
sharing plan for eligible employees. Eligible employees may elect to
participate, contributing up to 13% of their base salaries. The Company will
match employee contributions from a minimum of $0.25 up to a maximum of $1.50
for each dollar of employee contribution up to 6% of the employee's base salary,
subject to the Company's return on equity for the year. The Company's cost for
this plan was $12,727, $10,421 and $2,327 in 1997, 1996 and 1995, respectively.
In addition to the defined contribution savings and profit sharing plan,
employees of the Company participate in one of two additional retirement plans.
Beginning in 1995, the Company implemented a
F-14
<PAGE> 83
CHICAGO TITLE AND TRUST COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN 000S)
noncontributory defined contribution plan. All new employees automatically
participate in this plan. Additionally, certain employees who were in the
defined benefit pension plan discussed below elected to participate in this
plan. Contributions to this plan are based upon salary and length of service.
Contributions are invested in a group of mutual funds or common stock of
Alleghany as directed by the employee. The Company's cost for this plan was
$2,151, $1,681 and $1,689 in 1997, 1996, and 1995, respectively.
The second additional retirement plan is a noncontributory defined benefit
pension plan (the Plan) covering certain of its employees. The benefits are
based on years of service and the employee's average monthly compensation in the
highest 60 consecutive calendar months during the 120 months ending at
retirement or termination. The Company's funding policy is to contribute
annually at least the minimum required contribution under the Employee
Retirement Income Security Act (ERISA). Contributions are intended to provide
not only for benefits attributed to date, but also for those expected to be
earned in the future. The Company made no contributions in 1997 and $9,411 in
1996.
The following table sets forth the funded status of the Plan and amounts
recognized in the Company's consolidated balance sheets at December 31, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $80,612 and $92,728 in 1997 and 1996,
respectively...................................... $ 88,515 99,413
-------- --------
Projected benefit obligation for service rendered to
date................................................. 101,924 111,595
Plan assets at fair value, consisting of approximately
45% debt securities and 55% equity and other
securities in 1997 and in 1996....................... 97,593 90,015
-------- --------
Projected benefit obligation in excess of plan
assets............................................... (4,331) (21,580)
Unrecognized net transition asset (amortization period
of 11 years)......................................... -- (718)
Unrecognized prior service cost........................ (446) (567)
Unrecognized net loss.................................. 19,499 37,467
Contribution........................................... -- 9,411
-------- --------
Prepaid pension cost included in other assets.......... $ 14,722 24,013
======== ========
</TABLE>
The principal assumptions used in the actuarial calculations of projected
benefit obligations at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Weighted-average discount rate.............................. 7.50% 8.00%
Rate of increase in compensation levels..................... 4.50 4.50
Expected long-term rate of return on assets................. 9.00 9.00
==== ====
</TABLE>
The components of net periodic pension expense included in the results of
operations for each of the years in the three-year period ended December 31,
1997 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Service cost -- benefits earned during the
period..................................... $ 5,046 4,765 4,388
Interest cost on projected benefit
obligation................................. 8,631 8,606 8,312
Actual return on Plan assets................. (13,816) (10,678) (12,830)
Net amortization and deferrals............... 9,464 3,514 3,426
-------- ------- -------
Net periodic pension expense................. $ 9,325 6,207 3,296
======== ======= =======
</TABLE>
F-15
<PAGE> 84
CHICAGO TITLE AND TRUST COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN 000S)
The Chicago Trust Company is a qualified trust company and, as such, serves
as trustee for the assets of the pension and other retirement plans.
Postretirement Plans
In addition to retirement benefits, the Company provides certain health
care and life insurance benefits for retired employees. The costs of these
benefit plans are accrued during the period the employees render service.
The Company is self-insured for its postretirement health care and life
insurance benefit plans and the plans are not funded. The health care plans
provide for insurance benefits after retirement and are generally contributory,
with contributions adjusted annually. Postretirement life insurance benefits are
noncontributory, with coverage amounts declining with increases in a retiree's
age.
The Company's postretirement health care and life insurance costs included
in the results of operations for each of the years in the three-year period
ended December 31, 1997 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ----- -----
<S> <C> <C> <C>
Interest cost on unfunded postretirement benefit
obligation....................................... $ 756 789 2,239
Service cost....................................... 531 419 323
------ ----- -----
Net periodic postretirement benefit expense........ $1,287 1,208 2,562
====== ===== =====
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 7.50% in 1997 and 1996 declining to 5.00%
in the year 2002. The discount rate used was 7.25% in 1997 and 7.75% for 1996.
If the health care cost trend rate assumptions were increased 1%, the
accumulated postretirement benefit obligation as of December 31, 1997 would
increase by 4.40%. The effect of this change on the sum of the service and
interest cost would be an increase of 3.30%.
The accrued cost of the accumulated postretirement benefit obligation
included in the consolidated balance sheets at December 31, 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
1997 1996
------- ------
<S> <C> <C>
Retirees.................................................. $17,920 15,342
Active plan participants.................................. 6,405 9,411
------- ------
24,325 24,753
Unrecognized prior service cost........................... 7,417 8,229
Unrecognized net gain..................................... (868) (1,515)
------- ------
Accrued postretirement benefit obligation included in
accrued expenses........................................ $30,874 31,467
======= ======
</TABLE>
F-16
<PAGE> 85
CHICAGO TITLE AND TRUST COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN 000S)
(8) INCOME TAXES
Income tax expense (benefit) included in the statements of income and
shareholder's equity for each of the years in the three-year period ended
December 31, 1997 consisted of the following:
<TABLE>
<CAPTION>
1997
----------------------------
FEDERAL STATE TOTAL
-------- ----- -------
<S> <C> <C> <C>
Continuing operations:
Current...................................... $ 38,290 840 39,130
Deferred..................................... (11,236) -- (11,236)
-------- ----- -------
Total from continuing operations............... 27,054 840 27,894
Total from discontinued operations............. 6,663 1,007 7,670
Shareholder's equity -- deferred............... 3,816 -- 3,816
-------- ----- -------
Total income tax expense............. $ 37,533 1,847 39,380
======== ===== =======
</TABLE>
<TABLE>
<CAPTION>
1996
----------------------------
FEDERAL STATE TOTAL
-------- ----- -------
<S> <C> <C> <C>
Operations:
Current...................................... $ 19,568 281 19,849
Deferred..................................... 3,266 -- 3,266
-------- ----- -------
Total from continuing operations............... 22,834 281 23,115
Total from discontinued operations............. 3,681 586 4,267
Shareholder's equity -- deferred............... (4,928) -- (4,928)
-------- ----- -------
Total income tax expense............. $ 21,587 867 22,454
======== ===== =======
</TABLE>
<TABLE>
<CAPTION>
1995
----------------------------
FEDERAL STATE TOTAL
-------- ----- -------
<S> <C> <C> <C>
Operations:
Current...................................... $ 5,368 258 5,626
Deferred..................................... 6,263 -- 6,263
-------- ----- -------
Total from continuing operations............... 11,631 258 11,889
Total from discontinued operations............. 3,400 501 3,901
Shareholder's equity -- deferred............... 13,168 -- 13,168
-------- ----- -------
Total income tax expense............. $ 28,199 759 28,958
======== ===== =======
</TABLE>
During 1997 the Company utilized net operating loss carryforwards which
resulted in a $1,402 current tax benefit and a $1,402 deferred tax expense. In
addition, in 1996, the Company recorded an additional deferred tax asset of
$1,013 for acquired net operating loss and credit carryforwards with an
offsetting amount to goodwill.
F-17
<PAGE> 86
CHICAGO TITLE AND TRUST COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN 000S)
The difference between the Federal income tax rate and the effective
Federal income tax rate on income from continuing operations of the Company for
each of the years in the three-year period ended December 31, 1997 is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- ---------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Expected expense........................... $29,261 35.0% $24,392 35.0% $12,888 35.0%
Nondeductible expenses..................... 1,467 1.8 1,215 1.7 1,302 3.5
Tax-exempt interest income................. (3,698) (4.4) (3,162) (4.5) (3,103) (8.4)
Dividends received deduction............... (489) (0.6) (324) (0.5) (286) (0.8)
State taxes, net of federal tax benefit.... (294) (0.4) (98) (0.1) (90) (0.2)
Other, net................................. 807 1.0 811 1.2 920 2.5
------- ----- ------- ----- ------- -----
Actual tax expense......................... $27,054 32.4% $22,834 32.8% $11,631 31.6%
======= ===== ======= ===== ======= =====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities included in the consolidated
balance sheets at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Deferred tax assets:
Reserve for title losses.................................. $ 89,737 82,457
Reserves for invested assets.............................. 2,102 2,149
Expenses deducted for tax purposes when paid.............. 18,435 19,412
Net operating loss and credit carryforwards............... 5,021 6,394
Other assets.............................................. 5,159 5,113
-------- -------
Total gross deferred tax assets........................ 120,454 115,524
Deferred tax liabilities:
Unrealized appreciation of marketable securities.......... 5,915 2,105
Book to tax basis differences of marketable securities.... 2,186 1,859
Receivable reserves and other liabilities................. 1,505 2,098
Tax over book depreciation................................ 1,813 1,810
Title plants.............................................. 29,085 29,085
Prepaid pension cost...................................... 3,953 8,292
-------- -------
Total gross deferred tax liabilities................... 44,457 45,249
-------- -------
Net deferred tax asset............................ $ 75,997 70,275
======== =======
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax assets will not be realized. Management believes the
deferred tax assets will be fully realized in the future based upon a review of
anticipated future earnings and all other available evidence.
The amount of operating loss carryforwards available to offset future
federal taxable income at December 31, 1997 is $14,260 expiring in 2001.
(9) LEASES
The Company leases certain facilities, furniture, and equipment under
long-term noncancelable operating lease agreements which expire at various dates
through 2012. Total lease expense for all operating leases amounted to $57,119,
$59,904 and $62,823 for the years ended December 31, 1997, 1996 and 1995,
F-18
<PAGE> 87
CHICAGO TITLE AND TRUST COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN 000S)
respectively. The aggregate minimum payments under noncancelable operating
leases with initial terms of more than one year are $36,737 in 1998, $30,868 in
1999, $24,735 in 2000, $22,220 in 2001, $18,775 in 2002 and $96,097 thereafter.
These amounts are exclusive of any additional amounts which may become due under
certain leases containing terms that call for additional rental based on
increases in operating costs.
(10) LITIGATION AND CONTINGENT LIABILITIES
The Company and its title insurance subsidiaries are parties to pending
litigation involving losses under title insurance policies for which it has
established reserves. The title insurance subsidiaries are also involved in
various other types of litigation, including private antitrust litigation
relating to state rating bureau participation and actions by former employees
alleging violations of Federal or state employment laws. The Company has
established reserves for these items and is of the opinion that any losses
actually sustained in connection with the litigation described above will not
have a material effect on the Company's consolidated financial position or
results of operations.
(11) ACQUISITIONS
In February 1998, the Company announced the acquisition of Universal
Mortgage Services, Inc., which provides property inspection, preservation and
maintenance services nationwide. The company will operate as Chicago Title Field
Services, Inc. The acquisition was effected through the purchase of certain
assets and the assumption of certain liabilities in the amount of $5.25 million.
In February 1998, the Company announced the acquisition of California-based
Consolidated Reconveyance Co., which provides foreclosure and reconveyance
services for institutional lenders, title and escrow companies, governmental
agencies and individual investors. Together with the acquisition of Chicago
Title Field Services, Inc., these acquisitions represent the Company's first
major effort to enter the servicing sector of the residential mortgage business.
The acquisition was effected through the purchase of certain assets and the
assumption of certain liabilities in the amount of $6.30 million.
(12) RELATED PARTY TRANSACTIONS
In its capacity as a qualified trust company, The Chicago Trust Company, a
subsidiary of AAM, manages certain assets of affiliate companies and
correspondingly earns investment management fees, which are not material, from
such services.
In August 1997, Alleghany effected a transfer of equity security holdings
with the Company. The fair value of the shares sold by the Company and the
shares acquired from Alleghany was approximately equal. The transaction resulted
in a net gain in the results of operations for 1997 of $2.21 million.
Immediately prior to the Spin-Off, Alleghany and Chicago Title Corporation
will enter into certain agreements to define their ongoing relationship after
the Spin-Off. The following descriptions include a summary of all material terms
of these agreements.
Distribution Agreement
Chicago Title Corporation and Alleghany will enter the Distribution
Agreement which will generally provide for, among other things, cooperation
regarding past matters and the allocation of responsibility for past obligations
and certain obligations that may arise in the future. The Distribution Agreement
will provide that each of Alleghany and Chicago Title Corporation will indemnify
the other party and its affiliates from and against any and all damage, loss,
liability and expense arising out of or due to the failure of the indemnitor or
any of its subsidiaries to pay, perform or otherwise discharge any of the
liabilities or obligations for which it is
F-19
<PAGE> 88
CHICAGO TITLE AND TRUST COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN 000S)
responsible under the terms of the Distribution Agreement. The Distribution
Agreement also will provide that Chicago Title will bear the expenses incurred
in connection with the Spin-Off, except that Alleghany will bear certian
identified legal fees and expenses.
Tax Sharing Agreement
Chicago Title Corporation and Alleghany will enter into a Tax Sharing
Agreement (the "Tax Sharing Agreement") to allocate certain tax liabilities
between Chicago Title Corporation and Alleghany and their respective
subsidiaries and to allocate responsibilities with respect to tax returns. Under
the Tax Sharing Agreement, Chicago Title Corporation will bear (i) its
separately computed share of Alleghany's consolidated Federal income tax
liability for each taxable period for which Chicago Title Corporation or any of
its subsidiaries was a member of the Alleghany consolidated group for Federal
income tax purposes (except that Chicago Title is not liable for taxes in
respect of Alleghany Asset Management and its subsidiaries for any period) and
(ii) the appropriate part of any state or local tax imposed based on receipts,
income, capital or net worth and computed on a consolidated, unitary or combined
basis by reference to the assets and/or activities of Chicago Title Corporation.
Chicago Title Corporation will also be responsible for any tax liability
resulting from any action necessary to implement the Spin-Off and its associated
events, including the dividend of AAM to Alleghany (the "AAM Distribution") and
the transfer of a business previously conducted by a subsidiary of Alleghany
Asset Management to Chicago Title. All other taxes are allocated between Chicago
Title and Alleghany based on the legal entity on which the tax is imposed.
The Tax Sharing Agreement will provide that if Alleghany is subject to any
tax attributable to the Spin-Off, including by reason of the Spin-Off's failure
to qualify under Section 355 of the code as a tax-free distribution, then
Chicago Title will be obligated to indemnify and to hold Alleghany harmless from
any such tax unless such tax arises solely by reason of certain actions taken,
or certain misrepresentations made, by Alleghany. The Tax Sharing Agreement will
obligate Chicago Title to indemnify and hold Alleghany harmless from any tax
attributable to the AAM Distribution if the AAM Distribution does not qualify as
a tax-free distribution under Section 355 of the Code because of any
misrepresentations made by Chicago Title upon which the Tax Ruling will be based
or because of any actions taken by Chicago Title which are inconsistent with the
treatment of the AAM Distribution as a tax-free distribution. In the Tax Sharing
Agreement, Chicago Title also will agree not to take certain specified actions
which might adversely affect the tax-status of the Spin-Off or the AAM
Distribution.
Agreements between Alleghany Asset Management and Chicago Title
Prior to the Spin-Off Date, certain agreements will be entered into between
Chicago Title (or Chicago Title's subsidiary CT&T) and Alleghany Asset
Management (or Alleghany Asset Management's subsidiary The Chicago Trust
Company) in connection with the AAM Distribution.
INVESTMENT MANAGEMENT AGREEMENT. Chicago Title and The Chicago Trust
Company will enter into an Investment Management Agreement providing for the
management by The Chicago Trust Company of substantially all of the long-term
investable assets and certain of the short-term investable assets of CT&T and
its subsidiaries. The term of the agreement will be five years, with automatic
one year renewals unless either party terminates within three months of the end
of any such term. The agreement also may be terminated by Chicago Title in the
event that investment performance is unsatisfactory. The investment management
fees to be charged under the Investment Management Agreement generally will be
based on market rates.
TRANSITIONAL SERVICES AGREEMENT. CT&T and Alleghany Asset Management will
enter into an agreement pursuant to which CT&T will continue to furnish various
administrative services to Alleghany Asset
F-20
<PAGE> 89
CHICAGO TITLE AND TRUST COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN 000S)
Management. The initial term of the agreement will end on December 31, 1998, and
is subject to renewal thereafter by mutual agreement.
SUBLEASE. The Chicago Trust Company will sublease space at the principal
headquarters building of Chicago Title from CT&T at a rent and on such terms as
are currently applicable to CT&T for such space.
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments included
in the consolidated balance sheets at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
----------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- --------- -------- -------
<S> <C> <C> <C> <C>
Assets:
Cash on hand and in banks.................... $ 21,219 21,219 23,072 23,072
Cash pledged to secure trust and escrow
deposits.................................. 100,207 100,207 99,392 99,392
Marketable securities, available-for-sale:
Fixed maturities.......................... 1,032,089 1,032,089 817,439 817,439
Equity securities......................... 34,489 34,489 33,349 33,349
========== ========= ======== =======
Liabilities:
Notes payable and other obligations.......... $ 32,443 32,443 43,282 43,528
Trust and escrow deposits secured by pledged
assets.................................... 467,553 467,553 355,711 355,711
========== ========= ======== =======
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument for which it is practical to estimate fair
value:
Cash on hand and in banks, cash pledged to secure trust and escrow
deposits, and trust and escrow deposits secured by pledged assets: The
carrying amounts approximate fair value because of the short maturity of
the instruments.
Marketable securities, available-for-sale: The fair values of the
Company's marketable securities are based on quoted market prices, where
available. For marketable securities not actively traded, fair values are
estimated using values obtained from independent pricing services.
Notes payable and other obligations: As of December 31, 1997, the fair
value of the Company's notes payable and other obligations is the same as
the carrying value as the interest rate is variable. As of December 31,
1996, the fair value is estimated based on the current market prices for
the same or similar issues of debt of the same remaining maturities. The
interest rate swap agreement (see Note 4) has not been separately valued
apart from the underlying indebtedness, as the agreement is an integral
part of the outstanding loan agreement and was entered into simultaneously
with the borrowing itself. Accordingly, the estimated fair value of notes
payable and other obligations includes any value associated with the
interest rate swap agreement.
In addition, the Company has not determined the fair value of various loan
guarantees made principally on behalf of policy issuing title insurance agents
for third-party financing. The total amount of loan guarantees at December 31,
1997 and 1996 was $9,479 and $3,386, respectively. This amount represents the
accounting
F-21
<PAGE> 90
CHICAGO TITLE AND TRUST COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN 000S)
loss the Company would incur if any party to the loan guarantees failed to
perform according to the terms of contract. Amounts that may become payable, if
any, under such loan guarantees are not reasonably estimable.
(14) DISTRIBUTION OF AAM TO ALLEGHANY CORPORATION
The net assets of AAM to be distributed to Alleghany Corporation included
in the consolidated balance sheets at December 31, 1997 and 1996 consist of the
following:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Assets:
Cash on hand and in banks................................. $ 7,667 5,532
Cash pledged to secure trust and escrow deposits.......... 1,336 18,674
Marketable securities..................................... 18,329 15,796
Receivables, net.......................................... 11,509 7,691
Deferred Federal income taxes............................. 2,915 1,467
Fixed assets, net......................................... 2,312 2,259
Other assets.............................................. 1,363 1,637
------- -------
Total assets...................................... 45,431 53,056
------- -------
Liabilities:
Accounts payable.......................................... 2,480 4,194
Accrued expenses and other liabilities.................... 20,625 11,259
Trust deposits secured by pledged assets.................. 4,229 21,828
------- -------
Total liabilities........................................... 27,334 37,281
------- -------
Net assets of AAM to be distributed to Alleghany
Corporation............................................... $18,097 15,775
======= =======
</TABLE>
(15) RESERVE FOR TITLE LOSSES AND REINSURANCE
The Company's reserve for title losses is based on long-range projections
subject to uncertainty. Uncertainty regarding reserves of a given policy year is
gradually reduced as new information emerges each succeeding year, allowing more
reliable revaluations of such reserves. While management believes that the
reserve as of December 31, 1997 is adequate, uncertainties in the reserving
process could cause such reserve to develop favorably or unfavorably as new or
additional information emerges. Any adjustments to reserves are reflected in the
operating results of the periods in which they are made. Movements in reserves
which are small relative to the amount of such reserves could significantly
impact future reported earnings of the Company.
F-22
<PAGE> 91
CHICAGO TITLE AND TRUST COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN 000S)
Activity in the Company's reserve for title losses for each of the years in
the three-year period ended December 31, 1997 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Balance as of January 1...................... $532,923 529,915 536,068
Provision for title losses related to:
Current year............................... 102,324 91,023 81,385
Prior year................................. -- (8,000) --
-------- ------- -------
Total provision.................... 102,324 83,023 81,385
-------- ------- -------
Paid related to:
Current year............................... 3,509 3,071 2,829
Prior years................................ 67,404 76,944 84,709
-------- ------- -------
Total paid......................... 70,913 80,015 87,538
-------- ------- -------
Balance as of December 31.......... $564,334 532,923 529,915
======== ======= =======
</TABLE>
The Company had no reinsurance recoverable at December 31, 1997 or 1996.
The title insurance subsidiaries assume and cede title risks and the related
premiums with other title insurance companies. Reinsurance contracts do not
relieve the Company from its obligations to policyholders. In addition, the
Company has purchased reinsurance coverage for losses in excess of $12,500. For
these losses, the reinsurers will pay 90% up to $50,000.
The following table presents the effects of reinsurance on earned premium
<TABLE>
<CAPTION>
EARNED PREMIUMS
---------------------------- PERCENTAGE OF
GROSS CEDED ASSUMED NET ASSUMED TO NET
----- ----- ------- --- --------------
<S> <C> <C> <C> <C> <C>
1997 1,204,968 5,115 1,959 1,201,812 0.16%
1996 1,098,875 4,579 2,160 1,096,456 0.20%
1995 953,364 5,872 2,012 949,504 0.21%
</TABLE>
(16) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly revenues and net income included in the results of operations for
the years ended December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------
1997 MARCH 31 JUNE 30 SEPT 30 DEC 31 TOTAL
---- -------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Revenue:
Title, escrow, trust and other
revenue........................... $298,408 339,888 357,430 415,770 1,411,496
Investment income.................... 11,762 12,222 13,236 15,046 52,266
Net realized investment gains........ 155 141 2,509 879 3,684
-------- ------- ------- ------- ---------
Total revenues............... 310,325 352,251 373,175 431,695 1,467,446
-------- ------- ------- ------- ---------
Net income:
From continuing operations........... 5,827 16,746 15,851 14,889 53,313
From sales of marketable
securities........................ 101 92 1,632 571 2,396
From discontinued operations......... 2,196 3,123 3,752 3,091 12,162
-------- ------- ------- ------- ---------
Total net income............. $ 8,124 19,961 21,235 18,551 67,871
======== ======= ======= ======= =========
</TABLE>
F-23
<PAGE> 92
CHICAGO TITLE AND TRUST COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN 000S)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------
1996 MARCH 31 JUNE 30 SEPT 30 DEC 31 TOTAL
---- -------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Revenue:
Title, escrow, trust and other
revenue........................... $283,357 323,049 332,747 339,437 1,278,590
Investment income.................... 11,328 11,627 11,852 12,851 47,658
Net realized investment gains........ 369 851 1 215 1,436
-------- ------- ------- ------- ---------
Total revenues............... 295,054 335,527 344,600 352,503 1,327,684
-------- ------- ------- ------- ---------
Net income:
From continuing operations........... 8,138 13,697 10,048 13,762 45,645
From sales of marketable
securities........................ 240 553 1 139 933
From discontinued operations......... 1,263 1,803 1,679 717 5,462
-------- ------- ------- ------- ---------
Total net income............. $ 9,641 16,053 11,728 14,618 52,040
======== ======= ======= ======= =========
</TABLE>
F-24
<PAGE> 93
CHICAGO TITLE AND TRUST COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
(IN 000S, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
1998 1997
----------- ----
<S> <C> <C>
ASSETS
Cash on hand and in banks................................... $ 35,887 21,219
Cash pledged to secure trust and escrow deposits............ 263,199 100,207
Marketable securities, available-for-sale:
Fixed maturities, at fair value (amortized cost of
$925,727 and $1,016,446 in 1998 and 1997,
respectively)......................................... 940,096 1,032,089
Equity securities, at fair value (cost of $33,203 and
$33,232 in 1998 and 1997, respectively)............... 35,803 34,489
--------- ---------
Total marketable securities................................. 975,899 1,066,578
Receivables, including accrued investment income, less
allowance for doubtful accounts of $8,918 and $7,574 in
1998 and 1997, respectively............................... 71,412 62,558
Deferred Federal income taxes............................... 81,204 75,997
Fixed assets, net........................................... 97,357 97,222
Title plants................................................ 150,771 150,546
Net assets of Alleghany Asset Management, Inc. to be
distributed to Alleghany Corporation...................... 19,825 18,097
Other assets................................................ 116,910 109,783
---------- ---------
Total assets................................................ $1,812,464 1,702,207
========== =========
LIABILITIES AND SHAREHOLDER'S EQUITY
Accounts payable............................................ $ 120,366 105,692
Accrued expenses and other liabilities...................... 101,208 128,638
Notes payable and other obligations......................... 32,851 32,443
Reserve for title losses.................................... 569,829 564,334
Trust and escrow deposits secured by pledged assets......... 558,403 467,553
--------- ---------
Total liabilities........................................... 1,382,657 1,298,660
--------- ---------
Shareholder's Equity:
Common stock-par value of $4,000 per share, authorized
3,722 shares; issued and outstanding 3,419 shares at
March 31, 1998 and December 31, 1997.................. 13,676 13,676
Additional paid-in capital............................. 117,381 117,381
Retained earnings...................................... 287,645 261,425
Accumulated other comprehensive income................. 11,105 11,065
---------- ---------
Total shareholder's equity.................................. 429,807 403,547
---------- ---------
Total liabilities and shareholder's equity.................. $1,812,464 1,702,207
========== =========
</TABLE>
See accompanying notes to consolidated quarterly financial statements.
F-25
<PAGE> 94
CHICAGO TITLE AND TRUST COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE-MONTHS ENDED, MARCH 31, 1998 AND 1997
(IN 000S)
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
1998 1997
------------------- -------------------
<S> <C> <C>
Revenues:
Title, escrow, trust and other revenue.................... $ 385,804 298,408
Investment income......................................... 14,805 11,762
Net realized investment gains............................. 371 155
--------------- -------------
Total revenues......................................... 400,980 310,325
--------------- -------------
Expenses:
Salaries and other employee benefits...................... 127,603 100,477
Commissions paid to agents................................ 131,490 114,400
Provision for title losses................................ 26,279 21,772
Interest expense.......................................... 1,295 1,156
Other operating and administrative expenses............... 82,273 64,118
--------------- -------------
Total expenses......................................... 368,940 301,923
--------------- -------------
Operating income from continuing operations before income
taxes..................................................... 32,040 8,402
Income taxes................................................ 10,799 2,474
--------------- -------------
Net income from continuing operations....................... 21,241 5,928
Net income from discontinued operations..................... 4,979 2,196
--------------- -------------
Net income.................................................. $ 26,220 8,124
=============== =============
</TABLE>
See accompanying notes to consolidated quarterly financial statements.
F-26
<PAGE> 95
CHICAGO TITLE AND TRUST COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
FOR THE THREE-MONTHS ENDED, MARCH 31, 1998
(IN 000S)
(UNAUDITED)
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION OF
MARKETABLE
ADDITIONAL SECURITIES, TOTAL
COMMON PAID-IN RETAINED NET OF SHAREHOLDER'S
STOCK CAPITAL EARNINGS DEFERRED TAXES EQUITY
------ ---------- -------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1997........................ $ 13,676 $ 117,381 $ 261,425 $ 11,065 $ 403,547
Net income.................. -- -- 26,220 -- 26,220
Accumulated other
comprehensive income(1)..... -- -- -- 40 40
--------------- --------------- --------------- --------------- ---------------
Balance at March 31, 1998..... $ 13,676 $ 117,381 $ 287,645 $ 11,105 $ 429,807
=============== =============== =============== =============== ===============
</TABLE>
See accompanying notes to consolidated quarterly financial statements.
F-27
<PAGE> 96
CHICAGO TITLE AND TRUST COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE-MONTHS ENDED, MARCH 31, 1998 AND 1997
(IN 000S)
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from continuing operations activities:
Net income from continuing operations.................. $ 21,241 5,928
Adjustments to reconcile net income from continuing
operations to net cash used in continuing operations
activities:
Depreciation and amortization..................... 8,314 7,529
Changes in assets and liabilities:
Cash pledged to secure trust and escrow
deposits................................... (162,992) (20,400)
Receivables.................................. (8,706) 519
Current and deferred Federal income taxes.... 9,860 1,768
Other assets................................. (6,002) 4,810
Accounts payable and accrued expenses and
other liabilities.......................... (28,255) (33,006)
Reserves for title losses.................... 5,495 433
Trust and escrow deposits secured by pledged
assets..................................... 90,850 (25,054)
Gain on sale of investments....................... (371) (155)
----------------- -----------------
Net adjustments............................................. (91,807) (63,556)
----------------- -----------------
Net cash used in continuing operations activities........... (70,566) (57,628)
Dividends received from Alleghany Asset Management, Inc. ... 5,300 --
----------------- -----------------
Net cash used in operations................................. (65,266) (57,628)
----------------- -----------------
Cash flows from investing activities:
Purchase of long-term marketable securities............ (103,577) (62,550)
Sales of long-term marketable securities............... 37,257 34,475
Maturities and redemptions of long-term marketable
securities........................................... 36,255 45,346
Net sales (purchases) of short-term investments........ 120,967 47,264
Net sales (purchases) of other invested assets......... (1,189) 270
Net purchases of fixed assets.......................... (5,241) (9,244)
Net purchases of title records and indexes............. (225) --
Purchases of subsidiaries.............................. (3,245) --
Cash of acquired subsidiaries.......................... 1,138 --
----------------- -----------------
Net cash provided by investing activities................... 82,140 55,561
----------------- -----------------
Cash flows from financing activities:
Principal payments on notes payable and other
obligations.......................................... (152) --
Cash remaining with discontinued operations............ (2,054) (2,363)
----------------- -----------------
Net cash used in financing activities....................... (2,206) (2,363)
----------------- -----------------
Net increase (decrease) in cash............................. 14,668 (4,430)
Cash at beginning of year................................... 21,219 23,072
----------------- -----------------
Cash as of balance sheet date............................... $ 35,887 18,642
================= =================
</TABLE>
See accompanying notes to consolidated quarterly financial statements.
F-28
<PAGE> 97
CHICAGO TITLE AND TRUST COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED QUARTERLY FINANCIAL STATEMENTS
(IN 000S)
(1) BASIS OF PRESENTATION
The consolidated balance sheet as of March 31, 1998 and the consolidated
statements of income, shareholder's equity and cash flows for the
three-months ended March 31, 1998 and March 31, 1997, have not been
audited, but have been prepared in accordance with generally accepted
accounting principles as applied in the Company's audited consolidated
financial statements as of and for the year ended December 31, 1997. In the
opinion of management, this information includes all material adjustments,
of a normal and recurring nature, for a fair presentation. The results for
the three-month periods are not necessarily indicative of the results
expected for the full year.
(2) NEW ACCOUNTING STANDARD
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." SFAS
No. 130 establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial
statements. Interim financial statements are required to include only
disclosure of total comprehensive income for the current and prior reporting
periods.
The Company's total comprehensive income for the three-months ended March
31, 1998 and 1997 was $26,260 and $1,733, respectively. Other comprehensive
income relates to the Company's change in unrealized appreciation of
marketable securities, net of deferred taxes, and was $40 and $(6,391) for
the three-months ended March 31, 1998 and 1997, respectively.
F-29
<PAGE> 98
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 Form of Distribution Agreement to be entered into by and
between Alleghany Corporation and Chicago Title
Corporation.+
3.1 Certificate of Incorporation of Chicago Title Corporation as
filed with the Delaware Secretary of State on March 26,
1998.+
3.2 Form of By-Laws of Chicago Title Corporation to be in effect
as of the Spin-Off Date.+
8.1 Internal Revenue Service Ruling Letter, dated March 19,
1998.
10.1 Form of Tax Sharing Agreement to be entered into by and
between Alleghany Corporation and Chicago Title
Corporation.+
10.2(a) Credit Agreement, dated as of March 29, 1996, among Chicago
Title and Trust Company, an Illinois corporation, the
various financial institutions as are or may become parties
thereto, and The Chase Manhattan Bank, N.A., as
administrative agent.
10.2(b) First Amendment to be effective as of the Spin-off Date
among Chicago Title and Trust Company, an Illinois
corporation, the lenders listed on the signature pages
thereto, and The Chase Manhattan Bank, as administrative
agent.
10.3 Form of Chicago Title Corporation 1998 Long-Term Incentive
Plan to be in effect as of the Spin-Off Date.+
10.4 Form of Chicago Title Corporation Directors' Stock Option
Plan.
10.5 Chicago Title Corporation Directors' Equity Compensation
Plan.
10.6 CT&T Executive Performance Unit Incentive Plan of 1992,
adopted and effective as of January 1, 1989, as amended as
of January 1, 1992, filed as Exhibit 10.16 to Alleghany's
Annual Report on Form 10-K for the year ended December 31,
1993, is incorporated herein by reference (Securities and
Exchange Commission File No. 1-9371).
10.7 CT&T Executive Performance Unit Incentive Plan of 1995,
adopted and effective as of January 1, 1995.
10.8 CT&T Quality Business Management Incentive Program for
Senior Corporate Officers.
10.9 CT&T Excess Benefits Pension Plan, effective January 1,
1987, as amended by First Amendment to CT&T Excess Benefits
Pension Plan dated May 5, 1994, effective as of January 1,
1994, filed as Exhibit 10.19 to Alleghany's Annual Report on
Form 10-K for the year ended December 31, 1994, is
incorporated herein by reference (Securities and Exchange
Commission File No. 1-9371).
10.10 CT&T Executive Salary Continuation Plan effective as of
January 1, 1979, as adopted on August 23, 1978, filed as
Exhibit 10.15 to Alleghany Corporation's Annual Report on
Form 10-K for the year ended December 31, 1990, is
incorporated herein by reference (Securities and Exchange
Commission File No. 1-9371).
10.11 CT&T Excess Benefits Savings Plan.
10.12 CT&T Annual Incentive Plan.
10.13 Agreement between Chicago Title and Trust Company and Alan
N. Prince, dated as of July 29, 1996, as amended on
September 23, 1997.
10.14 Form of amended and restated employment agreement among
Chicago Title Corporation, Chicago Title and Trust Company
and John Rau.
10.15 Form of agreement with John Rau in respect of Awards
pursuant to Chicago Title and Trust Company's 1995
Performance Unit Plan (the "1995 Plan").
</TABLE>
<PAGE> 99
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.16 Form of agreement to be entered into with participants in
the Executive Section of the 1995 Plan in respect of Awards
made to such participants under the 1995 Plan.
10.17(a) Stock Purchase Agreement dated as of June 18, 1985 by and
among Alleghany Corporation, a Maryland corporation ("Old
Alleghany"), Alleghany Corporation, a Delaware corporation,
Alleghany Capital Corporation and Lincoln National
Corporation (the "CT&T Stock Purchase Agreement"), filed as
Exhibit (2)(i) to Old Alleghany's Current Report on Form 8-K
dated July 11, 1985, is incorporated herein by reference
(Securities and Exchange Commission File No. 1-9371).
10.17(b) List of Contents of Schedules to the CT&T Stock Purchase
Agreement, filed as Exhibit (2)(ii) to Old Alleghany's
Current Report on Form 8-K dated July 11, 1985, is
incorporated herein by reference (Securities and Exchange
Commission File No. 1-9371).
10.17(c) Amendment No. 1 dated December 20, 1985 to the CT&T Stock
Purchase Agreement, filed as Exhibit 10.12(c) to Old
Alleghany's Annual Report on Form 10-K for the year ended
December 31, 1985, is incorporated herein by reference
(Securities and Exchange Commission File No. 1-9371).
10.18 Letter Agreement dated May 2, 1991, between CT&T and
Continental Bank, N.A relating to an interest rate swap
effective May 6, 1991, filed as Exhibit 10.2 to Alleghany's
quarterly report on Form 10-Q for the quarter ended March
31, 1991, is incorporated herein by reference (Securities
and Exchange Commission File No. 1-9371).
10.19 Letter Agreement dated December 13, 1994 between CT&T and
Bank of America Illinois (previously known as Continental
Bank) relating to the transfer of Continental Bank's risk
management business to Bank of America National Trust and
Savings Association, filed as Exhibit 10.31(f) to
Alleghany's Annual Report on Form 10-K for the year ended
December 31, 1994, is incorporated herein by reference
(Securities and Exchange Commission File No. 1-9371).
10.20 Lease dated July 24, 1989 (commencing October 1, 1992,
between Linpro Chicago Land Limited Partnership ("Linpro")
and Chicago Title and Trust Company, pursuant to which
Linpro leased to CT&T certain premises designated therein
and located in the building known as 171 North Clark Street,
Chicago, Illinois, as amended by a First Amendment to lease
dated November 17, 1989, by letter agreements dated October
31, 1989; November 17, 1989; November 30, 1989; December 1,
1989; December 6, 1989 and December 8, 1989 and by a Second
Amendment to Lease dated December 23, 1992; a supplement to
Lease dated July 13, 1993; and letter regarding Lobby
termination Notice dated September 24, 1996.
10.21 Chicago Title Corporation Employee Stock Purchase Plan.
21.1 Subsidiaries of Chicago Title Corporation as of the Spin-Off
Date.+
27 Financial Data Schedule.
</TABLE>
- ---------------
+ Previously filed.
<PAGE> 100
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this Amendment No. 1 to Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized.
CHICAGO TITLE CORPORATION
By: /s/ PETER R. SISMONDO
------------------------------------
Peter R. Sismondo
Date: May 5, 1998
<PAGE> 101
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
2.1 Form of Distribution Agreement to be entered into by and
between Alleghany Corporation and Chicago Title
Corporation.+
3.1 Certificate of Incorporation of Chicago Title Corporation as
filed with the Delaware Secretary of State on March 26,
1998.+
3.2 Form of By-Laws of Chicago Title Corporation to be in effect
as of the Spin-Off Date.+
8.1 Internal Revenue Service Ruling Letter, dated March 19,
1998.
10.1 Form of Tax Sharing Agreement to be entered into by and
between Alleghany Corporation and Chicago Title
Corporation.+
10.2 (a) Credit Agreement, dated as of March 29, 1996, among Chicago
Title and Trust Company, an Illinois corporation, the
various financial institutions as are or may become parties
thereto, and The Chase Manhattan Bank, N.A., as
administrative agent.
10.2 (b) First Amendment to be effective as of the Spin-Off Date
among Chicago Title and Trust Company, an Illinois
corporation, the lenders listed on the signature pages
thereto, and The Chase Manhattan Bank, as administrative
agent.
10.3 Form of Chicago Title Corporation 1998 Long-Term Incentive
Plan to be in effect as of the Spin-Off Date.+
10.4 Form of Chicago Title Corporation Directors' Stock Option
Plan.
10.5 Chicago Title Corporation Directors' Equity Compensation
Plan.
10.6 CT&T Executive Performance Unit Incentive Plan of 1992,
adopted and effective as of January 1, 1989, as amended as
of January 1, 1992, filed as Exhibit 10.16 to Alleghany's
Annual Report on Form 10-K for the year ended December 31,
1993, is incorporated herein by reference (Securities and
Exchange Commission File No. 1-9371).
10.7 CT&T Executive Performance Unit Incentive Plan of 1995,
adopted and effective as of January 1, 1995.
10.8 CT&T Quality Business Management Incentive Program for
Senior Corporate Officers.
10.9 CT&T Excess Benefits Pension Plan, effective January 1,
1987, as amended by First Amendment to CT&T Excess Benefits
Pension Plan dated May 5, 1994, effective as of January 1,
1994, filed as Exhibit 10.19 to Alleghany's Annual Report on
Form 10-K for the year ended December 31, 1994, is
incorporated herein by reference (Securities and Exchange
Commission File No. 1-9371).
10.10 CT&T Executive Salary Continuation Plan effective as of
January 1, 1979, as adopted on August 23, 1978, filed as
Exhibit 10.15 to Alleghany Corporation's Annual Report on
Form 10-K for the year ended December 31, 1990, is
incorporated herein by reference (Securities and Exchange
Commission File No. 1-9371).
10.11 CT&T Excess Benefits Savings Plan.
10.12 CT&T Annual Incentive Plan.
10.13 Agreement between Chicago Title and Trust Company and Alan
N. Prince, dated as of July 29, 1996, as amended on
September 23, 1997.
10.14 Form of amended and restated employment agreement among
Chicago Title Corporation, Chicago Title and Trust Company
and John Rau.
10.15 Form of agreement with John Rau in respect of Awards
pursuant to Chicago Title and Trust Company's 1995
Performance Unit Plan (the "1995 Plan").
</TABLE>
<PAGE> 102
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.16 Form of agreement to be entered into with Participants in
the Executive Section of the 1995 Plan in respect of Awards
made to such Participants under the 1995 Plan.
10.17 (a) Stock Purchase Agreement dated as of June 18, 1985 by and
among Alleghany Corporation, a Maryland corporation ("Old
Alleghany"), Alleghany Corporation, a Delaware corporation,
Alleghany Capital Corporation and Lincoln National
Corporation (the "CT&T Stock Purchase Agreement"), filed as
Exhibit (2)(i) to Old Alleghany's Current Report on Form 8-K
dated July 11, 1985, is incorporated herein by reference
(Securities and Exchange Commission File No. 1-9371).
10.17 (b) List of Contents of Schedules to the CT&T Stock Purchase
Agreement, filed as Exhibit (2)(ii) to Old Alleghany's
Current Report on Form 8-K dated July 11, 1985, is
incorporated herein by reference (Securities and Exchange
Commission File No. 1-9371).
10.17 (c) Amendment No. 1 dated December 20, 1985 to the CT&T Stock
Purchase Agreement, filed as Exhibit 10.12(c) to Old
Alleghany's Annual Report on Form 10-K for the year ended
December 31, 1985, is incorporated herein by reference
(Securities and Exchange Commission File No. 1-9371).
10.18 Letter Agreement dated May 2, 1991, between CT&T and
Continental Bank, N.A relating to an interest rate swap
effective May 6, 1991, filed as Exhibit 10.2 to Alleghany's
quarterly report on Form 10-Q for the quarter ended March
31, 1991, is incorporated herein by reference (Securities
and Exchange Commission File No. 1-9371).
10.19 Letter Agreement dated December 13, 1994 between CT&T and
Bank of America Illinois (previously known as Continental
Bank) relating to the transfer of Continental Bank's risk
management business to Bank of America National Trust and
Savings Association, filed as Exhibit 10.31(f) to
Alleghany's Annual Report on form 10-K for the year ended
December 31, 1994, is incorporated herein by reference
(Securities and Exchange Commission File No. 1-9371).
10.20 Lease dated July 24, 1989 (commencing October 1, 1992,
between Linpro Chicago Land Limited Partnership ("Linpro")
and Chicago Title and Trust Company, pursuant to which
Linpro leased to CT&T certain premises designated therein
and located in the building known as 171 North Clark Street,
Chicago, Illinois, as amended by a First Amendment to lease
dated November 17, 1989, by letter agreements dated October
31, 1989; November 17, 1989; November 30, 1989; December 1,
1989; December 6, 1989 and December 8, 1989 and by a Second
Amendment to Lease dated December 23, 1992; a supplement to
Lease dated July 13, 1993; and letter regarding Lobby
termination Notice dated September 24, 1996.
10.21 Chicago Title Corporation Employee Stock Purchase Plan.
21.1 Subsidiaries of Chicago Title Corporation as of the Spin-Off
Date.+
27 Financial Data Schedule.
</TABLE>
- ---------------
+ Previously filed.
<PAGE> 1
Exhibit 8.1
Internal Revenue Service Department of the Treasury
Washington, DC 20224
Index Number: 355.01-00
368.04-00
Contact Person:
Benson J. Chapman Richard E. Coss
Vice President Telephone Number:
Alleghany Corporation (202) 622-7790
375 Park Avenue In Reference to:
New York, New York 10152 CC:DOM:CORP:3 - PLR-121282-97
Date
MAR 19 1998
<TABLE>
<S> <C>
Distributing 2 = Alleghany Corporation
a Delaware corporation
EIN: 51-0283071
Distributing 1 = Chicago Title and Trust Company
an Illinois corporation
EIN: 36-0906930
Controlled 1 = Alleghany Asset Management, Inc.
a Delaware corporation
EIN: 36-4041138
Controlled 2 = Chicago Title Corp.
a to-be-formed Delaware corporation
EIN: to be applied for
Sub 1 = The Chicago Trust Company
an Illinois trust company
EIN: 36-4041298
Sub 2 = Chicago Deferred Exchange Corporation
an Illinois corporation
EIN: 36-3728893
Date A = July 31, 1997
b = 2,150
Individual C = Fred N. Kirby, II
Individual D = Allan P. Kirby, Jr.
e = 8.47
f = 7.13
</TABLE>
<PAGE> 2
- 2 -
PLR-121282-97
<TABLE>
<S> <C>
Business G = the importation and sale of commercial
fasteners - nuts, bolts, screws,
washers, and other fasteners - to
fastener manufacturers and distributors
through a network of sales offices and
warehouses
h = 70
Business I = the sale and underwriting of title
insurance and related services,
including abstracting, searches, escrow
closing and disbursement services, flood
certifications, credit information and
property evaluations
j = 38
State K = Delaware
Business L = trust and financial services, including (i)
serving as the trustee of inter vivos trusts,
where Sub 1 manages the assets and personal
affairs of individuals, (ii) serving as
executor under a will or as administrator of
the estate of intestate decedents, (iii)
serving as the guardian of the estates of
minors or adult disabled persons, and (iv)
other similar trust functions
Business M = Serves as trustee of an Illinois land
title holding trust created to hold
title to real property and interests in
real property, and releases mortgages or
other claims against land upon a
determination that the conditions to the
release have been satisfied (the "land
trust and release" businesses)
Business N = serving as a "qualified intermediary"
(as described in ss. 1.1031(k)-1(g) (4) of
the Income Tax Regulations) to
facilitate certain tax-deferred property
exchanges under ss. 1031 of the Code
o = 370,000
p = 15
q = 1.64
</TABLE>
<PAGE> 3
- 3 -
PLR-121282-97
<TABLE>
<S> <C>
r = 22.5
s = 880,000
t = 275
u = 3.91
V = 500,000
w = 2.22
x = 39,000
y = 16,000
z = 1.8
aa = 8
bb = 13
</TABLE>
Dear Mr. Chapman:
This letter replies to a request dated November 12, 1997 for rulings about
the federal income tax consequences of a proposed transaction. We have received
additional information in letters dated January 19, February 5, February 17, and
March 6, 1998. The information submitted for consideration is summarized below.
Distributing 2 is the common parent of an affiliated group of corporations
filing a consolidated federal income tax return on a calendar year basis using
an accrual method of accounting. Distributing 2 has one class of common stock
issued and outstanding. Distributing 2's common stock is widely held and
publicly traded on the New York Stock Exchange. As of Date A, Distributing 2 had
more than b shareholders of record. As of Date A, the only persons known to
Distributing 2 who beneficially own 5 percent or more of the common stock of
Distributing 2 are Individual C and Individual D, who own e percent and f
percent, respectively, of the outstanding common stock of Distributing 2.
Distributing 2 is actively engaged directly in Business G. Distributing 2 is
engaged in other lines of business through h domestic subsidiaries and certain
foreign subsidiaries.
Distributing 2 wholly owns Distributing 1, which in turn wholly owns
Controlled 1. Distributing 1 is engaged in Business I though its group of j
active subsidiaries. Controlled 1 is a State K holding company which is not
directly engaged in any
<PAGE> 4
- 4 -
PLR-121282-97
trade or business. Sub 1 and Sub 2, wholly owned subsidiaries of Controlled 1,
are engaged in Business L and Business M, and Business N, respectively.
Financial information has been received which indicates that Business G,
Business I, Business L, and Business N each has had gross receipts and operating
expenses representative of the active conduct of a trade or business for each of
the past five years.
It has been determined that Controlled 1 must build "brand" recognition
for its Business L if that business is to be expanded. That requires that
Controlled i be separated from Distributing 1 (described in step (iii), below,
as the "Internal Spin") because the brand recognition of Distributing 1 in
Business I hinders the development and recognition of the otherwise independent
brand for Controlled 1's Business L.
In recent years, Distributing 1's Business I has sustained a loss of
market share in a disproportionate number of markets and a shrinking profit
margin. Moreover, mergers and acquisitions have been occurring within the
Business I industry, increasing the size and strength of Distributing 1's
competitors. In response to this, Distributing 1 has decided to implement a
number of strategic responses in its Business I. Based in part upon the advice
of its management consultant, Distributing 2 has concluded that none of these
strategic responses is achievable by Distributing 1 without the ability to offer
significant actual and potential equity participation to all levels of
employees. Specifically, Distributing 2's consultant recommended that various
equity-based incentives be provided to a number of Distributing 1's managers,
as well as opportunities for all employees to acquire equity interests in
Distributing 1 or its to-be-formed State K holding company parent, Controlled 2.
Immediately preceding the External Spin (described in step (vi), below),
Controlled 2 will transfer approximately o shares of "restricted" Controlled 2
common stock to approximately p senior management employees, representing
approximately q percent of the approximately r million shares of Controlled 2
common stock expected to be outstanding upon the consummation of the External
Spin (the "Outstanding Stock"). Additionally, promptly following the External
Spin, Controlled 2 will grant options to acquire s shares of Controlled 2 common
stock to approximately t senior and middle management employees, representing
approximately u percent of the Outstanding Stock. Further, at the time of the
External Spin, Controlled 2 will have adopted an employee stock purchase plan
(described in ss. 423 of the Code), which plan will authorize the purchase by
employees at a discount of at least v shares of Controlled 2 common stock,
representing w percent of the Outstanding Stock, which plan Controlled 2 will
<PAGE> 5
PLR-121282-97
- 5 -
continue until substantially all of the v shares of Controlled 2 common stock
have been purchased by employees. Upon the External Spin, the Distributing 1 ss.
401(k) plan will hold x shares of Controlled 2 common stock, and y shares of
"restricted" Controlled 2 common stock will be transferred to the persons who
will serve as directors of Controlled 2.
Therefore, following the External Spin, employees of Controlled 2 and its
subsidiaries will have received, or have the opportunity to acquire, nearly z
million shares of Controlled 2 common stock, or aa (a number greater than 5)
percent of the Outstanding Stock. To effectively implement this equity ownership
by Distributing 1 employees requires, however, that Distributing 1 (or its
to-be-formed holding company parent, Controlled 2) be a separate public company.
To accomplish these objectives, the taxpayer has proposed the following
transaction:
(i) Sub 1 will distribute Business M to Distributing 1 by first contributing
Business M to a wholly owned, newly organized corporation ("Newco") and
thereafter distributing the stock of Newco to Controlled 1, which will
immediately distribute the stock of Newco to Distributing 1. Distributing
2 anticipates that the distribution may qualify as a spin off pursuant
to ss.ss. 355 and 368(a)(1)(D);
(ii) Distributing 1 will contribute to the capital of Controlled 1 founders
shares it holds in each of four mutual funds (which funds are managed by
Sub 1);
(iii) Immediately thereafter, Distributing 1 will distribute all of the
outstanding stock of Controlled 1 to Distributing 2 (the "Internal Spin");
(iv) Distributing 2 will organize Controlled 2 under the laws of State K.
Distributing 2 will contribute cash to Controlled 2 equal to the required
minimum statutory capital solely for all of Controlled 2's common stock.
Shortly before the proposed distribution (step (vi) below), Distributing 2
will contribute all of the outstanding stock of Distributing 1 to
Controlled 2 in exchange for additional shares of Controlled 2 common
stock;
(v) Distributing 1 will distribute as a dividend to Controlled 2 preferred
stock it holds in Sub 1 with a par and liquidation value of $ bb million,
followed by a dividend distribution of the Sub 1 preferred stock from
Controlled 2 to Distributing 2;
<PAGE> 6
- 6 -
PLR-121282-97
(vi) Distributing 2 will distribute to its shareholders, pro rata, all of
the outstanding stock of Controlled 2 (the "External Spin").
With respect to the Internal Spin (step (iii), above), the taxpayers have
made the following representations:
(a) No part of the consideration to be distributed by Distributing 1 will be
received by Distributing 2 as a creditor, employee or in any capacity
other than that of a shareholder of Distributing 1.
(b) The 5 years of financial information submitted on behalf of Distributing 1
is representative of Distributing 1's present operation, and with regard
to Distributing 1, there have been no substantial operational changes
since the date of the last financial statements submitted, other than by
reason of the transfer of certain assets and liabilities of its Business L
to Sub 1.
(c) The 5 years of financial information submitted on behalf of Business L is
representative of Sub l's present operations, and with regard to Sub 1,
there have been no substantial operational changes since the date of the
last financial statements submitted.
(d) The 5 years of financial information submitted on behalf of Business N is
representative of Sub 2's present operations, and with regard to Sub 2,
there have been no substantial operational changes since the date of the
last financial statements submitted.
(e) Immediately after the distribution, at least 90 percent of the fair market
value of the gross assets of Controlled 1 will consist of the stock and
securities of controlled corporations that are engaged in the active
conduct of a trade or business as defined in ss. 355(b) (2).
(f) Following the transaction, Distributing 1, Sub 1, and Sub 2 will each
continue the active conduct of its business, independently and with its
separate employees.
(g) The distribution of the stock of Controlled 1 is carried out for the
following corporate business purpose: to permit Controlled 1 to build a
distinct and separate "brand" identity for its Business L. The
distribution of the stock, or stock and securities, of Controlled 1 is
motivated, in whole or substantial part, by this corporate business
purpose.
<PAGE> 7
- 7 -
PLR-121282-97
(h) There is no plan or intention by Distributing 2 to sell, exchange,
transfer by gift, or otherwise dispose of any of its stock in Controlled 1
or Distributing 1 after the transaction.
(i) There is no plan or intention by either Distributing 1 or Controlled 1,
directly or through any subsidiary corporation, to purchase any of its
outstanding stock after the transaction, other than through stock
purchases meeting the requirements of ss. 4.05(1)(b) of Rev. Proc. 96-30.
(j) There is no plan or intention to liquidate Distributing 1, Controlled 1,
Sub 1 or Sub 2, to merge any such corporation with any other corporation,
or to sell or otherwise dispose of the assets of any such corporation
after the transaction, except in the ordinary course of business.
(k) The total adjusted bases and the fair market value of the assets
transferred to Controlled 1 by Distributing 1 each equals or exceeds the
sum of the liabilities assumed by Controlled 1 plus any liabilities to
which the transferred assets are subject.
(l) The liabilities assumed in the transaction and the liabilities to which
the transferred assets are subject were incurred in the ordinary course of
business and are associated with the assets being transferred.
(m) No intercorporate debt will exist between Distributing 1 and Controlled 1
at the time of, or subsequent to, the distribution of the Controlled 1
stock.
(n) Immediately before the distribution, items of income, gain, loss,
deduction, and credit will be taken into account as required by the
applicable intercompany transaction regulations (see ss. 1.1502-13 and
ss. 1.1502-14 as in effect before the publication of T.D. 8597, 1995-2
C.B. 147, and as currently in effect; ss. 1.1502-13 as published in T.D.
8597). At the time of the Internal Spin, Distributing 1 will not have an
excess loss account with respect to the stock of Controlled 1.
(o) Payments made in connection with any continuing transactions, if any,
between Distributing 1 and Controlled 1, and their respective
subsidiaries, will be for fair market value based on terms and conditions
arrived at by the parties bargaining at arm's length.
(p) No two parties to the transaction are investment companies as defined in
ss. 368(a)(2)(F)(iii) and (iv).
<PAGE> 8
- 8 -
PLR-121282-97
With respect to the External Spin (step (vi), above), the taxpayers have
made the following representations:
(q) No part of the Controlled 2 stock to be distributed by Distributing 2 will
be received by a shareholder as a creditor, employee, or in any capacity
other than that of a shareholder of Distributing 2.
(r) The 5 years of financial information submitted on behalf of Distributing 2
is representative of Business G's present operation, and, with regard to
Business G, there have been no substantial operational changes since the
date of the last financial statements submitted.
(s) The 5 years of financial information submitted on behalf of Distributing 1
is representative of Distributing 1's present operation, and, with regard
to Distributing 1, there have been no substantial operational changes
since the date of the last financial statements submitted, other than by
reason of the transfer of certain assets and liabilities of its Business L
to Sub 1.
(t) Immediately after the distribution, at least 90 percent of the fair market
value of the gross assets of Controlled 2 will consist of the stock of and
securities of controlled corporations that are engaged in the active
conduct of a trade or business, as defined in ss. 355(b)(2).
(u) Following the transaction, Distributing 2, Controlled 2 and Distributing 1
will each continue the active conduct of its business, independently and
with its separate employees.
(v) The distribution of the stock of Controlled 2 is carried out for the
following corporate business purpose: to enable Controlled 2 to offer
equity incentive plans to its employees and allow employees at all levels
to acquire an equity interest in Controlled 2. The Distribution is
motivated, in whole or substantial part, by this corporate business
purpose.
(w) There is no plan or intention by any shareholder who owns 5 percent or
more of the common stock of Distributing 2, and the management of
Distributing 2 to its best knowledge, is not aware of any plan or
intention on the part of any particular remaining shareholder of
Distributing 2 to sell, exchange, transfer by gift, or otherwise dispose
of any of their stock in, or securities of, Distributing 2 or Controlled 2
owned at the time of, or acquired in, the distribution after the
transaction, other than market transactions effected by less than 5
percent beneficial owners of Distributing 2 common stock.
<PAGE> 9
- 9 -
PLR-121282-97
(x) There is no plan or intention by Distributing 2 or Controlled 2, directly
or through any subsidiary corporation, to purchase any stock of
Distributing 2 or Controlled 2 after the transaction, other than through
stock purchases meeting the requirements of ss. 4.05(1)(b) of Rev. Proc.
96-30.
(y) There is no plan or intention to liquidate Distributing 2, Controlled 2 or
Distributing 1, to merge any such corporation with any other corporation,
or to sell or otherwise dispose of the assets of any such corporation
after the transaction, except in the ordinary course of business.
(z) No intercorporate debt will exist between Distributing 2 and Controlled 2
at the time of, or subsequent to, the distribution of the Controlled 2
stock, other than short-term debt obligations of Distributing 1 to
Distributing 2 attributable to a dividend (declared and paid in the form
of a short-term note) and to fund an acquisition created shortly before
the described transaction.
(aa) Immediately before the distribution, items of income, gain, loss,
deduction, and credit will be taken into account as required by the
applicable intercompany transaction regulations (see ss. 1.1502-13 and ss.
1.1502-14 as in effect before the publication of T.D. 8597, 1995-2 C.B.
147, and as currently in effect; ss. 1.1502-13 as published in T.D. 8597).
Further, Distributing 2's excess loss account, if any, with respect to the
Controlled 2 stock will be included in income immediately before the
distribution (see ss. 1.1502-19).
(bb) Payments made in connection with all continuing transactions, if any,
between Distributing 2 and Controlled 2 and their respective subsidiaries,
will be for fair market value based on terms and conditions arrived at by
the parties bargaining at arm's length.
(cc) No two parties to the transaction are investment companies as defined in
ss. 368(a)(2)(F)(iii) and (iv).
Based solely on the information submitted and on the representations
set forth above, we hold as follows with respect to the Internal Spin
(step (iii), above):
(1) The transfer by Distributing 1 to Controlled 1 of assets solely in
constructive exchange for additional shares of Controlled 1 stock and
Controlled 1's assumption of liabilities, if any, as described above,
followed by Distributing 1's distribution of the Controlled 1 stock to
Distributing 2, as described above, will be a reorganization within the
meaning of ss. 368(a)(1)(D). Distributing 1 and Controlled 1 will each be
"a party to a reorganization" within the meaning of ss. 368(b).
<PAGE> 10
- 10 -
PLR-121282-97
(2) Distributing 1 will recognize no gain or loss upon the transfer of assets
to Controlled 1 in constructive exchange for Controlled 1 stock and
Controlled 1's assumption of liabilities, if any, as described above
(ss.ss. 361(a) and 357(a)).
(3) Controlled 1 will recognize no gain or loss on the receipt of the
Distributing 1 assets in constructive exchange for additional Controlled 1
stock and the assumption of liabilities, if any, as described above (ss.
1032(a)).
(4) Controlled 1's basis in the assets received in the proposed transaction
will equal the basis of the assets in the hands of Distributing 1
immediately prior to the transaction (ss. 362(b)).
(5) Controlled 1's holding period for the Distributing 1 assets received in
the proposed transaction will include the period during which Distributing
1 held the assets (ss. 1223(2)).
(6) Distributing 1 will recognize no gain or loss upon its distribution of all
of the Controlled 1 stock to Distributing 2 in the Internal Spin (ss.
361(c)(1)).
(7) Distributing 2 will recognize no gain or loss, and no amount will be
included in its income, upon its receipt of Controlled 1 common stock from
Distributing 1 in the Internal Spin (ss. 355(a)(1)).
(8) The aggregate basis of the Distributing 1 and Controlled 1 common stock in
the hands of Distributing 2 immediately after the Internal Spin will equal
the basis of the Distributing 1 stock held immediately prior to the
Internal Spin, allocated in proportion to the fair market value of each in
accordance with ss.ss. 358(a), (b) and (c) and ss. 1.358-2(a)(2).
(9) The holding period of the Controlled 1 common stock received by
Distributing 2 will include the holding period of the Distributing 1
common stock with respect to which the distribution will be made, provided
that the Distributing 1 common stock is held as a capital asset on the
date of the Internal Spin (ss. 1223(1)).
(10) Proper allocation of earnings and profits between Distributing 1 and
Controlled 1 will be made in accordance with ss. 1.312-10(a) and ss.
1-1502-33.
With respect to the organization of controlled 2 and the distribution of
the stock of Controlled 2 by Distributing 2 to
<PAGE> 11
- 11 -
PLR-121282-97
Distributing 2's shareholders (the External Spin; steps (iv) and (vi), above),
we hold as follows:
(11) The transfer by Distributing 2 to Controlled 2 of all of the stock of
Distributing 1 solely in exchange for additional shares of Controlled 2
stock and Controlled 2's assumption of liabilities, if any, as described
above, followed by Distributing 2's distribution of the Controlled 2
stock, pro rata, to Distributing 2's shareholders, as described above,
will be a reorganization within the meaning of ss. 368 (a)(1)(D).
Distributing 2 and Controlled 2 will each be "a party to a reorganization"
within the meaning of ss. 368(b).
(12) Distributing 2 will recognize no gain or loss upon the transfer of the
Distributing 1 stock to Controlled 2 in exchange for Controlled 2 stock
and Controlled 2's assumption of liabilities, if any, as described above
(ss.ss. 361(a) and 357(a)).
(13) Controlled 2 will recognize no gain or loss on the receipt of the
Distributing 1 stock in exchange for additional Controlled 2 stock and the
assumption of liabilities, if any, as described above (ss. 1032(a)).
(14) Controlled 2's basis in the Distributing 1 stock received in the proposed
transaction will equal the basis of the Distributing 1 stock in the hands
of Distributing 2 immediately prior to the transaction (ss. 362(b)).
(15) Controlled 2's holding period for the Distributing 1 stock received in the
proposed transaction will include the period during which Distributing 2
held the Distributing 1 stock (ss. 1223(2)).
(16) Distributing 2 will recognize no gain or loss upon its distribution of all
of the Controlled 2 stock to Distributing 2's shareholders in the Eternal
Spin (ss. 361(c)(1)).
(17) The Distributing 2 shareholders will recognize no gain or loss, and no
amount will be included in their income, upon their receipt of Controlled
2 common stock from Distributing 2 in the External Spin (ss. 355(a)(1)).
(18) The aggregate basis of the Distributing 2 and Controlled 2 common stock in
the hands of the Distributing 2 shareholders immediately after the
External Spin will equal the basis of the Distributing 2 stock held
immediately prior to the External Spin, allocated in proportion to the
fair market value of each in accordance with ss.ss. 358(a), (b) and (c)
and
<PAGE> 12
- 12 -
PLR-121282-97
ss. 1.358-2(a) (2).
(19) The holding period of the Controlled 2 common stock received by the
Distributing 2 shareholders will include the holding period of the
Distributing 2 common stock with respect to which the distribution will be
made, provided that the Distributing 2 common stock is held as a capital
asset on the date of the External Spin (ss. 1223(1)).
(20) Proper allocation of earnings and profits between Distributing 2 and
Controlled 2 will be made in accordance with ss. 1.312-10(a) and ss.
1-1502-33.
(21) Payments by Distributing 2 to Controlled 2 or Controlled 2 to Distributing
2 under the Tax Sharing Agreement regarding tax liabilities that (i) have
arisen or will arise for a taxable period ending on or before the
distribution of the Controlled 2 stock or for a taxable period beginning
before and ending after the distribution of the Controlled 2 stock and
(ii) will not become fixed and ascertainable until after the distribution
of the Controlled 2 stock will be treated as occurring immediately before
the distribution of the Controlled 2 stock.
We express no opinion about the tax treatment of the transaction under
other provisions of the Code and regulations or about the tax treatment of any
conditions existing at the time of, or effects resulting from, the transaction
that are not specifically covered by the above rulings. Specifically, no ruling
was requested and no opinion is given as to the federal income tax consequences
of the contribution by Sub 1 of Business N to Newco in exchange for Newco stock,
and the distribution of the Newco stock by Sub 1 to Controlled 1 and then by
Controlled 1 to Distributing 1 (see step (i), above). In addition, no ruling was
requested and no opinion is given as to the federal income tax consequences of
Distributing 1's distribution of Sub 1 preferred stock to Controlled 2 and
Controlled 2's distribution of the same stock to Distributing 2 (see step (v),
above). This ruling has no effect on any earlier documents and is directed only
to the taxpayer who requested it. Section 6110(j) (3) of the Code provides that
it may not be used or cited as precedent.
Each affected taxpayer should attach a copy of this letter to the
taxpayer's federal income tax returns for the taxable year in which the
transaction covered by this ruling letter is consummated.
<PAGE> 13
- 13 -
PLR-121282-97
In accordance with the power of attorney on file in this office, we have
sent a copy of this letter to your authorized representative.
Sincerely yours,
Assistant Chief Counsel (Corporate)
By /s/ Victor Penico
---------------------------
Victor Penico
Chief, Branch 3
<PAGE> 1
Exhibit 10.2(a)
==============================================================
U.S. $50,000,000
CREDIT AGREEMENT
Dated as of March 29,l996
among
CHICAGO TITLE AND TRUST COMPANY
as the Company,
and
CERTAIN COMMERCIAL LENDING INSTITUTIONS
as the Lenders,
and
THE CHASE MANHATTAN BANK, N.A.
as Administrative Agent for the Lenders.
==============================================================
<PAGE> 2
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dared as of March 29, 1996, among CHICAGO TITLE AND
TRUST COMPANY, an Illinois corporation (the "Company"), the various financial
institutions as are or may become parties hereto (collectively, the "Lenders"),
and THE CHASE MANHATTAN BANK, N.A., as Administrative agent (the "Administrative
Agent") for the Lenders.
W I T N E S E T H:
WHEREAS, the Company is engaged directly and through its various
Subsidiaries in the business of issuing title insurance; and
WHEREAS, the Company is party to an Amended and Restated Credit Agreement.
dazed as of December 30, 1993 (the "Existing Credit Agreement"), among the
Company, the various financial institutions party thereto, The Continental Bank
N.A., as agent and United States National Bank of Oregon, Bank of America
National Trust and Savings Association and Harris Trust and Savings Bank, as
Co-Agents, pursuant to which the Company borrowed $71,000,000 in certain term
loans (the "Existing Loans") and
WHEREAS, the Company wishes to refinance the $50,000,000 of Existing Loans
currently outstanding under the Existing Credit Agreement, and the Lenders and
the Administrative Agent wish to make available to the Company the loans
provided for herein to effect such refinancing, in each case on the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, and subject to the terms and conditions hereof, the parties hereto,
intending to be bound hereby, further agree as follows:
SECTION 1. DEFINITIONS
SECTION 1.1 Defined Terms. The following terms (whether or not
underscored) when used In this Agreement, including its Preamble and Recitals,
shall, except where the context otherwise requires, have the following meanings
(such meanings to be equally applicable to the singular and plural forms
thereof):
Additional Capital Contributions shall mean all capital contributions made
to the Company by or on behalf of its parent corporation subsequent to December
31, 1989.
<PAGE> 3
TABLE OF CONTENTS
Page
SECTION 1. DEFINTTIONS ................................................ 1
1.1 Defined Terms ............................................... 1
1.2 Use of Defined Terms ........................................ 12
1.3 Cross-References ............................................ 12
1.4 Accounting Terms; Financial Statements ...................... 12
SECTION 2. COMMITMENT OF THE LENDERS; CONDITIONS ...................... 12
2.1 Commitment .................................................. 12
2.2 Borrowing Procedure ......................................... 12
2.3 Conditions to the Loan ...................................... 13
SECTION 3. NOTES EVIDENCING THE LOAN .................................. 13
3.1 Notes ....................................................... 13
3.2 Maturity of Notes ........................................... 13
3.3 Prepayment .................................................. 13
SECTION 4. INTEREST ................................................... 14
4.1 Continuation and Conversion Elections ....................... 14
4.2 Funding ..................................................... 14
4.3 Interest Provisions ......................................... 14
4.3.1 Rates ................................................ 14
4.3.2 Post-Maturity Rates .................................. 15
4.3.3 Payment Dates ........................................ 15
SECTION 5. FEES ....................................................... 15
5.1 Fees ........................................................ 15
5.2 Administrative Agent's Fee .................................. 15
SECTION 6. CERTAIN LIBO RATE AND OTHER PROVISIONS ..................... 16
6.1 Fixed Rate Lending Unlawful ................................. 16
6.2 Deposits Unavailable ........................................ 16
6.3 Increased LIBO Rate Loan Costs, etc ......................... 16
(i)
<PAGE> 4
Page
6.4 Funding Losses .............................................. 17
6.5 Increased Capital Costs ..................................... 17
6.6 Taxes ....................................................... 18
6.7 Payments, Computations, etc ................................. 19
6.8 Sharing of Payments ......................................... 20
6.9 Setoff ...................................................... 20
6.10 Use of Proceeds ............................................ 21
SECTION 7. WARRANTIES ................................................. 21
7.1 Organization, etc ........................................... 21
7.2 Authorization; No Conflict .................................. 21
7.3 Validity and Binding Nature ................................. 21
7.4 Financial Statements ........................................ 21
7.5 Litigation and Contingent Liabilities ....................... 22
7.6 Liens ....................................................... 22
7.7 Subsidiaries ................................................ 22
7.8 Investment Company Act ...................................... 23
7.9 Public Utility Holding Company Act .......................... 23
7.10 Regulation U ............................................... 23
7.11 Ownership of Properties .................................... 23
7.12 Taxes ...................................................... 23
7.13 Pension and Welfare Plans .................................. 23
7.14 Accuracy of Information .................................... 24
SECTION 8. COMPANY'S COVENANTS ........................................ 24
8.1 Reports, Certificates and Other Information ................. 24
8.1.1 Company Audit Report ................................ 24
8.1.2 Annual Company Unaudited Statements ................. 25
8.1.3 Company Interim Reports ............................. 25
8.1.4 Certificates ........................................ 25
8.1.5 Annual Statement Blanks ............................. 25
8.1.6 Quarterly Statement Blanks .......................... 25
8.1.7 Notice of Default and Litigation .................... 25
8.1.8 Subsidiaries ........................................ 26
8.1.9 ERISA ............................................... 26
8.1.10 Additional Information ............................. 26
8.2 Books, Records and Inspections .............................. 26
8.3 Insurance ................................................... 26
8.4 Taxes ....................................................... 26
8.5 Consolidated Net Worth ...................................... 27
8.6 Statutory Surplus ........................................... 27
(ii)
<PAGE> 5
Page
8.7 Interest Expense Coverage Ratio ............................ 27
8.8 Liquidity .................................................. 27
8.9 Loss Reserve Ratio ......................................... 27
8.l0 Restricted Payments ....................................... 27
8.11 Indebtedness .............................................. 28
8.l2 Liens ..................................................... 28
8.13 Mergers, Consolidations, Purchases ........................ 29
8.14 Asset Dispositions ........................................ 30
8.15 Debt-to-Equity Ratio ...................................... 30
8.16 Existing Business ......................................... 30
8.17 Other Agreements .......................................... 30
8.l8 Merrill Lynch Lease ....................................... 30
SECTION 9. CONDITIONS OF LENDING ................................... 31
9.1 Documents .................................................. 31
9.1.1 Notes ............................................... 31
9.1.2 Corporate Documents ................................. 31
9.1.3 Payoff Letter ....................................... 31
9.1.4 Incumbency and Signatures ........................... 31
9.1.5 Opinion of Counsel for the Company .................. 31
9.1.6 Confirmatory Certificate ............................ 32
9.1.7 Other ............................................... 32
9.2 Further Conditions ......................................... 32
SECTION 10. EVENTS OF DEFAULT AND THEIR EFFECT ........................ 32
10.1 Events of Default ......................................... 32
10.1.1 Non-Payment of Notes, etc .......................... 32
10.1.2 Non-Payment of Other Indebtedness .................. 32
10.1.3 Bankruptcy, Insolvency, etc ........................ 33
10.1.4 Non-Compliance with this Agreement ................. 33
10.1.5 Warranties ......................................... 33
10.1.6 Change of Control .................................. 33
10.1.7 Judgments .......................................... 34
10.1.8 Pension Plans ...................................... 34
10.2 Effect of Event of Default ................................ 34
SECTION 11. THE ADMINISTRATIVE AGENT .................................. 34
11.1 Actions ................................................... 34
11.2 Funding Reliance, etc ..................................... 35
11.3 Exculpation ............................................... 35
11.4 Successor ................................................. 36
(iii)
<PAGE> 6
Page
11.5 Loans by Chase ........................................... 36
11.6 Credit Decisions ......................................... 36
11.7 Copies, etc .............................................. 36
SECTION 12. MISCELLANEOUS PROVISIONS ................................. 37
12.1 Waivers, Amendments, etc ................................. 37
12.2 Notices .................................................. 38
12.3 Costs, Expenses and Taxes ................................ 38
12.4 Indemnification .......................................... 39
12.5 Survival ................................................. 39
12.6 Severability ............................................. 40
12.7 Captions ................................................. 40
12.8 Execution in Counterparts, Effectiveness, etc ............ 40
12.9 Governing Law ............................................ 40
12.10 Successors and Assigns .................................. 40
12.11 Sale and Transfer of Notes; Participations in Notes ..... 40
12.11.1 Assignments ..................................... 41
12.11.2 Participations .................................. 42
12.12 Other Transactions ...................................... 43
12.13 Forum Selection and Consent to Jurisdiction ............. 43
12.14 Waiver of Jury Trial .................................... 44
12.15 Confidentiality ......................................... 44
EXHIBITS
Exhibit A - Note
Exhibit B - Continuation/Conversion Notice
Exhibit C - Lender Assignment Agreement
Exhibit D - Scheduled Properties
SCHEDULES
Schedule 7.5 - Litigation and Contingent Claims
Schedule 7.6 - Liens
Schedule 7.7 - Subsidiaries
Schedule 7.13 - ERISA
Schedule 8.11 - Indebtedness
(iv)
<PAGE> 7
Adjusted Total Assets shall mean for any fiscal year the total assets of
the Company and its Subsidiaries on a consolidated basis as at the commencement
of such fiscal year, as shown on a consolidated balance sheet of the Company
prepared as at the end of the preceding fiscal year in accordance with generally
accepted accounting principles consistently applied, less any amounts shown on
such consolidated balance sheet representing Unrestricted Assets.
Administrative Agent is defined in the preamble and includes each other
Person as shall have subsequently been appointed as the successor Administrative
Agent pursuant to Section 11.4.
Affiliate of any Person shall mean a corporation which controls, is
controlled by or is under common control with such Person.
Agreement shall mean, on any date, this Credit Agreement as the same may,
from time to time, be amended, supplemented, amended and restated, or otherwise
modified and in effect.
Alternate Reference Rate shall mean, on any date and with respect to all
Reference Rate Loans, a fluctuating rate of interest per annum equal to the
higher of
(a) the rate of interest most recently announced by Chase at its Domestic
Office as its prime lending rate; and
(b) the Federal Funds Effective Rate most recently determined by the Agent
plus 0.50%.
The Alternate Reference Rate is not necessarily intended to be the lowest rate
of interest determined by Chase in connection with extensions of credit. Changes
in the rate of interest on the Notes while maintained as Reference Rate Loans
will take effect simultaneously with each change in the Alternate Reference
Rate. The Agent will give notice promptly to the Company and the Lenders of
changes in the Alternate Reference Rate.
Annual Payment Date shall mean each regularly scheduled date for the
payment of principal pursuant to Section 3.2.
Annual Statement Blank shall mean the annual statement of the conditions
and affairs of each Title Insurance Subsidiary in the form prescribed by its
applicable State regulatory authority for title insurance companies and prepared
in accordance with applicable statutory accounting principles.
-2-
<PAGE> 8
Approved Investments shall mean investments (i) in direct obligations of,
or obligations the principal of and interest on which are fully guaranteed by,
the United States of America, (ii) in obligations issued or guaranteed by any
agency or instrumentality of the United States of America, (iii) in certificates
of deposit of, and time deposits in, any bank organized under the laws of the
United States of America or any State thereof whose short-term commercial paper
rating from Standard & Poor's Corporation is at least A-1 or the equivalent
thereof or from Moody's Investors Service, Inc. is at least P-1 or the
equivalent thereof (or in the event that neither such company is providing such
service, any other similar nationally recognized rating service), or (iv) in
short-term notes or other obligations rated P-1 by Moody's investors Service,
Inc. or A-1 by Standard and Poor's Corporation (or in the event that neither
such company is providing such service, any other similar nationally recognized
rating service); provided that all Investments in the obligations of any single
issuer (other than pursuant to clauses (i) and (ii) above) shall not exceed the
greater of (x) $60,000,000 and (y) 20% of all Approved Investments.
Assignee Lender is defined in Section 12.11.1
Business Day shall mean
(a) any day which is neither a Saturday or Sunday nor a legal
holiday on which banks are authorized or required to be closed in Chicago,
Illinois and New York, New York; and
(b) relative to the making, continuing, prepaying or repaying of any
LIBO Rate Loans, any day on which dealings in Dollars are carried on in the
London interbank market
Capitalized Lease Obligations shall mean the present value (determined in
accordance with generally accepted accounting principles) of obligations to pay
future rentals under a lease, under which lease the obligations of the lessee
are required under generally accepted accounting principles to be shown as a
liability on the balance sheet of such lessee; provided that in the event the
Merrill Lynch Lease is required to be treated as a capitalized lease for
accounting purposes, the term "Capitalized Lease Obligations" shall not include
the Merrill Lynch Lease Obligations.
Cash and Marketable Securities shall mean as at the end of any fiscal
quarter (i) with respect to the Title Insurance Subsidiaries all assets on a
combined basis for the Title Insurance Subsidiaries which are included on page
2, lines 1, 2.1, 2.2, 6.1 and 6.2 (excluding preferred stock and common stock of
Affiliates) of the Form 9 Annual Statement Blank and the Quarterly Statement
Blank of the Title Insurance Subsidiaries as at such date (or the equivalent
items if the forms of said Annual Statement Blank or Quarterly Statement Blank
shall be amended) and (ii) with respect to the Company, all assets which would
be
-3-
<PAGE> 9
included on page 2, lines 1,2.1,2.2, 6.1 and 6.2 (excluding preferred stock and
common stock of Affiliates) of the Form 9 Annual Statement Blank of the Company
(or the equivalent items if the form of said Annual Statement Blank shall be
amended) if the Company was filing such form based on applicable statutory
accounting principles applied on a basis consistent with those applied on
12/31/95.
Chase shall mean The Chase Manhattan Bank, N.A., and any successor
corporation thereto by merger, consolidation or otherwise.
Commitment shall mean, relative to any Lender, such Lender's obligation to
make Loans pursuant to Section 2.1.
Commitment Amount shall mean, on any date $50,000,000, or such lesser
amount as is borrowed by the Company on the Loan Date.
Company - see Preamble.
Consolidated Net Income shall mean consolidated total revenues of the
Company and its Subsidiaries, less all consolidated charges which should be
deducted before arriving at net income, as determined in accordance with
generally accepted accounting principles.
Consolidated Net Worth shall mean the sum of the capital stock, additional
paid-in capital and retained earnings accounts of the Company and its
Subsidiaries as shown on the Company's consolidated balance sheet prepared in
accordance with generally accepted accounting principles; provided, however that
Consolidated Net Worth shall be reduced by the face amount of any debt
instruments of Affiliates which are not Subsidiaries of the Company owned by the
Company or its Subsidiaries, The Company implemented at December 31,1993, the
provisions of Statement of Financial Accounting Standards Bulletin Number 115.
Under this statement, the Company's investments in certain marketable securities
are valued at fair values, with the changes in such values being recorded
directly in stockholder's equity. The Company and the Lenders agree that for
purposes of the computation of Consolidated Net Worth, the changes resulting
from revaluations, either increases or decreases, shall be excluded from such
computations.
Continuation/Conversion Notice shall mean a notice of continuation or
conversion and certificate duly executed by the Company, substantially in the
form of Exhibit B hereto.
Controlled Group shall mean all members of a controlled group of
corporations and all members of a controlled group of trades or businesses
(whether or not incorporated) under common control which, together with the
Company, are treated as a single employer under Section 414(b) or 414(c) of the
Internal Revenue Code or Section 4001 of ERISA.
-4-
<PAGE> 10
CTI shall mean Chicago Title Insurance Company, a Missouri corporation and
Subsidiary of the Company.
Debt Service shall mean, for any fiscal period, the sum of (i) Interest
Expense for such period, plus (ii) all amounts of principal paid or payable on
all indebtedness for borrowed money or for the deferred purchase price of
property (including the Notes for such period, plus (iii) any reductions from
time to time in Capitalized Lease Obligations appearing as indebtedness on the
liability side of a balance sheet in accordance with generally accepted
accounting principles; provided that the term "Debt Service" shall not include
any obligation to the extent such obligation is permitted by Section 8.11(v),
8.11(vii) or 8.11(x); and provided further, that in the event the Merrill Lynch
Lease is required to be treated as a capital lease for accounting purposes, the
term "Debt Service" shall not include the Merrill Lynch Lease Obligations.
Dollar and $ shall mean lawful money of the United States.
Domestic Office shall mean, relative to any Lender, the office of such
Lender designated as such below its signature hereto or designated in the Lender
Assignment Agreement or such other office of a Lender (or any successor or
assign of such Lender) within the United States as may be designated from time
to time by notice from such Lender, as the case may be, to each other Person
party hereto.
Earnings Before Interest and Taxes shall mean, for any fiscal period, the
sum of (i) Consolidated Net Income of the Company for such period, plus (ii) all
Interest Expense of the Company and its Subsidiaries deducted in determining
Consolidated Net Income for such period, plus (iii) any provision for Federal
income taxes deducted in determining Consolidated Net Income for such period, as
determined in accordance with generally accepted accounting principles.
Environmental Laws shall mean all applicable federal, state or local
statutes, laws, ordinances, codes, rules, regulations and guidelines (including
consent decrees and administrative orders) relating to public health and safety
and protection of the environment
ERISA shall mean the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time. References
to sections of ERISA also refer to any successor sections.
Event of Default shall mean any of the events described in Section 10.1.
Existing Credit Agreement - see Recitals.
-5-
<PAGE> 11
Existing Loans - see Recitals.
Federal Funds Effective Rate shall mean, for any period, a fluctuating
interest rate per annum equal for each day during such period to
(a) the weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System arranged by federal
funds brokers, as published for such day (or, if such day is not a Business Day,
for the next preceding Business Day) by the Federal Reserve Bank of New York; or
(b) if such rate is not so published for any day which is a Business
Day, the average of the quotations for such day on transactions in an amount
equal to the outstanding principal amount of the Notes received by the
Administrative Agent from three federal funds brokers of recognized standing
selected by it.
Indemnified Liabilities is defined in Section 12.4.
Indemnified Parties is defined in Section 12.4.
Interest Expense shall mean, for any fiscal period, all amounts paid or
payable by the Company and its Subsidiaries on a consolidated basis as interest
expense on all indebtedness for borrowed money or for the deferred purchase
price of property or as the implicit interest expense on all obligations which
are regarded as capital leases for accounting purposes, as determined in
accordance with generally accepted accounting principles, provided that the term
"Interest Expense" shall not include any interest on any obligation to the
extent such obligation is permitted by Section 8.11(v), 8.11(vii) or 8.11(x);
provided further that in the event the Merrill Lynch Lease is required to be
treated as a capital lease for accounting purposes, the term "Interest Expense"
shall not include any interest on the Merrill Lynch Lease Obligation.
Interest Period shall mean, relative to any LIBO Rate Loans, the period
beginning on (and including) the date on which such LIBO Rate Loan is made or
continued as, or continued into, a LIBO Rate Loan pursuant to Section 4.1 and
shall end on (but exclude) the day which numerically corresponds to such date
one, three or six months thereafter (or, if such month has no numerically
corresponding day, on the last Business Day of such month), in either case as
the Company may select in its relevant notice pursuant to Section 4.1; provided,
however, that
(a) if such Interest Period would otherwise end on a day which is
not a Business Day, such Interest Period shall end on the next following
Business Day unless such next following Business Day is the first Business Day
of a calendar month, in which
-6-
<PAGE> 12
case such Interest Period shall end on the Business Day next preceding such
numerically corresponding day; and
(b) no Interest Period may end later than the next occurring Annual
Payment Date.
Investment Borrowings shall mean indebtedness of the Company or a
Subsidiary having a maturity of 92 days or less representing borrowings from a
bank or banks with which the Company or such Subsidiary has a depositary
relationship, which borrowings shall be fully secured by Approved Investments
purchased by the Company with the proceeds of such borrowings.
Lender Assignment Agreement shall mean a Lender Assignment Agreement
substantially in the form of Exhibit C hereto.
Lenders - see Preamble.
LIBO Rate shall mean, relative to any Interest Period for LIBO Rate Loans,
the rate of interest equal to the average (rounded upwards, if necessary, to the
nearest 1/100 of 1%) of the rates per annum at which Dollar deposits in
immediately available funds are offered to Chase's LIBOR Office in the London
interbank market as at or about 11:00 a.m. (London time) two Business Days prior
to the beginning of such Interest Period for delivery on the first day of such
Interest Period, and in an amount approximately equal to the amount of the Notes
and for a period approximately equal to such Interest Period.
LIBO Rate Loan shall mean the Notes while bearing interest, at all times
during the applicable Interest Period, at a fixed rate of interest determined by
reference to the LIBO Rate (Reserve Adjusted).
LIBO Rate (Reserve Adjusted) shall mean, relative to any LIBO Rate Loan
for any Interest Period, a rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of 1%) determined pursuant to the following formula
LIBO Rate = LIBO Rate
---------------------------------
(Reserve Adjusted) 1.00 - LIBOR Reserve Percentage
The LIBO Rate (Reserve Adjusted) for any Interest Period for LIBO Rate
Loans will be determined by the Administrative Agent on the basis of the LIBOR
Reserve Percentage in effect on, and the applicable rates furnished to and
received by the Administrative Agent from Chase, two Business Days before the
first day of such Interest Period.
-7-
<PAGE> 13
"LIBOR Office" shall mean, relative to any Lender, the office of such
Lender designated as such below its signature hereto or designated in the Lender
Assignment Agreement or such other office of a Lender as designated from time to
time by notice from such Lender to the Company and the Administrative Agent,
whether or not outside the United States, which shall be making or maintaining
LIBO Rate Loans of such Lender hereunder.
LIBOR Reserve Percentage shall mean a percentage equal to the daily
average during each period the Note bears interest at the LIBO Rate (Reserve
Adjusted) of the percentages in effect on each day of such period, as prescribed
by the Federal Reserve Board, for determining the aggregate maximum reserve
requirements (including all basic, supplemental, marginal and other reserves)
applicable to "Eurocurrency liabilities" pursuant to Regulation D or any other
then applicable regulation of the Federal Reserve Board which prescribes
requirements applicable to "Eurocurrency liabilities," as presently defined in
Regulation D. Without limiting the effect of the foregoing, the LIBOR Reserve
Percentage shall reflect any other reserves required to be maintained against
any category of liabilities that includes deposits by reference to which the
LIBO Rate (Reserve Adjusted) is to be determined. The Notes shall be deemed to
be "Eurocurrency liabilities," as defined in Regulation D, and, as such, shall
be deemed to be subject to such reserve requirements without the benefit of, or
credit for, proration, exceptions or offsets which may be available to any
Lender from time to time under Regulation D.
Loans is defined in Section 2.1.
Loan Date is defined in Section 2.1.
Loan Documents shall mean this Agreement, the Notes and each
Continuation/Conversion Notice.
Long-Term Indebtedness shall mean all indebtedness of the Company and its
Subsidiaries for borrowed money or on account of deposits (other than trust and
escrow balances) or advances, all indebtedness of the Company and its
Subsidiaries for the deferred purchase price of property and services to the
extent provided in Section 8.11, all indebtedness of others assumed or
guaranteed by the Company or any of its Subsidiaries or in respect of which the
Company or any Subsidiary is secondarily or contingently liable (other than (x)
by endorsement of negotiable instruments in the course of collection, and (y)
other indebtedness of others guaranteed by the Company or any of its
Subsidiaries or in respect of which the Company or any Subsidiary is secondarily
or contingently liable not exceeding at any one time an aggregate of $5,000,000)
and all Capitalized Lease Obligations of the Company and its Subsidiaries, which
indebtedness or obligation is in each case by its terms payable more than one
year after the date of such determination; provided that the term "Long-Term
Indebtedness" shall not include any obligation which
-8-
<PAGE> 14
is permitted by Section 8.11(vii), 8.11(viii) or 8.12 nor shall it include any
obligation to the extent such obligation is permitted by Section 8.11(x);
provided further that in the event the Merrill Lynch Lease is required to be
treated as a capital lease for accounting purposes, the term "Long-Term
Indebtedness" shall not include the Merrill Lynch Lease Obligation.
Loss Reserves shall mean as at the end of any fiscal quarter all amounts
for the Title Insurance Subsidiaries on a combined basis which are shown as
"Reserve for undetermined title losses of which notice has been received" on
line 1(b), page 3 of the Form 9 Annual Statement Blank and the Quarterly
Statement Blank of the Title Insurance Subsidiaries as at such date (or the
equivalent item if the forms of said Annual Statement Blank or Quarterly
Statement Blank shall be amended).
Merrill Lynch Lease shall mean that certain Lease Agreement dated as of
December 29, 1988, as amended and restated as of March 3, 1989 between SRS
Funding, Inc., as lessor, and the Company, as lessee, as the same may be
amended, amended and restated, supplemented or otherwise modified from time to
time and any and all replacements or refinancings thereof, provided that such
replacements or refinancings would not have been treated as a Capitalized Lease
Obligation if such replacement or refinancing had been entered into on or before
January 1, 1991.
Merrill Lynch Lease Obligations shall mean the obligations of the Company
from time to time outstanding under the Merrill Lynch Lease in an amount not to
exceed $30,000,000; or such lesser amount as is permitted pursuant to Section
8.18.
Net Asset Sales shall mean, for any fiscal year, the excess, if any, of
(i) sales or other dispositions of assets in such fiscal year, over (ii)
purchases or other acquisitions of assets in such fiscal year; provided,
however, that Net Asset Sales shall not include sales or purchases of
Unrestricted Assets. Repayments by third parties to the Company or any
Subsidiary of loans and other amounts receivable shall not be deemed to be sales
or other dispositions of assets for purposes of the foregoing definition.
Note shall mean a promissory note of the Company payable to any Lender, in
the form of Exhibit A hereto (as such promissory note may be amended, endorsed
or otherwise modified from time to time), evidencing the aggregate indebtedness
of the Company to such Lender resulting from outstanding Loans, and also means
all other promissory notes accepted from time to time in substitution therefor
or renewal thereof.
Obligations shall mean all obligations (monetary or otherwise) of the
Company arising under and In connection with this Agreement, the Notes or any
other Loan Document.
Participant is defined in Section 12.11.
-9-
<PAGE> 15
PBGC shall mean the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
Pension Plan shall mean a "pension plan", as such term is defined in
section 3(2) of ERISA, which is subject to Title IV of ERISA (other than a
multiemployer plan as defined in section 4001(a)(3) of ERISA), and to which the
Company or any corporation, trade or business that is, along with the Company, a
member of a Controlled Group, may have liability, including any liability by
reason of having been a substantial employer within the meaning of section 4063
of ERISA at any time during the preceding five years, or by reason of being
deemed to be a contributing sponsor under section 4069 of ERISA.
Percentage shall mean, relative to any Lender, the percentage set forth
opposite its signature hereto or set forth in the Lender Assignment Agreement,
as such percentage may be adjusted from time to time pursuant to Lender
Assignment Agreement(s) executed by such Lender and its Assignee Lender(s) and
delivered pursuant to Section 12.11.
Person shall mean any natural person, corporation, partnership, firm,
association, trust, government, governmental agency or any other entity, whether
acting in an individual, fiduciary or other capacity.
Plan shall mean any Pension Plan or Welfare Plan.
Quarterly Payment Date shall mean the last day of each March, June,
September, and December or, if any such day is not a Business Day, the next
succeeding Business Day.
Quarterly Statement Blank shall mean the quarterly statement of the
conditions and affairs of each Title Insurance Subsidiary in the form prescribed
by its applicable State regulatory authority for title insurance companies and
prepared in accordance with applicable statutory accounting principles.
Reference Rate Loan shall mean the Notes while bearing interest at a
fluctuating rate determined by reference to the Alternate Reference Rate.
Required Lenders shall mean, at any time, Lenders holding at least 64% of
the then aggregate outstanding principal amount of the Notes then held by the
Lenders, or, if no such principal amount is then outstanding, Lenders having at
least 64% of the Commitments.
Restricted Payments is defined in Section 8.10.
Scheduled Properties shall mean the real property listed on Exhibit D
hereto.
-10-
<PAGE> 16
Security Union shall mean Security Union Title Insurance Company, a
California corporation.
Statutory Premium Reserve shall mean as at the end of any fiscal quarter
all amounts on a combined basis for the Title Insurance Subsidiaries which would
be shown as "statutory premium reserve" on line 2(a), page 3 of the Form 9
Annual Statement Blank and the Quarterly Statement Blank of the Title Insurance
Subsidiaries as at such date (or the equivalent item if the forms of said Annual
Statement Blank or Quarterly Statement Blank shall be amended).
Statutory Surplus shall mean as at the end of any fiscal quarter the
combined surplus of all Title insurance Subsidiaries, computed for them in the
same manner as the item that is required to be filed as "Surplus as Regards
Policy Holders" on line 22, page 3 of the Form 9 Annual Statement Blank and the
Quarterly Statement Blank of the Title Insurance Subsidiaries as at such date
(or the equivalent item if the forms of said Annual Statement Blank or Quarterly
Statement Blank shall be amended).
Subsidiary shall mean a corporation of which the Company and/or its other
Subsidiaries own, directly or indirectly, such number of outstanding shares as
have more than 50% of the ordinary voting power for the election of directors.
Taxes is defined in Section 6.6.
Title Insurance Subsidiaries shall mean CTI, Security Union and TT;
provided, that in the event a Subsidiary of CTI, Security Union or TT in
existence on the date of execution and delivery hereof subsequently becomes a
direct Subsidiary of the Company, the term "Title Insurance Subsidiaries" shall
mean CTI, Security Union, TT and such Subsidiary. In determining compliance by
the Title Insurance Subsidiaries with the various covenants applicable to them
in Section 8, such determinations shall be based on applicable statutory
accounting principles applied on a basis consistent with those at the time in
effect. It is understood and agreed that statutory accounting principles require
that all Subsidiaries of Title Insurance Subsidiaries be carried on the books of
such Title Insurance Subsidiaries on a statutory equity basis.
TT shall mean Ticor Title Insurance Company, a California corporation.
Unmatured Event of Default shall mean any event which if it continues
uncured will, with lapse of time or notice or lapse of time and notice,
constitute an Event of Default.
-11-
<PAGE> 17
Unrestricted Assets shall mean cash and marketable securities (including,
without limitation, assets pledged to secure trust and escrow deposits),
mortgages and non-operating real estate (including, without limitation, claims
acquired properties).
Welfare Plan shall mean a "welfare plan", as such term is defined in
section 3(1) of ERISA.
SECTION 1.2 Use of Defined Terms. Unless otherwise defined or the context
otherwise requires, terms for which meanings are provided in this Agreement
shall have such meanings when used in each Note, Continuation/Conversion Notice,
notice and other communication delivered from time to time in connection with
this Agreement.
SECTION 1.3 Cross-References. Unless otherwise specified, references in
this Agreement and in each other Loan Document to any Section are references to
such Section of this Agreement.
SECTION 1.4 Accounting Terms; Financial Statements. All accounting terms
used herein but not expressly defined in this Agreement have the respective
meanings given to them in accordance with generally accepted accounting
principles. Unless otherwise provided herein, all computations and
determinations for purposes of determining compliance with the financial
requirements of this Agreement shall be made in accordance with generally
accepted accounting principles on a basis consistent with those at the time in
effect.
SECTION 2. COMMITMENT OF THE LENDERS; CONDITIONS.
SECTION 2.1 Commitment. Subject to the terms and conditions of this
Agreement, each Lender severally agrees to make a loan (individually a "Loan"
and collectively the "Loans") on or before March 29, 1996 (the "Loan Date"), as
the Company may request, in an amount equal to such Lender's Percentage times
the aggregate amount requested by the Company from all Lenders. The aggregate
principal amount of the Loans which all Lenders shall be committed to make to
the Company shall not exceed $50,000,000. Each Lender's Loan shall be disbursed
in a single drawing, and once repaid may not be reborrowed.
SECTION 2.2 Borrowing Procedure. The Administrative Agent shall receive on
or before 11:00 a.m. (New York time) at least three Business Days' prior notice
from the Company of the proposed borrowing hereunder, which shall be confirmed
promptly in writing. On or before 12:00 p.m. (New York time) on the Loan Date,
each Lender shall deposit with the Administrative Agent same day funds in an
amount equal to such Lender's Percentage of the requested Loan. Such deposit
will be made to an account which the Administrative Agent shall specify by
notice to the Lenders. To the extent funds are
-12-
<PAGE> 18
received from the Lenders, the Administrative Agent shall make such funds
available to the Company by wire transfer to the account the Company shall have
specified. No Lender's obligation to make its Loan hereunder shall be affected
by any other Lender's failure to make its Loan.
SECTION 2.3 Conditions to the Loan.. Notwithstanding any other provision
of this Agreement, no Lender shall be required to make the Loans provided for
hereunder if the conditions precedent to the making of the Loans specified in
Section 9 have not been satisfied.
SECTION 3. NOTES EVIDENCING THE LOAN.
SECTION 3.1 Notes. Each Lender's Loan shall be evidenced by a Note with
appropriate insertions, dated the date hereof and payable to the order of such
Lender in the original principal amount equal to such Lender's Percentage of the
Commitment Amount. The Company hereby irrevocably authorizes each Lender to make
(or cause to be made) appropriate notations on the grid attached to such
Lender's Note (or on any continuation of such grid) or in such Lender's books
and records, which notations, if made, shall evidence, inter alia, the date of,
the outstanding principal of, and the interest rate and Interest Period
applicable to the Loan evidenced thereby. Such notations shall be conclusive and
binding on the Company absent manifest error; provided, however, that the
failure of any Lender to make any such notations shall not limit or otherwise
affect any Obligations of the Company.
SECTION 3.2 Maturity of Notes. The Company shall, on each Annual Payment
Date set forth below, make a scheduled repayment of the aggregate outstanding
principal amount of the Notes in the amount shown below opposite such Annual
Payment Date:
<TABLE>
<S> <C>
12/31/96 $10,500,000
12/31/97 $10,500,000
12/31/98 $ 9,666,666
12/31/99 $ 9,666,666
12/31/00 $ 9,666,668
</TABLE>
SECTION 3.3 Prepayments. The Company may prepay the Notes in whole or in
part at any time upon not less than three Business Days' notice to the
Administrative Agent on any Quarterly Payment Date provided the Company makes
any payments required by Section 6.4. Such prepayment may also be made on any
other date upon not less than three Business Days'. notice to the Administrative
Agent and payment of all accrued interest thereon and any payments required by
Section 6.4. Any partial prepayment shall, at the option of the Company, be
applied either pro rata to the 1998, 1999 and 2000 installments
-13-
<PAGE> 19
or pro rata to the then remaining installments. Any amount so prepaid may not be
reborrowed.
SECTION 4. INTEREST.
SECTION 4.1 Continuation and Conversion Elections. By delivering a
Continuation/Conversion Notice to the Administrative Agent on or before 11:00
a.m. (New York time) on a Business Day, the Company may from time to time
irrevocably elect on not less than three nor more than five Business Days'
notice before the end of the then current Interest Period that the Notes be, in
the case of a Reference Rate Loan, converted into a LIBO Rate Loan or, in the
case of a LIBO Rate Loan, be converted into a Reference Rate Loan or continued
as a LIBO Rate Loan. In the absence of delivery of a Continuation/Conversion
Notice with respect to any LIBO Rate Loan at least three Business Days before
the last day of the then current Interest Period with respect thereto, such LIBO
Rate Loan shall, on such last day, automatically convert to a Reference Rate
Loan; provided, however, that no Loan may be continued as, or be converted into
a LIBO Rate Loan when any Event of Default has occurred and is continuing.
SECTION 4.2 Funding. Each Lender may, if it so elects, fulfill its
obligation to make, continue or convert a LIBO Rate Loan hereunder by causing
one of its foreign branches or Affiliates (or an international banking facility
created by such Lender) to make or maintain such LIBO Rate Loan; provided,
however, that such LIBO Rate Loan shall nonetheless be deemed to have been made
and to be held by such Lender. and the obligation of the Company to repay such
LIBO Rate Loan shall nevertheless be to such Lender for the account of such
foreign branch, Affiliate or international banking facility. In addition, the
Company hereby consents and agrees that, for purposes of any determination to be
made for purposes of Sections 6.1, 6.2, 6.3 or 6.4, it shall be conclusively
assumed that each Lender elected to fund all LIBO Rate Loans by purchasing, as
the case may be, Dollar certificates of deposit in the U.S. or Dollar deposits
in its LIBOR Office's interbank eurodollar market.
SECTION 4.3 Interest Provisions Interest on the outstanding principal
amount of the Notes shall accrue and be payable in accordance with this Section
4.3.
SECTION 4.3.1 Rates. Pursuant to an appropriately delivered
Continuation/Conversion Notice, the Company may elect that the Notes accrue
interest at a rate per annum:
(a) during any period maintained from time to time as a Reference
Rate Loan, equal to the Alternate Reference Rate from time to time in effect;
and
-14-
<PAGE> 20
(b) during any period maintained as a LIBO Rate Loan, during each
Interest Period applicable thereto, equal to the sum of the LIBO Rate (Reserve
Adjusted) for such Interest Period plus a margin of 0.40%.
SECTION 4.3.2 Post-Maturity Rates. After the date any principal amount of
the Notes is due and payable (whether on the Annual Payment Date, upon
acceleration or otherwise), or after any other monetary Obligation of the
Company shall have become due and payable, the Company shall pay, but only to
the extent permitted by law, interest (after as well as before judgment) on such
amounts at a rate per annum equal to the Alternate Reference Rate plus a margin
of 2%.
SECTION 4.3.3 Payment Dates. Interest accrued on each Note shall be
payable, without duplication:
(a) on the date of any payment or prepayment of principal
outstanding on the Notes;
(b) with respect to Reference Rate Loans, on each Quarterly Payment
Date occurring after the Loan Date;
(c) with respect to LIBO Rate Loans, the last day of each applicable
Interest Period (and, if such Interest Period shall exceed 90 days. on the 90th
day of such Interest Period);
(d) with respect to any Reference Rate Loans converted into LIBO
Rate Loans on a day when interest would not otherwise have been payable pursuant
to clause (b), on the date of such conversion; and
(e) on that portion of the Notes the Annual Payment Date of which is
accelerated pursuant to Section 10.2 immediately upon such acceleration.
Interest accrued on the Notes or other monetary Obligations arising under this
Agreement or any other Loan Documents after the date such amount is due and
payable (whether on the Annual Payment Date, upon acceleration or otherwise)
shall be payable upon demand.
SECTION 5. FEES.
SECTION 5.1 Fees. The Company agrees to pay the fees set forth in this
Section 5. All such fees shall be non-refundable.
SECTION 5.2 Administrative Agent's Fee, The Company agrees to pay to the
Administrative Agent for its own account fees in the respective amounts equal to
the
-15-
<PAGE> 21
amounts previously agreed to in separate writings by the Company and the
Administrative Agent.
SECTION 6. CERTAIN LIBO RATE AND OTHER PROVISIONS.
SECTION 6.1 Fixed Rate Lending Unlawful. If any Lender shall determine
(which determination shall, upon notice thereof to the Company, the
Administrative Agent and the Lenders, be conclusive and binding on the Company)
that the introduction of or any change in or in the interpretation of any law
makes it unlawful, or any central bank or other governmental authority asserts
that it is unlawful, for such Lender to make, continue or maintain any Loan as,
or to convert its Notes into, a LIBO Rate Loan, the obligations of all Lenders
to make, continue, maintain or convert their LIBO Rate Loans shall, upon such
determination, forthwith be suspended until such Lender shall notify the
Administrative Agent. that the circumstances causing such suspension no longer
exist, and all LIBO Rate Loans shall automatically convert into Reference Rate
Loans at the end of the then current Interest Period with respect thereto or
sooner, if required by such law or assertion, In the event of a determination
pursuant to this Section 6.1, the Lenders agree to discuss alternate funding
options with the Company.
SECTION 6.2 Deposits Unavailable. If the Administrative Agent shall have
been informed by either Chase or Lenders holding 51% of the then aggregate
outstanding principal amount of the Notes that
(a) Dollar deposits in the relevant amount and for the relevant Interest
Period are not available in the relevant market; or
(b) by reason of circumstances affecting Chase's relevant market, adequate
means do not exist for ascertaining the interest rate applicable hereunder to
LIBO Rate Loans,
then, upon notice from the Administrative Agent to the Company and the Lenders,
the obligations of all Lenders under Section 4.1 to make or continue any Loans
as, or to convert any Loans into, LIBO Rate Loans shall forthwith be suspended
until the Administrative Agent shall notify the Company and the Lenders that the
circumstances causing such suspension no longer exist.
SECTION 6.3 Increased LIBO Rate Loan Costs, etc.
(a) The Company agrees to reimburse each Lender for any increase in
the cost to such Lender of, or any reduction in the amount of any sum receivable
by such Lender in respect of, making, continuing or maintaining (or of its
obligation to make, continue or maintain) its Notes as, or of converting (or of
its obligation to convert) its Notes into, a LIBO Rate Loan. Such Lender shall
promptly notify the Administrative
-16-
<PAGE> 22
Agent and the Company in writing of the occurrence of any such event, such
notice to state, in reasonable detail, the reasons therefor and the additional
amount required fully to compensate such Lender for such increased cost or
reduced amount. Such additional amounts shall be payable by the Company directly
to such Lender within five days of its receipt of such notice, and such notice
shall, in the absence of manifest error, be conclusive and binding on the
Company.
(b) Each Lender agrees, to the extent practicable, to designate a
different office of such Lender as its LIBOR Office or take such other
appropriate action if such designation or other action would effect compliance
with the law or regulation or interpretation thereof or the request, directive,
guideline or policy invoking provisions of this Section 6.3 or Section 6.1;
provided, however, that such designation need not be made and such other action
need not be taken, if it would result in any material additional costs, expenses
or risks to such Lender that are not reimbursed or indemnified by the Company or
if it would be in any other material respect contrary to sound banking practice.
SECTION 6.4 Funding Losses. In the event any Lender shall incur any loss
or expense (including any loss or expense incurred by reason of the liquidation
or reemployment of deposits or other funds acquired by such Lender to make,
continue or maintain its Notes as, or to convert its Notes into, a LIBO Rate
Loan) as a result of
(a) any conversion or repayment or prepayment of the principal
amount of any LIBO Rate Loan on a date other than the scheduled last day of the
Interest Period applicable thereto, whether pursuant to Section 3.2 or
otherwise; or
(b) the Notes not being continued as, or converted into, LIBO Rate
Loans in accordance with the Continuation/Conversion Notice therefor,
then, upon the written notice of such Lender to the Company (with a copy to the
Administrative Agent), the Company shall, within five days of its receipt
thereof, pay directly to such Lender such amount as will (in the reasonable
determination of such Lender) reimburse such Lender for such loss or expense.
Such written notice (which shall include calculations in reasonable detail)
shall, in the absence of manifest error, be conclusive and binding on the
Company.
SECTION 6.5 Increased Capital Costs. If any change in, or the
introduction, adoption, effectiveness, interpretation. reinterpretation or
phase-in of, any law or regulation, directive, guideline, decision or request
(whether or not having the force of law) of any court, central bank, regulator
or other governmental authority (Including, without limitation, any law, rule,
regulation, guideline, interpretation, directive or policy heretofore or
hereafter made or issued by any government or governmental or supervisory
authority implementing the proposals for a risk-based capital framework
described by the Basle
-17-
<PAGE> 23
Committee on Banking Regulations and Supervisory Practices in its paper entitled
"International Convergence of Capital Measurement and Capital Standards" dated
July, 1988) affects or would affect the amount of capital required or expected
to be maintained by any Lender or any Person controlling such Lender, and such
Lender determines (in its sole and absolute discretion) that the rate of return
on its or such controlling Person's capital as a consequence of its Commitment
or the Loans made by such Lender is reduced to a level below that which such
Lender or such controlling Person could have achieved but for the occurrence of
any such circumstance, then, in any such case upon notice from time to time by
such Lender to the Company, the Company shall immediately pay directly to such
Lender additional amounts sufficient to compensate such Lender or such
controlling Person for such reduction in rate of return. A statement of such
Lender as to any such additional amount or amounts (including calculations
thereof in reasonable detail) shall, in the absence of manifest error, be
conclusive and binding on the Company. In determining such amount, such Lender
may use any method of averaging and attribution that it (in its sole and
absolute discretion) shall deem applicable.
SECTION 6.6 Taxes. All payments by the Company of principal of, and
interest on, the Notes and all other amounts payable hereunder shall be made
free and clear of and without deduction for any present or future income,
excise, stamp or franchise taxes and other taxes, fees, duties, withholdings or
other charges of any nature whatsoever imposed by any taxing authority, but
excluding franchise taxes and taxes imposed on or measured by any Lender's net
income or receipts (such non-excluded items being called "Taxes"). In the event
that any withholding or deduction from any payment to be made by the Company
hereunder is required in respect of any Taxes pursuant to any applicable law,
rule or regulation, then the Company will
(a) pay directly to the relevant authority the full amount required
to be so withheld or deducted;
(b) promptly forward to the Administrative Agent an official receipt
or other documentation satisfactory to the Administrative Agent evidencing such
payment to such authority; and
(c) pay to the Administrative Agent for the account of the Lenders
such additional amount or amounts as is necessary to ensure that the net amount
actually received by each Lender will equal the full amount such Lender would
have received had no such withholding or deduction been required.
Moreover, if any Taxes are directly asserted against the Administrative Agent or
any Lender with respect to any payment received by the Administrative Agent or
such Lender hereunder, the Administrative Agent or such Lender may pay such
Taxes and the Company will promptly pay such additional amounts (including any
penalties, interest or expenses)
-18-
<PAGE> 24
as is necessary in order that the net amount received by such Person after the
payment of such Taxes (including any Taxes on such additional amount) shall
equal the amount such Person would have received had not such Taxes been
asserted.
If the Company fails to pay any Taxes when due to the appropriate taxing
authority or fails to remit to the Administrative Agent, for the account of the
respective Lenders, the required receipts or other required documentary
evidence, the Company shall indemnify the Lenders for any incremental Taxes,
interest or penalties that may become payable by any Lender as a result of any
such failure. For purposes of this Section 6.6, a distribution hereunder by the
Administrative Agent or any Lender to or for the account of any Lender shall be
deemed a payment by the Company.
Upon the request of the Company or the Administrative Agent, each Lender
that is organized under the laws of a jurisdiction other than the United States
shall, prior to the due date of any payments under the Notes. execute and
deliver to the Company and the Administrative Agent, on or about the first
scheduled payment date in each fiscal year, one or more. (as the Company or the
Administrative Agent may reasonably request) United States Internal Revenue
Service Forms 4224 or Forms 1001 or such other forms or documents (or successor
forms or documents), appropriately completed, as may be applicable to establish
the extent, if any, to which a payment to such Lender is exempt from withholding
or deduction of Taxes.
SECTION 6.7 Payments, Computations, etc. Unless otherwise expressly
provided, all payments by the Company pursuant to this Agreement or the Notes
shall be made by the Company to the Administrative Agent for the pro rata
account of the Lenders entitled to receive such payment. All such payments
required to be made to the Administrative Agent shall be made, without setoff,
deduction or counterclaim, not later than 12:00 p.m. (New York time) on the date
due, in same day or immediately available funds, to such account as the
Administrative Agent shall specify from time to time by notice to the Company;
provided that such payment shall not be a waiver by the Company of any right of
setoff, deduction or counterclaim. Funds received after that time shall be
deemed to have been received by the Administrative Agent on the next succeeding
Business Day. The Administrative Agent shall promptly remit in same day funds to
each Lender its share, if any, of such payments received by the Administrative
Agent for the account of such Lender. All interest and fees shall be computed on
the basis of the actual number of days (including the first day but excluding
the last day) occurring during the period for which such interest or fee is
payable over a year comprised of (i) in the case of LIBO Rate Loans, 360 days
and (ii) in the case of Reference Rate Loans or fees, 365 days. Whenever any
payment to be made shall otherwise be due on a day which is not a Business Day,
such payment shall (except as otherwise required by clause (a) of the definition
of the term "Interest Period" with respect to LIBO Rate Loans) be made on the
next succeeding
-19-
<PAGE> 25
Business Day and such extension of time shall be included in computing interest
and fees, if any, in connection with such payment.
SECTION 6.8 Sharing of Payments. If any Lender shall obtain any payment or
other recovery (whether voluntary, involuntary, by application of setoff or
otherwise) on account of any Loan (other than pursuant to the terms of Sections
6.3, 6.4 and 6.5) in excess of its pro rata share of payments then or therewith
obtained by all Lenders, such Lender shall purchase from the other Lenders such
participations in their Notes as shall be necessary to cause such purchasing
Lender to share the excess payment or other recovery ratably with each of them;
provided, however, that if all or any portion of the excess payment or other
recovery is thereafter recovered from such purchasing Lender, the purchase shall
be rescinded and each Lender which has sold a participation to the purchasing
Lender shall repay to the purchasing Lender the purchase price to the ratable
extent of such recovery together with an amount equal to such selling Lender's
ratable share (according to the proportion of
(a) the amount of such selling Lender's required repayment to the
purchasing Lender
to
(b) the total amount so recovered from the purchasing Lender)
of any interest or other amount paid or payable by the purchasing Lender in
respect of the total amount so recovered. The. Company agrees that any Lender so
purchasing a participation from another Lender pursuant to this Section may, to
the fullest extent permitted by law, exercise all its rights of payment
(including pursuant to Section 6.9) with respect to such participation as fully
as if such Lender were the direct creditor of the Company in the amount of such
participation. If under any applicable bankruptcy, insolvency or other similar
law, any Lender receives a secured claim in lieu of a setoff to which this
Section applies, such Lender shall, to the extent practicable, exercise its
rights in respect of such secured claim in a manner consistent with the rights
of the Lenders entitled under this Section to share in the benefits of any
recovery on such secured claim.
SECTION 6.9 Setoff. Each Lender shall, upon the occurrence of any Default
described in Section 10.1.3 or any other Event of Default, have the right to
appropriate and apply to the payment of the Obligations owing to it (whether or
not then due), and (as security for such Obligations) the Company hereby grants
to each Lender a continuing security interest in, any and all balances, credits,
deposits, accounts or moneys of the Company (other than accounts held in a
fiduciary capacity) then or thereafter maintained with such Lender; provided,
however, that any such appropriation and application shall be subject to the
provisions of Section 6.8. Each Lender agrees promptly to notify the
-20-
<PAGE> 26
Company and the Administrative Agent after any such setoff and application made
by such Lender; provided, however, that the failure to give such notice shall
not affect the validity of such setoff and application. The rights of each
Lender under this Section are in addition to other rights and remedies
(including other rights of setoff under applicable law or otherwise) which such
Lender may have.
SECTION 6.10 Use of Proceeds, The Company will apply the proceeds of the
Loans to refinance the Existing Loans; without limiting the foregoing, no
proceeds of any Loan will be used to acquire any equity security of a class
which is registered pursuant to Section 12 of the Securities Exchange Act of
1934 or any "margin stock", as defined in Regulation U of the Board of Governors
of the Federal Reserve System.
SECTION 7. WARRANTIES. To induce the Lenders and the Administrative Agent
to enter into this Agreement and to make the Loans hereunder, the Company
represents and warrants unto the Administrative Agent and each Lender that:
SECTION 7.1 Organization, etc. The Company is a corporation duly existing
and in good standing under the laws of the State of Illinois; each Subsidiary is
a corporation duly existing and in good standing under the laws of the state of
its respective incorporation; the Company and each Subsidiary is duly qualified
and in good standing as a foreign corporation authorized to do business in each
jurisdiction where the failure to be so qualified would have a material adverse
effect on the operation of the Company or such Subsidiary; and the Company has
full power and authority and holds all requisite governmental licenses, permits
and other approvals to own and hold its properties and to conduct its business
substantially as currently conducted by it.
SECTION 7.2 Authorization: No Conflict. The execution and delivery of this
Agreement, the borrowing hereunder, the execution and delivery of the Notes, and
the performance by the Company of its obligations under this Agreement and the
Notes, are within the Company's corporate powers, have been duly authorized by
all necessary corporate action on the part of the Company, and do not and will
not contravene or conflict with any provision of law, governmental regulation or
court decree or order to which the Company is subject or of the charter or
by-laws of the Company or of any agreement binding upon the Company, or result
in or require the imposition of, a lien on any of the Company's or its
Subsidiaries properties.
SECTION 7.3 Validity and Binding Nature. This Agreement is, and the Notes
when duly executed and delivered will be, legal, valid and binding obligations
of the Company enforceable against the Company in accordance with their
respective terms.
SECTION 7.4 Financial Statements. The Company's audited consolidated
financial statements as at December 31, 1995, copies of which have been
furnished to the Lenders,
-21-
<PAGE> 27
have been prepared in conformity with generally accepted accounting principles
applied on a basis consistent with that of the preceding fiscal year, and
present fairly the financial condition of the Company and its Subsidiaries as at
December 31, 1995 and the results of their operations for the fiscal year ended
December 31, 1995; and since December 31, 1995 there has been no material
adverse change in their financial condition or operations. Each of the Annual
Statement Blank for CTI and Security Union as at December 31, 1995, copies of
which have been furnished to the Lenders, has been prepared in conformity with
applicable statutory accounting principles applied on a basis consistent with
that of the preceding fiscal year, and presents fairly the financial condition
of CTI or Security Union, as the case may be, as at such date and the results of
their operations for the period then ended, and since such date there has been
no material adverse change in their statutory condition as reflected in such
Annual Statement Blank.
SECTION 7.5 Litigation and Contingent Liabilities. Schedule 7.5 hereto
sets forth a list, as of the date specified, of all pending, litigation,
including, without limitation, title insurance claims and claims arising under
Environmental Laws, which, if adversely determined, are likely to result in a
judgment in any one case against the Company or any Subsidiary of $100,000 or
more over and above any applicable insurance coverage. All pending litigation,
including, without limitation, title insurance claims and claims arising under
Environmental Laws, which, if adversely determined, is likely to result in a
judgment in any one case against the Company or any Subsidiary of less than
$100,000 over and above any applicable insurance coverage does not exceed
$50,000,000 in the aggregate. Except as set forth in such Schedule, no
litigation (including, without limitation, derivative actions), arbitration
proceedings or governmental proceedings are pending or, to the best knowledge of
the Company, threatened against the Company or any Subsidiary which would, if
adversely determined, materially and adversely affect the financial condition or
continued operations of the Company and its Subsidiaries, taken as a whole.
Other than any liability incident to such litigation or proceedings and
contingent liabilities of the Title Insurance Subsidiaries incurred in the
ordinary course of their business, neither the Company nor its Subsidiaries have
any contingent liabilities which would have a material adverse effect on the
financial condition or operations of the Company and its Subsidiaries, taken as
a whole, which are not provided for or disclosed in the financial statements
referred to in Section 7.4.
SECTION 7.6 Liens. None of the assets of the Company or any Subsidiary is
subject to any mortgage, pledge, title retention lien, or other lien,
encumbrance or security interest, except as permitted under Section 8.12.
SECTION 7.7 Subsidiaries. The Company has no Subsidiaries except those
listed in Schedule 7.7.
-22-
<PAGE> 28
SECTION 7.8 Investment Company Act. The Company is not an "investment
company" or a company "controlled" by an Investment company, within the meaning
of the Investment Company Act of 1940, as amended.
SECTION 7.9 Public Utility Holding Company Act. Neither the Company nor
any Subsidiary is a "holding company", or a "subsidiary company" of a "holding
company", or an "affiliate", of a "holding company" or of a "subsidiary company"
of a "holding company", within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
SECTION 7.10 Regulation U. The Company is not engaged principally, or as
one of its important activities, in the business of extending credit for the
purpose of purchasing or carrying margin stock (within the meaning of Regulation
U of the Board of Governors of the Federal Reserve System).
SECTION 7.11 Ownership of Properties. The Company and each of its
Subsidiaries owns good and marketable title to all of its properties and assets,
real and personal, tangible and intangible, of any nature whatsoever (including
patents, trademarks, trade names, service marks and copyrights), free and clear
of all liens, charges or claims (including infringement claims with respect to
patents, trademarks, copyrights and the like) except as permitted pursuant to
Section 8.12. The Company and each of its Subsidiaries is in compliance with all
material requirements of law, including Environmental Laws, and all terms and
provisions of all contracts and other instruments binding upon the Company or
any of its properties or other assets, the failure to comply with which would
have a material adverse effect on the ability of the Company to perform its
obligations under or with respect to this Agreement or the other Loan Documents.
SECTION 7.12 Taxes. The Company and its Subsidiaries have filed all tax
returns and reports required by law to have been filed by it and has paid all
taxes and governmental charges thereby shown to be owing, except any such taxes
or charges which are being diligently contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with generally
accepted accounting principles shall have been set aside on its books.
SECTION 7.13 Pension and Welfare Plans. During the
twelve-consecutive-month period prior to the date of the execution and delivery
of this Agreement and prior to the Loan Date, no steps have been taken to
terminate any plan, and no contribution failure has occurred with respect to any
Pension Plan sufficient to give rise to a lien under section 302(f) of ERISA. No
condition exists or event or transaction has occurred with respect to any
Pension Plan which might result in the incurrence by the Company or any member
of the Controlled Group of any material liability, fine or penalty. Except as
disclosed in Schedule 7.13, neither the Company nor any member of the Controlled
Group has any
-23-
<PAGE> 29
contingent liability with respect to any post-retirement benefit under a Welfare
Plan, other than liability for continuation coverage described in Part 6 of
Title I of ERISA.
SECTION 7.14 Accuracy of Information. All factual information heretofore
or contemporaneously furnished by or on behalf of the Company in writing to the
Administrative Agent or any Lender for purposes of or in connection with this
Agreement or any transaction contemplated hereby is, and all other such factual
information hereafter furnished by or on behalf of the Company to the
Administrative Agent or any Lender will be, true and accurate in every material
respect on the date as of which such information is dated or certified and as of
the date of execution and delivery of this Agreement by the Administrative Agent
and such Lender, and such information is not, or shall not be, as the case may
be, incomplete by omitting to state any material fact necessary to make such
information not misleading.
SECTION 8. COMPANY'S COVENANTS.
Until the expiration or termination of the Commitment and thereafter until
all obligations of the Company hereunder are performed and all obligations under
the Notes are paid in full, the Company agrees that it will:
SECTION 8.1 Reports, Certificates and Other Information. Furnish to the
Administrative Agent (with sufficient copies for the Lenders):
SECTION 8.1.1 Company Audit Report. Within 90 days after each fiscal year
of the Company, a copy of an annual audit report of the Company and its
Subsidiaries prepared on a consolidated basis and in conformity with generally
accepted accounting principles applied on a basis consistent (to the extent
possible) with the audited consolidated financial statements of the Company and
its Subsidiaries as at December 31, 1995, duly certified by independent
certified public accountants of recognized standing selected by the Company,
together with (i) a certificate from such accountants containing a computation
(prepared either by such accountants or the Company) of, and showing compliance
with, each of the financial ratios and restrictions contained in this Section 8
and to the effect that, in making the examination necessary for the signing of
such annual audit report by such accountants, they have not become aware of any
Event of Default or Unmatured Event of Default that has occurred and is
continuing, or if they have become aware of any such event, describing it and
the steps, if any, being taken by the Company to cure it and (ii) a letter
addressed to the Company, the Administrative Agent and the Lenders from such
accountants stating that such accountants have been informed that a primary
intent of the Company was that the professional services performed by such
accountants in preparing their audit report was to benefit or influence the
Administrative Agent and Lenders, and that the Administrative Agent and the
Lenders will be entitled to rely upon the services provided by such accountants
to the Company.
-24-
<PAGE> 30
SECTION 8.1.2 Annual Company Unaudited Statements. Within 90 days after
each fiscal year of the Company, a copy of its unaudited balance sheet as at the
end of such fiscal year and a statement of earnings for such fiscal year,
prepared on an unconsolidated basis and signed by a proper accounting officer of
the Company.
SECTION 8.1.3 Company Interim Reports. Within 60 days after each quarter
(except the last quarter) of each fiscal year of the Company, a copy of
unaudited financial statements of the Company and its Subsidiaries prepared in
the same manner as the audit report referred to in Section 8.1.1, subject to
normal recurring year-end adjustments, signed by a proper accounting officer of
the Company and consisting of at least a balance sheet as at the close of such
quarter and statements of earnings and statement of cash flows for the period
from the beginning of such fiscal year to the close of such quarter; provided,
however, that such unaudited financial statements need not be more detailed than
what would be required for a quarterly report to the Securities and Exchange
Commission on Form 10-Q.
SECTION 8.1.4 Certificates. Contemporaneously with the furnishing of a
copy of each annual Company audit report and of each set of quarterly Company
statements provided for in this Section 8.1, a certificate dated the date of
such annual report or such set of quarterly statements and signed by the
President, the chief financial officer or the Treasurer of the Company, to the
effect that no Event of Default, or Unmatured Event of Default, has occurred
and is continuing, or, if there is any such an event, describing it and the
steps, if any, being taken to cure it and containing (except in the case of the
certificate dated the date of such annual report) a computation of, and showing
compliance with, each of the financial ratios and restrictions contained in this
Section 8 and a statement of the maximum amount of any Investment Borrowings
during such quarter and that the security therefor consisted of Approved
Investments.
SECTION 8.1.5 Annual Statement Blanks. Within 90 days after each fiscal
year of each Title Insurance Subsidiary, a copy of its Annual Statement Blank
filed with its applicable State regulatory commission for such fiscal year and
prepared in accordance with applicable statutory accounting requirements from
time to time in effect.
SECTION 8.1.6 Quarterly Statement Blanks. Within 60 days after each
quarter (except the last quarter) of each fiscal quarter of each Title Insurance
Subsidiary, a copy of its Quarterly Statement Blank filed with its applicable
State regulatory commission for such fiscal quarter and prepared in accordance
with applicable statutory accounting requirements from time to time in effect.
SECTION 8.1.7 Notice of Default and Litigation. Forthwith upon learning of
the occurrence of any of the following, written notice thereof, describing the
same and the steps being taken by the Company or the Subsidiary affected with
respect thereto: (i) the
-25-
<PAGE> 31
occurrence of an Event of Default or an Unmatured Event of Default, or (ii) the
institution of, or any adverse determination in, any litigation, arbitration
proceeding or governmental proceeding which would have, or has, a material
adverse effect on the financial condition or operations of the Company and its
Subsidiaries taken as a whole.
SECTION 8.1.8 Subsidiaries. Contemporaneously with the furnishing of a
copy of each annual audit report of the Company pursuant to Section 8.1.1, a
written report of any changes in the list of Subsidiaries.
SECTION 8.1.9 ERISA. Immediately upon becoming aware of the institution of
any steps by the Company or any other Person to terminate any Pension Plan, or
the failure to make a required contribution to any Pension Plan if such failure
is sufficient to give rise to a lien under section 302(f) of ERISA, or the
taking of any action with respect to a Pension Plan which could result in the
requirement that the Company furnish a bond or other security to the PBGC or
such Pension Plan, which could result in the incurrence by the Company of any
material liability, fine or penalty, or any material increase in the contingent
liability Welfare Plan benefit, notice thereof and copies of all documentation
relating thereto.
SECTION 8.1.10 Additional Information. Such other information respecting
the conditions or operations, financial or otherwise, of the Company or any of
its Subsidiaries as any Lender through the Administrative Agent may from time to
time reasonably request.
SECTION 8.2 Books, Records and Inspections. Maintain, and cause each
Subsidiary to maintain, complete and accurate books and records; permit, and
cause each Subsidiary to permit, access by the Administrative Agent and each
Lender to the books and records of the Company and of any Subsidiary; provided,
however, that such access shall not unreasonably interfere with the normal
business operations of the Company or such Subsidiary.
SECTION 8.3 Insurance. Maintain, and cause each Subsidiary to maintain,
such insurance as may be required by law and such other insurance, to such
extent as is reasonably available (as determined by the Company) and against
such hazards and liabilities, as is customarily maintained by companies
similarly situated; provided, however, that, in lieu of or supplemental to any
insurance referred to in this Section 8.3, the Company may adopt such other plan
or method of protection in respect of its properties or other risks, whether by
establishment of an insurance fund or reserve or by otherwise conforming to the
practices of similar companies maintaining systems of self-insurance, as may be
determined by the Company in its reasonable business judgment.
SECTION 8.4 Taxes. Pay, and cause each Subsidiary to pay, when due all
taxes, assessments, and other governmental charges or levies imposed upon it, as
well as all
-26-
<PAGE> 32
lawful claims for labor, materials, and supplies or otherwise which, if unpaid,
might give rise to liens or charges upon its property, except as contested in
good faith and by appropriate proceedings and for which adequate reserves in
accordance with generally accepted accounting principles shall have been set
aside on its books.
SECTION 8.5 Consolidated Net Worth. Not permit Consolidated Net Worth at
the close of any fiscal quarter to be less than $200,000,000.
SECTION 8.6 Statutory Surplus. Not permit Statutory Surplus of the Title
Insurance Subsidiaries at the close of any fiscal quarter to be less than
S160,000,000.
SECTION 8.7 Interest Expense Coverage Ratio. Not permit the ratio during
any period of six consecutive fiscal quarters of Earnings Before Interest and
Taxes to Interest Expense to be less than 2.5 to 1.0.
SECTION 8.8 Liquidity. Not permit Cash and Marketable Securities of the
Title Insurance Subsidiaries at the close of any fiscal quarter plus Cash and
Marketable Securities of the Company on an unconsolidated basis at the close of
any fiscal quarter to be less than the Statutory Premium Reserve of the Title
Insurance Subsidiaries plus the next twelve months of Debt Service.
SECTION 8.9 Loss Reserve Ratio. Not permit the ratio as at the close of
any fiscal quarter of Loss Reserves of the Title Insurance Subsidiaries to their
Statutory Surplus to be greater than 0.9 to 1.0.
SECTION 8.10 Restricted Payments. Not purchase or redeem any shares of the
capital stock of the Company, declare or pay any dividends thereon (other than
stock dividends), make any distribution to stockholders or set aside any funds
for any such purpose, or make any loans or advances to Affiliates which are not
Subsidiaries of the Company (all of which purchases, redemptions, declarations,
payments, distributions or loans and advances hereinabove referred to being
collectively called "Restricted Payments"); provided, however, that so long as
no Event of Default, or Unmatured Event of Default, has occurred and is
continuing (or would occur as the result of a Restricted Payment hereinbelow
permitted), the Company may (i) make Restricted Payments to its parent
corporation or purchase debt instruments of Affiliates which are not
Subsidiaries of the Company in amounts in the aggregate equal to the difference
between its Consolidated Net Worth as at December 31, 1990 and $200,000,000;
(ii) make Restricted Payments to its parent corporation or purchase debt
instruments of Affiliates which are not Subsidiaries of the Company from time to
time in an aggregate amount equal to all Additional Capital Contributions,
together with all dividends, interest and earnings thereon; (iii) make
Restricted Payments to its parent corporation of an amount which represents the
income taxes that would have been payable by the Company and the Subsidiaries of
the Company
-27-
<PAGE> 33
forming part of the affiliated group for income tax purposes if the Company had
not filed consolidated income tax returns as part of an affiliated group with
Alleghany Corporation; and (iv) make Restricted Payments to its parent
corporation from Consolidated Net Income for periods subsequent to December 31,
1990.
SECTION 8.11 Indebtedness. Not, and not permit any Subsidiary to, incur or
permit to exist any indebtedness for borrowed money, or for the deferred
purchase price of any property, or for the deferred purchase price of any
services the obligations for which would be reflected on an audited consolidated
balance sheet of the Company and its Subsidiaries (or which contract would be
reflected in the footnotes thereto, but excluding all leases accounted for as
operating leases) prepared in accordance with generally accepted accounting
principles, or under capitalized leases, except (i) the Notes, (ii) short term
indebtedness of the Company and its Subsidiaries in an aggregate amount not in
excess of $25,000,000 for working capital purposes, provided that no such
indebtedness referred to in this clause (ii) shall be outstanding for a period
of at least 2 consecutive months in each fiscal year, (iii) indebtedness of
Subsidiaries to the Company and to other Subsidiaries and of the Company to
Subsidiaries, (iv) current accounts payable arising in the ordinary course of
business, (v) Investment Borrowings, (vi) other Long-Term Indebtedness of the
Company and any Subsidiary to the extent permitted by Section 8.15; provided,
however any such Long-Term Indebtedness of any Subsidiary shall not exceed an
aggregate amount of $25,000,000, (vii) indebtedness incurred by Subsidiaries
engaged in the title insurance business in the ordinary course of business in
aid of recoupment or reduction or settlement of title claims and losses,
provided that the principal amount of all such indebtedness outstanding plus the
then remaining Loss Reserves, if all treated as Loss Reserves, would not result
in a violation of Section 8.9, (viii) Capitalized Lease Obligations of the
Company and its Subsidiaries which at any one time in the aggregate do not
exceed an amount equal to (x) $15,000,000, minus (y) the aggregate outstanding
principal amount of indebtedness in connection with which liens permitted by
Section 8.12(i) exist, (ix) other indebtedness outstanding on the date hereof
and listed in Schedule 8.11 or hereafter incurred in connection with liens
permitted by Section 8.12, (x) indebtedness incurred by the Company in
connection with any sale and leaseback involving only Scheduled Properties or
any indebtedness secured only by a lien on Scheduled Properties, to the extent
such lease or other indebtedness is either non-recourse to the Company or the
present value of such lease payments or the principal amount of such
indebtedness, as the case may be does not exceed 75% of the appraised value of
such Scheduled Properties and (xi) in the event the Merrill Lynch Lease is
required to be treated as a capital lease for accounting purposes, the Merrill
Lynch Lease Obligations.
SECTION 8.12 Liens. Not, and not permit any Subsidiary to, create or
permit to exist any mortgage, pledge, title retention lien, or other lien,
encumbrance or security interest with respect to any assets now owned or
hereafter acquired, except (i) in connection with the acquisition of real or
personal property after the date hereof, and attaching only
-28-
<PAGE> 34
to the real or personal property being acquired, if the indebtedness of the
Company and all Subsidiaries secured thereby does not exceed in the aggregate at
any one time outstanding an amount equal to (x) $15,000,000, minus (y) the then
aggregate amount of Capitalized Lease Obligations permitted by Section
8.11(viii); (ii) for current taxes, assessments and governmental charges or
levies not delinquent or being contested in good faith and by appropriate
proceedings for which adequate reserves have been made; (iii) liens incurred or
pledges or deposits made in connection with worker's compensation, unemployment
insurance, old-age pensions, social security and public liability and similar
legislation; (iv) liens, pledges or deposits to secure the performance of bids,
tenders, leases, contracts (other than for the repayment of borrowed money),
statutory and regulatory obligations, surety and appeal bonds and other
obligations of like nature, incurred as an incident to the ordinary course of
business; (v) statutory liens of landlords and other liens imposed by law, such
as carriers', warehousemen's, mechanics', materialmen's and vendors' liens,
incurred in good faith in the ordinary course of business; (vi) liens arising in
the ordinary course of business for sums not due or sums being contested in good
faith and by appropriate proceedings and not involving any deposits or advances
or borrowed money or the deferred purchase price of property or services; (vii)
liens granted by any Subsidiary to secure indebtedness of such Subsidiary to the
Company or to any other Subsidiary or liens granted by the Company to secure
indebtedness of the Company to any Subsidiary; (viii) liens in connection with
Investment Borrowings; (ix) liens existing or incurred on claims acquired
property in the ordinary course of business of Subsidiaries engaged in the title
insurance business, (x) any other liens securing indebtedness or obligations
which in the aggregate do not exceed $3,000,000; (xi) liens existing on the date
hereof and disclosed on Schedule 7.6 or in the financial statements delivered
pursuant to Section 7.4 and (xii) liens granted in connection with indebtedness
permitted Section 8.11(x).
SECTION 8.13 Mergers, Consolidations, Purchases. Not, and not permit any
Subsidiary to, be a party to any merger or consolidation, or purchase or
otherwise acquire all or substantially all of the assets or stock of any class
of, or any partnership or joint venture interest in, any other person or entity,
except for (i) any such merger or consolidation by any wholly-owned Subsidiary
into the Company or into, with or to any other wholly-owned Subsidiary and any
such purchase or other acquisition by the Company or any wholly-owned Subsidiary
of the assets or stock of any wholly-owned Subsidiary and (ii) any such merger,
consolidation, purchase, or other acquisition of assets or stock by the Company
or any Subsidiary if (x) in the case of a merger or consolidation involving the
Company, the surviving corporation shall be the Company, (y) as of the date of
the execution of the agreement providing for such merger, consolidation,
purchase, or other acquisition, the fair value of the consideration to be paid
in connection therewith shall not exceed $50,000,000 (or, if at such time the
claims paying rating assigned to the Company by Moody's Investors Service, Inc.
or Standard & Poor's Corporation is below A-, $35,000,000), and (z) no Event of
Default or Unmatured Event of Default shall have occurred and be continuing at
the time of such merger, consolidation, purchase, or other
-29-
<PAGE> 35
acquisition, or shall occur as a result of such merger, consolidation, purchase,
or other acquisition. For the purposes of this Section 8.13, the consideration
to be paid in connection with any merger, consolidation, purchase, or other
acquisition shall be valued in accordance with generally accepted accounting
principles.
SECTION 8.14 Asset Dispositions. Not, and not permit any Subsidiary to
sell, transfer, convey or lease all or any substantial part of its assets except
in the ordinary course of business; provided, however, there shall be excluded
from the restrictions of this Section 8.14 (i) sales or other dispositions of
the stock or assets of the Company or a Subsidiary required by governmental or
regulatory authorities; (ii) Net Asset Sales in an amount not exceeding 10% of
Adjusted Total Assets in each fiscal year; (iii) sales or other dispositions of
Unrestricted Assets; and (iv) sales or other dispositions of assets by a
Subsidiary to the Company or another Subsidiary, or by the Company to a
Subsidiary. For purposes of this Section 8.14, sales of Scheduled Properties
shall be included in computing Net Asset Sales but the Company shall not be in
default hereunder if Net Asset Sales exceed the amount permitted by Section
8.14(ii) solely as a result of such inclusion.
SECTION 8.15 Debt-to-Equity Ratio. Not permit the ratio as at the close of
any fiscal quarter of Long-Term Indebtedness to Consolidated Net Worth to be
greater than 0.45 to 1.0.
SECTION 8.16 Existing Business. Carry on, and cause each Subsidiary to
carry on, the title insurance, escrow and trust company businesses in
substantially the same manner as presently being conducted.
SECTION 8.17 Other Agreements. Not enter into any agreement containing any
material provision which would be violated or breached in a material way by the
performance of its obligations hereunder or under any instrument or document
delivered or to be delivered by it hereunder or in connection herewith.
SECTION 8.18 Merrill Lynch Lease. In the event (i) the Merrill Lynch Lease
is being treated as a capital lease for accounting purposes and (ii) the Company
elects to refinance all or any portion of the Merrill Lynch Lease with
indebtedness of the type referred to in Section 8.11(viii) and Section 8.12(i),
then (x) the dollar amount in Section 8.11(viii) and Section 8.12(i) shall be
increased by an amount equal to the lesser of $15,000,000 or the amount of such
refinancing and (y) the dollar amount in the definition of Merrill Lynch Lease
Obligations shall be reduced by an amount equal to such refinancing or such
greater amount such that from and after such refinancing, the aggregate amount
of indebtedness referred to in Section 8.11(viii) and the definition of Merrill
Lynch Lease Obligations does not exceed $30,000,000.
-30-
<PAGE> 36
SECTION 9. CONDITIONS OF LENDING.
The obligation of each Lender to make its Loan is subject to the following
conditions precedent:
SECTION 9.1 Documents. The obligation of each Lender to make its Loan is,
in addition to the conditions precedent specified in Section 9.2, subject to the
condition precedent that the Administrative Agent shall have received all of the
following, each duly executed and dated as of the Loan Date, in form and
substance satisfactory to the Administrative Agent
SECTION 9.1.1 Notes. The Administrative Agent shall have received, for the
account of each Lender, its Note duly executed and delivered by the Company.
SECTION 9.1.2 Corporate Documents. Certified copies of the articles of
incorporation and bylaws of the Company and certified copies of resolutions of
the Executive Committee of the Board of Directors of the Company authorizing the
execution, delivery and performance, respectively, of this Agreement, the Notes,
and other documents provided for in this Agreement.
SECTION 9.1.3 Payoff Letter. A payoff letter from Continental Bank, N.A.
setting forth the unpaid obligations of the Company under the Existing Credit
Agreement and the Company shall make arrangements satisfactory to the
Administrative Agent as to payment in full of the Existing Credit Agreement and
the Existing Loans on or before the Loan Date.
SECTION 9.1.4 Incumbency and Signatures. A certificate of the Secretary or
an Assistant Secretary of the Company certifying the names of the officer or
officers of the Company authorized to sign this Agreement and the Notes and
other documents provided for in this Agreement, together with a sample of the
true signature of each such officer.
SECTION 9.1.5 Opinion of Counsel for the Company. The opinion of Thomas J.
Adams, General Corporate Counsel for the Company, addressed to the
Administrative Agent and the Lenders, to the effect that: (a) each of the
Company and its Subsidiaries is a corporation duly existing and in good standing
under the laws of the jurisdiction of its incorporation; (b) the Company has
full corporate power to execute, deliver and perform this Agreement, to borrow
moneys hereunder, and to execute, deliver and perform its obligations under the
Notes; (c) the execution and delivery of this Agreement and the Notes, the
borrowing hereunder, and the performance by the Company of its obligations under
this Agreement and the Notes, have been duly authorized by all necessary
corporate action, have received all governmental approvals which to counsel's
knowledge, after due inquiry, are required, and do not and will not contravene
or conflict with any provision of
-31-
<PAGE> 37
law to which the Company is, to counsel's knowledge, after due inquiry, subject
or of the charter or by-laws of the Company or, to the knowledge of such
counsel, after due inquiry, of any agreement binding upon the Company; and (d)
this Agreement and the Notes have been duly executed and delivered by the
Company and are legal, valid and binding obligations of the Company, enforceable
in accordance with their terms, subject, as to enforcement of remedies, to
applicable bankruptcy, insolvency, moratorium or other laws affecting the
enforcement of creditors' rights in general from time to time in effect, and to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
SECTION 9.1.6 Confirmatory Certificate. A certificate signed by the
President, the Chief Financial Officer or the Treasurer of the Company as to the
matters set out in Section 9.2.
SECTION 9.1.7 Other. Such other documents as the Administrative Agent or
any Lender may reasonably request.
SECTION 9.2 Further Conditions. The obligation of each Lender to make its
Loan is subject to the following further conditions precedent: (a) no Event of
Default, or Unmatured Event of Default, has occurred and is continuing or will
result from the making of the Loan, (b) the warranties of the Company contained
in Section 7 are true and correct as of the Loan Date, with the same effect as
though made on the Loan Date, (except for the warranties made as of a specific
date, which were true and correct as of such date), and (c) all governmental
approvals and court orders that are necessary for the Company to consummate the
transactions contemplated by this Agreement and the Notes and to perform its
obligations thereunder have been received.
SECTION 10. EVENTS OF DEFAULT AND THEIR EFFECT.
SECTION 10.1 Events of Default. Each of the following shall constitute an
Event of Default under this Agreement:
SECTION 10.1.1. Non-Payment of Notes, etc. Default, and the continuance
thereof for 1 day, in the payment when due of any principal of the Notes or
default, and continuance thereof for 5 days, in the payment when due of any
interest on the Notes or any fees payable by the Company hereunder.
SECTION 10.1.2 Non-Payment of Other Indebtedness. Default in the payment
when due (subject to any applicable grace period), whether by acceleration or
otherwise, of any other indebtedness for borrowed money or the deferred purchase
price of property of, or guaranteed by, the Company or any Subsidiary (except
any such indebtedness of any Subsidiary to the Company or to any other
Subsidiary) in excess of $5,000,000 or default
-32-
<PAGE> 38
in the performance or observance of any obligation or condition with respect to
any such other indebtedness if the effect of such default is to accelerate the
maturity of any such indebtedness or to permit the holder or holders thereof, or
any trustee or agent for such holders, to cause such indebtedness to become due
and payable prior to its expressed maturity, and such default shall not have
been remedied or discharged within any applicable grace period.
SECTION 10.1.3 Bankruptcy, Insolvency, etc. The Company or any Subsidiary
admits in writing its inability to pay debts as they become due; or the Company
or any Subsidiary applies for, consents to, or acquiesces in the appointment of,
a trustee, receiver or other custodian for the Company or such Subsidiary or any
property thereof, or makes a general assignment for the benefit of creditors;
or, in the absence of such application, consent or acquiescence, a trustee,
receiver or other custodian is appointed for the Company or any Subsidiary or
for a substantial part of the property of any thereof and is not discharged
within 60 days; or any bankruptcy, reorganization, debt arrangement, or other
case or proceeding under any bankruptcy or insolvency law, or any dissolution or
liquidation proceeding (except the voluntary dissolution, not under any
bankruptcy or insolvency law, of a Subsidiary other than a Title Insurance
Subsidiary), is commenced in respect of the Company or any Subsidiary, and if
such case or proceeding is not commenced by the Company or such Subsidiary, it
is consented to or acquiesced in by the Company or such Subsidiary or remains
for 60 days undismissed; or the Company or any Subsidiary takes any corporate
action to authorize, or in furtherance of, any of the foregoing.
SECTION 10.1.4 Non-Compliance with this Agreement. Failure by the Company
to comply with or to perform any provision of this Agreement (and not
constituting an Event of Default under any of the preceding provisions of this
Section l0) and continuance of such failure for 30 days after notice thereof to
the Company from the Administrative Agent, or from any Lender.
SECTION 10.1.5 Warranties. Any warranty made by the Company herein is
breached or is false or misleading in any material respect, or any schedule,
certificate, financial statement, report, notice, or other writing furnished by
the Company to the Administrative Agent or the Lenders is false or misleading in
any material respect, in each case on the date as of which the facts therein set
forth are stated or certified.
SECTION 10.1.6 Change of Control. Alleghany Corporation, or a Subsidiary
of Alleghany Corporation, shall not own, directly or indirectly, 51% or more of
the issued and outstanding voting capital stock of the Company.
-33-
<PAGE> 39
SECTION 10.1.7 Judgments. Any judgment or order for the payment of money
in excess of $5,000,000 shall be rendered against the Company or any of its
Subsidiaries and either
(a) enforcement proceedings shall have been commenced by any
creditor upon such judgment or order; or
(b) there shall be any period of 10 consecutive days during which a
stay of enforcement of such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect.
SECTION 10.1.8 Pension Plans. Any of the following events shall occur with
respect to any Pension Plan
(a) the institution of any steps by the Company, any member of its
Controlled Group or any other Person to terminate a Pension Plan if, as a result
of such termination, the Company or any such member could be required to make a
contribution to such Pension Plan, or could reasonably expect to incur a
liability or obligation to such Pension Plan, in excess of $5,000,000; or
(b) a contribution failure occurs with respect to any Pension Plan
sufficient to give rise to a lien under Section 302(f) of ERISA.
SECTION 10.2 Effect of Event of Default. If any Event of Default described
in Section 10.1.3 shall occur, the Notes shall become immediately due and
payable, all without notice of any kind; and in the case of any other Event of
Default, the Administrative Agent, upon the direction of the Required Lenders,
shall by written notice to the Company, declare the Notes to be due and payable,
whereupon the Notes shall become immediately due and payable, all without any
other notice of any kind.
SECTION 11. THE ADMINISTRATIVE AGENT
SECTION 11.1 Actions. Each Lender hereby appoints Chase as its
Administrative Agent under and for purposes of this Agreement, the Notes and
each other Loan Document. Each Lender authorizes the Administrative Agent to act
on behalf of such Lender under this Agreement, the Notes and each other Loan
Document and, in the absence of other written instructions from the Required
Lenders received from time to time by the Administrative Agent (with respect to
which the Administrative Agent agrees that it will comply, except as otherwise
provided in this Section or as otherwise advised by counsel), to exercise such
powers hereunder and thereunder as are specifically delegated to or required of
the Administrative Agent by the terms hereof and thereof, together with such
powers as may be reasonably incidental thereto. Each Lender hereby indemnifies
(which indemnity shall
-34-
<PAGE> 40
survive any termination of this Agreement) the Administrative Agent, pro rata
according to such Lender's Percentage, from and against any and all liabilities,
obligations, losses, damages, claims, costs or expenses of any kind or nature
whatsoever which may at any time be imposed on, incurred by, or asserted
against, the Administrative Agent in any way relating to or arising out of this
Agreement, the Notes and any other Loan Document, including reasonable
attorneys' fees, and as to which the Administrative Agent is not reimbursed by
the Company; provided, however, that no Lender shall be liable for the payment
of any portion of such liabilities, obligations, losses, damages, claims, costs
or expenses which are determined by a court of competent jurisdiction in a final
proceeding to have resulted solely from the Administrative Agent's gross
negligence or wilful misconduct. The Administrative Agent shall not be required
to take any action hereunder, under the Notes or under any other Loan Document,
or to prosecute or defend any suit in respect of this Agreement, the Notes or
any other Loan Document, unless it is indemnified hereunder to its satisfaction.
If any indemnity in favor of the Administrative Agent shall be or become, in the
Administrative Agent's determination, inadequate, the Administrative Agent may
call for additional indemnification from the Lenders and cease to do the acts
indemnified against hereunder until such additional indemnity is given.
SECTION 11.2 Funding Reliance. etc. Unless the Administrative Agent shall
have been notified by telephone, confirmed in writing, by any Lender by 5:00
p.m. (New York time) on the day prior to the initial borrowing hereunder that
such Lender will not make available the amount which would constitute its
Percentage of such borrowing on the date specified therefor, the Administrative
Agent may assume that such Lender has made such amount available to the
Administrative Agent and, in reliance upon such assumption, make available to
the Company a corresponding amount. If and to the extent that such Lender shall
not have made such amount available to the Administrative Agent, such Lender and
the Company severally agree to repay the Administrative Agent forthwith on
demand such corresponding amount together with interest thereon, for each day
from the date the Administrative Agent made such amount available to the Company
to the date such amount is repaid to the Administrative Agent, at the Federal
Funds Effective Rate applicable at the time.
SECTION 11.3 Exculpation. Neither the Administrative Agent nor any of its
directors, officers, employees or agents shall be liable to any Lender for any
action taken or omitted to be taken by it under this Agreement or any other Loan
Document, or in connection herewith or therewith, except for its own wilful
misconduct or gross negligence, nor responsible for any recitals or warranties
herein or therein, nor for the effectiveness, enforceability, validity or due
execution of this Agreement or any other Loan Document, nor to make any inquiry
respecting the performance by the Company of its obligations hereunder or under
any other Loan Document. Any such inquiry which may be made by the
Administrative Agent shall not obligate it to make any further inquiry or to
take any action. The Administrative Agent shall be entitled to rely upon advice
of
-35-
<PAGE> 41
counsel concerning legal matters and upon any notice, consent, certificate,
statement or writing which the Administrative Agent believes to be genuine and
to have been presented by a proper Person.
SECTION 11.4 Successor. Administrative Agent may resign as such at any
time upon at least 30 days' prior notice o the Company and all Lenders. If the
Administrative Agent at any time shall resign, the Required Lenders may appoint
another Lender as a successor Administrative Agent which shall thereupon become
the Administrative Agent hereunder. If no successor Administrative Agent shall
have been so appointed by the Required Lenders, and shall have accepted such
appointment, within 30 days after the retiring Administrative Agent's giving
notice of resignation, then the retiring Administrative Agent may, on behalf of
the Lenders, appoint a successor Administrative Agent, which shall be one of the
Lenders or, with the approval of the Company (such approval not to be
unreasonably withheld), a commercial banking institution organized under the
laws of the U.S. (or any State thereof) or a U.S. branch or agency of a
commercial banking institution, and having a combined capital and surplus of at
least $500,000,000. Upon the acceptance of any appointment as Administrative
Agent hereunder by a successor Administrative Agent, such successor
Administrative Agent shall be entitled to receive from the retiring
Administrative Agent such documents of transfer and assignment as such successor
Administrative Agent may reasonably request, and shall thereupon succeed to and
become vested with all rights, powers, privileges and duties of the retiring
Administrative Agent, and the retiring Administrative Agent shall be discharged
from its duties and obligations under this Agreement. After any retiring
Administrative Agent's resignation hereunder as the Administrative Agent, the
provisions of
(a) this Section 11 shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was the Administrative Agent under
this Agreement; and
(b) Section 11.3 and Section 11.4 shall continue to inure to its
benefit.
SECTION 11.5 Loans by Chase. Chase shall have the same rights and powers
with respect to (x) the Loans made by it or any of its Affiliates, and (y) the
Notes held by it or any of its Affiliates as any other Lender and may exercise
the same as if it were not the Administrative Agent. Chase and its Affiliates
may accept deposits from, lend money to, and generally engage in any kind of
business with the Company or any Subsidiary or Affiliate of the Company as if
Chase were not the Administrative Agent hereunder.
SECTION 11.6 Credit Decisions. Each Lender acknowledges that it has,
independently of the Administrative Agent and each other Lender, and based on
such Lender's review of the financial information of the Company, this
Agreement, the other Loan Documents (the terms and provisions of which being
satisfactory to such Lender) and such other documents, information and
investigations as such Lender has deemed
-36-
<PAGE> 42
appropriate, made its own credit decision to extend its Commitment. Each Lender
also acknowledges that it will, independently of the Administrative Agent and
each other Lender, and based on such other documents, information and
investigations as it shall deem appropriate at any time, continue to make its
own credit decisions as to exercising or not exercising from time to time any
rights and privileges available to it under this Agreement or any other Loan
Document.
SECTION 11.7 Copies, etc. The Administrative Agent shall give prompt
notice to each Lender of each notice or request required or permitted to be
given to the Administrative Agent by the Company pursuant to the terms of this
Agreement (unless concurrently delivered to the Lenders by the Company). The
Administrative Agent will distribute to each Lender each document or instrument
received for its account and copies of all other communications received, by the
Administrative Agent from the Company for distribution to the Lenders by the
Administrative Agent in accordance with the terms of this Agreement.
SECTION 12. MISCELLANEOUS PROVISIONS
SECTION 12.1 Waivers, Amendments, etc. The provisions of this Agreement
and of each other Loan Document may from time to time be amended, modified or
waived, if such amendment, modification or waiver is in writing and consented to
by the Company and the Required Lenders; provided, however, that no such
amendment, modification or waiver which would:
(a) modify any requirement hereunder that any particular action be
taken by all the Lenders or by the Required Lenders shall be effective unless
consented to by each Lender;
(b) modify this Section 12.1, change the definition of "Required
Lenders" increase the Commitment Amount or the Percentage of any Lender or
reduce any fees described in Section 5 shall be made without the consent of each
Lender and each holder of a Note;
(c) extend the due date for, or reduce the amount of, any scheduled
repayment or prepayment of principal of or interest on the Notes (or reduce the
principal amount of or rate of interest on the Notes) shall be made without the
consent of the holder of that Note; or
(d) affect adversely the interests, rights or obligations of the
Administrative Agent qua the Administrative Agent shall be made without the
consent of the Administrative Agent.
-37-
<PAGE> 43
No failure or delay on the part of the Administrative Agent, any Lender or the
holder of any Note in exercising any power or right under this Agreement or any
other Loan Document shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power or right preclude any other or further
exercise thereof or the exercise of any other power or right. No notice to or
demand on the Company in any case shall entitle it to any notice or demand in
similar or other circumstances. No waiver or approval by the Administrative
Agent, any Lender or the holder of any Note under this Agreement or any other
Loan Document shall, except as may be otherwise stated in such waiver or
approval, be applicable to subsequent transactions. No waiver or approval
hereunder shall require any similar or dissimilar waiver or approval thereafter
to be granted hereunder.
SECTION 12.2 Notices. All notices and other communications provided to any
party hereto under this Agreement or any other Loan Document shall be in writing
or by Telex or by facsimile and addressed, delivered or transmitted to such
party at its address, Telex or facsimile number set forth below its signature
hereto or set forth in the Lender Assignment Agreement or at such other address,
Telex or facsimile number as may be designated by such party in a notice to the
other parties. Any notice, if mailed and properly addressed with postage prepaid
or if properly addressed and sent by pre-paid courier service, shall be deemed
given when received; any notice, if transmitted by Telex or facsimile, shall be
deemed given when transmitted (answerback confirmed in the case of Telexes).
SECTION 12.3 Costs, Expenses and Taxes. The Company agrees to pay on
demand all out-of-pocket costs and expenses of the Administrative Agent
(including the reasonable fees and out-of-pocket expenses of White & Case,
counsel for the Administrative Agent and of local counsel, if any, who may be
retained by said counsel) in connection with the preparation, execution,
delivery, administration, syndication and marketing of this Agreement, the Notes
and all other instruments or documents provided for herein or delivered or to be
delivered hereunder or in connection herewith, in the case of the foregoing
subject to limitations previously agreed by the Company and the Administrative
Agent, and all out-of-pocket costs and expenses (including reasonable attorneys'
fees and legal expenses) incurred by the Agent in connection with the
enforcement of this Agreement, the Notes, any such other instruments or
documents or any collateral security. In addition, the Company agrees to pay,
and to save the Administrative Agent and the Lenders harmless from all liability
for, any stamp or other taxes (excluding franchise taxes and taxes imposed on or
measured by any Lender's net income or receipts) which may be payable in
connection with the execution or delivery of this Agreement, the borrowing
hereunder, or the issuance of the Notes or of any other instruments or documents
provided for herein or delivered or to be delivered hereunder or in connection
herewith. The Company also agrees to reimburse the Administrative Agent and each
Lender upon demand for all reasonable out-of-pocket expenses (including
attorneys' fees and legal expenses including the allocated time charges of each
Lender's legal departments, as their respective
-38-
<PAGE> 44
internal counsel) incurred by the Administrative Agent or such Lender in
connection with (x) the negotiation of any restructuring or "work-out, whether
or not consummated, of any Obligations and (y) the enforcement of any
Obligations.
SECTION 12.4 Indemnification. In consideration of the execution and
delivery of this Agreement by each Lender and the extension of the Commitments,
the Company hereby indemnifies, exonerates and holds the Administrative Agent
and each Lender and each of their respective officers, directors, employees and
agents (collectively, the "Indemnified Parties") free and harmless from and
against any and all actions, causes of action, suits, losses, costs, liabilities
and damages, and expenses incurred in connection therewith (irrespective of
whether any such Indemnified Party is a party to the action for which
indemnification hereunder is sought), including reasonable attorneys' fees and
disbursements (collectively, the "Indemnified Liabilities"), incurred by the
Indemnified Parties or any of them as a result of, or arising out of, or
relating to
(a) any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of the Notes; or
(b) the entering into and performance of this Agreement and any
other Loan Document by any of the Indemnified Parties (including any action
brought by or on behalf of the Company as the result of any determination by the
Required Lenders pursuant to Section 9 not to fund the Loans);
except for (i) any such Indemnified Liabilities arising for the account of a
particular Indemnified Party by reason of the relevant Indemnified Party's gross
negligence or wilful misconduct or (ii) any such Indemnified Liabilities
resulting from claims by the Administrative Agent or any Lender against any
other Lender or any Lender against the Administrative Agent that are not
attributable to the Company's actions and for which the Company otherwise has no
liability. If and to the extent that the foregoing undertaking may be
unenforceable for any reason, the Company hereby agrees to make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. Each Indemnified Party
agrees to notify the Company of any event which could give rise to any
Indemnified Liabilities and to consult with the Company to determine the best
defense with respect to the same.
SECTION 12.5 Survival. The obligations of the Company under Sections 6.3,
6.4, 6.5, 6.6, 12.3 and 12.4, and the obligations of the Lenders under Section
11.1, shall in each case survive any termination of this Agreement, the payment
in full of all Obligations and the termination of all Commitments. The
representations and warranties made by the Company in this Agreement and in each
other Loan Document shall survive the execution and delivery of this Agreement
and each such other Loan Document.
-39-
<PAGE> 45
SECTION 12.6 Severability. Any provision of this Agreement or any other
Loan Document which is prohibited or unenforceable in any jurisdiction shall, as
to such provision and such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions of
this Agreement or such Loan Document or affecting the validity or enforceability
of such provision in any other jurisdiction.
SECTION 12.7 Captions. Section captions used in this Agreement are for
convenience only, and shall not affect the construction of this Agreement.
SECTION 12.8 Execution in Counterparts, Effectiveness, etc. This Agreement
may be executed by the parties hereto in several counterparts, each of which
shall be deemed to be an original and all of which shall constitute together but
one and the same agreement. This Agreement shall become effective when
counterparts hereof executed on behalf of the Company and each Lender (or notice
thereof satisfactory to the Administrative Agent) shall have been received by
the Administrative Agent and notice thereof shall have been given by the
Administrative Agent to the Company and each Lender.
SECTION 12.9 Governing Law. THIS AGREEMENT AND THE NOTES SHALL EACH BE A
CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK.
All obligations of the Company and the rights of the Administrative Agent and
any Lender expressed herein or in the Notes shall be in addition to and not in
limitation of those provided by applicable law. This Agreement, the Notes and
the other Loan Documents constitute the entire understanding among the parties
hereto with respect to the subject matter hereof and supersede any prior
agreements, written or oral, with respect thereto.
SECTION 12.10 Successors and Assigns. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that:
(a) the Company may not assign or transfer its rights or obligations
hereunder without the prior written consent of the Administrative Agent and all
Lenders; and
(b) the rights of sale, assignment and transfer of the Lenders are
subject to Section 12.11.
SECTION 12.11 Sale and Transfer of Notes; Participations in Notes. Each
Lender may assign, or sell participations in, its Note and Commitment to one or
more other Persons in accordance with this Section 12.11.
-40-
<PAGE> 46
SECTION 12.11.1 Assignments. Any Lender,
(a) with the written consents of the Company and the Administrative
Agent (which consents shall not be unreasonably delayed or withheld and which
consent, in the case of the Company, shall be deemed to have been given in the
absence of a written notice delivered by the Company to the Administrative
Agent, on or before the tenth Business Day after receipt by the Company of such
Lender's request for consent, stating, in reasonable detail, the reasons why the
Company proposes to withhold such consent) may at any time assign and delegate
to one or more commercial banks or other financial institutions, and
(b) with notice to the Company and the Administrative Agent, but
without the consent of the Company or the Administrative Agent, may assign and
delegate to any of its Affiliates or to any other Lender
(each Person described in either of the foregoing clauses as being the Person to
whom such assignment and delegation is to be made, being hereinafter referred to
as an "Assignee Lender"), all or any fraction of such Lender's Note and
Commitment (which assignment and delegation shall be of a constant, and not a
varying, percentage of all the assigning Lender's Note and Commitment) in a
minimum aggregate amount of $4,000,000; provided, however, that any such
Assignee Lender will comply, if applicable, with the provisions contained in the
penultimate sentence of Section 6.6 and further, provided, however, that, the
Company and the Administrative Agent shall be entitled to continue to deal
solely and directly with such Lender in connection with the interests so
assigned and delegated to an Assignee Lender until
(i) written notice of such assignment and delegation, together with
payment instructions, addresses and related information with respect to
such Assignee Lender, shall have been given to the Company and the
Administrative Agent by such Lender and such Assignee Lender,
(ii) such Assignee Lender shall have executed and delivered to the
Company and the Administrative Agent a Lender Assignment Agreement,
accepted by the Administrative Agent, and
(iii) the processing fees described below shall have been paid.
From and after the date that the Administrative Agent accepts such Lender
Assignment Agreement, (x) the Assignee Lender thereunder shall be deemed
automatically to have become a party hereto and to the extent that rights and
obligations hereunder have been assigned and delegated to such Assignee Lender
in connection with such Lender Assignment Agreement, shall have the rights and
obligations of a Lender hereunder and under the other
-41-
<PAGE> 47
Loan Documents, and (y) the assignor Lender, to the extent that rights and
obligations hereunder have been assigned and delegated by it in connection with
such Lender Assignment Agreement, shall be released from its obligations
hereunder and under the other Loan Documents. Within five Business Days after
its receipt of notice that the Administrative Agent has received an executed
Lender Assignment Agreement, the Company shall execute and deliver to the
Administrative Agent (for delivery to the relevant Assignee Lender) a new Note
evidencing such Assignee Lender's assigned Note and Commitment and, if the
assignor Lender has retained a portion of its Note and its Commitment hereunder,
a replacement Note in the principal amount of the portion of the Note and
Commitment retained by the assignor Lender hereunder (such Notes to be in
exchange for, but not in payment of, that Note then held by such assignor
Lender). Each such Note shall be dated the date of the predecessor Note. The
assignor Lender shall mark the predecessor Note "exchanged" and deliver it to
the Company. Accrued interest on that part of the predecessor Note evidenced by
the new Note shall be paid as provided in the Lender Assignment Agreement.
Accrued interest on that part of the predecessor Note evidenced by the
replacement Note shall be paid to the assignor Lender. Accrued interest shall be
paid at the same time or times provided in the predecessor Note and in this
Agreement. Such assignor Lender or such Assignee Lender must also pay a
processing fee to the Administrative Agent upon delivery of any Lender
Assignment Agreement in the amount of $3,000. Any attempted assignment and
delegation not made in accordance with this Section 12.11.1 shall be null and
void.
SECTION 12.11.2 Participations. Any Lender may at any time sell to one or
more financial institutions (each of such financial institution being herein
called a "Participant") participating interests in its Note or Commitment, or
other interests of such Lender hereunder; provided, however, that
(a) no participation contemplated in this Section 12.11 shall
relieve such Lender from its Commitment or its other obligations hereunder or
under any other Loan Document,
(b) such Lender shall remain solely responsible for the performance
of its Commitment and such other obligations,
(c) the Company and the Administrative Agent shall continue to deal
solely and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and each of the other Loan Documents,
(d) no Participant, unless such Participant is an Affiliate of such
Lender, or is itself a Lender, shall be entitled to require such Lender to take
or refrain from taking any action hereunder or under any other Loan Document,
except that such Lender may
-42-
<PAGE> 48
agree with any Participant that such Lender will not, without such Participant's
consent, take any actions of the type described in clause (b) or (c) of Section
12.1, and
(e) the Company shall not be required to pay any amount under
Section 6.6 that is greater than the amount which it would have been required to
pay had no participating interest been sold.
The Company acknowledges and agrees that each Participant, for purposes of
Section 6.3, 6.4, 6.5, 6.6, 6.8, 6.9, 12.3 and 12.4, shall be considered a
Lender.
SECTION 12.12 Other Transactions. Nothing contained herein shall preclude
the Administrative Agent or any other Lender from engaging in any transaction,
in addition to those contemplated by this Agreement or any other Loan Document,
with the Company or any of its Affiliates in which the Company or such Affiliate
is not restricted hereby from engaging with any other Person.
SECTION 12.13 Forum Selection and Consent to Jurisdiction. ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE ADMINISTRATIVE AGENT, THE LENDERS
OR THE COMPANY SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE
STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK. THE COMPANY HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO
THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH
LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT
RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE COMPANY FURTHER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE
PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. THE
COMPANY HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF
VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY
CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE
EXTENT THAT THE COMPANY HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM
JURISDICTION OF ANY COURT OF FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR
NOTICE, ATTACHMENT PRIOR TO JUDGMENT,
-43-
<PAGE> 49
ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS
PROPERTY, THE COMPANY HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS
OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
SECTION 12.14 Waiver of Jury Trial. THE ADMINISTRATIVE AGENT, THE LENDERS
AND THE COMPANY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS
THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR
ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN) OR ACTIONS OF THE ADMINISTRATIVE AGENT, THE LENDERS OR THE
COMPANY. THE COMPANY ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND
SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH
OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A
MATERIAL INDUCEMENT FOR THE ADMINISTRATIVE AGENT AND THE LENDERS ENTERING INTO
THIS AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT.
SECTION 12.15 Confidentiality. The Administrative Agent and each Lender
shall hold nonpublic information obtained pursuant to the requirements of this
Agreement other than information (a) that is, or generally becomes, available to
the public, (b) that was or becomes available to the Administrative Agent or any
Lender on a nonconfidential basis, or (c) that becomes available to the
Administrative Agent or any Lender from a Person or other source that is not to
the knowledge of Administrative Agent or such Lender (as the case may be),
otherwise bound by a confidentiality obligation to the Company, in accordance
with its customary procedures for treatment of confidential information and in
accordance with safe and sound banking practices and in any event, may make
disclosure reasonably required by any bona fide transferee or participant in
connection with the contemplated transfer of any Loan or Note or participation
therein or as required or requested by any governmental agency or representative
thereof pursuant to legal process.
* * *
-44-
<PAGE> 50
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
CHICAGO TITLE AND TRUST COMPANY
By: /s/ A. Larry Sisk
------------------------------
Its: Vice President & Treasurer
By: /s/ Gust J. Totlis
------------------------------
Its: Senior Vice President
and Chief Financial Officer
171 North Clark Street
Chicago, Illinois 60601
Facsimile No: (312) 223-5955
Telex No: N/A
Answerback: N/A
Attention: A. Larry Sisk
THE CHASE MANHATTAN BANK, N.A.,
as Administrative Agent
By:
------------------------------
Its:
-----------------------------
One Chase Manhattan Plaza
New York, New York 10081
Facsimile No: (212) 552-1999
Telex No: N/A
Answerback: N/A
Attention: Richard Bosek
-45-
<PAGE> 51
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
CHICAGO TITLE AND TRUST COMPANY
By:
------------------------------
Its:
-----------------------------
By:
------------------------------
Its:
-----------------------------
171 North Clark Street
Chicago, Illinois 60601
Facsimile No: (312) 223-5955
Telex No: N/A
Answerback: N/A
Attention: A. Larry Sisk
THE CHASE MANHATTAN BANK, N.A.,
as Administrative Agent
By: /s/ [Illegible]
------------------------------
Its: Vice President
One Chase Manhattan Plaza
New York, New York 10081
Facsimile No: (212) 552-1999
Telex No: N/A
Answerback: N/A
Attention: Richard Bosek
-45-
<PAGE> 52
<TABLE>
<CAPTION>
PERCENTAGE LENDERS
- ---------- -------
<S> <C>
30% THE CHASE MANHATTAN BANK, N.A.
By /s/
---------------------------------------
Title:
Domestic
Office: One Chase Manhattan Plaza
New York, New York 10081
Facsimile No.: (212) 552-1999
Telex No.:
Answerback:
Attention: Richard Bosek
LIBOR Office: Same as above
40% UNITED STATES NATIONAL BANK
OF OREGON
By /s/ Steven T. Williams
---------------------------------------
Title: Vice President
Domestic
Office: 555 S.W. Oak Street
Suite 400
Portland, Oregon 97204
Facsimile No.: (503) 275-5170
Telex No.: 360549
Answerback USNATLBANK PTL
Attention: Steve Williams
LIBOR
Office: Same as Above
</TABLE>
<PAGE> 53
<TABLE>
<CAPTION>
PERCENTAGE LENDERS
- ---------- -------
<S> <C>
30% THE CHASE MANHATTAN BANK, N.A.
By
---------------------------------------
Title:
Domestic
Office: One Chase Manhattan Plaza
New York, New York 10081
Facsimile No.: (212) 552-1999
Telex No.:
Answerback:
Attention: Richard Bosek
LIBOR Office: Same as above
40% UNITED STATES NATIONAL BANK
OF OREGON
By /s/ Steven T. Williams
---------------------------------------
Title: STEVEN T. WILLIAMS
VICE PRESIDENT
Domestic
Office: 555 S.W. Oak Street
Suite 400
Portland, Oregon 97204
Facsimile No.: (503) 275-5170
Telex No.: 360549
Answerback USNATLBANK PTL
Attention: Steve Williams
LIBOR
Office: Same as Above
</TABLE>
<PAGE> 54
<TABLE>
<CAPTION>
PERCENTAGE LENDERS
- ---------- -------
<S> <C>
20% HARRIS TRUST AND SAVINGS BANK
By /s/ [Illegible]
------------------------------------
Title:
Domestic
Office: 115 South LaSalle Street
12th Floor
Chicago, Illinois 60690
Facsimile No.: (312) 461-4039
Telex No.: 254 157
Answerback: HARRIS TRCGO
Attention: Dan Strief
LIBOR
Office: Same as above
10% TEXAS COMMERCE BANK NATIONAL
ASSOCIATION
By
---------------------------------------
Title:
Domestic
Office: 707 Travis Street (4-TCB-N59)
Houston, Texas 77002
Facsimile No.: (713) 216-6992
Telex No.: 166053
Answerback TCB HOU
Attention: Ken Turner
LIBOR
Office: Same as Above
</TABLE>
<PAGE> 55
<TABLE>
<CAPTION>
PERCENTAGE LENDERS
- ---------- -------
<S> <C>
20% HARRIS TRUST AND SAVINGS BANK
By
------------------------------------
Title:
Domestic
Office: 115 South LaSalle Street
12th Floor
Chicago, Illinois 60690
Facsimile No.: (312) 461-4039
Telex No.: 254 157
Answerback: HARRIS TRCGO
Attention: Dan Strief
LIBOR
Office: Same as above
10% TEXAS COMMERCE BANK NATIONAL
ASSOCIATION
By /s/ Ken Turner
---------------------------------------
Title: Vice President
Domestic
Office: 707 Travis Street (10 TCBS-343)
Houston, Texas 77002
Facsimile No.: (713) 216-4801
Telex No.: 166053
Answerback TCB HOU
Attention: Ken Turner
LIBOR
Office: Same as Above
</TABLE>
<PAGE> 56
EXHIBIT A
TERM NOTE
$________ Due: December 31, 2000
New York, New York
March ___, 1996
The undersigned, for value received, promises to pay to the order of
________________________________________________________________ ("the Lender"),
the principal sum of __________Dollars ($____________), which principal shall be
payable in accordance with the provisions of Section 3.2 of the Credit Agreement
hereinafter referred to.
The undersigned further promises to pay interest on the unpaid principal
amount of this Note from time to time outstanding, payable at such rate(s) and
at such time(s), as provided in such Credit Agreement.
Payments of both principal and interest are to be made in lawful money of
the United States of America in same day or immediately available funds to the
account designated by the Agent pursuant to the Credit Agreement.
This Note is a Note referred to in, and evidences indebtedness incurred
under, the Credit Agreement dated as of March __, 1996, (together with all
amendments and other modifications, if any, from time to time thereafter made
thereto (the "Credit Agreement"), to which reference is made for a statement of
the terms and conditions on which the Company is permitted and required to make
prepayments and repayments of principal of the indebtedness evidenced by this
Note and on which such indebtedness may be declared to be immediately due and
payable. Unless otherwise defined, terms used herein have the meanings provided
in the Credit Agreement.
All parties hereto, whether as makers, endorsers, or otherwise, severally
waive presentment for payment, demand, protest and notice of dishonor.
This Note is made under and governed by the internal laws of the State of
New York.
CHICAGO TITLE AND TRUST COMPANY
By: __________________________________
Its:__________________________________
Address:
171 North Clark Street
Chicago, Illinois 60601
<PAGE> 57
EXHIBIT B
CONTINUATION/CONVERSION NOTICE
[Name of Agent]
[Address]
Attention: [Name]
[Title]
CHICAGO TITLE AND TRUST COMPANY
Gentlemen and Ladies:
This Continuation/Conversion Notice is delivered to you pursuant to
Section 4.1 of the Credit Agreement, dated as of March__, 1996 (together with
all amendments, if any, from time to time made thereto, the "Credit Agreement"),
among Chicago Title and Trust Company, an Illinois corporation (the "Company"),
certain financial institutions and The Chase Manhattan Bank, N.A., as
Administrative Agent (the "Administrative Agent"). Unless otherwise defined
herein or the context otherwise requires, terms used herein have the meanings
provided in the Credit Agreement.
The Company hereby requests that on __________, 19__,
(1) The Notes, all presently being maintained as *[Reference Rate Loans]
[LIBO Rate Loans],
(2) be [converted into] [continued as],
(3) **[LIBO Rate Loans having an Interest Period of __________ months]
[Reference Rate Loans].
- ----------
* Select appropriate interest rate option.
** Insert appropriate interest rate option.
<PAGE> 58
EXHIBIT B
Page 2
The Company hereby:
(a) certifies and warrants that no Event of Default has occurred
and is continuing; and
(b) agrees that if prior to the time of such continuation or
conversion any matter certified to herein by it will not be true and
correct at such time as if then made, it will immediately so notify the
Agent.
Except to the extent, if any, that prior to the time of the continuation or
conversion requested hereby the Agent shall receive written notice to the
contrary from the Company, each matter certified to herein shall be deemed to be
certified at the date of such continuation or conversion as if then made.
The Company has caused this Continuation/Conversion Notice to be executed
and delivered, and the certification and warranties contained herein to be made,
by an authorized officer this ___ day of _______, 19__.
CHICAGO TITLE AND TRUST COMPANY
By ____________________________________________
Title:
<PAGE> 59
EXHIBIT C
ASSIGNMENT AGREEMENT
This Assignment Agreement (the "Assignment") is entered into as of this
__, day of _______, 19__ between ____________________________, the assigning
lender (the "Assigning Lender") and ___________________________, the assignee
(the "Assignee"). This Assignment is made pursuant to that certain Credit
Agreement (as amended or modified, called the "Credit Agreement"), dated as of
March ___, 1996, among Chicago Title and Trust Company, an Illinois corporation,
the lenders who are or may become parties thereto (the "Lenders") and The Chase
Manhattan Bank, N.A. as Administrative Agent. Unless the context clearly
indicates otherwise, all terms used in this Assignment shall have the meanings
given them by, and shall be construed as set forth in, the Credit Agreement.
In consideration of the respective representations, covenants and
agreements contained in this Assignment, the Credit Agreement and the Term Note,
if any, and in consideration of the respective undertakings of all of the
parties to the transaction described herein and therein, the Assigning Lender
and the Assignee hereby covenant and agree as follows:
TERMS OF ASSIGNMENT
Section 1. Sale of the Assigned Rights and Obligations. Under the Credit
Agreement, a copy of which has been furnished to the Assignee, and as of the
date hereof, the Lenders have made loans to the Borrower in the aggregate
outstanding principal amount of $ ________ (the "Term Loans"). The Term Loans
are evidenced by a Term Note pursuant to the terms and provisions of the Credit
Agreement. For good and valuable consideration, as of the Effective Date, the
Assigning Lender hereby sells and assigns to the Assignee and the Assignee
hereby purchases and assumes from the Assigning Lender the Assigned Rights and
Obligations (as hereinafter defined). For purposes of this Assignment, the
"Assigned Rights and Obligations" shall mean a portion of the Assigning Lender's
Term Loans in a principal amount of $_________ and a pro rata percentage of all
of the Assigning Lender's rights and obligations under the Credit Agreement and
each Related Document, including its rights in respect of the Term Loans and the
Term Note. The percentage of the rights and obligations of the Lenders under the
Credit Agreement which are being assigned to the
<PAGE> 60
EXHIBIT C
Page 2
Assignee shall be ___%. Each assignment shall be pro rata with respect to all
rights and obligations of this the Assigning Lender including the Term Loans and
the Term Note.
Section 2. Effective Date. This Assignment shall become effective (the
"Effective Date") when all of the following have occurred: (i) this Assignment
has been executed by the parties hereto, (ii) the Assignment has been
acknowledged by the Agent and, to the extent required by Section 11.4 by the
Company, and (iii) the Assigning Lender/Assignee has paid a fee of $3,000 to the
Agent. Upon the Assignment becoming effective, the Agent shall forward all
payments of interest, principal, fees and other amounts that would have been
made to the Assigning Lender in proportion to the percentage of the Assigning
Lender's rights transferred, to the Assignee. However, the interest, fees and
other amounts which accrued prior to the Effective Date shall be payable for the
account of the Assigning Lender.
Section 3. Collateral. The Loans (and the resulting Assigned Rights and
Obligations) are secured only to the extent provided in the Credit Agreement and
the Related Documents. The Assignee shall have no interest in any property in
the Assigning Lender's possession or control, or in any deposit held or other
indebtedness owing by the Assigning Lender, which may be or become collateral
for or otherwise available for payment of the Term Loans by reason of the
general description of secured obligations contained in any security agreement
or other agreement or instrument held by the Assigning Lender or by reason of
the right of set-off, counterclaim or otherwise, except that if such interest is
provided for in provisions of the Credit Agreement regarding sharing of set-off,
the assignee shall have the same rights as any other Lender that is a Party to
the Credit Agreement.
Section 4. No Warranty or Recourse. The sale, transfer, assignment and
delegation of the Assigned Rights and Obligations is made without warranty or
recourse against the Assigning Lender of any kind, except that the Assigning
Lender warrants that it has not sold or otherwise transferred any other
interest in the Assigned Rights and Obligations to any other party and that it
is the owner of the interests being sold by it hereunder free and clear of any
adverse claim. The Assigning Lender may, however, have sold and may hereafter
sell participation in, or may have assigned or may hereafter assign, portions of
its interest in the Term Loans and the Credit Agreement that in the aggregate
(together with the portion assigned hereby), do not exceed 100% of the Assigning
Lender's original interest in the Term Loans and the Credit Agreement.
Section 5. Representations, Covenants and Warranties. To induce each other
to enter into this Assignment, the Assigning Lender and the Assignee each
represents and
<PAGE> 61
EXHIBIT C
Page 3
warrants to, and covenants and agrees with, the other, and for the benefit of
the Agent, as follows:
a. Existence. Each of the Assigning Lender and the Assignee
warrants that it is an entity duly existing under the laws of the United States
or the jurisdiction of its incorporation, as applicable.
b. Authority. Each of the Assigning Lender and the Assignee
warrants that it is duly authorized to execute, deliver and perform this
Assignment and the Credit Agreement.
c. Valid and Binding. Each of the Assigning Lender and the Assignee
warrants that all acts, conditions and things required to be done and performed
and to have occurred prior to the execution, delivery and performance of this
Assignment, and to constitute the same its legal, valid and binding obligation
enforceable against it in accordance with its terms (subject to bankruptcy,
insolvency and similar laws affecting creditors' rights generally and subject,
as to enforceability, to general principles of equity), have been done and
performed and have occurred in due and strict compliance with all applicable
laws.
d. Purchasing for Own Interest. The Assignee warrants and covenants
that it is purchasing and assuming all of the Assigned Rights and Obligations
purchased hereunder in the ordinary course of making loans in its commercial
lending business and not with a view to, or for sale in connection with, any
distribution or selling such Assigned Rights and Obligations acquired hereunder,
nor with any present intention of distribution of its Assigned Rights and
Obligations, in each case in any manner which would require registration of any
of the Assigned Rights and obligations under the Securities Act of 1933 or any
"blue sky" laws.
e. Credit Analysis by the Assignee. The Assignee warrants and
covenants that it has, independently and without reliance upon the Agent, the
Assigning Lender or any other Lender, and based upon such financial statements
and other documents and information as it has deemed appropriate, made its own
credit analysis and decision to engage in this Assignment and the transactions
contemplated hereby, and the Assignee expressly acknowledges that the Assigning
Lender has made no representation or warranty, express or implied, as to the
accuracy or completeness of any of such financial statements or other documents
and information. The Assignee further agrees that it will, independently and
without reliance upon the Agent, the Assigning Lender or any other Lender and
based on such documents and information as it shall deem appropriate at the
<PAGE> 62
EXHIBIT C
Page 4
time, continue to make its own credit decisions in taking or not taking action
under the Credit Agreement.
f. Enforceability, etc. The Assignee warrants that the Assigning
Lender has made no representation or warranty, and no representation or warranty
shall be implied, as to performance by the Company of any of its obligations
under the Assigned Rights and Obligations or Credit Agreement or as to the
execution, legality, validity, enforceability, genuineness, sufficiency,
collectibility or value of the Assigned Rights and Obligations, Loans and the
Credit Agreement, or any document or instrument purported to be executed and
delivered in connection therewith, other than as set forth in Section 4 hereof.
g. Receipt of Documents. The Assignee warrants that it has received
a copy of the Credit Agreement, the financial statements referred to in the
Credit Agreement and such other documents executed in connection with the Credit
Agreement as it has deemed appropriate to make its own credit analysis and
decisions to enter into this Assignment.
h. Appointment of Agent. The Assignee hereby appoints and
authorizes the Agent, together with any successors or assigns thereof pursuant
to the terms and conditions of the Credit Agreement, to take such action as
agent on its behalf and to exercise such powers under the Credit Agreement as
are delegated to the Agent by the terms thereof, together with such powers as
are reasonably incidental thereto.
i. Lending Offices. The Assignee hereby identifies the offices set
forth underneath its signature hereon as its Domestic Office and its LIBOR
Office (together with the appropriate addresses for such offices) for purposes
of the Credit Agreement.
j. Securities Laws. The Assigning Lender and the Assignee each
acknowledges that this Assignment does not constitute the sale of a "security"
for purposes of the Securities Act of 1933 and the Securities and Exchange Act
of 1934.
k. Retained Commitments. The Assignee acknowledges that the
additional loans and commitments, if any, may be retained by the Assigning
Lender for its own account and shall be excluded from the Assigned Rights and
Obligations assigned and sold hereunder.
j. No Conflict. The execution, delivery and performance of this
Assignment does not conflict with any provision of law or of the charter or
by-laws (or equivalent constituent documents) of such party, or of any agreement
binding upon it.
<PAGE> 63
EXHIBIT C
Page 5
Section 6. Effectiveness of Sale. This Assignment shall become effective
as of the Effective Date, and the Agent shall record this Assignment in the
register maintained by the Agent (the "Register") to indicate the effectiveness
of such assignment as of the Effective Date. As of the Effective Date: (i) the
Credit Agreement is modified to the extent, and only to the extent, necessary to
reflect the addition of the Assignee; (ii) the Assignee shall be a party to the
Credit Agreement and the documents and instruments executed and delivered in
connection therewith as described herein and therein, and have the rights and
obligations of a Lender thereunder with respect to the Assigned Rights and
Obligations purchased by the Assignee, including, but not limited to, the right
to receive its pro rata share of all fees there after payable to the Lenders;
and (iii) the Assigning Lender shall, to the extent provided herein and in the
Credit Agreement, relinquish its rights and be released from its obligations
under the Credit Agreement and the documents and instruments executed and
delivered in connection therewith with respect to the Assigned Rights and
Obligations, including, without limitation, any related indemnification.
However, the Assigning Lender shall not be released to the extent, if any, that
the Borrower, any other Lender or the Agent has rights against such Assigning
Lender as a result of any default by such Lender under the Credit Agreement.
Section 7. Indemnification. The Assignee agrees to indemnify the Assigning
Lender from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs (including attorneys' fees and
expenses, whether of special, local or in-house legal counsel and staff),
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by or asserted against the Assigning Lender in any way relating to
or arising out of the Assigned Rights and Obligations assigned and sold
hereunder, including, without limitation, each and every indemnity of any person
or entity provided in the Credit Agreement. The indemnification set forth herein
shall survive any termination of this Assignment.
Section 8. Withholding Taxes. The Assignee (a) represents and warrants to
the Assigning Lender, the Agent and the Company that under applicable law and
treaties no tax will be required to be withheld by the Assigning Lender with
respect to any payments to be made to the Assignee hereunder, (b) agrees to
furnish (if it is organized under the laws of any jurisdiction other than the
United States or any State thereof) to the Assigning Lender, the Agent and the
Company prior to the time that the Agent or the Company is required to make any
payment of principal, interest or fees hereunder either U.S. Internal Revenue
Service Form 4224 or U.S. Internal Revenue Service Form 1001 (wherein the
Assignee claims entitlement to the benefits of a tax treaty that provides for a
complete exemption from U.S. federal income withholding tax on all payments
hereunder) and agrees to provide new Forms 4224 or 1001 upon the expiration of
any previously delivered form
<PAGE> 64
EXHIBIT C
Page 6
or comparable statements in accordance with applicable U.S. law and regulations
and amendments thereto, duly executed and completed by the Assignee, and (c)
agrees to comply with all applicable U.S. laws and regulations with regard to
such withholding tax exemption.
Section 9. Other Transactions with the Company. The Assigning Lender, the
Assignee and their respective affiliates may accept deposits from, lend money
to, act as trustee under indentures for and generally engage in any kind of
business with the Company, or any of the Company's subsidiaries or affiliates,
and any person who may engage in business with or own securities of the Company,
or any of the Company's subsidiaries or affiliates. Neither the Assigning Lender
nor the Assignee shall have any interest in any property taken as security for
any loans or any credits extended to the Company or any of its Subsidiaries by
the other such party by reason thereof, except security specifically granted
pursuant to the Agreement.
Section 10. Successors and Assigns. This Assignment shall inure to the
benefit of and be binding upon the successors and assigns of the Assigning
Lender and the Assignee.
Section 11. Expenses. In the event of any action to enforce the provisions
of this Assignment against either party hereto, the prevailing party shall be
entitled to recover all costs and expenses incurred in connection therewith,
including, without limitation, attorneys' fees and expenses, whether of special,
local or in-house legal counsel and staff.
Section 12. APPLICABLE LAW. THIS ASSIGNMENT SHALL BE A CONTRACT MADE UNDER
AND GOVERNED BY THE LAWS OF THE STATE SET FORTH IN THE CREDIT AGREEMENT, WITHOUT
REGARD TO CONFLICT OF LAWS PRINCIPLES. Wherever possible each provision of this
Assignment shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Assignment shall be
prohibited by or invalid under such law, such provision shall be ineffective to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Assignment. All
obligations and rights of the parties hereto expressed herein shall be in
addition to and not in limitation of those provided by applicable law.
Section 13. Transfer Instructions. All payments made hereunder shall be
payable by the transfer of immediately available funds on or before 12:00 noon
New York time on the date such payment is due pursuant to the transfer
instructions set forth below, or as the party receiving payment may from time to
time instruct the party rendering payment.
<PAGE> 65
EXHIBIT C
Page 7
Section 14. Amendments, Changes, and Modifications. This Assignment may
only be amended, changed, modified, altered, or terminated by an agreement in
writing signed by the Assigning Lender and the Assignee (or their permitted
successors or assigns).
Section 15. Entire Agreement. This Assignment sets forth the entire
understanding of the parties and supersedes any and all prior agreements,
arrangements and understandings relating to the subject matter hereof. No
representation, promise, inducement or statement of intent has been made by
either party which is not embodied in this Assignment, and neither party shall
be bound by or liable for any alleged representation, promise, inducement or
statement of intention not expressly set forth herein.
Section 16. Incorrect Payments. Each of the Assigning Lender and the
Assignee agrees that if it incorrectly receives a payment in respect of the
Credit Agreement which should have been paid to the other such party, it will
promptly return such payment to the Agent for the account of the party to which
such payment should have been made.
Section 17. FORUM SELECTION AND SUBMISSION TO JURISDICTION. ANY CLAIM
ARISING OUT OF OR RELATING TO THIS ASSIGNMENT, THE AGREEMENT OR THE ASSIGNED
RIGHTS AND OBLIGATIONS MAY BE BROUGHT AND MAINTAINED BY THE ASSIGNING LENDER IN
ANY STATE OR FEDERAL COURT HAVING SUBJECT MATTER JURISDICTION AND LOCATED IN
NEW YORK, NEW YORK. FOR THE PURPOSE OF ANY ACTION OR PROCEEDING INSTITUTED WITH
RESPECT TO ANY SUCH CLAIM THE ASSIGNEE HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION AND EXCLUSIVE VENUE OF SUCH COURTS AND AGREES NOT TO INSTITUTE ANY
LEGAL ACTION OR PROCEEDING AGAINST THE ASSIGNING LENDER OR ANY OF ITS DIRECTORS,
OFFICERS, AGENTS OR PROPERTY OF ANY THEREOF, ARISING OUT OF OR RELATING TO THIS
ASSIGNMENT, THE AGREEMENT OR THE ASSIGNED RIGHTS AND OBLIGATIONS, IN ANY COURTS
OTHER THAN SUCH COURTS. NOTHING HEREIN CONTAINED SHALL PRECLUDE THE ASSIGNING
LENDER FROM SERVING LEGAL PROCESS IN ANY MATTER PERMITTED BY LAW OR, AT ITS SOLE
OPTION, FROM BRINGING AN ACTION OR PROCEEDING IN RESPECT THEREOF IN ANY OTHER
COUNTRY, STATE OR PLACE HAVING JURISDICTION OVER SUCH ACTION. THE ASSIGNEE
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
IT MAY HAVE OR HEREAFTER HAVE TO THE LAYING AND MAINTENANCE OF THE VENUE OF ANY
SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT LOCATED IN NEW YORK, NEW
YORK AND ANY
<PAGE> 66
EXHIBIT C
Page 8
CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH COURT HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM.
Section 18. Waiver of Jury Trial. THE ASSIGNEE AND THE ASSIGNING LENDER
HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS ASSIGNMENT, THE AGREEMENT OR ANY OTHER
DOCUMENT RELATIVE TO THE ASSIGNED RIGHTS AND OBLIGATIONS, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS
OF THE ASSIGNEE OR THE ASSIGNING LENDER. THIS PROVISION IS A MATERIAL INDUCEMENT
FOR THE ASSIGNEE AND THE ASSIGNING LENDER ENTERING INTO THIS ASSIGNMENT.
IN WITNESS WHEREOF, the parties have caused this Assignment to be executed
on their behalf by their duly authorized offices as of the day and year
identified above.
[ASSIGNING LENDER]
By:__________________________________________
Title:_______________________________________
[ASSIGNEE]
By:__________________________________________
Title:_______________________________________
<PAGE> 67
EXHIBIT D
SCHEDULED PROPERTIES
ADDRESS CITY ST.
- ------- ---- ---
CHICAGO TITLE INSURANCE CO. & SUBSIDIARIES:
120 E. LIBERTY DR. WITH PARKING LOTS WHEATON IL
2393 S. CONGRESS W. PALM BCH. FL
103 N. OTTAWA ST. JOLIET IL
108 N. MAIN ST. SYCAMORE IL
15 E. WASHINGTON BELLEVILLE IL
241 N. MAIN ST. EDWARDSVILLE IL
101 N. THROOP ST. WOODSTOCK IL
2200 N. MAIN ST. CROWN POINT IN
1314 IDAHO ST. LEWISTON ID
311 2ND ST. NORTH TWIN FALLS ID
1120 PACIFIC AVE. TACOMA WA
1750 W. WALNUT VISALIA CA
PAJARO AND WINHAM SALINAS CA
295 MAIN ST. QUINCY CA
1647 COURT ST. REDDING CA
65 SOUTH LASSEN SUSANVILLE CA
630 BOND ST. ASTORIA OR
355 MAIN ST. RED BLUFF CA
1400 NORIEGA AVE. SAN FRANCISCO CA
107 N. MAIN ST. CROWN POINT IN
1312 VANDERCOOK WAY LONGVIEW WA
925 "B" ST. SAN DIEGO CA
1717 WALNUT GROVE ROSEMEAD CA
110 W. TAYLOR ST. SAN JOSE CA
1212 MARSH ST. SAN LUIS OBISPO CA
SECURITY UNION & SUBSIDIARIES:
1101 ANACAPA ST. SANTA BARBARA CA
1301 3RD AVE. SAN DIEGO CA
441 E. YOSEMITE MADERA CA
3030 HOYT AVE. EVERETT WA
2425 W. SHAW FRESNO CA
1944 "M" ST. MERCED CA
873 N. MAIN ST. BISHOP CA
4612 MCGAW ST. STOCKTON CA
5675 RALSTON AVE. VENTURA CA
TICOR & SUBSIDIARIES
340 W. 4TH ST. SAN BERNARDINO CA
122 NIAGARA ST. LOCKPORT NY
1075 W. MORSE BLVD. WINTER PARK FL
<PAGE> 68
EXHIBIT D (cont'd)
SCHEDULED PROPERTIES (cont'd)
ADDRESS CITY ST.
- ------- ---- ---
CLAIMS ACQUIRED:
SANTA RITA RANCH LIVERMORE CA
STOKES CANYON RD. CALABASAS CA
LOT 2 SECTION 1 CARLSBAD CA
DEERHORN VILLAGE KANSAS CITY MO
GENESEE DEV. GOLDEN CO
TPO S OF APPACHE TULSA OK
TPO N OF APPACHE TULSA OK
TPO SUMMERTREE TULSA OK
WEST END TERRACE NASHVILLE TN
3880 LEMON STREET RIVERSIDE CA
OIL & MIN. RIGHTS VARIOUS
OTHER CLAIMS ACQ. VARIOUS
<PAGE> 69
CHICAGO TITLE AND TRUST COMPANY AND SUBSIDIARIES
PENDING SUITS OR CONTROVERSIES INVOLVING CORPORATE MATTERS
CORPORATE LITIGATION
DECEMBER 31, 1995
California Bank Consumers Association v. A.E.I., Inc., et al. Superior Court of
California. Los Angeles. Purported class action alleging that the sale to
involuntary purchasers of Trustee Sales Guarantee policies constitutes an
alleged tying arrangement in violation of state antitrust and unfair
competition laws. Plaintiffs filed an amended complaint October 31, 1985
seeking a declaration of rights within punitive "Master Plaintiff Class"
arising out of approximately twelve pending actions involving numerous
defendants.
Counsel: Richard G. Carlston
Miller, Starr & Regalia
Walnut Creek, California
Bell, et al. v. Chicago Title Insurance Company. Superior Court of California,
San Francisco. Several class actions against title companies alleging a
conspiracy to fix prices for Trustee Sale Guarantee policies in violation of
state antitrust and unfair competition laws. The settlement was approved by
order signed by the court on February 17, 1989. The settlement was affirmed by
the First Appellate Court on January 25, 1991. A petition for review was filed
with the California Supreme Court in early March, 1991 and denied. In early
1995, plaintiffs' counsel sought the Court's permission to file a supplemental
complaint regarding alleged failure to comply with the settlement agreements.
The motion was heard on May 12, 1995 and a ruling thereon deferred pending
discovery by the plaintiffs relative to compliance by the defendants.
Counsel: Richard G. Carlston
Miller, Starr & Regalia
(Walnut Creek, California)
Rating Bureau Litigation. Various private class action cases alleging illegal
state rating bureau activity were filed in 1985 and were consolidated as complex
litigation for limited pre-trial purposes in the Eastern District of
Pennsylvania. A settlement agreement between the parties was approved by the
Court on June 10, 1986. Implementation of the settlement commenced March 26,
1988 and has been completed. Subsequently, the Company successfully defended an
Arizona state antitrust class action regarding state rating bureau activity
brought on behalf of the Tucson Unified School District in Pima County, Arizona
and a Wisconsin state court action (Prentice). One additional case dealing with
the same subject matter is being defended (Brown). The Prentice has now been
refiled in District Court in Wisconsin as the Segall case.
Brown v. Chicago Title Insurance Company. United States District Court of
Arizona. Class action alleging violation of federal antitrust laws with
respect to state rating bureau activity in Arizona and Wisconsin. A motion
for summary
<PAGE> 70
judgment by defendants was granted on March 1, 1991 and the case dismissed on
March 5, 1991. Plaintiffs filed an appeal of the order to dismiss on March 13,
1991. In late December, 1992 the Court of Appeals reversed the lower court
holding that the defenses of res judicata, Keough doctrine and state action did
not bar the Plaintiffs. On March 17, the petition for rehearing en banc was
denied. On October 1, 1993. the parties executed a memorandum of understanding
outlining a basis for settlement of the case. On October 4, 1993 the U.S.
Supreme Court agreed to hear the case and oral argument was heard on March 1,
1994. On April 4, 1994, the U.S. Supreme Court dismissed the case as
improvidently granted. A dispute has arisen with plaintiff's counsel over the
settlement agreement. On March 28, 1995, the Court deferred further action in
the case until mid-May to allow the parties an opportunity to enter into a
global settlement of the Brown and Segall cases. Plaintiffs in the Segall case
have moved to intervene in the Brown case. In the Brown case, an amended
complaint was filed May 9, 1995 naming certain additional title insurance
companies as defendants. A global settlement of the Brown and Segall cases was
executed May 18, 1995. Pursuant to the terms of the proposed settlement, class
members will be provided with a number of benefits, including the option to
receive cash payments from the title insurance companies named in the Arizona
and Wisconsin actions, not to exceed in the aggregate $1,996,613 in Arizona and
$2,070,326 in Wisconsin; an increase in the face amount of title insurance
policies purchased from the title insurance companies reflecting the impact of
inflation since January 1, 1981; and the last $5,000 of future insurance
coverage at no cost on any new title insurance policy for property in Arizona or
Wisconsin purchased from any of such title insurance companies within the
one-year period following final Court approval of the settlement. The settlement
also contemplates that the title insurance companies will pay attorneys' fees of
the plaintiffs and the costs of administering the settlement.
In July, 1995, pursuant to an order of the Court, notice of the settlement
was given to the class by publication. No member of the plaintiff class
commented upon or requested to opt-out of the settlement and the period for such
comment or request closed on September 15, 1995. The plaintiffs filed for their
attorneys' fees and costs on or about September 22, 1995. The Court held a
hearing on October 10, 1995, at which the fairness of the settlement was
considered and members of the plaintiff class were given an opportunity to be
heard. No class member appeared at the hearing. On October 30, 1995, the Court
issued an order certifying the plaintiff class for all purposes.
The parties have affirmed to the Court their support of the settlement
agreement; however, disputes exist regarding the valuation of the settlement
benefits and various matters pertaining to the plaintiffs' petitions for
attorneys' fees and costs. The parties have filed briefs with the Court on
the areas of disagreement; additional briefs may be filed.
Counsel: John Christie
Bell, Boyd & Lloyd
Washington, D.C.
Segall et al v. Stewart Title Guaranty Company et al. U.S. District Court,
Eastern District of Wisconsin. Class Action Suit alleges a price fixing
conspiracy in Wisconsin from 1981 through 1986. On October 11, 1994,
plaintiff's motion to consolidate the Segall case with the Brown case was
granted and the case was moved to the Arizona District Court for pre-trial
purposes.
Counsel: John Christie
Bell, Boyd & Lloyd
Washington, D.C.
2
<PAGE> 71
Kirksey, et al v. Bank of America, National Trust and Savings Association; et
al [Chicago Title Company]. Superior Court of California, County of Los
Angeles. Purported class action brought on behalf of individuals who paid off
loans secured by deeds of trust and, in connection therewith, are alleged to
have paid fees for services relating to the reconveyance of deeds of trust,
to have paid fees for the preparation and recording of releases with respect
to deeds of trust, and whose deeds of trust were not timely reconveyed or
were not released. Plaintiffs allege claims for breach of contract, consumer
fraud, and conspiracy among members of the real estate industry in
California. Although it is not clear from the complaint, it appears that the
plaintiffs believe that the defendants failed to provide services that they
had agreed to provide. The case is in a very early stage. The Court sustained
defendants' demurrer on October 11, 1994 and granted plaintiffs 60 days to
amend. An amended complaint was filed on December 11, 1994, a second amended
complaint was filed on March 13, 1995, and the Court again granted the
Company's demurrer. A third amended complaint was filed June 13, 1995.
Counsel: Maureen McGuirl
Brown, Raysman & Millstein
Los Angeles, California
Voliner, et ux v. CTI and Professional Abstract and Assurance Corporation.
U.S. District Court, Eastern District of Pennsylvania. Class Action Suit
alleging illegal charges for filing IRS 1099 forms. The case was favorably
decided but was reversed by the Court of Appeals which held that the case
should have proceeded as a state court case without removal. A petition for
rehearing was denied. Subsequently a petition for certiorari was filed with
the U.S. Supreme Court and was denied. State court proceedings have
commenced. Provisional certification of a class action was determined on
September 28, 1995. Settlement discussions are pending.
Counsel: Edward Hayes
Fox, Rothschild, O'Brien, & Frankel
Philadelphia, Pennsylvania
Oregon Action Threatened. On May 16, 1995, the Company received notice of a
potential class action in Oregon dealing with the same subject matter
(allegation of improper charges for reconveyance deeds) as the Evans case
filed in Idaho and favorably decided August 17, 1995.
Counsel: Greg Howe
Stoel Rives Boley Jones & Grey
Portland, Oregon
Thomas, et al v. Chicago Title Insurance Company. United States District
Court, District of South Carolina. Suit for breach of agency services
contract in connection with the National Flood acquisition. Report on
September 28, 1995 states plaintiff's motion for Injunctive Relief not be
granted.
Counsel: Mark Minton
Jones, Day
Dallas, Texas
National Lender's Services Inc. v. Chicago Title Insurance Company, Halvorsen
and Knebel. Superior Court of California, County of Santa Clara. Causes of
Action presently are: (i) accounting, (ii) intentional misrepresentation, (iii)
negligent misrepresentation, (iv) breach of fiduciary duty, (v) breach of
contract, (vi) breach of the implied covenant of good faith and fair dealing,
3
<PAGE> 72
(vii) interference with prospective business advantage and (viii) unfair
competition. Plaintiff's complaint arises from plaintiff's performance under a
Service Agreement between CTIC and NLS dated February 4, 1991 that related to
CTIC's PIRT product. CTIC and NLS traded allegations about the other's failure
to perform in accord with the terms of the Service Agreement. CTIC's demurrers
have been sustained. CTIC has cross-complained for breach of contract, unfair
competition, and breach of fiduciary duty, among other causes of action against
NLS and Ray and Ken Schaeffer.
Counsel: Donna Fields Goldstein
Manatt, Phelps and Phillips
Los Angeles, California
CHICAGO TITLE INSURANCE COMPANY
ADMINISTRATIVE PROCEEDINGS
Other Matters
As of December 31, 1995, the Company had 22 proceedings pending involving
charges filed by former employees with the EEOC or similar administrative
agencies regarding the circumstances of termination of employment. CTI is making
defensive filings in each of these proceedings.
The Company is subject to the FTC Consent Orders described under CT&T
Administrative Proceedings.
Under date of April 22, 1994 following extensive antitrust litigation, Chicago
Title Insurance Company, Security Union Title Insurance Company and Ticor Title
Insurance Company and certain other title insurers became subject to an order
issued by the Federal Trade Commission which places certain conditions on the
title insurers participation in a rating bureau in the states of Arizona,
Connecticut, Montana and Wisconsin. To date none of the title insurers is
participating in a bureau in any of the four states.
Chicago Title Company (Bakersfield, California) has been selected for a
compliance audit by the Internal Revenue Service from January 1, 1993 through
April 30, 1995.
The Company is subject to a Department of Labor area investigation in
Phoenix, Arizona regarding possible overtime pay for escrow closers.
Counsel: Ed Bergmann
Seyfarth, Shaw, Fairweather & Geraldson
Chicago, Illinois
CHICAGO TITLE INSURANCE COMPANY
HUMAN RESOURCES LITIGATION
Navarro v. CTC. Superior Court of Los Angeles County, California. Suit alleges
breach of contract, discrimination and violation of public policy. Discovery in
process.
Counsel: Marcy Railsbach
Browne & Woods
Beverly Hills, California
4
<PAGE> 73
Nyegaard v. CTI. State Court of Fulton County, Fulton County, Georgia. Suit
alleges defamation, slander and loss of consortium. Citation filed April 19,
1994. Discovery in process.
Counsel: Ben Hathis
Drew, Eckl & Farnham
Atlanta, Georgia
Park v. CTI. 269th Judicial District Court, Harris County, Texas. Suit alleges
breach of contract, promissory estoppel and fraud. Citation filed October 28,
1993. Discovery in process.
Counsel: Katrina Grider
Bracewell & Patterson
Houston, Texas
Washburn v. Chicago Title Company. Complaint for sexual harassment. Plaintiff, a
former employee of NLS, alleges that CTC failed to take appropriate steps to
stop sexual harassment of plaintiff by an employee and supervisor employed by
CTC.
Counsel: Bruce Sarchet
Littler, Mendelson, Fastiff, Tichy & Mathiason
Stockton, California
Walters v. CTI. Thirteenth Judicial District Court, Yellowstone County,
Montana. Suit alleges wrongful discharge, intentional infliction of emotional
distress, negligent infliction of emotional distress and invasion of privacy.
Citation filed November 17, 1995.
Counsel:
CHICAGO TITLE AND TRUST COMPANY
CORPORATE LITIGATION
Barnette v. Oppenheimer & Co., Montag & Caldwell, Inc. and Richard Berkowitz.
State Court of Fulton County, Georgia. Suit alleges negligent/willful conduct on
the part of Oppenheimer, Montag and others with respect to the recording and/or
filing of securities transactions which is causing plaintiff emotional distress
and other damages. Punitive damages are prayed for.
Counsel: Christopher Trower
Sutherland, Asbill & Brennan
Atlanta, Georgia
Wu v. Young Kyun Shin and CT&T as Trustee. Circuit Court of Cook County,
Illinois. Suit for unspecified damages alleging breach of obligations in
connection with an exchange trust transaction. Unspecified damages are
requested, First Amended Complaint has been dismissed but plaintiff had until
July 28, 1995 to refile a Second Amended Complaint. To date, nothing has been
filed.
Counsel: Gerald Petaque
Chicago, Illinois
5
<PAGE> 74
O'Brien v. National Flood Information Services, Inc. et al. Civil Court of
Harris County, Texas. Possible claim by James and Barbara O'Brien for erroneous
flood zone services. This is an indemnified item by the sellers of National
Flood.
Counsel: Ernie Higginbotham
Strasburger & Price, L.L.P.
Dallas, Texas
Paloian v. Schwartzbaum and Chicago Title and Trust Company, as Trustee of the
Chayin Irrevocable Blind Trust. United States Bankruptcy Court, Northern
District of Illinois. Complaint regarding a bankruptcy challenge and the
transfer of stock into a trust. The Company is a stockholder in the litigation.
Counsel: Gerald Mannix
DiMonte & Lizak
Park Ridge, Illinois
CHICAGO TITLE AND TRUST COMPANY
ADMINISTRATIVE PROCEEDINGS
Until September, 1997 the Company shall remain subject to an Order of the FTC
under the date of September 9, 1987 containing certain reporting and notice
requirements with title plant acquisitions and certain investment activity by
the Company.
Under the date of July 22, 1991, the Company became subject to a second FTC
Consent Order with respect to its acquisition of Ticor Title Insurance Company
of California which closed on March 8, 1991. This Order will remain in place
until July, 2001. The Order provides for the divestiture of certain title plants
and back title plants and further provides for certain reporting and notice
requirements with respect to investment activity and the proposed acquisition of
title plant or other assets. All required divestitures have been approved by the
FTC and have been completed by the Company. In September, 1995, the Company
filed a petition with the FTC for removal of the prior approval provisions in
applicable orders and for modification or removal of the prior notice
provisions. That petition remains pending.
One CT&T employee has filed charges with an administrative agency regarding the
circumstances of termination of employment. CT&T is making defensive filings in
the proceeding.
CHICAGO TITLE AND TRUST COMPANY
HUMAN RESOURCES LITIGATION
Rogalski v. CT&T and Michael Welcome. Circuit Court of McHenry County, Illinois.
Suit for alleged sexual harassment. Damages in amount of $75,000 are requested.
The Company was dismissed from the case but the litigation continued against Mr.
Welcome. Thereafter, an amended complaint was served naming CT&T as defendant on
the same subject matter. Joint Petition For Leave to Appeal filed with Illinois
Superior Court on April 19, 1995 on proper application of Illinois Human Rights
Act and Illinois Workers Compensation Act. Decision is expected in the first
quarter of 1996. Discovery on hold.
Counsel: Carmel Cosgrave
Querry & Harrow, LTD.
Chicago, Illinois
6
<PAGE> 75
SECURITY UNION TITLE INSURANCE COMPANY
CORPORATE LITIGATION
Security Union is party to the consolidated antitrust matter, the Arizona
federal antitrust case, the Wisconsin federal court antitrust case and is
affected by the FTC Consent Orders and the Bell cases, all as reported above
under Chicago Title Insurance Company and Chicago Title and Trust Company.
Security Union Title Insurance Company v. Continental Lawyers Title Company.
Superior Court of California, San Diego. Claims for breach of sublease and
violation of the covenant of good faith and fair dealing. This case is related
to the Sollami case and arises from the conduct of Continental Lawyers in
linking settlement discussions of the Sollami case to the negotiation of an
extension of a sublease under which Security Union occupies premises in San
Diego. The court granted plaintiff's motion for summary judgment, and
Continental Lawyers seeks over $200,000 in attorney's fees for this unlawful
detainer action arising out of SUTIC's leases of space in San Diego. The trial
court ruled in favor of plaintiff, and the matter has been appealed.
Security Union Title Insurance Company v. Southern California Title Company.
Superior Court of Los Angeles County. Case No. C732102. Suit for breach of title
plant access contract. Counterclaim by Defendant for recision and breach of
contract and unspecified damages. A separate federal court antitrust has been
successfully defended by motion to dismiss. That decision is being appealed by
the plaintiff.
Security Union Title Insurance Company v. Westland Title Company. Claim by
Security Union Title Insurance Company that Westland breached its contract for
title services, and that Westland owes SUTIC in excess of $400,000 for the
breach. Westland has counter-claimed that SUTIC breached its obligations and
that SUTIC defrauded Westland. Westland has filed for receivership and seeks to
wind up and dissolve.
Counsel: Michael Olecki
Browne & Woods
Beverly Hills, California
Beasley, et al v. Security Union Title Insurance Company at al. District Court,
Dallas County, Texas. Original petition for declaratory judgment, demand for
accounting, suit for fraud upon an agent and suit for libel and slander. Damages
in excess of $25 million are prayed for. Counsel:
SECURITY UNION TITLE INSURANCE COMPANY
ADMINISTRATIVE PROCEEDINGS
Under date of April 22, 1994 following extensive antitrust litigation, Chicago
Title Insurance Company, Security Union Title Insurance Company and Ticor Title
Insurance Company and certain other title insurers became subject to an order
issued by the Federal Trade Commission which places certain conditions on the
title insurers participation in a rating bureau in the states of Arizona,
7
<PAGE> 76
Connecticut, Montana and Wisconsin. To date none of the title insurers is
participating in a bureau in any of the four states.
Two former Security Union employees have filed charges with the EEOC or similar
administrative agency regarding the circumstances of termination of employment.
Security Union is making defensive filings in these proceedings.
SECURITY UNION TITLE INSURANCE COMPANY
HUMAN RESOURCES LITIGATION
Arnold v. Security Union Title Insurance Company. Superior Court of Fresno
County, California. Suit alleges sex retaliation. Discovery in process.
Counsel:
TICOR TITLE INSURANCE COMPANY
CORPORATE LITIGATION
Ticor Title is party to the consolidated antitrust cases, the Arizona federal
antitrust case, the Wisconsin federal court antitrust case and is affected by
the FTC Consent Orders and the Bell cases. All these matters are listed earlier
by Chicago Title Insurance Company or Chicago Title and Trust Company.
Ticor Title Insurance Company v. Commonwealth of Pennsylvania Board of Finance &
Revenue. Commonwealth Court. Premium tax matter in which Pennsylvania disputes
the base on which Ticor calculated the premium tax due for the years 1984
through 1993. The Board of Finance & Revenue commuted the tax basis on all
charges collected by the agent through whom policies were issued, without regard
to whether the charges were for insurance or for services provided by the
agents. Ticor's position is that it is required to pay gross premium tax under
the applicable statute only on gross premiums received by it excluding services
provided by agents. The estimated potential cumulative liability at December 31,
1995 is $2.3 million. The Company has made a settlement offer of approximately
$300,000 for the years in question plus an agreement on the tax base for 1994
and forward.
Counsel: James L. Fritz
McNees, Wallace & Nurick
Harrisburg, Pennsylvania
TICOR TITLE INSURANCE COMPANY
HUMAN RESOURCE LITIGATION
None
TICOR TITLE GUARANTEE COMPANY
CORPORATE LITIGATION
None
TICOR TITLE GUARANTEE COMPANY
HUMAN RESOURCE LITIGATION
8
<PAGE> 77
Schedule 7.5
(partical listing)
Claims with Pending Amounts of $100,000 or Greater at 02/29/96
Chicago Title Insurance
<TABLE>
<CAPTION>
Claim # Pending Amount
- ------- --------------
<S> <C>
022632541 2,880,711.63
022640361 1,466,797.75
113077681 1,269,962.64
112625811 1,159,746.94
022636534 931,487.49
025229501 892,824.07
025255738 812,599.10
021419973 784,381.85
021212527 501,653.40
025119645 482,181.67
025372087 476,671.85
021349618 314,900.00
112610391 310,821.09
112610383 310,366.09
112621638 300,000.00
025247289 297,710.18
022487946 285,310.62
112613080 280,002.30
112629813 265,972.56
025107954 265,482.70
021213723 245,855.78
023514037 243,238.46
112956935 238,206.97
112524642 230,472.90
022651145 225,390.17
022467211 216,629.82
022476923 200,556.34
112828633 200,000.00
021511225 199,162.04
022800791 192,044.15
022496681 173,685.10
022634422 166,852.54
022640759 165,775.12
025127473 161,188.04
026312546 150,000.00
021355078 150,000.00
027513845 147,019,83
021344304 148,348.30
021216049 133,542.01
028313502 131,165.95
026307827 127,290.74
021120654 119,682.13
026199562 118,407.26
025226556 115,939.50
026311837 115,000.00
022643191 109.164.33
023640337 107,587.73
026246520 100,000.00
112622305 100,000.00
-------------
19,020,771.14
=============
<CAPTION>
Claim Count = 49
Ticor Title Insurance
Claim # Pending Amount
------- --------------
<S> <C>
125111130 387,366.24
121321675 346,807.91
121410098 331,301.72
123611180 276,355.66
120910163 231,945.08
121321576 187,500.00
121813705 169,215.31
121511150 118,814.69
125229668 100,000.00
------------
2,149,306.61
============
<CAPTION>
Claim Count = 9
Security Union Title Insurance
Claim # Pending Amount
------- --------------
<S> <C>
054003066 633,130.56
055216832 577,555.28
052434727 442,152.28
052633898 215,890.04
052628690 150,564.07
052646908 149,399.50
055213748 122,763.00
052533395 106,495.62
------------
2,397,950.35
============
Claim Count = 8
</TABLE>
- --------------------------------------------------------------------------------
Claims with Pending Amounts of Less Than $100,000 Totalled, in the aggregate,
Approximately $39.4 million.
- --------------------------------------------------------------------------------
<PAGE> 78
SCHEDULE 7.6
LIENS
<TABLE>
<CAPTION>
Nature and Description of Amount
Lien Name of Lienholder Secured(1) Maturity
- ------------------------- ------------------ ---------- --------
<S> <C> <C> <C>
Chicago Title Insurance Co.:
Mortgage Great Western Bank $230,845 --
Mortgage Wardon Financial Corporation 34,693 03/97
Mortgage Anthony Scioscia 14,762 12/04
--------
Total Chicago Title Insurance: $280,300
Ticor Title Insurance Co.
and Subsidiaries:
Mortgage John Hancock Life Insurance Co. (2) 09/01
--------
Total Ticor and Subs:
Chicago Title and Trust Co.
and Subsidiaries:
Grand Total $280,300
========
</TABLE>
(1) Amounts secured are as of December 31, 1995.
(2) Ticor has a 1/3 interest in a Partnership holding mortgaged property with an
outstanding balance at 12/31/95 of approximately $8.6 million.
<PAGE> 79
Schedule 7.7 - Subsidiaries
<PAGE> 80
[ORGANIZATIONAL CHART OMITTED]
<PAGE> 81
Alleghany Corporate Organization
[ORGANIZATIONAL CHART OMITTED]
<PAGE> 82
SCHEDULE 7.13
ERISA
None.
<PAGE> 83
SCHEDULE 8.11
INDEBTEDNESS
<TABLE>
<CAPTION>
Amount
Description Maturity as of 12/31/95
- ----------- -------- --------------
<S> <C> <C>
Chicago Title and Trust Company:
A Consortium of Lenders and Bank of
America Illinois as Agent for the Lenders 12/00 $50,000,000
Hampton Roads Title Corp.
Sheal Lisner 12/96 550,000
Austin Terra Firma, Inc. 08/97 1,333,333
CTA of Central Ohio:
5 noteholders 07/96 562,149
National Flood Information Service:
Capital Leases -- 1,961
-----------
Total CT&T 52,447,443
Chicago Title Insurance Company
and Subsidiaries:
Lincoln National Life On Demand 15,439
Baton Rouge:
Cornelius J. Hyde 01/01 1,250,000
Cornelius J. Hyde 01/96(1) 1,250,000
Lompoc Valley 04/96 9,000
JLA Credit Corp 02/96 954
JLA Credit Carp 05/96 785
JLA Credit Corp 07/96 4,188
JLA Credit Corp 09/99 50,630
Alameda -- 14,639
-----------
Total CTI & Subs 2,595,635
-----------
CONSOLIDATED TOTALS $55,043,078
===========
</TABLE>
(1) This note was paid in January 1996.
<PAGE> 84
TERM NOTE
Due: December 31, 2000
$15,000,000 New York, New York
March 29, 1996
The undersigned, for value received, promises to pay to the order of THE
CHASE MANHATTAN BANK, N.A. (the "Lender"), the principal sum of FIFTEEN MILLION
DOLLARS ($15,000,000), which principal shall be payable in accordance with the
provisions of Section 3.2 of the Credit Agreement hereinafter referred to.
The undersigned further promises to pay interest on the unpaid principal
amount of this Note from time to time outstanding, payable at such rate(s) and
at such time(s), as provided in such Credit Agreement.
Payments of both principal and interest are to be made in lawful money of
the United States of America in same day or immediately available funds to the
account designated by the Agent pursuant to the Credit Agreement.
This Note is a Note referred to in, and evidences indebtedness incurred
under, the Credit Agreement dated as of March 29, 1996, (together with all
amendments and other modifications, if any, from time to time thereafter made
thereto, the "Credit Agreement"), to which reference is made for a statement of
the terms and conditions on which the Company is permitted and required to make
prepayments and repayments of principal of the indebtedness evidenced by this
Note and on which such indebtedness may be declared to be immediately due and
payable. Unless otherwise defined, terms used herein have the meanings provided
in the Credit Agreement.
All parties hereto, whether as makers, endorsers, or otherwise, severally
waive presentment for payment, demand, protest and notice of dishonor.
<PAGE> 85
This Note is made under and governed by the internal laws of the State of
New York.
CHICAGO TITLE AND TRUST COMPANY
By: /s/ Gust J. Totlis
----------------------------
Its: Senior Vice President
and Chief Financial Officer
Address:
171 North Clark Street
Chicago, Illinois 60601
<PAGE> 86
TERM NOTE
Due: December 31, 2000
$10,000,000 New York, New York
March 29, 1996
The undersigned, for value received, promises to pay to the order of
HARRIS TRUST AND SAVINGS BANK (the "Lender"), the principal sum of TEN MILLION
DOLLARS ($10,000,000), which principal shall be payable in accordance with the
provisions of Section 3.2 of the Credit Agreement hereinafter referred to.
The undersigned further promises to pay interest on the unpaid principal
amount of this Note from time to time outstanding, payable at such rate(s) and
at such time(s), as provided in such Credit Agreement.
Payments of both principal and interest are to be made in lawful money of
the United States of America in same day or immediately available funds to the
account designated by the Agent pursuant to the Credit Agreement.
This Note is a Note referred to in, and evidences indebtedness incurred
under, the Credit Agreement dated as of March 29, 1996, (together with all
amendments and other modifications, if any, from time to time thereafter made
thereto, the "Credit Agreement"), to which reference is made for a statement of
the terms and conditions on which the Company is permitted and required to make
prepayment and repayments of principal of the indebtedness evidenced by this
Note and on which such indebtedness may be declared to be immediately due and
payable. Unless otherwise defined, terms used herein have the meanings provided
in the Credit Agreement.
All parties hereto, whether as makers, endorsers, or otherwise, severally
waive presentment for payment, demand, protest and notice of dishonor.
<PAGE> 87
This Note is made under and governed by the internal laws of the State of
New York.
CHICAGO TITLE AND TRUST COMPANY
By: /s/ Gust J. Totlis
----------------------------
Its: Senior Vice President
and Chief Financial Officer
Address:
171 North Clark Street
Chicago, Illinois 60601
<PAGE> 88
TERM NOTE
Due: December 31, 2000
$5,000,000 New York, New York
March 29, 1996
The undersigned, for value received, promises to pay to the order of TEXAS
COMMERCE BANK NATIONAL ASSOCIATION (the "Lender"), the principal sum of FIVE
MILLION DOLLARS ($5,000,000), which principal shall be payable in accordance
with the provisions of Section 3.2 of the Credit Agreement hereinafter referred
to.
The undersigned further promises to pay interest on the unpaid principal
amount of this Note from time to time outstanding, payable at such rate(s) and
at such time(s), as provided in such Credit Agreement.
Payments of both principal and interest are to be made in lawful money of
the United States of America in same day or immediately available funds to the
account designated by the Agent pursuant to the Credit Agreement.
This Note is a Note referred to in, and evidences indebtedness incurred
under, the Credit Agreement dated as of March 29, 1996, (together with all
amendments and other modifications, if any, from time to time thereafter made
thereto, the "Credit Agreement"), to which reference is made for a statement of
the terms and conditions on which the Company is permitted and required to make
prepayments and repayments of principal of the indebtedness evidenced by this
Note and on which such indebtedness may be declared to be immediately due and
payable. Unless otherwise defined, terms used herein have the meanings provided
in the Credit Agreement.
All parties hereto, whether as makers, endorsers, or otherwise, severally
waive presentment for payment, demand, protest and notice of dishonor.
<PAGE> 89
This Note is made under and governed by the internal laws of the State of
New York.
CHICAGO TITLE AND TRUST COMPANY
By: /s/ Gust J. Totlis
----------------------------
Its: Senior Vice President
and Chief Financial Officer
Address:
171 North Clark Street
Chicago, Illinois 60601
<PAGE> 90
TERM NOTE
Due: December 31, 2000
$20,000,000 New York, New York
March 29, 1996
The undersigned, for value received, promises to pay to the order of
UNITED STATES NATIONAL BANK OF OREGON (the "Lender"), the principal sum of
TWENTY MILLION DOLLARS ($20,000,000), which principal shall be payable in
accordance with the provisions of Section 3.2 of the Credit Agreement
hereinafter referred to.
The undersigned further promises to pay interest on the unpaid principal
amount of this Note from time to time outstanding, payable at such rate(s) and
at such time(s), as provided in such Credit Agreement.
Payments of both principal and interest are to be made in lawful money of
the United States of America in same day or immediately available funds to the
account designated by the Agent pursuant to the Credit Agreement.
This Note is a Note referred to in, and evidences indebtedness incurred
under, the Credit Agreement dated as of March 29, 1996, (together with all
amendments and other modifications, if any, from time to time thereafter made
thereto, the "Credit Agreement"), to which reference is made for a statement of
the terms and conditions on which the Company is permitted and required to make
prepayments and repayments of principal of the indebtedness evidenced by this
Note and on which such indebtedness may be declared to be immediately due and
payable. Unless otherwise defined, terms used herein have the meanings provided
in the Credit Agreement.
All parties hereto, whether as makers, endorsers or otherwise, severally
waive presentment for payment, demand, protest and notice of dishonor.
<PAGE> 91
This Note is made under and governed by the internal laws of the State of
New York.
CHICAGO TITLE AND TRUST COMPANY
By: /s/ Gust J. Totlis
----------------------------
Its: Senior Vice President
and Chief Financial Officer
Address:
171 North Clark Street
Chicago, Illinois 60601
<PAGE> 1
Exhibit 10.2(b)
FIRST AMENDMENT
FIRST AMENDMENT(this "Amendment"), dated as of March __, 1998,
among Chicago Title and Trust Company (the "Company"), the lenders listed on
the signature pages hereof (the "Lenders") and The Chase Manhattan Bank, as
administrative agent (in such capacity, the "Administrative Agent"). All
capitalized terms used herein and not otherwise defined herein shall have the
respective meanings provided for such terms in the Credit Agreement referred to
below.
W I T N E S S E T H:
WHEREAS, the Company, the Lenders and the Administrative Agent are
parties to a Credit Agreement, dated as of March 29, 1996 (the "Credit
Agreement"); and
WHEREAS, the parties hereto wish to amend the Credit Agreement as
herein provided;
NOW, THEREFORE it is agreed:
I. AMENDMENTS
1. Section 8.1 of the Credit Agreement is hereby amended by deleting
the words "(with sufficient copies for the Lenders)" and by adding the following
in lieu thereof:
"and to each of the Lenders".
2. Section 8.16 of the Credit Agreement is hereby amended by adding
the following provision after the word "conducted":
", provided that in connection with the spin-off of the Company by
Alleghany Corporation, the Company's asset management business may
be transferred to Alleghany Corporation or one of its Subsidiaries".
3. Section 10.1.6 of the Credit Agreement is hereby amended
(effective with the spin-off of the Company by Alleghany Corporation) by
deleting it in its entirety and by inserting in lieu thereof the following:
"SECTION 10.1.6 Change of Control. (i) Chicago Title Corporation
shall cease to own 100% of the Company's capital stock; or (ii) any
Person or "group" (within the meaning of Rule 13d-5 of the
Securities Exchange Act of 1934, as in effect on the date hereof)
other than the Kirby Family shall (A) have acquired beneficial
ownership of 20% or more on a fully diluted basis of the economic
and voting interest in Chicago Title Corporation's capital stock or
(B) have obtained the power (whether or not exercised) to elect a
majority of Chicago Title Corporation's directors."
<PAGE> 2
4. Section 1.1 of the Credit Agreement is hereby amended by
inserting, in alphabetical order, the following:
"Chicago Title Corporation shall mean Chicago Title Corporation, a
publicly traded company incorporated under the laws of Delaware."
"Kirby Family shall mean F.M. Kirby, Allan P. Kirby, Jr., Grace
Kirby Culbertson and any of the beneficiaries of, or trusts set up
by, the estate of Ann Kirby Kirby."
II. MISCELLANEOUS PROVISIONS
1. In order to induce the Administrative Agent and the Lenders to
enter into this Amendment, the Company hereby represents and warrants that (x)
no Event of Default exists on the Amendment Effective Date, both before and
after giving effect to this Amendment and (y) all of the representations and
warranties contained in the Credit Agreement and other Loan Documents shall be
true and correct in all material respects on the Amendment Effective Date, both
before and after giving effect to this Amendment with the same effect as though
such representations and warranties had been made on and as of the Amendment
Effective Date (it being understood that any representation or warranty made as
of a specific date shall be true and correct in all material respects as of such
date).
2. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Loan Document.
3. This Amendment may be executed in any number of counterparts and
by the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the Company and the Administrative Agent.
4. This Amendment and the rights and obligations of the parties
thereunder shall be construed in accordance with and governed by the law of the
State of New York.
5. This Amendment shall become effective on the date (the "Amendment
Effective Date") when each of the Company, the Required Lenders and the
Administrative Agent shall have signed a counterpart hereof (whether the same or
different counterparts) and shall have delivered (including by way of facsimile)
the same to the Administrative Agent in accordance with Section 12.2 of the
Credit Agreement.
6. The Company covenants that on the Amendment Effective Date and
immediately after giving effect to the spin-off of the Company by Alleghany
Corporation, the Company shall cause Chicago Title Corporation to deliver to the
Administrative Agent, in form and substance satisfactory to the Administrative
Agent, a certificate of the Secretary or Assistant Secretary of Chicago Title
Corporation certifying that (i) Chicago Title Corporation is
2
<PAGE> 3
incorporated and duly authorized to engage in business under the laws of
Delaware; and (ii) Chicago Title Corporation owns 100% of the Company's capital
stock.
3
<PAGE> 4
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Amendment to be duly executed and delivered as of the date
first above written.
CHICAGO TITLE AND TRUST COMPANY
By:
-------------------------------
Name:
Title:
By:
-------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK,
Individually and as Administrative
Agent
By:
-------------------------------
Name:
Title:
UNITED STATES NATIONAL BANK OF OREGON
By:
-------------------------------
Name:
Title:
4
<PAGE> 5
HARRIS TRUST AND SAVINGS BANK
By:
-------------------------------
Name:
Title:
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
By:
-------------------------------
Name:
Title:
5
<PAGE> 1
Exhibit 10.4
CHICAGO TITLE CORPORATION
DIRECTORS' STOCK OPTION PLAN
1. Purpose. The purpose of the Chicago Title Corporation Directors' Stock Option
Plan (the "Plan") is to advance the interests of Chicago Title Corporation (the
"Company") and its stockholders by encouraging increased stock ownership by
members of the Board of Directors (the "Board") of the Company who are not
employees of the Company or any of its subsidiaries, in order to promote
long-term stockholder value through continuing ownership of the Company's common
stock.
2. Administration. The Plan shall be administered by the Board. The Board shall
have all the powers vested in it by the terms of the Plan, such powers to
include authority (within the limitations described herein) to prescribe the
form of the agreement embodying awards of nonqualified stock options made under
the Plan ("Options" ). The Board shall have the power to construe the Plan, to
determine all questions arising thereunder and, subject to the provisions of the
Plan, to adopt and amend such rules and regulations for the administration of
the Plan as it may deem desirable. Any decision of the Board in the
administration of the Plan shall be final and conclusive. The Board may act only
by a majority of its members in office, except that the members thereof may
authorize any one or more of their number or the Secretary or any other officer
of the Company to execute and deliver documents on behalf of the Company. No
member of the Board shall be liable for anything done or omitted to be done by
him or by any other member of the Board in connection with the Plan, except for
his own willful misconduct or as expressly provided by statute.
3. Participation. Each member of the Board of the Company who is not an employee
of the Company or any of its subsidiaries (a "Non-Employee Director") shall be
eligible to receive an Option in accordance with Paragraph 5 below. As used
herein, the term "subsidiary" means any corporation at least 40 percent of whose
outstanding voting stock is owned, directly or indirectly, by the Company.
4. Awards Under the Plan.
(a) Types of Awards. Awards under the Plan shall consist only of Options,
which are rights to purchase shares of common stock, par value $1.00 per share,
of the Company (the "Common Stock" ). Such Options are subject to the terms,
conditions and restrictions specified in Paragraph 5 below.
(b) Maximum Number of Shares That May Be Issued. There may be issued under
the Plan pursuant to the exercise of Options an aggregate of not more than
100,000 shares of Common Stock, subject to adjustment as provided in Paragraph 6
below.
(c) Rights With Respect to Shares. A Non-Employee Director to whom an
Option is granted (and any person succeeding to such a Non-Employee Director's
rights pursuant to the Plan) shall have no rights as a stockholder with respect
to any shares of Common Stock issuable pursuant to any such Option until the
date of the issuance of a
<PAGE> 2
stock certificate to him for such shares. Except as provided in Paragraph 6
below, no adjustment shall be made for dividends, distributions or other rights
(whether ordinary or extraordinary, and whether in cash, securities or other
property) for which the record date is prior to the date such stock certificate
is issued.
5. Nonqualified Stock Options. Each Option granted under the Plan shall be
evidenced by an agreement in such form as the Board shall prescribe from time to
time in accordance with the Plan and shall comply with the following terms and
conditions:
(a) The Option exercise price shall be the fair market value of the shares
of Common Stock subject to such Option on the date the Option is granted, which
shall be the average of the high and the low sales prices of a share of Common
Stock on the date of grant as reported on the New York Stock Exchange Composite
Transactions Tape or, if the New York Stock Exchange is closed on that date, on
the last preceding date on which the New York Stock Exchange was open for
trading.
(b) The term of any Option shall be determined by the Board of Directors,
but in no event shall any Option be exercisable more than ten years after the
date on which it was granted.
(c) As of the first business day after the date on which Alleghany
Corporation ("Alleghany") effects the distribution of all of the shares of
Common Stock owned by it to the stockholders of Alleghany, each Non-Employee
Director shall automatically receive an Option for 1,000 shares of Common Stock.
Thereafter, beginning in calendar year 1999, as of the first business day after
the conclusion of each annual meeting of stockholders of the Company, each
Non-Employee Director shall automatically receive an Option for 1,000 shares of
Common Stock.
(d) The Option shall be transferable only by will or the laws of descent
and distribution, and shall be exercisable during the optionee's lifetime only
by him.
(e) The Option shall not be exercisable:
(i) before the expiration of one year from the date it is granted or
after the expiration of ten years from the date it is granted and may be
exercised during such period as follows: one-third (33 1/3 percent) of the
total number of shares of Common Stock covered by the Option shall become
exercisable each year beginning with the first anniversary of the date it
is granted; provided that an Option shall automatically become immediately
exercisable in full when the Non-Employee Director ceases to be a
Non-Employee Director for any reason other than death;
(ii) unless payment in full is made for the shares of Common Stock
being acquired thereunder at the time of exercise; such payment shall be
made
(A) in United States dollars by cash or check, or
-2-
<PAGE> 3
(B) in lieu thereof, by tendering to the Company shares of
Common Stock owned by the person exercising the Option and having a
fair market value equal to the cash exercise price applicable to
such Option, such fair market value to be the average of the high
and the low sales prices of a share of Common Stock on the date of
exercise as reported on the New York Stock Exchange Composite
Transactions Tape, or, if the New York Stock Exchange is closed on
that date, on the last preceding date on which the New York Stock
Exchange was open for trading, or
(C) by a combination of United States dollars and shares of
Common Stock as aforesaid; and
(iii) unless the person exercising the Option has been, at all times
during the period beginning with the date of grant of the Option and
ending on the date of such exercise, a Non-Employee Director of the
Company, except that
(A) if such person shall cease to be such a Non-Employee
Director for reasons other than death, while holding an Option that
has not expired and has not been fully exercised, such person, at
any time within one year of the date he ceased to be such a
Non-Employee Director (but in no event after the Option has expired
under the provisions of subparagraph 5(e)(i) above), may exercise
the Option with respect to any shares of Common Stock as to which he
has not exercised the Option on the date he ceased to be such a
Non-Employee Director; or
(B) if any person to whom an Option has been granted shall die
holding an Option that has not been fully exercised, his executors,
administrators, heirs or distributees, as the case may be, may, at
any time within one year after the date of such death (but in no
event after the Option has expired under the provisions of
subparagraph 5(e)(i) above), exercise the Option with respect to any
shares of Common Stock as to which the decedent could have exercised
the Option at the time of his death.
6. Dilution and Other Adjustments. In the event of any corporate transaction
involving the Company (including, without limitation, any subdivision or
combination or exchange of the outstanding shares of Common Stock, stock
dividend, stock split, spin-off, split-off, recapitalization, capital
reorganization, liquidation, reclassification of shares of Common Stock, merger,
consolidation, extraordinary cash dividend, or sale, lease or transfer of
substantially all of the assets of the Company), the number or kind of shares
that may be issued under the Plan pursuant to subparagraphs 4(a) and 4(b) above
shall be automatically adjusted to give effect to the occurrence of such event,
and the number or kind of shares subject to, or the Option price per share
under, any outstanding Option shall be automatically adjusted so that the
proportionate interest of the participant shall be
-3-
<PAGE> 4
maintained as before the occurrence of such event; such adjustment in
outstanding Options shall be made without change in the total Option exercise
price applicable to the unexercised portion of such Options and with a
corresponding adjustment in the Option exercise price per share, and such
adjustment shall be conclusive and binding for all purposes of the Plan.
7. Miscellaneous Provisions.
(a) Except as expressly provided for in the Plan, no Non-Employee Director
or other person shall have any claim or right to be granted an Option under the
Plan. Neither the Plan nor any action taken hereunder shall be construed as
giving any Non-Employee Director any right to be retained in the service of the
Company.
(b) A participant's rights and interest under the Plan may not be assigned
or transferred in whole or in part either directly or by operation of law or
otherwise (except, in the event of a participant's death, by will or the laws of
descent and distribution), including, but not by way of limitation, execution,
levy, garnishment, attachment, pledge, bankruptcy or in any other manner, and no
such right or interest of any participant in the Plan shall be subject to any
obligation or liability of such participant.
(c) No shares of Common Stock shall be issued hereunder unless counsel for
the Company shall be satisfied that such issuance will be in compliance with
applicable federal, state and other securities laws.
(d) It shall be a condition to the obligation of the Company to issue
shares of Common Stock upon exercise of an Option, that the participant (or any
beneficiary or person entitled to act under subparagraph 5(e)(iii)(B) above) pay
to the Company, upon its demand, such amount as may be requested by the Company
for the purpose of satisfying any liability to withhold federal, state, local or
foreign income or other taxes. If the amount requested is not paid, the Company
may refuse to issue shares of Common Stock.
(e) The expenses of the Plan shall be borne by the Company.
(f) The Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the issuance of shares upon exercise of any Option under the
Plan and issuance of shares upon exercise of Options shall be subordinate to the
claims of the Company's general creditors.
(g) By accepting any Option or other benefit under the Plan, each
participant and each person claiming under or through him shall be conclusively
deemed to have indicated his acceptance and ratification of, and consent to, the
Plan, the terms and conditions of any agreement embodying awards of Options and
any action taken under the Plan by the Company or the Board.
-4-
<PAGE> 5
(h) The masculine pronoun means the feminine and the singular means the
plural wherever appropriate.
(i) The appropriate officers of the Company shall cause to be filed any
reports, returns or other information regarding Options hereunder or any shares
of Common Stock issued pursuant hereto as may be required by Section 13 or 15(d)
of the Securities Exchange Act of 1934, as amended, or any other applicable
statute, rule or regulation.
8. Amendment or Discontinuance. The Plan may be amended at any time and from
time to time by the Board as the Board shall deem advisable, provided, however,
that (a) no amendment or modification may become effective without approval by
the stockholders of the Company if the Company, on advice of counsel, determines
that stockholder approval is required to enable the Plan to satisfy any
applicable statutory or regulatory requirements, or if the Company determines
that stockholder approval is otherwise necessary or desirable; and (b) Paragraph
3 and subparagraphs 5(a) and 5(d) shall not be amended more than once every six
months, other than to comport with changes in the Internal Revenue Code of 1986,
as amended, the Employee Retirement Income Security Act of 1974, as amended, or
the rules under either of such laws. Except to the extent otherwise required by
the Company's Certificate of Incorporation or the Company's By-Laws, the
stockholders shall be deemed to have approved an amendment or modification to
the Plan which is submitted to the stockholders for approval if and when such
amendment or modification is approved at a meeting of the stockholders by a
majority of the voting power of the Voting Stock (all as defined in the
Company's Certificate of Incorporation) present in person or represented by
proxy and entitled to vote at such meeting. No amendment of the Plan shall
materially and adversely affect any right of any participant with respect to any
Option theretofore granted without such participant's written consent.
9. Termination. The Plan shall terminate upon the earlier of the following dates
or events to occur:
(a) upon the adoption of a resolution of the Board terminating the Plan;
or
(b) June 30, 2002.
No termination of the Plan shall materially and adversely affect any of the
rights or obligations of any person, without his consent, under any Option
theretofore granted under the Plan.
______________, 1998
-5-
<PAGE> 1
Exhibit 10.5
CHICAGO TITLE CORPORATION
DIRECTORS' EQUITY COMPENSATION PLAN
1. Purpose. The purpose of the Chicago Title Corporation Directors' Equity
Compensation Plan (the "Plan") is to advance the interests of Chicago Title
Corporation (the "Company") and its stockholders by encouraging increased stock
ownership by members of the Board of Directors (the "Board") of the Company who
are not employees of the Company or any of its subsidiaries, in order to promote
long-term stockholder value through continuing ownership of the Company's common
stock.
2. Administration. The Plan shall be administered by the Board. The Board shall
have all the powers vested in it by the terms of the Plan, such powers to
include authority (within the limitations described herein) to prescribe the
form of the agreement embodying payments in shares of the Company's common stock
made under the Plan. The Board shall have the power to construe the Plan, to
determine all questions arising thereunder and, subject to the provisions of the
Plan, to adopt and amend such rules and regulations for the administration of
the Plan as it may deem desirable. Any decision of the Board in the
administration of the Plan shall be final and conclusive. The Board may act only
by a majority of its members in office, except that the members thereof may
authorize any one or more of their number or the Secretary or any other officer
of the Company to execute and deliver documents on behalf of the Company. No
member of the Board shall be liable for anything done or omitted to be done by
him or by any other member of the Board in connection with the Plan, except for
his own willful misconduct or as expressly provided by statute.
3. Participation. Each member of the Board of the Company who is not an employee
of the Company or any of its subsidiaries (a "Non-Employee Director") shall be
eligible to receive stock payments (each, a "Stock Payment") as a portion of the
annual retainer payable to such Non-Employee Director in shares of the Company's
common stock, par value $1.00 per share ("Common Stock"), in accordance with
Paragraph 5 below. As used herein, the term "subsidiary" means any corporation
at least 40 percent of whose outstanding voting stock is owned, directly or
indirectly, by the Company.
4. Shares of Stock Subject to Plan. Subject to adjustment as provided in
Paragraph 6 below, the shares of Common Stock paid to Non-Employee Directors
under the Plan shall not exceed an aggregate of 50,000 shares. Shares to be
delivered under the Plan may be either authorized but unissued shares of Common
Stock or shares of Common Stock held by the Company as treasury shares.
5. Annual Retainer.
(a) Annual Retainer. On the day following the meeting of the Board
scheduled to be held in June 1998 (the "1998 Payment Date") and thereafter in
May of each calendar year, each Non-Employee Director shall receive for the
following year's
<PAGE> 2
service as a director of the Company his annual retainer, exclusive of any per
meeting fees, committee fees or expense reimbursements, as set from time to time
by the Board ("Annual Retainer") fifty percent in the form of a Stock Payment
and fifty percent in cash.
(b) Date of Payment, Number of Shares Comprising Stock Payment. The Annual
Retainer shall be paid on the 1998 Payment Date and thereafter in May of each
calendar year. The total number of shares of Common Stock included in each Stock
Payment shall be determined by dividing the amount of a Non-Employee Director's
Annual Retainer that is to be paid in shares of Common Stock by the Market Price
of a share of Common Stock. For purposes of the Plan, (x) in respect of the
Stock Payment to be made on the 1998 Payment Date, Market Price is the average
of the daily averages of the high and low sales prices of Common Stock as
reported on The New York Stock Exchange Composite Transactions Tape for the ten
trading days preceding the 1998 Payment Date (or, in the event that there is no
trading of Common Stock on any day during the ten-trading-day period, for such
lesser number of days within such ten-trading-day period when Common Stock is
traded) and (y) in respect of the Stock Payments to be made in May of each year
commencing May 1999, Market Price is the average of the daily averages of the
high and low sales prices of Common Stock as reported on the New York Stock
Exchange Composite Transactions Tape for all trading days on which the Common
Stock was traded on the New York Stock Exchange during the immediately preceding
April. No fractional shares will be issued by the Company. An amount in lieu
thereof shall be paid in cash based upon the Market Price of such fractional
share.
(c) Adjustment of Annual Retainer. If a Non-Employee Director's services
as a board member are terminated prior to the next annual meeting of the
Company's stockholders, for any reason, a pro rata portion of the Annual
Retainer reflecting payment for service during the remainder of such annual term
shall be repaid to the Company by such Non-Employee Director promptly after such
termination.
6. Dilution and Other Adjustments. In the event of any corporate
transaction involving the Company (including, without limitation, any
subdivision or combination or exchange of the outstanding shares of Common
Stock, stock dividend, stock split, spin-off, split-off, recapitalization,
capital reorganization, liquidation, reclassification of shares of Common Stock,
merger, consolidation, extraordinary cash dividend, or sale, lease or transfer
of substantially all of the assets of the Company), the number or kind of shares
that may be issued under the Plan pursuant to Paragraph 4 above shall be
automatically adjusted to give effect to the occurrence of such event.
7. Miscellaneous Provisions.
(a) Except as expressly provided for in the Plan, no Non-Employee Director
or other person shall have any claim or right to receive Stock Payments. Neither
the Plan
-2-
<PAGE> 3
nor any action taken hereunder shall be construed as giving any Non-Employee
Director any right to be retained in the service of the Company.
(b) No shares of Common Stock shall be issued hereunder unless counsel for
the Company shall be satisfied that such issuance will be in compliance with
applicable federal, state and other securities laws.
(c) It shall be a condition to the obligation of the Company to issue
shares of Common Stock pursuant to a Stock Payment, that the participant pay to
the Company, upon its demand, such amount as may be requested by the Company for
the purpose of satisfying any liability to withhold federal, state, local or
foreign income or other taxes.
(d) The expenses of the Plan shall be borne by the Company.
8. Amendment or Discontinuance. The Plan may be amended or modified at any time
and from time to time by the Board as the Board shall deem advisable, provided,
however, that no amendment or modification may become effective without approval
by the stockholders of the Company if the Company determines, on advice of
counsel, that stockholder approval is required to enable the Plan to satisfy any
applicable statutory or regulatory requirements, or if the Company determines
that stockholder approval is otherwise necessary or desirable, and provided
further, that no amendment or modification shall be made more than once every
six months, other than to comport with changes in the Internal Revenue Code of
1986, as amended, the Employment Retirement Income Security of 1974, as amended,
or the rules promulgated thereunder. Except to the extent otherwise required by
the Company's Certificate of Incorporation or the Company's By-Laws, the
stockholders shall be deemed to have approved an amendment or modification to
the Plan which is submitted to the stockholders for approval if and when such
amendment or modification is approved at a meeting of the stockholders by a
majority of the voting power of the Voting Stock (all as defined in the
Company's Certificate of Incorporation) present in person or represented by
proxy and entitled to vote at such meeting. No amendment or modification of the
Plan shall materially and adversely affect any right of any participant with
respect to any Annual Retainer theretofore paid, without such participant's
written consent.
9. Termination. The Plan shall terminate upon the earlier of the following dates
or events to occur:
(a) upon the adoption of a resolution of the Board terminating the Plan;
or
(b) December 31, 2008.
-3-
<PAGE> 4
No termination of the Plan shall materially and adversely affect any of the
rights or obligations of any person, without his consent, with respect to any
Annual Retainer theretofore paid under the Plan.
_____________, 1998
-4-
<PAGE> 1
Exhibit 10.7
FINAL - 05/02/95
CHICAGO TITLE AND TRUST COMPANY
PERFORMANCE UNIT INCENTIVE PLAN OF 1995
1. Establishment of Plan. The Chicago Title and Trust Performance Unit
Incentive Plan of 1995 (Plan), a non-tax qualified unfunded incentive
plan, is hereby established effective January 1, 1995 by Chicago Title and
Trust Company (Company) for certain employees of the Company and its
designated corporate affiliates. The Plan's participants are divided into
two sections, an Executive Section and a Manager Section, all as more
fully described below.
2. Affiliated Companies. The Company may, at its option, authorize and
designate any of its affiliated corporations to participate in the Plan
and, in that event, any such corporation shall execute a written statement
of adoption, consenting to the terms and conditions of the Plan. Each
participating company (including the Company) shall be referred to as an
"Employer" hereunder.
3. Eligibility - Selection By Vice Chairman. The Plan is intended to benefit
select personnel of Employers who are able to contribute to the long term,
sustained growth of the title operations of the Company and its affiliates
(Executive Section) or who have significant influence over expense or
revenue elements affecting the performance of the title operation of the
Company and its affiliates (Manager Section).
The Vice Chairman of the Company shall select and determine those persons
who shall be eligible to participate in the Plan.
4. Performance Cycles - Commencement and Duration.
A. The Executive Section of the Plan covers two (2) performance cycles
each of four years duration with the first cycle commencing January
1, 1995 and ending December 31, 1998. The second cycle shall
commence January 1, 1997 and end December 31, 2000.
The Manager Section of the Plan covers three cycles of three years
duration with the first cycle commencing January 1, 1995 and ending
December 31, 1997 and the last cycle commencing January 1, 1997 and
ending December 31, 1999.
The initiation of other cycles or the commencement, delay or
duration of cycles shall be discretionary matters with the Company.
<PAGE> 2
B. Except with the approval of the Company, an eligible employee shall
commence Plan participation and enter a performance cycle not later
than midway into the duration of a cycle.
5. Performance Units - Assignment - Reporting.
A. A participant's potential for incentive pay shall be based on the
number of performance units assigned to that participant and the
performance of the Company and its affiliates during a performance
cycle.
B. A participant's performance units shall reflect generally that
person's level of responsibility and control over target variables
within the Company's corporate family.
C. The total number of units assigned to the Vice Chairman of the
Company shall be determined by Alleghany Corporation.
D. The number of units assigned to other Plan participants shall be
determined by the Vice Chairman of the Company. Each year, the Vice
Chairman will provide the Personnel Committee of the Board of
Directors of the Company, for its information, a list of all
participants and their individually assigned units.
E. The total number of units assigned for any one performance cycle
shall be subject to such maximum number as shall be approved by
Alleghany Corporation. Aggregate limits for units to be assigned
under this Plan shall be 50,000 for the Executive Section and 40,000
for the Manager Section.
F. Awards of units will be made at the commencement of a performance
cycle.
6. Calculations - Common Definitions. In making calculations of benefits
payable under the Plan's Executive Section and Manager Section, the
following definitions shall apply:
A. "Return on Equity" means Adjusted Net Operating Income for any
calendar year of the Company divided by Adjusted Beginning Equity
for such year, expressed as a percentage.
i. "Adjusted Net Operating Income" means Net Income, excluding
realized gains or losses on the sale of securities increased
by certain administrative expenses (net of tax) and any other
net of tax adjustments approved by Alleghany Corporation.
ii. "Adjusted Beginning Equity" means Shareholders Equity reported
as of December 31 of the preceding calendar year, adjusted to
exclude the
2
<PAGE> 3
effects of Statement of Financial Accounting Standards #115
(unrealized gains or losses on the holding of investment
securities).
B. "Expense Ratio" means Total Operating Expenses divided by Total Net
Revenue, and expressed as a percentage.
i. "Total Net Revenue" means Gross Revenue, net of Agent's Commissions,
and includes the gross up of tax exempt revenue to a pre-tax basis.
ii. "Total Operating Expenses" means all expenses deducted from Total
Net Revenue to determine Net Income, but excludes:
- provisions for title losses;
- certain administrative expenses as approved by Alleghany
Corporation; and
- Federal income taxes.
C. "Dividend Level" means the amount of dividends paid or credited to
Alleghany Corporation in a year, divided by the Company's Shareholder's
Equity at the beginning of the year.
D. "Average Return on Equity" means:
the sum of the Adjusted Net Operating Incomes for each year of a
cycle, divided by the number of years in a cycle.
divided by
the sum of Adjusted Beginning Equities for each year of a cycle,
divided by the number of years in a cycle;
E. "Average Expense Ratio" means the sum of the individual annual expense
ratios in a cycle, divided by the number of years in a cycle.
F. "Average Dividend Level" means the sum of the individual annual dividend
levels in a cycle, divided by the number of years in a cycle.
All calculations by the Company of incentive payments and the use of Plan
definitions shall be subject to such adjustments as the Company in its sole
discretion shall deem equitable and shall further be subject to review by the
independent auditors of the Company.
3
<PAGE> 4
7. Payout of Benefits far 1995 and Subsequent Cycles. The distribution of
benefits for cycles commencing January 1, 1995 and thereafter shall be
governed by the following provisions:
A. Mandatory Stock Purchase. One-fourth of the gross distribution (the
"Distribution") to each participant in this Plan at the end of the
plan cycle shall be used to purchase Alleghany common stock.
i. The purchase shall be subject to the terms and conditions of
administrative procedures promulgated from time to time by the
Company and consistent with the terms of certain stock
purchase agreements between the Company and Alleghany
Corporation, and the Company and the participant, such terms
and conditions to include without limitation, the maximum
and/or minimum number of shares to be purchased, pricing of
shares, etc.
ii. The price for shares for the applicable performance cycle
commencing January 1, shall be 100% of the mean price of
shares on the effective date for granting of units or, if such
date is not a trading date, the next prior trading date, as
determined by the Company.
iii. Once the purchase of such shares is complete, there is no
restriction on resale of such shares.
B. Early Stock Purchase Option. A participant shall enjoy the option to
use up to one-third of a future Distribution to purchase Alleghany
stock for the same purchase price as provided with respect to the
mandatory stock purchase for such year. The option may be exercised
in increments of 5 % up to the full 33 1/3% of such Distribution (or
a total of 58 1/3% maximum of the Distribution when the 25%
mandatory stock purchase is taken into account). The option must be
exercised according to procedures and within a period to be
specified by the Company following the date on which units for a
performance cycle are awarded.
i. The terms and conditions of this option are likewise subject
to the said stock purchase agreements between the Company and
Alleghany Corporation and the Company and the participant.
ii. Once the purchase of such shares is complete, there are no
restrictions on the resale of such shares.
C. Cash Distribution. The balance of a participant's Distribution of
incentive pay amounts, after allowance for the mandatory stock
purchase and possible exercise of the Early Stock Purchase Option
shall be made in cash as soon as reasonably practical after audited
results are available at the end of the applicable performance
cycle.
4
<PAGE> 5
D. Late Stock Purchase Option. After allowance for the mandatory stock
purchase and the possible exercise of the Early Stock Purchase Option
described above, when a Distribution of cash amounts is imminent at the
end of a performance cycle, a participant may elect to use up to one-half
of the remainder of the Distribution, after withholding of applicable
taxes, to purchase shares of Alleghany common stock, in accordance with
administrative procedures promulgated by the Company and consistent with
said stock purchase agreements between Alleghany and the Company and the
Company and the participant.
i. The resale of stock purchased under this option shall be restricted
in accordance with applicable security laws and regulations, with
notice thereof to be provided to the participant by the Company.
E. Withholding.
i. The Company shall deduct from all Plan Distributions any taxes or
other deductions required by law to be withheld with respect to cash
and stock distributed under the Plan.
ii. In the event of a mandatory or early stock purchase or late stock
purchase under paragraphs 7A, 7B and 7D, respectively, where the
amount of the cash to be paid to the participant is not adequate to
meet any appropriate taxes withholding requirement, the affected
participant shall be required either to make a cash payment to the
Company in the amount of the deficiency or in the alternative to
receive such lesser number of full shares as shall allow the full
amount of taxes due to be paid.
F. Examples. Select examples of payment procedures may be set forth as
Exhibits from time to time at the Company's discretion.
G. Assignment. Plan benefits shall not be assigned or transferred by a
participant without the prior written consent of the Company.
H. Special Provisions.
A. In the Event that the Company is sold by Alleghany Corporation. If
the Company is sold by Alleghany Corporation, then each cycle shall
be deemed to have ended as of the date of consummation of such sale
and each participant shall have the rights set forth in Paragraph 7
subparagraphs A through D in respect thereof.
B. In the Event that Alleghany Stock is Split. In the event that
Alleghany stock is split, a new purchase price shall be determined
in such manner as shall be approved by the Company.
5
<PAGE> 6
8. Plan Administration. The Company shall be responsible for administering
the Plan and all decisions as to participation, levels of responsibility
and other matters made by the Company, and the Vice Chairman of the
Company shall be final. The Vice Chairman is authorized to make
discretionary decisions regarding eligibility, participation and
distributions regarding an individual participant as shall be equitable
for that participant in each case.
9 Not a Contract of Employment. Nothing in this Plan shall be construed as
providing to a participant any contractual right to continued employment
or any special rights with respect to employment with an Employer.
10. No Accrued Benefit. The Company intends that the Plan be subject at all
times to final results of operations of the Company at the end of a
performance cycle and that payments be in the nature of a bonus made at
its discretion. Consequently, there shall be no accrual of benefits or
pro-rata entitlement prior to the actual date of a Distribution.
11. Plan Amendment - Termination. The Company reserves the right to amend or
terminate this Plan at any time, without the consent of any participant.
12. Change in Control. In the event that a participant is terminated for any
reason other than cause within two years following a change in control of
the Company (change in majority ownership of the Company from Alleghany
Corporation to an unaffiliated entity or liquidation or dissolution of the
Company), if the Plan has not terminated as provided in Paragraph 7(H)
above, Plan benefits shall be determined for that participant in the same
manner as if a cycle termination had occurred on the date of termination
of employment of the participant.
Executive Section - Special Provisions.
13. Calculation of Benefits. The benefits for a participant in the Executive
Section of the Plan shall be calculated as follows:
A. Step 1. Base Value. The performance units assigned to a participant
shall have a Base Value for the cycle of the Plan determined in
accordance with the following table:
<TABLE>
<CAPTION>
Reference Return on Equity Base Value Per
Points Four Year Average Million Dollars of
------ ----------------- Adjusted Net
Operating
Income For
Four Year Cycle
---------------
<S> <C> <C>
Below Threshold less than 7% $0.00
Threshold Rate 7.00% to less than 13% 2.00
Enhanced Rate 13.00% or more 4.50
</TABLE>
6
<PAGE> 7
B. Step 2. Multiplied Value. At the end of a performance cycle, the
Base Value of a performance unit will be adjusted to a new value by
multiplying the Base Value first by a multiplier determined as
follows based on the average level of dividends to Alleghany during
the performance cycle:
<TABLE>
<CAPTION>
Average
Dividend Level Multiplier
-------------- ----------
<S> <C>
6% or less .70
8% 1.00
12% or more 1.30
</TABLE>
and then by a second multiplier based on Expense Ratio for the cycle
period:
<TABLE>
<CAPTION>
Average
Expense Ratio Multiplier
------------- ----------
<S> <C>
81% or more .75
78% 1.00
76% or less 1.30
</TABLE>
Straight line interpolation shall be used in making calculations
under each multiplier.
14. Early Distribution. In the event of death, permanent and total disability
or retirement of a participant, Plan benefits for that person shall be
calculated using actual results through the completion of the cycle with a
proration based on a fraction equal to actual time in the Plan divided by
the length of the full relevant cycle.
15. Plan Termination. In the event of Plan termination, benefits under the
Executive Section of the Plan shall be calculated using the Enhanced Rate
(4.50) with application of a maximum dividend multiplier (1.30) and a
maximum expense multiplier (1.30) to results of operation audited to the
date of Plan termination.
Manager Section - Special Provisions.
16. Additional Definitions.
"Average Return on Equity" means the sum of three annual return on equity
calculations, divided by three. In making this calculation, "Adjusted Net
Operating Income" as defined in Section 6(A)(i) shall be increased by all
net of tax long-term incentive plan provisions.
7
<PAGE> 8
17. Calculation of Benefits. A participant's incentive pay under the Manager
Section of the Plan shall be calculated as follows:
A. Step 1. Value of a Performance Unit. The value of a performance unit
will be valued at the end of the three year cycle using the
following matrix.
Avenge Return on Equity
<TABLE>
<CAPTION>
7% or less 10% 13% 16% 19% or more
76% $40 $60 $100 $140 $200
or less
<S> <C> <C> <C> <C> <C> <C>
77% 30 45 75 105 150
Average 78% 20 30 50 70 100
Expense 79% 10 15 25 35 50
Ratio 81% or more 0 10 15 20 25
</TABLE>
B. Interpolation. Values on the ROE/Expense Ratio matrix shall be
subject to double interpolation on a straight line basis.
18. Early Distribution. In the event of death, permanent total disability or
retirement of a participant, Plan benefits for that person shall be
calculated using actual results through the completion of a cycle with a
proration based on a fraction equal to actual time in the Plan divided by
the length of the full relevant cycle.
19. Plan Termination. In the event of Plan termination, benefits under the
Manager Section of the Plan shall be calculated using optimal rates of
Average Return on Equity and Expense Ratio, each prorated to the date of
termination.
Executed as of the 1st day of May, 1995 to evidence the adoption of the
Chicago Title and Trust Company Performance Unit Incentive Plan of 1995.
CHICAGO TITLE AND TRUST COMPANY
By: /s/ La Nette Zimmerman
-----------------------------
Vice President
As Plan Sponsor
8
<PAGE> 9
Executed as of the 1st day of May, 1995, to evidence Chicago Title
Insurance Company's adoption of and participation in the Chicago Title and Trust
Company Performance Unit Incentive Plan as of 1995.
CHICAGO TITLE INSURANCE COMPANY
By: /s/ Thomas J. Adams
-----------------------------
Vice President
Executed as of the 1st day of May, 1995, to evidence Chicago Title
Company's adoption of and participation in the Chicago Title and Trust Company
Performance Unit Incentive Plan of 1995.
CHICAGO TITLE COMPANY
By: /s/ Thomas J. Adams
-----------------------------
Vice President
Executed as of the 1st day of May, 1995, to evidence Ticor Title Insurance
Company's adoption of and participation in the Chicago Title and Trust Company
Performance Unit Incentive Plan of 1995.
TICOR TITLE INSURANCE COMPANY
By: /s/ [Illegible]
-----------------------------
Vice President
9
<PAGE> 10
Executed as of the 1st day of May, 1995, to evidence Ticor Title Guarantee
Company's adoption of and participation in the Chicago Title and Trust Company
Performance Unit Incentive Plan of 1995.
TICOR TITLE GUARANTEE COMPANY
By: /s/ Kenneth Ferraro
-----------------------------
Vice President
10
<PAGE> 1
Exhibit 10.8
CHICAGO TITLE AND TRUST COMPANY
QUALITY BUSINESS MANAGEMENT
INCENTIVE PLAN
Effective January 1, 1996
1. Establishment of Plan. The Chicago Title and Trust Company Quality
Business Management Program (Plan), an unfunded incentive compensation
plan, is hereby established effective January 1, 1996 by Chicago Title and
Trust Company (Company) for certain senior corporate officers of itself
and its corporate title insurance affiliates effective January 1, 1996.
2. Affiliated Companies. The Company may, at its option, authorize and
designate any of its affiliated title insurance corporations to
participate in the Plan and, in that event, any such corporation shall
execute a written statement of adoption, consenting to the terms and
conditions of the Plan. Each participating company (including the Company)
shall be referred to as an "Employer" hereunder.
3. Eligibility. The Plan is intended to benefit select senior corporate
officers of Employers who are able to contribute to acquisition and
maintenance of quality title insurance business for the Company and its
title insurance affiliates. The President of the Company shall nominate,
in his sole discretion, those persons who shall be eligible to participate
in the Plan and such nominations shall be subject to the approval of the
Personnel Committee (Committee) of the Board of Directors of the Company.
The eligibility of the President for Plan participation shall be
authorized by the Committee. In general, eligibility decisions shall be
made by the end of a Policy Year.
4. Performance Cycles - Commencement of Participation.
A. The Plan covers one or more four (4) year Performance Cycles
covering one full calendar year of policy issuance (a Policy Year)
followed by three (3) years of claims development for that Policy
Year. The first performance cycle shall commence with the 1996
Policy Year.
The initiation of any additional Cycles for Policy years 1997 or
thereafter and the commencement, delay and duration of Cycles in
general shall be discretionary matters with the Committee.
B. Except with the approval of the President, an eligible employee
shall commence Plan participation and enter a performance cycle not
later than after the close of a Policy Year.
5. Definitions. The following definitions shall be used in this Plan:
A. "Company" means Chicago Title and Trust Company.
<PAGE> 2
B. "Employee" means an active employee with the Company or an Employer
or an employee who is a retiree of such entity.
C. "Performance Cycle" means a four year period covering a Policy Year
plus a three year Withholding Period.
D. "Policy Year" means a calendar year during which title insurance
policies are issued by the Company's title insurance affiliates,
which policies are then tracked for three (3) year's claims
experience to determine the gain or loss to a participant under this
Plan.
E. "Withholding" refers to the Company's retention for Plan purposes
of a portion of a participant's annual short-term incentive payment
for the calendar year of service mirroring the Policy Year.
F. "Withholding Period" means the three calendar year following the end
of a Policy Year.
6. Withholding Procedures.
A. Following the completion of a Policy Year, the Company will withhold
a predetermined percentage of the annual short-term incentive
payment which would otherwise be payable to a participant as earned
short-term incentive for that year, to be retained under the Plan
and subjected to increase or decrease based on title insurance
claims experience for the subject Policy Year.
B. Thus, for Policy Year 1996 Withholding procedures shall apply to
participants' for short term annual incentive payments made in the
first quarter of 1997 for 1996 performance.
C. All withheld amounts shall not be deemed earned by a participant
until the time for distribution in accordance with the terms and
conditions of this Plan.
D. The normal withholding amounts shall be 20% of annual incentive. In
the event Withholding for a participant does not exceed $5,000 for a
Policy Year, an assumed Withholding amount of $5,000 will be used to
determine the maximum amount of incentive payable under Section 7C
below.
E. Individual incentive awards are based on an individual participant's
percentage of Withholding to the entire Withholding pool for all
participants.
7. Incentive Calculations.
A. In making incentive calculations, the following additional
definitions shall apply:
o "Gross Provisional Revenue" means the number provided by the
risk management department and used for determining
title insurance
2
<PAGE> 3
loss provisions for the Company.
o "Claims" means all title insurance claims filed or expected to
be filed within a Policy Year, and the three years
thereafter, including expensed claims and mega-buck
claims as charged to Division/Regional Managers results
for a Policy Year.
o "Annual Loss Ratio" means the quotient of projected Claims for
the Policy Year (plus three years) divided by Gross
Provisional Revenue.
B. The incentive payable is determined as follows:
o take 160% of Claims incurred during the Policy Year plus three
years;
o compare the Claims as projected with the corporate loss
provision (Gross Provisional Revenue) or Annual Loss Ratio and
if claims are 115% of claims provision, no withhold amounts
shall be returned.
o for each 1% that the percentage is less than (or exceeds)
100%, credit (or charge) are increment (or decrement) of
6 2/3% to the holdback amount at risk for the policy year.
C. An incentive maximum of 2 times the withheld amount shall apply.
D. Following the adjustment of the withheld amount based on
performance, the amount to be distributed is increased by a total
interest factor of 20%.
8. Payout of Benefits - Limitations. The distribution of benefits in 2000 for
Policy Year 1996 and any subsequent distributions for later Policy Years
shall be governed by the following provisions:
A. The distribution of withheld amounts shall be made in cash, less
applicable taxes, as soon as administratively convenient after
audited results are available at the end of the three (3) years
claims development period.
B. Select examples of payment procedures may be set forth as Exhibits
from time to time at the Company's discretion.
C. The Company shall have the right to deduct from all Plan
distributions paid in cash any taxes required by law to be withheld
with respect to such payments.
D. Plan benefits shall not be assigned or transferred by a participant
without the prior written consent of the Company.
9. Plan Administration. The Company shall be responsible for administering
the Plan and all decisions as to participation, levels of responsibility
and other matters made by the Company, the Vice Chairman, the Committee or
other persons involved in
3
<PAGE> 4
the administration of the Plan shall be final. A statement of account to
plan participants will be distributed at least once a year.
10. Not Contract of Employment. Nothing in this Plan shall be construed as
providing to a participant any contractual right to continued employment
or any special rights with respect to employment with an Employer.
11. No Accrued Benefit. The Company intends that the subject Plan be subject
at all times to final results of claims performance determinations at the
end of a performance cycle and that payments be earned at that time.
Consequently, except as specifically provided in this Agreement, there
shall be no accrual of benefits or pro-rata entitlement prior to the
actual date of payment.
12. Plan Amendment - Termination. The Company reserves the right to amend or
terminate this Plan at any time.
13. Early Distribution. In the event of death, permanent and total disability
or retirement of a participant, Plan participation shall continue and any
payments due will be paid in the regular course of plan administration to
an appropriate payee.
4
<PAGE> 5
Draft 5 - 03/10/97
CHICAGO TITLE AND TRUST COMPANY
QUALITY BUSINESS MANAGEMENT
INCENTIVE PLAN
Effective January 1, 1996
1. Establishment of Plan. The Chicago Title and Trust Company Quality
Business Management Program (Plan), an unfunded incentive compensation
plan, is hereby established effective January 1, 1996 by Chicago Title and
Trust Company (Company) for certain senior corporate officers of itself
and its corporate title insurance affiliates effective January 1, 1996.
2. Affiliated Companies. The Company may, at its option, authorize and
designate any of its affiliated title insurance corporations to
participate in the Plan and, in that event, any such corporation shall
execute a written statement of adoption, consenting to the terms and
conditions of the Plan. Each participating company (including the Company)
shall be referred to as an "Employer" hereunder.
3. Eligibility. The Plan is intended to benefit select senior corporate
officers of Employers who are able to contribute to acquisition and
maintenance of quality title insurance business for the Company and its
title insurance affiliates. The President of the Company shall nominate,
in his sole discretion, those persons who shall be eligible to participate
in the Plan and such nominations shall be subject to the approval of the
Personnel Committee (Committee) of the Board of Directors of the Company.
The eligibility of the President for Plan participation shall be
authorized by the Committee. In general, eligibility decisions shall be
made by the end of a Policy Year.
4. Performance Cycles - Commencement of Participation.
A. The Plan covers one or more four (4) year Performance Cycles
covering one full calendar year of policy issuance (a Policy Year)
followed by three (3) years of claims development for that Policy
Year. The first performance cycle shall commence with the 1996
Policy Year.
The initiation of any additional Cycles for Policy years 1997 or
thereafter and the commencement, delay and duration of Cycles in
general shall be discretionary matters with the Committee.
B. Except with the approval of the President, an eligible employee
shall commence Plan participation and enter a performance cycle not
later than after the close of a Policy Year.
5. Definitions. The following definitions shall be used in this Plan:
A. "Company" means Chicago Title and Trust Company.
<PAGE> 6
B. "Employee" means an active employee with the Company or an Employer
or an employee who is a retiree of such entity.
C. "Performance Cycle" means a four year period covering a Policy Year
plus a three year Withholding Period.
D. "Policy Year" means a calendar year during which title insurance
policies are issued by the Company's title insurance affiliates,
which policies are then tracked for three (3) year's claims
experience to determine the gain or loss to a participant under this
Plan.
E. "Withholding" refers to the Company's retention for Plan purposes
of a portion of a participant's annual short-term incentive payment
for the calendar year of service mirroring the Policy Year.
F. "Withholding Period" means the three calendar year following the end
of a Policy Year.
6. Withholding Procedures.
A. Following the completion of a Policy Year, the Company will withhold
a predetermined percentage of the annual short-term incentive
payment which would otherwise be payable to a participant as earned
short-term incentive for that year, to be retained under the Plan
and subjected to increase or decrease based on title insurance
claims experience for the subject Policy Year.
B. Thus, for Policy Year 1996 Withholding procedures shall apply to
participants' for short-term annual incentive payments made in the
first quarter of 1997 for 1996 performance.
C. All withheld amounts shall not be deemed earned by a participant
until the time for distribution in accordance with the terms and
conditions of this Plan.
D. The normal withholding amounts shall be 20% of annual incentive. In
the event Withholding for a participant does not exceed $5,000 for a
Policy Year, an assumed Withholding amount of $5,000 will be used to
determine the maximum amount of incentive payable under Section 7C
below.
E. Individual incentive awards are based on an individual participant's
percentage of Withholding to the entire Withholding pool for all
participants.
7. Incentive Calculations.
A. In making incentive calculations, the following additional
definitions shall apply:
o "Gross Provisional Revenue" means the number provided by the
risk management department and used for determining
title insurance
2
<PAGE> 7
loss provisions for the Company.
o "Claims" means all title insurance claims filed or expected to
be filed within a Policy Year, and the three years
thereafter, including expensed claims and mega-buck
claims as charged to Division/Regional Managers results
for a Policy Year.
o "Annual Loss Ratio" means the quotient of projected Claims for
the Policy Year (plus three years) divided by Gross
Provisional Revenue.
B. The incentive payable is determined as follows:
o take 160% of Claims incurred during the Policy Year plus three
years;
o compare the Claims as projected with the corporate loss
provision (Gross Provisional Revenue) or Annual Loss Ratio and
if claims are 115% of claims provision, no withhold amounts
shall be returned.
o for each 1% that the percentage is less than (or exceeds)
100%, credit (or charge) are increment (or decrement) of 6
2/3% to the holdback amount at risk for the policy year.
C. An incentive maximum of 2 times the withheld amount shall apply.
D. Following the adjustment of the withheld amount based on
performance, the amount to be distributed is increased by a total
interest factor of 20%.
8. Payout of Benefits - Limitations. The distribution of benefits in 2000 for
Policy Year 1996 and any subsequent distributions for later Policy Years
shall be governed by the following provisions:
A. The distribution of withheld amounts shall be made in cash, less
applicable taxes, as soon as administratively convenient after
audited results are available at the end of the three (3) years
claims development period.
B. Select examples of payment procedures may be set forth as Exhibits
from time to time at the Company's discretion.
C. The Company shall have the right to deduct from all Plan
distributions paid in cash any taxes required by law to be withheld
with respect to such payments.
D. Plan benefits shall not be assigned or transferred by a participant
without the prior written consent of the Company.
9. Plan Administration. The Company shall be responsible for administering
the Plan and all decisions as to participation, levels of responsibility
and other matters made by the Company, the Vice Chairman, the Committee or
other persons involved in
3
<PAGE> 8
the administration of the Plan shall be final. A statement of account to
plan participants will be distributed at least once a year.
10. Not Contract of Employment. Nothing in this Plan shall be construed as
providing to a participant any contractual right to continued employment
or any special rights with respect to employment with an Employer.
11. No Accrued Benefit. The Company intends that the subject Plan be subject
at all times to final results of claims performance determinations at the
end of a performance cycle and that payments be earned at that time.
Consequently, except as specifically provided in this Agreement, there
shall be no accrual of benefits or pro-rata entitlement prior to the
actual date of payment.
12. Plan Amendment - Termination. The Company reserves the right to amend or
terminate this Plan at any time.
13. Early Distribution. In the event of death, permanent and total disability
or retirement of a participant, Plan participation shall continue and any
payments due will be paid in the regular course of plan administration to
an appropriate payee.
4
<PAGE> 1
Exhibit 10.11
Chicago Title and Trust Company
Executive Excess Benefits Savings Plan
Section One
Establishment of Plan
1.1 Effective Date. Effective January 1, 1997, Chicago Title and Trust Company
(CT&T) hereby establishes the Chicago Title and Trust Company Executive
Excess Benefits Saving Plan (Plan).
1.2 Plan Purpose. The Plan is for certain executive participants in the +PLUS
Account of the Chicago Title and Trust Company Savings and Profit Sharing
Plan (Savings Plan) who are affected by the maximum benefit limitations
imposed by Section 415 of the Internal Revenue Code (Code), as amended
and/or by the maximum compensation limitations imposed by Section
401(a)(17) of the Code.
1.3 Employer. The Company and any of its affiliated corporations which with
the consent of the Company adopt the Plan are referred to below
collectively as the "Employers" and individually as an "Employer."
1.4 Non-Tax Qualified Plan. This Plan is completely independent from the
Savings Plan and is not funded or qualified for special tax treatment
under the Internal Revenue Code. The Plan is intended to constitute an
excess benefit plan within meaning of Section 3(36) of the Employees
Retirement Income Security Act of 1974, as amended, and an unfunded
deferred compensation plan for a select group of management or highly
compensated employees within meaning of Section 201(2) of ERISA.
Section Two
Eligibility
2.1 Eligibility. Any participant in the +PLUS Account of the Savings Plan who
is affected by the maximum benefit or compensation limitations of that
Plan and who is approved for participation in this Plan by the President
of the Company shall be entitled to an excess benefit, payable hereunder
in accordance with Section Three of this Plan, equal to the amount, if
any, that the Employer contribution to the +PLUS Account for such
participant is limited by the application of the Internal Revenue Code,
specifically including but not limited to, the application of compensation
limits under Section 401(a)(17) of the Code and annual addition limits
under Section 415 of the Code.
2.2 Annual Excess Benefit. In the event a plan participant is adversely
affected by the application of Section 415 of the Code or by IRS Code
compensation limits, the Company shall accrue each year as an excess
benefit under this Plan an amount equal to the amount by which an
Employer's contribution for the
<PAGE> 2
participant under the +PLUS Account was limited by the application of
those two provisions of the Code.
2.3 Excess Benefits - Interest. The amount of excess benefits under this Plan
shall be adjusted annually by an interest factor equal to the greater of
(i) the prime lending rate as reported by the Wall Street Journal as of
December 31 for the year in question, or (ii) the rate of return for the
CT&T Safety of Principal Fund as of December 31 for the year in question,
or such other rate and calculation date as the Plan Administrator may deem
equitable if such rates are not available at the times indicated. The
applicable annual interest adjustment shall continue until benefits are
distributed under Section 2.4.
2.4 Time and Method of Payment. The excess benefits under this Plan shall
become payable in a lump sum when a participant terminates employment with
all Employers under the Plan.
2.5 Incompetency. In the event that a person entitled to benefits under the
Plan is declared incompetent and a conservator or other person legally
charged with the care of this person or of his estate is appointed, any
benefits to which such person is entitled under the Plan shall be paid to
such conservator or other person legally charged with the care of this
person or his estate.
2.6 Employee Rights. The amount of any benefit payable under the Plan with
respect to any participant shall be paid from the general assets of the
Employer that last employed that participant.
2.7 Beneficiary. In the event of a participant's death, the participant's
beneficiary under the Savings Plan shall be entitled to receive the
benefits under this Plan.
Section Three
Operation of Plan
3.1 Promise To Pay. Subject to Section 4.2, the Employer will pay to the
participant the excess savings plan benefits established under this Plan
at the times and under the terms provided herein. The Plan is deemed to
be an unfunded plan and no Employer has any obligation to set aside,
earmark, or entrust any fund, policy, or money with which to pay any
obligations under the Plan. A participant shall have no vested right to
claim any assets of an Employer to pay benefits under this Plan.
3.2 Plan Administrator - Determination Binding. The Company or designated
representatives shall be the Plan Administrator. Any discretionary
determination of eligibility or amount payable hereunder by the Plan
Administrator is final and binding.
2
<PAGE> 3
Section Four
Miscellaneous
4.1 Not a Contract of Employment. The Plan does not constitute a contract of
employment and participation in the Plan will not give any employee the
right to be retained in the employ of any Employer nor any right to or
claim to any benefit under the Plan, unless such right or claim has
specifically accrued under the terms of this Plan.
4.2 Amendment - Termination. Chicago Title and Trust Company may amend or
terminate this Plan at any time, but such amendment or termination shall
not adversely affect the rights of any participant or beneficiary then
receiving benefits, or the beneficiary of any participant then receiving
benefits under this Plan. Any participant not yet in a pay status may lose
any future right to payments under this Plan should the Company terminate
this Plan and not make provision for the payment of such benefits.
4.3 Assignment. The benefits payable to any participant under this Plan may
not be voluntarily or involuntarily assigned or alienated.
4.4 Controlling Law. To the extent not superceded by the laws of the United
States, this Agreement shall be interpreted under and governed by the laws
of the State of Illinois.
3
<PAGE> 4
Executed this 24th day of April 1997 to evidence the adoption of the
Chicago Title and Trust Company Excess Benefits Savings Plan.
CHICAGO TITLE AND TRUST COMPANY
By:
--------------------------------------
Vice President
Executed this 24th day of April 1997 to evidence adoption of the
Chicago Title and Trust Company Excess Benefits Savings Plan.
CHICAGO TITLE INSURANCE COMPANY
By:
--------------------------------------
Vice President
Executed this 24th day of April 1997 to evidence the adoption of the
Chicago Title and Trust Company Excess Benefits Savings Plan.
CHICAGO TITLE COMPANY
By:
--------------------------------------
Vice President
4
<PAGE> 1
Exhibit 10.12
CHICAGO TITLE AND TRUST COMPANY
ANNUAL INCENTIVE PLAN
(Title Insurance Affiliates)
Effective January 1, 1997
1. Establishment of Plan. The Chicago Title and Trust Company Annual
Incentive Plan (Plan), an unfunded incentive compensation plan, is hereby
established effective January 1, 1997 by Chicago Title and Trust Company
(Company) for certain employees of itself and its title insurance
corporate affiliates.
2. Affiliated Companies. The Company may, at its option, authorize and
designate any of its title insurance affiliated corporations to
participate in the Plan and, in that event, any such corporation shall
execute a written statement of adoption, consenting to the terms and
conditions of the Plan. Each participating company (including the Company)
shall be referred to as an "Employer" hereunder.
3. Eligibility - Selection By President and Chief Executive Officer. The Plan
is intended to benefit select personnel of Employers who are able to
contribute to the achievement of the Company's and its affiliates' primary
business objectives and to reward superior performance and results. The
President and Chief Executive Officer of the Company shall select and
determine, in his sole discretion, those persons who shall be eligible to
participate in the Plan. The eligibility of the President and Chief
Executive Officer for Plan participation shall be authorized by Alleghany
Corporation.
4. Incentive Opportunities.
A. All Plan participants shall receive an incentive opportunity based
on a variable percentage of annual salary or the participant's
salary range mid-point which was in effect prior to Broad Band
implementation, if higher, with the precise opportunity keyed to
corporate financial performance as described below.
B. Certain participants may have their incentive opportunity modified
based on the attainment or non-attainment of special objectives
crafted on an individual or group basis. Such special objectives
shall generally constitute from one-third to one-half of the maximum
incentive opportunity. For the President and Chief Executive
Officer, the weighting for special objectives shall not exceed
one-third except as approved by the Chairman of the Personnel
Committee of the Board of Directors of the Company.
5. Administration of Plan. Subject to general discretion and supervision of
the Personnel Committee of the Board of Directors of the Company, the
Company shall be responsible for administering the Plan and all decisions
as to participation, levels of responsibility and other matters made by
the Company and the President and Chief Executive Officer of the Company
shall be final. The President and Chief Executive Officer is authorized to
make
<PAGE> 2
discretionary decisions regarding eligibility, participation and
distributions regarding an individual participant as shall be equitable
for that participant.
The Company shall prepare and maintain a schedule of plan participants
showing the mix between financial and special objectives and shall provide
a copy of such schedule to the Personnel Committee on at least an annual
basis.
6. Calculation of Benefits - Definitions. In calculating benefits payable
under the Plan, the following definition shall apply:
A. "Cyclical Net Revenue Margin" is intended to approximate the
cyclical results of operations of the Company and is calculated as
adjusted pre-tax contribution from title operations and real estate
services divided by net revenue. Adjusted pre-tax contribution from
title operations and real estate services includes concentration
investment income, and excludes corporate investment income,
interest expense on acquisition debt. Net revenue is net of agent's
commissions, and excludes corporate investment income.
7. Calculation of Benefits - Procedure. The incentive opportunity for Plan
participation based on financial performance shall be determined as
follows:
A. An incentive factor will be determined from cyclical financial
results as follows:
INCENTIVE FACTOR DETERMINATION
<TABLE>
<CAPTION>
Threshold Target Maximum
--------- ------ -------
<S> <C> <C> <C> <C>
Cyclical Net Revenue
Margin under 3% 3% 5% 8% or more
Incentive Factor
(used as a multiplier) -0- .5 1.0 1.5
</TABLE>
B. The incentive factor will be applied to a schedule of cyclical
financial earnings against plan using a payout percentage of 25% to
100% depending on targets for financial performance against plan.
The cyclical financial earnings schedule for 1997 is attached as
Exhibit A. Similar schedules will be developed for subsequent years.
C. The following provisions shall govern application of the incentive
factor and financial performance as described above:
o Failing to meet the threshold measures for either the
incentive factor or financial performance will result in no
payout.
o More than maximum achievement will simply payout at the
maximum provided.
2
<PAGE> 3
o Between the threshold and the maximum, straight-line
interpolation will be used to determine final figures for Plan
calculation.
o All calculations of benefits are subject to such additional
modifications of accounting results from operations of the
Company as the Company may, in its sole and absolute
discretion, deem appropriate.
8. Payout of Benefits For The 1997 Cycle. The distribution of benefits for
the cycle commencing January 1, 1997 and any subsequent annual cycles
shall be governed by the following provisions:
A. The distribution of incentive pay amounts shall be made in cash as
soon as possible after audited results are available at the end of
the one year performance cycle.
B. Select examples of payment procedures may be set forth as Exhibits
from time to time at the Company's discretion.
C. The Company shall have the right to deduct from all Plan
distributions any taxes required by law to be withheld with respect
to such payments.
D. Assignment. Plan benefits shall not be assigned or transferred by a
participant without the prior written consent of the Company.
9. Not Contract of Employment. Nothing in this Plan shall be construed as
providing to a participant any contractual right to continued employment
or any special rights with respect to employment with an Employer.
10. No Accrued Benefit. The Company intends that the subject Plan be subject
at all times to final results of operations of the Company at the end of a
performance cycle and that payments be in the nature of a bonus made at
its discretion. Consequently, except as specifically provided in this
Agreement, there shall be no accrual of benefits or pro-rata entitlement
prior to the actual date of payment.
11. Plan Amendment - Termination. The Company reserves the right to amend or
terminate this Plan at any time. In the event of Plan termination, no
benefits shall be paid under the Plan.
12. Early Distribution. In the event of death, permanent total disability or
retirement of a participant, Plan benefits for that person shall be
calculated at the end of the month in which such event occurs using actual
results for that month with benefits to be prorated to the date of such
event.
13. Subsequent Cycles. This Plan shall continue for annual cycles after 1997
until amended or terminated by the Company.
3
<PAGE> 4
14. Reports. The Company intends but is not obligated to provide periodic
reports to plan participants of the Company's standing under the
performance grid set forth in Paragraph 7 above.
Executed this 1st day of May 1997 to evidence the adoption of the Chicago
Title and Trust Company Annual Incentive Plan.
CHICAGO TITLE AND TRUST COMPANY
By: /s/ La Nette Zimmerman
---------------------------
Senior Vice President
As Plan Sponsor
Executed this 1st day of May 1997, to evidence Chicago Title Insurance
Company's adoption and participation in the Chicago Title and Trust Company
Annual Incentive Plan.
CHICAGO TITLE INSURANCE COMPANY
By:/s/ John Rau
---------------------------
President
Executed this 16th day of May 1997, to evidence Chicago Title Company's
adoption and participation in the Chicago Title and Trust Company Annual
Incentive Plan.
CHICAGO TITLE COMPANY
By:/s/ Thomas J. Adams
---------------------------
Vice President
Executed this 16th of May 1997, to evidence Ticor Title Insurance
Company's adoption and participation in the Chicago Title and Trust Company
Annual Incentive Plan.
TICOR TITLE INSURANCE COMPANY
By:/s/ Thomas J. Adams
---------------------------
Vice President
Executed this 16th day of May 1997, to evidence Ticor Title Guaranty
Company's adoption and participation in the Chicago Title and Trust Company
Annual Incentive Plan.
TICOR TITLE GUARANTEE COMPANY
By: /s/ Kenneth Ferraro
---------------------------
Vice President
4
<PAGE> 5
EXHIBIT A
CYCLICAL FINANCIAL EARNINGS
AROUND PLAN FOR 1997
<TABLE>
<CAPTION>
Threshold Target Maximum
--------- ------ -------
<S> <C> <C> <C>
1997
Financial Earnings 90% of Plan 100% of Plan 110% of Plan
Around Plan
Payout as a % of Maximum 25% 60% 100%
</TABLE>
5
<PAGE> 1
Exhibit 10.13
CONFIDENTIAL
September 23, 1997
Mr. Alan N. Prince
Senior Executive Vice President and
Manager Title Operations
Chicago Title and Trust Company
171 North Clark Street
Chicago, IL 60601
Dear Alan:
This letter is to set forth certain understandings regarding your
continued service as a senior executive of Chicago Title and Trust Company
("CT&T") and its title insurance subsidiaries (the "Company"). Effective as of
the date hereof, the employment agreement dated July 29, 1996 between you and
CT&T (the "Agreement") is amended as hereinafter set forth.
1. Section 1 of the Agreement is amended to read in its entirety as
follows:
"1. Term of Agreement. This Agreement shall commence on the date
hereof and shall continue in effect through December 31, 1997 and shall be
automatically renewed for one additional one year period ending December 31,
1998."
2. Section 4(b) of the Agreement is amended to read in its entirety
as follows:
"(b) In addition, for the year ending December 31, 1998 (i) your
base salary, effective January 1, 1998, shall be reduced to $200,000 per annum
and you shall not be required to work more than half time; (ii) CT&T will
reimburse you in respect of a leased apartment, utilities, if any, and parking
space in Chicago in an amount not to exceed $3,000 per month (net of income tax
liability), (iii) for purposes of CT&T's Executive Salary Continuation Plan,
Pension Plan, Excess Benefits Pension Plan, and life insurance plans, your 1998
salary shall be deemed to be $290,000 per annum and (iv) you shall be eligible
for an additional special incentive opportunity of $100,000, payment of which
shall be based upon your performance of objectives mutually agreed by you and
John Rau, the new CEO, and evaluated by the Personnel Committee of the CT&T
Board, upon the recommendation of the new CEO."
<PAGE> 2
3. Section 5 of the Agreement is hereby amended to add the following
sentence at the end thereof:
"In the event of your retirement on December 31, 1998, the Units in
the 1997-2000 cycle of CT&T's Executive Long-Term Incentive Plan previously
granted to you, shall continue as if you remained an employee through December
31, 1999."
4. You agree that during the period of your employment by the
Company and for two years after the termination of such employment, you will not
be associated as employee, proprietor, stockholder, partner, representative,
agent, officer or otherwise with any business that competes with the Company.
5. The Agreement, as amended hereby, sets forth the entire
understanding between the parties.
6. On or before November 1, 1998, you will provide to John Rau, the
new CEO, your recommendations regarding the continued coverage of the agency
network matters and oversight for which you were responsible during the
preceding ten months.
If this letter correctly sets forth our agreement on the subject
matter hereof, kindly sign and return to the undersigned the enclosed copy of
this letter which will then constitute our agreement on this subject.
Very truly yours,
CHICAGO TITLE AND TRUST COMPANY
By /s/ John Rau
------------------------------
Name: John Rau
Title: President
Agreed to on this 3rd day
of October, 1997.
/s/ Alan N. Prince
- ----------------------------
2
<PAGE> 3
CONFIDENTIAL
July 29, 1996
Mr. Alan N. Prince
Senior Executive Vice President and
Manager Title Operations
Chicago Title and Trust Company
171 North Clark Street
Chicago, IL 60601
Dear Mr. Prince:
Chicago Title and Trust Company ("CT&T") considers it essential to
the best interests of the Company to foster your continuous employment as a
senior executive of CT&T and its title insurance subsidiaries (the "Company").
This agreement confirms your acceptance of your current employment
with the Company. In order to induce you to remain in the employ of the Company,
CT&T agrees that you shall receive the severance and other benefits set forth in
this agreement in the event your employment with the Company is hereafter
terminated under the circumstances described below.
1. Term of Agreement. This Agreement shall commence on the date
hereof and shall continue in effect through December 31, 1997 and shall be
automatically renewed for additional successive one year periods ending December
31, unless written notice of non-renewal is given by either you or CT&T not less
than 90 days prior to December 31, 1997 or subsequent December 31 to which this
Agreement shall have been extended as hereinabove provided.
2. Termination. You shall be entitled to the benefits provided in
Section 3(c) hereof upon the termination of your employment during the term of
this Agreement unless such termination is (i) because of your death or "Normal
Retirement," (ii) by the Company for "Cause" or "Disability" or (iii) because of
resignation or retirement by you, other than for "Good Reason," as such terms
are hereinafter defined.
(a) Disability. If, as a result of your incapacity due to physical
or mental illness, you shall become totally disabled within the meaning of the
Company's long-term disability income benefits policy as in effect on the date
of this Agreement, and payments are made to you under the Company's then
existing long-term disability income benefits policy, this Agreement shall
terminate as of the date upon which you were determined to be totally disabled.
<PAGE> 4
(b) Normal Retirement. Termination by the Company or you of your
employment based on "Normal Retirement" shall mean retirement at not less than
age 65 under the provisions of the Company's retirement policies or in
accordance with any retirement arrangement established with your consent with
respect to you.
(c) Retirement for Good Reason. "Retirement for Good Reason" shall
mean retirement other than Normal Retirement elected by you as a result of the
occurrence of any of the events referred to in Section 2(f) hereof.
(d) Resignation for Good Reason. "Resignation for Good Reason" shall
mean resignation by you as a result of the occurrence of one of the events
referred to in Section 2(f) hereof.
(e) Cause. Termination by the Company of your employment for "Cause"
shall mean termination because of failure to perform your duties, engaging in
willful misconduct injurious to the Company, conviction of a felony involving
personal dishonesty and disability. The term "failure" means a material and
repeated failure after notice from the CT&T Board of the alleged failure. Upon
termination for Cause, all of your rights to compensation, fringe benefits and
other payments under this Agreement shall terminate immediately to the extent
permitted by applicable law.
The termination by the Company of your employment for reasons other
than those specified above shall be deemed to be a termination without cause.
(f) Good Reason. You shall be entitled to resign your employment or
retire for Good Reason. For purposes of this Agreement, "Good Reason" shall,
absent your express written consent to the contrary, mean:
(i) the giving of a title to you or the assignment to you of any
duties materially inconsistent with your present position, duties,
responsibilities and status as an executive officer of the Company;
(ii) a reduction by the Company in your annual base salary or
incentive compensation opportunity as in effect on the date hereof; or
(iii) the relocation of the offices at which you are based to a
location anywhere more than 10 miles from its current location, except for
required travel on the Company's business to an extent consistent with
your duties.
(g) Notice of Termination. Any purported termination by the Company
or Resignation for Good Reason or Retirement for Good Reason by you shall be
communicated by written Notice of Termination to the other party hereto in
accordance with Section 7 hereof. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall indicate the specific termination,
resignation or retirement provision in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for such termination, resignation or retirement under the provision so
indicated.
2
<PAGE> 5
(h) Date of Termination. Etc. "Date of Termination" shall mean (i)
if your employment is terminated for Disability, the date upon which you were
determined to be totally disabled within the meaning of the Company's long-term
disability income benefits policy as in effect on the date of this Agreement and
(ii) if your employment is terminated by reason of death or Normal Retirement,
the date of death or Normal Retirement, as applicable, and (iii) if your
employment terminates for any other reason, the date specified in the Notice of
Termination (which shall not be less than thirty (30) nor more than sixty (60)
days, from the date such Notice of Termination is given); provided that if
within thirty (30) days after any Notice of Termination is given, the party
receiving such Notice of Termination notifies the other party in writing that a
dispute exists concerning the termination or resignation, the Date of
Termination shall be the date determined by arbitration pursuant to Section 11
below.
3. Compensation Upon Termination or During Disability.
(a) During any period that you fail to perform your duties as an
employee of the Company as a result of incapacity due to physical or mental
illness, you shall continue to receive your full base salary at the rate then in
effect reduced by payments received under the Company's long-term disability
income benefits policy or any other Company program in which you participate.
Thereafter, your benefits shall be determined in accordance with the Company's
insurance programs then in effect.
(b) If your employment shall be terminated for Cause, the Company
shall pay you your full base salary through the Date of Termination at the rate
in effect at the time Notice of Termination is given and the Company shall have
no further obligations to you under this Agreement.
(c) If your employment by the Company shall be terminated (i) by the
Company other than for Cause, Normal Retirement or Disability or (ii) by you
through Retirement for Good Reason or Resignation for Good Reason, then you
shall be entitled to the benefits provided below:
(A) The Company shall pay your full base salary through the
expiration hereof on December 31, 1997 or such later December 31st to
which this Agreement shall have been extended in accordance with Section 1
hereof at the rate in effect at the time Notice of Termination is given.
(B) You shall be entitled to continuation of all of the
benefits currently provided to you, and benefits plans in which you
participate, through the expiration hereof on December 31, 1997 or such
later December 31st to which this Agreement shall have been extended in
accordance with Section 1 hereof, including health and life insurance, and
401(k) plans.
(C) Your entitlement under long-term incentives, including
QBMI, as at the Date of Termination shall continue as if you continued as
an active employee through December 31, 1997 or such later December 31st
to which this Agreement shall have been extended in accordance with
Section 1 hereof.
3
<PAGE> 6
(D) Any annual incentive opportunities to which, at the Date
of Termination, you would be entitled shall be paid to you in full at the
normal time of payment thereof.
(E) In respect of your retirement benefits, the (i) Company
shall pay you, as promptly as practicable after your retirement on
December 31, 1997 or such later December 31st to which this Agreement
shall have been extended in accordance with Section 1 hereof an amount,
net of tax cost to you, equal to the amount by which your early retirement
lump sum benefits under the Company's Pension Plan and Excess Benefits
Pension Plan have been reduced by the use of an interest rate higher than
the PBGC rate used in calculating benefits on such retirement date and
(ii) your benefits under the Pension Plan and Excess Benefits Pension Plan
shall be determined as if you had retired on the April 11th next
succeeding such December 31, and appropriate adjustment shall be made
through the non-qualified Excess Benefits Pension Plan.
(F) You shall not be required to mitigate the amount of any
payment provided for in this Section 3 by seeking other employment or
otherwise, nor shall the amount of any payment provided for in this
Section 3 be reduced by any compensation earned by you as the result of
employment by another employer, or otherwise except as specifically
provided in this Section 3.
(G) You agree that the remedies for employment termination
under this Section and Section 2 hereof, reasonably reflect liquidated
damages for such termination and that such provisions state your entire
and exclusive claims, rights, entitlement and remedies against the Company
and its successors, assigns, affiliates, and representatives.
4. Special Incentive.
(a) In connection with the Company's employment of a new chief
executive officer ("New CEO"), the Company will provide you with a special bonus
opportunity in the amount of $150,000, payment of which will be dependent upon
your performance through December 31, 1997 of personal objectives relating to
the successful transition of such New CEO with the Company, such performance and
such objectives to be determined by John J. Burns, Jr., Chairman of the
Personnel Committee of the CT&T Board after consultation with the New CEO.
Payment of such special bonus shall be made as promptly as practicable after
December 31, 1997, and shall be not less than $75,000.
(b) In addition, in the event that this Agreement is renewed for the
year ending December 31, 1998, (i) your base salary, effective January 1, 1998
shall be not less than $310,000 per annum and (ii) you shall be eligible for an
additional special incentive opportunity of $100,000, payment of which shall be
based upon your performance of objectives established and evaluated by John J.
Burns, Jr., Chairman of the Personnel Committee of the CT&T Board, after
consultation with the new CEO.
4
<PAGE> 7
5. Special Retirement Provisions. Provided that your employment has
not been terminated prior to expiration hereof as provided in Section 1 hereof,
in the event of your retirement on December 31, 1997 or, in the event of
renewal of this Agreement, December 31, 1998, (a) your benefits under the
Company's Pension Plan and Excess Benefits Pension Plans will be determined as
if you had retired on the April 11th next succeeding such retirement date and an
appropriate adjustment in respect thereof shall be made in the non-qualified
Excess Benefits Pension Plan, and (b) the Company shall pay you, as promptly as
practicable after such retirement, an amount, net of tax cost to you, equal to
the amount by which your early retirement lump sum benefits under the Company's
Pension Plan and Excess Benefits Pension Plan have been reduced by the use of an
interest rate higher than the PBGC rate used in calculating retirement benefits
on such retirement date.
6. Successors: Binding Agreement.
(a) This Agreement will be binding upon the Company and its
successors and assigns.
(b) This Agreement shall inure to the benefit of and be enforceable
by your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If you should die while
any amount would still be payable to you hereunder if you had continued to live,
all such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to your devisees, legatee or other designee or
if there is no such designee, to your estate.
7. Notice. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed to
the respective addresses set forth on the first page of this Agreement, provided
that any notices to the Company shall be directed to the attention of the
Chairman of the Board of CT&T, 171 North Clark Street, Chicago, Illinois 60601,
with a copy to the Secretary of Alleghany Corporation, 375 Park Avenue, New
York, New York 10152, or to such other address as either party may have
furnished to the other in writing in accordance herewith, that notice of change
of address shall be effective only upon receipt.
8. Entire Agreement. This Agreement constitutes the entire
understanding between the parties with respect to the subject matter hereof,
superseding all negotiations, prior discussions and preliminary agreements.
5
<PAGE> 8
9. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by you and by the Company. No provision hereof shall be
construed as an agreement of the Company to continue to employ you for any
particular period. The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the State of Illinois.
10. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
11. Arbitration. Any dispute arising under or in connection with
this Agreement shall be settled exclusively by arbitration in Chicago, Illinois
in accordance with the rules of the American Arbitration Association then in
effect. The prevailing party in any such arbitration proceeding shall be
entitled to reimbursement of legal fees incurred in connection therewith.
Judgment may be entered on this arbitrator's award in any court having
jurisdiction.
If this letter correctly sets forth our agreement on the subject
matter hereof, kindly sign and return to the undersigned the enclosed copy of
this letter which will then constitute our agreement on this subject.
Very truly yours,
CHICAGO TITLE AND TRUST COMPANY
By /s/ Richard Pollay
----------------------------------
Name:
Title:
Agreed to on this 31st day
of July, 1996.
/s/ Alan N. Prince
- ----------------------------
6
<PAGE> 1
Exhibit 10.14
May __, 1998
Mr. John Rau
President and Chief Executive Officer
Chicago Title and Trust Company
171 North Clark Street
Chicago, Illinois 60601
Dear John:
This letter is to amend and restate the employment agreement between
you and Chicago Title and Trust Company ("CT&T"), a subsidiary of Alleghany
Corporation ("Alleghany"), dated October 22, 1996, in connection with the
pending spin-off by Alleghany of Chicago Title Corporation ("Chicago Title"), a
newly formed holding company for CT&T. As you know, Alleghany intends to
transfer all of the issued and outstanding common stock of CT&T to Chicago Title
and, thereafter, to distribute all of the outstanding common stock of Chicago
Title ("Chicago Title Common Stock"), other than shares of restricted stock
issued to senior management and non-employee directors, to the stockholders of
Alleghany (the "Distribution"). Prior to the transfer of CT&T to Chicago Title,
CT&T will distribute all of the outstanding stock of CT&T's subsidiary Alleghany
Asset Management, Inc., to Alleghany. It is currently expected that three shares
of Chicago Title Common Stock will be distributed in respect of each outstanding
share of common stock of Alleghany ("Alleghany Common Stock"), so that the
exchange ratio (the "Exchange Ratio") for the Distribution will be three to one.
The Distribution will be effective on a distribution or payment date determined
by the Board of Directors of Alleghany and set forth in its declaration of the
Distribution (the "Distribution Date").
1. On January 1, 1997, you commenced employment as President and
Chief Executive Officer of CT&T. Effective as of the Distribution Date, you will
serve as President and Chief Executive Officer of both Chicago Title and CT&T.
The term of your employment hereunder will extend through December 31, 2001,
with automatic annual renewals thereafter for terms of one year each, unless
either you or Chicago Title gives written notice of termination of this
agreement at least nine months prior to the end of the initial term or any
subsequent renewal term.
2. As President and Chief Executive Officer of Chicago Title and
CT&T, you will have general charge, direction and supervision of Chicago Title
and their subsidiaries. You will devote your full time to your duties as
President and Chief Executive Officer of Chicago Title and CT&T and you will
report directly to the Chicago Title Board of Directors.
3. Your annual base salary for calendar year 1998 will be $400,000.
Your annual base salary will be adjusted periodically as recommended by the
Compensation Committee of the Board of Directors of Chicago Title (the
"Compensation Committee").
<PAGE> 2
4. You will participate in Chicago Title's Annual Incentive Plan
with the opportunity to earn each year an annual bonus at a maximum amount equal
to not less than 150% of your base salary. For calendar year 1998, your bonus
opportunity will be an amount equal to 150% of your base salary, with two-thirds
of such bonus opportunity (an amount equal to 100% of your 1998 base salary)
dependent upon the accomplishment of specified corporate financial goals, and
one-third of such bonus opportunity (an amount equal to 50% of your 1998 base
salary) dependent upon the accomplishment of personal objectives, agreed to by
you and the Compensation Committee. The bonus earned in any year will be paid in
a combination of cash and shares of Chicago Title Common Stock, as determined or
directed by the Chicago Title Board of Directors; provided, however, that not
more than 25% of such bonus shall be paid in shares of Chicago Title Common
Stock.
5. As President and Chief Executive Officer of CT&T, you
participated in CT&T's Executive Performance Unit Plan of 1995, pursuant to
which you received 2,500 performance units for the 1995-98 cycle under that plan
and 5,000 performance units for the 1997-2000 cycle under that plan (the "1995
Plan Awards"). In connection with the execution of this amended and restated
employment agreement, you have entered into a 1995 Plan Agreement among you,
CT&T and Chicago Title ("1995 Plan Award Agreement"). Effective on the
Distribution Date, you will have only such rights in respect of the 1995 Plan
Awards as are set forth in the 1995 Plan Award Agreement. You expressly
represent and warrant that you have elected to enter into the 1995 Plan Award
Agreement in consideration of the grant of restricted stock provided for in
paragraph 10 hereof and other valuable consideration provided hereunder and that
you were advised that you had the right to forego said restricted stock and
other consideration and continue your 1995 Plan Awards in accordance with their
terms.
6. You received a restricted stock award of 6,400 shares of
Alleghany common stock (the "Alleghany Restricted Stock") in connection with
your employment as President and Chief Executive Officer of CT&T, of which 2,800
shares vested on January 1, 1997 and the remaining 3,600 shares vest at the rate
of 75 shares per month over the period from January 1997 to December 2000. The
shares of Chicago Title Common Stock which you receive in the Distribution in
respect of your shares of Alleghany Restricted Stock will be similarly
restricted and will vest on the same schedule that your shares of Alleghany
Restricted Stock vest (i.e., assuming that the Distribution occurs in April
1998, and assuming that the Exchange Ratio is three to one, 11,775 of such
shares of Chicago Title Common Stock will be vested immediately and the
remaining shares of Chicago Title Common Stock which you receive in respect of
your shares of Alleghany Restricted Stock will vest at the rate of 225 shares
per month over the period from May 1998 to December 2000). In connection with
the award of Alleghany Restricted Stock made to you in January 1997, you made an
election under Section 83(b) of the Internal Revenue Code, and CT&T made a tax
gross-up payment to you to cover your Federal and state income taxes on the
shares of Alleghany Restricted Stock and the gross-up payment. Neither the
shares of Alleghany Restricted Stock nor the shares of Chicago Title Common
Stock which you receive in respect of your shares of Alleghany Restricted Stock
will be transferable during your employment with CT&T or Chicago Title or for
two years thereafter. In the event of termination of your employment, any
unvested shares of Alleghany Restricted Stock and any unvested shares of Chicago
Title Common Stock distributed in respect thereof will be subject to
-2-
<PAGE> 3
mandatory sale, in the case of unvested shares of Alleghany Restricted Stock, to
Alleghany at $0.66 per share and, in the case of unvested shares of Chicago
Title Common Stock, to Chicago Title at $0.34 per share. Vesting of all of your
shares of Alleghany Restricted Stock and shares of Chicago Title Common Stock
distributed in respect thereof will be accelerated if the Board of Directors of
Chicago Title approves an acquisition of Chicago Title prior to January 1, 2001.
7. You will receive vacation and all other benefits normally
provided to senior executives of CT&T.
8. In connection with your commencement of employment as President
and Chief Executive Officer of CT&T in January 1997, CT&T paid you a
commencement bonus of $360,000 (less applicable tax withholding). CT&T also
reimbursed you for various costs incurred by you in connection with your
relocation from Bloomington to Chicago.
9. In connection with your commencement of employment as President
and Chief Executive Officer of CT&T in January 1997, CT&T granted you a
nontransferable option to purchase an amount of common stock of CT&T equal to
1.0% of the common stock of CT&T outstanding on the date of exercise (the
"Option") for a cash purchase price of $3.5 million. In connection with the
Distribution, on the Distribution Date, Chicago Title will repurchase the Option
from you for a cash purchase price equal to (A)(x) 222,000, which number is
subject to adjustment in the event of a change in the Exchange Ratio, multiplied
by (y) the average of the daily averages of the high and low when-issued or
regular way market prices of Chicago Title Common Stock as reported on the New
York Stock Exchange Composite Tape for the five trading days preceding the
Distribution Date (or, in the event that there is no when-issued or regular way
trading of Chicago Title Common Stock on any day during such five-trading-day
period, for such lesser number of days during such five-trading-day period when
Chicago Title Common Stock is traded), less (B) $3.5 million. Promptly after the
Distribution Date, such cash purchase price shall be recomputed by substituting
for (A)(x) above in the preceding sentence 1% of the outstanding shares of
Chicago Title Common Stock on the first trading day after the Distribution Date
and for (A)(y) above in the preceding sentence the average of the high and low
market prices of Chicago Title Common Stock as reported on the New York Stock
Exchange Composite Tape for the first trading day after the Distribution Date.
If the recomputed purchase price is higher than the first purchase price,
Chicago Title will pay such excess to you and if the recomputed purchase price
is less than the first purchase price, you will pay the difference to Chicago
Title. Chicago Title will deduct from the purchase price for the Option any
taxes or other deductions required by law to be withheld with respect to such
payment or payments. Upon payment to you of the cash purchase price so
determined and any adjustment resulting from the recomputation of such purchase
price, you will have no further rights, and neither Alleghany, Chicago Title nor
CT&T shall have any further obligations to you, in respect of the Option.
10. On the day prior to the Distribution Date, Chicago Title will
grant to you an award of restricted shares of Chicago Title Common Stock in an
amount equal to .5% of the outstanding shares of Chicago Title Common Stock at
the close of business on the Distribution Date (exclusive of shares of
restricted stock issued on or prior to the Distribution Date to you and
-3-
<PAGE> 4
other executives of Chicago Title), plus an amount of restricted shares having a
fair market value of $50,000 on the Distribution Date, pursuant to Chicago
Title's 1998 Long-Term Incentive Plan, which will vest (including as to
dividends) on the third anniversary of the Distribution Date. The terms of such
award will be governed by a restricted stock agreement to be entered into by you
and Chicago Title (the "Restricted Stock Agreement") under the 1998 Long-Term
Incentive Plan. In connection with such restricted stock award, on the same date
as the date of the grant of the restricted award, you will make an election
under Section 83(b) of the Internal Revenue Code, and Chicago Title will make a
tax gross-up payment to you in cash, or on your behalf through withholding
payments, to cover your Federal, state and local income taxes (including the
Medicaid portion of FICA) on the restricted stock award and the gross-up payment
in accordance with the terms of the Restricted Stock Agreement.
11. On the day after the Distribution Date, the Compensation
Committee of the Chicago Title Board will consider a recommendation to award you
non-qualified stock options to purchase shares of Chicago Title Common Stock in
an amount equal to .5% of the outstanding shares of Chicago Title Common Stock
at the close of business on the Distribution Date (inclusive of shares of
restricted stock issued on or prior to the Distribution Date to you and other
executives of Chicago Title) pursuant to Chicago Title's 1998 Long-Term
Incentive Plan, the terms of which stock options will be governed by a stock
option agreement to be entered into by you and Chicago Title (the "Stock Option
Agreement") under the 1998 Long-Term Incentive Plan. It is expressly understood
that any such grant, and the terms thereof, shall be at the sole discretion of
said Compensation Committee.
12. You will be entitled to participate in all qualified and
supplemental retirement plans made available by Chicago Title or CT&T in which
you are eligible to participate, including a nonqualified supplemental defined
contribution retirement plan, and you will be credited under such qualified and
non-qualified defined contribution plans and the Executives' Salary Continuation
Plan, for purposes of computing benefits and contributions, with years of
service credit beginning with June 1972 and extending through the period of your
employment with Chicago Title or CT&T.
13. Your employment with Chicago Title and CT&T may be terminated on
or after January 1, 1999 by you or Chicago Title without cause upon 60 days
written notice. However, if Chicago Title terminates your employment without
cause, you will receive severance benefits based upon the remaining term of this
agreement. Such severance benefits will consist of (a) continuation of all
employee benefits for that remaining term, and (b) continuation of your base
salary and annual bonuses for that remaining term, at the rate of your then
current annual base salary and 60% of maximum annual bonus, and (c) not less
than pro rata vesting of all awards under any long-term equity or other
incentive award. If you resign due to a reduction in base salary or a material
reduction in your duties or authority, or if you resign within 90 days after
Chicago Title gives notice of termination under paragraph 1 of this letter, such
resignation will be deemed a termination by Chicago Title without cause. Your
employment may also be terminated for cause (defined as wilful failure to
perform your duties after written notice from the Board of Directors of Chicago
Title, gross misconduct or conviction of a felony involving personal
dishonesty), or disability (inability to perform your duties for 90 or more days
-4-
<PAGE> 5
within any twelve-month period). In the event of termination for cause or
disability or death or voluntary resignation as provided herein, you shall not
be entitled to further compensation except as provided under the terms of the
various incentive and benefit plans in which you participate at the time of
termination.
14. You will not, directly or indirectly through employment or
association with any other person or company, solicit the employment or
engagement of any employees or agents of Chicago Title or any of its
subsidiaries for two years after any termination of your employment and you will
not, at any time, disclose any confidential information of Chicago Title or its
subsidiaries. In addition, you will not compete, directly or indirectly through
employment or association with any other person or company, with the title
insurance business, or title related businesses, of Chicago Title or any of its
subsidiaries for one year after any termination of your employment. However, at
any time following termination by Chicago Title without cause, you may elect to
waive further payment of all severance benefits described in paragraph 13 and,
in return for that waiver, be released from your covenant not to compete.
15. All payments made to you pursuant hereto, including payments
made pursuant to the agreements referred to herein, shall be subject to any
applicable tax withholding.
16. This amended and restated letter agreement shall be effective as
of the Distribution Date and, together with the 1995 Plan Award Agreement, the
Restricted Stock Award Agreement and the Stock Option Agreement, sets forth our
entire agreement with respect to the subject matter hereof, and supersedes all
prior agreements or understandings. In the event of any conflict in the express
terms of this amended and restated letter agreement and any of the other three
agreements referred to in the preceding sentence (or any other agreement or
arrangement contemplated thereby), the terms of this amended and restated letter
agreement shall control.
-5-
<PAGE> 6
If the foregoing is consistent with your understanding, please
countersign the enclosed copy of this letter and return it to me.
Sincerely,
CHICAGO TITLE CORPORATION
By
-----------------------------
CHICAGO TITLE AND TRUST
COMPANY
By
-----------------------------
Accepted and agreed to
this ____ day of May, 1998
- -----------------------------
John Rau
-6-
<PAGE> 1
Exhibit 10.15
May __, 1998
Mr. John Rau
President and Chief Executive Officer
Chicago Title and Trust Company
171 North Clark Street
Chicago, Illinois 60601
Dear John:
This letter agreement (the "1995 Plan Award Agreement") is to set
forth our agreement regarding the disposition of the 2,500 performance units for
the 1995-1998 cycle (the "First Cycle Units") and the 5,000 performance units
for the 1997-2000 cycle (the "Second Cycle Units") previously awarded to you
pursuant to Chicago Title and Trust Company's 1995 Performance Unit Plan (the
"1995 Plan"). As you know, Alleghany Corporation ("Alleghany") intends to
transfer all of the issued and outstanding common stock of Chicago Title and
Trust Company ("CT&T") to Chicago Title Corporation, a newly formed holding
company for CT&T ("Chicago Title"), and, thereafter, to distribute all of the
outstanding common stock of Chicago Title ("Chicago Title Common Stock"), other
than shares of restricted stock issued to senior management and non-employee
directors, to the stockholders of Alleghany (the "Distribution"). Prior to the
transfer of CT&T to Chicago Title, CT&T will distribute all of the outstanding
stock of CT&T's subsidiary Alleghany Asset Management, Inc. ("AAM"), to
Alleghany. The Distribution will be effective on a distribution or payment date
determined by the Board of Directors of Alleghany and set forth in its
declaration of the Distribution (the "Distribution Date").
A. Amount and Timing of Payout
1. With regard to your Second Cycle Units, such Units shall be
cancelled on the Distribution Date and no payments shall thereafter be payable
in respect thereof.
2. In computing benefits payable in respect of your First Cycle
Units, subject to Paragraph B.1. hereof, benefits will be calculated in the
manner set forth in Sections 6 and 13 of the 1995 Plan, except that, for 1998,
benefits will be calculated on the assumption that AAM had remained a subsidiary
of CT&T throughout 1998 and that AAM had achieved 100% of its post-separation
planned results for 1998 (as included in Alleghany's Plan for 1998-2002) (i.e.,
benefits will take into account (x) actual CT&T (or Chicago Title, after it
becomes the parent of CT&T) results through December 31, 1998, and (y) to the
extent that AAM results are not included in subparagraph (x) above, AAM planned
results for such portions of 1998 during which AAM is not a subsidiary of CT&T).
No values will be calculated and no benefits will be accrued for periods
subsequent to December 31, 1998.
3. The payout in respect of your First Cycle Units will be made in
the form of cash.
<PAGE> 2
4. In determining the amount of the payout in respect of your First
Cycle Units, you shall be entitled to the excess of the value on the
Distribution Date of the shares of common stock of Alleghany ("Alleghany Common
Stock") that you were required to purchase, or that you elected to purchase, in
accordance with the terms of the 1995 Plan over the purchase price therefor as
provided in the 1995 Plan. Such value on the Distribution Date will be based
upon the average of the daily averages of the high and low sales prices of
Alleghany Common Stock as reported on the New York Stock Exchange Composite Tape
for the five trading days preceding the Distribution Date (or, in the event that
there is no trading of Alleghany Common Stock on any day during such
five-trading-day period, for such lesser number of days within such
five-trading-day period that Alleghany Common Stock is traded). For purposes of
the valuation of Alleghany Common Stock in the manner described in the preceding
sentence, regular way prices (i.e., with due bills for the shares of Chicago
Title Common Stock to be distributed in respect of a share of Alleghany Common
Stock) shall be used or, in the absence of such regular way trading on any day
during such five-trading-day period, the valuation of Alleghany Common Stock on
such day shall be an amount equal to the sum of (a) the average of the high and
low ex-distribution or when-issued sales prices of Alleghany Common Stock as
reported on the New York Stock Exchange Composite Tape on such date, plus (b)
the average of the high and low when-issued or regular way sales prices of
Chicago Title Common Stock as reported on the New York Stock Exchange Composite
Tape on such date.
5. Distribution of the payout in respect of your First Cycle Units
will be made during the first calendar quarter of 1999 as soon as reasonably
practicable after the completion of 1998 audited financial statements of Chicago
Title. As a condition to your right to receive any such payout, you must be an
employee of Chicago Title or one of its subsidiaries on the date of the payout.
6. Examples of the valuation of your First Cycle Units and the
fulfillment of the options pursuant thereto are set forth in Exhibit A attached
hereto.
B. Other
1. For purposes of computation of benefits, references in the 1995
Plan to "dividends paid to Alleghany" shall be deemed to include cash dividends
paid by Chicago Title to its stockholders as well as cash dividends paid to
Alleghany by CT&T or Chicago Title prior to the Distribution, and references to
"approval by Alleghany" shall be deemed to mean approval by Alleghany or by the
Compensation Committee of the Board of Directors of Chicago Title.
2. References in the 1995 Plan to administration by "the Company"
shall be deemed replaced by reference to the Compensation Committee of the Board
of Directors of Chicago Title and references in the 1995 Plan to administration
by "the Vice Chairman of the Company" shall be deemed replaced by references to
the Chief Executive Officer of Chicago Title.
3. Except for Sections 1 through 6, Sections 7.E, 7.F and 7.G,
Sections 8 through 11, and Sections 13 and 14, the terms of which shall remain
in effect as modified by the
-2-
<PAGE> 3
provisions set forth in this 1995 Plan Award Agreement, the provisions of the
1995 Plan are of no further force and effect with respect to the First Cycle
Units previously awarded to you.
4. Effective on the Distribution Date, you will only have such
rights in respect of the First Cycle Units and Second Cycle Units as are set
forth in this 1995 Plan Award Agreement. You expressly represent and warrant
that you have elected to enter into this 1995 Plan Award Agreement in
consideration of the grant of restricted stock provided for in the amended and
restated letter agreement which amends and restates the employment agreement
between you and CT&T and other valuable consideration provided thereunder and
hereunder and that you were advised that you had the right (i) to forego said
restricted stock and other consideration and (ii) to continue your First Cycle
Units and Second Cycle Units in accordance with their terms. Accordingly, you
agree that your entering into this 1995 Plan Award Agreement shall not be deemed
to constitute a termination of the 1995 Plan.
If the foregoing is consistent with your understanding, please
countersign the enclosed copy of this letter and return it to me.
CHICAGO TITLE CORPORATION
By
-----------------------------
CHICAGO TITLE AND TRUST
COMPANY
By
-----------------------------
Accepted and agreed to
this ____ day of May, 1998
- ----------------------------
John Rau
-3-
<PAGE> 1
Exhibit 10.16
May __, 1998
[Name] [Executive Section]
[Title]
Chicago Title and Trust Company
171 North Clark Street
Chicago, Illinois 60601
Dear _____________:
This letter agreement (the "1995 Plan Award Agreement") is to set forth
our agreement regarding the disposition of the ________ performance units for
the 1995-1998 cycle (the "First Cycle Units") and the _________ performance
units for the 1997-2000 cycle (the "Second Cycle Units") previously awarded to
you pursuant to Chicago Title and Trust Company's 1995 Performance Unit Plan
(the "1995 Plan"). As you know, Alleghany Corporation ("Alleghany") intends to
transfer all of the issued and outstanding common stock of Chicago Title and
Trust Company ("CT&T") to Chicago Title Corporation, a newly formed holding
company for CT&T ("Chicago Title"), and, thereafter, to distribute all of the
outstanding common stock of Chicago Title ("Chicago Title Common Stock"), other
than shares of restricted stock issued to senior management and non-employee
directors, to the stockholders of Alleghany (the "Distribution"). Prior to the
transfer of CT&T to Chicago Title, CT&T will distribute all of the outstanding
stock of CT&T's subsidiary Alleghany Asset Management, Inc. ("AAM"), to
Alleghany. The Distribution will be effective on a distribution or payment date
determined by the Board of Directors of Alleghany and set forth in its
declaration of the Distribution (the "Distribution Date").
A. Additional Incentive Awards
1. On the Distribution Date, Chicago Title will grant to you an award of
[_____] restricted shares of Chicago Title Common Stock pursuant to Chicago
Title's 1998 Long-Term Incentive Plan, which will vest as to 50% on the second
anniversary of the Distribution Date and 50% on the third anniversary of the
Distribution Date. The terms of such award will be governed by a restricted
stock agreement to be entered into by you and Chicago Title (the "Restricted
Stock Agreement") under the 1998 Long-Term Incentive Plan. In connection with
such restricted stock award, on the Distribution Date you will make an election
under Section 83(b) of the Internal Revenue Code, and Chicago Title will make a
tax gross-up payment to you in cash, or on your behalf through withholding
payments, to cover your Federal, state and local income taxes (including the
Medicaid portion of FICA) on the restricted stock award and the gross-up
payment.
2. On the day after the Distribution Date, the Compensation Committee of
the Chicago Title Board will be asked to consider a recommendation that you be
awarded non-qualified stock options to purchase [____] shares of Chicago Title
Common Stock pursuant to Chicago Title's 1998 Long-Term Incentive Plan, the
terms of which stock options will be
<PAGE> 2
governed by a stock option agreement to be entered into by you and Chicago Title
(the "Stock Option Agreement") under the 1998 Long-Term Incentive Plan. It is
expressly understood that any such grant, and the terms thereof, shall be at the
sole discretion of the Compensation Committee.
3. Effective on the Distribution Date, you will only have such rights in
respect of the First Cycle Units and the Second Cycle Units as are set forth in
this 1995 Plan Award Agreement. You expressly represent and warrant that you
have elected to enter into this 1995 Plan Award Agreement in consideration of
the grant of restricted stock provided for in Paragraph A.1 above and other
valuable consideration provided hereunder and that you were advised that you had
the right (i) to forego said restricted stock and other consideration and (ii)
to continue your First Cycle Units and Second Cycle Units in accordance with
their terms. Accordingly, you agree that your entering into this 1995 Plan Award
Agreement shall not be deemed to constitute a termination of the 1995 Plan.
B. First Cycle Units and Second Cycle Units
1. The values of both your First Cycle Units and your Second Cycle Units
will be fixed at year-end 1998. In computing benefits payable both in respect of
your First Cycle Units and in respect of your Second Cycle Units, subject to
Paragraph D.1. hereof, benefits will be calculated in the manner set forth in
Sections 6 and 13 of the 1995 Plan, except that, for 1998, benefits will be
calculated on the assumption that AAM had remained a subsidiary of CT&T
throughout 1998 and that AAM had achieved 100% of its post-separation planned
results for 1998 (as included in Alleghany's Plan for 1998-2002) (i.e., benefits
will take into account (x) actual CT&T (or Chicago Title, after it becomes the
parent of CT&T) results through December 31, 1998 and (y) to the extent that AAM
results are not included in subparagraph (x) above, AAM planned results for such
portions of 1998 during which AAM is not a subsidiary of CT&T). No values will
be calculated and no benefits will be accrued for periods subsequent to December
31, 1998.
C. Manner of Payment
1. All payouts in respect of your First Cycle Units and in respect of your
Second Cycle Units will be made in the form of cash.
2. In determining the amounts of your payouts in respect of your First
Cycle Units and in respect of your Second Cycle Units, you shall be entitled to
the excess of the value on the Distribution Date of the shares of common stock
of Alleghany ("Alleghany Common Stock") that you were required to purchase, or
that you elected to purchase, in accordance with the terms of the 1995 Plan over
the purchase price therefor as provided in the 1995 Plan. Such value on the
Distribution Date will be based upon the average of the daily averages of the
high and low sales prices of Alleghany Common Stock as reported on the New York
Stock Exchange Composite Tape for the five trading days preceding the
Distribution Date (or, in the event that there is no trading of Alleghany Common
Stock on any day during such five-trading-day period, for such lesser number of
days within such five-trading-day period that Alleghany Common Stock is traded).
For purposes of the valuation of Alleghany Common Stock in the manner
-2-
<PAGE> 3
described in the preceding sentence, regular way prices (i.e., with due bills
for the shares of Chicago Title Common Stock to be distributed in respect of a
share of Alleghany Common Stock) shall be used or, in the absence of such
regular way trading on any day during such five-trading-day period, the
valuation of Alleghany Common Stock on such day shall be an amount equal to the
sum of (a) the average of the high and low ex-distribution or when-issued sales
prices of Alleghany Common Stock as reported on the New York Stock Exchange
Composite Tape on such date, plus (b) the average of the high and low
when-issued or regular way sales prices of Chicago Title Common Stock as
reported on the New York Stock Exchange Composite Tape on such date.
3. Distribution of payouts in respect of your First Cycle Units will be
made during the first calendar quarter of 1999 as soon as reasonably practicable
after completion of 1998 audited financial statements of Chicago Title, and
distribution of payouts in respect of your Second Cycle Units will be made
during the first calendar quarter of 2000. As a condition to your right to
receive any such payout, you must be an employee of Chicago Title or one of its
subsidiaries on the date of the payout.
4. Examples of the valuation of your First Cycle Units and Second Cycle
Units and the fulfillment of the options pursuant thereto are set forth in
Exhibit A attached hereto.
D. Other
1. For purposes of computation of benefits, references in the 1995 Plan to
"dividends paid to Alleghany" shall be deemed to include cash dividends paid by
Chicago Title to its stockholders as well as cash dividends paid to Alleghany by
CT&T or Chicago Title prior to the Distribution, and references to "approval by
Alleghany" shall be deemed to mean approval by Alleghany or by the Compensation
Committee of the Board of Directors of Chicago Title.
2. References in the 1995 Plan to administration by "the Company" shall be
deemed replaced by reference to the Compensation Committee of the Board of
Directors of Chicago Title and references in the 1995 Plan to administration by
"the Vice Chairman of the Company" shall be deemed replaced by references to the
Chief Executive Officer of Chicago Title.
3. Except for Sections 1 through 6, Sections 7.E, 7.F and 7.G., Sections 8
through 11, and Sections 13 and 14, the terms of which shall remain in effect as
modified by the provisions set forth in this 1995 Plan Award Agreement, the
provisions of the 1995 Plan are of no further force and effect with respect to
the First Cycle Units and the Second Cycle Units previously awarded to you.
4. All payments made to you pursuant hereto, including payments made
pursuant to agreements referred to herein, shall be subject to any applicable
tax withholding.
-3-
<PAGE> 4
If the foregoing is consistent with your understanding, please countersign
the enclosed copy of this letter and return it to me.
CHICAGO TITLE CORPORATION
By
------------------------------
CHICAGO TITLE AND TRUST
COMPANY
By
------------------------------
Accepted and agreed to
this ____ day of May, 1998
- ----------------------------
[Name]
-4-
<PAGE> 1
Exhibit 10.20
LEASE
Between
LINPRO CHICAGO LAND LIMITED PARTNERSHIP,
an Illinois limited partnership,
Landlord,
and
CHICAGO TITLE AND TRUST COMPANY, an
Illinois corporation,
Tenant
<PAGE> 2
TABLE OF CONTENTS
Page
----
1. Premises, Term and Base Rent ......................................... 1
2. Additional Rent ...................................................... 5
3. Use of Premises ...................................................... 17
4. Delivery of Possession ............................................... 18
5. Services ............................................................. 18
6. Condition and Care of Premises ....................................... 24
7. Surrender of Premises ................................................ 25
8. Holding Over ......................................................... 27
9. Rules and Regulations ................................................ 27
10. Rights Reserved to Landlord .......................................... 27
11. Alterations .......................................................... 28
12. Assignment and Subletting ............................................ 30
13. Waiver of Certain Claims; Indemnity .................................. 36
14. Damage or Destruction by Casualty .................................... 37
15. Eminent Domain ....................................................... 39
16. Default: Landlord's Rights and Remedies .............................. 40
17. Subordination ........................................................ 44
18. Mortgagee Protection ................................................. 44
19. Insurance and Subrogation ............................................ 45
20. Nonwaiver ............................................................ 46
21. Estoppel Certificate ................................................. 46
22. Authority ............................................................ 47
23. Real Estate Brokers .................................................. 48
24. Notices .............................................................. 48
25. Miscellaneous ........................................................ 49
26. Quiet Enjoyment ...................................................... 50
27. Building Directory ................................................... 50
28. Good Faith and Reasonableness ........................................ 50
(i)
<PAGE> 3
Page
----
29. Landlord's Default and Tenant's Remedies ............................. 51
30. Title and Covenant Against Liens ..................................... 52
31. Secured Area ......................................................... 53
32. Bankruptcy or Insolvency ............................................. 53
33. Environmental Matters ................................................ 55
34. Exculpatory Provisions ............................................... 56
35. Scheduled Commencement Date .......................................... 58
36. Option to Extend ..................................................... 60
37. Tenant Improvement Allowance ......................................... 61
38. Existing Leases ...................................................... 64
39. Pre-Occupancy Expansion Space ........................................ 65
40. Project Identification; Address ...................................... 67
41. Escalators ........................................................... 70
42. Pedestrian Tunnel .................................................... 70
43. Display/Mini-theater Area, Security Desk
Console and Lobby .................................................. 71
44. Post-Occupancy Expansion Space ....................................... 72
45. Right of First Offer ................................................. 76
46. Termination Option ................................................... 80
47. Participation in Net Cash Flow and Proceeds
of Sale and Refinancing ............................................ 81
48. Parking .............................................................. 85
49. Antenna/Satellite Dish ............................................... 86
50. Existing Tenant Vacation; Commencement of
Construction; Termination Payment;
Schedule Advancement; Failure to Meet
Low-Rise Access Date ............................................... 88
51. Low-Rise Access Date; Substantial
Completion; Termination Payment .................................... 90
52. Financing Contingency ................................................ 94
53. Design Approval; South Tower ......................................... 94
54. Restrictions on Other Building Leases ................................ 96
55. Personal Guaranty; Letter of Credit .................................. 97
(ii)
<PAGE> 4
Page
----
56. Cooperation on Leasing Other Space ................................... 99
57. Landlord's Assignment Rights ......................................... 99
58. Delay ................................................................ 100
59. Schedule ............................................................. 100
60. Rights Personal to Chicago Title and Trust
Company ............................................................ 100
61. Market Rental Rate ................................................... 100
62. Landlord's Construction .............................................. 102
63. Kitchen Facilities ................................................... 102
64. Future Rights to Lease Vault Space ................................... 104
65. Determination By Arbitration ......................................... 107
66. Top Floor ............................................................ 108
67. Confidentiality ...................................................... 108
68. Short Form of Lease .................................................. 108
EXHIBITS
EXHIBIT A LEGAL DESCRIPTION
EXHIBIT B INTENTIONALLY DELETED
EXHIBIT C RULES AND REGULATIONS
EXHIBIT D CLEANING SPECIFICATIONS
EXHIBIT E TENANT'S PERFORMANCE OF THE WORK
EXHIBIT F ADDITIONAL VAULT SPACE
EXHIBIT G INTENTIONALLY DELETED
EXHIBIT H LOADING DOCK BAY
EXHIBIT I SHORT FORM LEASE
ATTACHMENTS
Attachment 1 Location of Vault Space
Attachment 2 Access Date Specifications
Attachment 3 Escalator Models
Attachment 4 BOMA Standards
Attachment 5 Signage/Tenant Identification
Attachment 6 Building Perspective Rendering and Lobby
Perspective Rendering
Attachment 7 Intentionally Deleted
Attachment 8 Display/Mini-Theater Area
Attachment 9 Location of Initial Reserved Parking Spaces
Attachment 10 Schematic Drawings
Attachment 11 Outline Specifications
Attachment 12 Approved Retail Uses
Attachment 13 Time Schedule
Attachment 14 Personal Guaranty
Attachment 15 Force Majeure
Attachment 16 Typical Wall Detail For Four Buildings
Attachment 17 Special Measurement
Attachment 18 Pre-Construction Allowance
Attachment 19 Form of Letter of Credit
Attachment 20 Location of Lobby Space
Attachment 21 Examples of Proportionate Shares Using
Measurements A and B
(iii)
<PAGE> 5
For convenience of reference only the following is a schedule of some of the
defined terms used in the following lease and where those terms are initially
defined.
Schedule of Defined Terms Section
- ------------------------- -------
"30 North Lease" 38
"Additional Rent Deposit" 2(b)(ii)
"Additional Rent Projection" 2(c)(i)
"Additional Rent" 2
"Additional Vault Space Commencement Date" 64(b)
"Additional Vault Space" 64(a)
"Adjustment Date" 2
"Adjustment Year" 2
"Affiliate" 12
"after-hours" 5
"All risk" 19
"as is" 12(c)
"Availability Notice" 45(b)
"Available for Leasing" 64(b)
"Available for Leasing" 45
"BOMA Standards" 2a
"Bankruptcy Code" 32
"Base Rent" 1
"Beneficial Occupancy" 35
"Building Manager" 13a
"Building" 1
"cash stations" 54(c)
"CERCLA" 33b(i)
"CT&T Participation" 47(a)
"CT&T Percentage" 47a
"Chicago Commerce Center" 40(b)
"Chicago Title and Trust Company" 40(b)
"Commencement Date" 35
"Commencement of construction" 50(b)
"Construction Termination Payment" 50(c)
"Consumer Price Index" 2(b)(8)
"control" 12(e)
"Current Lease" 45(i)
"Default" 16(a)
"Deposit" 52(c)
"Developed Space" 12
"Development Partnership" 46(f)
"Entire Development" 408
"Environmental Laws" 33b(ii)
"Equis" 23
"Escrow Agreement" 52b
"Escrow" 52b
"Escrowee" 52b
"Estimated T/I Cost" 37(c)
"Excess T/I Cost" 37(c)
"Existing Leases" 38
"Existing Tenant Vacation Termination Payment" 50(a)
"Expense Adjustment" 2(b)(ii)
"Expenses" 2
"Expiration Date" 1
"Financial Services" 54(c)
(iv)
<PAGE> 6
Schedule of Defined Terms Section
- ------------------------- -------
"Financially Responsible" 12a
"First Expansion Option" 44
"First Expansion Space" 44a
"First Mortgage" 17(a)
"First Mortgagee" 17(a)
"First Offer Notice" 45(a)
"First Offer Period" 45(i)
"First Offer Space Commencement Date" 45(a)
"First Offer Space" 45
"Force Majeure" 42(c)
"Garage" 1(a)
"Ground Lease" 17(a)
"Ground Lessor" 17(a)
"Hazardous Substances" 33a(i)
"High-Rise Access Date" 35
"High-Rise Commencement Date" 35
"High-Rise Rent Commencement Date" 1
"Holdover Costs" 51(g)
"Holidays" 5(a)
"Incurred" 2a
"Informational Letter" 50(b)
"Initial Office Premises" 1
"Initial Premises" 1
"Insolvency" 32b
"Installation Area" 49
"Kitchen Facilities" 3
"Land" 1
"Landlord" 1
"Landlord Delay" 51a
"Landlord's Allowance" 37
"Landlord's Expense Statement" 2(d)(i)
"Landlord's Tax Statement" 2(d)(ii)
"Landlord's partnership interest" 47(b)
"Lease Termination Payment" 46(b)
"Lease Year" 1
"Leftover Space 44
"Letter of Credit" 55(a)
"Linpro" 47(a)
"Linpro Affiliate" 47(b)
"Loading Dock Bay" 5(k)
"Lobby Space" 1
"Lobby Termination Date" 46(f)
"Lobby Termination Notice" 46(f)
"Low-Rise Access Date" 35
"Low-Rise Commencement Date" 35
"Low-Rise Rent Commencement Date" 1
"Market Rental Rate" 61(a)
"Marketing Period" 45(a)
"Measurement A" 2a
"Measurement B" 2a
"Monthly Base Rent" 1
"Mortgage" 17(a)
"Mortgagee" 17(a)
"Net Cash Flow" 47a
"Neutral" 40b
"Non-Use" 43a
"Nonsignificant Portion" 14c
"North Tower" 40(a)
"Office Premises" 1
"Opening Year" 2(f)
(v)
<PAGE> 7
Schedule of Defined Terms Section
- ------------------------- -------
"Option Period" 36
"Original Office Space" 1
"Original Premises" 1
"Original Vault Space" 11
"Outside Access Date" 51(b)
"Outside Date" 51(a)
"Payment Determination Date" 46(b)
"Personal Guaranty" 55(a)
"Phase One" 40(a)
"Phase Two" 40(a)
"Pollutant or Contaminant" 33b(i)
"Post-Occupancy Expansion Notice" 39(a)
"Post-Occupancy Expansion Option" 44
"Post-Occupancy Expansion Space Commencement Date" 44(b)
"Post-Occupancy Expansion Space" 44
"Pre-Construction Allowance" 37b
"Pre-Occupancy Expansion Space" 39
"Pre-Occupancy Vault Space" 1
"Premises" 1
"Prime Plus Rate" 25g
"Proceeds" 47a
"Project" 2a
"Project Architect" 1
"Projection Notice" 2(c)(i)
"Projections" 2(c)(i)
"Real Property" 2(a)
"Recapture Period" 12(c)
"Recaptured Space" 12(c)
"Release Date" 12(f)
"Release Request" 12(f)
"Released Space" 12(f)
"Rent" 1
"Rentable Area" 2(a)
"Rentable Area of the Building" 2a
"Rentable Area of the Vault Space" 64b
"Rentable Premises" 1
"SARA" 33b(i)
"Second Expansion Option" 44
"Second Expansion Space" 44a
"Secured Area" 31a
"South Tower" 40(a)
"Substantial completion" 35
"Substantial Portion of the Premises 14c
"Tax Adjustment" 2(b)(i)
"Tax and Expense Cap" 2(b)
"Taxes" 2a
"Tenant Improvements" Ex. E & ss. 37
"Tenant" 1
"Tenant's Management Fee" 2(b)
"Tenant's Proportionate Share" 2a
"Tenant's Space Planner" 1
"Term" 1
"Termination Date" 46(a)
"Termination Notice" 46(a)
"Third Expansion Option" 44
"Third Expansion Space" 44a
"title insurance" 40(c)
"Top Floor" 1
(vi)
<PAGE> 8
Schedule of Defined Terms Section
- ------------------------- -------
"Tower" 40(b)
"Undeveloped Space" 12(c)
"Vault Availability Notice" 64(b)
"Vault Offer Notice" 64(b)
"Vault Offer Period" 64(b)
"Vault Space" 1
"Vertical Penetrations" 2a
"Window Period" 44b
"Work" 37
(vii)
<PAGE> 9
LEASE
THIS LEASE is made as of the 24th day of July, 1989, by and between LINPRO
CHICAGO LAND LIMITED PARTNERSHIP, an Illinois limited partnership ("Landlord"),
and CHICAGO TITLE AND TRUST COMPANY, an Illinois corporation ("Tenant"). For
convenience of reference only, attached to the beginning of this lease is a
Schedule of defined terms used in this lease and the Section in which those
terms are initially defined. All defined terms used herein shall have the
meanings ascribed to them in the Section identified in the aforereferenced
Schedule.
W I T N E S S E T H:
WHEREAS, Landlord owns the Land (defined below);
WHEREAS, Landlord proposes to construct on the Land an office building
containing at least forty (40) stories above street level and approximately
950,000 square feet of rentable area in accordance with and subject to the terms
and provisions of this lease; and
WHEREAS, Landlord and Tenant desire to enter into this lease;
NOW, THEREFORE, for and in consideration of the covenants and agreements
herein contained, Landlord and Tenant covenant and agree as follows:
1. Premises, Term and Base Rent.
(a) Premises and Term. Landlord hereby leases to Tenant and Tenant
hereby leases from Landlord the Premises defined in the next paragraph in the
office building (the "Building") to be located on the west half of the block
bounded by Clark, Randolph, Lake and Dearborn Streets in Chicago, Illinois
60602, which real estate (the "Land") is depicted on Exhibit A attached hereto
and made a part hereof (which Land does not include the North Tower [Phase
Two]), together with the right to use in common with other tenants the
entrances, hallways, corridors, lobbies, rotunda, public lavatories, elevators,
escalators, stairways, loading docks and other common areas and the license to
use the mini-theater area and security desk as described in Section 43 hereof
and the Loading Dock Bay described in Section 5(k) hereof, for a term ("Term")
commencing on the Low-Rise Commencement Date and ending on the last day of the
month prior to the month in which the twentieth (20th) anniversary date of the
Low-Rise Commencement Date occurs, subject to extension as provided in Section
35 (the "Expiration Date"), unless sooner terminated as provided herein, paying
as rent therefor the sums hereinafter provided, without any setoff, abatement,
counterclaim or deduction whatsoever, except as otherwise expressly permitted
herein. The Term with respect to all space leased by Tenant in the Building,
including, without limitation, Pre-Occupancy Expansion Space, Post-Occupancy
Expansion Space, First Offer Space, Vault Space and Lobby Space shall end on the
same date as the termination date for the lease of the Initial Premises, as
extended, subject to earlier termination as provided in this lease.
<PAGE> 10
Initially, the Premises shall consist of (i) office space on floors 2
through 9 and part of floor 10 of the low-rise portion of the Building and the
top floor (the "Top Floor") of the high rise portion of the Building which,
based on existing design plans for the Building, are estimated to contain a
total of approximately 248,000 square feet of Rentable Area, (ii) vault space on
lover level III of the Building which, based on existing design plans for the
Building, is estimated to contain approximately a total of 13,500 square feet of
Rentable Area and (iii) space in the lobby of the Building ("Lobby Space")
which, based on existing design plans for the Building, is estimated to contain
a total of approximately 1500 square feet of useable area, all of the foregoing
as shown in the schematic drawings attached as Attachment 10.
Notwithstanding anything herein to the contrary, the Top Floor will
contain not more than one hundred five percent (105%) nor less than ninety
percent (90%) of the gross floor area shown on the schematic drawings as
Attachment 10 for the Top Floor and each of the low-rise floors of the Building
will contain not more than one hundred five percent (105%) nor less than
ninety-five percent (95%) of the gross floor area shown in the schematic
drawings attached hereto as Attachment 10 for such floor, except floor 2 is not
less than 89% and floor 3 is not less than 92% and except as specifically
permitted with respect to Post-Occupancy Expansion Space described in Section
44. The Building will contain not less than forty (40) stories above street
level. The configuration, location and size of the Vault Space as shown in
Attachment 1 and in the schematic drawings attached hereto as Attachment 10 may
be changed by Landlord prior to the date that is six (6) months after the
commencement of construction of the Building to accommodate physical conditions
and Building engineering and structural requirements, so long as the Vault Space
is one contiguous block of space on one level, is contiguous to the parking
garage forming a part of the Building (the "Garage"), is served by the low-rise
passenger elevator, freight elevator and garage elevator in the general location
shown on Attachment 1 hereto and the aggregate area of all of the Vault Space is
not reduced by more than ten percent (10%). At such times as the floor plans for
the Building are finalized, but in no event later than the commencement of
construction, Landlord and Tenant shall enter into an amendment to this lease,
which amendment shall have copies of the floor plans attached and the precise
location of the Original Premises shall be designated thereon.
When construction of the core and shell of the Building has progressed
sufficiently to allow computation of the actual Rentable Area or useable square
feet, as appropriate, contained in each of the components of the Premises and in
the Building, and Tenant's Proportionate Share, Landlord's architect for the
construction of the Building (the "Project Architect") and the space planner
retained by Tenant to design and supervise construction of the Premises
("Tenant's Space Planner") shall independently determine, in accordance with the
provisions of this lease, the Rentable Area or useable square feet, as
appropriate, contained in each of the components of the Premises and in the
Building and Tenant's Proportionate Share, and shall each promptly furnish such
determinations to Landlord and Tenant and supply to Landlord and Tenant all
computations, measurements, plans and other back-up information. In the event
the Project Architect and Tenant's Space Planner do not make the same
determination of the Rentable Area or useable
-2-
<PAGE> 11
square feet, as appropriate, contained in any of the components of the Premises
or in the Building, or Tenant's Proportionate Share, such number(s) shall be
determined by arbitration in accordance with Section 65 hereof. The losing party
(or the party further from the arbitrator's determined number) shall pay the
costs of arbitration. The determinations of Rentable Area or useable square
feet, as appropriate, or Tenant's Proportionate Share arrived at pursuant to
this Section 1(a) shall be final and binding on Landlord and Tenant for all
purposes under this lease including, without limitation, the calculation of Base
Rent and Additional Rent. If (x) the size, configuration or location of the
Vault Space is changed from that shown in the schematic drawings attached hereto
as Attachment 10, or (y) the Rentable Area or useable square feet, as the case
may be, of the Building, or any portion of the Premises is determined to be
different than that set forth above and on the Exhibits attached hereto, or (z)
Tenant's Proportionate Share is changed in accordance with the foregoing then
within ten (10) days after either party's request, both parties shall confirm
such change in an amendment to this lease.
All office space leased as of the date hereof is referred to as "Original
Office Space". All Vault Space leased as of the date hereof is referred to as
"Original Vault Space". Original Office Space and Original Vault Space is
referred to herein as the "Original Premises". Original Office Space and
Pre-Occupancy Expansion Space is referred to herein as "Initial Office
Premises". Initial Office Premises, Lobby Space, Original Vault Space and Vault
Space other than Original Vault Space leased by Tenant prior to the Low-Rise
Commencement Date are collectively called "Initial Premises". All office space
being leased by Tenant from time to time pursuant to the terms hereof is
referred to herein as "Office Premises". All vault space being leased by Tenant
from time to time pursuant to the terms hereof is referred to herein as "Vault
Space". The Office Premises, and the Vault Space, together with all Lobby Space
leased by Tenant from time to time pursuant to the terms hereof is referred to
herein as "Premises". The Premises exclusive of the Vault Space is referred to
herein as the "Rentable Premises".
Tenant shall have the full use, on each single-tenant floor of the
low-rise portion of the Office Premises, of that portion of the central core
thereof depicted on Attachment 17, in addition to the other areas Tenant is
entitled to use pursuant to this Section 1(a) on all single-tenant floors in the
low-rise, mid-rise and high-rise portions of the Building.
(b) Base Rent. Tenant shall pay annual base rent ("Base Rent") to
Landlord for the Premises as hereinafter set forth, payable in equal monthly
installments ("Monthly Base Rent") in advance on the Low-Rise Rent Commencement
Date and High-Rise Rent Commencement Date, as the case may be, and on the first
day of each calendar month thereafter of the Term, except as hereinafter
provided. If the Low-Rise Rent Commencement Date shall be any date except the
first day of a calendar month, then Monthly Base Rent for such partial calendar
month shall be prorated based on the Base Rent for the first Lease Year. If the
High-Rise Rent Commencement Date shall be any date except the first day of a
calendar month, or if the Term shall end on any day except the last day of a
calendar month, then Monthly Base Rent for any such partial calendar month shall
be prorated based on the Base Rent for the then current Lease Year.
-3-
<PAGE> 12
Base Rent for the Initial Premises (other than the Top Floor) shall
commence on the Low-Rise Rent Commencement Date, except for space described in
Section 35 whose occupancy and Rent may be deferred to October 1, 1993. Base
Rent per square foot of Rentable Area (as determined pursuant to Section 1(a))
per year for the Original Office Space, exclusive of the Top Floor, for the
initial Term will be:
<TABLE>
<CAPTION>
Lease Years Base Rent
----------- ---------
<S> <C> <C>
Lease Years 1 - 4 $16.50
Lease Years 5 - 8 $19.50
Lease Years 9 - 12 $22.50
Lease Years 13 - 16 $25.50
Lease Years 17 - 20 $28.50
</TABLE>
As used herein the term "Lease Year" shall mean each twelve-month period
falling within the Term commencing on the first day of the calendar month in
which the Low-Rise Rent Commencement Date occurs or an anniversary of the first
day of the calendar month in which the Low-Rise Rent Commencement Date occurs.
Base Rent for the Top Floor will commence on the High-Rise Rent
Commencement Date. Base Rent per square foot of Rentable Area per year for the
Top Floor for the initial Term will be:
<TABLE>
<CAPTION>
Lease Years Base Rent
----------- ---------
<S> <C> <C>
Lease Years 1 - 4 $18.50
Lease Years 5 - 8 $22.50
Lease Years 9 - 12 $26.50
Lease Years 13 - 16 $30.50
Lease Years 17 - 20 $34.50
</TABLE>
In lieu of the Base Rent schedule stated above for the Top Floor, Tenant may, by
notice to Landlord before the end of the eighteenth (18th) month prior to the
Low-Rise Commencement Date (as then determined based on the Low-Rise Access
Date), elect to fix rent for the initial Term at ninety-two percent (92%) of the
Market Rental Rate for terms comparable to the Term for space comparable to the
Top Floor commencing on the High-Rise Commencement Date. In advance of such date
Tenant may request a determination of the Market Rental Rate. If the parties
hereto cannot agree on the Market Rental Rate, such Rate shall be determined in
accordance with the provisions of Section 61(b) hereof. If actual Base Rent for
the Top Floor is ultimately determined by reference to the Market Rental Rate as
aforesaid, then the amount of tenant improvement allowance, if any, the formula
for measuring Rentable Area and all other economic concessions granted in this
lease with respect to the Top Floor will be governed by the Market Rental Rate.
Base Rent for the Original Vault Space will be Twelve Dollars ($12.00) per
square foot of Rentable Area per year for the initial Term; Tenant shall not be
obligated to pay any Additional Rent with respect to the Vault Space.
For the first Lease Year, Base Rent for the Lobby Space will be the sum of
(i) Twenty-Four and 50/100 Dollars ($24.50)
-4-
<PAGE> 13
per square foot of useable area, plus (ii) Ten and 00/100 Dollars ($10.00) per
square foot of useable area. Each Lease Year thereafter, Base Rent for the Lobby
Space shall be increased by the sum of (x) seventy-four cents ($.74), plus (y)
thirty-five cents ($.35) per annum per square foot of useable space. The
payments described in (ii) and (y) of this paragraph are to be paid by Tenant in
lieu of any payment for Taxes and Expenses allocable to the Lobby Space.
For the first Lease Year Tenant shall pay Base Rent for its exclusive
license to use the Loading Dock Bay, as described in Section 5(k) hereof, in the
amount of $17,500.00. Each Lease Year thereafter, Base Rent for the Loading Dock
Bay shall be increased by $500.00. Tenant shall have no obligation to pay any
Taxes or Expenses allocable to the Loading Dock Bay.
Tenant shall be entitled to occupy the Initial Premises, exclusive of the
Top Floor, on the Low-Rise Commencement Date and begin payment of Rent for such
space thirty (30) days after the Low-Rise Commencement Date ("Low-Rise Rent
Commencement Date"), except that Tenant may defer occupancy of forty-six
thousand (46,000) square feet of Rentable Area in the low-rise portion of the
Building and payment of Rent on such space until October 1, 1993, if by February
1, 1992, Tenant has leased at least seventy percent (70%) of one (1) floor of
Pre-Occupancy Expansion Space. Tenant shall be entitled to occupy the Top Floor
and obligated to begin payment of Rent on the Top Floor thirty (30) days after
the High-Rise Commencement Date (the "High-Rise Rent Commencement Date").
Base Rent, Additional Rent, Additional Rent Deposits and all other amounts
becoming due from Tenant to Landlord hereunder (collectively the "Rent") shall
be paid in lawful money of the United States to Landlord c/o The Linpro Company,
55 West Wacker Drive, Suite 1120, Chicago, Illinois 60601 or as otherwise
designated from time to time by written notice from Landlord to Tenant.
Within thirty (30) days after each of the Low-Rise Rent Commencement Date
and the High-Rise Rent Commencement Date, or at such earlier times as such dates
can be confirmed, Landlord and Tenant shall enter into a written amendment(s) to
this lease confirming such dates.
2. Additional Rent. In addition to paying the Base Rent specified in
Section 1 hereof, Tenant shall pay to Landlord as additional rent the amounts
(collectively called "Additional Rent") determined in accordance with this
Section 2:
(a) Definitions. As used in this lease the following terms shall
have the following meanings:
(i) "Adjustment Date" shall mean the first day of the Term and
each January 1 thereafter falling within the Term.
(ii) "Adjustment Year" shall mean each calendar year during
which an Adjustment Date falls.
(iii) "Expenses" shall mean those normal and reasonable costs
and expenses paid or incurred (i.e., those costs and expenses for which invoices
have been received and which are payable during the Adjustment Year in question
or no later than forty-five (45) days after the end of the Adjustment
-5-
<PAGE> 14
Year with respect to which such items are being included in Expenses) by or on
behalf of Landlord (determined using generally accepted accounting principles
consistently applied based upon information contained in annual certified audits
for the calendar years in which such costs and expenses were paid or incurred
and reduced by any discount, allowance and reimbursement received by or on
behalf of Landlord) for owning, managing, operating, maintaining and repairing
the Building, the land upon which the Building stands (the "Land") and the
personal property used in conjunction therewith (said Building, Land and
personalty herein collectively called the Project") (or allocated to the Project
under easement agreements, operating agreements, parking agreements,
declarations, covenants or instruments providing for easements, the sharing of
facilities or payment for services in, on or under the Land) including without
limitation: the cost of maintaining adjoining pedestrian tunnels and walkways
and related lighting, the cost of security and security devices and systems,
snow and ice and trash removal, cleaning and sweeping, planting decorations,
flowers and landscaping, maintenance and repair of utility systems, telephone
building riser cable, elevators and escalators; electricity, gas, steam, water
sewers, fuel, heating, lighting, air conditioning; window cleaning; janitorial
service; insurance (including but not limited to, fire, extended coverage, all
risk, liability, worker's compensation, elevator, or any other insurance carried
by the Landlord and applicable to the Project), painting; uniforms; management
fees; supplies, sundries; sales or use taxes on supplies or services; permits
and similar fees and charges related to the ownership, management, operation,
repair and maintenance of the Project (but excluding permit and similar fees and
charges incurred in connection with work in any tenant space) the share of costs
and expenses allocated to the Building and the Land relating to the management,
maintenance, operation and repair of any common lobby or other facilities
connecting the Building or any of its facilities to any other adjoining
building, facilities or land; cost of wages and salaries of all persons engaged
in the operation, management, maintenance and repair of the Project, and so-
called fringe benefits (including social security taxes, unemployment insurance
taxes, cost for providing coverage for disability benefits, cost of any
pensions, hospitalization, welfare or retirement plans, or any other similar or
like expenses incurred under the provisions of any collective bargaining
agreement, or any other cost or expense which Landlord pays or incurs to provide
benefits for employees so engaged in the operation, management, maintenance and
repair of the Project); the charges of any independent contractor who, under
contract with the Landlord or its representatives, does any of the work of
operating, managing, maintaining or repairing of the Project; legal and
accounting expenses (including, but not limited to, such expenses as relate to
seeking or obtaining reductions in and refunds of real estate taxes); sales and
excise taxes; or any other expense or charge which would be considered as an
expense of owning, managing, operating, maintaining or repairing the Project,
whether or not the expense may be considered a capital improvement except as
hereinafter provided. Items included in Expenses for an Adjustment Year because
"incurred" with respect to such Adjustment Year as provided aforesaid shall not
be included in Expenses for any subsequent Adjustment Year when paid.
-6-
<PAGE> 15
Expenses shall not include the following:
1. Costs or other items included within the meaning of the term
"Taxes" (as hereinafter defined);
2. Costs of renovating or otherwise improving or decorating,
painting and redecorating space for tenants or other occupants of the Building,
and any architectural, legal and engineering costs occasioned thereby;
3. Costs of alterations and relocations of the premises of tenants
of the Building;
4. Costs of a capital nature, including, but not limited to, capital
improvements, capital repairs, capital equipment and capital tools which, under
generally accepted accounting principles, are not regarded as operating or
maintenance expenses, but not excluding capital improvements set forth below;
5. Depreciation and amortization, except as hereafter provided;
6. Interest on debt or amortization payments on mortgages and ground
rental payments;
7. Legal fees in connection with disputes with tenants (excepting
legal fees in seeking to enforce Building rules and regulations);
8. Fines and penalties on late payments and penalty charges incurred
by Landlord due to the violation of any law;
9. Real estate brokerage and leasing commissions and any other costs
and expenses incurred in connection with leasing;
10. Advertising and promotional expenditures;
11. Any expenditures for which Landlord has been reimbursed by
tenants (other than pursuant to rent escalation or tax and operating expense
reimbursement provisions in leases);
12. Repairs or other work occasioned by fire, windstorm or other
casualty of an insurable nature or by the exercise of eminent domain;
13. Landlord's cost of electricity and other services that are sold
to tenants and for which Landlord is entitled to be reimbursed by tenants as an
additional charge or rental over and above the basic rent payable under the
lease with such tenant payable on account of said cost of electricity and other
services;
14. Expenses in connection with any service or other benefits of a
type which are not provided to Tenant pursuant to the express provisions hereof
but which are provided to another tenant or occupant;
15. Costs incurred due to violation by Landlord of the terms and
conditions of any lease;
-7-
<PAGE> 16
16. Overhead and profit increment paid to subsidiaries or affiliates
of Landlord for services on or to the Building, to the extent only that the
costs of such services exceed the competitive cost of such services were they
not so rendered by such subsidiary or affiliate;
17. Landlord's general overhead;
18. Any compensation paid to clerks, attendants, or other persons in
commercial concessions operated by Landlord;
19. All items and services for which Tenant directly reimburses
Landlord or pays third persons;
20. Management fees;
21. Costs for acquisition of sculpture, paintings, or other objects
of art;
22. Wages, salaries, or other compensation paid to any executive
employees of Landlord or Landlord's beneficiary above the grade of building
manager;
23. Rentals and other related expenses incurred in leasing air
conditioning systems, elevators or other equipment ordinarily considered to be
of a capital nature, except equipment which is used to provide janitorial
services and which is not permanently affixed to the Building;
24. Title insurance, automobile insurance, key man and other life
insurance, long-term disability insurance and health, accident and sickness
insurance, except only for group plans providing reasonable benefits to persons
of the grade of building manager and below employed and engaged on a
substantially full time basis in operating and managing the Building;
25. Costs and expenses incurred by Landlord in performance of its
obligations under Section 33 of this lease, except those incidental costs
normally incurred in cleaning the Building without regard to Environmental laws;
26. Premiums under physical damage insurance policies insuring the
Building which are attributable or allocable to coverage of improvements and
betterments to space for tenants or other occupants of the Building necessitated
by the specific needs of such tenants or occupants;
27. Costs of correcting defects in the initial construction of the
Building; provided, however, that the foregoing shall be deemed not to include
costs of repairs required because of ordinary wear and tear;
28. Costs incurred in the operation of the Garage; and
29. Costs incurred only in connection with the retail space.
Notwithstanding anything contained in the above definition of Expenses to
the contrary:
(A) The annual amortization of the cost of any capital improvements
to the Building made after the date of
-8-
<PAGE> 17
this lease which reduce Expenses (provided that the amount of principal and
interest included in Expenses in any year pursuant hereto shall not exceed the
reduction in Expenses resulting from such capital improvement in such year) and
the annual amortization of the cost of those capital improvements made after the
Commencement Date which are required under any governmental laws, regulations,
or ordinances constituting new legislation not enacted or applicable to the
Building prior to the Commencement Date, amortized in accordance with generally
accepted accounting principles shall be included in Expenses; provided, however,
in the event that in calculating expenses for any other tenant in the Building
during the period prior to the fifth (5th) anniversary of the Commencement Date
any capital improvements (or the annual amortization thereof) required by any
law, regulation or ordinance constituting new legislation not enacted or
applicable to the Building prior to the commencement date of such tenant's lease
are excluded, such capital improvements (or the annual amortization thereof, as
the case may be) shall be excluded from Expenses hereunder. If Landlord shall
lease such item of capital equipment, then the rentals or other operating costs
paid pursuant to such leasing shall be included in Expenses for each year in
which they are paid or incurred. In any Adjustment Year, the portion includible
in Expenses shall be the annual amortization of such cost using as the
amortization period such period as is provided for in accordance with generally
accepted accounting principles, together with interest on the unamortized cost
of any such improvements at the prevailing rate available to Landlord for a
capital improvement loan on the date the cost of such improvements was incurred.
(B) If (x) the office area of the Building is not fully occupied by
tenants during all or a portion of any Adjustment Year or (y) Landlord is not
furnishing cleaning and janitorial service or energy for HVAC service (the cost
of which, if performed by Landlord, would be included in Expenses) to a tenant
in the Building who has undertaken to perform such work or service in lieu of
the performance thereof by Landlord, then Landlord may elect to make an
appropriate adjustment in the cleaning (including, supplies) and janitorial cost
component of Expenses and in the energy for HVAC and elevator cost components of
Expenses for the year, by adjusting the cleaning (including, supplies) and
janitorial and energy for HVAC and elevator cost components of Expenses which
vary with the occupancy level of the Building, to reflect the Expenses that
would have been paid or incurred by Landlord for such year had the office area
of the Building been fully occupied by tenants during such entire Adjustment
Year or had such work or service been provided to such tenant, employing sound
accounting and management principles.
(C) If any item of Expenses, though paid or incurred in one calendar
year, relates to more than one calendar year, such item will be proportionately
allocated among such related calendar years.
(iv) "Taxes" shall mean real estate taxes, assessments
(whether they be general or special), sewer rents, rates and charges (to the
extent not included as Expenses), taxes based upon leases or the receipt of
rent, and any other federal, state or local governmental charge, general,
special ordinary or extraordinary (but not including income or franchise taxes
or any other taxes imposed upon or measured by
-9-
<PAGE> 18
the Landlord's income or profits, except as provided herein), which may now or
hereafter be levied, assessed or imposed against the Land or the Building or
Landlord as a result of its ownership of the Real Property. The Building and the
Land are herein collectively called the "Real Property". Taxes shall not include
any penalties or interest paid by reason of delinquencies in payment of any item
of Taxes.
Notwithstanding anything contained in the above definition of Taxes to the
contrary:
(A) If at any time the method of taxation then prevailing shall be
altered so that any new or additional tax, assessment, levy, imposition or
charge or any part thereof shall be imposed upon Landlord in place or partly in
place of any Taxes or contemplated increase therein, or in addition to Taxes,
and shall be measured by or be based in whole or in part upon the Real Property,
the rents or other income therefrom or any leases of any part thereof, then all
such new taxes, assessments, levies, impositions or charges or part thereof, to
the extent that they are so measured or based, shall be included in Taxes
levied, assessed or imposed against the Real Property to the extent that such
items would be payable if the Real Property were the only property of Landlord.
(B) Notwithstanding the year for which any such Taxes or assessments
are levied, in the case of special taxes or assessments which may be payable in
installments, the amount of each installment, plus any interest payable thereon,
paid during an Adjustment Year shall be included in Taxes for that year. All
references to Taxes "for" a particular Adjustment Year shall be deemed to refer
to Taxes levied or assessed during such Adjustment Year without regard to when
such Taxes are due and payable. Refunds of Taxes shall be deducted from Taxes
for the year with respect to which such Taxes had been originally paid. Landlord
represents that to the best of its knowledge there are no existing or future
special assessments relating to the Real Property.
(C) There shall be excluded from such Taxes any use and occupancy
tax which Landlord may be required by law to collect from Tenant for payment to
any governmental authority, which Tenant shall pay separately to Landlord upon
demand if and to the extent Landlord is required by law to collect such tax for
any such governmental authority.
(v) "Rentable Area of the Building" shall mean the sum of the
areas on all floors of the Building computed by measuring to the center line of
the exterior glass wall on each entire floor, plus portions of mechanical space
and common service and lobby areas in the Building and excluding only public
stairs, elevator shafts, flues, stacks, pipe shafts and vertical ducts
("vertical penetrations"). No deduction shall be made for Building columns or
projections.
(vi) "Rentable Area" shall mean the product of (a) the gross
floor area measured to the centerline of glass less the entire core area
multiplied by (b) 1.08 for the Initial Office Premises ("Measurement A"). In any
event, the Rentable Area of the Initial Office Premises shall not exceed the
number of rentable square feet calculated following the "Standard Method for
Measuring Floor Area in Office Buildings" issued August, 1980 by Building Owners
and Managers Association
-10-
<PAGE> 19
International, a copy of which is attached hereto as Attachment 4, subject to
qualifications set forth in Attachment 4 ("BOMA Standards"). The definition of
Rentable Area for all office space leased after February 1, 1992 ("Measurement
B") shall be based on BOMA Standards plus a prorata share of above-grade
centralized mechanical areas (which above-grade centralized mechanical areas
will not include the typical core area [defined in Attachment 17] on a typical
office floor). Where market rental rate determines the calculation of rentable
area, if different than Measurement A or B (whichever would otherwise be
applicable), then the formula used in market rental rate will govern. The
prorata share of above-grade centralized mechanical areas for Measurement B will
be the fraction using the rentable square feet of area to be leased divided by
the area of office space in the Building, in each case using BOMA Standards. No
deduction shall be made for Building columns or projections. The Rentable Area
of the Vault Space shall be calculated pursuant to BOMA Standards as if it were
office space leased after February 1, 1992.
(vii) "Tenant's Proportionate Share" shall mean, for Original
Office Space, Pre-Occupancy Expansion Space and Post-Occupancy Expansion Space,
the sum of the proportionate shares for such space, each expressed as a fraction
whose numerator and denominator are as follows:
(A) For Original Office Space and Pre-Occupancy
Expansion Space using Measurement A.
Numerator = Rentable Area of such space using Measurement/A (Total
- --------- Rentable Area of all office space in Premises which uses
Denominator Measurement A) plus (total rentable area of all office space
in the Building [other than office space in the Premises
which uses Measurement A] calculated using BOMA Standards,
multiplied by 1.04)
(B) For Post-Occupancy Expansion Space and First Offer
Space using Measurement B.
Numerator = Rentable Area of such space using Measurement B (Total
- --------- Rentable Area of all office space in the Premises which uses
Denominator Measurement A calculated using Measurement B) plus (total
rentable area of all office space in the Building [other
than office space in the Premises which uses Measurement A]
calculated using Measurement B)
Examples of calculations (a) and (b) above are set forth in Attachment 21.
(C) For any office space in the Premises whose rentable
area is not calculated using Measurement A or Measurement B because Market
Rental Rate applied to the rent for such space.
Numerator = Rentable Area of such space using measurement formula which
- --------- was part of Market Rental Rate Rentable Area of all office
Denominator space in the Building using measurement formula which was
part of market rental rate
-11-
<PAGE> 20
(b) Computation of Additional Rent. Tenant shall pay as Additional
Rent for each Adjustment Year the following amounts in accordance with Sections
2(c) and 2(d) hereof and subject to Section 2(c)(i)C hereof:
(i) Tenant's Proportionate Share of Taxes for such Adjustment
Year (the "Tax Adjustment"); plus
(ii) Tenant's Proportionate Share of Expenses for such
Adjustment Year (the "Expense Adjustment"); plus
(iii) Tenant's Management Fee which shall be equal to four
percent (4%) of Base Rent from time to time.
Notwithstanding anything herein to the contrary Tenant shall not be obligated to
pay Additional Rent for (x) any part of the Premises for any period prior to the
Low-Rise Rent Commencement Date or (y) the Top Floor for any period prior to the
High-Rise Rent Commencement Date. Tenant's obligation for the Tax Adjustment and
Expense Adjustment with respect to a Lease Year (being Tenant's Proportionate
Share of Taxes and Expenses calculated pursuant to the following paragraph)
shall not exceed the Tax and Expense Cap applicable to such Lease Year. The fact
that such Tax Adjustment for purposes of such limitation is being calculated
using Taxes paid as opposed to Taxes "for" a particular year does not modify
Tenant's obligation to pay Tax Adjustment based on Taxes "for" an Adjustment
Year.
For purposes of this lease, the term "Tax and Expense Cap" shall mean (i)
Six Dollars ($6.00) multiplied by the Rentable Area of the Office Premises for
the first Lease Year; (ii) Ten Dollars ($10.00) multiplied by the Rentable Area
of the Office Premises for the second Lease Year; and (iii) Sixteen Dollars
($16.00) multiplied by the Rentable Area of the Office Premises for the third
Lease Year; provided that in the event that tenants occupy sixty percent (60%)
of the Rentable Area of the Building at any time during the second Lease Year,
the Tax and Expense Cap for the third Lease Year shall be Sixteen and 80/100
Dollars ($16.80) multiplied by the Rentable Area of the Office Premises, and in
the event that tenants occupy eighty percent (80%) of the Rentable Area of the
Building at any time during the second Lease Year, the Tax and Expense Cap for
the third Lease Year shall be Seventeen and 60/100 Dollars ($17.60) multiplied
by the Rentable Area of the Office Premises. In determining whether the Tax and
Expense Cap has been exceeded for any Lease Year, Taxes and Expenses to be used
for the Lease Year in question shall be calculated in accordance with the
following:
(1) Taxes paid during a Lease Year which does not begin on a January 1
shall be deemed to be the sum of the following:
Taxes actually paid during the Adjustment Year during which the
Lease Year commences
X number of days in the Lease Year falling within such
Adjustment Year
----------------------------------------------------
Number of days in such Adjustment Year
plus
-12-
<PAGE> 21
Taxes actually paid during the Adjustment Year during which the
Lease Year ends
X number of days in the Lease Year falling within such
Adjustment Year
----------------------------------------------------
Number of days in such Adjustment Year
(2) Expenses for a Lease Year which does not begin on a January 1 shall
be deemed to be the sum of the following:
Expenses for the Adjustment Year during which the Lease Year
commences
X number of days in the Lease Year falling within such
Adjustment Year
----------------------------------------------------
Number of days in such Adjustment Year
plus
Expenses for the Adjustment Year during which the Lease Year ends
X number of days in the Lease Year falling within such
Adjustment Year
----------------------------------------------------
Number of days in such Adjustment Year
(c) Payments of Additional Rent; Additional Rent Deposit;
Projections. Tenant shall pay Additional Rent to Landlord in the manner
hereinafter provided.
(i) Tax Adjustment and Expense Adjustment. The aggregate of payments
required to be made by Tenant on account of Tax Adjustment and Expense
Adjustment for any Adjustment Year until the actual Tax Adjustment and
Expense Adjustment for such Adjustment Year are determined is herein
called "Additional Rent Deposit".
(A) Landlord may, at any time and from time to time prior to
each Adjustment Date and from time to time during or after the
Adjustment Year in which such Adjustment Date falls, but not more
than three times for each Adjustment Year, deliver to Tenant a
written notice or notices ("Projection Notice") setting forth (1)
Landlord's reasonable estimates, forecasts or detailed (consisting
of, among other things, reasonable line-item detail, including
delineation of all line items of Taxes (but only if Tenant is paying
Taxes on a monthly basis) and Expenses in excess of $100,000 for the
Building as a whole) projections (collectively, the "Projections")
of Taxes or Expenses for such Adjustment Year, and (2) Tenant's
Additional Rent Deposit (setting forth the Expense Adjustment
component and Tax Adjustment component separately), being Tenant's
Proportionate Share of the Projections, taking into consideration
any limitation imposed by the Tax and Expense Cap. Tenant may
request and Landlord shall allow Tenant to review, in Landlord's
management office, Landlord's back-up information and bids used in
arriving at the Projections. Notwithstanding any Projections set
forth herein or in any Projection Notice furnished to Tenant by
Landlord, Landlord does not thereby make any representations or
warranties as
-13-
<PAGE> 22
to actual amounts of Tax Adjustment and Expense Adjustment for any
such Adjustment Year, which actual amounts may be higher or lower
than said Projections. In the event the Projections are higher than
those for the prior Adjustment Year by $100,000 or more for any
individual item for the Building as a whole included within the
Projections, Tenant may, by written notice to Landlord within sixty
days of Tenant's receipt of the Projection Notice, contest
Landlord's determination of the Projections, whereupon the
Projections and the Additional Rent Deposit shall be finally
determined by arbitration in accordance with Section 65 hereof.
Tenant shall include in such written notice its reasons for so
objecting to the Projections. Pending resolution as stated
aforesaid, Tenant shall pay the contested item of Taxes and/or
Expenses based upon the Tax Adjustment and Expense Adjustment
figures for such contested item for the prior Adjustment Year.
(B) On or before the first day of the next calendar month
following Landlord's service of a Projection Notice, and on or
before the first day of each month thereafter, Tenant shall pay to
Landlord, at the time and in the same manner as payment of Base
Rent, one-twelfth (1/12) of the Additional Rent Deposit shown in the
Projection Notice. Within thirty (30) days following Landlord's
service of a Projection Notice, Tenant shall pay Landlord a lump sum
equal to the Additional Rent Deposit shown in the Projection Notice
less (1) any payments of Additional Rent Deposit previously made
during such Adjustment Year, and (2) monthly installments on account
of Additional Rent Deposit not yet due and payable for such
Adjustment Year. Until such time as Landlord furnishes a Projection
Notice for an Adjustment Year, Tenant shall pay to Landlord a
monthly installment of Additional Rent Deposit on the first day of
each month equal to the latest monthly installment of Additional
Rent Deposit. Landlord shall furnish Tenant with the amount of the
initial monthly installment of Additional Rent Deposit before the
Commencement Date.
(C) Notwithstanding anything in this Section 2 to the
contrary, if Tenant is not in Default under this lease and Chicago
Title and Trust occupies at least 100,000 square feet of Rentable
Area in the Building, the Additional Rent Deposit shall not include
the Tax Adjustment component thereof. In such event, Landlord shall
deliver to Tenant a copy of each bill for Taxes after it is received
by Landlord, together with a calculation of Tenant's Proportionate
Share of such Taxes pursuant to Section 2(b). Tenant shall deliver a
check drawn on an account of Tenant and payable to the appropriate
taxing authority in an amount equal to Tenant's Proportionate Share
of such Taxes to Landlord within ten (10) days of Tenant's receipt
of a copy of such bill and the calculation of Tenant's Proportionate
Share as stated aforesaid, but provided that Landlord has furnished
Tenant with a copy of such bill and such calculation of Tenant's
Proportionate Share not less than ten (10) business days before the
date such Taxes must be paid to the Cook County Collector's Office,
Tenant shall deliver such check to Landlord not later
-14-
<PAGE> 23
than five (5) business days before the due date for payment of such
Taxes. A copy of the Tax bill marked paid by the Cook County
Collector's Office shall be delivered to Tenant no later than thirty
(30) days after payment of such Taxes. Upon expiration of the Term
or if Tenant moves out of the Premises prior to lease expiration,
Landlord may require Tenant to pay an estimate of, or give Landlord
reasonable security for payment of, Tenant's Tax Adjustment
attributable to periods of Tenant's prior occupancy for which bills
for Taxes have not yet been received from governmental authorities,
if Landlord reasonably deems itself insecure as to payment of such
future Tax Adjustments. Tenant's right to pay Tenant's Proportionate
Share of Taxes when bills for Taxes are received from governmental
authorities is personal to Chicago Title and Trust Company and any
Affiliate (as such term is defined in Section 12(a) hereof) of
Chicago Title and Trust Company. Landlord's Tax Statement described
in Section 2(d)(ii) shall not be required except in instances where
a readjustment is required because Tenant has underpaid or overpaid
Tax Adjustment pursuant to this Section 2(c)(i)(C).
(ii) Tenant's Management Fee shall be paid in Monthly installments
equal to 1/12 of Tenant's Management Fee at the same time when Base Rent
is due.
(d) Readjustments. The following readjustments with regard to the
Tax Adjustment and Expense Adjustment shall be made by Landlord and Tenant:
(i) Following the end of each Adjustment Year and after Landlord has
determined the actual amount of Expenses for such Adjustment Year (which
calculation Landlord shall use reasonable efforts to make within one
hundred twenty (120) days following the end of each Adjustment Year, but
which calculation shall be made no later than two hundred seventy (270)
days following the end of such Adjustment Year), Landlord shall notify
Tenant in writing (any such notice of Expenses and Expense Adjustment is
herein called "Landlord's Expense Statement") of such actual Expenses and
Tenant's Expense Adjustment for such Adjustment Year. If the Expense
Adjustment for such Adjustment Year exceeds the Expense Adjustment
component of the Additional Rent Deposit paid by Tenant during such
Adjustment Year, then Tenant shall, within forty-five (45) days after the
date of Landlord's Expense Statement, pay to Landlord an amount equal to
such excess. If the Expense Adjustment component of the Additional Rent
Deposit paid by Tenant during such Adjustment Year exceeds the Expense
Adjustment owed for such Adjustment Year, then Landlord shall, within
forty-five (45) days after the date of Landlord's Expense Statement, pay
to Tenant such excess, which duty shall survive the termination or
expiration of this Lease, or at the option of Tenant, apply such excess to
the next succeeding payments of Rent coming due hereunder; provided,
however, if Tenant is in Default under this lease, Landlord may first
apply such excess to cure the Default and then pay any remaining amounts
to Tenant.
(ii) Following the end of each Adjustment Year and after Landlord
has determined the actual amount of Taxes
-15-
<PAGE> 24
for such Adjustment Year, Landlord shall notify Tenant in writing (any
such notice of Taxes and Tax Adjustment is herein called "Landlord's Tax
Statement") of such Taxes for such Adjustment Year. If the actual Tax
Adjustment for such Adjustment Year exceeds the Tax Adjustment component
of the Additional Rent Deposit paid by Tenant during such Adjustment Year,
then Tenant shall, within forty five (45) days after the date of
Landlord's Tax Statement, pay to Landlord an amount equal to such excess.
If the Tax Adjustment component of the Additional Rent Deposit paid by
Tenant during such Adjustment Year exceeds the Tax Adjustment owed for
such Adjustment Year, then Landlord shall within forty (45) days after the
date of Landlord's Tax Statement, pay to Tenant such excess, which duty
shall survive the expiration or termination of this lease, or at the
option of Tenant, apply such excess to the next succeeding payments of
Rent coming due hereunder; provided, however, if Tenant is in Default
under this lease, Landlord may first apply such excess to cure the Default
and then pay any remaining amounts to Tenant. Notwithstanding anything
herein to the contrary, the provisions of Section 2(c)(i)(B) and 2(d)(ii)
shall apply only in the event Tenant is in Default hereunder or Chicago
Title and Trust Company no longer occupies at least 100,000 square feet of
Rentable Area in the Building.
(iii) Notwithstanding anything herein to the contrary, Landlord's
Expense Statement and Landlord's Tax Statement shall include a reasonably
detailed itemization of Taxes and Expenses and a description of their
method of computation. Without limitation of the aforesaid, all line items
for Taxes and Expenses shall be clearly delineated and all line items in
excess of $100,000 for the Building as a whole shall be separately shown.
Landlord shall also provide, with Landlord's Statements, (x) a
certification from a general partner of Landlord that, based on an audit
of Landlord's books and records, Taxes and Expenses as shown on Landlord's
Statements have been computed as defined and limited by this Lease and (y)
a copy of the certification and audit from the certified public accountant
auditing Landlord's books and records as it pertains to Taxes and
Expenses.
(e) Books and Records. Landlord shall maintain books and records
showing Taxes and Expenses in accordance with generally accepted accounting
principles consistently applied except where otherwise required by this lease or
by law. Tenant and its representatives shall have the right to examine such
books and records upon reasonable prior notice and during normal business hours
at any time within one hundred twenty (120) days following service of either
Landlord's final Tax Statement (or Tax bill (as provided in Section 2(c)(i)(C)
hereof], as the case may be) or Landlord's final Expense Statement. Unless
Tenant shall take written exception to any item of Taxes or Expenses, specifying
in detail the reasons for such exception as to a particular item, within one
hundred twenty (120) days after service of either Landlord's final Tax Statement
or Landlord's final Expense Statement, such Statement shall be considered as
final and accepted by Tenant. If Tenant takes written exception to an item, as
aforesaid, and such exception is not resolved by Landlord and Tenant within
forty-five (45) days after Tenant's notice taking exception, the dispute shall
be submitted to a firm of certified public
-16-
<PAGE> 25
accountants selected by Landlord and Tenant, who shall determine whether the
exception is proper and the amount owed by Tenant. The charges of the aforesaid
accounting firm shall be borne by Tenant, except if by reason of such exception,
Tenant has overpaid Additional Rent by 2% or more, in which case Landlord shall
pay the charges of said accounting firm. In the event Tenant has overpaid either
the Tax Adjustment or Expense Adjustment by 2% or more, Tenant shall receive
interest (at the Prime Plus Rate) on such overpayment from the date paid until
the date refunded.
(f) Proration and Survival. With respect to any Adjustment Year
which does not fall entirely within the Term, Tenant shall be obligated to pay
as Additional Rent for such Adjustment Year an amount equal to the amount of
Additional Rent which would have been due for such Adjustment Year if it had
fallen entirely within the Term multiplied by a fraction, the numerator of which
is the number of days of the Term falling within the Adjustment Year, and the
denominator of which is the number of days in such Adjustment Year. If the first
Adjustment Year under this lease is the calendar year in which the Building is
initially occupied by office tenants and the Commencement Date is a date other
than January 1 (such first Adjustment Year being herein called the "Opening
Year") then for purposes of computing such proration of Expenses only for such
Opening Year, said denominator shall be the number of days of the Term falling
within the period of such Opening Year beginning on the date when the Building
is substantially completed and initially occupied by office tenants and ending
on December 31 of such Opening Year. Without limitation of other obligations of
Tenant or Landlord which shall survive the expiration of the Term, the
obligation of Tenant to pay Additional Rent provided for in this Section 2 and
the obligation of Landlord to refund any Additional Rent shall survive the
expiration or termination of this lease.
(g) Protest of Taxes. Tenant shall have the right to request that
Landlord protest any tax assessment, valuation, levy or bill and Landlord shall
so protest if in Landlord's reasonable judgment Landlord reasonably believes
such protest would be successful. If Landlord decides not to so protest Landlord
shall inform Tenant of its reasons for such decision. Landlord shall promptly
inform Tenant if it is protesting Taxes on its own behalf.
(h) Prudent Management. Landlord shall use prudent management
practices (including, without limitation, the rebidding of major items of
Expense and the use of competitive arms-length contracts) in operating the
Building. Prudent management practices will be deemed to require competitive
bidding only where customary and where there are at least two qualified
responsive bidders. In addition, prudent management practices will be deemed to
require that Landlord balance minimizing Expenses with maximizing the quality of
services to the Building.
3. Use of Premises. Tenant shall use and occupy the Premises for general
office purposes and, in connection with such use, any lawful use incidental to
general office purposes not inconsistent with a first-class office building.
Tenant may also have and use kitchen (which may include refrigerators, vending
machines, microwave ovens, stoves, garbage disposals and garbage compactors and
other appliances used in connection
-17-
<PAGE> 26
with the operation of a kitchen), cafeteria and dining facilities ("Kitchen
Facilities") incidental to general office use for the exclusive benefit of
Tenant, its officers, directors and employees in connection with the business of
Tenant being conducted from the Premises subject to the restrictions and
conditions set forth in Section 63. In addition, Tenant may have and use
(incidental to general office use) lounge, exercise, health and medical
facilities exclusively for the use of Tenant, its officers, directors and
employees and such printing, mail handling, duplicating, reproduction,
photographic, word processing, data processing and communications (including
telecommunications) and such other equipment and facilities as Tenant may deem
necessary, desirable or convenient for the conduct of its business or for the
comfort, convenience or well-being of its officers, directors and employees.
Tenant shall use the Premises only for services in connection with the conduct
of its business or future businesses in the Premises and not for the sale of
products, except for financial services and products in connection with Tenant's
business in the Premises. Tenant's use shall specifically exclude retail uses
(other than financial services [including but not limited to title insurance,
trust and related services] which are part of Tenant's office use) and sale of
food or beverages to the public. Tenant use shall comply with all applicable
laws and ordinances, all orders and decrees of court and all requirements of
other governmental, authorities, and shall not directly or indirectly make any
use of the Premises which may thereby be prohibited or be dangerous to person or
property or which may jeopardize any insurance coverage, or may increase the
cost of insurance or require additional insurance coverage.
4. Delivery of Possession. Landlord shall not have any liability for
failure to perform or complete construction or deliver possession of the
Premises or any portion of the Building and Tenant's obligations under this
lease shall not be affected, except as otherwise set forth in Sections 6, 50, 51
and 62 hereof.
Landlord represents that the Building upon completion and issuance of a
certificate of occupancy (or its equivalent issued by the City of Chicago) will
comply with all applicable zoning, fire codes and other federal, state and local
rules, regulations, laws, statutes and ordinances, but only to the extent such
compliance or lack thereof affects Tenant's use, occupancy and enjoyment of the
Premises. In the event that any of these laws or regulations are modified after
the Commencement Date, Landlord shall, to the extent required by law, promptly
cause the Building, including the structural elements thereof to comply with
such modifications to the extent applicable to the Building (with the cost
thereof to be included in Expenses only to the extent permitted under Section 2
hereof).
5. Services. Landlord shall furnish the following services:
(a) Air-cooling and heat when necessary to provide a comfortable
temperature in the Premises (including Lobby Space and Vault Space) under normal
business conditions, daily from 8:00 A.M. to 6:00 P.M. (Saturdays from 9:00 A.M.
to 1:00 P.M.), Sundays and Holidays excepted. Landlord's agreements hereunder
are subject to mandatory Presidential or other governmental restrictions, laws
or regulations concerning energy use.
-18-
<PAGE> 27
"Holidays" means: Thanksgiving Day, Christmas Day, New Year's Day, Memorial Day,
Independence Day, Labor Day and any other day (i) recognized as a holiday by the
service unions representing workers providing services to the Building, and (ii)
customarily designated as a holiday by landlords operating first class office
buildings (leased to tenants that are not governmental agencies or departments)
in the downtown area of the City of Chicago.
The heating, ventilating and air conditioning system shall be as provided
in the Specifications attached hereto as Attachment 11. If Tenant's use or
occupation of the Premises, including lighting, personnel, and heat generating
machines or equipment, individually or cumulatively, exceeds the standards
delineated in the Specifications attached as Attachment 11, which causes the
design loads for the systems providing heat and air-cooling to be exceeded,
Landlord may, but shall not be obligated to, temper such excess loads by
installing supplementary heating or air-conditioning units in the Premises or
elsewhere where necessary. In such event, the cost of such units and the expense
of installation, including, without limitation, the cost of preparing working
drawings and specifications, plus ten percent (10%) of such cost as an overhead
and supervision fee, shall be paid by Tenant as additional rent within fifteen
(15) days after Landlord's demand therefor. Alternatively, Tenant may install,
operate and maintain such supplementary heating or air-conditioning units at
Tenant's sole expense. The expense resulting from the operation and maintenance
of any such supplementary heating or air-conditioning units shall be paid by
Tenant to Landlord as additional rent at 110% of Landlord's cost of delivering
the same. Alternatively Tenant may operate and maintain any such supplementary
units at Tenant's sole expense. Notwithstanding anything herein to the contrary,
Landlord's approval of Tenant's final construction drawings for the installation
of tenant improvements to the Premises and approval of plans for subsequent
alterations and additions to the Premises shall be conclusive evidence that such
alterations and improvements do not exceed design loads.
If Tenant shall require heating, ventilating or air-conditioning service
at any other time ("after-hours"), Landlord shall furnish such after-hours
service upon notice from Tenant given by 4:00 P.M. on any business day for
after-hours service for that night or the following morning, by 4:00 P.M. on any
Friday for after-hours service on the following Saturday or Sunday, and by 4:00
P.M. on the first business day immediately preceding a holiday for service on
such holiday. Tenant shall pay for such after-hours service at Landlord's cost
of providing the same. Notwithstanding anything herein to the contrary, Landlord
shall furnish to Tenant sufficient condenser water necessary to allow HVAC to be
supplied to the Tenant's computer room, telephone switch gear room and adjacent
mechanical rooms 24 hours per day, 7 days a week. In the event the after-hours
service is requested and shared by other tenants in the Building Tenant's share
of such costs shall be appropriately reduced to prorate overlapping costs.
(b) Cold water for drinking, lavatory, toilet, food preparation and
food vending purposes and hot water for lavatory purposes, both drawn through
fixtures installed by Landlord, or by Tenant in the Premises; provided, however,
hot
-19-
<PAGE> 28
water for any lavatories not located in the core of the Building as shown in
Attachment 11 shall be provided and paid for by Tenant. Landlord shall furnish
condenser water for Supplemental HVAC and related computer needs of Tenant.
Without limitation of the foregoing, condenser water shall be available at a
point on each floor of the Premises and Tenant may tap into it. All condenser
water furnished to Tenant will be charged to Tenant as follows:
Tenant shall be charged based upon Landlord's actual costs of furnishing
such condenser water, which costs shall include: cooling tower electricity
costs, make-up water, chemical feed, maintenance, and supervision/overhead
in an amount equal to 10% of the foregoing costs. Notwithstanding the
foregoing, Tenant shall be responsible for providing its own condenser
water pumping system and shall use reasonable efforts to design such
system so as to minimize water flow rates. In no event shall Tenant's use
exceed the system specifications with respect to flow rates and
temperature limits.
(c) Janitor and cleaning service provided in accordance with the
cleaning specifications in Exhibit D attached hereto. The cleaning of the
kitchen, escalators referred to in subsection (i) below, Vault Space, the Lobby
Space and the security desk console and display/mini-theater area described in
Section 43 shall be Tenant's sole responsibility; provided, however, that if
Tenant elects to have Landlord provided cleaning services to said areas, Tenant
shall pay. to Landlord a separate charge for building standard cleaning services
for such areas, which shall be bid along with the rest of the cleaning and
janitorial services. Notwithstanding anything herein to the contrary, Tenant may
contract with its own janitor to provide (i) supplemental janitorial services to
the Premises or (ii) all cleaning services to the Premises, and in the case of
clause (ii) (A) Tenant shall notify Landlord that Tenant intends to provide its
own cleaning services to the Premises prior to the time that Landlord bids the
cleaning contract for the Building, provided, however, that Tenants shall be
obligated so to notify Landlord only if Landlord has given Tenant thirty (30)
days prior written notice that Landlord will be bidding the cleaning contract
for the Building and (B) the expenses of cleaning tenants' premises shall be
removed from Expenses for purposes of calculating Tenant's Expense Adjustment.
Landlord agrees to obtain bids from its prospective cleaning contractors for any
above-standard cleaning services desired by Tenant at the same time as Landlord
is bidding or rebidding janitorial service. Tenant may request meetings with
Landlord and Landlord's contractor to discuss any complaints which Tenant may
have with the services being provided by such contractor, but Tenant shall not
talk with Landlord's contractor unless Landlord is present. In the event Tenant
is dissatisfied with the cleaning and janitorial services provided by Landlord's
contractor, Tenant can upon at least sixty (60) days prior notice to Landlord
(which notice shall specify Tenant's reasons for its dissatisfaction) provide
cleaning services to the Premises itself as provided in Section 5(c)(ii) above.
In contracting with its own cleaning and janitorial contractor Tenant assures
that such contractor will work in harmony with Landlord's contractor.
-20-
<PAGE> 29
(d) Passenger elevator service in common with Landlord and other
persons, at all times, and freight elevator service in common with Landlord and
other persons, daily from 8:00 A.M. to 6:00 P.M., Saturdays, Sundays and
holidays excepted. Landlord shall provide limited passenger elevator service
daily at all times such normal passenger service is not furnished. Tenant must
schedule all construction related deliveries and pick-ups in advance with
Landlord. After hours freight elevator service shall be available to Tenant, but
Tenant shall reimburse Landlord for Landlord's direct cost in providing such
service. All deliveries and pick-ups must be scheduled, but Tenant shall receive
fair and equitable use of the freight elevators and hoist for all construction
related deliveries and pick-ups (but the specific provisions of Attachment 2
shall be controlling where they apply). All elevators shall be in service during
the entire Term, subject to the need to repair one or more (but never all at the
same time) from time to time.
(e) Electricity shall not be furnished by Landlord, but shall be
furnished by Commonwealth Edison Company or another electric utility company
serving the area. Transformers shall be located on each floor of the Premises
and Landlord shall permit Tenant to receive electrical service directly from
wires and conduits connected by Tenant to such transformers. Tenant shall make
all necessary arrangements with the utility company for metering and paying for
electric current furnished by it to Tenant or for the benefit of the Premises,
and Tenant shall pay for all charges for electric current consumed on the
Premises (including, but not limited to, all areas in the Building which Tenant
has been granted an exclusive license to use and occupy pursuant to the terms
and conditions of this lease) or for the benefit of the Premises. Tenant shall
not, without Landlord's prior written consent in each instance, connect to the
Building's electrical distribution system any fixtures, appliances or equipment
which operate on a voltage in excess of 220 Volts. Tenant shall make no
alterations or additions to Landlord's electric equipment, risers, wires,
conduits or facilities in the Premises or the Building. Tenant may, but shall
not be obligated to, purchase from Landlord lamps, bulbs, ballasts and starters
used in the Premises during the Term. Tenant covenants and agrees that at all
times its use of electric current shall never exceed the capacity of the feeders
to the Building or the risers or wiring installed therein. Tenant shall pay all
direct utility costs attributable to the escalators constructed by Landlord
pursuant to Section 41 provided that the electricity for such escalators is
separately metered, sub-metered or when such usage can be reasonably estimated.
Notwithstanding anything herein to the contrary, Landlord shall be responsible
for providing electricity for all common areas, public areas, the rotunda and
the Garage and the electrical meters for the aforesaid. All electricity costs
included within Expenses shall be at the same rate as that charged to Landlord
by the utility company.
(f) Telephone service shall not be furnished by Landlord but shall
be furnished by a telephone company serving the area. Landlord shall permit
Tenant to receive such service directly from such telephone company at Tenant's
cost in accordance with Attachment 11. Tenant shall make all necessary
arrangements with the telephone company for paying for the telephone service
furnished by it to Tenant and Tenant shall pay all charges for telephone
service. Notwithstanding
-21-
<PAGE> 30
anything herein to the contrary, one of the telephone riser closets located in
the Building core of each floor of the Premises will be dedicated to Tenant and
no outside vendors or cable will be allowed in such closet.
(g) A security program detailing security procedures for Tenant and
other tenants in the Building. Landlord agrees to provide a minimum of two (2)
lobby guards during weekday hours specified in Section 5(a) above (provided that
said guards may leave the lobby to patrol the Building and to take lunch, coffee
and restroom breaks provided, that at least one guard shall be in the lobby at
all times during such hours) and one guard after such hours and on Saturday and
Sunday for the Building. Security systems within the Building shall be kept up-
to-date. Initially the security program will include key cards (to be provided
by Landlord) for passenger and garage elevators, as well as points of entry (to
be provided by Tenant) on Tenant's floors. The program will provide for
procedures for verification of day and time of entry and exit by individuals
after the weekday hours specified in Section 5(a) above. Without limitation of
the foregoing, Tenant is allowed to station its own personnel within the rotunda
lobby at the security desk, as well as elsewhere in the Premises. Landlord's and
Tenant's security staffs will fully cooperate with each other in coordinating
Building and Tenant's security procedures.
(h) Extermination service administered on a regular basis for pest
and rodent control, except that Tenant shall provide its own extermination
service for the kitchen and dining facilities in the Premises.
(i) Landlord will maintain the escalators in the Premises as more
fully described in Section 41 hereof.
(j) Landlord will publish Building emergency procedures which are
updated and approved from time to time in accordance with recognized standards
observed in other first class office buildings in the City of Chicago.
(k) Tenant shall have the exclusive use of the loading dock bay
described on Exhibit H attached hereto (the "Loading Dock Bay"), subject to the
terms and conditions of this lease and the rights of Landlord to enter the area
for the purpose of providing maintenance and repairs and for such other purposes
as would entitle Landlord to enter the Premises under the terms and conditions
of this lease, as well as the right to use in common with the other tenants the
other loading dock bays for the Building.
(l) Landlord shall provide a person to act as dock supervisor daily
from 8:00 A.M. to 6:00 P.M., excluding Saturdays, Sundays and holidays. The dock
supervisor will supervise and coordinate loading dock activity with a view
toward giving Tenant and the other tenants in the Building fair and equitable
access to the loading dock bays (other than Tenant's Loading Dock Bay) in the
Building. While the primary responsibility of the dock supervisor shall be to
supervise and coordinate loading dock activities as aforesaid, the dock
supervisor may engage in other activities for the benefit of the Building when
his/her presence at the loading dock is not necessary, appropriate or
beneficial to the fair, equitable and efficient operation of the loading dock.
-22-
<PAGE> 31
(m) Landlord agrees to furnish such other services as are
customarily furnished without charge by landlords of other first-class office
buildings in the City of Chicago.
In addition, the Building will be staffed with or contract for
sufficient management, engineering and other personnel capable of providing such
first- class service.
Landlord agrees to provide such extra or additional services to the
Premises (except those which are stated herein to be Tenant's responsibility) as
it is reasonably possible for Landlord to provide, and as are customary for
other first class office buildings in downtown Chicago and as Tenant may from
time to time request in writing, within a reasonable period (unless provided
otherwise herein) after the time such extra or additional services are
requested. Tenant shall pay for such extra or additional services at one hundred
ten percent (110%) of Landlord's cost (unless provided otherwise herein) in
providing them, such amount to be considered additional rent hereunder. All
charges for such extra or additional services shall be due and payable at the
same time as the installment of Base Rent with which they are billed, or if
billed separately, shall be due and payable within fifteen (15) days after
Tenant receives Landlord's bill therefor. Any such billings for extra or
additional services shall include an itemization of the extra or additional
services rendered and the charge for each such service.
Tenant agrees that Landlord and its beneficiaries and their agents
shall not be liable in damages, by abatement of Rent or otherwise, for failure
to furnish or for delay in furnishing any service when such failure or delay is
occasioned, in whole or in part, by necessary repairs or maintenance, by any
strike, lockout or other labor trouble, by inability to secure telephone
service, electricity, water or gas or other fuel at the Building after
reasonable effort so to do, by any accident or casualty whatsoever, by the act
or default of Tenant or other parties, or by any cause beyond the reasonable
control of Landlord; and except as hereafter stated such failures or delays
shall never be deemed to constitute an eviction or disturbance of Tenant's use
and possession of the Premises or relieve Tenant from paying Rent or performing
any of its obligations under, this lease. Unless such repairs, renewals or
improvements can be made during business hours without unreasonable or material
interference with Tenant's business operations or in the case of an emergency,
Landlord shall make such repairs, alterations or replacements during
non-business hours. If Landlord ceases to furnish any of the services referred
to in this Section 5 (other than services described in Section 5(m) above) and
such cessation is not caused by a casualty described in Section 14 hereof (in
which case Section 14 shall control), and, as a result thereof, the Premises, or
any portion thereof, are rendered untenantable for a period in excess of three
(3) days, then, commencing with the beginning of such three (3) day period,
Tenant shall be entitled to an abatement of Rent solely with respect to those
portions of the Premises that are rendered untenantable for the duration of such
untenantability until Tenant resumes or can resume tenancy of the affected
portion of the Premises. Tenant shall notify Landlord of its reasons for abating
the payment of Rent. For purposes of this lease, "untenantable" shall mean, as
to any portion of the Premises, that Tenant cannot reasonably use the Premises
for their intended purpose or
-23-
<PAGE> 32
conduct its usual business in the Premises as a result of the condition of the
Premises or any portion of the Building. If any period of untenantability
involving more than twenty percent (20%) of the area of the Premises is longer
than sixty (60) consecutive days, then subject to the provisions of Section 14
and unless the same stoppage of services affects the majority of office
buildings in downtown Chicago, Tenant may elect to terminate this lease by
written notice to Landlord within the thirty (30) day period following such
sixty (60) consecutive day period; provided, however, if such stoppage of
services requires work to be performed, acts to be done, or conditions to be
removed which, by their nature, cannot reasonably be performed, done or removed,
as the case may be, within such sixty (60) day period, then if Landlord shall
have commenced curing or correcting the same within such period and shall have
diligently prosecuted such correction or cure, such sixty (60) day period shall
be extended by such additional time period not to exceed an additional one
hundred twenty (120) days, for a total of one hundred eighty (180) days in the
aggregate.
After reasonable notice (which may be oral) or in the case of an
emergency Landlord and its contractors shall have free access to any and all
mechanical installations, and Tenant agrees that there shall be no construction
or partitions or other obstructions which might interfere with the moving of the
servicing equipment of Landlord to or from the enclosures containing said
installations. Tenant further agrees that neither Tenant nor its employees,
agents, or contractors shall at any time tamper with, adjust or in any other
manner affect Landlord's mechanical installations.
6. Condition and Care of Premises.
(a) Tenant's taking possession of the Premises or any portion
thereof for occupancy or construction of Tenant improvements (as defined in
Section 37) shall be conclusive evidence against Tenant that the portion of the
Premises taken possession of was then in good order and satisfactory condition,
subject to any exceptions previously agreed upon in writing by Landlord and
Tenant and subject to any punchlist items and latent defects. No promises of
Landlord to alter, remodel, improve, repair, decorate or clean the Premises or
any part thereof have been made, and no representation respecting the condition
of the Premises, the Building or the Land has been made to Tenant by or on
behalf of Landlord, except to the extent set forth in this lease. Landlord shall
perform all maintenance and make all repairs and replacements to common areas of
the Building and to base building systems. Without limiting the generality of
the foregoing, Landlord shall maintain, repair and replace, as reasonably
necessary for first-class office buildings in downtown Chicago, Illinois, (i)
base building plumbing, sprinkler, HVAC, electrical and mechanical lines and
equipment associated therewith, and elevators and escalators (as provided in
Section 41 hereof) which serve the Premises or common areas of the Building, and
broken or damaged glass (except glass broken or damaged due to the negligence of
Tenant); (ii) the exterior walls and interior and exterior structures of the
Building, including the roof; and (iii) the common areas of the Building,
including common entrances, corridors, doors, windows, loading docks, stairways
and lavatory facilities; provided, however, Landlord shall not be obligated to
provide any repair, replacement or maintenance
-24-
<PAGE> 33
(x) which Tenant is specifically obligated to perform under the terms hereof or
(y) of Tenant's Tenant Improvements or subsequent tenant alterations or tenant
improvements to the Premises made by or on behalf of Tenant.
(b) Tenant shall notify Landlord of any damage (except of a minor
nature) to the Premises, regardless of the cause of damage. Except for any
damage resulting from any negligent or willful act of Landlord and its
employees, contractors and agents, and subject to the provisions of Section 14
hereof, Tenant shall, at its own expense, keep the Premises (including all areas
within the Building which Tenant then has an exclusive license to use and occupy
pursuant to the terms and conditions of this lease) in good repair and
tenantable condition and shall promptly and adequately repair all damage to the
Premises caused by Tenant or any of its employees, agents or contractors. If
Tenant does not make repairs promptly and adequately when required to do so, or
upon Tenant's request Landlord may upon notice to Tenant, but need not, make
such repairs and replacements and Tenant shall pay Landlord, within thirty (30)
days of demand, the cost thereof and an amount equal to ten percent (10%) of
such cost as an overhead and supervision fee.
(c) This lease does not grant any rights to light or air over or
about the real property of Landlord. Landlord specifically excepts and reserves
to itself the use of any roofs (subject to Section 49 hereof), the exterior
portions of the Premises (subject to Tenant's right to locate signs thereon
pursuant to the terms of this lease), all rights to and the land and
improvements below the improved floor level of the Premises, to the improvements
and airrights above the Premises, to the improvements and air rights located
outside the demising walls of the Premises and to such areas within the Premises
required for the installation of utility lines and other installations required
to serve occupants of the Building as disclosed on Attachments 10 and 11 and no
rights with respect thereto are conferred upon Tenant, unless otherwise
specifically provided herein.
7. Surrender of Premises.
(a) At the termination of this lease by lapse of time or otherwise,
or upon termination of Tenant's right of possession without terminating this
lease, Tenant shall surrender possession of the Premises to Landlord and deliver
all keys to the Premises to Landlord and make known to Landlord the combination
of all locks of vaults then remaining in the Premises, and shall, subject to the
following subparagraphs, return the Premises and all equipment and fixtures of
Landlord therein to Landlord in good condition, excepting ordinary wear and
tear, loss or damage by fire or other insured casualty and damage resulting from
the act of Landlord or, any of its employees and agents. If Tenant fails to
return the Premises and such equipment and fixtures to Landlord in such
condition, then Landlord may restore the Premises and such equipment and
fixtures to such condition, and Tenant shall pay the cost thereof to Landlord on
demand.
(b) All installations, additions, non-movable partitions, hardware,
light fixtures, supplementary heating or air conditioning units, non-trade
fixtures and improvements, except movable furniture, movable partitions and
equipment
-25-
<PAGE> 34
(such excepted property to include, without limitation, kitchen, cafeteria,
vending, printing, duplication, electronic data processing, communications, word
processing, reproduction, library, exercise, photographic and other trade
fixtures, appliances and equipment, howsoever affixed to, or installed in the
Premises, including any portable, movable, non-permanent or detachable dividers
and partitions) belonging to or possessed by Tenant, in or upon the Premises,
whether placed there by Tenant or Landlord, or placed elsewhere by Tenant in the
Building, shall be Landlord's property and shall remain upon the Premises and
Building upon expiration or sooner termination of the Term or Tenant's
possession hereunder, all without compensation, allowance or credit to Tenant.
If Tenant so elects, upon expiration of the Term or termination of the Term
pursuant to Section 46 hereof, it may at Tenant's sole cost and expense remove
such of the installations, additions, partitions, hardware, light fixtures,
supplementary heating or air conditioning units, non-trade fixtures and
improvements placed in the Premises or Building which are above building
standard and cost in excess of the Landlord's Allowance, as Tenant elects and
repair any damage to the Premises or Building caused by such removal, provided,
that, if Tenant fails to repair such damage Landlord may do so and Tenant shall
pay the cost thereof to Landlord on written demand. Notwithstanding the
foregoing, at Landlord's option and upon notice to Tenant, Tenant shall remove
(i) the following items: any equipment, fixtures or furnishings used in the
kitchen/cafeteria located in the Premises, including any horizontal exhaust
ducts (but not including any vertical black iron ducts or any building standard
improvements in such area), any raised flooring, any supplemental air-
conditioning units, but not including any part of any cooling tower, and any
other Tenant Improvements above building standard and costing in excess of the
Landlord's Allowance, and (ii) any items installed by or for Tenant, other than
as part of Tenant Improvements in the Premises, (including, without limitation,
as part of Tenant Improvements in the Post-Occupancy Expansion Space), where
Landlord, pursuant to Section 11(e), required removal as a condition to consent
to such work.
(c) At the sole option of Tenant, Tenant may leave in place any
floor covering without compensation to Tenant, or Tenant may remove any floor
covering and shall remove all fastenings, paper, glue, bases or other vestiges
and restore the floor surface to its previous condition. Tenant shall also
remove Tenant's furniture, machinery, safes, trade fixtures and other items of
movable personal property of every kind and description from the Premises and
restore any damage to the Premises caused thereby, such removal and restoration
to be performed prior to the expiration of the Term or no later than ten (10)
days following the earlier termination of this lease or Tenant's right of
possession, whichever might be earlier (and upon prior written notice to
Landlord, in the event such removal occurs after termination of this lease or
Tenant's right to possession). Landlord may remove such items if Tenant fails to
do so, subject to the provisions of Section 16(f). Tenant shall repair any
damage to the Premises caused by such removal. Notwithstanding anything herein
to the contrary, except as provided in Section 46, Tenant shall not be obligated
to remove the escalators within Tenant's Premises.
(d) All obligations of Tenant under this Section 7 shall survive the
expiration of the Term or sooner termination of this lease.
-26-
<PAGE> 35
8. Holding Over. Tenant shall pay Landlord for each day Tenant retains
possession of the Premises or any part thereof after the Expiration Date or
sooner termination of this lease or Tenant's possession hereunder, an amount
which is two hundred percent (200%) of the amount of Rent per day allocable to
such portion of the Premises retained, based on the annual rate of Base Rent and
Additional Rent applicable under Sections 1 and 2, for each day of the period in
which such retention of possession occurs, and if such retention of possession
is more than ninety (90) days Tenant shall also pay all damages (except that
Tenant shall not be responsible for consequential damages unless and until
Landlord has a bona fide third party tenant to whom Landlord has leased the
space in question and Landlord has notified Tenant of such tenant and that
Tenant's occupancy of the space is either preventing such tenant from timely
moving into the space or preventing the timely completion of tenant improvements
to such space to allow such tenant timely to move into such space) sustained by
Landlord by reason of such retention. Landlord agrees that Tenant's retention of
possession of the Premises, or any part thereof, shall not constitute a renewal
of this lease.
9. Rules and Regulations. Tenant agrees to observe and not to interfere
with the rights reserved to Landlord contained in Section 10 hereof and
elsewhere in this lease, and agrees, for itself, its employees, agents and
contractors, to comply with the rules and regulations set forth in Exhibit C
attached to this lease, and elsewhere in this lease, as may be reasonably
modified from time to time (upon no less than ten (10) days prior written
notice) and such other reasonable rules and regulations as shall be adopted by
Landlord, after consultation with Tenant, which do not conflict with the express
provisions of this lease, do not materially interfere with, disrupt, or require
an alteration of the Tenant's use and enjoyment of the Premises for the purposes
set forth in Section 3 of this Lease, and are consistent with, or necessary to,
the operation, maintenance and security of a first-class office building.
Landlord shall not discriminate against Tenant in enforcing any rules or
regulations applicable to all tenants and all such rules and regulations
applicable to all tenants should be enforced uniformly.
10. Rights Reserved to Landlord. Landlord reserves the following rights,
exercisable without notice except as expressly provided herein and without
liability to Tenant for damage or injury to property, person or business, and
without effecting an eviction or disturbance of Tenant's use or possession or
giving rise to any claim for setoff or abatement of Rent or affecting any of
Tenant's obligations under this lease:
(a) To change the name of the Building, except as set forth in
Section 40.
(b) To install and maintain signs on the exterior and interior of
the Building (other than the interior of the Premises), except as prohibited by
Section 40.
(c) To prescribe the location and style of the suite number and
identification sign or lettering: for the Premises (other than in the interior
of the Premises and for full floors of the Premises).
-27-
<PAGE> 36
(d) To retain at all times, and to use in performing janitorial and
other services to the Premises and in emergency situations to obtain access to
the Premises, pass keys to the Premises, but, subject to the requirements of the
Chicago Fire Department, excluding from the Premises safes, vaults and
electronic data processing rooms. Landlord shall not be required to clean, or
provide other services which require access to areas of the Premises to which it
is not given access.
(e) To grant to anyone the right to conduct any business or render
any service in the Building, whether or not it is the same as or similar to the
use expressly permitted to Tenant by Section 3, except as set forth in Section
54.
(f) To exhibit the Premises during the Term to lenders, purchasers
and investors and to prospective tenants during the last eighteen months of the
Term, but only at reasonable hours after reasonable prior notice to Tenant, and
to decorate, remodel, repair, alter or otherwise prepare the Premises for
reoccupancy at any time after Tenant surrenders the Premises.
(g) To enter the Premises at reasonable hours for reasonable
purposes, including, without limitation, for inspection or for supplying janitor
service or other service to be provided to Tenant hereunder. Except in an
emergency situation, Landlord shall give Tenant reasonable advance notice (which
may be oral) prior to its entry into the Premises.
(h) To require all persons entering or leaving the Building during
such hours as Landlord may from time to time reasonably determine to identify
themselves to security personnel by registration or otherwise in accordance with
Building security controls, and to establish their right to enter or leave in
accordance with the provisions of this lease. Landlord shall not be liable for
damages for any good faith error with respect to admission to or eviction or
exclusion from the Building of any person. In case of fire, casualty, invasion,
insurrection, riot, civil disorder, public excitement or other commotion, or
threat thereof, Landlord reserves the right to limit or prevent access to the
Building during the continuance of the same, shut down elevator service,
activate elevator emergency controls, or otherwise take such action or
preventive measures deemed necessary by Landlord for the safety or security of
the tenants or other occupants of the Building or the protection of the Building
and the property in the Building. Tenant agrees to cooperate in any reasonable
safety or security program developed by Landlord.
11. Alterations. The provisions of this Section 11 do not apply to Tenant
Improvements to which Section 37 applies. Tenant shall have the right to make
any alterations, improvements and additions to the Premises at any time or from
time to time during the Term, as extended, without Landlord's consent as
provided in this Section 11.
(a) Restricted Work. Tenant shall not, without Landlord's consent,
which consent may be withheld in Landlord's sole discretion, do (i) any
structural work in the Premises or Building or make any alterations in, or
additions to, basic Building systems which affect the integrity or operation of
the Building or its basic Building systems; (ii) perform any work which would,
in Landlord's reasonable judgment, (A) adversely
-28-
<PAGE> 37
affect Landlord's ability to perform its obligations or provide services to
Tenant or other tenants or (B) increase the costs thereof; or (iii) perform any
work in the Premises or Building visible from outside the Premises which would
materially detract from the aesthetic integrity of the Building or its design.
Landlord agrees not to act arbitrarily in withholding its consent. In the event
Landlord refuses to grant its consent, Landlord shall furnish Tenant with a
statement setting forth its reasons for doing so. Landlord further agrees not to
withhold its consent as to work described in clause (a)(ii)(B) above which would
result in increased costs to Landlord, if Tenant pays all such increased costs.
Landlord's consent to any work requiring its consent under this Section 11(a)
shall be deemed given if no response is received within ten (10) business days
after Tenant notifies Landlord as to the nature of the work desired but the
foregoing shall not require submittal of detailed plans and specifications. Such
notification shall include a statement that Landlord's failure to respond within
the aforesaid time period shall be deemed consent.
(b) Work Done by Tenant. Tenant may itself perform or employ
contractors to perform work which is not described in Section 11(a) and any work
described in clause (a) above for which Landlord's consent has been obtained
(except as set forth in (c) below); provided that Tenant shall notify Landlord
reasonably in advance as to any such work which costs more than $100,000.00
(increased from time to time by the percentage increase in the Consumer Price
Index (as defined in Section 12 hereof) for the calendar year prior to the
calendar year in which the determination is to be made over the Consumer Price
Index for 1992) or work which requires a building permit, with such specificity
as may reasonably be required under the circumstances. With respect to any work
done by Tenant, Tenant shall comply with Sections 1, 2 and 3 of Exhibit E
(except that Landlord shall not have the right to approve Tenant's plans and
specifications for work costing less than $100,000 which work is not described
in (a) above).
(c) Work Done by Landlord. Landlord may perform any work described
in (a)(i) above at Tenant's cost, but in no event shall such cost exceed that
amount which Tenant's contractors would charge for such work. In the event
Tenant allows Landlord to bid to perform work in the Premises, Tenant shall have
no obligation to accept Landlord's bid.
(d) Entry Into Other Tenants' Space. Landlord agrees to cooperate
reasonably with Tenant with respect to any Tenant work which would require entry
into another tenant's space; provided, however, unless the affected tenant
otherwise agrees, any Tenant work to be performed outside of the Premises shall
be subject to reasonable scheduling by Landlord, and any, work to be performed
by Tenant materially affecting other tenants shall be done during non-business
hours. Landlord may require that any work to be performed in other tenants
spaces be performed after regular business hours if such work will materially
interfere with the conduct of that other tenant's business operations in such
other tenant's judgment. Tenant agrees to defend and hold Landlord and such
other tenant harmless from and indemnify them against any and all claims and
liabilities which may arise in connection with Tenant's work in such other
tenant's space, and in the event such other tenant requires that Landlord rather
than Tenant perform the work in
-29-
<PAGE> 38
such other tenant's space Tenant shall pay Landlord's costs incurred therewith,
including overtime charges plus an amount equal to ten percent (10%) of such
cost as an overhead and supervision fee.
(e) Removal. Subject to Section 7(b) Landlord may, upon notice that
Tenant is making alterations, improvements or additions, require removal of such
items upon termination as set forth in Section 7(b). Landlord's requirement that
Tenant remove such alterations, improvements or additions shall be made
independently of Landlord's consent to such alterations, improvements or
additions and any such required removal shall have no bearing on whether
Landlord was reasonable in giving or withholding its consent to such
alterations, improvements or additions.
12. Assignment and Subletting.
(a) Tenant shall not, without the prior written consent of Landlord
in each instance, either prior or subsequent to the Low-Rise Commencement Date,
(i) assign, transfer, mortgage, pledge, hypothecate or encumber or subject to or
permit to exist upon or be subjected to any lien or charge (except as provided
in Section 30 hereof) any interest of Tenant under this lease, (ii) sublet the
Premises or any part thereof, or (iii) permit the use or occupancy of the
Premises or any part thereof for any purpose not provided for under Section 3 of
this lease or by anyone other than the Tenant and Tenant's directors, officers,
employees and agents. Notwithstanding the foregoing, Tenant shall have the right
to: (1) assign this lease or sublet all or a portion of the Premises (other than
the Lobby Space) to an Affiliate without Landlord's consent, and (2) sublet
space which was previously improved with tenant improvements ("Developed Space")
to third party subtenants with Landlord's approval of such subtenant's
character, such approval not to be unreasonably withheld or delayed, (3) sublet
the Lobby Space to an Affiliate subject to Landlord's prior written approval,
which approval shall not be unreasonably withheld or delayed and (4) sublet
Undeveloped Space of one (1) floor or less to third party subtenants with
Landlord's approval of such subtenant's character, such approval not to be
unreasonably withheld or delayed. For purposes of this lease, an "Affiliate"
shall mean any corporation, partnership, joint venture or other entity (i) which
controls Chicago Title and Trust Company, either directly or indirectly through
other wholly-owned subsidiaries; (ii) which is under the control of Chicago
Title and Trust Company, either directly or indirectly; (iii) which is under
common control with Chicago Title and Trust Company, either directly or
indirectly; or (iv) which results from a merger or consolidation with or
reorganization of Chicago Title and Trust Company. Landlord shall not be deemed
to have unreasonably withheld its consent to a proposed assignment of this lease
or to a proposed sublease of part or all of the Premises (where such consent is
required) if its consent is withheld because: (i) Tenant is then in Default
hereunder; (ii) either the portion of the Premises which Tenant proposed to
sublease, or the remaining portion of the Premises, or the means of ingress or
egress to either the portion of the Premises which Tenant proposes to sublease
or the remaining portion of the Premises, or the proposed use of the Premises or
any portion thereof by the proposed assignee or subtenant, will violate any
applicable city, state or federal law, ordinance or regulation, including,
-30-
<PAGE> 39
without limitation, building codes and zoning ordinances; (iii) the proposed use
of the Premises by the proposed assignee or subtenant does not conform with the
use clause set forth in Section 3 hereof; (iv) in the reasonable judgment of
Landlord the proposed assignee or subtenant is of a character or is engaged in a
business which would be deleterious to the reputation or operation of the
Building or Landlord or (v) in those instances stated herein which specifically
provide for a financial test, the proposed assignee or subtenant fails to meet
the stated test. Tenant agrees that all advertising by Tenant or on Tenant's
behalf with respect to the assignment of this lease or subletting of any part of
the Premises shall be in good taste but Tenant shall be entitled to fully
advertise all of the terms and conditions (economic or otherwise) of such
assignment or subletting. Notwithstanding anything in this Section 12 to the
contrary, for purposes of this Section 12, in no event shall Landlord be
entitled to any portion of the rent received by Tenant from any subtenant or
Affiliate, regardless of whether it is in excess of the Rent payable hereunder.
(b) Consent by Landlord to any assignment, subletting, use,
occupancy, transfer or encumbrance shall not operate to relieve Tenant from any
covenant or obligation hereunder, or be deemed to be a consent to, or relieve
Tenant from obtaining Landlord's consent to, any subsequent assignment,
subletting, use, occupancy, transfer or encumbrance by Tenant or anyone claiming
by, through or under Tenant as to which Landlord's consent is required. Tenant
shall pay all of Landlord's reasonable costs, charges and expenses, including,
without limitation, reasonable attorney's fees, incurred in connection with any
assignment, subletting, use, occupancy, transfer or encumbrance or release made
or requested by Tenant; provided, however, if Landlord recaptures that portion
of the Premises in question Tenant shall not be obligated for any amount
relating to such space.
(c) In the event Tenant desires to assign this lease or sublet any
part of the Premises for the balance or any part of the Term other than in
accordance with clauses (1), (3) and (4) of the second sentence of Section 12(a)
above and such space falls within any of the four categories hereinafter
described, Tenant shall, not more than one (1) year in advance, by notice in
writing, advise Landlord of its intention to assign this lease or sublet any
part or all of the Premises (which portion Tenant shall specify in its notice)
for the balance or any part of the Term and shall (but only if Tenant has
already identified the potential assignee or subtenant) provide Landlord with
the name and address of the proposed assignee or subtenant and such information
available to permit Landlord to determine the desirability of the proposed
subtenant or assignee. Landlord shall thereafter have the right, to be exercised
by giving written notice to Tenant within thirty (30) days after receipt of
Tenant's notice, to terminate this lease with respect to the space described in
Tenant's notice as of the date specified in Tenant's notice as the termination
date for such space. Nothing herein shall be construed to indicate that
Landlord's right to terminate this lease with respect to space described below
requires that the terms of the proposed sublet or assignment be agreed upon and
formalized in an instrument of sublease or assignment. The four categories are
as follows:
(i) Undeveloped Space in excess of one (1) floor;
-31-
<PAGE> 40
(ii) space proposed to be sublet or assigned to existing tenants in
the Building at a rate of Rent below Tenant's rate of Rent on such space,
if comparable space is available for lease in the Building;
(iii) during the first two Lease Years, any proposed sublease or
assignment, or during the first two years after leasing any Post-Occupancy
Expansion Space or First Offer Space, any proposed sublease of any such
Post-Occupancy Expansion Space or First Offer Space;
(iv) any proposed sublease or assignment, if at the time of such
sublease or assignment, Tenant or Affiliate occupies or leases less than
one hundred fifty thousand (150,000) square feet of Rentable Area in the
Building (taking into account the space then proposed to be sublet).
In the event Landlord does not terminate this lease with respect to
such space, Tenant's rights to sublet or assign such space shall be as stated
aforesaid and Landlord's consent shall not be unreasonably withheld after Tenant
has furnished to Landlord the relevant information so that Landlord can
determine whether such assignee or subtenant meets the appropriate criteria set
forth in subsection (a) above. However, if Tenant, having given notice of a
sublet or assignment of space described in the four categories (i) through (iv)
above (and Landlord does not terminate this Lease with respect to such space),
does not consummate such transaction within one (1) year of Tenant's notice,
Tenant shall resubmit a notice of proposed sublet or assignment and Landlord's
rights under this Section 12(c) shall again apply if Tenant intends to assign
the lease or sublet such space (to the extent that the space still falls within
one of such categories). If Landlord exercises its right to terminate this lease
with respect to such space then the Base Rent and the Tenant's Proportionate
Share shall be adjusted on the basis of the number of Rentable Square Feet
retained by Tenant, and this lease as so amended, shall continue thereafter in
full force and effect, except that in the case of an assignment, it shall
terminate.
Notwithstanding anything herein to the contrary, with regard to categories
(i) and (ii) above in this subparagraph (c) Landlord shall have a right to
terminate this lease prior to the time the transaction is consummated by Tenant
in accordance with the provisions of this paragraph. In such cases Tenant shall
furnish Landlord with the name and address of the proposed assignee or subtenant
and such information available to Tenant so as to permit Landlord to determine
the desirability of the proposed subtenant or assignee. In the event Landlord
does not so terminate this lease within ten (10) business days of receipt of the
aforesaid information Tenant may consummate such transaction.
With respect to space (falling within the aforesaid four categories (i)
through (iv)) proposed to be subleased for less than the remainder of the Term,
Landlord shall have the option to delete the proposed subleased space
("Recaptured Space") from the Premises for the proposed sublease term
("Recapture Period"), in which event all of the terms and provisions of this
lease accruing during the Recapture Period (including the payment of Rent)
applicable to the Recaptured Space (except for retroactive determinations of
Additional Rent respecting the
-32-
<PAGE> 41
Recaptured Space that relate to periods other than the Recapture Period) and
Tenant's Proportionate Share and Rentable Area of the Premises shall be adjusted
on the basis of the Rentable Area of the Premises retained by Tenant. The lease
of the remainder of the Premises shall not be affected by the deletion of the
Recaptured Space for the Recapture Period. From and after the expiration of the
Recapture Period, the terms and provisions of this lease shall commence and
continue to apply to the Recaptured Space for the remainder of the Term.
Landlord shall, at its sole cost and expense, construct at the beginning of the
Recapture Period any demising walls required to separate the Recaptured Space
from the Premises. During the Recapture Period, Landlord shall have the right to
lease or otherwise use the Recaptured Space in such manner as it determines and
shall redeliver possession of the Recaptured Space at the end of the Recapture
Period to Tenant "as is".
Tenant agrees that in the event that Landlord terminates the lease of any
space which was not previously improved with tenant improvements ("Undeveloped
Space"), Tenant shall refund Landlord's Allowance to Landlord, within thirty
(30) days of demand, at the rate of Fifty Dollars ($50.00) per square foot of
Rentable Area of Recaptured Space if Landlord's Allowance for such space had
previously been given to Tenant.
(d) If Tenant shall assign this lease as permitted herein, the
assignee shall expressly assume all of the obligations of Tenant hereunder in a
written instrument reasonably satisfactory to Landlord and furnished to Landlord
not later than fifteen (15) days prior to the effective date of the assignment.
(e) Under particular circumstances hereinafter set forth, Tenant may
be released from future obligations under the lease on the terms stated below.
Tenant may designate a prospective tenant to lease a portion of its Premises
("Released Space") for the balance of the Term and may request ("Release
Request") that Landlord enter into a direct lease with such prospective tenant
(in lieu of Tenant subleasing the Released Space to the prospective tenant).
Tenant shall furnish a Release Request to Landlord at the time it would
otherwise seek Landlord's consent to sublet such space, if such consent is
required by this Section 12, but in any event no later than sixty (60) days
prior to the proposed commencement date of the direct lease. The Release Request
shall include a description of the Released Space; the proposed commencement
date of the direct lease; the name and address of the prospective tenant; and
sufficient information to determine the financial responsibility and character
of the proposed tenant.
Tenant may be released from future obligations under the lease as to
that part of the Premises leased to a third party (but not less than seven
thousand five hundred (7,500) Rentable Area in each case) upon commencement of
the lease term and the commencement of the third party's obligation to pay rent
(i) on the terms of Tenant's lease for the balance of the Term (except those
rights or concessions as may not be transferred, granted or assigned as
described below), (ii) subject to Tenant's payment of all of Landlord's costs
and expenses (including but not limited to reasonable attorneys' fees) incurred
by Landlord in connection with such lease, (iii) subject to such prospective
tenant meeting the formula determining financial responsibility described below
and having
-33-
<PAGE> 42
a good reputation in the business community. Landlord approval shall not be
unreasonably withheld where the financial responsibility and character tests
have been met. Landlord shall not be deemed to have unreasonably withheld its
consent if in the reasonable judgment of Landlord the prospective tenant is of a
character or engaged in a business which would be deleterious to the reputation
of the Building or the Landlord. For the first seventy-five thousand (75,000)
square feet of Rentable Area of space to be released, the formula for
determining financial responsibility will be based on standards similar to those
being utilized by Landlord in determining whether to lease other space of
comparable size in the Building to tenants, but as to any further released
space, the proposed tenant will be deemed to be financially responsible if the
proposed tenant's net worth is equal to or greater than an amount determined by
multiplying $100,000,000.00 (increased from time to time by the percentage
increase in the Consumer Price Index for the calendar year prior to the calendar
year in which such determination is to be made over the Consumer Price Index
for 1992) times a fraction the numerator of which is the number of rentable
square feet to be leased by such subtenant and the denominator of which is the
number of rentable square feet in the Initial Premises, but in no event less
than standards similar to those being utilized by Landlord in determining
whether to lease other space of comparable size in the Building to tenants.
"Consumer Price Index" shall mean the Consumer Price Index, for the City
of Chicago, Illinois -- Northern Indiana, Urban Wage Earners and Clerical
Workers, All Items (base year 1982-84=100), as published by the United States
Department of Labor, Bureau of Labor Statistics. If the manner in which the
Consumer Price Index is determined by the Bureau of Labor Statistics is
substantially revised, including without limitation, a change in the base index
year, an adjustment shall be made in such revised index which would produce
results equivalent, as nearly as possible, to those which would have been
obtained if such Consumer Price Index had not been so revised. If the Consumer
Price Index shall become unavailable to the public because publication is
discontinued, or otherwise, or if equivalent data is not readily available, then
a comparable index measuring changes in the cost of living or purchasing power
of the dollar published by a governmental agency or, if no such index shall be
available, then a comparable index published by a major bank or other financial
institution or by a university or a recognized financial publication shall be
substituted therefor.
Tenant may not be released from the obligations of this lease with
respect to any space if at the time of the release or as a result of the release
Tenant is or would be leasing less than six (6) floors in the Building. No
release shall be given or be effective prior to the second (2nd) anniversary of
the Low-Rise Commencement Date.
Further, it is understood that if Landlord will be directly leasing
space to a third party resulting in the release of Tenant described above, then
Tenant may not transfer, grant or assign the following rights or concessions (in
addition to those expressly made personal to Chicago Title and Trust Company)
intended to be for the benefit of Tenant (which are not intended to be separated
from the lease to Tenant) and Landlord will not be bound by such provisions with
-34-
<PAGE> 43
respect to such new party: (i) options to extend under Section 36 (unless the
rent is at the Market Rental Rate); (ii) right to lease vault space under
Section 1; (iii) options to lease Pre-Occupancy Expansion Space under Section
39, Post-Occupancy Expansion Space under Section 44 (unless the rent is at the
Market Rental Rate) and First Offer Space under Section 45 (unless the rent is
at the Market Rental Rate); (iv) rights under this Section 12 to sublet, assign
or be released from liability under this lease or restricting Landlord's rights
of recapture or other rights on subletting or assignment (except that Landlord
and Tenant may agree on provisions permitting subletting where the subtenant is
financially responsible and the sublandlord shares equally with Landlord the
profit received by the sublandlord from a subletting after paying all costs and
expenses associated with such subletting and all Rent with respect to such
space, and Landlord will have a second right of recapture when the specific
terms of a subleasing transaction have been agreed to); (v) termination rights
under Section 46; (vi) if the space to be leased is less than 100,000 Rentable
Square Feet, rights to install an antenna or satellite dish under Section 49;
but in any case Landlord may charge market rent for use of roof space; (vii)
rights to receive reports under Section 47; (viii) rights to set-off as the
result of a Landlord Default under Section 29; (ix) rights to receive or share
in the condemnation award under Section 15; (x) rights to supply Tenant's own
cleaning services (and have the cost of such cleaning removed from the
calculation of Expenses) as set forth in Section 5(c); (xi) rights to use
tenant's contractors for tenant work under Section 11 if the space to be leased
is one floor or less (if more than one floor, such tenant must pay a 5%
coordination fee to Landlord if such tenant uses its own contractors); (xii)
rights to receive details of Projections, review Landlord's files in connection
with Projections and contest Projections under Section 2(c)(i)(A), (xiii) if the
space leased is less than one full floor, rights to terminate this lease under
Section 5, and (xiv) if the space to be leased is one floor or less, rights to
receive a non-disturbance agreement. While rights to use parking spaces in the
Garage may be granted by Tenant, any such rights granted to a third party who
will then be a direct tenant of Landlord will reduce the number of spaces
available to Tenant under Section 48, by the number of spaces granted to said
third party. Any rights to lease Post-Occupancy Expansion Space or First Offer
Space afforded by Tenant to any Third Party to whom Landlord is directly leasing
space shall reduce Tenant's rights under this lease and shall be coordinated in
a manner to facilitate Landlord's management of the Building.
Within thirty (30) days after receipt of the Release Request,
provided that the conditions relating to a release described above have been
met, and Tenant is not then in Default under this lease, Landlord and Tenant
will enter into an amendment to this lease deleting the Released Space from this
lease on the commencement date of the direct lease for the balance of the Term
("Release Date"), in which event: the Term shall expire but only with respect to
the Released Space on the Release Date; the Base Rent and Tenant's Proportionate
Share shall be reduced by the Base Rent and Tenant's Proportionate Share
applicable to the Released Space but in no event by an amount less than the Base
Rent and Tenant's Proportionate Share included in the direct lease with the
third party tenant; Tenant will surrender possession of the Released Space in
the
-35-
<PAGE> 44
condition required in the direct lease for delivery of possession of the
Released Space to the third party tenants including construction of any demising
walls necessary to separate the Released Space from the remainder of the
Premises.
This lease, as so amended, will continue in full force and effect.
If the conditions set forth above for a release of Tenant from future rental
obligations on the Released Space are not met by the Release Request, the
Release Request will constitute a notice to Landlord of a subletting under
Section 12(c).
(f) Notwithstanding anything contained in this lease to the
contrary, and except as to any Release Space expressly released pursuant to
Section 12(e) above, no assignment of any portion of the Premises shall be
deemed to release Chicago Title and Trust Company or any subsequent assignees
from any liability under this lease, and Chicago Title and Trust Company and
subsequent assignees shall at all times remain primary obligors (and not a
"surety" or "guarantor") of all covenants and obligations to be performed by
Tenant hereunder. Without limitation on the foregoing, in the case of an
assignment, Chicago Title and Trust Company shall remain a primary obligor of
all such covenants and obligations, notwithstanding (i) any exercise by an
assignee of any rights or options (including extension, expansion and other
options) expressly granted under this lease as of the date of such assignment;
(ii) Landlord's prior forebearance or waiver of any rights or remedies against
such subtenant or assignee under this lease; and (iii) any arbitration pursuant
to the terms of this lease. Landlord shall have no obligation to proceed against
any or all assignees or enforce Tenant's obligations against any or all
assignees before proceeding against Chicago Title and Trust Company or a
subsequent assignee. Any estoppel letters given, approvals granted, settlements
entered into or agreements on rental rates by any assignee, if done pursuant to
and in accordance with the terms of this lease, existing as of the date of such
assignment shall be binding on Chicago Title and Trust Company. Any
modifications or amendments to this lease (other than confirmatory amendments in
accordance with this lease) after the date of such assignment shall not be
binding on Chicago Title and Trust Company, but such modifications and
amendments shall not affect Chicago Title and Trust Company's status as a
primary obligor with respect to those terms, comments and conditions of the
lease existing as of the date of such assignment.
13. Waiver of Certain Claims; Indemnity.
(a) Waiver. To the extent not expressly prohibited by law, Landlord
and Tenant each releases and waives any and all claims for, and rights to
recover, damages against and from the other, and the other's respective agents,
partners and employees (collectively, the "Released Parties"), for loss, damage
or destruction to any of its property (including the Premises, the Building and
their contents), the elements of which are insured against or insurable under
property or physical damage insurance policies required under Section 19 hereof.
In no event shall this clause be deemed, construed or asserted (i) to affect or
limit any claims or rights against any Released Parties other than the right to
recover damages for loss, damage or destruction to property, or (ii) to benefit
any third party other than the Released Parties.
-36-
<PAGE> 45
(b) Indemnity. To the extent not expressly prohibited by law,
Landlord and Tenant each (in either case, the "Indemnitor") agrees to hold
harmless and indemnify the other and the other's respective agents, partners and
employees (collectively, the "Indemnitees") from any losses, damages, judgments,
claims, expenses, costs and liabilities (collectively "Liabilities") imposed
upon or incurred by or asserted against the Indemnitees, including reasonable
attorney's fees and expenses, for death or injury to third parties other than
Indemnitees or loss of or damage to property of third parties other than
Indemnitees that may arise from or be caused directly or indirectly by any
negligent act of omission or commission or any willful misconduct of the
Indemnitor or any of the Indemnitor's respective agents, partners, or employees.
Such third parties shall not be deemed third party beneficiaries of this
agreement. In case any action, suit or proceeding is brought against any of the
Indemnitees by reason of any such act of the Indemnitor or any of the
Indemnitors respective agents, partners or employees, then the Indemnitor will,
at the Indemnitor's expense and at the option of said Indemnitees, by counsel
approved by said Indemnitees, resist and defend such action, suit or proceeding.
(c) The provisions of this Section 13 shall not amend or modify any
warranty by Landlord of Tenant Improvement work performed by Landlord, if any.
14. Damage or Destruction by Casualty.
(a) If the Premises or the Building shall be damaged by fire or
other casualty and if such damage does not render all or a substantial portion
(as hereinafter defined) of the Premises or the Building untenantable, then
Landlord shall proceed with reasonable promptness to repair and restore the
Premises or the Building so as to render the Premises tenantable, subject to
zoning laws and building codes then in effect. If the nonsignificant portion of
the Building (hereinafter defined) that is made untenantable includes all or a
portion of the Premises and Landlord fails to repair or restore such portion of
the Building within one hundred eighty (180) days after the date of such fire or
casualty as extended on account of Tenant Delays (as such term is defined in
Attachment 15 hereto), then if damage to the Building has a material adverse
impact on Tenant's ability to conduct business at the Premises Tenant may
terminate this lease, effective as of the date of notice of such election, by
giving written notice to Landlord within thirty (30) days after the expiration
of the one hundred eighty (180) day period, as extended for Tenant Delays.
(b) If any such damage renders all or a substantial portion of the
Premises or the Building untenantable, Landlord shall, with reasonable
promptness after the occurrence of such damage, estimate the length of time that
will be required to substantially complete the repair and restoration of the
Premises or the Building, as the case may be, necessitated by such damage and
shall by notice advise Tenant of such estimate. If it is so estimated that the
amount of time required to substantially complete such repair and restoration
will exceed two hundred forty (240) days or, in the event such damage renders
75,000 rentable square feet or more of the Premises or the Building
untenantable, four hundred twenty (420) days from the date such damage occurred,
then either
-37-
<PAGE> 46
Landlord or Tenant (but Landlord shall have such right, only if all or a
substantial portion of the Building is rendered untenantable and the estimated
time required to substantially complete such repair or restoration of the
Building will exceed the aforesaid time period and Tenant shall have such right,
in the case where all or a substantial part of the Building but not the Premises
is rendered untenantable, only if such damage to the Building has a material
adverse impact on Tenant's ability to conduct its business at the Premises)
shall have the right to terminate this lease as of the date of notice of such
election by giving notice to the other at any time within twenty (20) days after
Landlord gives Tenant the notice containing said estimate (it being understood
that Landlord may, if it elects to do so, also give such notice of termination
together with the notice containing said estimate). Unless this lease is
terminated as provided in the preceding sentence, Landlord shall proceed with
reasonable promptness to repair and restore the Building or the Premises so as
to render the Premises tenantable, subject to zoning laws and building codes
then in effect. If the Premises and/or Building, as the case may be, are not
substantially repaired or restored within the aforesaid time period (or within
the time period estimated by Landlord as aforesaid, if longer than the aforesaid
240 or 420 day period, as the case may be, and neither party terminated the
Lease as permitted), as extended on account of Tenant Delays, then Tenant may
terminate this lease, effective as of the date of notice of such election, by
giving written notice to Landlord within the thirty (30) day period after said
day or other period but prior to substantial completion of repair or
restoration.
(c) As used in Sections 14 and 15 hereof the term "substantial
portion of the Premises" shall mean one or more floors of the Premises and the
term "substantial portion of the Building" shall mean four or more floors of the
Building. The term "nonsignificant portion" shall mean less than one floor of
the Premises, in the case of the Premises, and less than four floors of the
Building, in case of the Building.
(d) Notwithstanding anything to the contrary herein set forth, (i)
Landlord shall have no duty pursuant to this Section 14 to repair or restore
Tenant Improvements, or any portion of improvements, additions or alterations
made by or on behalf of Tenant in the Premises or the Building, (ii) if any such
damage rendering all or a substantial part of the Premises or Building
untenantable shall occur during the last twelve (12) months of the Term, either
party shall have the option to terminate this lease by giving written notice to
the other within thirty (30) days after the date such damage occurred, and if
such option is so exercised, this Lease shall terminate as of the date of such
notice, and (iii) if any such damage rendering all or a substantial part of the
Premises or Building untenantable shall occur during the last twenty-four (24)
months of the Term and such damage has a material adverse impact on Tenant's
ability to conduct its business at the Premises, Tenant shall have the option to
terminate this lease by giving written notice to Landlord within thirty (30)
days of the date such damage occurred, and if such option is so exercised, this
lease shall terminate as of the date of such notice.
(e) In the event any such fire or casualty damage renders the
Premises untenantable and if this lease is not
-38-
<PAGE> 47
terminated pursuant to the foregoing provisions of this Section 14 by reason of
such damage, then Rent shall abate during the period beginning with the date of
such damage and ending with the date when Landlord substantially completes its
repair or restoration required hereunder. Such abatement shall be in an amount
bearing the same ratio to the total amount of Rent for such period as the
portion of the Premises being repaired and restored by Landlord and not occupied
by or theretofore delivered to Tenant from time to time bears to the entire
Premises. In the event of termination of this lease pursuant to this Section 14,
Rent shall be apportioned on a per diem basis based on the proportion of the
Premises occupied and used by Tenant, if any, after the date of such casualty
and be paid to the date of termination.
(f) In the event of any such fire or other casualty, and if the
lease is not terminated pursuant to the foregoing provisions, Tenant shall
repair and restore any portion of alterations, additions or improvements made by
or on behalf of Tenant in the Premises which Landlord is not required to restore
pursuant to Sections 14(a), (b) and (d) hereof.
15. Eminent Domain. If the entire Building or a substantial part thereof, or any
part thereof which includes all or a substantial part of the Premises, shall be
taken or condemned by any competent authority for any public or quasi-public
use or purpose the Term shall end as of the date of taking by the condemning
authority. If the taking is of less than substantially all of the Building or
Premises, Landlord and Tenant shall have the right to terminate this lease in
the following circumstances:
(i) Landlord may terminate if (1) in Landlord's reasonable business
judgment restoration of the Building to substantially the same size and
quality is not economically justified and (2) more than ten percent (10%)
of the gross area of the Building is so taken by eminent domain;
(ii) Tenant may terminate if (1) any material portion of the
Premises (as determined in Tenant's reasonable judgment) is so taken by
eminent domain and (2) within sixty (60) days after such taking Landlord
has not been able to provide other comparable space in the Building to
temporarily add to the Premises to restore the size of the Premises to its
Rentable Area then being occupied by Tenant (and not subtenants) prior to
such taking and Landlord will not, based on Landlord's estimate of the
Rentable Area of the restored Building (such estimate to be delivered to
Tenant not more than forty-five (45) days after such taking), be able to
restore the Premises to 100% of its Rentable Area then being occupied by
Tenant (and not subtenants) prior to such taking by a date not more than
three hundred (300) days after the date of such taking. Landlord shall not
be bound to offer Tenant more than Tenant's Proportionate Share (based on
the Premises compared to the Building prior to such taking) of the
restored Building and if Tenant fails to terminate this Lease as provided
herein the size of the Premises and the Rent shall be reduced to such
share of the restored Building;
(iii) Either Landlord or Tenant may terminate this Lease if the
taking occurs within twenty-four (24) months prior
-39-
<PAGE> 48
to the then effective Expiration Date of the Term, as it may have been
extended.
If the taking is of less than substantially all of the Building or
Premises and if this lease is not terminated as provided above, Landlord shall
as soon as possible restore the Building as nearly as can practicably be done
(including the Premises) using all of the award received by Landlord so as to
provide, to the extent reasonably possible, comparable space and amenities to
those enjoyed by Tenant under this lease prior to the taking (or Tenant's
Proportionate Share of the Project in case of the application of the last
sentence of clause (ii) above); in such event this Lease shall continue in force
at the square foot rental rates and adjustment herein provided for the Premises
applied to the rentable square feet of the Premises existing in the Building as
restored (or Tenant's Proportionate Share of the Building in case of the
application of the last sentence of clause (ii) above), but rent shall abate as
to the untenantable portion of the Premises as to periods when such portions of
the Premises are untenantable as a result of such taking and work of
restoration.
In any of the above termination cases, such termination notice may be
given not more than thirty (30) days after the taking (the taking for purposes
of this paragraph shall be the date when the taking authority requires
possession) and termination must be effective for the portion not taken not less
than fifteen (15) or more than sixty (60) days after such notice is given. For
the portion taken, the termination shall be effective as of the date of the
taking. The amount of damages resulting to Landlord and Tenant respectively, and
to their respective interests in and to the Building and in, to and in
connection with lease, by reason of such exercise of the power of eminent
domain, shall be separately determined and computed by the court having
jurisdiction and separate awards and judgments with respect to such damages to
Landlord and Tenant, respectively, and to each of their respective interests,
shall be made and entered. In the event that such court shall make a single
award without separately determining the respective interests of Landlord and
Tenant, and if Landlord and Tenant shall not agree in writing as to their
respective portions of such award within twenty (20) days after the date of the
final determination of such court of the amount thereof, Landlord and Tenant
agree to submit the matter to such court in stipulation for the purposes of a
judgment determinative of their respective shares. Tenant shall have the right
to seek a separate award, if available, for loss or damage of its business or
personal property in the Premises or relocation costs. Any provisions of this
Lease which provide for termination of this Lease upon a taking shall not cause
Tenant's rights to any award to be less than would exist in the absence of such
provisions. Notwithstanding anything herein to the contrary, Tenant's rights to
any award for a taking or condemnation shall be subject and subordinate to the
rights of any holder of a First Mortgage.
16. Default: Landlord's Rights and Remedies.
(a) The occurrence of any one or more of the following shall
constitute a default by Tenant under this lease ("Default"):
-40-
<PAGE> 49
(i) Failure by Tenant to pay any Rent or any other moneys required
to be paid by Tenant under this Lease within ten (10) days after written
notice of the failure to pay on the due date;
(ii) Failure by Tenant to observe or perform any other covenant,
agreement, condition or provision of this lease (i.e., other than any
described in Section 16(a)(i), if such failure shall continue for thirty
(30) days after notice of the breach thereof (plus, if such failure cannot
be cured or corrected within that time, such additional reasonable time as
may be reasonably necessary if Tenant has commenced curing such failure
within such thirty (30) days and is diligently pursuing the remedies or
steps necessary to cure or correct such failure, so long as Tenant gives
Landlord weekly written reports of its progress;
(iii) The levy upon execution or the attachment by legal process of
the leasehold interest of Tenant, or the filing or creation of a lien in
respect of such leasehold interest, which lien shall not be released or
discharged within sixty (60) days from the date of such filing or
otherwise remedied pursuant to Section 32;
(b) If a Default occurs, Landlord shall have the rights and remedies
hereinafter set forth, which shall be distinct, separate and cumulative and
shall not operate to exclude or deprive Landlord of any other right or remedy
allowed to it at law or in equity or elsewhere in this lease:
(i) Landlord may terminate this lease by giving Tenant written
notice of Landlord's election to do so, in which event the Term of this
lease shall end, and all right, title and interest of Tenant hereunder
shall expire on the date specified in such notice;
(ii) Landlord may terminate the right of Tenant to possession of the
Premises without terminating this lease, by giving Tenant written notice
of Landlord's election to do so, whereupon the right of Tenant to
possession of the Premises or any part thereof shall cease on the date
specified in such notice;
(iii) Landlord may exercise all of its remedies at law or in equity;
(iv) Landlord may set off any amounts owed to Landlord by Tenant
hereunder as a result of such Default against any amounts owed Tenant
under Section 47 for the CT&T Participation;
(v) Landlord may, but only under the circumstances set forth in
Section 47 and payment of any price required by Section 47, terminate the
CT&T Participation; and
(vi) In the event of a Default resulting from the breach of a
material covenant by Tenant hereunder, after Landlord has given Tenant any
notice required hereunder and any applicable grace period has expired,
then, ten (10) days after Landlord delivers an additional notice to Tenant
stating that Landlord intends to pursue its remedies under this Section
16(b)(vi), Landlord may perform such covenant
-41-
<PAGE> 50
on behalf of Tenant and any reasonable amount or amounts which Landlord
shall advance on that behalf shall be repaid by Tenant to Landlord within
ten (10) days after demand by Tenant together with interest thereon at the
Prime Plus Rate from the date of such advance to the repayment thereof in
full.
(c) If Landlord exercises either of the remedies provided for in
subparagraphs (i) and (ii) of the foregoing Section 16(b), Tenant shall
surrender possession of and vacate the Premises and immediately deliver
possession thereof to Landlord, and Landlord may re-enter and take complete and
peaceful possession of the Premises, with or without process of law, full and
complete license so to do being hereby granted to Landlord, and Landlord may
remove all occupants and property therefrom, using such force as may be lawful,
without being deemed in any manner guilty of trespass, eviction or forcible
entry and detainer, and without relinquishing Landlord's right to Rent or any
other right given to Landlord hereunder or by law or in equity.
(d) If Landlord terminates the right of Tenant to possession of the
Premises without terminating this lease, such termination of possession shall
not release Tenant, in whole or in part, from Tenant's obligation to pay the
Rent hereunder for the remainder of the Term. Landlord shall have the right,
from time to time, to recover from Tenant, and Tenant shall remain liable for,
all Rent and any other sums thereafter accruing as they become due under this
lease to the end of the Term. Landlord shall use reasonable efforts to relet
the Premises for the account of Tenant for such rent, for such time (which may
be for a term extending beyond the end of the Term), in such portions and upon
such terms as Landlord in Landlord's sole discretion shall determine, and
Landlord shall not be required to accept any tenant offered by Tenant or to
observe any instructions given by Tenant relative to such reletting. Landlord
may give priority over leasing the Premises to any other space Landlord desires
to lease in the Building and shall not be required in any case to offer rent,
length of terms or other terms for the Premises which are or would be less
favorable to Landlord than those being offered for comparable space by Landlord
in the Building. Also, in any such case, Landlord may make repairs, alterations
and additions in or to the Premises and redecorate the same to fulfill the
requirements of a specific tenant and the cost thereof shall be deemed to be a
cost of reletting the Premises; provided, however, expenses of reletting shall
not include such costs which would be amortized during periods after the then
remaining Term. Landlord may employ a leasing broker or finder and any broker's
commission or finder's fee paid by Landlord in connection with the reletting of
the Premises shall be deemed to be an expense of reletting the Premises;
provided, however, Landlord's expenses of reletting shall not include leasing
commissions computed with respect to periods after the then remaining Term.
Landlord may collect the rents from any such reletting and apply the same first
to the payment of the expenses of reentry, redecoration, repair and alterations,
brokerage fees and other such expenses of reletting and second to the payment of
Rent herein provided to be paid by Tenant, and any excess or residue shall
operate only as an offsetting credit against the amount of Rent due and owing or
as the same thereafter becomes due and payable hereunder, but the use of such
offsetting credit to reduce the amount of Rent due
-42-
<PAGE> 51
Landlord, if any, shall not be deemed to give Tenant any right, title or
interest in or to such excess or residue and any such excess or residue shall
belong to Landlord solely. No such re-entry, repossession, repairs,
alterations, additions or reletting shall be construed as an eviction or ouster
of Tenant or as an election on Landlord's part to terminate this lease, unless a
written notice of such intention is given to Tenant, or shall operate to release
Tenant in whole or in part from any of Tenant's obligations hereunder, and
Landlord may, at any time and from time to time, sue and recover judgment for
any deficiencies from time to time remaining and expenses of reletting after the
application from time to time of the proceeds of any such reletting.
(e) In the event of the termination of this lease by Landlord as
provided for by subparagraph (i) of Section 16(b), Landlord shall be entitled to
recover from Tenant all the fixed dollar amounts of Rent accrued and unpaid for
the period up to and including such termination date, as well as all other
additional sums payable by Tenant, or for which Tenant is liable under any of
the provisions of this lease, which may be then owing and unpaid, and all costs
and expenses, including without limitation court costs and reasonable attorneys'
fees incurred by Landlord in the enforcement of its rights and remedies
hereunder, and in addition, Landlord shall be entitled to recover as damages for
loss of the bargain and not as a penalty (i) the excess, if any, at the time of
such termination, of the present value of the aggregate rents which would have
come due hereunder during the remainder of the Term pursuant to Sections 1 and 2
of this lease, over the then present value of the then fair rental value of the
Premises for the balance of the Term, such present value to be computed in each
case on the basis of a discount rate equal to the rate of interest then being
paid by Landlord on the loan secured by the First Mortgage or if no such loan
exists, then at the then current Prime Rate (as defined in Section 25(g)
hereof), and (ii) any damages in addition thereto, including reasonable
attorneys' fees and court costs, which Landlord shall have sustained by reason
of the breach of any of the covenants of this lease other than for the payment
of Rent.
(f) All property removed from the Premises by Landlord pursuant to
any provisions of this lease or by law may be handled, removed or stored by
Landlord at the cost and expense of Tenant, and Landlord shall in no event be
responsible for the value, preservation or safekeeping thereof. Tenant shall pay
Landlord for all expenses incurred by Landlord in such removal and for storage
charges for such property so long as the same shall be in Landlord's possession
or under Landlord's control. All such property not removed from the Premises or
retaken from storage by Tenant within thirty (30) days after the end of the
Term, however terminated, shall, at Landlord's option, be conclusively deemed to
have been conveyed by Tenant to Landlord as by bill of sale, without further
payment or credit by Landlord to Tenant.
(g) Tenant shall pay all of Landlord's costs, charges and expenses,
including without limitation court costs and reasonable attorneys' fees,
incurred in successfully enforcing Tenant's obligations under this lease.
-43-
<PAGE> 52
17. Subordination.
(a) Landlord may have heretofore or may hereafter encumber with a
mortgage or trust deed the Real Property, or any interest therein, and may have
heretofore and may hereafter sell and lease back the Land, or any part thereof,
and may have heretofore or may hereafter encumber the leasehold estate under
such lease with a mortgage or trust deed. (Any such mortgage or trust deed is
herein called a "Mortgage" and the holder of any such mortgage or the
beneficiary under any such trust deed is herein called a "Mortgagee". Any such
lease of the underlying land is herein called a "Ground Lease", and the lessor
under any such lease is herein called a "Ground Lessor". Any Mortgage which is a
first lien against the Building, the Land, the leasehold estate under a Ground
Lease or any interest therein is herein called a "First Mortgage" and the holder
or beneficiary of any First Mortgage is herein called a "First Mortgagee".)
(b) If requested by a First Mortgagee or Ground Lessor, Tenant will
either (i) subordinate its interest in this lease to said First Mortgage or
Ground Lease, and to any and all advances made thereunder and to the interest
thereon, and to all renewals, replacements, supplements, amendments,
modifications and extensions thereof, so long as any First Mortgagee or Ground
Lessor requesting said subordination executes and delivers to Tenant a
subordination, attornment and non-disturbance agreement reasonably satisfactory
to Tenant and the Mortgagee or Ground Lessor giving due consideration to the
concerns of a tenant and a mortgagee or ground lessor in all respects, which
agreement shall contain provisions allowing Tenant to continue to occupy the
Premises pursuant to this lease notwithstanding a foreclosure of the First
Mortgage or termination of the Ground Lease, so long as Tenant is not in default
hereunder, or (ii) make certain of Tenant's rights and interests in this lease
superior thereto and Tenant will promptly execute and deliver such agreement or
agreements as may be reasonably required by such First Mortgagee or Ground
Lessor and shall agree that this lease shall not be terminated (except pursuant
to the express terms of this lease) or amended to shorten the Term or reduce the
Rent without the First Mortgagee's or Ground Lessor's consent. Tenant covenants
it will not subordinate this lease to any mortgage other than a First Mortgage
without the prior written consent of the First Mortgagee.
18. Mortgagee Protection. Tenant agrees to give any First Mortgagee and Ground
Lessor, by registered or certified mail, a copy of any notice or claim of
default served upon the Landlord by Tenant, provided that prior to such notice
Tenant has been notified in writing (by way of service on Tenant of a copy of
an assignment of Landlord's interests in leases, or otherwise) of the address of
such First Mortgagee or Ground Lessor. Tenant's obligations under this Section
18 are solely for the benefit of a First Mortgagee and Ground Lessor and are
expressly intended not to benefit Landlord. The First Mortgagee and Ground
Lessor shall have the right to cure Landlord Defaults within the time periods
herein set forth before Tenant may exercise any rights under Sections 29(a) or
(c).
-44-
<PAGE> 53
19. Insurance and Subrogation.
(a) Tenant shall carry insurance during the entire Term hereof
insuring Tenant and insuring Landlord, Building Manager and their respective
agents, partners and employees, as their interests may appear, with terms,
coverages and in companies with a rating of A.M. Best "A" or better, and with
such increases in limits as Landlord may from time to time reasonably request,
but initially Tenant shall maintain the following coverages in the following
amounts:
(i) Public liability insurance with the broad form commercial
liability endorsement, including contractual liability insurance covering
Tenant's indemnity obligations hereunder, in an amount not less than
$10,000,000.00 per occurrence.
(ii) "All risk" physical damage insurance including fire, sprinkler
leakage, vandalism and extended coverage for the full replacement cost
of all additions, improvements and alterations to the Premises (except to
the extent the same are part of building standard work performed by
Landlord pursuant to the Workletter, if any, attached hereto) and of all
office furniture, trade fixtures, office equipment, merchandise and all
other items of Tenant's property on the Premises; plus valuable papers
insurance covering documents and papers of value in Tenant's vaults with
limits not less than those customarily carried by prudent tenants in such
businesses.
Tenant shall, prior to the commencement of the Term and from time to
time during the Term, furnish to Landlord policies or certificates (with proof
of payment) evidencing the foregoing insurance coverage. Tenant's policies shall
state that such insurance coverage may not be reduced or cancelled or be allowed
to expire without at least thirty (30) days' prior written notice to Landlord
and Tenant (unless such cancellation is due to non-payment of premium, and in
that case only ten (10) days' prior written notice shall be sufficient).
(b) Landlord and Tenant agree to have all policies of physical
damage insurance which may be carried by either of them endorsed with a clause
providing that any release from liability of or waiver of claim for recovery
from the other party or any of the parties named in Section 19(a) above entered
into in writing by the insured thereunder prior to any loss or damage shall not
affect the validity of said policy or the right of the insured to recover
thereunder. Each such policy shall provide further that the insurer waives all
rights of subrogation which such insurer might have against any of the parties
named in Section 19(a) above, and Landlord and Tenant shall first seek recovery
under any applicable insurance policy before proceeding against the other.
(c) Landlord shall carry insurance during the entire Term hereof,
with commercially reasonable deductible amounts and with insurance companies
with a rating of A.M. Best "A" or better, and with such increases in limits as
Tenant may from time to time reasonably request, but initially Landlord shall
maintain the following coverages in the following amounts: (i) "all-risk"
replacement cost property insurance on the Building against fire and other
extended coverage perils (including boiler and machinery and electrical
apparatus
-45-
<PAGE> 54
coverage) in an amount sufficient to prevent Landlord from being deemed a
co-insurer of the risks insured under the policy, but in no event less than the
amount, if any, required by the First Mortgagee, (ii) commercial liability
insurance, including contractual liability (which also insures Tenant but
excluding coverage over liability incurred by Tenant in the operation of its
business), in an amount not less than $10,000,000.00 per occurrence, and (iii)
rent loss insurance covering loss of rents from Tenant under this lease and
other tenants under other leases in the Building in such amounts as a prudent
owner of a first class office building in the City of Chicago, Illinois, would
carry.
20. Nonwaiver. No waiver of any condition expressed in this lease shall be
implied by any neglect of either party to enforce any remedy on account of the
violation of such condition, whether or not such violation be continued or
repeated subsequently, and no express waiver shall affect any condition other
than the one specified in such waiver and that one only for the time and in the
manner specifically stated. Without limiting Landlord's rights under the
provisions of Section 8, it is agreed that no receipt of moneys by Landlord from
Tenant after the termination in any way of the Term or of Tenant's right of
possession hereunder or after the giving of any notice shall reinstate, continue
or extend the Term or affect any notice given to Tenant prior to the receipt of
such moneys. It is also agreed that after the service of notice or the
commencement of a suit or after final judgment for possession of the Premises,
Landlord may receive and collect any moneys due, and the payment of said moneys
shall not waive or affect any said notice, suit or judgment.
21. Estoppel Certificate.
(a) Tenant agrees that from time to time upon not less than ten (10)
days (or five (5) business days if the entity issuing the estoppel certificate
is issuing it unconditionally) prior written request by Landlord, or any
existing or prospective First Mortgagee or Ground Lessor, Tenant will, and
Tenant will cause any subtenant, licensee, concessionaire or other occupant of
the Premises claiming by, through or under Tenant to, complete, execute and
deliver to Landlord or Landlord's designee or to any First Mortgagee or Ground
Lessor, a written estoppel certificate certifying (i) that this lease is
unmodified and in full force and effect (or if there have been modifications,
that the lease as modified is in full force and effect and identifying the
modifications); (ii) the date upon which Tenant began paying Rent and the dates
to which the Rent and other charges have been paid; (iii) that to the best of
Tenant's knowledge the Landlord is not in default under any provision of this
lease, or, if in default, the nature thereof in detail; (iv) that the Premises
have been completed in accordance with the terms hereof and Tenant is in
occupancy and paying Rent on a current basis with no rental offsets or claims
(or if such is not the case, a statement as to the status of the Premises,
Tenant's offsets and/or claims); (v) that there has been no prepayment of Rent
other than that provided for in the lease; (vi) that there are no actions,
whether voluntary or otherwise, pending against Tenant under the Bankruptcy Code
or the bankruptcy laws of any state; (vii) the current CT&T Participation and
any other information reasonably requested in connection with the CT&T
Participation; and (viii) such other matters as may be
-46-
<PAGE> 55
reasonably required by the Landlord, First Mortgagee, or Ground Lessor,
including, without limitation, any other information concerning the status of
this lease or other parties' performance hereunder reasonably requested by the
party to whom such estoppel certificate is to be addressed. Tenant's failure to
complete, execute and deliver the aforesaid estoppel certificate within said
time period shall be deemed a default under Section 16 subject to notice and an
opportunity to cure or correct such default as provided in Section 16(a)(ii),
except that the time period for cure or correction shall be limited to three (3)
business days after Tenant's receipt of Landlord's notice of default.
(b) If Tenant in connection with any proposed assignment,
subletting, financing or other similar transaction desires an estoppel
certificate from Landlord, Landlord shall upon not less than ten (10) days (or
five (5) business days if the entity issuing the estoppel certificate is issuing
it unconditionally) prior written request by Tenant, complete, execute and
deliver to Tenant or Tenant's designee a written estoppel certificate certifying
(i) that this lease is unmodified and in full force and effect (or if there have
been modifications, that the lease as modified is in full force and effect and
identifying the modifications); (ii) the date upon which Tenant began paying
Rent and the dates to which the Rent and other charges have been paid; (iii)
that to the best of Landlord's knowledge the Tenant is not in default under any
provision of this lease, or, if in default, the nature thereof in detail; (iv)
that the Premises have been completed in accordance with the terms hereof and
Tenant is in occupancy and paying Rent on a current basis and that Landlord has
no unsatisfied claims against Tenant (or if such is not the case, a statement as
to the status of the Premises and/or Landlord's claims); (v) that there has been
no prepayment of Rent other than that provided for in the lease; (vi) that there
are no actions, whether voluntary or otherwise, pending against Landlord under
the Bankruptcy Code or the bankruptcy laws of any state; and (vii) such other
matters as may be reasonably required by the Tenant or its designee, including,
without limitation, any other information concerning the status of this lease or
other parties' performance hereunder reasonably requested by the party to whom
such estoppel certificate is to be addressed. Landlord's failure to complete,
execute and deliver the aforesaid estoppel certificate within said time period
shall be deemed a default under Section 29 subject to notice and an opportunity
to cure such default as provided in Section 29 except that the time period for
cure shall be three (3) business days after Landlord's receipt of Tenant's
notice of default.
22. Authority. Tenant (a) represents and warrants that this lease has been duly
authorized, executed and delivered by and on behalf of Tenant and constitutes
the valid and binding agreement of Tenant in accordance with the terms hereof
and (b) if Landlord so requests, shall deliver to Landlord, concurrently with
the delivery of this lease executed by Tenant, certified resolutions of the
board of directors of Tenant authorizing Tenant's execution and delivery of this
lease and the performance of Tenants obligations hereunder. Landlord represents
and warrants that all of the persons who are general or managing partners in
said partnership have executed this lease on behalf of Tenant, or that this
lease has been executed and delivered pursuant to and in conformity with
-47-
<PAGE> 56
a valid and effective authorization therefor by all of the general or managing
partners of such partnership and is and constitutes the valid and binding
agreement of the partnership in accordance with the terms hereof.
23. Real Estate Brokers. Tenant represents and warrants that Tenant has directly
dealt with and only with Equis Corporation ("Equis") (whose commission, if any,
shall be paid by Landlord pursuant to separate agreement dated November 28,
1988, as amended by agreements dated May 5, 1989 and June 30, 1989) as broker in
connection with this lease and agrees to indemnify and hold Landlord, and the
Building Manager and leasing agent of the Real Property harmless from all
claims, losses, liabilities, damages, liens, costs and expenses including
without limitation reasonable attorneys' fees, arising from any claims or
demands of any other broker or brokers or finders or Equis other than pursuant
to the aforesaid brokerage agreement for any commission due or alleged to be due
such other broker or brokers or finders or Equis other than pursuant to the
aforesaid brokerage agreement claiming to have dealt with Tenant in connection
with this lease or with whom Tenant hereafter deals or whom Tenant hereafter
employs.
Landlord represents to Tenant that Landlord has not dealt with any broker
other than Equis in negotiating this lease and agrees to indemnify and hold
Tenant harmless from and against any and all claims, losses, liabilities,
damages, liens, costs and expenses, including, without limitation, reasonable
attorneys' fees arising from any claims or demands of Equis arising pursuant to
the aforesaid brokerage agreement or any other broker or brokers or finders for
any commission due or alleged to be due Equis arising pursuant to the aforesaid
brokerage agreement or such other broker or brokers or finders claiming to have
dealt with Landlord in connection with this lease or with whom Landlord
hereafter deals or whom Landlord hereafter employs. The failure of Landlord to
pay Equis any amounts due Equis from time to time pursuant to the aforesaid
brokerage agreement between Landlord and Equis shall constitute a Landlord
default under Section 29 hereof, subject to the notice and cure periods
contained in Section 29.
24. Notices. All notices, requests, demands, or other communications to or upon
Landlord or Tenant desired or required to be given under any of the provisions
hereof shall be in writing. Any notices or demands from Landlord to Tenant shall
be deemed to have been given if a copy thereof has been personally delivered to
Tenant (including without limitation delivery by facsimile transmission,
messenger or courier, with evidence of receipt) or mailed by United States
registered or certified mail addressed to Tenant prior to the Low-Rise
Commencement Date at 111 West Washington Street, Chicago, Illinois 60603, to the
attention of both the General Counsel and the Senior Vice president-Real
Estate Administration, and after the Low-Rise Commencement Date at the
Premises. Any notices or demands from Landlord to Tenant may be signed by
Landlord, its beneficiary, the managing agent of the Building (the "Building
Manager") or any agent of any of them. After the Low-Rise Commencement Date if
Tenant is a corporation and is not in occupancy of the Premises, any notices or
demands from Landlord to Tenant shall also be deemed to have been given if a
copy thereof is mailed by registered or certified mail to Tenants registered
agent in Illinois. Any notices or demands
-48-
<PAGE> 57
from Tenant to Landlord shall be deemed to have been given if a copy thereof has
been personally delivered to Landlord (including without limitation delivery by
facsimile transmission, messenger or courier, with evidence of receipt) at
Landlord's address for payment of Rent or mailed by registered or certified mail
return receipt requested at Landlord's address for payment of rent, with a copy
to the Building Manager who shall initially be The Linpro Company whose address
is 55 West Wacker Drive, Chicago, Illinois or such other corporation,
partnership or other entity selected by Landlord, in its sole discretion, as the
manager for the Building. Either party may, upon notice to the other, change its
address for receipt of notices or demands. All notices to or demands upon
Landlord or Tenant mailed by registered or certified mail shall be deemed served
at the time the same were posted.
25. Miscellaneous.
(a) Each provision of this lease shall extend to and shall bind and
inure to the benefit not only of Landlord and Tenant, but also their respective
heirs, legal representatives, successors and assigns, but this provision shall
not operate to permit any assignment, subletting, mortgage, lien, charge, or
other transfer or encumbrance contrary to the provisions of this lease.
(b) No modification, waiver or amendment of this lease or any of its
conditions or provisions shall be binding upon Landlord or Tenant unless in
writing signed by the party against whom such modification, waiver or amendment
is asserted.
(c) Submission of this instrument for examination shall not
constitute a reservation of or option for the Premises or in any manner bind
Landlord, and no lease or obligation of Landlord shall arise until this
instrument is signed and delivered by Landlord and Tenant.
(d) Clauses, plats, exhibits, attachments and riders, if any,
affixed to this lease are made an integral part hereof.
(e) The headings of Sections are for convenience only and do not
limit or expand, or affect the interpretation of, the contents of the Sections.
(f) Time is of the essence of this lease and of each and all
provisions hereof.
(g) All amounts (including, without limitation, Base Rent and
Additional Rent) owed by Tenant to Landlord or by Landlord to Tenant pursuant to
any provision of this lease shall not be deemed a loan but shall bear interest
from the date due in the case of Base Rent and Additional Rent, and in the case
of other amounts, seven days from the date due, until paid at the annual rate
equal to the rate of interest announced from time to time by The First National
Bank of Chicago at Chicago, Illinois, or any successor thereto, as its corporate
base rate (the "Prime Rate"), changing as and when said corporate base rate
changes plus two percent (2%) per annum (the "Prime Plus Rate"), unless a lesser
rate shall then be the maximum rate permissible by law with respect thereto, in
which event said lesser rate shall be charged. Notwithstanding the foregoing, if
Tenant is responsible for Taxes pursuant to
-49-
<PAGE> 58
Section 2(c)(i)(C) hereof, in the event Tenant fails to pay Taxes in accordance
with said Section 2(c)(i)(C) the amount of Taxes owed pursuant to said Section
shall bear interest from the date due until paid at the penalty rate then
charged by the Cook County Assessor's Office.
(h) The invalidity of any provision of this lease shall not impair
or affect in any manner the validity, enforceability or effect of any other
provision of this lease.
(i) All understandings and agreements, oral or written, including
that certain 38-page letter of intent dated December 22, 1988, heretofore made
between the parties hereto and any of their agents with respect to a lease at
the Building are merged in this lease, which alone fully and completely
expresses the agreement between Landlord and Tenant.
(j) Any rights, reserved or granted to Landlord hereunder may be
exercised by Landlord, its beneficiaries (if Landlord is a land trust) or the
Building Manager or their respective agents, employees, contractors or
designees.
26. Quiet Enjoyment. The Landlord covenants and agrees that Tenant, on paying
the Rent, charges for services and other payments herein reserved, and, on
keeping, observing and performing all the other terms, covenants, conditions,
provisions and agreements herein contained on the part of Tenant to be kept,
observed and performed, shall, during the Term, peaceably and quietly have, hold
and enjoy the Premises subject to the terms, covenants, conditions, provisions
and agreements contained herein. Without limiting the generality of the
foregoing, the Landlord shall during the Term of the lease regularly and timely
pay all payments of principal and interest and other obligations of the Landlord
under any mortgage, trust deed or ground lease (if Tenant's right to possession
of the Premises would be disturbed, or Tenant's rights under Section 47 would be
adversely affected, by foreclosure of the mortgage or trust deed or termination
of the ground lease), any Taxes (except as may be contested pursuant to the
terms hereof and of any mortgage or trust deed), and any amounts due mechanics
or materialmen performing any work on behalf of Landlord in or about the
Building which would have priority over Tenant's right to possession of the
premises (except any which are in good faith contested by Landlord as allowed by
the terms of any mortgage or trust deed).
27. Building Directory. Landlord will provide for three computerized Building
directories, two to be located in the Building lobby and one to be located in
the rotunda. Landlord covenants to maintain such directories and to keep them
operational throughout the Term. During the Term, Landlord will list the names
of Tenant and all of Tenant's departments and divisions, and individual officers
and managers who are working in the Premises in such directories at no cost to
Tenant. Landlord shall make such subsequent additions, deletions and changes in
the names of Tenant, Tenant's departments and divisions and individual officers
and managers as Tenant requests from time to time in and to the initial listing
after the Low-Rise Commencement Date at no cost to Tenant.
28. Good Faith and Reasonableness. Tenant and Landlord acknowledge their duty to
exercise their rights and remedies,
-50-
<PAGE> 59
and perform their obligations, reasonably and in good faith. Wherever a party's
consent or approval is required, such consent or approval shall not be
unreasonably withheld, denied or delayed. Whenever the provisions of this lease
allow the Landlord or the Tenant to perform or not perform some act at its
option, in its judgment, or to its satisfaction, the decision of the Landlord
and Tenant to perform or not perform such act shall be reasonable.
29. Landlord's Default and Tenant's Remedies. In the event of the Landlord's
default under any covenant, term or provision of this lease, other than those
which are the subject of Sections 50 and 51 of this lease, subject to Tenant's
compliance with the provisions of Section 18 the Tenant shall have, and may
exercise, the following rights and remedies in addition to (and without limiting
or being limited by) any other rights and remedies as provided in this lease, or
as otherwise afforded at law or in equity, all such rights and remedies to be
distinct, separate and cumulative, and the exercise or assertion of any of them
not to operate to preclude the simultaneous, or subsequent exercise, or to
deprive the Tenant, of any right or remedy:
(a) Termination of Lease. The Tenant may terminate this lease by
delivering to the Landlord written notice thereof in the event the
Landlord fails to observe or perform any material covenant, agreement,
condition or provision of this lease if such failure shall continue, after
receipt by the Landlord of written notice from the Tenant specifying such
failure, for a period of thirty (30) days, unless such failure requires
work to be performed, acts to be done, or conditions to be removed which,
by their nature, cannot reasonably be performed, done or removed, as the
case may be, within such period, in which event, if the Landlord shall
have commenced curing or correcting the same within such period, and shall
have diligently and continuously prosecuted such cure or correction to
completion, and shall, at Tenant's request, have provided the Tenant with
weekly written reports of the status of such cure, then such rights of
termination shall be extinguished as to such failure.
(b) Damages. The Tenant may recover from the Landlord as damages any
loss, cost or expense of any kind or nature at any time suffered or
incurred by any of them on account of the failure by the Landlord to
observe and abide by any covenants, agreements, provisions or conditions
of this lease for a period of thirty (30) days after written notice therof
from Tenant (except that if such default cannot be cured within said
30-day period, this period shall be extended for a reasonable additional
time, provided that Landlord commences to cure such default within the
30-day period and proceeds diligently thereafter to effect such cure and
provides Tenant, at Tenant's request, with weekly written reports of the
status of such cure). As to any such damages, whether suffered or incurred
before or after (or on account of) any termination of this lease, such
right to recovery shall survive such termination.
(c) Offset for Non-Performance. In case the Landlord shall fail or
neglect to keep and perform any of the covenants or agreements in this
lease contained on the part
-51-
<PAGE> 60
of the Landlord to be kept and performed, and if said default shall
continue for thirty (30) days (or such longer period as may reasonably be
required to perform such covenant provided Landlord promptly commences and
diligently pursues performance or such shorter reasonable period if
emergency repairs, maintenance, restorations, renewals or alterations are
required and Landlord shall have provided Tenant with weekly written
reports of the status of such cure) after written notice to Landlord to
cure the specific default, then, in such event, the Tenant, in addition to
all other remedies provided hereunder, may at its election, (i) compel
Landlord's performance or prevent breach of any of the covenants or
agreements to be kept or performed by Landlord by appropriate legal
proceedings; or (ii) in the case of a covenant, an agreement or work which
is material to Tenant's occupancy of the Premises, give to Landlord an
additional notice stating that Tenant intends to pursue its remedies under
this Section 29(c)(ii) and then, ten (10) days after the giving of such
notice, perform such covenant, agreement or work for or on behalf of the
Landlord or make good any such default and any reasonable amount or
amounts which the Tenant shall advance on that behalf, shall be repaid by
the Landlord to the Tenant within ten (10) days after demand by Tenant,
together with interest thereon at the Prime Plus Rate from the date of
such advance to the repayment thereof in full; and if the Landlord shall
not repay any such amount or amounts within ten (10) days after demand by
Tenant, the Tenant may, without forfeiture of its Term herein, withhold or
deduct the same, together with interest thereon as aforesaid, from the
next installment or installments of Base Rent and Additional Rent
thereafter to become due to Landlord under this lease until the amount so
advanced and interest thereon is fully recovered. Nothing herein contained
shall preclude the Tenant from proceeding by other means to collect the
amount so paid by it as aforesaid without waiting for rental offsets to
accrue. In the event Tenant elects to perform such covenant, agreement or
work for or on behalf of Landlord or make good any such default Tenant
shall use reasonable efforts not to cause an additional default under the
First Mortgage or adversely affect other tenants' occupancy of the
Building. In addition, before Tenant performs any work involving the
structure or systems of the Building, Tenant will notify Landlord and
Landlord shall have three (3) business days thereafter in which to submit
to Tenant the name of a contractor that is acceptable to Landlord to
perform such work, and provided such contractor is able and willing to
perform such work on a timely basis, Tenant shall use such contractor to
perform such work.
30. Title and Covenant Against Liens. Landlord's title is and always shall be
paramount to the title of Tenant, and nothing in this Lease contained shall
empower Tenant to do any act which can, shall or may encumber the title of
Landlord. Tenant covenants and agrees not to suffer or permit any lien of
mechanics or materialmen to be placed upon or against the Premises, the
Building, the Land or against the Tenant's leasehold interest in the Premises
and, in case of any such lien attaching, (i) to immediately pay and remove same,
or (ii) to contest such lien in good faith and to cause Landlord's title insurer
(if Tenant or a company affiliated with Tenant is such title insurer, then such
title insurer shall act as a
-52-
<PAGE> 61
fiduciary and apply underwriting standards similar to those which would be
applied in other similar situations, but where the title insurer is an
independent third party) to insure over such lien or deliver an indemnity bond
in favor of Landlord or such other persons as Landlord shall designate in an
amount reasonably requested by Landlord or deliver such other security or
indemnity as Landlord may reasonably require. In the case of (ii) above, Tenant
shall regularly advise Landlord as to the status of such lien claim and shall in
any event cause such lien to be released prior to foreclosure thereof. Tenant
has no authority or power to cause or permit any lien or encumbrance of any kind
whatsoever, whether created by act of Tenant, operation of law or otherwise, to
attach to or be placed upon the Premises, the Building or the Land, and any and
all liens and encumbrances created by Tenant shall attach only to Tenant's
interest in the Premises. If any such liens so attach and Tenant fails to
fulfill the requirements of (i) or (ii) above, then Landlord, at its election,
may pay and satisfy the same, and in such event the sums so paid by Landlord,
with interest from the date of payment at the Prime Plus Rate shall be deemed to
be additional rent due and payable by Tenant immediately upon written notice
from Landlord.
31. Secured Area.
(a) Notwithstanding anything contained in this lease to the
contrary, Tenant may, if Tenant complies with Section 31(b) below, provide its
own locks to areas within the Premises (individually a "Secured Area" and
collectively the "Secured Areas"). Tenant need not furnish Landlord with keys to
the Secured Areas, but at the termination of the Term, Tenant shall surrender
all such keys to Landlord. If Landlord reasonably determines that an emergency
or other situation exists in the Building or the Premises, including without
limitation, a fire or flood, requiring Landlord to gain access to a Secured
Area, then Landlord may forcibly enter such Secured Area. In such event,
Landlord shall have no liability whatsoever to Tenant to repair or reconstruct
any entrance, corridor or other door or other portions of the Premises or the
Secured Area damaged as a result of the forcible entry by Landlord.
Notwithstanding the foregoing, Landlord shall make a reasonable effort to
contact Tenant or its representative to secure access to such Secured Area prior
to a forcible entry. Landlord shall have no obligation to provide janitorial,
maintenance or any other services to any of the Secured Areas if Landlord must
have access to the Secured Area to perform such service.
(b) Tenant may designate an area of the Premises as a Secured Area
by giving ten (10) days prior written notice to Landlord showing the Secured
Area and the name of a representative of Tenant to be contacted and the manner
of contact to avoid a forcible entry as described in Section 31(a) above. Tenant
may revoke its designation of an area of the Premises as a Secured Area by
giving ten (10) days prior written notice to Landlord and delivering to Landlord
copies of the keys to the locks restricting access to such area, whereupon
Landlord will again be obligated to provide janitorial service to such area.
32. Bankruptcy or Insolvency.
(a) Neither Tenant's interest in this lease nor any estate hereby
created in Tenant shall pass to any trustee
-53-
<PAGE> 62
[except as may specifically be provided pursuant to the provisions of the
bankruptcy laws promulgated by the United States government, currently codified
in the Bankruptcy Code, 11 U.S.C. 101 et seq. as amended from time to time (the
"Bankruptcy Code")] or receiver or assignee for the benefit of creditors or
otherwise by operation of law.
(b) In the event the interest or estate created in Tenant hereby
shall be taken in execution or by other process of law, or its executors,
administrators, or assigns, if any, shall be adjudicated insolvent pursuant to
the provisions of any state law or an order of relief is entered pursuant to the
Bankruptcy Code or if Tenant is adjudicated insolvent or admits in writing its
inability to pay its debts as they mature, or if a receiver or trustee of some
or all of the property of Tenant shall be appointed by reason of insolvency or
inability to pay its debts, or if any assignment shall be made of the property
of Tenant for the benefit of creditors, excepting an assignment by a trustee
pursuant to the provisions of the Bankruptcy Code then such event shall be
deemed a Default under this lease. For purposes hereof, the term "insolvent" or
"insolvency" shall mean that the fair market value of all of the assets of the
Tenant are less than all of the liabilities (including contingent liabilities)
of the Tenant.
(c) Tenant shall not cause the appointment of a trustee or receiver
of the assets of Tenant and shall not make any assignment for the benefit of
creditors or become or be adjudicated insolvent. The allowance of any petition
under any insolvency law, except under the Bankruptcy Code, or the appointment
of a trustee or receiver of Tenant shall be conclusive evidence that Tenant
allowed such petition or caused such appointment, unless such allowance of the
petition, or the appointment of a trustee or receiver, is vacated within the
earlier of the permissible time period under the law for seeking to vacate the
allowance or appointment or ninety (90) days after such allowance or
appointment.
(d) Upon the filing of a petition by or against Tenant under the
Bankruptcy Code, Tenant, as debtor and as debtor in possession, and any trustee
who may be appointed agree that Tenant or the trustee shall determine within a
reasonable time set by the court whether to assume or reject this lease and
adequately protect Landlord.
(e) No breach of this lease by Tenant, either prior to or subsequent
to the filing of a petition under the Bankruptcy Code, shall be deemed to have
been waived unless expressly done so in writing by Landlord.
(f) Notwithstanding anything in this lease to the contrary, all
documents payable by Tenant to or on behalf of Landlord under this lease,
whether or not expressly denominated as rent, shall constitute rent for the
purposes of the Bankruptcy Code.
(g) Any payment received from Tenant may be applied by Landlord at
any time against any obligation due and owing by Tenant under this lease,
notwithstanding any statement appearing on or referred to in any remittance from
Tenant or any prior application of such payment. If a petition under the
Bankruptcy Code is initiated within ninety (90) days after receipt by Landlord
of any payment from Tenant, the payment shall be applicable to any unpaid
obligations then due in the inverse order of their maturity.
-54-
<PAGE> 63
33. Environmental Matters. Landlord represents, warrants, covenants and agrees
with the Tenant that:
(a) (i) the Land and Building (when constructed) are not and will
not be the subject of any liens, actions or proceedings relating to Hazardous
Substances (as hereinafter defined) or Environmental Laws (as hereinafter
defined) and the Landlord is not a party to any such action or proceeding and
the Landlord has received no notice of any such lien, action or proceeding that
is pending or threatened. Landlord shall notify Tenant of any subsequent lien,
action or proceeding which may hereafter be pending or threatened.
(ii) to Landlord's knowledge
(A) no Hazardous Substances are or have been located, stored
or disposed on or released or discharged from (including
groundwater contamination) the Land in violation of Environmental
Laws, except that PCB transformers were once located on the Land
and have been removed; no PCBs contaminated the groundwater or soil
and the removal of such transformers was performed by Commonwealth
Edison Company; fuel tanks are located in the buildings currently
located on the Land and will be removed during the demolition of
those buildings;
(B) the Land and Building (when constructed) and its use and
operation currently comply with and will comply with all federal,
state and local requirements relating to the protection of health
and with all Environmental Laws, and all necessary permits have
been obtained under Environmental Laws;
(C) there is not past or ongoing leakage or spillage of
Hazardous Substances from fuel tanks located in or below the lower
levels of the Building or any migration of Hazardous Substances
onto the Land from neighboring property, in violation of
Environmental Laws.
(iii) The shell and core of the Building and the Premises (other
than in the Tenant Improvements) as of the date Tenant takes possession will not
contain any Hazardous Substances in violation of Environmental Laws and further,
that in the event any Hazardous Substance is found in the shell and core of the
Building or the Premises in violation of Environmental Laws (other than in the
Tenant Improvements) Landlord shall remove the same at its sole cost and
expense. In addition, without limitation of the foregoing, Landlord shall, at
no cost or expense to the Tenant as Expenses or otherwise, take all actions
necessary to comply with all Environmental Laws affecting the Land and Building,
including, without limitation, removal, containment and remedial actions
required by any Environmental Laws or any governmental agencies in the
enforcement of Environmental Laws affecting the Land and Building, and shall
indemnify Tenant from and against any and all costs, claims, expenses, damages,
liens, losses and judgments arising out of the presence of Hazardous Substances
or Landlord's failure to comply with Environmental Laws; provided, however, that
the foregoing obligations of Landlord shall not extend to Tenant Improvements
unless such condition occurs because Landlord (by Landlord's contractor)
performs the
-55-
<PAGE> 64
Tenant Work and deviates from the plans and material's theretofore approved by
Tenant's Architect, except as may otherwise be provided in any construction
contract subsequently entered into between Landlord and Tenant.
(b) (i) For purposes of this Section the term "Hazardous Substances" shall
mean the following:
(A) Any "hazardous substance" as now defined pursuant to the
Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA"), 42 U.S.C.A. ss. 9601(14) as amended by the
Superfund Amendments and Reauthorization Act ("SARA"), and
including the judicial interpretation thereof;
(B) Any "pollutant or contaminant" as defined in 42 U.S.C.A.
ss. 9601 (33);
(C) Any material now defined as "hazardous waste" pursuant to
40 C.F.R. Part 260;
(D) Any petroleum, including crude oil or any fraction
thereof;
(E) natural gas, natural gas liquids, liquefied natural gas,
or synthetic gas usable for fuel;
(F) any "hazardous chemical" as defined pursuant to 29 C.F.R.
Part 1910; and
(G) any other substance subject to regulation as a hazardous
or toxic substance under Environmental Laws.
(ii) For purposes of this Section the term "Environmental Laws"
shall mean and include all federal, state and local statutes, ordinances,
regulations and rules presently in force or hereafter enacted relating to
environmental quality, contamination and clean-up, including, without
limitation, the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. A. ss. 9601 et seq., as amended by the Superfund Amendments and
Reauthorization Act of 1986, the Resource Conservation and Recovery Act of 1976,
42 U.S.C. ss. 6901 et seq., as amended by the Hazardous and Solid Waste
Amendments of 1984, and the Environmental Protection Act of Illinois, Ill. Rev.
Stat. ch. 111 1/2, ss. 1001 et seq., as amended, and state superlien and
environmental clean-up statutes and all rules and regulations presently or
hereafter promulgated under said statutes as amended. The term "knowledge" does
not require any separate investigation for purposes of making the representation
and warranty in this Section 33 and does not impute any knowledge of tenants or
former owners of the Land or improvements located thereon.
34. Exculpatory Provisions.
(a) It is expressly understood and agreed by and between the parties
hereto, as to any Landlord which is a land trust, anything herein to the
contrary notwithstanding: that each and all of the representations, warranties,
covenants, undertakings and agreements herein made on the part of any Landlord
while in form purporting to be the represenations, warranties, covenants,
undertakings and agreements of such
-56-
<PAGE> 65
Landlord are nevertheless each and every one of them made and intended, not as
personal representations, warranties, covenants, undertakings and agreements by
such Landlord, or for the purpose or with the intention of binding such Landlord
personally, but are made and intended for the purpose only of subjecting such
Landlord's interest in the Premises, the Building and the Land to the terms of
this lease and for no other purpose whatsoever, and in case of default hereunder
by such Landlord (or default through, under or by any of its beneficiaries, or
any of the agents or representatives of said beneficiaries), Tenant shall look
solely to the interest of such Landlord in the Premises, the Building and the
Land; that this lease is executed and delivered by Landlord not in its own
right, but solely in the exercise of the powers conferred upon it as such
Trustee; that no Landlord which is a land trust or any of its beneficiaries
shall have any personal liability to pay any indebtedness accruing hereunder or
to perform any covenant, either express or implied, herein contained and no
liability or duty shall rest upon any Landlord which is a land trust to
sequester the trust estate or the rents, issues and profits arising therefrom,
or the proceeds arising from any sale or other disposition thereof; that no
personal liability or personal responsibility of any sort is assumed by, nor
shall at any time be asserted or enforceable against any trustee of any land
trust owning the Building or the Land who is or becomes Landlord individually or
personally, or against any of its beneficiaries or any of the beneficiaries
under any land trust which is or may become the owner of the Building or Land,
on account of this lese or on account of any representation, warranty, covenant,
undertaking or agreement of Landlord in this lease contained, either express or
implied, all such personal liability, if any, being expressly waived and
released by Tenant and by all persons claiming by, through or under Tenant;
provided, however, that nothing contained in this Section 34 shall be construed
to limit or impair the ability of Tenant to realize upon and collect under the
Personal Guaranty described in Section 55.
(b) It is expressly understood and agreed between the parties
thereto, as to any Landlord which is a partnership, anything to the contrary
notwithstanding: that, except as otherwise expressly provided in the Personal
Guaranty, no partners of any partnership which is a Landlord shall have any
personal liability arising out of or in connection with this lease or any
instruments or documents executed by Landlord relating to this lease. Tenant
hereby acknowledges and agrees that the liability of a partnership which is a
Landlord (other than under the Personal Guaranty) shall be limited to and
enforceable solely against the interest of such partnership in and to the Land
and the Building and not the other assets of such partnership. The assets and
property of a partnership which is a Landlord shall not include a deficit
capital account of any partner or any obligation of a partner to make
contributions to such partnership.
(c) It is expressly understood and agreed between the parties
hereto, as to any Landlord which is a corporation, anything to the contrary
notwithstanding: that no directors, officers, employees or shareholders of any
corporation which is a Landlord shall have any personal liability arising out of
or in connection with this lease or any instruments or documents executed by
Landlord relating to this lease. Tenant hereby acknowledges and agrees that the
liability of a corporation
-57-
<PAGE> 66
which is a Landlord (other than under the Personal Guaranty described in Section
55) shall be limited to and enforceable solely against the interest of such
corporation in and to the Land and the Building and not the other assets of such
corporation.
35. Scheduled Commencement Date. The Term shall commence on the Low-Rise
Commencement Date. The "Low-Rise Commencement Date" will be the latest of the
following dates: (i) the date which is thirty-four (34) weeks after the Low-Rise
Access Date (hereinafter defined), as may be extended as provided in Section
50(d); (ii) the Gate of Substantial Completion of the low-rise portion of the
Building; and (iii) thirty (30) days after the date on which the low-rise
portion of the Building (not including Tenant Improvements or other work to be
performed by or desired by Tenant) is sufficiently completed to allow Tenant's
furniture move-in and installation of telephone, communications systems and
security system) ("Beneficial Occupancy"). Within thirty (30) days after the
request of Landlord and after the Low-Rise Commencement Date is determinable,
Landlord and Tenant shall enter into a written supplement to this lease, in
recordable form, specifying the Low-Rise Commencement Date and such other dates
that are determined with reference to the Low-Rise Commencement Date. The
Low-Rise Commencement Date is sometimes herein referred to as the "Commencement
Date."
The "Low-Rise Access Date" will be deemed to have occurred when the
Access Date Specifications attached hereto as Attachment 2 have been satisfied
with respect to low-rise space in the Initial Premises.
The "High-Rise Access Date" will be deemed to have occurred when the
Access Date Specifications attached to this lease as Attachment 2 have been
satisfied with respect to the Top Floor. The "High-Rise Commencement Date" will
be the latest of the following dates: (i) the date which is twenty (20) weeks
after the High-Rise Access Date; (ii) the date of Substantial Completion of the
high-rise portion of the Building; and (iii) thirty (30) days after the date on
which the high-rise portion of the Building has been sufficiently completed to
allow Beneficial Occupancy. Within thirty (30) days after the request of
Landlord and after the High-Rise Access Date is determinable, Landlord and
Tenant shall enter into a written supplement to this lease, specifying the
High-Rise Access Date and such other dates that are determined with reference
to the High-Rise Access Date.
"Substantial Completion" of the low-rise portion of the Building shall be
deemed to occur on the date the latest of the following to occur has occurred:
(a) A certificate of occupancy for that portion of the Building on
which the low-rise and vault space of the Premises are located (exclusive of
tenant improvements) has been issued by the department of the City of Chicago
which issues such certificate (or if not Issued as standard practice, then all
items [other than tenant improvements] of construction of the Building have
been sufficiently completed to permit legal occupancy of the portion of the
Building containing the low-rise and vault portions of the Premises, as
evidenced by statements from Landlord and its architect stating that such
portion of the Building is built in accordance with Sections
-58-
<PAGE> 67
62(a),(b),(c) and (e) and substantially completed (in accordance with those
plans and specifications upon which governmental permits were issued) and
Landlord's statement that the Department of Inspectional Services and the Fire
Department of the City of Chicago have performed their review and such review
did not disclose any major items of work left to be done which would prevent
legal occupancy);
(b) The base building mechanical systems serving the low-rise and
vault portions of the Premises are operational, as evidenced by a statement from
Landlord's architect and engineer that such systems are substantially complete
and operational and have been tested;
(c) The ground floor lobby has been sufficiently completed to permit
Tenant access from main lobby areas and the rotunda to elevators and escalators
serving the low-rise and vault portions of the Premises (but workmen and
materials may be present in the lobby and there may be ongoing work; temporary
barriers and scaffolding will be allowed if they can be relocated, if required).
Ground level barricades at Clark Street and Randolph Streets outside the
Building shall have been removed.
"Substantial Completion" of the Top Floor shall be deemed to occur on the
date the latest of the following to occur has occurred:
(a) A certificate of occupancy for the Top Floor (exclusive of
tenant improvements) has been issued by the department of the City of Chicago
which issues such certificate (or if not issued as standard practice, then all
items [other than tenant improvements] of construction of the Building have been
sufficiently completed to permit legal occupancy of the Top Floor, as evidenced
by statements from Landlord and its architect stating that such portion of the
Building is built in accordance with Section 62 and substantially complete (in
accordance with those plans and specifications upon which governmental permits
were issued) and Landlord's statement that the Department of Inspection Services
and Fire Department of the City of Chicago have performed their review and such
review did not disclose any major items of work left to be done which would
prevent legal occupancy);
(b) Base building mechanical systems serving the Top Floor are
operational, as evidenced by a statement from Landlord's architect and engineer
that such systems are substantially complete and operational and have been
tested.
If, for reasons other than Tenant Delay (as defined in the definition of
Force Majeure in Attachment 15), the Low-Rise Commencement Date would fall
within a month other than a February or an October, then to accommodate Tenant's
scheduling and move-in requirements, Tenant may extend the Low-Rise
Commencement Date to the next February 1, if it would otherwise have fallen
within the period from November to January, or to the next October 1, if it
would otherwise have fallen within the period from March to September; provided
that such date may not be extended beyond October 1, 1993 without the
Landlord's consent. If Tenant does take partial occupancy between a February and
the next October, or between October and the next February, which it may do if
Substantial Completion of the low-rise portion of the Building has occurred, the
Low-Rise
-59-
<PAGE> 68
Rent Commencement Date will occur thirty (30) days after the date of Tenant's
occupancy, subject to the provisions of Section 38.
The Landlord shall initially determine the date on which the tests set
forth in clauses (b) and (c) above relating to Substantial Completion of the
low-rise portion of the Building and in clause (b) above relating to substantial
completion of the high-rise portion of the Building have been met and shall
notify Tenant in writing no later than three (3) business days after such date.
Tenant shall then have five (5) business days in which to send written notice to
Landlord disagreeing with Landlord's determination of such date and stating the
reasons Tenant so disagrees. If Landlord and Tenant do not agree on such date
within three (3) business days of the date of Tenant's notice to Landlord, then
the Architect and the Tenant shall each individually set forth in writing the
basis of their disagreement within ten (10) days and such matter shall be
determined by arbitration in accordance with the provisions of Section 65
hereof.
36. Option to Extend.
(a) Provided that this lease is then in full force and effect and
Tenant is not in Default, Landlord hereby grants to the Tenant an option to
extend the Term of this lease (but as to Lobby Space, only if elected under
Section 36(e)) on the same terms, conditions and provisions as contained in this
lease, except as otherwise provided herein, for three (3) successive periods
(each such period called an "Option period") of five (5) years each. The First
Option Period will commence on the date after the expiration of the Initial
Term, and each successive Option Period will commence upon expiration of the
prior Option Period.
(b) Landlord shall deliver written notice to Tenant of Landlord's
determination of the Market Rental Rate for an Option Period no later than
twenty-four (24) months prior to the commencement of such Option Period. Tenant
may, no earlier than thirty-six (36) months nor later than twenty-five (25)
months prior to the expiration of the Initial Term or the Option period, as
applicable, request in writing that Landlord advise Tenant in writing of
Landlord's determination of the Market Rental Rate for multiple successive
Option Periods, in which case Landlord shall deliver such rates in accordance
with the provisions of the immediately prior sentence. In the event there is any
disagreement over the Market Rental Rate such disagreement shall, at Tenant's
election, be resolved in accordance with the provisions of Section 61(b) hereof.
(c) Tenant's option to extend shall be exercisable by Tenant's
written notice of Tenant's election to exercise given to Landlord no later than
eighteen (18) months prior to the expiration of the initial Term or the Option
Period which precedes the Option period for which the option is being exercised;
it being understood and agreed that if Landlord quotes to Tenant the Market
Rental Rate, Tenant need not exercise the option. If not so exercised, Tenant's
option for such Option Period under this Section 36 shall thereupon expire.
Tenant shall have the right to exercise its right to extend the term for more
than one (1) Option Period by delivering written notice of Tenant's election to
exercise more than one (1) Option Period no later than eighteen (18) months
-60-
<PAGE> 69
prior to the expiration of the initial Term or the Option Period, whichever
immediately precedes the Option period(s) for which the option is being
exercised. Tenant's notice of exercise once given is irrevocable.
(d) Rent per square foot of Rentable Area of the Initial Office
Premises payable during the Option Period with respect to the Initial Office
Premises shall be equal to eighty-five percent (85%) of the Market Rental Rate.
Rent per square foot of the Rentable Area of the remainder of the premises
(except Vault Space) payable during the Option Period shall be at the Market
Rental Rate. Base Rent per square foot of Rentable Area of Original Vault Space
and Additional Vault Space (as hereinafter defined) during the first Lease Year
of the Option Period shall increase over Base Rent for such space payable during
the initial Term by a percentage equal to the percentage increase in Base Rent
for low-rise office space from a Base Rent of Twenty-Two and 50/100 Dollars
($22.50) to the Base Rent for Lease Year twenty-one (21), subject to further
increases in each Lease Year thereafter corresponding (on a percentage basis)
with subsequent increases in Base Rent for low-rise office space. No Additional
Rent shall be payable with respect to Original Vault Space and Additional Vault
Space.
(e) Provided that Tenant (and/or any of its Affiliates) is then
occupying at least one hundred thousand (100,000) square feet of Rentable Area,
Tenant may, but shall not be obligated to, extend the Term of this lease for the
Lobby Space for the same period, in the same manner and at the same time that
Tenant is extending the Term of this lease for the Premises. Rent for the Lobby
Space during the Option Period shall be at the Market Rental Rate (not
including those elements included in the definition of Market Rental Rate in
Section 61 which are not applicable to leasing of retail/lobby space, but also
including other elements which are used in determining rent for comparable
retail/lobby space and which are not included in the definition of Market Rental
Rate in Section 61). Any disagreement over the Market Rental Rate shall be
resolved in accordance with the provisions of Section 61(b) hereof.
(f) Upon the valid exercise by Tenant of its option to extend and
determination of the Rent for the Option Period, at the request of either party
hereto and within thirty (30) days after such request, Landlord and Tenant shall
enter into a written supplement to the lease confirming the terms, conditions
and provisions applicable to the Option Period.
37. Tenant Improvement Allowance.
(a) Landlord will grant Tenant an allowance ("Landlord's Allowance")
of Fifty Dollars ($50.00) per Rentable Square Foot of Initial premises,
including Vault Space and Lobby Space, to complete Tenant's initial improvements
to the Premises ("Tenant Improvements" or "Work"), to cover moving and
moving-related costs and architectural, consulting and engineering fees, to
purchase furniture and equipment for the Initial Premises and to pay other costs
and expenses of Tenant directly related to occupancy of or moving in to the
Initial Premises. Tenant is entitled to tenant improvement and other allowances
for Post-Occupancy Expansion Space as provided in Section 44 or First Offer
Space as provided in Section 45. In the event that Tenant contracts with an
entity other than
-61-
<PAGE> 70
Landlord for performance of Tenant Improvements, Tenant shall conform with
requirements for construction set forth in Exhibit E attached hereto. Landlord
or Landlord's designee may, at Tenant's option, have the right to submit a
proposed contract for the Tenant Improvements, but Tenant will not be obligated
to select Landlord or Landlord's designee as its contractor. Payment of
Landlord's Allowance to Tenant shall be made by Landlord only after the Low-Rise
Access Date, except as set forth in Section 37(b), as work progresses (based on
percentage completion) pursuant to a draw schedule approved in advance by
Landlord based on Tenant's presentation of invoices or lien waivers (on a 30 day
trailing waiver basis so long as Landlord and any Mortgagee are insured against
mechanic's liens through and including such 30 day period) and other
documentation customarily required for disbursement of construction loans,
including requirements of Landlord's construction lender. Tenant shall cause
Chicago Title Insurance Company to apply the same procedures and standards as
would be applied to an independent third party in the lien review procedure with
respect to Tenant Improvements despite its relationship to Tenant and shall
comply with such procedures. Notwithstanding anything herein to the contrary,
Tenant shall have no obligation whatsoever to deposit any of its own funds into
a construction escrow, if any is required by the construction lender for
disbursement of the Landlord's Allowance. Landlord's failure to timely pay any
portion of Landlord's Allowance shall constitute a Landlord default under
Section 29 hereof, subject to the notice and cure periods provided in Section
29.
(b) A portion of Landlord's Allowance will be disbursed prior to the
Low-Rise Access Date for the items shown on Attachment 18 hereto not to exceed
the total amounts shown on the schedule included in Attachment 18 for the
periods shown in the schedule ("Pre-Construction Allowance"). In no event will
Landlord be required to pay more than One Dollar ($1.00) per square foot of
Rentable Area of the Initial Premises of the Pre-Construction Allowance before
expiration or waiver of the final milestone dates in Section 52 or more than One
Million Three Hundred Fifty Thousand Dollars ($1,350,000) as a Pre-Construction
Allowance, notwithstanding the schedule in Attachment 18. Interest on any
portion of the Pre-Construction Allowance in excess of Three Dollars ($3.00) per
square foot of Rentable Area of the Initial Premises will be payable by Tenant
monthly from the date of disbursement until the earlier of the actual or Target
Low-Rise Access Date (normal schedule) (as shown on Attachment 13 hereto) at the
same interest rate as under the first mortgage loan obtained to finance the cost
of construction of the Building. Any portion of the Pre-Construction Allowance
required to be paid before the first disbursement of the construction loan for
the Building will bear interest from payment to the date of the first
disbursement under the construction loan at the Prime Rate plus one percent
(1%), changing as and when such Prime Rate changes. Such interest will be a cost
of Tenant payable out of the proceeds of the Landlord's Allowance at the date of
the first disbursement of the construction loan obtained for the construction of
the Building. Any payments of the Pre-Construction Allowance will be deemed part
payment of the Existing Tenant Vacation Termination Payment (as hereinafter
defined in Section 50) and Construction Termination Payment (as hereinafter
defined in Section 51) in the event of a lease termination under such
provisions, except as set forth in
-62-
<PAGE> 71
Section 55. At Landlord's request Tenant will verify the use and disbursement of
Landlord's Allowance for permitted purposes.
(c) As such costs and expenses are incurred, Tenant will pay
Landlord for (or Landlord may apply Landlord's Allowance toward) costs and
expenses related to Tenant Improvements such as construction utilities,
security, coordination of such tenant work with base building work, accounting
expenses, printing, telephone charges, travel expenses, floor levelness surveys.
Such costs and expenses other than the costs and expenses identified below will
be reimbursed to Landlord on a lump sum basis equal to One Hundred Thousand
Dollars ($100,000) (to be paid as work progresses based on percentage of
completion of Tenant Improvements) regardless of whether the actual costs are
higher or lower. The following costs and expenses will not be included in the
lump sum stated above and are to be reimbursed to Landlord (or Landlord may
apply Landlord's Allowance toward them) as incurred: charges for material hoist
and rubbish containers (but such charges will be similar to rates charged to
base building contractors [but not to exceed customary charges for similar
buildings in Chicago]); charges for architects and engineers reviewing Tenant's
plans and specifications or construction where Tenant's plans and specifications
or construction requires a change in the base building or systems or require a
change in plans and specifications not provided for in the specifications or
drawings attached hereto as Attachments 6, 10 and 11, such charges to be in
accordance with Landlord's contracts with its architects and engineers, without
any profit or overhead being charged Tenant by Landlord. Landlord will notify
Tenant if it is applying Landlord's Allowance toward costs and expenses in this
Section 37(c) not included in the lump sum, and Tenant will have the right to
approve the correctness of such application. If, at any time during the
construction of the Tenant Improvements, the expected cost of Tenant
Improvements (based on contracts then entered into by Tenant for the
construction of the Tenant Improvements) as certified by Tenant's Architect
("Estimated T/I Cost") exceeds the amount of the Landlord's Allowance (such
excess is herein referred to as the "Excess T/I Cost"), then Landlord and Tenant
will fund the Landlord's Allowance and the Excess T/I Cost, respectively, in
accordance with the following as construction of the Tenant Improvements
progresses: (i) Landlord will fund the Landlord's Allowance in accordance with
the terms of this lease, except that the amount to be funded at a particular
time shall, when added to amounts of Landlord's Allowance previously funded,
equal the then percentage completion of the Tenant Improvements as certified by
Tenant's Architect multiplied by the Landlord's Allowance; and (ii) upon the
funding by Landlord described in (i) above, Tenant will fund a portion of the
Excess T/I Cost in an amount which, when added to amounts previously funded by
Tenant toward the Excess I/I Cost, shall equal the then percentage completion
of the Tenant Improvements multiplied by the Excess T/I Cost. Without limitation
of the foregoing, Tenant shall pay for all costs and expenses in connection with
the Tenant Improvements in excess of Landlord's Allowance.
(d) Tenant Improvements shall not include work which Landlord is
obligated to perform under Section 62. All interior walls and demising
partitions (other than load bearing or structural walls), doors, ceiling, floor,
electric, plumbing (except for temporary fire sprinklers) and HVAC distribution
-63-
<PAGE> 72
work for the Vault Space is to be performed by Tenant as part of Tenant
Improvements; provided, however, Landlord shall provide, at Landlord's cost,
base Building electrical and HVAC risers to a point within thirty (30) feet from
the core.
(e) Subject to the provisions of Section 41 hereof, in addition to
Landlord's Allowance provided aforesaid, Landlord shall provide Tenant with a
Fifteen Thousand Dollar ($15,000) per floor lobby allowance.
(f) Notwithstanding anything herein to the contrary, Landlord shall
have no obligation to pay the last $200,000 of the allowable Landlord's
Allowance.
38. Existing Leases.
(a) Landlord hereby assumes the existing rent obligations, including
base rent and rent adjustments based on increases in taxes and expenses and
increases in rent based upon increases in the consumer price index (but no
damages or other liabilities or obligations regardless of characterization as
"rent" or "additional rent" under such leases except as provided in Section 51)
of Tenant for existing leases at 111 West Washington, Two North LaSalle Street
and 111 North Canal Street (collectively, the "Existing Leases"), for the
remainder of their terms accruing as of and after the Low-Rise Rent Commencement
Date, but in no event earlier than the date Tenant has moved into all low-rise
space in the Initial Premises and is paying Rent on all such space in the
Initial Premises (but with regard to taxes or expenses generally paid on an
accrual basis, amounts payable after such date but attributable to prior periods
will be excluded) except as provided in the following sentence; provided that
Landlord will not assume the rent for any space while Tenant is occupying such
space, subject, however, to the provisions of Section 51. If Tenant takes
partial occupancy pursuant to the next to last paragraph of Section 35, then
Landlord shall assume rent obligations for space under Existing Leases as
provided in Section 38(b) below when Tenant is paying Rent for the corresponding
amount of area occupied in the Premises.
(b) Within five (5) days prior to the date that Tenant takes
occupancy of space within the Premises pursuant to the next to last paragraph of
Section 35, Tenant shall deliver to Landlord a certificate from both Tenant and
Tenant's Space Planner certifying both the area that Tenant has vacated or is
about to vacate under the Existing Leases and the areas in the Premises which
will be occupied by the department which has vacated the space so certified.
Absent fraud or manifest error, such areas in the Premises to be occupied will
be deemed to correspond to the vacated area. Such certification shall be done on
a department by department basis as opposed to individual persons.
(c) Tenant represents that it has heretofore delivered complete and
correct copies of the Existing Leases and the 30 North Lease and that there are
no other agreements, oral or written, amending these leases or Tenant's
obligations under them. The "30 North Lease" is the lease of floors 37 and 38 to
Tenant at 30 North LaSalle Street, Chicago, Illinois. Tenant shall also furnish
to Landlord promptly after receipt by tenant copies of statements from landlords
under the Existing Leases which are furnished to Tenant as to (i) tax bills and
-64-
<PAGE> 73
assessed valuations for the buildings in which the premises leased pursuant to
the Existing Leases are located, and (ii) annual and monthly statement of rent
adjustment, additional rent, escalations, CPI increases, or other payments on
account of taxes and expenses (the amounts of which are not set forth in the
leases), which copies Tenant shall certify as having been received from such
landlords.
(d) Tenant may not increase the rent, extend the term of, or renew
any of the Existing Leases (except as permitted by Section 51), add any
additional space to the existing premises under any of the Existing Leases, or
agree to any termination payment or amend any of the Existing Leases in any way
which would have the effect of increasing Landlord's obligations or liabilities
under this Section 38 or other provisions whereby Landlord is assuming or
agreeing to pay a rent obligation of Tenant or Holdover Costs; provided,
however, if Tenant does any of the foregoing, then Landlord (as its sole remedy
as it relates to such acts by Tenant) shall not have any obligations with
respect to such Existing Lease or rent assumption or payment of Holdover Costs.
Tenant may contest payments owed under Existing Leases, but Landlord will not be
obligated to pay any costs or increases in rent as a result of such contest.
Tenant shall cooperate with Landlord in any efforts to effect an early
termination or assignment of, or a sublease under, an Existing Lease to produce
additional income to offset the cost incurred by Landlord in performing its
obligations under this Section 38, so long as Tenant's operations are not
disrupted other than on account of Tenant's own acts, and Existing Lease
obligations and liabilities are not increased. Landlord agrees not to take any
action which would put Tenant in default under the Existing Leases.
(e) The failure of Landlord to timely pay any obligation of Landlord
under this Section 38 shall constitute a Landlord default under Section 29
hereof, subject to the notice and cure periods contained in Section 29.
39. Pre-Occupancy Expansion Space. Subject to the provisions hereinafter set
forth, Landlord hereby grants to Tenant the option to lease, as of the Low-Rise
Commencement Date, on the terms and conditions hereinafter set forth, up to
eighty-four thousand (84,000) square feet of Rentable Area ("Pre-Occupancy
Expansion Space") consisting of the remainder of floor 10 not included in the
Original Office Space, all of floors 11 and 12 of the Building and space on
floor 13 to the extent necessary for the Pre-Occupancy Expansion Space to equal
84,000 square feet of Rentable Area. All space leased by Tenant as Pre-Occupancy
Expansion Space shall be contiguous to the Original Office Space (other than the
top floor) and all floors containing Pre-Occupancy Expansion Space shall be
contiguous.
(a) Tenant shall exercise its option to lease Pre-Occupancy
Expansion Space by a notice or notices (each notice called a "Pre-Occupancy
Expansion Notice") to Landlord on or before February 1, 1992. If Tenant's option
is not so exercised, said option shall thereupon terminate and Tenant shall not
have any further right to lease any portion of the Pre-Occupancy Expansion Space
pursuant to this Section.
(b) Each Pre-Occupancy Expansion Notice shall state the approximate
location and Rentable Area of Pre-Occupancy
-65-
<PAGE> 74
Expansion Space which Tenant is thereby electing to lease, which, in each case,
must be a minimum of a half floor, unless Tenant has previously leased at least
one half of that floor. Each portion of Pre-Occupancy Space leased by Tenant
shall (i) meet the contiguity requirements of this Section 39; (ii) be a minimum
of a half floor, unless Tenant has previously leased at least one-half of a
particular floor, in which case this requirement shall not apply to the
remainder of that floor; (iii) fill out one (1) entire floor before leasing part
of another, and (iv) in the case of Pre-Occupancy Space of less than a full
floor where Tenant has not previously leased the remainder of that floor, must
be in configurations reasonably acceptable to Landlord such that any remaining
space on a floor will be reasonably commercially leaseable. If Tenant would be
the only tenant on a floor and desires to lease ninety percent (90%) or more of
that floor, Tenant must also lease the remaining space so it is then leasing the
entire floor. Landlord shall give Tenant written notice of the exact location
and Rentable Area of the Pre-Occupancy Expansion Space within twenty (20) days
after Landlord receives the Pre-Occupancy Expansion Notice.
(c) If Tenant has exercised its option to lease Pre-Occupancy
Expansion Space, then, effective as of the Low-Rise Commencement Date, the
portion of the Pre-Occupancy Expansion Space leased by Tenant shall be included
in the Premises, subject to all of the terms, conditions and provisions of this
lease (including payment of Additional Rent for such space), except that:
(i) Base Rent for Pre-Occupancy Expansion Space leased
(regardless of the date or amount of space then taken) prior to February
1, 1992 shall be as follows:
A. Base Rent for the first seventy thousand (70,000)
square feet of Rentable Area shall be at the same rate of Base Rent
per square foot of Rentable Area as for the low-rise space in the
Original Office Premises and Landlord shall give to Tenant the
Landlord's Allowance of $50.00 per square foot of Rentable Area with
respect to such space; and
B. Base Rent for the next fourteen thousand (14,000)
square feet (i.e., 70,001 to 84,000 square feet) of Rentable Area
shall be at the same rate of Base Rent per square foot of Rentable
Area as for low-rise space in the Original Office Premises plus Two
Dollars ($2.00) per square foot of Rentable Area for the initial
twenty (20) year Term and Landlord shall give to Tenant the
Landlord's Allowance; and
(ii) the Rentable Area of the Premises shall be increased by the
Rentable Area of the Pre-Occupancy Expansion Space.
(d) Tenant may only exercise said option, and an exercise thereof
shall only be effective, if at the time of Tenant's exercise of said option this
lease is in full force and effect and Tenant is not in Default.
(e) If Tenant exercises its option to lease any Pre-Occupancy
Expansion Space, then within thirty (30) days
-66-
<PAGE> 75
after request by either party, Landlord and Tenant shall enter into a written
amendment to this lease confirming the terms, conditions and provisions
applicable to the Pre-Occupancy Space as determined in accordance with this
Section.
(f) In the event any portion of Pre-Occupancy Expansion Space is
leased to Tenant other than pursuant to this Section 39, such space shall be
deleted from Pre-Occupancy Expansion Space, and shall reduce the area which
Landlord is obligated to make available to Tenant and which Tenant may lease
under this Section 39.
40. Project Identification: Address.
(a) The Building will be the first phase of a two phase twin tower
development (provided, however, Landlord has no obligation to build the second
tower). The entire two-phase development (the "Entire Development") will be
named Chicago Title Center or Chicago Title and Trust Center and may also be
known as CT&T Center (or such other name recognizing Chicago Title and Trust
Company as may be mutually agreed upon). The Building (hereinafter referred to
as the "South Tower" or "Phase One") will furthermore be named the Chicago Title
Tower or Chicago Title and Trust Tower (or a similar name mutually agreed upon).
Landlord agrees to use the aforesaid names for the Building and Entire
Development (and no other names) in connection with all material facets of the
marketing, advertising and promotion of the Building and the Entire Development,
during the period that Landlord is required to identify the Building and Entire
Development by such names. Tenant shall defend and hold Landlord harmless from
and against any suit, proceeding or claim made against Landlord or damage or
loss suffered or incurred by Landlord by or as the result of any party having or
claiming to have the right, by virtue of a contractual arrangement with Tenant,
to require that Landlord not use such names as aforesaid or by the landlord
under any Existing Lease. Landlord has no obligation to use any of the
aforesaid names if prevented by injunction or other court order or decree from
using such names. The second phase of the Entire Development will be a tower
built to the north of the Building ("North Tower" or "Phase Two") which may have
a separate name (e.g., The White Company Tower at Chicago Title Center).
(b) Prior to and during the first ten (10) Lease Years, so long as
this lease has not been terminated, Landlord may, at its option, use the names
described in Section 40(a) above for identifying and marketing the Entire
Development and Building regardless of the size of the presence of Chicago Title
and Trust Company in the Building. If during such period, Chicago Title and
Trust Company changes its name, Landlord may, as its sole option: (i) continue
to use the then existing names as described in Section 40(a) above if Tenant
consents thereto, and if Tenant does not consent thereto, to change such name(s)
to a neutral name, in which case Tenant will pay all costs and expenses of
physically changing the identification of the Entire Development or the
Building, or both, but not including the costs and expenses incurred by other
tenants in the Building as a result of the change of such name(s); (ii) if
Tenant has requested that the name of the Entire Development or the Building, or
both, be changed to Tenant's new name, or if Tenant has refused pursuant to
clause (i) above to allow its old name to be used and Landlord has
-67-
<PAGE> 76
elected to use Tenant's new name, change the name(s) to such new name, in which
case Tenant will pay all costs and expenses of physically changing the
identification of the Entire Development or the Building, or both, but not
including the costs and expenses incurred by other tenants in the Building as a
result of the change of such name(s); or (iii) use a "neutral" name, in which
case Landlord and Tenant will share equally the costs and expenses of physically
changing the Building or identification of the Entire Development or the
Building, or both, but not including the costs and expenses incurred by other
tenants in the Building as a result of the change in name(s). A "neutral" name
means a name such as the address of the Building or the Entire Development or a
component of such address, or a name which does not identify a particular tenant
but possibly a location or general function such as "Chicago Commerce Center".
After the expiration of the first ten (10) Lease Years, if Chicago Title and
Trust Company changes its name and requests a change in identification of the
Building or the Entire Development, or both, Landlord may agree, at its sole
option, to such change, in which case Tenant will pay all costs and expenses of
physically changing the identification of the Entire Development or the
Building, or both, but not including the costs and expenses incurred by other
tenants in the Building as a result of the change in name(s). If Landlord does
not agree to such change, then Landlord, in any event, will use a "neutral"
name, and Landlord and Tenant will share equally the costs and expenses of
physically changing the identification of the Entire Development or the
Building, or both, but not including the costs and expenses incurred by other
tenants in the Building as a result of the change in names(s). If Tenant has not
requested a change in identification of the Entire Development or the Building,
or both, as a result of its name change, Landlord, at its sole option may keep
the existing names or use a "neutral" name; if a change to a "neutral" name is
made, Tenant will not be obligated to pay the costs and expenses of physically
changing the identification of the Entire Development or the Building, or both.
Tenant exterior identification permitted over Building entrances may bear the
name "Chicago Title and Trust Company" without the word "Tower".
(c) Landlord will create a restriction or cause the owner of the
North Tower to be bound by a covenant enforceable by Chicago Title and Trust
Company and Landlord, or either of them, restricting such owner from naming the
North Tower for a title insurance company using the word "title insurance" in
its identification or any other entity whose primary business is then title
insurance. The identification of the Entire Development delineated in Section
40(a) and the foregoing restriction on identification of the North Tower will be
required only so long as Chicago Title and Trust Company and/or its Affiliates
maintain a presence of at least one hundred fifty thousand (150,000) square feet
of Rentable Area in the Building. The identification of the South Tower
delineated in Section 40(a) will be required only so long as Chicago Title and
Trust Company and/or its Affiliates maintain a presence of at least one hundred
thousand (100,000) square feet of Rentable Area in the Building. So long as
Chicago Title and Trust, Company and/or its Affiliates maintains a presence of
at least one hundred thousand (100,000) square feet of Rentable Area in the
Building and Chicago Title and Trust Company and/or its Affiliates in the
Building are engaged in the title insurance business, Landlord will not permit
signage (other than signage
-68-
<PAGE> 77
promoting a tenant's move-in or special announcement) on the exterior of the
Building or in the Building ground floor lobby identifying by name another
tenant if any of such other tenant's business at the Building is the conduct of
title insurance or uses the words "title insurance" in its name. In no event
will this prohibit identification of any tenant engaged in the practice of law
which is involved in the title insurance business as an adjunct to the practice
of law, so long as identification on suite entrance doors or the Building
directory or signage outside the tenant's premises does not state that the
tenant is an agent for a title insurance company or a bar fund. The same
restriction shall apply to the North Tower so long as Landlord or Landlord's
beneficiary or an affiliate of The Linpro Company owns an interest in the
ownership of the North Tower (or the ground upon which it is to be located) and
is a controlling principal of the North Tower ownership, and Chicago Title and
Trust Company and/or its Affiliates maintains a presence of at least one hundred
fifty thousand (150,000) square feet in the Building and Chicago Title and Trust
Company and/or its Affiliates in the Building are engaged in the title insurance
business.
(d) The Building will have three entrances located on Clark Street,
the central one of which will be designated as the Tenant entrance allowing for
a specialized lobby development and rotunda design as indicated in Attachments
6, 10 and 11 hereto. Landlord shall allow Chicago Title and Trust Company to
provide signage on the lower and upper portions of the Building exterior (which
shall be maintained by Landlord at Tenant's cost), in the rotunda and in the
lobby, all of which shall be mutually agreed upon, but as to relative size, the
total number of signs allowable and the location thereof shall be substantially
as shown in Attachment 5 hereto. The actual lettering, quality of materials and
integration with the Building of Tenant's signage as well as the actual signs
themselves will be subject to Landlord's reasonable approval. Other rights of
Tenant with respect to signage, including cost allocations, exclusive use
restrictions and directory rights are also shown on Attachment 5 hereto. An
example of acceptable upper building identification is also attached as part of
the Building perspective rendering included in Attachment 5.
(e) Landlord agrees to use reasonable efforts to obtain as the
address of the Building a so-called "vanity address" using the name of the
Building as its address, in addition to a number and street name address.
Landlord agrees to seek 111 North Clark Street as the street address for the
Building. To Landlord's knowledge no one else has applied for the street address
111 North Clark Street. Counsel for Landlord and Tenant shall agree on the
manner and procedure to be utilized in connection with such efforts to obtain a
"vanity address" and, thereafter, Landlord shall work to obtain such "vanity
address' within normal legal channels (but without the requirement of resorting
to litigation or continuing to pursue the effort after a bona fide governmental
rejection).
(f) The rights granted in this Section 40 are personal to Chicago
Title and Trust Company and, where specifically stated, its Affiliates.
(g) Notwithstanding anything herein to the contrary Landlord shall
not obtain and is not hereby granted any rights
-69-
<PAGE> 78
in or to the name or logo "Chicago Title and Trust", "Chicago Title", or
"Chicago Title Insurance" as used in identifying the Building, except such right
to refer to the Building which it owns by such name, as provided in this
Section. After the expiration of the Term, Landlord shall not employ the name
"Chicago Title", "Chicago Title and Trust Company" or "Chicago Title Insurance
Company" or any logos, trademarks, tradenames or other words, designs, graphics,
names or marks used by the Tenant in connection with the Building as the name of
the Building or otherwise in any manner without Tenant's prior written
agreement.
41. Escalators. Landlord shall, at its sole cost and expense, construct two (2)
pairs of escalators, one (1) pair between the lobby level and the second floor
of the Building and the second pair between the second and third floors of the
Building. Escalators will also be provided between the third and fourth floors,
if Tenant elects the third pair of escalators by December 8, 1989. The cost of
said escalators provided by Landlord is in addition to Landlord's Allowance
under Section 37. In the event Tenant elects to include the third pair of
escalators (as described in the Specifications in Attachment 11 hereto),
Landlord shall not be obligated to pay a Fifteen Thousand Dollar ($15,000) per
floor lobby allowance (which lobby allowance is in addition to Landlord's
Allowance). Landlord shall pay for three floor openings required for three
escalator installations and for the finish of the first (1st) floor escalator
with finish materials compatible with and of similar quality to the finish
materials used in the ground floor, rotunda lobby. Acceptable manufacturers and
model numbers for the escalators are included on Attachment 3 hereto, but
Landlord may substitute equal quality escalators, with Tenant's prior written
consent. Landlord covenants to maintain the escalators in a first class running
condition and fully operational throughout the Term of the Lease at Tenant's
expense which shall be an amount equal to 110% of Landlord's direct
out-of-pocket cost. The service contract for the escalators will be bid along
with the elevator contract and must be reasonably satisfactory to Tenant. Tenant
may elect to contract directly for escalator maintenance services, in which
case Landlord shall not have any maintenance obligation with respect to the
escalators.
42. Pedestrian Tunnel. A below grade pedestrian tunnel connected to the lobby
level of the Building by escalators and an elevator from the lower level of the
Building and linking the Building to the State of Illinois Building is to be
included as part of the development of the Building. The pedestrian tunnel is
presently estimated to be operational one (1) year after the Low-Rise
Commencement Date. Landlord agrees to diligently pursue completion of the tunnel
by such date by all reasonably necessary and appropriate means, including but
not limited to, seeking cooperation and approval of all governmental authorities
and utility companies involved. However, Landlord shall not be liable for
failure to meet such date, except if the tunnel is not operational within
eighteen (18) months after the High Rise Commencement Date, subject to delay due
to Force Majeure (as defined in Attachment 15). If the tunnel is not operational
by the end of such eighteen (18) month period (subject to Force Majeure, as
stated aforesaid) Landlord shall pay to Tenant, as Tenant's sole remedy, Forty
Thousand Dollars ($40,000) per month, in arrears (prorated for a partial month
if the tunnel becomes operational in mid-month)
-70-
<PAGE> 79
as liquidated damages for each month thereafter until the tunnel is operational;
provided, that if at the end of such eighteen (18) month period as extended for
Force Majeure, Landlord can reasonably demonstrate that the tunnel will be
operational within the subsequent 90-day period, then such eighteen (18) month
period, as previously extended for Force Majeure, will be extended for an
additional ninety (90) days and the liquidated damages of Forty Thousand Dollars
($40,000) per month shall not commence until the expiration of such additional
ninety 90 day period. Tenant shall have the right to set off against the next
Rent due any such liquidated damage payment owed by Landlord which is more than
thirty (30) days past due but only in the absence of a bona fide dispute
concerning Landlord's liability to pay such liquidated damages. The rights
granted under this Section 42 are personal to Chicago Title and Trust Company
and its Affiliates. For purposes of this Section 42, "Force Majeure" also
includes "municipal utility company approvals, actions (or failure to act) and
requirements."
43. Display/Mini-theater Area, Security Desk Console and Lobby.
(a) Landlord hereby grants Tenant (subject to the terms and
conditions of this lease and the right of Landlord to enter the area for the
purposes of providing maintenance and making repairs and for such other purposes
as would entitle Landlord to enter the Premises under the terms and conditions
of this lease) an exclusive license to use the display/mini-theater area shown
on Attachment 8 hereto (which area will be three hundred fifty (350) square feet
of useable (i.e. column free) floor area) in the general location and
configuration as set forth in Attachment 10 in connection with Tenant's conduct
of business in the Premises for a use approved by Landlord (which Landlord may
withhold in its sole discretion). Landlord approves the use of said area by
Tenant only as a display/mini-theater, including seating for customers, for
promotional displays, shows, and business conferences and meetings in connection
with Tenant's business in the Premises (which may include occasional public
service and charitable events sponsored by Tenant incidental to Tenant's
business). Tenant shall not be obligated to pay Base Rent, Tax Adjustment or
Expense Adjustment for such space.
Tenant will be responsible for all improvements for the
display/mini-theatre (except for lobby-side perimeter wall finishes [exclusive
of storefront entrance or security gate]) which will be supplied and installed
by Landlord at Landlord's cost of providing the same and will be compatible and
similar to rotunda lobby finishes to such space. Tenant will also be responsible
for any costs to comply with building codes or other ordinances due to Tenant's
use of such space. All of such improvements and the storefront' entrance and
security gate, for which Tenant is responsible, shall be subject to Landlord's
approval. Tenant's improvements to the display/mini-theatre area must be
compatible with the quality and design of the rotunda area and the display
mini-theater must be constructed so that it is sound proof when its doors are
closed; in other respects, Landlord will not unreasonably withhold its approval
of such improvements. Tenant will keep all doors closed during presentation of
shows or programs.
-71-
<PAGE> 80
The license granted by this Section 43 will have a term concurrent with
the Term, as extended, except that if the space is not improved and used within
eighteen (18) months after the Low-Rise Commencement Date, (as extended on
account of Landlord delay in completing its construction obligations with
respect to such display/mini-theatre area) or if Tenant does not continuously
use and operate the area for permitted uses (excluding reasonable periods for
remodeling, changing use, repairing damage by fire and casualty and the like and
intermittent non-use for isolated periods not to exceed four (4) weeks in
duration at any one (1) time or more than ninety (90) days in the aggregate in
any one (1) twelve-month period), it may be revoked. Non-manned displays open to
the public will not be considered "non-use."
(b) Landlord hereby grants Tenant (subject to the terms and
conditions of this lease and the right of Landlord to enter the area for the
purposes of providing maintenance and making repairs and for such other purposes
as would entitle Landlord to enter the Premises under the terms and conditions
of this lease) an exclusive license during the Term to use a
security-information desk/console area in the ground floor rotunda lobby shown
on Attachment B hereto so long as Tenant staffs such area with its personnel
during its business hours (after Landlord's completion of any required
improvements). Landlord will provide improvements to such area only as expressly
provided in the Specifications attached hereto as Attachment 11 with respect to
such area.
(c) Tenant may also occasionally use the lobby and rotunda area on
the ground floor for after-hours social functions consistent with the public
nature of such areas, provided that Tenant shall pay the cleaning and other
expenses of such use, and provided that such use shall also be subject to
Landlord's reasonable conditions governing such use.
(d) The grant of licenses in this Section 43 are personal to Chicago
Title and Trust Company and its Affiliates in the title insurance and/or
Financial Services businesses.
(e) For purposes of Sections 6, 7, 9, 10, 13, 19, the term
"Premises" will include the areas licensed to Tenant under Section 43.
Restrictions elsewhere in the lease on the condition, use or occupancy of the
Premises shall also be deemed to apply to these licensed areas.
44. Post-Occupancy Expansion Space. Subject to the provisions hereinafter set
forth, Landlord hereby grants to Tenant the options to lease, on the terms and
conditions hereinafter set forth, the balance of the floor in the low-rise
portion of the Building on which Pre-Occupancy Expansion Space is located which
would not otherwise be included in the Initial Office Premises if Tenant has
elected to lease all of the Pre-Occupancy Expansion Space (the "Leftover Space")
plus up to a total of three (3) full floors of additional space ("Post-Occupancy
Expansion Space"); provided, however, that the Post-Occupancy Expansion Space
shall include the Leftover Space only if Tenant has leased all of the
Pre-Occupancy Expansion Space pursuant to Section 39 hereto. Such options are
referred to herein as the "First Expansion Option", "Second Expansion Option"
and "Third Expansion Option" and are individually referred to as a
"Post-Occupancy Expansion Option".
-72-
<PAGE> 81
(a) On or before February 2, 1992, Landlord, by written notice to
Tenant, shall identify the Post-Occupancy Expansion Space. The Post-Occupancy
Expansion Space (other than the Leftover Space) shall be the three (3) full
floors which are contiguous to the highest floor of the Initial Office premises
(other than the Top Floor). Any floor of Post-Occupancy Expansion Space not
located in the low-rise will be located in the mid-rise. Floors of
Post-Occupancy Expansion Space will be identified sequentially; i.e. the lowest
floor identified plus the Leftover Space, if the Leftover Space is a part of the
Post-Occupancy Expansion Space, will be the space ("First Expansion Space")
which may be leased under the First Expansion Option under Section 44(b)(i); the
next lowest floor identified will be the space ("Second Expansion Space") which
may be leased under the Second Expansion Option under Section 44(b)(ii); and the
highest floor will be the space ("Third Expansion Space") which may be leased
under the Third Expansion Option under Section 44(b)(iii). If more than one (1)
floor of Post-Occupancy Expansion Space is located in the mid-rise, such floors
will be contiguous to one another. Except as set forth in this Section 44,
Landlord is not required to make any Post-Occupancy Expansion Space contiguous
to the Initial Office premises. Tenant acknowledges and agrees that at
Landlord's option, Post-Occupancy Expansion Space located in the low-rise may be
reduced in size below the size of other low-rise floors (but only if Landlord
reduces the physical size of the floors accordingly) as follows: (i) first
(1st) floor above other low-rise floors may be reduced in size by up to one
thousand five hundred (1,500) rentable square feet below the size of the floor
immediately below it, (ii) second (2nd) floor above other low-rise floors may be
reduced in size by up to two thousand five hundred (2,500) rentable square feet
below the size of the floor immediately below it, (iii) third (3rd) floor above
other low-rise floors may be reduced in size by up to one thousand five hundred
(1,500) rentable square feet below the size of the floor immediately below it.
(b) With respect to each floor of Post Occupancy Expansion Space,
Landlord shall give Tenant written notice ("Post-Occupancy Expansion Notice") of
the date it determines will be the commencement date of the term for the
Post-Occupancy Expansion Space (a "Post-Occupancy Expansion Space Commencement
Date") no later than thirteen (13) months prior to the Post-Occupancy Expansion
Space Commencement Date. Notwithstanding anything herein to the contrary, the
Term for all Post-Occupancy Expansion Space pursuant to any one Post-Occupancy
Expansion Option shall commence on the same Post-Occupancy Expansion Space
Commencement Date. If Tenant in good faith desires to lease Post Occupancy
Expansion Space, Tenant may request that Landlord advise Tenant of its
determination of the Market Rental Rate (and shall, if possible, specify the
amount of space Tenant desires to lease), and in such event Landlord shall
notify Tenant of its determination of Market Rental Rate for such
Post-Occupancy Expansion Space no later than fifteen (15) months before the
actual Post-Occupancy Expansion Space Commencement Date but no earlier than
eighteen (18) months prior to the first possible Expansion Space Commencement
Date. If Tenant has not advised Landlord of the amount of space it intends to
lease, and if the Market Rental Rate will vary depending on the amount of space
leased, Landlord may indicate how Market Rental Rate will vary for the amount
of space leased. If the parties cannot agree on the Market Rental Rate, such
Rate shall be determined in
-73-
<PAGE> 82
accordance with the provisions of Section 61(b) hereof. The Post-Occupancy
Expansion Space Commencement Dates shall fall within the periods set forth below
for portions of Post-Occupancy Expansion Space which Tenant may lease:
(i) First Expansion Option: The Post-Occupancy Expansion Space
Commencement Date for the First Expansion Space shall be on or after the
fifth (5th) anniversary of the Low-Rise Commencement Date, but in no event
later than seventy-eight (78) months after the Low-Rise Commencement Date.
(ii) Second Expansion Option: The Post-Occupancy Expansion
Space Commencement Date for the Second Expansion Space shall be on or
after the tenth (10th) anniversary of the Low-Rise Commencement Date, but
in no event later than one hundred thirty-six (136) months after the
Low-Rise Commencement Date.
(iii) Third Expansion Option: The Post-Occupancy Expansion
Space Commencement Date for the Third Expansion Space shall be on or after
the fifteenth (15th) anniversary of the Low-Rise Commencement Date, but in
no event later than one hundred ninety-two (192) months after the Low-Rise
Commencement Date.
Each of the aforesaid time periods (i.e. 60 months through 78 months, 120
months through 136 months and 180 months through 192 months) is herein referred
to as a "Window Period".
(c) Tenant's option to lease Post-Occupancy Expansion Space shall be
exercisable by written notice from Tenant to Landlord of Tenant's election to
exercise said option given not more than thirty (30) days after the applicable
Post-Occupancy Expansion Notice. Tenant's notice shall specify the Rentable Area
Tenant elects to lease, which must comply with Section 44(d), and whether it
elects that Rent be at Market Rental Rate or at the rate set forth in Section
44(g)(i) below. If no election is made by Tenant as to the Rent, the Rent shall
be the rate set forth in Section 44(g)(i) below.
(d) Tenant may not elect to lease less than a minimum thousand five
hundred (7,500) square feet of Rentable Area of Post-Occupancy Expansion Space
on a floor in order to exercise its option as to that floor and must lease space
in portions and configurations subject to Landlord's reasonable approval so as
to allow commercially reasonable leaseable remaining area. In the event that
Tenant would be the only Tenant on a floor and desires to lease ninety percent
(90%) or more of that floor, Tenant must also lease the remaining space so it is
leasing the entire floor.
(e) Tenant may only exercise a Post-Occupancy Expansion Option, if
at the time of Tenant's exercise, this lease is in full force and effect and
Tenant is not in Default.
(f) At Tenant's written request, from time to time Landlord will
advise Tenant of the expiration dates of leases with tenants occupying
Post-Occupancy Expansion Space. The purpose of such advice is to give Tenant a
general idea of when such space will become available, and Landlord will not be
bound by such dates as the availability date for such space unless and until
Landlord expressly designates such date as a
-74-
<PAGE> 83
Post-Occupancy Expansion Space Commencement Date pursuant to a Post-Occupancy
Expansion Notice.
(g) If Tenant has exercised a Post-Occupancy Expansion Option, then
effective as of the Post-Occupancy Expansion Space Commencement Date, the
portion of Post-Occupancy Expansion Space which Tenant will lease shall be
included in the Premises, subject to all of the terms, conditions and provisions
of this lease, except that:
(i) unless Tenant has elected that Rent be at Market Rental
Rate, Base Rent per square foot of Rentable Area of the Post-Occupancy
Expansion Space shall be equal to Twenty-Four and 50/100 Dollars ($24.50)
escalated by one and one-half percent (1.5%) compounded annually from the
Low-Rise Commencement Date to the Post-Occupancy Expansion Space
Commencement Date, and Tenant shall pay Additional Rent for such space;
(ii) the Rentable Area of the Premises shall be increased by
the Rentable Area of the Post-Occupancy Expansion Space; and
(iii) the term of the demise covering the Post-Occupancy
Expansion Space shall commence on the Post-Occupancy Expansion Space
Commencement Date and, except as permitted by Section 46, shall expire
simultaneously with the expiration or earlier termination of the Term of
this lease, including any extension or renewal thereof;
(iv) If the rate of Base Rent set forth above in Section
44(g)(i) and not Market Rental Rate applies,
A. Landlord will provide Tenant a Fifty Dollar ($50.00)
per square foot of Rentable Area construction allowance for space
not previously improved for office occupancy ("Undeveloped Space")
and a Twenty Dollar ($20.00) per square foot of Rentable Area
construction allowance for space previously improved for office
occupancy ("Developed Space") (such amount for Developed Space to be
inflated by the Dodge Construction Index [for the area which
includes Chicago, Illinois and the smallest surrounding areas] from
the Low-Rise Commencement Date to the Post-Occupancy Expansion
Space Commencement Date, or in the event the Dodge Construction
Index is no longer available, then a comparable index published by a
major bank or other financial construction or by a university or a
recognized financial publication); and
B. Tenant shall be entitled to an abatement of Base Rent
for the periods set forth below from and after the applicable
Post-Occupancy Expansion Commencement Date for both Developed and
Undeveloped Space:
(1) ninety (90) days for less than one-half (1/2) floor, but
no later than Tenant's occupancy; or
-75-
<PAGE> 84
(2) one hundred twenty (120) days for one half (1/2) floor
or more, but no later than Tenant's occupancy.
(v) Rent shall be at the Market Rental Rate, if Tenant has so
elected at the time it exercised such Post-Occupancy Expansion Option;
(vi) the Post-Occupancy Expansion Space shall be leased in its
"as is" condition as of the Post-Occupancy Expansion Space Commencement
Date unless the Market Rental Rate includes as a component thereof a
different level of tenant improvement, and, except as stated aforesaid,
Landlord shall have no obligation to improve such space for Tenant's
occupancy;
(h) In the event Landlord wilfully fails to deliver possession of
any Post-Occupancy Expansion Space on the pertinent Post-Occupancy Expansion
Space Commencement Date for any reason, such failure shall be deemed a default
of this lease by Landlord under Section 29 hereof, subject to the notice and
cure provisions contained therein. The failure of Landlord to deliver such space
on account of a hold-over by a prior tenant or occupant or an account of Force
Majeure shall not, except as hereafter provided, be deemed wilful and Landlord
shall not, except as hereafter provided, be deemed in default if such space is
delivered within the Window Period; provided, however, Tenant shall have no
obligation to commence payment of Rent for such Post-Occupancy Expansion Space
until it is in possession of all of such Post-Occupancy Expansion Space.
Landlord's failure to deliver such Post-Occupancy Expansion Space within the
Window Period shall be deemed a default of this lease by Landlord under Section
29 hereof, subject to the notice and cure provisions contained therein.
(i) In the event any portion of Post-Occupancy Expansion Space is
leased to Tenant other than pursuant to this Section 44, such portion of
Post-Occupancy Expansion Space shall thereupon be deleted from the total
Post-Occupancy Expansion Space which Landlord is obligated to make available to
Tenant and which Tenant may lease under this Section 44, but if Tenant fails to
lease such space as Post-Occupancy Expansion Space, such space shall continue to
be First Offer Space under Section 45 hereof.
45. Right of First Offer. Subject to the provisions hereinafter set forth,
Landlord hereby grants to Tenant the right to lease, on the terms and conditions
hereinafter set forth, (i) all of the Post-Occupancy Expansion Space ("First
Offer Space") at the time when Landlord is making a serious proposal to lease
such space to a prospective tenant and (ii) all of the First Offer Space which
becomes "Available for Leasing" (as hereinafter defined), during the First Offer
Period (as hereinafter defined).
(a) During the First Offer Period Landlord shall notify Tenant
("First Offer Notice") on or about the time Landlord is making a serious
proposal to a prospective tenant for a term of lease which would fall, in whole
or part, during the First Offer Period. The First Offer Notice shall contain the
location and Rentable Area of such portion of the First Offer Space, a date for
commencement of the term with respect to such portion of the First Offer Space
if leased by Tenant
-76-
<PAGE> 85
(the "First Offer Space Commencement Date"), and the Market Rental Rate for such
space as determined by Landlord for a term commencing on the First Offer Space
Commencement Date. If Tenant disputes Landlord's determination of the Market
Rental Rate (and the space in question is 7500 square feet or more and the term
is two years or greater), Tenant shall so notify Landlord as provided in Section
61(b) hereof and such dispute shall be determined in accordance with the
provisions of Section 61(b) hereof; provided, however, if the Market Rental Rate
has not been finally determined pursuant to Section 61(b) as aforesaid by the
First Offer Space Commencement Date, then, until the time of such determination,
Tenant shall pay Rent for such First Offer Space based on Landlord's preliminary
determination of the Market Rental Rate and upon such final determination in
accordance with Section 61(b), if the Market Rental Rate as so determined is
less than Landlord's preliminary determination of Market Rental Rate, then
Tenant shall thereafter pay the lesser amount as Rent for such First Offer Space
and Landlord shall refund to Tenant any excess Rent previously paid by Tenant
for such First Offer Space together with interest thereon at the Prime Plus
Rate. The First Offer Space Commencement Date shall not be less than sixty (60)
days after the date such notice is given by Landlord. Tenant shall have the
right to lease all, but not less than all, the First Offer Space described in
the First Offer Notice upon written notice from Tenant to Landlord of Tenant's
election to exercise said right given not later than fifteen (15) business days
after the First Offer Notice is given. Tenant's notice shall also specify
whether Tenant elects that Rent for such First Offer Space be at the Market
Rental Rate (or if Tenant does not specify Market Rental Rate, then Rent will be
the alternative rate, in accordance with Section 44(d)(i)). If Tenant's right to
lease such First Offer Space is not so exercised, Landlord shall have a period
("Marketing Period") of nine (9) months, with respect to First Offer Space
containing from seventy percent (70%) of a floor to a full floor, and six (6)
months, with respect to First Offer Space containing less than seventy percent
(70%) of a floor, to market such space and enter into a letter of intent or
lease with respect to such space with a bona fide tenant before being obligated
to again offer such First Offer Space to Tenant. However, Landlord shall again
be obligated to offer such First Offer Space to Tenant pursuant to this Section
45(a) if (i) such Marketing Period ends without Landlord entering into a letter
of intent or lease, or (ii) negotiations with such prospective tenant are
abandoned prior to the end of such Marketing Period.
(b) From time to time during the First Offer Period, if Tenant in
good faith desires to lease First Offer Space, Tenant may request that Landlord
notify Tenant of the First Offer Space which is then Available for Leasing and
the Market Rental Rate therefor, and Landlord shall notify Tenant ("Availability
Notice") within fifteen (15) days after such request as to which First Offer
Space is Available for Leasing and the Market Rental Rate therefor for terms
commencing on or about sixty (60) days thereafter. If Tenant disputes Landlord's
determination of the Market Rental Rate (and the space in question is 7500
square feet or more and the term is two years or greater), Tenant shall so
notify Landlord as provided in Section 61(b) hereof and such dispute shall be
determined in accordance with the provisions of Section 61(b) hereof; provided,
however, if the Market Rental Rate has not been finally determined pursuant to
Section 61(b) as aforesaid
-77-
<PAGE> 86
by the First Offer Space Commencement Date, then, until the time of such
determination, Tenant shall pay Rent for such First Offer Space based on
Landlord's preliminary determination of the Market Rental Rate and upon such
final determination in accordance with Section 61(b), if the Market Rental Rate
as so determined is less than Landlord's preliminary determination of Market
Rental Rate, then Tenant shall thereafter pay the lesser amount as Rent for such
First Offer Space and Landlord shall refund to Tenant any excess Rent previously
paid by Tenant for such First Offer Space together with interest thereon at the
Prime Plus Rate. Tenant may elect by notice to Landlord to lease First Offer
Space which is then Available for Leasing as of a First Offer Space Commencement
Date no earlier than ten (10) days nor later than thirty (30) days after its
notice to Landlord electing to lease such space. Tenant shall designate the
First Offer Space Commencement Date in its notice and shall also specify in its
notice whether it is electing that Rent be at the Market Rental Rate (or if
Tenant does not specify Market Rental Rate, then Rent will be the alternative
rate, in accordance with Section 44(d)(i)). If Tenant's notice of election is
given more than thirty (30) days after Landlord's Availability Notice, Landlord
may notify Tenant of any change in its determination of the Market Rental Rate
which shall again be subject to arbitration in accordance with Section 61(b)
hereof. Tenant may not elect to lease less than all contiguous First Offer Space
then Available for Leasing, on a floor, but if space on more than one floor is
then Available for Leasing, Tenant shall not be obligated to lease space on more
than one floor. A portion of the First Offer Space shall be deemed to be
"sAvailable for Leasing" following the satisfaction or occurrence of the
following events:
(i) the expiration of a Current Lease (as hereinafter defined) of
such portion of the First Offer Space (including any extensions or
renewals), if such portion of the First Offer Space is not then subject to
an option to lease such space granted in another Current Lease; or
(ii) if such portion of the First Offer Space is subject to an
option granted in another Current Lease, which option is not exercised,
the later to occur of (A) the expiration of such option and (B) the
expiration of the Current Lease of such portion of the First Offer Space
(including any extensions or renewals); or
(iii) if such portion of the First Offer Space is subject to an
option granted in another Current Lease, which option is exercised, the
expiration of the term of such other Current Lease or any later date on
which the term of the demise of such portion of the First Offer Space
created by the exercise of such option (including any renewals or
extensions thereof) expires; or
(iv) The First Offer Space is vacant and there are no Current Leases
or legal rights to possession held by persons other than Landlord;
and in all cases, all negotiations by prospective tenants to lease First
Offer Space have been abandoned, and Landlord has not subsequently made a
serious proposal which would trigger Tenant's right to lease First Offer
Space under Section 45(a).
-78-
<PAGE> 87
First Offer Space shall not be deemed "Available For Leasing" at any time
Tenant's rights under Section 45(a) are applicable or have revived.
(c) Tenant may only exercise its right to lease First Offer Space,
if at the time of Tenant's exercise, this lease is in full force and effect and
Tenant is not in Default.
(d) If Tenant has exercised its right to lease a portion of the
First Offer Space, then effective as of the First Offer Space Commencement Date
such portion of the First Offer Space shall be included in the Premises subject
to all of the terms, conditions and provisions of this lease except that:
(i) the Rent and Landlord's Allowance for such portion of the
First Offer Space shall be at the same rate as would have been established
under Section 44(g) if such space were being leased as Post-Occupancy
Expansion Space, except if Tenant has not elected that Rent be at the
Market Rental Rate, the one and one-half percent (1.5%) annual compounding
described in Section 44(g) shall be from the Low-Rise Commencement Date to
the applicable First Offer Space Commencement Date, and if Tenant has
elected that Rent be at Market Rental Rate, the Market Rental Rate shall
be as determined pursuant to this Section 45;
(ii) the Rentable Area of the Premises shall be increased by
the Rentable Area of such portion of the First Offer Space;
(iii) the term of the demise covering such portion of the
First Offer Space shall commence on the First Offer Space Commencement
Date and, except as permitted by Section 46, shall expire simultaneously
with the expiration or earlier termination of the Term of this lease,
including any extension or renewal thereof; and
(iv) subject to clause (i) above, the First Offer Space shall
be leased in its "as is" condition as of the First Offer Space
Commencement Date unless Tenant has elected Market Rental Rate and the
Market Rental Rate includes as a component thereof a different level of
tenant improvement, and except as stated aforesaid, Landlord shall have no
obligation to improve such space for Tenant's occupancy.
(e) If Tenant has exercised its right to lease a portion of the
First Offer Space, within thirty (30) days after request by either party,
Landlord and Tenant shall enter into a written supplement to this lease
confirming the terms, conditions and provisions applicable to such portion of
the First Offer Space.
(f) If Landlord wilfully fails to deliver possession of any First
Offer Space on the pertinent First Offer Space Commencement Date for any reason,
such failure shall be deemed a default of this lease by Landlord under Section
29 hereof, subject to the notice and cure provisions contained therein. The
failure of Landlord to deliver such space on account of a hold-over by a prior
tenant or occupant or on account of Force Majeure shall not be deemed wilful.
(g) As used herein, the following terms shall have the following
meanings:
-79-
<PAGE> 88
(i) the term "First Offer Period" shall mean the portion of
the initial Term of this lease commencing on February 2, 1992 (or if
Tenant has committed before February 2, 1992 to take all of the
Pre-Occupancy Expansion Space, the date upon which Tenant so committed)
and excluding the last five (5) years of the initial Term; provided, that,
during the last five (5) years of the initial Term, Tenant's rights shall
be in effect only as to Section 45(a) and only if proposals then being
made which trigger the offer of First Offer Space to Tenant under Section
45(a) are for terms which would expire before the end of the initial Term.
(ii) the term "Current Lease" shall mean a lease of any space
in the Building in effect on or before February 2, 1992 or entered into
after Tenant failed to exercise its option under Section 45(a) (including
extensions and renewals thereof pursuant to options granted therein),
whether or not the term of such lease has yet commenced.
46. Termination Option. Tenant shall have the option (the "Termination Option")
to terminate this lease with respect to all or any part of the Premises, subject
to the terms and conditions hereinafter set forth.
(a) Provided that this lease is in full force and effect and Tenant
is not in Default, Tenant may elect to terminate this lease with respect to all
or part of the Original Premises, Pre-Occupancy Expansion Space or Post
Occupancy Expansion Space as of the day before the fifteenth (15th) anniversary
of the Low-Rise Commencement Date (the "Termination Date") by written notice to
Landlord ("Termination Notice") delivered no later than fifteen months prior to
such Termination Date. The Termination Notice shall identify that portion of the
Original Premises, Pre-Occupancy Expansion Space or Post-Occupancy Expansion
Space as to which Tenant as elected to terminate this lease.
(b) In consideration of said termination, Tenant shall pay to
Landlord a termination payment ("Lease Termination Payment") equal to the sum of
all costs necessary to demolish the following components of the base building
customized for Tenant and the related costs of rebuilding or restoring such base
building components:
(i) Building signage identifying Tenant;
(ii) Tenant escalator/interfloor stairs;
(iii) Tenant features in the central lobby;
(iv) Tenant raised floor area; and
(v) Tenant specialized areas, e.g., Kitchen Facilities, dining
rooms, auditorium and any customized areas where the base building
structure or building systems has changed from that provided for in the
specifications and drawings attached hereto as Attachments 10 and 11 as
result of Tenant Improvements or at Tenant's request.
Notwithstanding the foregoing, the Lease Termination Payment shall
not exceed the lesser of (x) One Million Dollars
-80-
<PAGE> 89
($1,000,000.00) or (y) Landlord's actual cost of demolishing, restoring and
rebuilding the items specified in (i) through (v) above in anticipation of the
next occupancy of such space as determined or determinable within the period
ending on the date ("Payment Determination Date") which is the earlier to occur
of (A) three (3) years after the effective date of the termination, and (B) the
date on which the demolition, restoration and rebuilding is completed.
(c) On the Termination Date, Tenant shall pay to Landlord Landlord's
reasonable estimate of the Lease Termination Payment, which shall be determined
by taking into account the amount of space being vacated by Tenant and
reasonable likelihood of a prospective tenant desiring to use Tenant's
customized tenant improvements. The Lease Termination Payment shall be placed in
an interest-bearing account, with interest accruing for the benefit of Tenant,
and which Landlord may use for demolition, restoration and rebuilding. In the
event that the demolition, restoration and rebuilding of such space as provided
in subsection (b)(y) above is (x) less than the Lease Termination Payment
deposited with Landlord, the difference shall be refunded to Tenant upon the
Payment Determination Date, together with the interest earned on said sum or (y)
more than the Lease Termination Payment deposited with Landlord, Tenant shall
pay to Landlord within fifteen (15) days after notice the balance owed.
(d) In addition to the Lease Termination Payment specified above, on
the Termination Date, Tenant shall pay to Landlord the sum of Seventy-Five
Dollars ($75.00) per square foot of Rentable Area of the Premises with respect
to which this lease is terminated by Tenant pursuant to this section for Rent
lost by Landlord.
(e) With respect to the Office Premises, Tenant shall have no right
to terminate less than one-half (1/2) of a floor. In the event that Tenant
elects to exercise its right of termination under this Section 46 with respect
to less than a full floor of the Office Premises, such termination is subject to
Landlord's approval as to location and configurations to allow commercially
reasonably leaseable remaining area.
(f) Provided that this lease is in full force and effect and Tenant
is not in Default, Tenant may by written notice to Landlord ("Lobby Termination
Notice"), elect to terminate this lease with respect to the Lobby Space as of
the day before the fifth (5th) anniversary of the Low-Rise Commencement Date or
as of the day before each subsequent anniversary date. The Lobby Termination
Notice shall specify the effective date ("Lobby Termination Date") of such
termination, which date shall be no earlier than twelve (12) months after the
date of the Lobby Termination Notice. On the Lobby Termination Date, Tenant
shall pay to Landlord an amount equal to the unamortized Landlord's Allowance
previously paid with respect to the Lobby Space (using straight line
amortization over the initial Term).
47. Participation in Net Cash Flow and Proceeds of Sale and Refinancing.
(a) Tenant is hereby granted a contractual right to receive a
percentage interest (the "CT&T Percentage"), equal to fifty percent (50%) of a
fraction having a numerator equal to
-81-
<PAGE> 90
the Rentable Area of the Initial Office Premises and having a denominator equal
to the total Rentable Area of the Building determined pursuant to Section 1(a)
hereof, in (i) net cash flow after operating and capital reserves and also in
(ii) the proceeds that the Development Partnership receives upon a sale or
refinancing of the Building, in each case after repayment of loans (including
interest thereon), equity invested by the Partners in the Development
Partnership and a rate of return on such equity as provided in the partnership
agreement for the Development Partnership ("CT&T Participation"). "Development
Partnership" means the partnership which is created for the development of the
Building, one of whose partners will initially be Linpro Chicago Property I
Limited Partnership, an Illinois limited partnership ("Linpro"), or a Linpro
Affiliate, but if no new partnership is created for the development of the
Building and Linpro Chicago Land Limited Partnership will develop the Building
after a transfer of partnership interests from the non-Linpro partner to a new
investor partner other than Linpro or a Linpro Affiliate, the "Development
Partnership" will be the reconstituted Linpro Chicago Land Limited Partnership.
If at any time a land trust ever is Landlord, the Development Partnership shall
not be Landlord but shall be its beneficiary. Net cash flow and proceeds of sale
or refinancing will be distributed to Tenant at the time it is distributed to
Linpro. Tenant hereby agrees to contribute cash for the benefit of the Building
if and when the partners in the Development Partnership are required to make
capital contributions or loans. The amount to be contributed by Tenant shall be
equal to the CT&T Percentage multiplied by the total amount to be contributed
both by Tenant and for or on behalf of the Development Partnership; provided
that Tenant's obligation to contribute cash hereunder will be limited to the
amount of cash Tenant previously received with respect to net cash flow or
proceeds of refinancing (and is only enforceable against the CT&T
Participation); and further provided that Tenant will be entitled to repayment
of amounts so contributed if, as and when the partners in the Development
Partnership are repaid their loans or are distributed their cash contributions.
In lieu of contributing cash up to the amount of refinancing proceeds received
by Tenant, or if the contribution required is in excess of cash previously
received, then Tenant's right to future sale and refinancing proceeds will be
reduced by the amount of cash it did not contribute. As used herein the terms
"net cash flow", "proceeds of sale or refinancing" and "rate of return on equity
shall have the meanings ascribed to them in the partnership agreement for the
Development Partnership; provided that such meanings shall be developed in good
faith, shall be reasonable and in accordance with industry standards, and shall
not unfairly discriminate against Tenant. The CT&T Participation will be diluted
on a pro rata basis with Linpro, which means that the CT&T Percentage will be
reduced to be that percentage obtained by multiplying the CT&T Percentage by the
initial percentage interest in the newly-created or reconstituted Development
Partnership held by Linpro and/or a Linpro Affiliate after initial dilution for
debt and equity. The interest of Transportation Leasing Co. (formerly Greyhound
Lines, Inc.) under the Development Participation Agreement dated December 31,
1986 will not reduce the CT&T Participation. In no event shall the CT&T
Percentage be reduced below twenty-five percent (25%) of a fraction whose
numerator is the Rentable Area of the Initial Office Premises and whose
denominator is the total Rentable Area of the Building, determined pursuant to
Section 2(a) hereof. In the event of cost overruns, the CT&T Participation is
hereby
-82-
<PAGE> 91
subordinated to repayment of third party loans or loans by the Development
Partnership or partners therein to the extent Tenant does not participate in the
payment of such excess costs.
Tenant shall be furnished with a copy of the partnership agreement (and
all amendments and modifications thereto) for the Development Partnership and
shall be furnished with annual reports of the Development Partnership consisting
of an annual balance sheet and profit and loss statement, certified by one of
the Big 8 accounting firms, within 120 days after the close of each calendar
year and on a quarterly basis, a statement of cash flow and a leasing status
report containing names of tenants and square feet committed. Landlord shall
also furnish Tenant no later than October 30th of each calendar year with a
statement of projected cash flow for the next calendar year and periodically
shall furnish Tenant with any other material information necessary to accurately
calculate, evaluate and determine the CT&T Participation. Tenant shall also be
furnished with copies of the note, mortgage, loan agreement and any other
material loan and/or equity documentation pertaining to the CT&T Participation,
Tenant's operation and/or the construction of the Building.
(b) If Linpro sells all or part of its partnership interest in the
Development Partnership to an entity other than a Linpro Affiliate, then,
Landlord shall cause Tenant to receive a portion of the proceeds of sale based
upon its CT&T Participation as if its interest were a partnership interest being
sold at the same time at the same ratio of dollars to partnership interest as
received by Linpro and Tenant's interest will be reduced proportionately
(except as hereinafter provided). For purposes of this Section 47(b), the sale
of a partnership interest will include any transfer pursuant to a right of
first offer or buy-sell or squeeze down, but shall exclude a voluntary non-arms
length transfer. Tenant's interest will not be reduced below the minimum
fraction for dilution set forth above except where Linpro's partnership interest
is entirely diluted or transferred from a squeeze-down (i.e., to zero). For
purposes of this Section 47, "Linpro's partnership interest" will be deemed to
mean the aggregate interests held by Linpro or a Linpro Affiliate and the
partners of Linpro or a Linpro Affiliate at the time of the signing of this
lease, as reorganized and reconfigured from time to time. As used in this lease
the term "Linpro Affiliate" shall mean any entity comprised of (i) persons
(including their family members) who operate as partners or employees of the
group of entities identified by the name "The Linpro Company", and/or (ii)
entities comprised of such persons and which entity holds itself out and
effectively operates as part of the group of entities so identified.
(c) The CT&T Participation will serve as security for Tenant's
performance of its obligations under this lease. Because the CT&T Participation
is being granted to Tenant in consideration of its faithful performance of its
lease obligations and continuation as a tenant for the entire Term, if there is
a Default under this lease (after the expiration of all notice and cure
periods), the CT&T Participation will terminate, be valued at zero (0) and be of
no further force and effect; except that after the date which is the earlier to
occur of (a) the date on which ninety percent (90%) of the Rentable Area of the
Building is leased to tenants who are in occupancy and paying rent, and (b) five
(5) years after substantial completion of the Building, the CT&T Participation
-83-
<PAGE> 92
will be valued at market value upon termination of this lease. In the case of
(b) Landlord may, in its discretion, waive termination of the CT&T Participation
upon a Default and there will be no valuation of the CT&T Participation. For
purposes of this subsection (c), any non-monetary default disputed by Tenant
shall not be deemed a Default permitting the termination of the CT&T
Participation until said non-monetary default has been adjudicated by a court of
competent jurisdiction. Market value of the CT&T Participation shall be
determined in accordance with Section (h) hereof.
(d) Landlord is hereby granted a right to purchase the CT&T
Participation at market value under the following circumstances: in the event of
an early lease termination by Tenant; in the event Chicago Title and Trust
Company or an Affiliate elects to transfer its interest to a third party or an
Affiliate described in subsection (iii) of the definition of Affiliate in
Section 12(a) hereof in accordance with Section 47(e) below; or if the CT&T
Participation is ever held by an Affiliate, then at the time such Affiliate no
longer qualifies as an "Affiliate" unless the CT&T Participation is reconveyed
to Chicago Title and Trust Company or to an Affiliate permitted under Section
47(e) hereof; or in the event of a bankruptcy of Tenant where Tenant is not
otherwise in Default. Upon a purchase of the CT&T Participation by Landlord, the
CT&T Participation shall terminate.
(e) Landlord must elect to exercise its purchase right in any
particular case within forty-five (45) days after the right accrues; provided
however, if Landlord is exercising its right on account of any reason other than
a transfer of the CT&T Participation to a third party or an Affiliate described
in subsection (iii) of the definition of Affiliate in Section 12(a) hereof, such
exercise may be revoked in writing within ten (10) days after the market value
is determined in accordance with Section 47(h) hereof. In the event Landlord
fails to timely notify Tenant of its revocation, Landlord shall be deemed to
have waived its right to revoke its exercise. Chicago Title and Trust Company
may transfer the CT&T Participation to a third party or an Affiliate described
in subsection (iii) of the definition of Affiliate in Section 12(a) hereof,
subject to Landlord's purchase right at market value (as described below) and
approval right as to the character and financial stability of the transferee,
such approval not to be unreasonably withheld; or if the CT&T participation is
ever held by an Affiliate, then such approval right shall also apply at the time
such Affiliate no longer qualifies as an "Affiliate" unless the CT&T
Participation is reconveyed to Chicago Title and Trust Company or to an
Affiliate permitted under this Section 47(e). The tests of character and
financial stability should be similar to those contained in Section 12 hereof.
The offer of any third party offeree shall be taken into account when
determining the market value. Notwithstanding anything to the contrary contained
herein, Chicago Title and Trust Company may transfer the CT&T Participation to
an Affiliate described in subsections (i), (ii), or (iv) of the definition of
Affiliate in Section 12(a) hereof. Tenant shall have the right to grant a
security interest in and to the CT&T participation as collateral for financing,
subject to the Landlord's rights under this Section 47 and this lease with
respect to the CT&T Participation and under terms and conditions which are
reasonably acceptable to Landlord; provided, however, that
-84-
<PAGE> 93
Tenant shall not have the right to encumber, mortgage or pledge Tenant's
interest in the leasehold estate or to permit any liens or encumbrances on the
Land or the Building in connection with the CT&T Participation. For purposes of
this Section 47 an Affiliate shall be deemed not to be a third party.
(f) Provided that Landlord has fully and completely performed its
obligations under this Section 47, the CT&T Participation will terminate on the
sale of the Building (including a foreclosure or transfer to a lender of the
entire ownership interest) or sale of Linpro's entire interest in the
Development Partnership, in either case, other than a sale to a Linpro
Affiliate.
(g) The CT&T Participation is not a partnership interest and Tenant
is not and will not be a partner of Landlord or Linpro.
(h) In the event that Landlord is to purchase the CT&T Participation
and market value is to be used in determining the price to be paid, Landlord may
notify Tenant of its determination of the market price. If Tenant does not
respond in writing within ten (10) days of its disagreement and determination of
the market value, then Landlord's determination shall be binding. If Landlord
does not so notify Tenant, or if it does notify Tenant and Tenant disagrees as
provided above, then Landlord and Tenant shall each select an appraiser within
ten (10) days after request of either party for determination of market value
under this Section 47(h). The two (2) appraisers selected by Landlord and Tenant
shall within ten (10) days after their respective appointments, each make a
determination of the market value. If the difference between the market values
determined by each of the appraisers is less than five (5%) percent of the
lesser value, the average of the two values shall be the market value to be used
in determining the purchase price to be paid. If the difference between the two
values is more than five (5%) percent of the lesser value, then the two
appraisers shall within twenty five (25) days after their respective
appointments appoint a third appraiser. The third appraiser shall make his
determination of the market value within ten (10) days of his appointment. If
the difference between the third appraiser's determination of market value and
the average of the market values specified by the first two appraisers is less
than ten percent (10%) of the lower of the third appraiser's determination and
said average, then the average of the three market value determinations shall be
market value to be used in determining the purchase price to be paid. Otherwise,
the average of the two closest market value determinations shall be the market
value to be used in determining the purchase price to be paid for the CT&T
Participation. The three (3) appraisers shall be MAI appraisers licensed by the
State of Illinois and shall have at least ten (10) years experience in
appraising commercial real estate in the Chicago metropolitan area.
48. Parking. Throughout the Term, as extended, Tenant shall have the right to
use up to thirty (30) reserved parking spaces in the Garage at prevailing
monthly rates for reserved spaces, such spaces relating to the Original Office
Premises, so long as Tenant pays all charges for parking when due; provided,
however, if the operator of the Garage provides for more favorable rates for
periods longer than one month, then Tenant shall be entitled to use all or part
of its parking spaces for
-85-
<PAGE> 94
such longer period at the more favorable rate. Tenant shall be entitled to
exercise all rights and privileges with respect to its parking spaces that are
granted to any other user of parking in the Garage upon payment by Tenant of the
prevailing charges for such privileges, if any. As used in the foregoing
sentence, the word "rights and privileges" is intended to include, but not be
limited to, items such as car starting services, security, rights to pay for
parking spaces on a quarterly or annual basis at reduced rates and car cleaning
and washing or polishing services. The approximate location of the initial
reserved parking spaces is shown in Attachment 9 hereto to this lease which will
be adjacent to the Vault Space. Tenant has the right to expand parking beyond
the initial thirty (30) spaces at the rate of one (1) space per ten thousand
(10,000) rentable square feet of office space leased in addition to the Original
Office Premises, subject to a cap of fifty (50) spaces overall (including
initial and additional spaces). Landlord shall mark such spaces or otherwise
indicate by signs that they are reserved for Tenant's use, but Landlord shall
not be obligated to police use of such spaces on a daily basis. Tenant shall be
required to execute the form of parking agreement, if any, in use from time to
time and abide by parking regulations applicable from time to time for parking
in the Garage. Landlord will cooperate with Tenant if it desires spaces in
addition to the fifty (50) spaces provided for above, but it will not be
obligated to make additional reserved parking available. Tenant may allow
customers to use its reserved parking spaces for business purposes only.
Tenant's right to reserved parking spaces shall terminate (and shall not be
revived) at the rate of one (1) space per ten thousand (10,000) square feet of
Rentable Area of office space with respect to which this lease is terminated
under Section 46 after the termination of the first fifty thousand (50,000)
square feet of Rentable Area of office space, but if the entire lease is
terminated, Tenant shall have no further right to use any parking spaces (except
that certain parking rights may be transferred under circumstances of a release
and termination under Section 12).
49. Antenna/Satellite Dish. Subject to the conditions hereinafter set forth,
Landlord hereby grants to Tenant the right during the Term and any extension
thereof to mount a TV antenna and/or a satellite dish for Tenant's use only (and
not for sale, license or use by any third party) on the roof of the Building.
Within thirty (30) days after Tenant gives Landlord written notice of Tenant's
intention to exercise the right granted hereby, specifying in detail the
requirements of such installation, Landlord shall reasonably designate by
written notice to Tenant an appropriate area for suchs installation
("Installation Area"). Tenant shall be responsible for all installation charges,
governmental permit charges and costs, if any, to architecturally conceal the
antenna and/or satellite dish into the overall Building appearance, including
related engineer and architect fees; provided, however, notwithstanding the
foregoing the costs to conceal an antenna of up to two (2) meters in height
and/or satellite dish of up to two (2) meters in diameter are Landlord's
responsibility under the specifications attached hereto as Attachment 11.
Tenant shall be responsible for all costs of operation and maintenance to keep
the antenna or satellite dish in good working order and repair. The antenna or
satellite dish shall be connected, at Tenant's cost, to the premises through
then existing electrical, telephone or mechanical shafts. Tenant shall bear
-86-
<PAGE> 95
all risk of loss or damage to or theft of the antenna and/or satellite dish and
shall include such equipment under Tenant's insurance policies required under
Section 19. Notwithstanding anything to the contrary, the rights herein granted
to Tenant shall be subject to the following conditions precedent:
(a) there must then be available space on the roof and existing
electrical, telephone or mechanical shafts from the roof to the Premises for
Tenant's proposed roof installation; provided that if Tenant notifies Landlord
prior to the Low-Rise Commencement Date that it is exercising its right,
Landlord agrees that there will be space available;
(b) Landlord's architect or engineer shall approve of the design and
specifications of the antenna or satellite dish, such approval shall not to be
unreasonably withheld; and
(c) Tenant shall, at its expense, comply with the applicable
requirements of any municipal, county, state, federal or other governmental
ordinance, law, rule or regulation including obtaining all permits, licenses and
any necessary zoning variances and other governmental approvals. Landlord will
cooperate with Tenant in gaining such approvals; provided any expense of
Landlord in so cooperating shall be borne by Tenant. The installation and
operation of the antenna or satellite dish shall not interfere with the safety
or operations of the Building or the reception or transmission of signals by the
other tenants or occupants of the Building and shall comply with any provisions
of this lease relating to Tenant's performance of construction or making
alterations, additions or improvements.
If Tenant requires any additional structural support not provided
for in the outline specifications attached hereto as Attachment 11, Tenant shall
pay the cost of such additional support. Normal Tenant transmission (other than
general broadcasting) from approved equipment will not be deemed to violate the
foregoing restriction on interference, but Landlord reserves the right to
relocate Tenant's equipment at Landlord's expense (and Landlord shall pay all of
Tenant's reasonable related costs provided that Tenant shall have identified
categories of such costs in advance of such relocation) to avoid such
interference.
Tenant's equipment on the roof which is removable without damage to
the Building shall remain the property of Tenant and shall be removed by Tenant,
at its sole cost and expense, upon the termination of this lease by lapse of
time or otherwise; cables, wires and other facilities in mechanical shafts and
any equipment wherever located which would cause damage to the Building if
removed shall, at Landlord's election, become the property of Landlord upon the
termination of this lease by lapse of time or otherwise, or Landlord may require
their removal by Tenant or Tenant's payment of the cost of removal by Landlord.
Landlord agrees that once the paths of transmission of Tenant's TV antenna
and/or satellite dish have been established the installation and operation of
other antenna and satellite dishes on the roof of the Building by other tenants
or occupants of the Building shall not interfere with the reception or
transmission of signals by Tenant over its fixed identified path.
-87-
<PAGE> 96
50. Existing Tenant vacation; Commencement of Construction; Termination
Payment; Schedule Advancement; Failure to Meet Low-Rise Access Date.
(a) Landlord agrees that if the tenants under the leases of the
existing buildings on the Land do not vacate the existing buildings by September
1. 1990, then Tenant may, within five (5) days after such date, terminate this
lease and receive a termination payment of Two Million Dollars ($2,000,000)
("Existing Tenant Vacation Termination Payment"). If Tenant so terminates this
lease, Landlord and Tenant shall be released from all liabilities and
obligations under or in connection with this lease, except that Landlord shall
be liable to make the Existing Tenant Vacation Termination Payment. The failure
of Tenant to terminate this lease within said five (5) day period shall be
deemed a waiver of the right to terminate this lease and waiver of the right to
receive the Existing Tenant Vacation Termination Payment by reason of the
failure of the tenants to vacate the existing buildings as aforesaid and this
lease shall remain in full force and effect.
(b) Landlord shall commence construction of the Building by March 1,
1991. Landlord will have no liability for failure to commence construction by
such date, except as hereinafter provided. "Commencement of construction" under
this paragraph means commencement of excavation and commencement of installation
of caissons. If Landlord fails to commence construction by March 1, 1991,
whether or not due to Force Majeure, then for informational purposes only
Landlord will promptly furnish Tenant a letter ("Informational Letter") from a
person or entity with sufficient experience and knowledge of the facts (who may
be a contractor, construction consultant, architect or other third party,
whether or not independent or employed by Landlord) stating whether or not
Landlord can achieve Substantial Completion of the low-rise portion of the
Building (as defined in Section 35 hereof) by the last date on which Tenant may
terminate this lease for failure to achieve Substantial Completion of the low
rise portion of the Building under Section 51, assuming no Force Majeure, and
which may be appropriately qualified if Force Majeure has already occurred. The
Informational Letter may assume that Landlord may use overtime or additional
work shifts.
(c) If Landlord fails to commence construction of the Building by
March 1, 1991, subject to Force Majeure (within the time limits hereafter
provided in this Section 50(c)), Tenant will have the right to terminate this
lease (subject to the restrictions set forth in this subsection) and receive a
termination payment of Ten Million Dollars ($l0,000,000) ("Construction
Termination Payment") upon such termination, as its sole remedy. If Landlord
fails to commence construction of the Building by March 1, 1991, as extended by
Force Majeure, and Tenant has not already terminated this lease as permitted
above, then Landlord will notify Tenant approximately thirty (30) days in
advance of the date on which Landlord anticipates it will commence construction
of the Building. In such case, Tenant may extend the March 1, 1991 date (and
correspondingly extend the right of Tenant to terminate this lease) for
commencement of construction, as extended by Force Majeure, each month on a
monthly basis, but not beyond April 1, 1992 in any event (and by each such
extension also extending its right to terminate this lease for Landlord's
failure to commence construction by March 1, 1991, as extended by Force
Majeure).
-88-
<PAGE> 97
In the event Landlord then fails to commence construction on or before March 1,
1991, as extended by Tenant and by Force Majeure, then as Tenant's sole remedy,
Tenant will have the right to terminate this lease and receive the Construction
Termination Payment upon such termination. Prior to an extension and at Tenant's
request, Landlord will deliver an updated Informational Letter to Tenant.
Tenant's notice of termination shall be made, if at all, within thirty (30) days
after Landlord's failure to meet the required date, but in no event later than
ten (10) days prior to Landlord's anticipated commencement of construction as
set forth in the 30-day advance notice from Landlord. Notwithstanding anything
to the contrary, but subject to Section 51 hereof, once Landlord has commenced
construction, Tenant may not terminate this lease or receive the Construction
Termination Payment. Extension of the date for commencement of construction due
to Force Majeure not constituting Extraordinary Force Majeure (as defined on
Attachment 15 hereto) will be limited to ninety (90) days. Landlord will not be
entitled to an extension of such date due to a Force Majeure event which would
have been avoided had Landlord acted in a timely and diligent manner intending
to meet target dates set forth in the schedule attached hereto as Attachment 13.
If Landlord has not commenced construction on or before April 1, 1992,
regardless of whether Extraordinary Force Majeure has occurred, then this lease
will automatically terminate; such automatic termination will be Tenant's sole
remedy and will have the same effect as a termination by Tenant under this
Section 50(c) and Tenant shall be entitled to prompt payment of the Construction
Termination Payment.
(d) On or about October 1, 1990, Landlord will review with Tenant
Landlord's proposed schedule for construction of the Building. No later than
sixty (60) days after commencement of construction, Landlord shall notify Tenant
whether it is advancing the schedule of events described in the time schedule
attached hereto as Attachment 13. Landlord will notify Tenant fourteen (14)
months in advance of the anticipated Low-Rise Access Date and will revise its
notice as may subsequently be necessary. If Landlord fails to meet the
anticipated Low-Rise Access Date or any revised date, then as Tenant's sole
remedy (except for the remedy expressly provided in Section 51 for failure to
meet the Low-Rise Access Date by the Outside Access Date) Landlord will pay
Tenant's reasonable costs and expenses payable to third parties which resulted
from mobilization of equipment or forces for the anticipated Low-Rise Access
Date which could not be avoided, postponed or minimized by Tenant when the date
was not met. If the schedule has been advanced as shown on Attachment 13 hereto
and Landlord meets the advanced target Low-Rise Access Date and the advanced
target date for Substantial Completion of the low-rise portion of the Building
(as defined in Section 35), then the Low-Rise Commencement Date will be the date
shown on the advanced schedule as shown on Attachment 13 hereto. Landlord will
not have any liability for failure to give notice of or meet any advanced
schedule date, except as expressly provided in Sections 50 and 51 and the second
to last paragraph of Section 35. If Landlord fails to give Tenant at least
fourteen (14) months' notice of the advanced Low-Rise Access Date, then as
Tenant's sole remedy the thirty-four (34) week period after the Low-Rise Access
Date described in the definition of Low-Rise Commencement Date will be extended
by the number of days between fourteen (14) months and the actual notice period
given before the advanced Low-Rise Access Date, but not in excess of
-89-
<PAGE> 98
the number of days between the Low-Rise Access Date and Tenant's subsequent
commencement of construction of Tenant Improvements for the Initial Premises.
The rights granted Tenant under this Section 50 are personal to
Chicago Title and Trust Company and its Affiliates.
51. Low-Rise Access Date; Substantial Completion; Termination Payment.
(a) Landlord hereby agrees to achieve Substantial Completion of the
low-rise portion of the Building (as defined in Section 35 hereof) by February
1, 1993, subject to extension for Force Majeure. Landlord will not have any
liability for failure to achieve Substantial Completion of the low-rise portion
of the Building by such date or any later date, except as hereinafter provided.
Remedies provided Tenant under this Section 51 will be Tenant's sole remedies
for Landlord's failure to achieve Substantial Completion of the low-rise portion
of the Building by such dates. If Landlord fails to achieve Substantial
Completion of the low-rise portion of the Building by February 1, 1993, whether
or not extended by Force Majeure, at Tenant's request Landlord will furnish
Tenant an Informational Letter.
In any event, if Landlord fails to achieve Substantial Completion of
the low-rise portion of the Building by February 1, 1993, then Landlord will be
responsible for any (a) rent and (b) Holdover Costs (as hereinafter defined), in
each case which would have been payable for the space then occupied by Tenant
after March 1, 1993 through October 31, 1993 (other than for space occupied by
persons intended to occupy the Top Floor); provided, however, if Force Majeure
has occurred, then Landlord shall not be obligated to pay rent, but only
Holdover Costs. If Landlord fails to achieve Substantial Completion of the
low-rise portion of the Building by February 1, 1993, then the target date for
Substantial Completion of the low-rise portion of the Building will then be
October 1, 1993, as shown on Attachment 13 hereto. If Substantial Completion of
the low-rise portion of the Building has not occurred by October 1, 1993,
Landlord will be responsible for any rent and Holdover Costs, in each case which
would have been payable for the space then occupied by Tenant for the period
after November 1, 1993 (other than for space occupied by persons intended to
occupy the Top Floor); provided, however, if Force Majeure has occurred, then
Landlord shall not be obligated to pay rent, but only Holdover Costs. If
Landlord has met the February 1, 1993, or October 1, 1993 Substantial Completion
dates, but because either: (a) the Low-Rise Access Date occurred less than
thirty (30) weeks before February 1, 1993 (or October 1, 1993, as the case may
be), or (b) Beneficial Occupancy did not occur at least thirty (30) days prior
to. February 1, 1993 (or October 1, 1993, as the case may be), or (c) a Landlord
Delay occurred, Tenant retained possession under Existing Leases after
expiration of the terms thereof and incurred Holdover Costs (for the reason that
Tenant was unable to move into the low-rise portion of the Initial Premises),
Landlord will be responsible for Holdover Costs of Tenant (other than for space
occupied by persons intended to occupy the Top Floor) incurred from March 1,
1993 until Tenant moves into the low-rise portion of the Premises, it being
understood and agreed that, as provided in Section 35 hereof, Tenant has no
obligation to move into the Premises other than
-90-
<PAGE> 99
in a February or October. However, Tenant shall only be entitled to such
Holdover Costs if within such thirty (30) week period or period of Beneficial
Occupancy Tenant would otherwise have completed its Tenant Work and moved into
the low-rise portion of the Premises. A statement from Tenant's architect or
contractor to the effect that Tenant could have completed its Tenant Work and so
moved in shall be conclusive, absent fraud. For purposes hereof the term
"Landlord Delay" shall mean the failure of Landlord to do any of the following:
(v) allow Tenant's contractors reasonable access to the Building or hoist in
accordance with this lease and the Access Date Specifications attached hereto as
Attachment 2, (w) provide temporary utilities to the Premises during
construction, (x) provide the proper physical environment necessary to perform
the Tenant Improvements, (y) provide permanent power to the Premises by twenty
four weeks after the Low-Rise Access Date, or the High-Rise Access Date, as the
case may be, so as to allow equipment testing prior to the move-in, and (z)
promptly inform Tenant's architect/consultant and designer of changes identified
to Landlord (presently being the entities identified as such in Schedule I to
Exhibit E) in the base building specifications and documents which would impact
on Tenant's ability to perform the Tenant Improvements. Tenant shall notify
Landlord in writing of the occurrence of a Landlord Delay.
If Substantial Completion of the low-rise portion of the Building is
not achieved by October 1, 1993, subject to extension for Extraordinary Force
Majeure, as Tenant's sole remedy for such failure (except for Landlord's
obligation to pay rent and Holdover Costs as stated aforesaid) Tenant will have
the right to terminate this lease and receive the Construction Termination
Payment. Tenant may waive the requirement that Substantial Completion of the
low-rise portion of the Building be achieved by October 1, 1993, and extend such
date to February 1, 1994, as extended by Extraordinary Force Majeure, in which
event Tenant shall have as its sole remedy for such failure (except for
Landlord's obligation to pay rent and Holdover Costs), the right to terminate
this lease and receive the Construction Termination Payment.
Notwithstanding the foregoing, if Landlord fails to meet either the
October 1, 1993 or February 1, 1994 dates (as extended as provided herein) and
at that, time Landlord provides an Informational Letter stating that Landlord
can achieve Substantial Completion of the low-rise portion of the Building
within ninety (90) days after the applicable date, as so extended (the end of
such 90-day period is herein called the "Outside Date"), and other back-up
evidence reasonably required by Tenant, then Tenant may not terminate this lease
and receive the Construction Termination Payment (and any prior termination will
be ineffective) until the Outside Date has occurred without Landlord having
achieved Substantial Completion of the low-rise portion of the Building.
Termination of this lease by Tenant shall be made, if at all, within fifteen
(15) days after the missed dates, as so extended, but in no event after
Substantial Completion of the low-rise portion of the Building. This lease will
automatically terminate if the Outside Date has occurred without Landlord having
achieved Substantial Completion of the low-rise portion of the Building,
notwithstanding that Tenant has not elected to terminate. For purposes of this
lease, such automatic termination will be Tenant's sole remedy (except for
Landlord's obligation to pay
-91-
<PAGE> 100
rent and Holdover Costs) and will have the same effect as a termination by
Tenant; in such event Tenant will also be entitled to receive the Construction
Termination Payment. Landlord agrees to immediately make such payment.
Notwithstanding anything herein to the contrary, if Substantial
Completion of the low-rise portion of the Building is not achieved by March 1,
1994 (without regard to whether Force Majeure or Extraordinary Force Majeure has
occurred), as Tenant's sole remedy for such failure (except for Landlord's
obligation to pay rent and Holdover Costs as stated herein), Tenant will have
the right (subject to Tenant's fraud) to terminate this lease and receive the
Construction Termination Payment. Landlord agrees to immediately make such
payment.
(b) If as of any date after the Outside Access Date, (i) the
Low-Rise Access Date has not occurred and (ii) less than thirty-four (34) weeks
remain prior to the Outside Date, then as Tenant's sole remedy, Tenant may,
subject to Tenant's fraud, within ten (10) days after such date, terminate this
lease and receive the Construction Termination Payment (less amounts previously
paid under Section 50(d)), unless at such date Landlord provides a letter from a
reputable and experienced contractor or construction consultant stating that
Tenant could nevertheless substantially complete its Tenant Improvements by the
Outside Date, including any back-up evidence reasonably required by Tenant, and
Landlord agrees to pay all overtime charges and other reasonable costs of
expediting the Tenant Work required to substantially complete it by the Outside
Date (and if such letter and agreement is provided, any termination will be
ineffective). Subject to fraud or manifest error, the opinion of Landlord's
consultant will be final. The "Outside Access Date" means July 1, 1993, as
extended by Force Majeure, but in no event later than August 1, 1993. Tenant may
exercise both the remedy provided for in this Section 51 and the remedy
provided for in Section 50(d), but any amounts payable under Section 50(d) and
this Section 51 will not exceed Ten Million Dollars ($10,000,000) and amounts
payable under one remedy shall be deducted against any amounts owed under the
other.
(c) If Landlord fails to achieve Substantial Completion of the
high-rise portion of the Building by July 1, 1993, then Landlord agrees to pay
Holdover Costs incurred by Tenant as a result of holdover occupancy by persons
intended to occupy the Top Floor after July 1, 1993. If Tenant has not
theretofore moved into the Top Floor, Landlord will also be responsible for
Holdover Costs of Tenant after August 1, 1993, if Landlord has met the July 1,
1993 Substantial Completion date, but because, either (a) the High-Rise Access
Date occurred less than thirty (30) weeks before July 1, 1993; or (b) Beneficial
Occupancy did not occur at least thirty (30) days prior to July 1, 1993; or (c)
a Landlord Delay occurs, Tenant retained possession under Existing Leases (as a
result of holdover occupancy by persons intended to occupy the Top Floor after
such missed date) after expiration of the terms thereof and incurred Holdover
Costs for the reason that it was unable to move into the Top Floor. However,
Tenant shall only be entitled to such Holdover Costs if within such thirty (30)
week period or period of Beneficial Occupancy Tenant would otherwise have
completed its Tenant Work and moved into the Top Floor. A statement from
Tenant's architect or contractor to the effect that Tenant could have completed
its Tenant Work and so moved in shall be conclusive, absent fraud.
-92-
<PAGE> 101
(d) Upon any termination of this lease under Section 50(c) or
Section 51, Landlord and Tenant shall be released from all liabilities and
obligations under or in connection with this lease, except that Landlord shall
be liable to make the Construction Termination Payment and rent payments
required by this Section 51 but shall have no further obligation to pay Holdover
Costs. Holdover Costs paid by Landlord shall reduce the Construction Termination
Payment, and Landlord will not have any obligation to pay Holdover Costs
exceeding Ten Million Dollars ($10,000,000) in the aggregate.
(e) Subject to the second paragraph of Section 51(a) and the second
sentence of Section 51(c), in any case where Landlord is responsible for rent or
Holdover Costs under this Section 51, such obligation shall not extend beyond
the date of Substantial Completion of the low-rise portion of the Building (in
the case of an obligation incurred due to the failure to achieve Substantial
Completion of the low-rise portion of the Building) or the high-rise portion of
the Building (in the case of an obligation incurred due to failure to achieve
Substantial Completion of the high-rise portion of the Building) or termination
of this lease, whichever is earlier. However, if Tenant does not terminate this
lease, then Landlord's obligation to pay Holdover Costs will survive, other than
for Holdover Costs attributable to Tenant's occupancy of existing space after
the date of Substantial Completion of the Building, except as stated in the
second paragraph of Section 51(a) and the second sentence of Section 51(c).
(f) Tenant will use its reasonable efforts to prevent or minimize
Holdover Costs and will cooperate with Landlord in effecting short-term
extensions, consolidating locations or coordinating move-outs to avoid
holdovers; provided, however, Tenant shall have no obligation to move into the
Premises other than in February or October or to incur any material and
unreasonable operational disruptions (it being understood and agreed for
purposes of this Section, that moving in and of itself shall not be considered
an operational disruption).
(g) The term "Holdover Costs" means any rent costs in excess of
normal rent which would have otherwise been payable for the applicable period
under the Existing Leases, direct or consequential damages provided for under
the terms of Existing Leases for holding over, costs of defense of suits by
landlords under Existing Leases and rent for any lease renewal by the landlords
as a result of the holdover permitted under the Existing Leases. If at the time
this lease is executed Tenant has waived its option under Section 2 to defer
occupancy of forty-six thousand (46,000) square feet of Rentable Area beyond the
Low-Rise Commencement Date, so that rent on such space commences on the Low-Rise
Rent Commencement Date, then for purposes of this Section 51 payment of Holdover
Costs (but not any of Landlord's obligations under Section 38), the term
"Existing Leases" shall include the 30 North Lease.
(h) upon Substantial Completion of the low-rise portion of the
Building or payment of the Construction Termination Payment to Tenant and
provided that Tenant has not terminated this lease pursuant to Sections 50 or 51
hereof, Tenant shall release to Landlord the personal guaranty and Letter of
Credit (to the extent not drawn under) described in Section 55.
-93-
<PAGE> 102
The rights granted Tenant under this Section 51 are personal to
Chicago Title and Trust Company and its Affiliates.
52. Financing Contingency. Landlord plans to meet a certain financing
milestone as follows:
By November 3. 1989, Landlord must have completed loan documentation
for financing of the construction of the Building.
Landlord has deposited cash in the amount of Five Hundred Thousand
Dollars ($500,000) (the "Deposit") in an escrow (the "Escrow") with American
National Bank and Trust Company as escrow agent (the "Escrowee") under an escrow
agreement (the "Escrow Agreement") dated January 4, 1989 and identified as
Escrow Trust No. 89539001, which Tenant has also executed. The Escrow Agreement
will not be deemed to supersede the provisions of this lease but merely to
facilitate the implementation of this Section 52. Landlord shall be entitled to
all interest on the Deposit. The Deposit is to be released to Landlord upon
satisfaction (or waiver by Landlord as described below) of the above financing
milestone and also delivery of the guaranty and a Letter of Credit substantially
in the form of Attachment 19 hereto as described in Section 55. The Deposit will
be released to Tenant from the Escrow (a) with consent of Landlord, or (b) upon
Tenant's affidavit delivered to Escrowee and Landlord that Tenant is entitled to
the payment under this Section 52 because (i) the appropriate milestone has not
been met, or (ii) the Personal Guaranty (as hereinafter defined) or the Letter
of Credit has not been delivered when required under Section 55. The failure to
meet the appropriate milestone and the failure to deliver the Personal Guaranty
or Letter of Credit are the only circumstances for which Tenant may receive and
retain the Deposit.
In any case where the financing milestone described above is not
met, Tenant and Landlord may mutually extend the date for occurrence of such
milestone. However, Landlord may waive satisfaction of the milestone for both
Landlord and Tenant in which case this lease will not automatically terminate
for failure to meet such date under any circumstances. Absent any such
extension, this lease will automatically terminate, and as Tenant's sole remedy,
it may receive and retain the Deposit as liquidated damages.
Upon termination of this lease under this Section 52, Landlord and
Tenant shall be released from all liabilities and obligations under or in
connection with this lease, except that Tenant shall be entitled to receive the
Deposit.
Tenant shall be furnished with reasonable verification regarding
compliance with the foregoing.
53. Design Approval South Tower.
(a) Tenant is hereby granted the right to approve which approval
shall be given in writing: (i) changes to the design of the Building made by
Landlord which are not within the scope of the schematic drawings attached to
this lease as Attachment 10 and renderings attached to this lease as Attachment
6 and specifications attached to this lease as Attachment 11 and the design
development drawings and specifications, if such changes directly and physically
affect
-94-
<PAGE> 103
the premises or the overall appearance or physical layout of the ground floor
lobby rotunda, (ii) the overall level of quality of design and use of materials
of the exterior wall only if and to the extent the design development drawings
and specifications do not meet the overall level of quality of design and use of
materials of the typical exterior wall for the following four (4) buildings
designed by Kohn, Pedersen, Fox & Associates (except that the schematic drawings
and specifications attached to this lease will supersede the design of the four.
comparison buildings: 101 Federal Street, Boston; 1201 Third Avenue, Seattle
Heron Tower - 70 East 55th Street, New York; 135 East 57th Street, New York (One
typical exterior wall detail is attached as Attachment 16 hereto for each of
those buildings), (iii) the overall level of quality of design and use of
materials in the rotunda, and (iv) the design of the top of the Building.
Notwithstanding that drawings and renderings of the top of the Building and
exterior of the Building are attached to this lease, such drawings and
renderings should not be deemed to have been approved by Tenant as they relate
to the top of the Building or the exterior of the Building.
(b) Landlord will cause to be furnished to Tenant (through a
representative designated by Tenant and authorized to give design approvals or
disapprovals) drawings and specifications for the Building as they are developed
in order to facilitate quick approvals. When Landlord submits drawings or
specifications to Tenant for Tenant's approval, Landlord shall deliver
simultaneously therewith written notice to Tenant stating that such materials
are delivered to Tenant for Tenant's approval within five (5) business days
pursuant to this Section 54(b). Tenant shall not unreasonably withhold its
approval where its approval is required, and if Tenant does not give its
approval or disapproval within five (5) business days after submittal of
drawings or specifications including such changes or information, its approval
will be deemed given.
(c) Any disagreement as to Tenants right to approve or
reasonableness of approval which is not resolved within three (3) business days
after it arises shall be submitted for arbitration to a panel of three (3)
arbitrators who are architects at the Chicago, Illinois office of the American
Arbitration Association chosen and acting in accordance with its then commercial
arbitration rules. The arbitrators shall be instructed to reach their
determination within thirty (30) days after the appointment. Fees and costs
shall be borne by the losing party. If Tenant is the losing party, it shall be
charged with delay and increased costs caused by its disagreement and
arbitration (provided that Landlord can demonstrate that a delay was caused).
Tenant's remedy for Landlord's failure to obtain Tenant's approval of design,
where required, shall be to enforce redesign in accordance with Tenant's
approval; provided, however, that in the event such redesign causes Landlord to
miss the dates set forth in Sections 50 and 51, Landlord shall be liable as set
forth in such Sections. Tenant hereby approves the schematic drawings and
specifications attached to this lease on Attachments 10 and 11 (including
Attachment 6) and is deemed to approve any drawings and specifications which
represent further development of the attached drawings and specifications which
will be
-95-
<PAGE> 104
submitted to Tenant for informational purposes. Notwithstanding anything herein
to the contrary there shall be seven elevators servicing the low-rise portion of
the Building.
(d) If Landlord or a Linpro Affiliate owns an interest in the North
Tower ownership and is a controlling principal of the North Tower ownership,
including the right to control the design and construction of the North Tower,
at the time such design and construction is undertaken, then Landlord agrees
that the North Tower will be architecturally similar and compatible to Phase One
and the height of the North Tower will be generally as shown in the renderings
attached to this letter as part of Attachment 6. This provision shall be binding
on Landlord only so long as Chicago Title and Trust Company and/or any of its
Affiliates occupies at least one hundred fifty thousand (150,000) square feet of
Rentable Area in the Building.
54. Restrictions on Other Building Leases.
(a) So long as Chicago Title and Trust Company and/or its Affiliates
maintains a presence of at least one hundred thousand (100,900) square feet of
Rentable Area in the Building and is engaged in the title insurance business,
Landlord will not enter into any leases in the Building, whose term falls within
all or part of the Term, with a tenant if any of such tenant's business in its
premises at the Building is the conduct of the business of title insurance
(including, without limitation, underwriting title insurance, abstracting and
title searches and being a title agency), to the extent such restriction on
Landlord is lawful. This restriction shall not apply to attorneys practicing law
who are involved in the title insurance business as an adjunct to the practice
of law, so long as identification of such tenant on suite entrance door, the
Building directory and signage outside the tenant's premises does not state that
the tenant is an agent for a title insurance company or a bar fund.
(b) During the Term of this lease, Tenant will have the right to
approve uses granted to tenants under leases of retail space on the ground
floor of the Building adjacent to North Clark Street or to West Randolph Street
which do not fall within the categories of approved retail uses attached to this
lease as Attachment 12. Landlord may from time to time submit a proposed use to
Tenant, who shall approve or disapprove such use within five (5) business days,
or such use will be deemed approved. Tenant's approval may not be unreasonably
withheld. Retail uses may not include a retail tenant that specializes in the
sale of pornographic materials.
(c) Landlord will restrict the uses of ground floor lobby space in
the Building and will cause or create such restrictions in the North Tower in
the following manner for as long as Chicago Title and Trust Company itself (or a
permitted Affiliate described in Section 12-to whom the Lobby Space was
permitted to be sublet under Section 12 hereof, so long as it remains an
Affiliate) remains as a tenant in the Lobby Space and uses the Lobby Space and
uses the Lobby Space (or closes up the Lobby Space and conceals it but continues
to pay Rent for the Lobby Space), unless Tenant consents to such use:
(i) Landlord will not rent space in the lobby of the Building
to any party or allow such space to be used by
-96-
<PAGE> 105
any party who engages in the Financial Services business or who intends to
provide Financial Services from said space during the term of this lease.
For the purposes of this restriction "Financial Services" shall mean the
following businesses: banks, trust companies, savings and loans, mutual
fund companies and securities brokerage. "Financial Services" shall not
include automatic teller machines or what is commonly referred to as "cash
stations."
(ii) For the North Tower, the restriction shall be the same as
in (i) above except that said restriction shall only exist so long as
Landlord or a Linpro Affiliate owns an interest in the North Tower
ownership and is a controlling principal of the north tower ownership.
The rights granted Tenant and restrictions upon Landlord under this
Section 54 are personal to Chicago Title and Trust Company and its Affiliates.
55. Personal Guaranty; Letter of Credit.
(a) A form of guaranty of Landlord's obligation to pay the
Construction Termination Payment described in Sections 50 and 51 ("Personal
Guaranty") is attached to this lease as Attachment 14. Landlord will deliver the
Personal Guaranty and a letter of credit substantially in the form of Attachment
19 attached hereto upon satisfaction (or waiver) of all contingencies described
in Section 52 and exchange of the Five Hundred Thousand Dollar ($500,000)
deposit. Such letter of credit and any letter of credit substituted for such
letter of credit are referred to as a "Letter of Credit." The Letter of Credit
will partially secure Landlord's obligation to pay the Construction Termination
Payment described in Sections 50 and 51 and fully secure the Existing Tenant
Vacation Termination Payment described in Section 50(a).
(b) The Letter of Credit will be irrevocable, will initially be in
the face amount of Two Million Dollars ($2,000,000), will be for the benefit of
Chicago Title and Trust Company and shall be issued by a bank fulfilling and
which continues to fulfill the standards set forth in Section 55(c) below. The
Letter of Credit will not be transferable, other than to an Affiliate of Chicago
Title and Trust Company. The face amount of the Letter of Credit shall be
reduced to One Million Dollars ($1,000,000) on the Low-Rise Access Date if the
Low-Rise Access Date occurs on or before the Outside Access Date. If the
Low-Rise Access Date does not occur by July 1, 1992, then Landlord may elect (a)
to (i) waive its right to reduce the Letter of Credit on the Outside Access Date
and (ii) treat any payment of the Pre-Construction Allowance as part payment of
any Construction Termination Payment owed under Section 51, or (b) waive its
right to treat any payment of the Pre-Construction Allowance as part payment of
the Construction Termination Payment owed under Section 51. If no election is
made, Landlord will be deemed to have elected (a) above. Tenant shall be
entitled to draw under the Letter of Credit up to its face amount (and shall
present the documentation required by the Letter of Credit) only under the
conditions (x) where Tenant is entitled to receive the Construction Termination
Payment under Section 50(c) and Section 51 or Existing Tenant Vacation
Termination Payment under Section 50(a) or (y) where Landlord has failed to
extend an expiring Letter of Credit when required under this
-97-
<PAGE> 106
Section 55, and under no other circumstances whatsoever. Tenant will return the
Letter of Credit to Landlord upon the termination of this lease for any other
reason whatsoever other than as set forth in Sections 50, 51, and 55 and will
assist Landlord in reducing the face amount of the Letter of Credit or extending
the maturity as may be permitted or required hereunder.
The initial Letter of Credit shall expire no earlier than twelve (12)
months after the date this lease is executed and delivered. Landlord will cause
the Letter of Credit to be extended for additional periods of not less than
twelve (12) months (but not beyond June 15, 1994) from the latest expiry date no
later than ten (10) days prior to such expiry date by delivery to Tenant of an
amended or substitute Letter of Credit so that at all times until June 15, 1994
(or such earlier date as Landlord's obligations secured by the Letter of Credit
have been satisfied), Tenant shall hold an unexpired Letter of Credit; provided;
if due to Extraordinary Force Majeure, the Outside Date would fall beyond June
15, 1994, and Landlord avails itself of such extension, Landlord shall cause the
Letter of Credit to be extended for at least fifteen (15) days beyond the
Outside Date, Tenant will have the right to present the expiring Letter of
Credit for payment if it has not been extended by the prescribed date and Tenant
shall hold such funds in an escrow account (interest benefiting Landlord) to be
used solely for payment of Landlord's obligations for which the Letter of Credit
was given as security and shall promptly refund to Landlord funds not required
to satisfy such obligation. Notwithstanding the foregoing, Landlord shall not be
obligated to extend the Letter of Credit (and Tenant shall not be entitled to
draw under it) if at the time the extension would otherwise be required Tenant
would not have any further right under Sections 50 and 51 to receive the
Construction Termination Payment or Existing Tenant Vacation Termination
Payment.
(c) The bank issuing the Letter of Credit shall be a federally
insured bank and shall, at all times the Letter of Credit is outstanding,
fulfill the following criteria:
(i) For each of the following categories of total assets such
bank shall be rated by Keefe Bankwatch, a service of Keefe,
Bruyette & Woods, Inc., no lower than the following:
<TABLE>
<CAPTION>
Total Assets Minimum Rating
------------ --------------
<S> <C>
$20,000,000,000 or more C
$5,000,000,000, or more, but
less than $20,000,000,000 B
</TABLE>
(ii) Tenant shall have the right to approve, in Tenant's sole
discretion, any bank having total assets of more than
$500,000,000, but less than $5,000,000,000; and
(iii) in no event shall the bank issuing the Letter of Credit
have total assets of less than $500,000,000.
-98-
<PAGE> 107
If the bank issuing the Letter of Credit ever ceases to fulfill the above
criteria, then Tenant, upon notice to Landlord, may require Landlord, at
Landlord's sole cost and expense, to have the Letter of Credit replaced by a
letter of credit issued by a bank fulfilling the above criteria. Landlord shall
reasonably cooperate with Tenant and the bank designated by Tenant in connection
with the exchange of the replacement Letter of Credit.
56. Cooperation on Leasing Other Space. Landlord will cooperate with
Chicago Title and Trust Company and will not arbitrarily refuse to lease other
space in the Building to Chicago Title and Trust Company, to the extent such
space is available, subject to existing third party rights, at the time of
Chicago Title and Trust Company's inquiry, but the rent and other terms of the
lease need not be on the terms of the lease for other space or at market rent,
and this does not constitute an option. However, in quoting rents Landlord will
also not take unfair advantage of the fact that Chicago Title and Trust Company
has leased a significant amount of space in the Building and would prefer, for
convenience, to lease space in the Building. The rights granted Tenant under
this Section 56 are personal to Chicago Title and Trust Company and its
Affiliates described in subsections (i), (ii) and (iv) of the definition of
Affiliate in Section 12(a) hereof.
57. Landlord's Assignment Rights. Landlord from time to time under this
lease shall not have any restriction on assignment of its right, title and
interest in and to the Lease, except that prior to Substantial Completion of the
high-rise portion of the Building, Landlord may not assign this lease to any
person other than a lender (and such lender may thereafter transfer to a third
party) or permitted assignee hereafter described unless Linpro or a Linpro
Affiliate retains general day-to-day responsibility for development and
construction of the Building and primary contact with Tenant as a managing
partner, development manager or in a similar role (it being understood that
ownership or overall control of management and construction may rest in such new
Landlord). During the period prior to Substantial Completion of the high-rise
portion of the Building, except in case of a transfer to a lender (or transfer
by a lender to a third party) either Linpro or a Linpro Affiliate or a permitted
assignee will be a partner of the Development Partnership or permitted assignee
and will retain the responsibility which would be required of it had there been
no assignment. For purposes of this Section 57 a permitted assignee shall mean
(i) the Development Partnership, or (ii) any partnership, joint venture or
corporation controlled directly or indirectly by or under common control with
Linpro or a Linpro Affiliate.
Subject to the provisions of the foregoing paragraph, in the event of any
assignment, conveyance or sale, once or successively, of Landlord's interest in
the Premises or any assignment of this lease by Landlord, said Landlord making
such sale, conveyance or assignment shall be and hereby is entirely freed and
relieved of all covenants and obligations of Landlord hereunder accruing after
such sale, conveyance or assignment, so long as such purchaser, grantee or
assignee assumes such covenants and obligations of Landlord hereunder. Tenant
agrees to look solely to such purchaser, grantee or assignee with respect
thereto to the extent such purchaser, grantee or assignee assumes such covenants
and obligations. This lease
-99-
<PAGE> 108
shall not be affected by any such assignment, conveyance or sale, and Tenant
agrees to attorn to the purchaser, grantee or assignee. A Mortgagee (or assignee
under an assignment in connection with a Mortgage) shall not be deemed such a
purchaser, grantee or assignee under this Section 57, unless and until the
foreclosure of any Mortgage or the conveyance or transfer of Landlord's interest
under this lease in lieu of foreclosure, and then subject to the provisions of
Section 17.
58. Delay. Landlord shall not be required to grant any consent or
approval or agree to any matter which could cause a delay in its ability to
perform, or its performance of, its obligations hereunder. Landlord agrees not
to delay Tenant by timely delivering floor plate and related information
necessary for Tenant's decisions to be made by December 8, 1989.
59. Schedule. Attached hereto as Attachment 13 is a time schedule of
various goals, events or milestones in connection with this lease. The only
obligations and remedies of the parties with respect to any of the items
referred to in Attachment 13 are as expressly stated in this lease.
60. Rights Personal to Chicago Title and Trust Company. Wherever there is
a reference in this lease to rights being personal to Chicago Title and Trust
Company or personal to Chicago Title and Trust Company and its Affiliates, such
reference shall mean that those rights may not be assigned, granted or
transferred by Tenant to any person, corporation, partnership or entity
(especially an assignee of this lease, any subtenant or any entity to whom
Landlord will be directly leasing space upon release of Tenant under Section 12)
other than an Affiliate where specifically stated herein.
61. Market Rental Rate.
(a) "Market Rental Rate" shall mean the annual rate of rent then
prevailing in the market for improved space in the Building comparable in square
footage, location and degree of improvements to the space with respect to which
such rate is being determined (to the extent that rental rates vary with respect
to area, location or degree of improvements) being leased for a duration
comparable to the period for which such space then to be leased for terms
commencing on or about the pertinent commencement date, as reasonably determined
by Landlord in the following manner. The Market Rental Rate shall be determined
by taking into consideration the rent under comparable fact situations in the
Building (based on leases signed or proposals made, but while mere proposals may
be indicated, they shall not be determinative) during the prior twelve (12)
month period or any more recent relevant period but shall assume the payment of
a commission to a broker (even though no such payment may be made by Landlord
under this lease); however, if there is not or has not been a comparable fact
situation in the Building during the previous twelve (12) month period, or if
Market Rental Rate is being determined for the purpose of the extension terms
for the Initial Office Premises, then the annual rate of rent then prevailing in
the market in comparable fact situations in comparable office buildings (based
on quality, age and location) in the central business district of Chicago.
Illinois involving arm's length leases to new tenants (not renewals) involving a
willing landlord (not acting under duress or compulsion) shall be used. Where
Market Rental Rate is being determined for
-100-
<PAGE> 109
low-rise space, comparable fact situations in the North Tower, if the North
Tower is comparable to the Building (based on quality, location and relative
age), will be used instead of the Building. Where Market Rental Rate is being
determined for high-rise space, comparable fact situations in the North Tower,
if the North Tower is comparable to the Building (based on quality, location and
relative age), shall be used before using other comparable office buildings.
Where Market Rental Rate is being determined for such extension terms,
comparable buildings will also be occupied and have at least comparable
occupancy levels. The Market Rental Rate may include, among other
then-prevailing components of rent, a fixed annual rent, rental payments based
on a share of Building real estate taxes and other expenses, periodic increases
in rent to. adjust for inflation and allowance for construction of tenant
improvements. The Market Rental Rate shall take into account any financial
concessions then being given (such as abatements, rent credits, equity interest
or percentage interest in cash flow, proceeds of sale or refinancing, lease
assumptions or payments by the landlord of tenant expenses). If the space for
which the Market Rental Rate is being determined has not been improved for
occupancy by an office tenant, the Market Rental Rate shall include the
prevailing allowances for tenant improvements and related items (or dollar
equivalency of tenant improvements then being constructed by Landlord for
tenants under its building standard workletter, if Landlord is performing
construction). Market Rental Rate shall take into account measurement of space
used in arriving at Market Rental Rate. The Market Rental Rate shall also take
into account the value of any special features of the space being leased to
Tenant in the Building such as customized or specialized improvements (including
escalators [to the extent rental rates vary with respect to such items]), tenant
identification (signage and building name [to the extent rental rates vary with
respect to such items]), floor efficiency and measurement of space for purposes
of rent calculation, and use of other areas (such as rotunda and antennas on the
roof). Where a percentage of Market Rental Rate is being used to determine rent,
the percentage shall only apply to the fixed annual rent portion of Market
Rental Rate and not any portion of such fixed annual rent or other component of
rent based on a share of Building real estate taxes or Building expenses. Rental
rates stated in this lease will not be used as evidence of Market Rental Rate.
(b) An appraisal procedure will be used to resolve disagreements on
Market Rental Rate involving more than seven thousand five hundred (7,500)
square feet for more than a two (2) year term. If Tenant disagrees with
Landlord's determination of Market Rental Rate (which Tenant must do, if at all,
in writing within seven (7) days after notice of Landlord's determination of
Market Rental Rate in which notice Tenant must state its determination of the
Market Rental Rate) then each party will select an appraiser to determine Market
Rental Rate. Each such appraiser shall make a determination of the Market Rental
Rate within ten days of his appointment. If the two determinations of Market
Rental Rate vary by less than five percent (5%) of the lower determination, then
the average appraisal shall be the Market Rental Rate. Otherwise, a third
appraiser will be appointed within twenty five (25) days after the appointment
of the first two appraisers. The third appraiser shall make his determination of
Market Rental Rate within ten (10) days of his appointment. If such third
-101-
<PAGE> 110
determination and the average of the first two determinations of Market Rental
Rate vary by less than ten percent (10%) of the lower of such third
determination and the average of the first two determinations, all three
determinations will be averaged to determine Market Rental Rate. Otherwise, the
average of the two closest determinations of Market Rental Rate shall be the
Market Rental Rate. The three appraisers shall be MAI appraisers licensed by the
State of Illinois and shall have at least ten (10) years experience in
appraising office space in downtown Chicago. The cost of the appraisals shall be
borne by the party furthest from the Market Rental Rate, except that in any case
where Market Rental Rate or a percentage of Market Rental Rate is used as a cap
on rents stated in this lease, Tenant shall bear all costs of the appraisals.
62. Landlord's Construction.
(a) Landlord agrees that the Building shall be constructed in
accordance with the schematic drawings and specifications attached hereto as
Attachments 6, 10 and 11 as developed and changed from time to time and the
components of Substantial Completion shall require construction in accordance
with those drawings and specifications upon which governmental permits were
issued. (The foregoing does not modify Tenant's approval rights as to certain
plans and specifications described in Section 53.) If there is any conflict or
variance between the schematic drawings attached hereto as Attachment 10 or the
renderings attached hereto as Attachment 6 and the specifications attached
hereto as Attachment 11, the specifications shall be deemed to govern and
control. The low-rise elevator bank of the Building shall consist of twelve (12)
floors, being floors two (2) through thirteen (13). Landlord shall use
reasonable efforts to accommodate Tenant's desires to have an additional
low-rise floor if Tenant anticipates it will be leasing such additional floor,
but Landlord's architectural and engineering needs shall govern.
(b) Landlord shall make the Initial Premises watertight fifteen (15)
weeks after the Low-Rise Access Date. All roofs and waterproofing installations
must be complete or a waterstop provided fifteen (15) weeks after the Low-Rise
Access Date.
(c) Landlord shall, at its sole cost and expense, construct
escalators as may be required under Section 41.
(d) Landlord shall, at its sole cost and expense, construct a
pedestrian tunnel connecting the Building to the State of Illinois Building on
the terms provided in Section 42.
(e) Landlord shall, at its sole cost and expense, provide sprinkler
main and foundation waterproofing for the Vault Space. Mechanical and electrical
service pursuant to specifications attached as Attachment 11 will be made
available by Landlord to Tenant at lower level III (or such other lower level to
which the Vault Space has been relocated) within thirty (30) feet of the core of
the Building.
63. Kitchen Facilities. Tenant agrees that the Kitchen Facilities shall be
operated subject to the following restrictions and conditions:
(a) Tenant shall, at its sole cost and expense, provide the
necessary exhaust fans and systems, ductwork (but Landlord shall provide, at
Landlord's cost, base building vertical duct and roof fans) and venting to
ensure that all smoke, odors, vapors and steam are exhausted from the Kitchen
-102-
<PAGE> 111
Facilities. Such systems shall be installed so as to prevent the discharge of
smoke, odors, vapors and steam into the common areas of the Building or into
spaces leased to other tenants.
(b) No exhaust vents, flues, pipes or other outlets shall be
installed through the walls, floor or ceiling of the premises or through any
portion of the Building (including but not limited to the exterior walls or the
roof of the Building) without the written consent of Landlord as to the
location, construction and appearance thereof. Landlord may require that
Tenant's exhaust system be connected to pipes, stacks, flues, vents or other
facilities located outside the Premises and intended for use by Tenant and other
food preparation facilities in the Building. In such event, Tenant shall provide
the necessary pipes, vents, ductwork and other facilities to connect Tenant's
exhaust system thereto.
(c) Tenant's exhaust or venting systems shall include fire
prevention and extinguishment facilities or systems as may be reasonably
required from time to time in view of Tenant's methods and volume of cooking and
other food and beverage preparation. This shall be in addition to any sprinkler
or other fire protection facilities installed in the Premises.
(d) Tenant shall regularly and adequately clean or provide for the
cleaning of all exhaust and venting systems serving the Premises. This cleaning
shall include degreasing of all hoods, fans, vents, pipes, flues, grease traps
and other areas of such systems subject to grease buildup. Tenant shall provide
to Landlord, upon demand, reasonable proof that Tenant is doing such cleaning
and degreasing or causing it to be done. In the event that Tenant shall refuse
or fail to clean and degrease such systems or to arrange for the cleaning and
degreasing of such systems, then Landlord may, after seven (7) days notice to
Tenant, arrange for the cleaning and degreasing thereof, and Tenant shall pay
the entire cost thereof plus a charge equal to ten percent (10%) of such cost as
an over-head and supervision fee.
(e) In the event that Tenant's exhaust or venting systems connect to
pipes, stacks, vents or other facilities located outside the Premises and used
by Tenant and other food preparation facilities in the Building, Tenant and the
other users thereof shall provide for the regular cleaning and degreasing
thereof as necessary, and Tenant and such other users shall share the cost as
agreed by Tenant and such other users. In the event that Tenant and such other
users shall refuse or fail to clean and degrease such pipes, stacks, vents or
other facilities, then Landlord may arrange for the cleaning and degreasing
thereof, and Tenant shall pay a prorata portion of the cost of such work plus a
charge equal to ten percent (10%) of such cost as an overhead and supervision
fee based on the ratio of the Rentable Area of the Kitchen Facilities to the
total Rentable Area of all kitchen premises in the Building which are connected
to such facilities.
(f) Tenant shall, at its sole cost and expense, engage professional
exterminators to service the Kitchen Facilities, including but not limited to
all food preparation and food storage areas, at such frequency and to the extent
necessary to keep the Kitchen Facilities and the Premises free of insects,
rodents, vermin and other pests and to prevent insects, rodents, vermin and
other pests from the Kitchen
-103-
<PAGE> 112
Facilities and the Premises infesting spaces leased to other tenants or the
common areas of the Building and the Land. Tenant shall provide to Landlord,
upon demand, reasonable proof that Tenant is causing such exterminating to be
regularly performed. In the event that Tenant shall refuse or fail to have such
exterminating regularly performed, then Landlord may, after seven (7) days
notice to Tenant, arrange for such work to be done, and Tenant shall pay the
entire cost thereof plus a charge equal to ten percent (10%) of such cost as an
overhead and supervision fee.
(g) Tenant shall receive the delivery of all goods and merchandise
to the Kitchen Facilities and the removal of all merchandise, supplies,
equipment, garbage and waste from the Kitchen Facilities only by way of the
loading dock, freight elevators and service corridors.
(h) Tenant shall, at its sole cost and expense, comply with local
fire safety and building code requirements and with Landlord's requirements
relating to sanitation, extermination and waste disposal.
(i) Tenant shall, at its sole cost and expense, remove all kitchen
waste from the Premises and have all such waste taken away from the Building on
a nightly basis.
64. Future Rights to Lease Vault Space.
(a) By written notice to Landlord given on or before December 8,
1989, Tenant may elect to lease the entire balance of the Vault Space on the
same floor as the Original Vault Space but not included in the Original Vault
Space, such balance being as shown on the plan attached as Exhibit F hereto
("Additional Vault Space"), but not less than the entire Additional Vault Space
for a total, including the Original Vault Space, of approximately 20,000 square
feet of Rentable Area of vault space. Base Rent for the Additional Vault Space
will be at the annual rate of Twelve Dollars ($12.00) per square foot of
Rentable Area of Additional Vault Space. No Additional Rent is payable with
respect to such Additional Vault Space. Original Vault Space and Additional
Vault Space leased on or before December 8, 1989 will be contiguous space. If
Tenant does not exercise the foregoing option to lease Additional Vault Space,
Tenant will have the option to lease up to 1,500 more square feet of Rentable
Area of Additional Vault Space contiguous to the Original Vault Space by written
notice to Landlord no later than February 1, 1991, at the rate of Twelve Dollars
($12.00) per square foot of Rentable Area of Additional Vault Space. The term of
this lease with respect to the Additional Vault Space leased under this Section
64(a) will commence on the Low-Rise Commencement Date.
(b) Landlord hereby grants to Tenant the right to lease, on the
terms and conditions hereinafter set forth, Additional Vault Space (i) at the
time when Landlord is making a serious proposal to lease such space to a
prospective tenant during the period ("Vault Offer Period") after February 1,
1991 until the expiration of the First Offer Period (defined in Section 45)
provided that during the last five (5) years of the initial Term, Tenant's
rights shall be in effect if proposals are then being made for vault space for
terms which would expire before the end of the initial Term or (ii) which is
"Available for Leasing" (as defined in Section 64(b)(ii) as it
-104-
<PAGE> 113
applies to Additional Vault Space for a term commencing on the Additional Vault
Space Commencement Date (as hereafter defined):
(i) During the Vault Offer Period Landlord shall notify Tenant
("Vault Offer Notice") on or about the time it is making a serious
proposal to a prospective tenant for a term of lease which would fall in
whole or part during the Vault Offer Period. The Vault Offer Notice shall
contain the location and Rentable Area of such portion of the Additional
Vault Space, a date for commencement of the term with respect to such
portion of the Additional Vault Space if leased by Tenant (the "Additional
Vault Space Commencement Date"), and the Market Rental Rate which it
determines for such space for a term commencing on the Additional Vault
Space Commencement Date, which shall in no event be greater than the
rental rate being offered to such prospective tenant. Rent for Additional
Vault Space leased under this Section 64(b)(i) shall be at the Market
Rental Rate (not including those elements which are not applicable to the
leasing of space of the same nature and utility as the Additional Vault
Space). The Additional Vault Space Commencement Date shall not be less
than sixty (60) days after the date such notice is given by Landlord.
Tenant's right to lease the Additional Vault Space described in the Vault
Offer Notice shall be exercisable by written notice from Tenant to
Landlord of Tenants election to exercise said right given not later than
fifteen (15) business days after the Vault Offer Notice is given. Tenant
may not elect to lease less than all of the Additional Vault Space
included in the Vault Offer Notice. Tenant's right to lease such
Additional Vault Space within the time set forth in this Section 64(a)
shall revive and Landlord shall give another Vault Notice if negotiations
with the prospective tenant have been abandoned without consummation of a
lease of Additional Vault Space and Landlord is again making a serious
proposal to lease Additional Vault Space.
(ii) After February 1, 1991 and prior to initial leasing of
Additional Vault Space, if Tenant in good faith desires to lease
Additional Vault Space which is Available for Leasing, Tenant may request
that Landlord notify Tenant of the Additional Vault Space which is then
available for leasing and the Market Rental Rate, and Landlord shall
notify Tenant ("Vault Availability Notice") within fifteen (15) days after
such request as to which Additional Vault Space is Available for Leasing
and the Market Rental Rate for Vault Space which Tenant may lease. Rent
for Additional Vault Space leased under this Section 64(b)(ii) shall be at
the Market Rental Rate (not including those elements which are not
applicable to the leasing of space of the same nature and utility as the
Additional Vault Space). Tenant may elect by notice to Landlord to lease
First Offer Space which is then available for leasing as of an Additional
Vault Space Commencement Date no earlier than ten (10) days nor later than
thirty (30) days after its notice to Landlord. Tenant shall designate the
Additional Vault Space Commencement Date in its notice. Tenant may not
elect to lease less than all contiguous Additional Vault Space then
available for leasing. A portion of the Additional Vault Space shall be
deemed to be Available for Leasing when:
-105-
<PAGE> 114
A. Negotiations by prospective tenants to lease
Additional Vault Space have been abandoned, and Landlord has not
subsequently made a serious proposal which would trigger Tenant's
right to lease Space under Section 64(b)(i); and
B. The Additional Space is vacant and there are no legal
rights to possession or rights to lease held by persons other than
Landlord.
(iii) Tenant may only exercise its right to lease Additional
Vault Space under Section 64(b) and an exercise thereof shall only be
effective, if at the time of Tenant's exercise of said right this lease is
in full force and effect and Tenant is not in Default.
(c) If Tenant has exercised its right to lease a portion of the
Additional Vault Space, then effective as of the commencement of the term of
lease of the Additional Vault Space, such portion of the Additional Vault Space
shall be included in the term "Vault Space" and in the Premises, subject to all
of the terms, conditions and provision; of this lease applicable to Vault Space
except that:
(i) Rent for Additional Vault Space leased under Section 64(a) shall
be at the rate for Base Rent stated therein; Rent for Additional Vault
Space leased under Section 64(b) shall be at Market Rental Rate (not
including those elements which are not applicable to leasing of space of
the same nature and utility as the Additional Vault Space) for similar
space;
(ii) the Rentable Area of the Vault Space shall be increased by the
Rentable Area of such portion of the Additional Vault Space;
(iii) the term of the demise covering such portion of the Additional
Vault Space shall commence on the Low-Rise Commencement Date, as to
Additional Vault Space leased under Section 64(a), and on the Space
Commencement Date, as to Additional Vault Space leased under Section
64(b), and shall expire simultaneously with the expiration or earlier
termination of the Term, including any extension or renewal thereof; and
(iv) the Additional Vault Space shall be leased in its "as is"
condition as of the First Offer Space Commencement Date, and Landlord
shall have no obligation to improve such space for Tenant's occupancy
except as set forth in Section 62(e).
(d) If Tenant has exercised its right to lease a portion of the
Additional Vault Space, within thirty (30) days after request by either party,
Landlord and Tenant shall enter into a written supplement to this lease
confirming the terms, conditions and provisions applicable to such portion of
the Additional Vault Space.
(e) In the event Landlord wilfully fails to deliver possession on
the pertinent Additional Vault Space Commencement Date of a portion of the
Additional Vault Space which Tenant has exercised its right to lease under
Section 64(b), such failure shall be deemed a default of this Lease by Landlord
-106-
<PAGE> 115
under Section 29 hereof, subject to the notice and cure provisions contained
therein. The failure of Landlord to deliver such space on account of the
hold-over by a prior tenant or occupant or on account of Force Majeure shall not
be deemed wilful.
(f) In the event any portion of the Additional Vault Space is leased
to Tenant other than pursuant to the rights granted Tenant under this Section
64, such portion of the Additional Vault Space shall thereupon be deleted from
the Additional Vault Space.
(g) Tenants rights under Section 64(b) to lease Additional Vault
Space shall be limited to Additional Vault Space in an amount not to exceed
twenty thousand (20,000) square feet of Rentable Area (when taken together with
other Vault Space leased).
65. Determination By Arbitration. In the event of the failure of the
parties to agree as to any matter which under the terms of this lease is to be
determined by arbitration (but not specifically pursuant to Sections 47 or 61(b)
hereof), such dispute shall be determined by arbitration as hereinafter
provided. Landlord and Tenant shall each appoint a fit and impartial person as
arbitrator who shall have had at least ten (10) years' experience as to the
subject matter of the dispute. Such appointment shall be signified in writing by
each party to the other. The arbitrators so appointed, in the event of their
failure to agree within ten (10) days upon the matter so submitted, shall
appoint a third arbitrator within ten (10) days after said first ten (10) day
period. In the case of the failure of such arbitrators (or the arbitrators
appointed as hereinafter provided) to agree upon a third arbitrator, such a
third arbitrator Shall be appointed by the American Arbitration Association or
its successor, from its qualified panel of arbitrators, and shall be a person
having at least ten (10) years' experience as to the subject matter in question.
In case either party shall fail to appoint an arbitrator within a period of ten
(10) days after written notice from the other party to make such appointment,
then the arbitrator appointed by the party not in default hereunder shall
appoint a second arbitrator having at least ten (10) years' experience as to the
subject matter in question. The two (2) arbitrators so appointed, in the event
of their failure to agree upon the matter so submitted within ten (10) days
thereafter, shall appoint a third arbitrator within ten (10) days.
The arbitrators shall proceed with all reasonable dispatch to determine
the question submitted. The decision of the arbitrators shall in any event be
rendered within thirty (30) days after their appointment, and such decision
shall be in writing and in duplicate, one counterpart thereof to be delivered to
each of the parties. The arbitration shall be conducted in accordance with the
rules of the American Arbitration Association (or its successor) and applicable
Illinois law, and the decision of a majority of the arbitrators shall be
binding, final and conclusive on the parties. If a majority of the arbitrators
believe that expert advice would materially assist them in the resolution of the
matter in dispute, they may retain one or more qualified persons, including but
not limited to, legal counsel, architects or engineers, to provide such expert
advice. The fees of the
-107-
<PAGE> 116
arbitrators and the expenses incident to the proceedings shall be borne equally
between Landlord and Tenant. The fees of respective counsel engaged by the
parties, and the fees of expert witnesses and other witnesses called for by the
parties, shall be paid by the respective party engaging such counsel or calling
or engaging such witnesses.
66. Top Floor. By written notice to Landlord or before December 8, 1969,
Tenant may elect to create two story space on the Top Floor by displacing the
floor area on the above floor. In the event Tenant so elects Base Rent for the
Top Floor shall be increased by $20.00 per square foot of usable area displaced
on such above floor, such amount to be increased by $1.00 per annum per square
foot of usable area; provided, however, Tenant shall have no obligation to pay
any Taxes or Expenses allocable to the displaced area.
67. Confidentiality. Tenant agrees that the information and documentation
delivered pursuant to this Section 47 and Section 52 is proprietary and
confidential. Accordingly, Tenant agrees that it will use reasonable, good faith
efforts not to, and will direct its employees not to, disclose to any person any
knowledge gained from such information and documentation, except that Tenant may
disclose such information and documentation to its consultants, attorneys and
advisers where necessary to assist in evaluating such information and
documentation, so long as such consultants, attorneys and advisers agree not to
disclose such information and documentation or knowledge gained from it.
68. Short Form of Lease. Landlord and Tenant shall execute and record the
Short Form of Lease attached hereto as Exhibit I.
IN WITNESS WHEREOF, the parties have caused this lease to be executed as
of the date first above written.
LANDLORD:
LINPRO CHICAGO LAND LIMITED
PARTNERSHIP, an Illinois limited
partnership
BY: LINPRO CHICAGO PROPERTY I
LIMITED PARTNERSHIP an
Illinois limited partnership
By: /s/ Michael [ILLEGIBLE]
-------------------------
A Managing General
Partner
TENANT:
CHICAGO TITLE AND TRUST COMPANY,
an Illinois corporation
BY: /s/ [ILLEGIBLE]
-----------------------------
BY: /s/ [ILLEGIBLE]
-----------------------------
-108-
<PAGE> 117
[LETTERHEAD OF CHICAGO TITLE INSURANCE COMPANY]
October 31, 1989
Linpro Chicago Land Limited Partnership
[ILLEGIBLE]5 West Wacker Drive, Suite 1120
Chicago, Illinois 60601
Attention: Michael Pepper
Re: Lease Between Linpro Chicago Land Limited Partnership, an Illinois
limited partnership ("Landlord"), and Chicago Title and Trust
Company, an Illinois corporation ("Tenant"), dated July 24, 1989
(the "Lease")
Mr. Pepper:
Reference is made to the above captioned Lease. Pursuant to your request
to extend the financing milestone date set forth at Section 52 of the Lease,
this letter will serve to evidence the following modification to the Lease.
The reference to November 3, 1989 as the financing milestone date in
Section 52, Attachment 13 and elsewhere in the Lease are hereby modified to be
references to December 1, 1989.
In all other respects the Lease remains in full force and effect, as
modified and amended hereby.
Please indicate your agreement to the foregoing by signing the duplicate
copy of this letter and returning it to the undersigned.
Chicago Title and Trust Company
By: /s/ [ILLEGIBLE]
------------------------------
Agreed and Accepted this 1st day
of November, 1989
Linpro Chicago Land Limited Partnership
By: Linpro Chicago Property I
Limited Partnership
By: /s/ [ILLEGIBLE]
-----------------------------------
a managing general partner
<PAGE> 118
FIRST AMENDMENT TO LEASE
This First Amendment to Lease (this "Amendment") dated as of
November 17, 1989, by and between 161 NORTH CLARK STREET LIMITED PARTNERSHIP, a
Delaware limited partnership ("Landlord"), and CHICAGO TITLE AND TRUST COMPANY,
an Illinois corporation ("Tenant").
RECITALS:
1. Linpro Chicago Land Limited Partnership ("Linpro Land") and Tenant
heretofore entered into that certain Lease (the "lease") dated as of July 24,
1989, by and between Landlord and Tenant and covering approximately 248,000
square feet of Rentable Area in the Building.
2. Landlord has succeeded to the interest of Linpro Land under the Lease.
3. All words or terms with their initial letters capitalized in this
Amendment which are not defined in this Amendment will have the same meanings as
are ascribed to such words or terms in the lease.
4. Landlord and Tenant now desire to emend the lease in the manner
hereinafter set forth.
WITNESSETH:
NOW, THEREFORE, for and in consideration of the covenants and
agreements contained in this Amendment and other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged,
Landlord and Tenant hereby agree as follows:
ARTICLE I
AMENDMENTS TO LEASE
1.01 Definitions. As used in this Amendment and in the lease, the
following terms shall have the meanings set forth below:
<PAGE> 119
(a) Accumulated Capital Base. The total from time to time of a
Partner's Equity Contributions and any portion of such Partner's Preference
Return added to the Partner's Accumulated Capital Base pursuant to section 4.03
of the Partnership Agreement, as such total is from time to time reduced by
distributions of Net Cash Flow, pursuant to section 4.02(b)(ii) of the
Partnership Agreement, and Financing Funds and Sale Proceeds, pursuant to
section 4.04(b)(ii) of the Partnership Agreement.
(a-l) Affiliates. As to Linpro or any Partner which is a Linpro
Affiliate (as defined in section 47(d) below), a Linpro Affiliate; as to other
Partners, an "affiliate" (as defined in the Partnership Agreement).
(b) Annual Plan. As defined in section 8.02(a) of the Partnership
Agreement.
(c) Capital Debt. As defined in section 3.08(a) of the Partnership
Agreement.
(c-l) Capital Funds Chicago Title Participation Amount. As defined
in Section 1.01(g) on this Amendment.
(c-2) Capital Funds TLC Participation Amount. As defined in Section
1.01 (11) of this Amendment.
(d) Capital Preference Return. A preference return on Equity
Contributions made by the Investors equal to the positive difference, if any,
obtained by subtracting (i) the compounded value at 12% per annum of all
distributions made to the Investors (whether out of Net Cash Flow or out of
Financing Funds or Sale Proceeds (after taking into account any forfeiture and
transfer of a Squeezed Interest)] prior to the date of the calculation of such
preference return from (ii) the compounded value at 12% per annum of all Equity
Contributions made by the Investors from the dates contributed to the date of
the calculation of such preference return.
(e) Cash Flow. The excess of (i) all cash receipts of the
Partnership, other than (A) contributions (including Equity Contributions) and
loans by the Partners to the Partnership, (B) Financing Funds and Sale Proceeds,
and (C) amounts of cash equal to the cash reductions and exclusions to be made
as provided in Sections 1.01(n) and 1.01(hh) of this Amendment in computing
Financing Funds and Sale Proceeds, over (ii) the total of (A) cash expenditures
of the Partnership [but to the extent that such expenditures represent payments
to a Partner or an Affiliate (as defined in the Partnership Agreement) of a
Partner the amount of such deductions will be limited to amounts which would be
paid to parties which are not Affiliates of a Partner for similar goods or
services and, to the extent not paid by tenants of the Property, any monthly
property management fee payable to an Affiliate of
-2-
<PAGE> 120
Linpro may not exceed a then-current market rate for such fee at the time of
the entry into the applicable management agreement with an Affiliate of Linpro],
including, without limitation, installments of interest on and principal of
loans to the Partnership, the proceeds of which were used to pay, costs and
expenses incurred in connection with the ownership and operation of the Property
or were distributed in accordance with the provisions of Section 4.04 of the
Partnership Agreement, whether or not secured by mortgages on the Property or
any part thereof or interest therein, as such installments fall due but
excluding (1) amounts referred to in Section 1.01(e)(i)(c) of this Amendment,
and (2) amounts distributed pursuant to section 4.02(a) or 4.04(a) of the
Partnership Agreement, (B) reserves and capital expenditures provided for by the
Annual Plan at the time in effect (or otherwise jointly approved by Linpro and
the Company) and (C) expenditures authorized by sections 8.02(a)(x) and (y) of
the Partnership Agreement. Any cash receipts of the Partnership from the
ownership and operation of the Property which are placed in a reserve or are
otherwise excluded from Cash Flow in order to pay expected future obligations of
the Partnership, but which are not required to pay any such obligations, will be
deemed to be Cash Flow when the General Partners determine that such receipts
are no longer required to pay such obligations.
(f) Chicago Title Participation Percent. The product of twenty-five
percent (25%) and a fraction whose numerator is the Rentable Area of the Initial
Office Premises and whose denominator is the total Rentable Area of the
Building; provided, however, that such product will be reduced to zero,
effective as of the date that the entire interest of Linpro in the Partnership
has been sold, transferred, forfeited or assigned (whether pursuant to (A) an
arms length transaction between Linpro and a third party (which third party
shall include, if the entire interest of Linpro in the Partnership is sold,
transferred, forfeited or assigned pursuant to an arms length transaction, the
Investors exercising (i) any right of first offer pursuant to section 10.04(c)
of the Partnership Agreement, (ii) any right of first opportunity pursuant to
sections 10.06 and 10.07 of the Partnership Agreement and (iii) any purchase
right pursuant to section l0.02(a)(iv) of the Partnership Agreement, (B) a
forfeiture and transfer described in sections 3.03(b), 3.03(c) or 3.06(a) of the
Partnership Agreement, (C) a transfer described in Article XI of the Partnership
Agreement or (D) a foreclosure, affecting the entire interest of Linpro in the
Partnership, by any of the Investors holding a security interest in such
Partnership interest in connection with a Special Partner Loan made by such
Investors to Linpro) and all payments (including cash and distributions of
property) of the Chicago Title Participation Amounts, if any, have been paid to
Tenant in connection with such transaction. Notwithstanding the foregoing, the
Chicago Title Participation Amounts will not be reduced by a voluntary
non-arms length transfer or by a foreclosure of a security interest in the
interest of Linpro in the Partnership (except as expressly provided in the
immediately preceding sentence).
-3-
<PAGE> 121
(g) Chicago Title Participation Amounts. The amounts payable by
Landlord to Tenant pursuant to Section 47 of the lease; which amounts will be as
follows: (A) the product (the "Net Cash Flow Chicago Title Participation
Amount") of the Chicago Title Participation Percent multiplied by the Net Cash
Flow remaining after the distributions to the Partners pursuant to sections
4.02(b)(i) and (ii) of the Partnership Agreement; (B) the product (the "Capital
Funds Chicago Title Participation Amount") of the Chicago Title Participation
Percent multiplied by Financing Funds and Sale Proceeds remaining after the
distributions to the Partners pursuant to sections 4.04(b)(i), (ii)and (iii) of
the Partnership Agreement; and (C) the product (the "Linpro Capital Funds
Chicago Title Participation Amount") of the Chicago Title Participation Percent
multiplied by Financing Funds and/or Sale Proceeds distributable to Linpro
pursuant to section 4.04(b)(iii) of the Partnership Agreement (after taking into
account any forfeiture and transfer of a Squeezed Interest).
(h) Chicago Title Participation Right. As defined in Section 47(a)
of the lease.
(i) Company. Clark Street General Corporation B.V.; such term will
include anyone who is substituted for Clark Street General Corporation B.V. as a
General Partner in accordance with the terms of the Partnership Agreement.
(j) Development Plan. As defined in section 1.05 of the Partnership
Agreement.
(k) Equity Contributions. Cash contributed to the Partnership by (i)
an Investor pursuant to sections 3.03(a) and 3.03(c) of the Partnership
Agreement and (ii) Linpro pursuant to sections 3.03(b) and 3.03(c) of the
Partnership Agreement.
(l) (Intentionally deleted].
(m) Financing. Any borrowing by the Partnership, other than a
Special Partner Loan, a Partner Overruns Loan, Capital Debt or any other loan by
one or more Partners to the Partnership.
(n) Financing Funds. The proceeds realized by the Partnership in any
Financing after being reduced by (i) payments, repayments or other- retirements
of previously existing debt obligations of the Partnership made with such funds,
(ii) proceeds required to pay construction costs and to meet other reasonable
requirements of the Partnership, including payment of operating expenses of the
Partnership (to the extent not paid out of operating revenues) and the cost of
carrying out the Development Plan, and (iii) all costs incurred by the
Partnership in such Financing (but to the extent that the amounts in clauses
(i), (ii) and (iii) represent payments to a Partner or an Affiliate of a
Partner, the amount of such deductions will be limited to amounts
-4-
<PAGE> 122
which would be paid to parties which are not Affiliates of a Partner for similar
goods or services or which represent the repayment of loans containing
market-rate terms at the time made to the Partnership (except that any Partner
Overruns Loan shall bear interest and contain the other terms set forth in
section 3.05 of the Partnership Agreement), the proceeds of which were used to
pay costs and expenses incurred in connection with the ownership and operation
of the Property or were distributed in accordance with the provisions of section
4.04 of the Partnership Agreement]. Any proceeds realized by the Partnership in
any Financing which are placed in a reserve or are otherwise excluded from
Financing Funds in order to pay expected future obligations of the Partnership,
but which are not required to pay any such obligations, will be deemed to be
Financing Funds when the General Partners determine that such proceeds are no
longer required to pay such obligations.
(o) General Partner. A general partner in the Partnership.
(p) Investors. The Company, Limited One, Limited Two and Limited
Three.
(q) Limited One. Clark Street Investor One Corporation B.V. and its
successors; such term will include anyone who is substituted for Clark Street
Investor One Corporation B.V. as a Limited Partner in accordance with the terms
of the Partnership Agreement.
(r) Limited Partner. A limited partner in the Partnership.
(s) Limited Three. Clark Street Investor Three Corporation B.V. and
its successors; such term will include anyone who is substituted for Clark
Street Investor Three Corporation B.V. as a Limited Partner in accordance with
the terms of the Partnership Agreement.
(t) Limited Two. Clark Street Investor Two Corporation B.V. and its
successors; such terms will include anyone who is substituted for Clark Street
Investor Two Corporation B.V. as a Limited Partner in accordance with the terms
of the Partnership Agreement.
(u) Linpro. Linpro Chicago Property I Limited Partnership and its
successors, but not its assigns.
(v) Linpro Capital Funds Chicago Title Participation Amount. As
defined in Section 1.01(g) of this Amendment.
(w) [Intentionally deleted].
-5-
<PAGE> 123
(x) Net Cash Flow. The excess, if any, of Cash Flow over the amounts
payable pursuant to section 4.02(a) of the Partnership Agreement.
(x-l) Net Cash Flow Chicago Title Participation Amount. As defined
in Section 1.01(g) of this Amendment.
(x-2) Net Cash Flow TLC Participation Amount. As defined in Section
1.01(11) of this Amendment.
(y) Partner. A General Partner or a Limited Partner in the
Partnership.
(z) Partner Overruns Loans. As defined in section 3.05(b) of the
Partnership Agreement.
(aa) Partnership. 161 North Clark Street Limited Partnership, a
limited partnership formed under the laws of the State of Delaware, and its
successors and assigns.
(bb) Partnership Agreement. The Limited Partnership Agreement dated
November 17, 1989, among Linpro, the Company, Limited One, Limited Two and
Limited Three, pursuant to which Landlord is being formed under the Delaware
Revised Uniform Limited Partnership Act.
(cc) Partner's Interest in the Partnership. As to Linpro, 50%, and
as to the Investors, 50%, as such interests may be adjusted in accordance with
the provisions of sections 3.03(a), 3.03(c) and 3.06(a) of the Partnership
Agreement.
(dd) Preference Return. In the case of Partners, a preference return
on the respective Accumulated Capital Bases of the Partners computed at a rate
of 7.72% per annum, compounded monthly to equal an annual rate of 8.0%; and in
the case of Tenant, a preference return on the Tenant Advances remaining unpaid
from time to time computed at a rate of 7.72% per annum, compounded monthly to
equal an annual rate of 8% (such monthly compounding will be effected on the
last day of each calendar month in arrears).
(ee) Property.. As defined in section 1.05 of the Partnership
Agreement.
(ff) Proportionate Share. With respect to any dollar amount as to a
Partner, the amount obtained by multiplying such dollar amount by such Partner's
interest in the Partnership expressed as a percentage.
(gg) Sale. A voluntary or involuntary sale of all or any substantial
part of the Partnership's assets.
-6-
<PAGE> 124
(hh) Sale Proceeds. The sum of the aggregate proceeds (including
cash and the fair market value of debt obligations and other securities and
property but excluding any other existing debt subject to which the Sale was
made and expenses of realization of such proceeds) received by the Partnership
(i) as the consideration for any Sale, and (ii) as the net amount of insurance
(including title insurance) proceeds or other compensation and condemnation
awards, to the extent that (A) such sum is in excess of funds used (1) for
repairs or restoration or (2) to retire previously existing debt of the
Partnership, the proceeds of which were (x) used to pay costs and expenses
incurred in connection with the ownership and operation of the Property or (y)
distributed in accordance with the provisions of section 4.04 of the Partnership
Agreement or (3) to pay operating expenses of the Partnership (to the extent not
paid out of operating revenues) (but to the extent that the amounts in clauses
(1), (2) and (3) represent payments to a Partner or an Affiliate of a Partner,
the amounts to be offset therefor will be limited to amounts which would be paid
to parties which are not Affiliates of a Partner for similar goods or services
or. which represent the repayment of loans containing market-rate terms at the
time made to the Partnership (except that any Partner Overruns Loan shall bear
interest and contain the other terms set forth in section 3.05 of the
Partnership Agreement), the proceeds of which were used to pay costs and
expenses incurred in connection with the ownership and operation of the Property
or were distributed in accordance with the provisions of section 4.04 of the
Partnership Agreement], and (B) such proceeds are available for distribution.
Any proceeds realized by the Partnership in any Sale which are placed in a
reserve or are otherwise excluded from Sale Proceeds in order to pay expected
future obligations of the Partnership, but which are not required to pay any
such obligations, will be deemed to be Sale Proceeds when the General Partners
determine that such proceeds are no longer required to pay such obligations.
(hh-l) Site. As defined in section 1.05 of the Partnership Agreement
and being more particularly described in Exhibit A attached hereto and made a
part hereof.
(ii) Special Partner Loan. As defined in Section 3.06(a) of the
Partnership Agreement.
(jj) Squeezed Interest. Any interest, calculated as provided in
Exhibit F attached to the Partnership Agreement, of a Partner in the Partnership
forfeited and transferred over to one or more other Partners pursuant to
sections 3.03(a) or Cc) or section 3.06(a) of the Partnership Agreement.
(kk) TLC. Transportation Leasing Co. (formerly Greyhound Lines,
Inc.) or its successors.
(ll) TLC Participation Amounts. The amounts payable to TLC under
that certain Development Participation Agreement, dated
-7-
<PAGE> 125
December 31, 1986, between Linpro Chicago Land Limited Partnership (to whose
interest therein Landlord has succeeded) and Greyhound Lines, Inc. (now TLC), as
amended by First Amendment to Development Participation Agreement, dated as of
November 17, 1989. between Landlord and TLC (such Development Participation
Agreement, as so amended, being hereinafter referred to as the "TLC
Participation Agreement"); which amounts shall be as follows: CA) the product
(the "Net Cash Flow TLC Participation Amount") of 12-1/2% multiplied by Net
Cash Flow remaining after the distributions to the Partners pursuant to sections
4.02(b)(i) and (ii) of the Partnership Agreement; and (B) the product (the
"Capital Funds TLC Participation Amount") of 12-1/2% multiplied by Financing
Funds and Sale Proceeds remaining after the distributions to the Partners
pursuant to sections 4.04(b)(i), (ii) and (iii) of the Partnership Agreement.
(mm) Tenant Advances As defined in Section 47(b) of the lease.
1.02 Section 47 Amendment to Lease. Section 47 of the lease is hereby
deleted from the lease in its entirety and there is hereby substituted therefore
a new Section 47 which shall read in its entirety as follows:
"47. Participation in Net Cash Flow, Financing Funds and Sale Proceeds.
(a) Chicago Title Participation Amounts. Tenant is hereby granted the
contractual right (the "Chicago Title Participation Right") to receive
from Landlord the Chicago Title Participation Amounts and Landlord hereby
agrees to pay the Chicago Title Participation Amounts as follows:
(i) Operating Revenues.
(A) Cash Flow, to the extent available, will be distributed by
Landlord, first, in payment of principal of, and then accrued
and unpaid interest on, Special Partner Loans, in proportion
to the principal amounts thereof held by the respective
Partners; and second, in payment of principal of, and then
accrued and unpaid interest on, Partner Overruns Loans, in
proportion to the principal amounts thereof held by the
respective Partners.
(B) Net Cash Flow will be distributed by Landlord to the
extent available in the following order:
(l) First: To the Partners in the amount of the
Partners' Preference Return and to Tenant in the amount
of Tenant's Preference Return.
-8-
<PAGE> 126
(2) Second: To the Investors in the amount by which the
Investors' aggregate Accumulated Capital Bases exceed
$60,000,000; to Linpro in the amount by which Linpro's
Accumulated Capital Base exceeds the aggregate amount of
Linpro's Equity Contributions pursuant to section
3.03(b) of the Partnership Agreement; and to Tenant in
an amount sufficient to reduce the unrepaid Tenant
Advances to zero.
(3) Third: To TLC in the Net Cash Flow TLC Participation
Amount and to Tenant in the Net Cash Flow Chicago Title
Participation Amount.
(4) Finally: The balance of Net Cash Flow remaining
after the distributions pursuant to sections 4.02(b)(i),
(ii) and (iii) of the Partnership Agreement, to Linpro
in an amount equal to Linpro's Proportionate Share of
such balance (after taking into account any forfeiture
and transfer of a Squeezed Interest) and to the
Investors in an aggregate amount equal to the Investors'
Proportionate Shares of such balance (after taking into
account any forfeiture and transfer of a Squeezed
Interest).
If the distributions of Net Cash Flow are not sufficient to satisfy
the aggregate amounts required pursuant to Section 47(a)(i)(B)(l)
and/or (2), Net Cash Flow shall be distributed at each level in the
ratio that the aggregate amount at that level which would otherwise
be payable to each party bears to the aggregate amounts at that
level which would otherwise be payable to all parties.
(ii) Financing Funds and Sale Proceeds. Financing Funds or Sale
Proceeds will be distributed on a cumulative basis in the following
order:
(A) First, any debts (containing market-rate, terms at the
time made to the Partnership), the proceeds of which were (i)
used to pay costs and expenses incurred in connection with the
ownership and operation of the Property or (ii) distributed in
accordance with the, provisions of section 4.04 of the
Partnership Agreement, and which are secured by liens or
security interests required to be discharged in connection
with the realization of such proceeds, will be paid; second,
Special Partner Loans will be paid, first as to principal and
then as to accrued and unpaid interest, in proportion to the
principal amounts thereof held by the respective Partners; and
third, in payment of the principal of, and then
-9-
<PAGE> 127
accrued and unpaid interest on, Partner Overruns Loans, in
proportion to the principal amounts thereof held by the
respective Partners.
(B) Any remaining proceeds from a Financing or a Sale will be
distributed as follows:
(1) First: To the Partners in the amount of the
Partners' then-current unpaid Preference Return and to
Tenant in the amount of Tenant's then-current unpaid
Preference Return on Tenant Advances remaining unrepaid
from time to time for the fiscal year or fraction
thereof of the Partnership elapsed to the date of such
transaction.
(2) Second:To the Partners in an amount sufficient to
reduce the aggregate Accumulated Capital Bases to zero,
and to Tenant, in an amount sufficient to reduce the
unrepaid Tenant Advances to zero.
(3) Third: Until the Investors have received the Capital
Preference Return, from all sources other than payments
in respect of Partner Overruns Loans and Special Partner
Loans, 70% to the Investors and 30% to be paid in the
following order: (a) to Chicago Title in the amount of
the Linpro Capital Funds Chicago Title Participation
Amount, and (b) the balance to TLC and Linpro in such
proportions as they shall approve; provided, however,
that (i) if the Investors have acquired a Squeezed
Interest, then the figure "70%" contained above in this
clause (3) will be increased, and the figure "30%"
contained above in this clause (3) shall be decreased,
by an amount expressed as a percentage equal to the
product of 30% and the quotient of the Squeezed Interest
(expressed as a percentage) divided by 50% and (ii) if
Linpro has acquired a Squeezed Interest, then the figure
"30%" contained above in this clause (3) will be
increased, and the figure "70%" contained above in this
clause (3) will be decreased, by an amount expressed as
a percentage equal to the product of 70% and the
quotient of the Squeezed Interest (expressed as a
percentage) divided by 50%.
(4) Fourth: To TLC in the amount of the Capital Funds
TLC Participation Amount and to Tenant in the amount of
the Capital Funds Chicago Title Participation Amount.
-10-
<PAGE> 128
(5) Finally: The balance of Financing Funds or Sale
Proceeds remaining after the distributions pursuant to
sections 4.04(b)(i), (ii), (iii) and (iv) of the
Partnership Agreement, to Linpro in an amount equal to
Linpro's Proportionate Share of such balance (after
taking into account any forfeiture and transfer of a
Squeezed Interest) and to the Investors in an aggregate
amount equal to the Investors' Proportionate Shares of
such balance (after taking into account any forfeiture
and transfer of a Squeezed Interest).
If the distributions of Sale Proceeds and/or Financing Funds are not
sufficient to satisfy the aggregate amounts required pursuant to
Section 47(a)(ii)(B)(l) and/or (2), the Sale Proceeds and/or
Financing Funds shall be distributed at each level in the ratio that
the aggregate amount at that level which would otherwise be payable
to each party bears to the aggregate amounts at that, level which
would otherwise be payable to all parties.
(b) Tenant Advances. Except as otherwise provided in this Section 47(b),
Tenant will pay cash to Landlord if and when and at such times as the
Partners are required to make Post-Development Equity Contributions to
Landlord pursuant to section 3.03(c) of the Partnership Agreement. The
amount of cash required to be paid by Tenant ("Tenant Advance") with
respect to each such Post-Development Equity Contribution to be made by
the Partners to Landlord will be an amount equal to the product of (i) the
Chicago Title Participation Percent at the time in question and (ii) the
aggregate amount of the Post-Development Equity Contributions then
required to be made by the Partners to Landlord; provided, however, that
Tenant's obligation to make a Tenant Advance pursuant to this Section
47(b) will be limited to an aggregate amount equal. to the excess, if any,
of (A) the aggregate Chicago Title Participation Amounts paid pursuant to
Section 47(a) hereof through the date such payment is required to be made
by Tenant to Landlord, over (B) the aggregate amount of Tenant Advances
previously made by Tenant to Landlord pursuant to this -Section 47(b). Any
Tenant Advances will be deemed a Post-Development Equity Contribution made
by the Partners under the Partnership Agreement in proportion to the
Partners' interests in the Partnership at the time of such Tenant
Advances, and Tenant will be entitled to receive proportionately the
Preference Return on, and repayment of, the Tenant Advances at the same
time and in the same manner as the Partners are entitled to receive the
Preference Return on, and repayment of, the Partners' Post-Development
Equity Contributions under the Partnership Agreement. Notwithstanding the
foregoing, if either (i) the amount of the Tenant Advance in question,
aggregated with the amount of all other Tenant
-11-
<PAGE> 129
Advances made and not returned, exceeds the maximum amount of the Tenant
Advance which Tenant is obligated to make to the Partnership under the
second sentence of this Section 47(b) or (ii) the amount of the Tenant
Advance in question, aggregated with the amount of all other Tenant
Advances made and not returned, exceeds the aggregate Net Cash Flow
Chicago Title Participation Amount which Tenant has theretofore received
under Section 47(a)(i)(B)(3) hereof (in the case of either clause (i) or
clause (ii), such excess referred to as the "Excess Amount"; if such
excess exists under both clause (i) and clause (ii), then the "Excess
Amount" shall be the greater of the excess calculated under clause (i) and
the excess calculated under clause (ii)), then Tenant may, at its
election, elect not to advance the Excess Amount, in which case the amount
which would otherwise have been advanced by Tenant shall be advanced by
the Partners as an Equity Contribution under the Partnership Agreement and
repaid to the Partners in accordance with Section 47(a) hereof.
(c) Statements and Reports. Tenant will be furnished with a copy of the
Partnership Agreement (and all amendments and modifications thereto) and
will be furnished with annual financial statements for Landlord,
consisting of an annual balance sheet and profit and loss statement,
certified by the certified public accountant for Landlord (which shall be
a major public accounting firm) within 120 days after the close of each
calendar year and on a quarterly basis, a statement of Net Cash Flow and a
leasing status report containing the names of tenants in the Project and
the number of square feet covered by their respective leases. No later
than October 30 of each calendar year commencing on or after January 1,
1992, Landlord will furnish Tenant with a statement of projected Net Cash
Flow for the next calendar year and periodically will furnish Tenant with
any other material information necessary to accurately calculate, evaluate
and determine the Chicago Title Participation Amounts. Tenant will also be
furnished with copies of the note, mortgage, loan agreement and any other
material loan and/or equity documentation pertaining to the Chicago Title
Participation Amounts, Tenant's operation and/or the construction of the
Building.
(d) Sale of Linpro's Partnership Interest. If Linpro sells all or part of
its partnership interest in Landlord to an entity other than a Linpro
Affiliate (as defined below), Linpro will cause Tenant to receive a
portion of the proceeds of sale generated thereby based upon the Chicago
Title Participation Amounts as if its interest were a partnership interest
in Landlord being sold at the same time and, the same ratio of dollars to
partnership interest as received by Linpro, and Tenant `s interest will be
reduced in the same ratio as the interest of Linpro being sold bears to
the total interest of Linpro prior to such sale. For purposes of this
Section 47(d)
-12-
<PAGE> 130
and Section 47(h), the sale of a partnership interest in Landlord will
include any transfer pursuant to a right of first offer or buy-sell or
squeeze down (including the forfeiture and transfer of a Squeezed
Interest), but will exclude the realization upon a security interest in a
partnership interest and a voluntary non-arms length transfer. Linpro
agrees to deliver written notice to Tenant promptly following the
consummation of any sale of a partnership interest by Linpro if Tenant is
entitled to participate in the proceeds from the sale of such partnership
interest under this Section 47(d). Landlord shall cause copies of all of
the notices to be delivered to any of the Partners in connection with a
buy-sell exercise, or a call for Equity Contributions which could lead to
a squeeze down of Linpro to zero, to be delivered to Tenant as promptly as
practicable after the delivery of any such notice to any of the Partners;
provided, however, that (a) any non-delivery of such a copy to Tenant
shall not be an Event of Default or a default under this lease and shall
not impair or affect the validity or enforceability of the buy-sell
exercise or the squeeze down in accordance with the Partnership Agreement
and (b) Tenant hereby waives any right to challenge (whether by
commencing, pursuing and/or participating in any action at law or in
equity) the complete execution of the buy-sell exercise or squeeze down in
accordance with the Partnership Agreement and the Tenant covenants and
agrees not to take any action which would interfere with or impede such
execution of the buy-sell exercise or squeeze down in accordance with the
Partnership Agreement. For purposes of this Section 47, "Linpro's
partnership interest in Landlord" means the. aggregate interests held by
Linpro or a Linpro Affiliate and the partners of Linpro or a Linpro
Affiliate in Landlord pursuant to the Partnership Agreement, as
reorganized and reconfigured from time to-time. As used in this lease, the
term "Linpro Affiliate" means (A) any entity comprised of (i) persons
(including their family members) who- operate as partners or employees of
the group of entities identified by the name "The Linpro Company", and/or
(ii) entities comprised of such persons and which entities hold themselves
out and effectively operate . as part of the group of entities so
identified and (B) any of the persons described as clause A(i) of this
sentence.
(e) Termination and Vesting of Chicago Title Participation Right. The
Chicago Title Participation Right will serve as security for Tenant's
performance of its obligations under this lease. Because the Chicago Title
Participation Right is being granted to Tenant in consideration of its
faithful performance of its lease obligations and continuation as a tenant
for the entire Term, if there is a Default under this lease (after the
expiration of all notice and cure periods) or if this lease is cancelled
by Tenant prior to the scheduled completion of the Building, the Chicago
Title Participation Right will terminate,
-13-
<PAGE> 131
be valued at zero (O) and be of no further force and effect (and this
Section 47 of the lease shall thereupon be deemed deleted from the lease);
except that if, after that date which is the earlier to occur of (i) the
date on which ninety percent (90%) of the Rentable Area of the Building is
leased to tenants (including Tenant) who are in occupancy and paying rent,
and (ii). five (5) years after substantial completion of the Building, a
Default occurs, Landlord may, at its sole option, CA) purchase the Chicago
Title Participation Right for a purchase price equal to the aggregate
amounts which Tenant would receive under Section 47(a)(ii)(B) of this
lease if the Building were sold for its market value (as determined in
accordance with the provisions of Section 47(j) of this lease] on the date
of the occurrence of the Default; or (B) allow the Chicago Title
Participation Right to continue in existence notwithstanding the Default,
in which event the Chicago Title Participation Amounts will be paid
thereafter in the manner and priority set forth in this lease. For
purposes of this subsection (e), any non-monetary default disputed by
Tenant will not be deemed a Default permitting the termination of the
Chicago Title Participation Right until a court of competent jurisdiction
has resolved in favor of Landlord the dispute with respect to whether a
non-monetary default by Tenant has occurred under this lease. The Chicago
Title Participation Right shall terminate upon the acquisition of the
Property pursuant to foreclosure or deed in lieu of foreclosure, by a
party (other than a Partner or an Affiliate of a Partner) which has made a
loan secured by a lien on the Property.
(f) Option to Purchase Chicago Title Participation Right. Landlord is
hereby granted an option to purchase the Chicago Title Participation Right
for a purchase price determined as set forth in Section 47(j) under the
following circumstances: (i) in the event of the exercise by Tenant of the
right to terminate the lease pursuant to Section 50(c); (ii) in the event
Chicago Title and Trust Company or an Affiliate elects to transfer its
interest to a third party or an Affiliate described in subsection (iii) of
the definition of Affiliate in Section 12(a) hereof in accordance with
Section 47(g) hereof; or (iii) if the Chicago Title Participation Right is
ever held by an Affiliate, then at the time such Affiliate no longer
qualifies as an "Affiliate" unless the Chicago Title Participation Right
is reconveyed to Chicago Title and Trust Company or to an Affiliate
permitted under Section 47(g) hereof; or (iv) in the event of a bankruptcy
of Tenant where Tenant is not otherwise in Default. Upon a purchase of the
Chicago Title Participation Right by Landlord, the Chicago Title
Participation Right will terminate and this Section 47 of the lease shall
thereupon be deemed deleted from the lease.
-14-
<PAGE> 132
(g) Exercise of Option to Purchase Chicago Title Participation Right.
Landlord must elect to exercise its purchase option in any particular case
within forty-five (45) days after the right accrues; provided, however, if
Landlord is exercising its right on account of any reason other than a
transfer of the Chicago Title Participation Right to a third party or an
Affiliate described in subsection (iii) of the definition of Affiliate in
Section l2(a) hereof, such exercise may be revoked in writing within ten
(10) days after the market value of the Building is determined in
accordance with Section 47(j) hereof. In the event Landlord fails to
timely notify Tenant of its revocation, Landlord will be deemed to have
waived its right to revoke its exercise. Chicago Title and Trust Company
may transfer the Chicago Title Participation Right `to a third party or an
Affiliate described in subsection (iii) of the definition of Affiliate in
Section 12(a) hereof, subject to Landlord's purchase right, for a purchase
price determined in accordance with Section 47(j) hereof and the approval
right as to the character and financial stability of the transferee, such
approval not to be unreasonably withheld; or if the Chicago Title
Participation Right is ever held by an Affiliate, then such approval right
will also apply at the time such Affiliate no longer qualifies as an
"Affiliate" unless the Chicago Title Participation Right is reconveyed to
Chicago Title and Trust Company or to an Affiliate permitted under this
Section 47(g). The tests of character and financial stability should be
similar to those contained in Section 12 hereof. The offer of any third
party offeree will be taken into account when determining the purchase
price for the Chicago Title Participation Right. Notwithstanding anything
to the contrary contained herein, Chicago Title and Trust Company may
transfer the Chicago Title Participation Right to an Affiliate described
in subsections (i), (ii), or (iv) of the definition of Affiliate in
Section 12(a) hereof. Tenant will have the right to grant a security
interest in and to the Chicago Title Participation Right as collateral for
financing subject to the rights of Landlord under this Section 47 and this
lease with respect to the Chicago Title Participation Right and under the
terms and conditions which are reasonably acceptable to Landlord;
provided, however, that Tenant will not have the right to encumber,
mortgage or pledge Tenant's interest in the leasehold estate or to permit
any' liens or encumbrances on the Land or the Building in connection with
the Chicago Title Participation Right. For purposes of this Section 47, an
Affiliate will be deemed not to be a third party.
(h) Ultimate Termination of Chicago Title Participation Right. Provided
that Landlord (or its successor in interest to the rights of Landlord
under this lease) has fully and completely performed its obligations under
this Section 47, the Chicago Title Participation Right will terminate on
the sale of the Building (including a foreclosure or transfer to a lender
-15-
<PAGE> 133
of the entire ownership interest) or sale (or squeeze down) of Linpro's
entire interest in the Partnership, in either case, other than a sale to a
Linpro Affiliate, and upon the payment to Tenant of the entire Chicago
Title Participation Right payable to Tenant in connection with such
transaction.
(i) No Partnership. The Chicago Title Participation Right is not a
partnership interest and Tenant is not and will not be deemed to be a
partner of Landlord or Linpro or Investors.
(j) Market Value; Appraisal Procedure. In the event that Landlord desires
to purchase the Chicago Title Participation Right as permitted by this
Section 47, the purchase price for the Chicago Title Participation Right
will be equal to the aggregate amounts which Tenant would receive under
Section 47(a)(ii)(B) of this lease if the Building were sold for its
market value on the effective date for the determination of the purchase
price, for the Chicago Title Participation Right. If it is necessary under
this lease to determine the market value of the Building for any reason,
the market value of the Building will be determined in the manner provided
for in this Section 47(j). If Landlord desires to establish the market
value for the Building., Landlord may notify Tenant in writing of
Landlord's determination of the market value of the Building. If Tenant
does not respond in writing within ten (10) days after the receipt of such
notice of Tenant's disagreement and determination of the market value of
the Building, then Landlord's determination will be binding. If Landlord
does not so notify Tenant, or if it does notify Tenant and Tenant
disagrees as provided above, then Landlord and Tenant will each select an
appraiser within ten (10) days after the request of either party for a
determination of the market value of the Building under this Section
47(j). The two (2) appraisers selected by Landlord and Tenant will within
ten (10) days after their respective appointments, each make a
determination of the market value of the Building. If the difference
between the market values of the Building determined by each of the
appraisers is less than five percent (5%) of the lesser value, the average
of the two values will be the market value to be used in determining the
purchase price for the Chicago Title Participation Right. If the
difference between the two values is more than five percent (5%) of the
lesser value, then the two appraisers will within twenty-five (25) days
after their respective appointments appoint a third appraiser. The third
appraiser will make his determination of the market value of the Building
within ten (10) days of his appointment. If the difference between the
third appraiser's determination of market value of the Building and the
average of the market values of the Building specified by the first two
appraisers is less than ten percent (10%) of the lower of the third
appraiser's determination and said average, then the average of the three
market value determinations will be the
-16-
<PAGE> 134
market value of the Building to be used in determining the purchase price
for the Chicago Title Participation Right. Otherwise, the average of the
two closest market value determinations will be the market value of the
Building to be used in determining the. purchase price to' be paid for the
Chicago Title Participation Right. The three (3) appraisers will be MM
appraisers licensed by the State of Illinois, and will have at least :ten
(10) years experience in appraising commercial real estate in the Chicago
metropolitan area.
(k) Subject to the provisions of Sections 47(e), 47(f) arid 47(h), the
provisions of this Section 47 will survive the expiration or termination
of this lease."
1.03 Additional Amendments to Lease. In each. place in the lease where the
term "CT&T Percentage" appears, there will be deemed substituted therefor the
term "Chicago Title Participation Right." The Land (as defined in the Lease)
shall be deemed to mean the Site.
1.04 Notice Amendment to Lease. Section 24 of the lease. is hereby deleted
and the following is substituted in lieu therefor:
"24. Notices. All notices, requests, demands, or other
communications to or upon Landlord or Tenant desired or required to be
given under any of the provisions hereof shall be in writing. Any notices
or demands from Landlord to Tenant shall be deemed to have been given if a
copy thereof has been personally delivered to Tenant (including without
limitation delivery by facsimile transmission, messenger or courier, with
evidence of receipt) or mailed by United States registered or certified
mail addressed to Tenant prior to the Low-Rise Commencement Date at 111
west Washington Street, Chicago, Illinois 60603, to the attention of both
the General Counsel and the Senior Vice President-Real Estate
Administration, and after the Low-Rise Commencement Date at the Premises.
Any notices or demands from Landlord to Tenant may be signed by Landlord,
its beneficiary, the managing agent of the Building (the "Building
Manager") or any agent of any of them. After the Low-Rise Commencement
Date if Tenant is a corporation and is not in occupancy of the Premises,
any notices or demands from Landlord to Tenant shall also be deemed to
have been given if a copy thereof is mailed by registered or, certified
mail to Tenant's registered agent in Illinois. Any notices or demands from
Tenant to Landlord shall be deemed to have been given if a copy thereof
has been personally delivered to Landlord (including without limitation
delivery by facsimile transmission, messenger or courier, with evidence of
receipt) or mailed, by' registered or certified mail return receipt
requested as follows (with a copy to the Building Manager who shall
initially be Linpro Illinois Admin Limited Partnership whose address is 55
West Wacker Drive, Chicago, Illinois or
-17-
<PAGE> 135
such other corporation, partnership or other entity selected by Landlord,
in its sole discretion, as the manager for the Building):
161 North Clark Street Limited Partnership
c/o The Linpro Company
200 Berwyn, Pennsylvania 19312
Attention: Eric Eichler
Telefacsimile No. (215) 981-1539
161 North Clark Street Limited Partnership
c/o Argus Realty Services, Inc.
1211 Avenue of the Americas
New York, New York 10036
Attention: President
Telefacsimile No. (212) 921-9204
With copies to:
Jones, Day, Reavis & Pogue
1450 G Street, N.W.
Washington, D.C. 20005
Attention: Sigmund T. Weiner, Esq.
Telefacsimile No. (202) 737-2832
Rudnick & Wolfe
203 North LaSalle Street, Suite 1500
Chicago, Illinois 60601
Attention: Sue Ann Fishbein, Esq.
Telefacsimile No. (312) 236-7516
Sann & Howe
200 Park Avenue, Suite 3701
New York, New York 10166
Attention: Edwin A. Howe, Jr., Esq.
Telefacsimile No. (212) 490-0536
Either party may, upon notice to the other, change its address for receipt
of notices or demands. All notices to or demands upon Landlord or Tenant
mailed by registered or certified mail shall be deemed served at the time
the same were posted."
1.05 Certificate to Construction Lender. The following shall be added to
the end of the last grammatical paragraph of Section 57 of the lease:
"Anything herein to the contrary contained notwithstanding, the parties
hereto agree that `succession to the interest of Landlord by a New
Landlord-(as defined in the Certificate (as defined below] pursuant to the
terms of that certain tenant estoppel letter dated November 17, 1989 (the
-18-
<PAGE> 136
"Certificate") executed by Tenant is not sufficient to constitute an
assumption of the obligations of Landlord as described in the first
sentence of this grammatical paragraph and that, therefore, such
succession shall not be deemed to relieve Landlord of its obligations
under this lease. The immediately preceding sentence, shall not be deemed
to modify the Certificate."
ARTICLE II
RATIFICATION OF LEASE
By their execution of this Amendment, Landlord and Tenant hereby ratify,
approve and adopt the terms and provisions of the lease, as amended hereby, and
agree to keep and perform all of the duties and obligations of Landlord and
Tenant, respectively, set forth in the lease, as so amended.
ARTICLE III
EFFECT ON LEASE
Except as hereby expressly amended, the lease will remain in full force
and effect as written.
ARTICLE IV
COUNTERPARTS
This Amendment may be executed in several counterparts, each of which will
be an original of this Amendment but all of which, taken together, will
constitute one and the same Amendment.
-19-
<PAGE> 137
IN WITNESS WHEREOF, Landlord and Tenant have caused this Amendment to be
duly executed by their authorized representatives as of the date first above
written.
LANDLORD:
161 NORTH CLARK STREET
LIMITED PARTNERSHIP,
a Delaware limited partnership
By: LINPRO CHICAGO PROPERTY I
LIMITED PARTNERSHIP,
an Illinois limited partnership,
General Partner
By:
---------------------------------
Managing General Partner
By:
---------------------------------
Managing General Partner
By: CLARK STREET GENERAL
CORPORATION B.V.,
a Netherlands corporation
By:
---------------------------------
Managing Director
By:
---------------------------------
Managing Director
TENANT:
CHICAGO TITLE AND TRUST COMPANY,
an Illinois corporation
By: /s/ [ILLEGIBLE]
-------------------------------------
Its: Senior Vice President
-20-
<PAGE> 138
IN WITNESS WHEREOF, Landlord and Tenant have caused this Amendment to be
duly executed by their authorized representatives as of the date first above
written.
LANDLORD:
161 NORTH CLARK STREET
LIMITED PARTNERSHIP,
a Delaware limited partnership
By: LINPRO CHICAGO PROPERTY I
LIMITED PARTNERSHIP,
an Illinois limited partnership,
General Partner
By: /s/ [ILLEGIBLE]
---------------------------------
Managing General Partner
By: /s/ [ILLEGIBLE]
---------------------------------
Managing General Partner
By: CLARK STREET GENERAL
CORPORATION B.V.,
a Netherlands corporation
By: /s/ [ILLEGIBLE]
---------------------------------
Managing Director
By: /s/ [ILLEGIBLE]
---------------------------------
Managing Director
TENANT:
CHICAGO TITLE AND TRUST COMPANY,
an Illinois corporation
By:
-------------------------------------
Its:
--------------------------------
LINPRO:
LINPRO CHICAGO PROPERTY I
LIMITED PARTNERSHIP,
an Illinois limited partnership
By: /s/ [ILLEGIBLE]
---------------------------------
Managing Director
By: /s/ [ILLEGIBLE]
---------------------------------
Managing Director
<PAGE> 139
EXHIBIT A
[Description of Phase I]
<PAGE> 140
PAGE 1
EXHIBIT A
LEGAL DESCRIPTION
PARCEL 1:
A PARCEL OF LAND COMPRISED OF A PART OF LOTS 2 AND 3, ALL OF THE LOTS 5 AND 6,
THAT PART OF VACATED COUCH PLACE WHICH LIES NORTH OF AND ADJOINING SAID LOTS 5
AND 6: TOGETHER WITH ALL OF SUB-LOT 9 AND A PART OF SUB-LOT 8. BOTH IN GEORGE
SMITH'S SUBDIVISION OF ORIGINAL LOT 4, [ILLEGIBLE] IN BLOCK 35 OF ORIGINAL TOWN
OF CHICAGO IN THE SOUTHEAST 1/4 OF SECTION 9, TOWNSHIP 39 NORTH, RANGE 14 EAST
OF THE THIRD PRINCIPAL MERIDIAN COOK COUNTY, ILLINOIS, WHICH PARCEL OF LAND IS
BOUNDED AND DESCRIBED AS FOLLOWS:
BEGINNING AT THE INTERSECTION OF THE NORTH LINE OF WEST RANDOLPH STREET WITH THE
EAST LINE OF NORTH CLARK STREET, SAID POINT OF INTERSECTION BEING ALSO THE
SOUTHWEST CORNER OF SAID LOT 5, AND RUNNING THENCE NORTH ALONG SAID EAST LINE OF
NORTH CLARK STREET, A DISTANCE OF 227.08 FEET; THENCE EAST ALONG A LINE PARALLEL
WITH THE NORTH LINE OF WEST RANDOLPH STREET, A DISTANCE OF 164.08 FEET; THENCE
SOUTH ALONG A LINE PERPENDICULAR TO THE LAST DESCRIBED COURSE, A DISTANCE OF
27.95 FEET TO AN INTERSECTION WITH THE SOUTH LINE OF SAID LOT 2, SAID SOUTH LINE
BEING ALSO THE NORTH LINE OF WEST COUCH PLACE; THENCE WEST ALONG SAID SOUTH LINE
OF LOT 2, A DISTANCE OF 2.68 FEET TO AN INTERSECTION WITH THE NORTHWARD
EXTENSION OF THE EAST LINE OF SAID LOT 6; THENCE SOUTH ALONG SAID NORTHWARD
EXTENSION AND ALONG THE EAST LINE OF SAID LOT 6, A DISTANCE OF 199.13 FEET TO AN
INTERSECTION WITH SAID NORTH LINE OF WEST RANDOLPH STREET; THENCE WEST ALONG
SAID NORTH LINE, A DISTANCE OF 160.98 FEET TO THE POINT OF BEGINNING.
PARCEL 2:
THE EAST 1/2 OF LOT 7, TOGETHER WITH THAT PART OF THE ORIGINAL 18 FEET ALLEY
NORTH OF AND ADJOINING SAME WHICH LIES SOUTH OF THE SOUTH LINE OF ALLEY AS
NARROWED BY ORDINANCE OF THE CITY OF CHICAGO. EXCEPTING FROM PARCEL 2 THE AIR
RIGHTS ACQUIRED BY THE CITY OF CHICAGO THROUGH EXERCISE OF THE POWER OF EMINENT
DOMAIN IN CASE NUMBER 86L50733, CIRCUIT COURT OF COOK COUNTY, ILLINOIS, BEING
DESCRIBED AS FOLLOWS:
THE NORTH 111.00 FEET OF THE EAST 1/2 OF LOT 7 LYING ABOVE A HORIZONTAL PLANE
HAVING AN ELEVATION OF +22.00 FEET ABOVE CHICAGO CITY DATUM, AND THE SOUTH 16.00
FEET OF THE NORTH 127.00 FEET OF THE EAST 1/2 OF LOT [ILLEGIBLE] LYING ABOVE A
HORIZONTAL PLANE HAVING AN ELEVATION OF +14.66 FEET ABOVE CHICAGO CITY DATUM,
AND THAT PART OF THE EAST 1/2 OF LOT 7, EXCEPT THE NORTH 127.00 FEET THEREOF,
LYING ABOVE A HORIZONTAL PLANE HAVING AN ELEVATION OF +12.66 FEET ABOVE CHICAGO
CITY DATUM; ALL IN BLOCK [ILLEGIBLE] THE ORIGINAL TOWN OF CHICAGO, IN THE
SOUTHEAST 1/4 OF SECTION 9, TOWNSHIP 39 NORTH, RANGE 14, EAST OF THE THIRD
PRINCIPAL MERIDIAN, COOK COUNTY, ILLINOIS.
PARCEL 3:
EASEMENT APPURTENANT TO AND FOR THE BENEFIT OF PARCELS 1 AND 2
<PAGE> 141
PAGE 2
LEGAL DESCRIPTION
AFORESAID, AS CREATED BY GRANT FROM THE CITY OF CHICAGO, A MUNICIPAL
CORPORATION, TO GREYHOUND LINES, INC., A CORPORATION OF CALIFORNIA, AS
ESTABLISHED BY ORDER ENTERED NOVEMBER 12, 1986 IN CASE NUMBER 86L50733, CIRCUIT
COURT OF COOK COUNTY, ILLINOIS, LAW DIVISION, COPY OF WHICH ORDER WAS RECORDED
DECEMBER 16, 1986 AS DOCUMENT NUMBER 86601353 AND BY STIPULATION ON USE OF
TUNNEL ENTERED JUNE 11, 1987 IN SAID CASE, FOR PERMANENT PERMISSION AND
AUTHORITY TO USE AND MAINTAIN THE TUNNEL, AS THEN CONSTRUCTED, AS A PASSAGE FOR
VEHICLES UNDER AND ACROSS THAT PART OF WEST LAKE STREET LYING BETWEEN NORTH
DEARBORN STREET AND NORTH CLARK STREET BEING DESCRIBED AS FOLLOWS:
THAT PART OF WEST LAKE STREET LYING BETWEEN AND ADJOINING BLOCKS 17 AND 35 IN
THE ORIGINAL TOWN OF CHICAGO IN THE SOUTHEAST 1/4 OF SECTION 9, TOWNSHIP 39
NORTH, RANGE 14 EAST OF THE THIRD PRINCIPAL MERIDIAN, BOUNDED AND DESCRIBED AS
FOLLOWS:
BEGINNING ON THE NORTH LINE OF SAID WEST LAKE STREET AT THE INTERSECTION OF SAID
LINE WITH THE EAST LINE OF NORTH GARVEY COURT, SAID EAST LINE OF NORTH GARVEY
COURT BEING ALSO THE WEST LINE OF THE EAST 1/2 OF LOT 7 IN BLOCK 17 IN ORIGINAL
TOWN OF CHICAGO AFORESAID, AND RUNNING THENCE EAST ALONG SAID NORTH LINE OF WEST
LAKE STREET, SAID NORTH LINE BEING ALSO THE SOUTH LINE OF AFORESAID BLOCK 17, A
DISTANCE OF 31.35 FEET; THENCE SOUTHWESTWARDLY ALONG AN ARC OF A CIRCLE CONVEX
TO THE SOUTHEAST AND HAVING A RADIUS OF 175.35 FEET, A DISTANCE OF 83.35 FEET TO
A POINT WHICH IS 8.66 FEET WEST OF THE EAST LINE OF SAID NORTH GARVEY COURT,
EXTENDED SOUTH, AND 72.86 FEET SOUTH OF SAID NORTH LINE OF WEST LAKE STREET;
THENCE CONTINUING SOUTHWESTWARDLY ALONG AN ARC OF A CIRCLE, AND HAVING A RADIUS
OF 33.25 FEET, A DISTANCE OF 8.26 FEET, TO INTERSECTION WITH THE SOUTH LINE OF
SAID WEST LAKE STREET, AT A POINT 13.45 FEET WEST OF THE EAST LINE OF NORTH
GARVEY COURT, EXTENTED SOUTH; THENCE WEST ALONG SAID SOUTH LINE OF WEST LAKE
STREET, BEING ALSO THE NORTH LINE OF BLOCK 35 AFORESAID, A DISTANCE OF 68.63
FEET; THENCE NORTHEASTWARDLY ALONG A STRAIGHT LINE, A DISTANCE OF 29.63 FEET, TO
A POINT WHICH IS 56.39 FEET WEST OF SAID EAST LINE OF NORTH GARVEY COURT,
EXTENDED SOUTH, AND 64.57 FEET SOUTH OF THE NORTH LINE OF SAID WEST LAKE STREET;
THENCE NORTHEASTWARDLY ALONG AN ARC OF A CIRCLE, TO THE SOUTHEAST, TANGENT TO
THE LAST DESCRIBED STRAIGHT LINE, AND HAVING A RADIUS OF 88.15 FEET, A DISTANCE
OF 32.55 FEET TO A POINT WHICH IS 31.77 FEET WEST OF SAID EAST LINE OF NORTH
GARVEY COURT, EXTENTED SOUTH, AND 43.14 FEET SOUTH OF THE NORTH LINE OF WEST
LAKE STREET; THENCE CONTINUING NORTHEASTWARDLY ALONG AN ARC OF A CIRCLE CONVEX
TO THE SOUTHEAST, TANGENT TO THE LAST DESCRIBED ARC OF A CIRCLE AND HAVING A
RADIUS OF 167.50 FEET, A DISTANCE OF 71.05 FEET, TO AN INTERSECTION WITH THE
AFORESAID EAST LINE OF NORTH GARVEY COURT, AT A POINT 20.34 FEET NORTH OF THE
NORTH LINE OF SAID WEST LAKE STREET, AND THENCE SOUTH ALONG THE SAID EAST LINE
OF NORTH GARVEY COURT, SAID DISTANCE OF 20.34 FEET, TO THE POINT OF BEGINNING,
IN COOK COUNTY, ILLINOIS.
PARCEL 4:
<PAGE> 142
PAGE 3
LEGAL DESCRIPTION
EASEMENTS APPURTENANT TO AND FOR THE BENEFIT OF PARCELS 1, 2 AND 3, AS CREATED
AND SPECIFICALLY SET OUT IN THE DEVELOPMENT, OPERATION AND CROSS-EASEMENT
AGREEMENT DATED NOVEMBER_ _, 1989 AND RECORDED NOVEMBER _ _, 1989 AS DOCUMENT _
_ _ _ _ _ MADE BY AND BETWEEN LASALLE NATIONAL BANK AS TRUSTEE UNDER TRUST
AGREEMENT DATED NOVEMBER _ _, 1989 AND KNOWN AS TRUST NUMBER 114995, AND LASALLE
NATIONAL BANK AS TRUSTEE UNDER TRUST AGREEMENT DATED NOVEMBER_ _, 1989 AND KNOWN
AS TRUST NUMBER 115015 OVER AND ONTO AND UNDER SPECIFIED PORTIONS OF THE LAND
DESCRIBED BELOW, AND DESCRIBED AS FOLLOWS:
(A) AN EXCLUSIVE, TEMPORARY RIGHT AND EASEMENT FOR THE PURPOSE OF DEMOLITION,
(B) A NON-EXCLUSIVE, TEMPORARY RIGHT AND EASEMENT FOR THE PURPOSE OF
CONSTRUCTION;
(C) A RIGHT AND EASEMENT FOR INCIDENTAL ENCROACHMENTS OF ELEMENTS OR CONSTRUCTED
IMPROVEMENTS;
(D) A RIGHT AND EASEMENT TO INSTALL AND MAINTAIN WEATHERPROOFING MATERIAL
(E) AN EXCLUSIVE RIGHT AND EASEMENT FOR USE OF ACCESS TUNNEL (SUBJECT ONLY TO
SECTION 4(D) OF SAID AGREEMENT) FOR VEHICULAR USE AND PEDESTRIAN ACCESS TO AND
FROM SUBSURFACE LEVELS OF THE IMPROVEMENTS ON THE EASEMENT PARCEL, (TOGETHER
WITH OTHER PROPERTY SET FORTH IN SAID AGREEMENT) AND ADJOINING PUBLIC RIGHTS OF
WAY;
(F) A NON-EXCLUSIVE RIGHT AND EASEMENT TO USE COMMON HALLWAYS, CORRIDORS,
ENTRANCES AND EXITS FOR PEDESTRIAN ACCESS;
(G) A TEMPORARY, NON-EXCLUSIVE RIGHT AND EASEMENT TO THE EASEMENT PARCEL AS IS
NECESSARY TO MAINTAIN THE FEE PARCEL;
(H) A NON-EXCLUSIVE EASEMENT AND RIGHT TO USE THE VEHICULAR AISLES, DRIVEWAYS,
ENTRANCES AND EXITS OF SUBSURFACE PARKING GARAGE FACILITY ON EASEMENT PARCEL
THE LAND
PARCEL A:
A PARCEL OF LAND COMPRISED OF A PART OF LOTS 2 AND 3; SUB-LOTS 1, 2, 3, 4, 5, 6,
7 AND PART OF OF SUB-LOT 8 IN GEORGE SMITH'S SUBDIVISION OF ORIGINAL LOT 4; ALL
IN BLOCK 35 OF ORIGINAL TOWN OF CHICAGO IN THE SOUTHEAST 1/4 OF SECTION 9,
TOWNSHIP 39 NORTH, RANGE 14 EAST OF THE THIRD PRINCIPAL MERIDIAN, IN COOK
COUNTY, ILLINOIS, WHICH PARCEL OF LAND IS BOUNDED AND DESCRIBED AS FOLLOWS:
BEGINNING AT A POINT ON THE EAST LINE OF NORTH CLARK STREET, WHICH
<PAGE> 143
PAGE 4
LEGAL DESCRIPTION
POINT IS 227.08 FEET NORTH OF THE INTERSECTION OF SAID EAST LINE WITH THE NORTH
LINE OF WEST RANDOLPH STREET, AND RUNNING THENCE EAST ALONG A LINE PARALLEL WITH
THE NORTH LINE OF WEST RANDOLPH STREET, A DISTANCE OF 164.08 FEET; THENCE SOUTH
ALONG A LINE PERPENDICULAR TO THE LAST DESCRIBED COURSE, A DISTANCE OF 27.95
FEET TO AN INTERSECTION WITH THE SOUTH LINE OF SAID LOT 2, SAID SOUTH LINE BEING
ALSO THE NORTH LINE OF WEST COUCH PLACE; THENCE EAST ALONG SAID SOUTH LINE OF
LOT 2, A DISTANCE OF 38.70 FEET TO AN INTERSECTION WITH THE WEST LINE OF THE
EAST 19 FEET OF THE WEST 1/2 OF THE EAST 1/2 OF SAID LOT 2, SAID LINE BEING ALSO
THE WEST LINE OF A PUBLIC ALLEY, 18.00 FEET WIDE; THENCE NORTH ALONG SAID WEST
LINE OF THE PUBLIC ALLEY, A DISTANCE OF [ILLEGIBLE] FEET TO AN INTERSECTION WITH
THE NORTH LINE OF WEST LAKE STREET; THENCE WEST ALONG SAID NORTH LINE OF WEST
LAKE STREET, A DISTANCE OF 202.44 FEET TO AN INTERSECTION WITH THE EAST LINE OF
NORTH CLARK STREET, THENCE SOUTH ALONG SAID EAST LINE OF NORTH CLARK STREET, A
DISTANCE OF 153.96 FEET TO THE POINT OF BEGINNING
PARCEL B:
THE EAST 1 FOOT OF THE WEST 1/2 OF THE EAST 1/2 OF LOT 2 IN SAID BLOCK 35
AFORESAID.
<PAGE> 144
November 17, 1989
The Bank of Nova Scotia
Atlanta Agency
Suite 650
55 Park Place
Atlanta, Georgia 30303
161 North Clark Street Limited Partnership
c/o The Linpro Company
55 West Wacker Drive
Suite 1120
Chicago, Illinois 60601
Re: Chicago Title Center
Gentlemen:
Reference is made to that certain Lease dated as of July 24, 1989 by and
between Linpro Chicago Land Limited Partnership, an Illinois limited partnership
("Seller"), and Chicago Title and Trust Company, an Illinois corporation, as
amended by that certain First Amendment to Lease dated November 17, 1989
(together, the "Lease"), subject to the terms and conditions of which the Seller
agreed to demise and the undersigned agreed to accept certain premises (the
"Premises"). The undersigned understands: (i) that 161 North Clark Street
Limited Partnership, a Delaware limited partnership ("Purchaser"), is acquiring
from Seller the real property described on Exhibit A hereto (the "Subject
Property") subject to the Lease; (ii) the Purchaser is acquiring the landlord's
interest in the Lease; and (iii) that Purchaser, Seller and The Bank of Nova
Scotia ("Construction Lender") are relying upon this certificate (this
"Certificate") in connection with such acquisition or the financing of the
construction of the improvements to be erected on the Subject Property, as the
case may be.
With such understanding, the undersigned hereby represents and agrees, for
the benefit of Seller, Purchaser and Construction Lender that as of the date
hereof:
1. As of the date hereof, the undersigned is the tenant under the Lease.
2. A true, correct and complete copy of the Lease is attached hereto as
Exhibit A.
<PAGE> 145
November 17, 1989
Page 2
3. The Lease is in full force and effect, is binding on the undersigned,
is hereby ratified and confirmed and constitutes the entire agreement between
the undersigned and the landlord thereunder and has not been assigned,
subleased, encumbered, transferred, supplemented, modified or amended by the
undersigned and there do not exist any other agreements concerning the Premises,
any other space or any other matter, whether oral, written or otherwise, between
the landlord under the Lease and the undersigned.
4. To the best of the undersigned's knowledge, the landlord is not in
default under the Lease and the undersigned has no existing defenses or offsets
against the enforcement of the Lease by the landlord; provided, however, that
the undersigned has not yet approved, and does not waive its rights to approve,
those facets of the design (including signage) and construction of the Subject
Property which the undersigned is entitled to approve under the Lease. Further,
the undersigned reserves the right to enforce the ceiling heights for the vault
space as set forth in the Lease.
5. There is no litigation pending or threatened by the undersigned against
the landlord, with respect to the Lease.
6. No action, voluntary or involuntary, is pending against the undersigned
under the bankruptcy or insolvency laws of the United States or any state
thereof.
7. The undersigned has received the following first mortgagee's addresses
for notices and other communications to be sent by the undersigned to the
Construction Lender as is set forth in this Certificate or the Lease:
with a copy to:
The Bank of Nova Scotia The Bank of Nova Scotia
Atlanta Agency Chicago Representative Office
55 Park Place, Suite 650 55 West Monroe Street
Atlanta, Georgia 30303 Chicago, Illinois 60603
Attention: Agent Attention: Real Estate Banking
8. The undersigned and the person or persons executing this Certificate on
behalf of the undersigned have the power and authority to render this
Certificate.
9. The Premises have not, as of yet, been constructed.
10. Base Rent (as defined in the Lease) and other charges under the Lease
have not been paid or prepaid, nor are they due.
<PAGE> 146
November 17, 1989
Page 3
11. The Lease and rents due thereunder have been assigned to Construction
Lender to secure an indebtedness owed to Construction Lender by Purchaser and
that the undersigned will make all rent payments due under the Lease to
Construction Lender, or as Construction Lender may direct, after such time as
Construction Lender notifies the undersigned in writing that Construction Lender
is entitled to receive such rents, in accordance with the provisions of said
assignments provided that such payment would not violate any applicable law and
provided that the landlord is not in bankruptcy.
12. In the event of a deed in lieu of foreclosure, foreclosure, or other
exercise of Construction Lender's remedies, the Lease shall, in accordance with
and subject to its terms, remain in full force and effect as a direct agreement
between the undersigned and Construction Lender or any other party who succeeds
to the interest of the landlord by virtue of such deed in lieu of foreclosure,
foreclosure or other exercise of Construction Lender's remedies ("New
Landlord").
13. Without the prior written consent of Construction Lender, the
undersigned will not (a) enter into any agreement materially amending or
terminating the Lease, or (b) enter into a voluntary agreement with the landlord
which provides for the cancellation of the term of, or surrender of, the Lease.
14. Prior to terminating the Lease, the undersigned will provide
Construction Lender with written notice of the default under the Lease by the
landlord and will provide Construction Lender a period of thirty (30) days after
receipt of such written notice within which to remedy such default; provided,
however, that if (i) such default occurs after the tenant's acceptance of the
Premises, (ii) such default is of such nature that Construction Lender cannot
reasonably cure such default without obtaining possession of the Subject
Property, (iii) such default can reasonably be cured by the undersigned through
the exercise of its "self-help" rights described in Section 29(c)(ii) of the
Lease and (iv) the amount to be expended by the undersigned in connection with
the exercise of such "self-help" rights does not exceed the Base Rent then
payable for the next succeeding calendar month, then, without terminating the
Lease (unless Construction Lender fails to cure within the extended cure period
set forth below), the tenant shall, at its sole election, either (x) exercise
the "self-help" and offset rights described in Section 29(c) (ii) of the Lease
or (y) extend the cure period in which Construction Lender may cure such default
for such time as is reasonably necessary for Construction Lender (I) to obtain
possession of the Subject Property by such legal action as Construction Lender
deems, in its reasonable judgment, most expedient to obtain said possession and
(II) to cure thereafter
<PAGE> 147
November 17, 1989
Page 4
such default. Clause (iv) of the immediately preceding sentence to the contrary
notwithstanding, if the exercise of such "self-help" rights would reasonably
require expenditures in an amount in excess of the next succeeding month's Base
Rent, the undersigned shall afford Construction Lender the opportunity to pay
such excess within thirty days of receipt of written notice of the expense to be
incurred in connection with exercising such "self-help" rights. To the extent
such expense requires the tenant to employ a Contractor, said notice shall be
accompanied by an estimate from such contractor. In the event Construction
Lender pays such excess, the undersigned shall not have the right to terminate
the Lease by reason of such default if all other conditions of the first
sentence of this Paragraph 14 are satisfied. Upon request by Construction
Lender, the undersigned shall provide invoices, lien waivers and other
information or documentation reasonably requested by Construction Lender.
Construction Lender may at its option elect to pay such amounts directly or
through a construction escrow. Notwithstanding the foregoing, the undersigned
agrees that Construction Lender shall have no obligation to remedy, or to
advance funds for the purpose of remedying, any such default by the landlord
under the Lease.
15. The undersigned will from time to time, at reasonable intervals and
upon not less than ten (10) days' prior written request by Construction Lender,
execute, acknowledge and deliver to Construction Lender an estoppel certificate
containing the information undersigned is required to provide in the certificate
described in Section 21 of the Lease.
16. In the event that Construction Lender or any other New Landlord shall
succeed to the interest of the landlord under the Lease:
(A) Construction Lender or such other New Landlord shall not be: (i) bound
by any rent or additional rent which undersigned shall have paid more than one
month in advance to any prior landlord, (ii) bound by any material amendment or
modification to the Lease, which has not been consented to in writing by
Construction Lender;
(B) No New Landlord (including, without limitation, Construction Lender):
(i) shall be liable for damages by reason of any act or omission of any prior
landlord (provided that this clause shall not be deemed to diminish any right of
the undersigned against any party other than a New Landlord), (ii) shall be
subject to any offset under the lease with regard to any amounts expended by the
undersigned more than two years prior to the date a New Landlord succeeded to
the interest of the landlord under the Lease, provided that notwithstanding the
foregoing a New Landlord shall be subject to such offset so long as the
<PAGE> 148
November 17, 1989
Page 5
undersigned commenced such offset not less than six months after the first of
such offset amounts were expended and thereafter continued such offset to the
fullest extent possible, or (iii) shall be liable for the return of any security
deposit made by undersigned to any prior landlord unless such New Landlord shall
have actually received such security deposit from a prior landlord; provided,
further, the undersigned acknowledges that simultaneous with such succession the
Chicago Title Participation Rights shall terminate and neither the Construction
Lender nor any other New Landlord shall have any liability with respect to the
Chicago Title Participations Rights, but nothing in this Certificate shall
affect the obligations of the Purchaser under the Lease or the obligations of
any party to the Personal Guaranty or Letter of Credit (as defined in the
Lease); and
(C) The undersigned shall look solely to the Subject Property for recovery
of any judgment or damages from Construction Lender or any of its nominees or
affiliates and neither construction Lender nor any of its nominees or affiliates
shall have any personal liability, directly or indirectly, under or in
connection with the Lease or this Certificate or any amendment or amendments to
either thereof made at any time or times, heretofore or hereafter, except to the
extent of its interest in the Subject Property, and undersigned hereby forever
and irrevocably waives and releases any and all such personal liability. The
limitation of liability provided in this paragraph is in addition to, and not in
limitation of, any limitation on liability applicable to Construction Lender or
such other New Landlord provided by law or by any other contract, agreement or
instrument. Notwithstanding the foregoing, nothing in this Certificate shall act
as a limitation on the liability of Seller or Purchaser or the enforceability by
the undersigned of the Personal Guaranty or the Letter of Credit.
17. Except as required under the Lease, the undersigned, for itself and
its successors and assigns, agrees that, without the prior written consent of
Construction Lender, the undersigned will not (a) enter into any subordination
agreement with any person other than Construction Lender; or (b) agree to attorn
to or recognize any purchaser of the Subject Property at any foreclosure sale
under any lien other than that of the Construction Lender's mortgage or any
transferee who acquires the Subject Property by deed in lieu of foreclosure or
otherwise under any lien other than that of the Construction Lender's mortgage
(provided, however, that this provision shall not be deemed to constitute
Construction Lender's consent to the placing of any lien other than the
Construction Lender's mortgage on the Subject Property).
<PAGE> 149
November 17, 1989
Page 6
18. This Certificate shall be binding upon and shall inure to the benefit
of the undersigned, Seller, Purchaser and Construction Lender, and their
respective successors and assigns.
Very truly yours,
CHICAGO TITLE AND TRUST COMPANY,
an Illinois corporation (for
the foregoing purposes the
"undersigned")
[SEAL]
Attest:
By: /s/ [ILLEGIBLE]
-------------------------------------
By: /s/ [ILLEGIBLE] Its: Senior Vice President
------------------------
Its: Ass't Secretary
<PAGE> 150
JOINDER
This joinder is executed for the purpose of acknowledging and consenting
to paragraph 11 regarding collection of rent. The undersigned irrevocably
directs Chicago Title and Trust Company ("CT&T") to pay rent in accordance with
said paragraph and agrees that payment of rent in accordance with said paragraph
shall constitute payment of rent under the Lease whether or not the notice by
Construction Lender described in said paragraph is rightfully or wrongfully
given, it being understood that CT&T shall have no right or responsibility to
inquire into whether Construction Lender is entitled to give such notice;
provided, however, that nothing contained in this joinder shall constitute a
waiver or release of any rights or claims that the undersigned may have against
the Construction Lender in connection with any request by the Construction
Lender to CT&T to make rental payments to the Construction Lender in accordance
with said paragraph. The undersigned waives the right to collect from CT&T any
rent paid in accordance with said paragraph 11. This joinder shall be binding
upon and shall inure to the benefit of the successors, assigns and legal
representatives of the undersigned.
161 NORTH CLARK STREET LIMITED PARTNERSHIP
By: LINPRO CHICAGO PROPERTY I LIMITED
PARTNERSHIP, a general partner
By: /s/ Eric Eichler
---------------------------------
Name: Eric Eichler
Title: Managing General Partner
By: /s/ Michael Pepper
---------------------------------
Name: Michael Pepper
Title: Managing General Partner
By: CLARK STREET GENERAL CORPORATION B.V.,
a general partner
By:
---------------------------------
Name: Enno Muller
Title: Managing Director:
By:
---------------------------------
Name: Steven B. Callahan
Title: Managing Director
<PAGE> 151
JOINDER
This joinder is executed for the purpose of acknowledging and consenting
to paragraph 11 regarding collection of rent. The undersigned irrevocably
directs Chicago Title and Trust Company ("CT&T") to pay rent in accordance with
said paragraph and agrees that payment of rent in accordance with said paragraph
shall constitute payment of rent under the Lease whether or not the notice by
Construction Lender described in said paragraph is rightfully or wrongfully
given, it being understood that CT&T shall have no right or responsibility to
inquire into whether Construction Lender is entitled to give such notice;
provided, however, that nothing contained in this joinder shall constitute a
waiver or release of any rights or claims that the undersigned may have against
the Construction Lender in connection with any request by the Construction
Lender to CT&T to make rental payments to the Construction Lender in accordance
with said paragraph. The undersigned waives the right to collect from CT&T any
rent paid in accordance with said paragraph 11. This joinder shall be binding
upon and shall inure to the benefit of the successors, assigns and legal
representatives of the undersigned.
161 NORTH CLARK STREET LIMITED PARTNERSHIP
By: LINPRO CHICAGO PROPERTY I LIMITED
PARTNERSHIP, a general partner
By:
---------------------------------
Name: Eric Eichler
Title: Managing General Partner
By:
---------------------------------
Name: Michael Pepper
Title: Managing General Partner
By: CLARK STREET GENERAL CORPORATION B.V.,
a general partner
By: /s/ Enno Muller
---------------------------------
Name: Enno Muller
Title: Managing Director:
By: /s/ Steven B. Callahan
---------------------------------
Name: Steven B. Callahan
Title: Managing Director
<PAGE> 152
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
I, Mary V. Reichenbach, a Notary Public, do hereby certify that Leonard C.
Donohoe, personally known to me to be the Senior Vice President of CHICAGO TITLE
TRUST COMPANY, an Illinois corporation, and Kenneth C. Ferraro personally known
to me to be the Assistant Secretary of said corporation, and personally known to
me to be the same persons whose names are subscribed to the foregoing
instrument, appeared before me this day in person and severally acknowledged
that as such Sr. vice President and Assistant Secretary they signed and
delivered the said instrument as Sr. Vice President and Assistant Secretary of
said corporation, and caused the corporate seal of said corporation to be
affixed thereto, pursuant to authority, given by the Board of Directors of said
corporation as their free and voluntary act, and as the free and voluntary act
and deed of said corporation, for the uses and purposes therein set forth.
Given under my hand and notarial seal this 22nd day of November, 1989.
/s/ Mary V. Reichenbach
-----------------------------------------
Notary Public
My Commission expires:
March 2, 1992
[SEAL]
"OFFICIAL SEAL"
Mary V. Reichenbach
Notary Public, State of Illinois
My commission Expires 3/2/92
<PAGE> 153
STATE OF ILLINOIS )
) SS.
COUNTY OF COOK )
The foregoing, instrument was acknowledged before me this 17 day of
November, 1989 by ERIC EICHLER and MICHAEL PEPPER, each a Managing General
Partner of LINPRO PROPERTY I LIMITED PARTNERSHIP, an Illinois limited
partnership, general partner of 161 NORTH CLARK STREET LIMITED PARTNERSHIP, a
Delaware limited partnership, on behalf of each of the partnerships.
/s/ Patricia Piazza
-----------------------------------------
Notary Public
Cook County, Illinois
My Commission expires: 2-17-91
"OFFICIAL SEAL"
PATRICIA PIAZZA
Notary Public, State of Illinois
My commission Expires Feb. 17, 1991
STATE OF ILLINOIS )
) SS.
COUNTY OF COOK )
The foregoing, instrument was acknowledged before me this 17 day of
November, 1989 by ENNO MULLER and STEVEN B. CALLAHAN, each a Managing General
Partner of CLARK STREET GENERAL CORPORATION B.V., a Netherlands corporation,
general partner of 161 NORTH CLARK STREET LIMITED PARTNERSHIP, a Delaware
limited partnership, on behalf of each of the partnerships.
/s/ Patricia Piazza
-----------------------------------------
Notary Public
Cook County, Illinois
My Commission expires: 2-17-91
"OFFICIAL SEAL"
PATRICIA PIAZZA
Notary Public, State of Illinois
My commission Expires Feb. 17, 1991
<PAGE> 154
EXHIBIT A
Legal Description
[TO BE PROVIDED]
Property Tax Index Numbers: ______________________________
Common Street: Address: 161 North Clark Street
Chicago, Cook County, Illinois
<PAGE> 155
EXHIBIT A 114995
LEGAL DESCRIPTION PAGE: 1
PARCEL 1:
A PARCEL OF LAND COMPRISED OF A PART OF LOTS 2 AND 3, ALL OF THE LOTS 5 AND 6,
THAT PART OF VACATED COUCH PLACE WHICH LIES NORTH OF AND ADJOINING SAID LOTS 5
AND 6; TOGETHER WITH ALL OF SUB-LOT 9 AND A PART OF SUB-LOT 8, BOTH IN GEORGE
SMITH'S SUBDIVISION OF ORIGINAL LOT 4; ALL IN BLOCK 35 OF ORIGINAL TOWN OF
CHICAGO IN THE SOUTHEAST 1/4 OF SECTION 9, TOWNSHIP 39 NORTH, RANGE 14 EAST OF
THE THIRD PRINCIPAL MERIDIAN, IN COOK COUNTY, ILLINOIS, WHICH PARCEL OF LAND IS
BOUNDED AND DESCRIBED AS FOLLOWS:
BEGINNING AT THE INTERSECTION OF THE NORTH LINE 0F WEST RANDOLPH STREET WITH THE
EAST LINE OF NORTH CLARK STREET, SAID POINT OF INTERSECTION BEING ALSO THE
SOUTHWEST CORNER OF SAID LOT 5, AND RUNNING THENCE NORTH ALONG SAID EAST LINE OF
NORTH CLARK STREET, A DISTANCE OF 227.08 FEET; THENCE EAST ALONG A LINE PARALLEL
WITH THE NORTH LINE OF WEST RANDOLPH STREET, A DISTANCE OF 164.08 FEET; THENCE
SOUTH ALONG A LINE PERPENDICULAR TO THE LAST DESCRIBED COURSE, A DISTANCE OF
27.95 FEET TO AN INTERSECTION WITH THE SOUTH LINE OF SAID LOT 2, SAID SOUTH LINE
BEING ALSO THE NORTH LINE OF WEST COUCH PLACE; THENCE WEST ALONG SAID SOUTH LINE
OF LOT 2, A DISTANCE OF 2.68 FEET TO AN INTERSECTION WITH THE NORTHWARD
EXTENSION OF THE EAST LINE OF SAID LOT 6 THENCE SOUTH ALONG SAID NORTHWARD
EXTENSION AND ALONG THE EAST LINE OF SAID LOT 6, A DISTANCE OF 199.13 FEET TO AN
INTERSECTION WITH SAID NORTH LINE OF WEST RANDOLPH STREET; THENCE WEST ALONG
SAID NORTH LINE, A DISTANCE OF 160.98 FEET TO THE POINT OF BEGINNING.
PARCEL 2:
THE EAST 1/2 OF LOT 7, TOGETHER WITH THAT PART OF THE ORIGINAL 18 FOOT ALLEY
NORTH OF AND ADJOINING SAME WHICH LIES SOUTH OF THE SOUTH LINE OF ALLEY AS
NARROWED BY ORDINANCE OF THE CITY OF CHICAGO. EXCEPTING FROM PARCEL 2 THE AIR
RIGHTS ACQUIRED BY THE CITY OF CHICAGO THROUGH EXERCISE OF THE POWER OF EMINENT
DOMAIN IN CASE NUMBER 86L50733, CIRCUIT COURT OF COOK COUNTY, ILLINOIS, BEING
DESCRIBED AS FOLLOWS:
THE NORTH 111.00 FEET OF THE EAST 1/2 OF LOT 7 LYING ABOVE A HORIZONTAL PLANE
HAVING AN ELEVATION OF 22.00 FEET ABOVE CHICAGO CITY DATUM, AND THE SOUTH 16.00
FEET OF THE NORTH 127.00 FEET OF THE EAST 1/2 OF LOT 7 LYING ABOVE A HORIZONTAL
PLANE HAVING AN ELEVATION OF +14.66 FEET ABOVE CHICAGO CITY DATUM, AND THAT PART
OF THE EAST 1/2 OF LOT 7, EXCEPT THE NORTH 127.00 FEET THEREOF, LYING ABOVE A
HORIZONTAL PLANE HAVING AN ELEVATION OF 12.66 FEET ABOVE CHICAGO CITY DATUM; ALL
IN BLOCK 17 IN THE ORIGINAL TOWN OF CHICAGO, IN THE SOUTHEAST 1/4 OF SECTION 9
TOWNSHIP 39 NORTH, RANGE 14, EAST OF THE THIRD PRINCIPAL MERIDIAN. IN COOK
COUNTY, ILLINOIS.
PARCEL 3:
EASEMENT APPURTENANT TO AND FOR THE BENEFIT OF PARCELS 1 AND 2
<PAGE> 156
LEGAL DESCRIPTION PAGE: 2
AFORESAID, AS CREATED BY GRANT FROM THE CITY OF CHICAGO, A MUNICIPAL
CORPORATION, TO GREYHOUND LINES, INC., A CORPORATION OF CALIFORNIA, AS
ESTABLISHED BY ORDER ENTERED NOVEMBER 12, 1986 IN CASE NUMBER 86L50733, CIRCUIT
COURT OF COOK COUNTY, ILLINOIS, LAW DIVISION, COPY OF WHICH ORDER WAS RECORDED
DECEMBER 16, 1986 AS DOCUMENT NUMBER 86601353 AND BY STIPULATION ON USE OF
TUNNEL ENTERED JUNE 11, 1987 IN SAID CASE, FOR PERMANENT PERMISSION AND
AUTHORITY TO USE AND MAINTAIN THE TUNNEL, AS THEN CONSTRUCTED, AS A PASSAGE FOR
VEHICLES UNDER AND ACROSS THAT PART OF WEST LAKE STREET LYING BETWEEN NORTH
DEARBORN STREET AND NORTH CLARK STREET BEING DESCRIBED AS FOLLOWS:
THAT PART OF WEST LAKE STREET LYING BETWEEN AND ADJOINING BLOCKS 17 AND 35 IN
THE ORIGINAL TOWN OF CHICAGO IN THE SOUTHEAST 1/4 OF SECTION 9, TOWNSHIP 39
NORTH, RANGE 14 EAST OF THE THIRD PRINCIPAL MERIDIAN, BOUNDED AND DESCRIBED AS
FOLLOWS:
BEGINNING ON THE NORTH LINE OF SAID WEST LAKE STREET AT THE INTERSECTION OF SAID
LINE WITH THE EAST LINE OF NORTH GARVEY COURT, SAID EAST LINE OF NORTH GARVEY
COURT BEING ALSO THE WEST LINE OF THE EAST 1/2 OF LOT 7 IN BLOCK 17 IN ORIGINAL
TOWN OF CHICAGO AFORESAID AND RUNNING THENCE EAST ALONG SAID NORTH LINE OF WEST
LAKE STREET SAID NORTH LINE BEING ALSO THE SOUTH LINE OF AFORESAID BLOCK 17, A
DISTANCE OF 31.35 FEET; THENCE SOUTHWESTWARDLY ALONG AN ARC OF A CIRCLE CONVEX
TO THE SOUTHEAST AND HAVING A RADIUS OF 175.35 FEET, A DISTANCE OF 83.35 FEET TO
A POINT WHICH IS 8.66 FEET WEST OF THE EAST LINE OF SAID NORTH GARVEY COURT,
EXTENDED SOUTH, AND 72.86 FEET SOUTH OF SAID NORTH LINE OF WEST LAKE STREET;
THENCE CONTINUING SOUTHWESTWARDLY ALONG AN ARC OF A CIRCLE, AND HAVING A RADIUS
OF 33.25 FEET, A DISTANCE OF 8.26, FEET, TO INTERSECTION WITH THE SOUTH LINE OF
SAID WEST LAKE STREET, AT A POINT 13.45 FEET WEST OF THE EAST LINE OF NORTH
GARVEY COURT, EXTENDED SOUTH; THENCE WEST ALONG SAID SOUTH LINE OF WEST LAKE
STREET, BEING ALSO THE NORTH LINE OF BLOCK 35 AFORESAID, A DISTANCE OF 68.63
FEET; THENCE NORTHEASTWARDLY ALONG A STRAIGHT LINE, A DISTANCE OF 29.63 FEET, TO
A POINT WHICH IS 56.39 FEET WEST OF SAID EAST LINE OF NORTH GARVEY COURT,
EXTENDED SOUTH, AND 64.57 FEET SOUTH OF THE NORTH LINE OF SAID WEST LAKE STREET;
THENCE NORTHEASTWARDLY ALONG AN ARC OF A CIRCLE, TO THE SOUTHEAST, TANGENT TO
THE LAST DESCRIBED STRAIGHT LINE, AND HAVING A RADIUS OF 88.15 FEET, A DISTANCE
OF 32.55 FEET TO A POINT WHICH IS 31.77 FEET WEST OF SAID EAST LINE OF NORTH
GARVEY COURT, EXTENDED SOUTH, AND 43.14 FEET SOUTH OF THE NORTH LINE OF WEST
LAKE STREET; THENCE CONTINUING NORTHEASTWARDLY ALONG AN ARC OF A CIRCLE, CONVEX
TO THE SOUTHEAST, TANGENT TO THE LAST DESCRIBED ARC OF A CIRCLE AND HAVING A
RADIUS OF 167.50 FEET, A DISTANCE OF 71.05 FEET, TO AN INTERSECTION WITH THE
AFORESAID EAST LINE OF NORTH GARVEY COURT, AT A POINT 20.34 FEET NORTH OF THE
NORTH LINE OF SAID WEST LAKE STREET, AND THENCE SOUTH ALONG THE SAID EAST LINE
OF NORTH GARVEY COURT, SAID DISTANCE OF 20.34 FEET, TO THE POINT OF BEGINNING,
IN COOK COUNTY, ILLINOIS.
PARCEL 4:
<PAGE> 157
LEGAL DESCRIPTION PAGE: 3
EASEMENTS APPURTENANT TO AND FOR THE BENEFIT OF PARCELS 1, 2 AND 3, AS CREATED
AND SPECIFICALLY SET OUT IN THE DEVELOPMENT, OPERATION AND CROSS-EASEMENT
AGREEMENT DATED NOVEMBER 17, 1989 AND RECORDED NOVEMBER__ 1989 AS DOCUMENT
_________ MADE BY AND BETWEEN LASALLE NATIONAL BANK AS TRUSTEE UNDER TRUST
AGREEMENT DATED NOVEMBER 17, 1989 AND KNOWN AS TRUST NUMBER 114995, AND LASALLE
NATIONAL BANK AS TRUSTEE UNDER TRUST AGREEMENT DATED NOVEMBER 17, 1989 AND KNOWN
AS TRUST NUMBER 115015 OVER AND ONTO AND UNDER SPECIFIED PORTIONS OF THE LAND
DESCRIBED BELOW, AND DESCRIBED AS FOLLOWS:
(A) AN EXCLUSIVE, TEMPORARY RIGHT AND EASEMENT FOR THE PURPOSE OF DEMOLITION;
(B) A NON-EXCLUSIVE, TEMPORARY RIGHT AND EASEMENT FOR THE PURPOSE OF
CONSTRUCTION;
(C) A RIGHT AND EASEMENT FOR INCIDENTAL ENCROACHMENTS OF ELEMENTS OR CONSTRUCTED
IMPROVEMENTS;
(D) A RIGHT AND EASEMENT TO INSTALL AND MAINTAIN WEATHERPROOFING MATERIAL
(E) AN EXCLUSIVE RIGHT AND EASEMENT FOR USE OF ACCESS TUNNEL (SUBJECT ONLY TO
SECTION 4(D) OF SAID AGREEMENT) FOR VEHICULAR USE AND PEDESTRIAN ACCESS TO AND
FROM SUBSURFACE LEVELS OF THE IMPROVEMENTS ON THE EASEMENT PARCEL, (TOGETHER
WITH OTHER PROPERTY SET FORTH IN SAID AGREEMENT) AND ADJOINING PUBLIC RIGHTS OF
WAY;
(F) A NON-EXCLUSIVE RIGHT AND EASEMENT TO USE COMMON HALLWAYS, CORRIDORS,
ENTRANCES AND EXITS FOR PEDESTRIAN ACCESS;
(G) A TEMPORARY, NON-EXCLUSIVE RIGHT AND EASEMENT TO THE EASEMENT PARCEL AS IS
NECESSARY TO MAINTAIN THE FEE PARCEL;
(H) A NON-EXCLUSIVE EASEMENT AND RIGHT TO USE THE VEHICULAR AISLES. DRIVEWAYS,
ENTRANCES AND EXITS OF SUBSURFACE PARKING GARAGE FACILITY ON EASEMENT PARCEL
THE LAND
PARCEL A:
A PARCEL OF LAND COMPRISED OF A PART OF LOTS 2 AND 3; SUB-LOTS 1, 2, 3, 4, 5, 6,
7 AND PART OF OF SUB-LOT 8 IN GEORGE SMITH'S SUBDIVISION OF ORIGINAL LOT 4; ALL
IN BLOCK 35 OF ORIGINAL TOWN OF CHICAGO IN THE SOUTHEAST 1/4 OF SECTION 9,
TOWNSHIP 39 NORTH, RANGE 14 EAST OF THE THIRD PRINCIPAL MERIDIAN, IN COOK
COUNTY, ILLINOIS, WHICH PARCEL OF LAND IS BOUNDED AND DESCRIBED AS FOLLOWS:
BEGINNING AT A POINT ON THE EAST LINE OF NORTH CLARK STREET, WHICH
<PAGE> 158
LEGAL DESCRIPTION PAGE: 4
POINT IS 227.08 FEET NORTH OF THE INTERSECTION OF SAID EAST LINE WITH THE NORTH
LINE OF WEST RANDOLPH STREET, AND RUNNING THENCE EAST ALONG A LINE PARALLEL WITH
THE NORTH LINE OF WEST RANDOLPH STREET, A DISTANCE OF 164.08 FEET; THENCE SOUTH
ALONG A LINE PERPENDICULAR TO THE LAST DESCRIBED COURSE, A DISTANCE OF 27.95
FEET TO AN INTERSECTION WITH THE SOUTH LINE OF SAID LOT 2, SAID SOUTH LINE BEING
ALSO THE NORTH LINE OF WEST COUCH PLACE; THENCE EAST ALONG SAID SOUTH LINE OF
LOT 2, A DISTANCE OF 38.70 FEET TO AN INTERSECTION WITH THE WEST LINE OF THE
EAST 19 FEET OF THE WEST 1/2 OF THE EAST 1/2 OF SAID LOT 2, SAID LINE BEING ALSO
THE WEST LINE OF A PUBLIC ALLEY, 18.00 FEET WIDE; THENCE NORTH ALONG SAID WEST
LINE OF THE PUBLIC ALLEY, A DISTANCE OF 181.71 FEET TO AN INTERSECTION WITH THE
NORTH LINE OF WEST LAKE STREET; THENCE WEST ALONG SAID NORTH LINE OF WEST LAKE
STREET, A DISTANCE OF 202.44 FEET TO AN INTERSECTION WITH THE EAST LINE OF NORTH
CLARK STREET; THENCE SOUTH ALONG SAID EAST LINE OF NORTH CLARK STREET A DISTANCE
OF 153.96 FEET TO THE POINT OF BEGINNING
PARCEL B:
THE EAST 1 FOOT OF THE WEST 1/2 OF THE EAST 1/2 OF LOT 2 IN SAID BLOCK 35
AFORESAID.
<PAGE> 159
[LETTERHEAD OF CHICAGO TITLE AND TRUST COMPANY]
November 30, 1989
161 North Clark Street Limited Partnership
c/o The Linpro Company
Suite 1120
55 West Wacker Drive
Chicago, Illinois 60601
Attention: Mr. Michael Pepper
Dear Michael:
Reference is made to that certain Lease dated July 24, 1989 (the "Lease")
by and between Linpro Chicago Land Limited Partnership, an Illinois Limited
Partnership ("Linpro"), and Chicago Title and Trust Company, an Illinois
corporation ("Chicago Title"), which Lease is being assigned by Linpro to 161
North Clark Street Limited Partnership ("161"). All defined terms used herein
shall have the same meaning as set forth in the Lease.
With regard to the floor to structural beam clearance height on Lower
Level III, we understand that, notwithstanding anything to the contrary
contained in the Lease or the Exhibits or Attachments thereto, 161 will provide
a floor to structural beam clearance of 8 feet 8 inches throughout the Vault
Space at a cost to Chicago Title not to exceed $20,000. The foregoing will
resolve the dispute which we referred to in the estoppel certificate delivered
to you (in escrow) in connection with your construction financing. Upon your
acceptance of this letter, the last sentence of paragraph 4 of such estoppel
certificate shall be deemed deleted and of no further, force or effect.
<PAGE> 160
161 North Clark Street Limited Partnership
November 30, 1989
Page -2-
Please be advised that we will provide you with written notice by
December 8, 1989 of our decision with regard to additional Vault Space;
provided, however, it is our current intent to exercise our Vault Space
expansion rights, and take approximately a total of 18,000 square feet of Vault
Space. We agree to restrict the use of all Vault Space in excess of 13,500
square feet to document storage, filing and other similar uses. As provided in
the Lease Chicago Title may use the first 13,500 square feet of Vault Space for
office uses. All other items of the Lease shall remain in full force and effect.
If the foregoing is your understanding and agreement please so
indicate by executing and delivering the duplicate copy of this letter to the
undersigned.
Sincerely,
Chicago Title and Trust Company
By: /s/ [ILLEGIBLE]
-----------------------------
Its: Senior Vice President
-------------------------
cc: Kenneth C. Ferraro
A. Larry Sisk
Linda D. White
Michael L. Silver
Howard Blair
Agreed to and Accepted this
30th day of November, 1989
161 North Clark Street Limited Partnership
By: Linpro Chicago Property I
Limited Partnership
By: /s/ Michael Pepper
---------------------------------------
Michael Pepper,
a managing general partner
<PAGE> 161
[LETTERHEAD OF CHICAGO TITLE AND TRUST COMPANY]
December 1, 1989
161 North Clark Street Limited Partnership
c/o The Linpro Company
Suite 1120
55 West Wacker Drive
Chicago, Illinois 60601
Attention: Michael Pepper
Dear Michael:
Reference is made to that certain Lease dated July 24, 1989 by and between
Linpro Chicago Land Limited Partnership, an Illinois limited partnership
("Linpro"), and Chicago Title and Trust Company, an Illinois corporation
("Chicago Title"), as assigned by Linpro to 161 North Clark Street Limited
Partnership (161) (such Lease, as so assigned is herein referred to as the
Lease"). All defined terms used herein shall have the meanings ascribed to them
in the Lease.
Section 55 of the Lease provided that the Personal Guaranty and Letter of
Credit shall be delivered by Landlord upon the satisfaction (or waiver) of all
contingencies described in Section 52 of the Lease (which must occur on or
before December 1, 1989) and the exchange of the $500,000 deposit. The parties
hereto agree that all such contingencies were satisfied on December 1, 1989 and
that the Lease is hereby amended to provide that the aforesaid delivery and
exchange must occur no later than December 8.
Chicago Title agrees that the Letter of Credit may be issued by LaSalle
National Bank ("LaSalle"); provided, however, in the event, that at any time
when the Letter of Credit is outstanding, (x) LeSalle's consolidated assets as
reported by Keefe Bankwatch fall below $3,050,000,000, (y) LaSalle is rated less
than A/B by Keefe Bankwatch, or (z) LaSalle ceases to be a federally insured
bank, Chicago Title, upon notice to 161, may require that the Letter of Credit
be replaced, at Landlord's expense, by a letter of credit issued by a bank
meeting the criteria set forth in Section 55(c) of the Lease.
<PAGE> 162
December 1, 1989
Page 2
If the foregoing is your understanding and agreement, please so indicate
by executing and delivering the duplicate copy of this letter to the
undersigned.
Sincerely,
Chicago Title and Trust Company
By: /s/ [ILLEGIBLE]
--------------------------------------
Its: Senior Vice President and Chief
Financial Officer
Agreed to and Accepted this
1st day of December, 1989
161 North Clark Street Limited Partnership
By: Linpro Chicago Property I
Limited Partnership
By: /s/ Michael Pepper
---------------------------------------
Michael Pepper,
a managing general director
6030r
<PAGE> 163
[LETTERHEAD OF CHICAGO TITLE AND TRUST COMPANY]
December 6, 1989
VIA MESSENGER VIA TELECOPY
161 North Clark Street Limited 161 North Clark Street Limited
Partnership Partnership
c/o The Linpro Company The Linpro Company
55 West Wacker Drive 200 Berwyn Park
Suite 1120 Suite 300
Chicago, Illinois 60601 Berwyn, Pennsylvania 19312
Attention: Mr. Michael Pepper Attention: Mr. Eric Eichler
VIA TELECOPY
161 North Clark Street Limited
Partnership
c/o Argus Realty Services, Inc.
1211 Avenue of the Americas
New York, New York 10036
Attention: President
Gentlemen:
Reference is made to that certain Lease dated July 24, 1989 by and between
Linpro Chicago Land Limited Partnership, an Illinois limited partnership
("Linpro"), and Chicago Title and Trust Company, an Illinois corporation
("Chicago Title"), as assigned by Linpro to 161 North Clark Street Limited
Partnership ("161") (such Lease, as so assigned and as amended is herein
referred to as the "Lease"). All defined terms used herein, unless otherwise
defined herein, shall have the meanings ascribed to them in the Lease.
Please be advised that Chicago Title hereby exercises its right to lease
all of the Additional Vault Space on the same floor
<PAGE> 164
December 6, 1989
Page 2
as the Original Vault Space, in accordance with Section 64(a) of the Lease, thus
increasing the total Vault Space to approximately 18,000 square feet.
Very truly yours,
CHICAGO TITLE AND TRUST COMPANY
By: /s/ [ILLEGIBLE]
---------------------------------
Its Senior Vice President and
General Counsel
----------------------------
cc: Sigmund T. Weiner, Esq. (Via Telecopy)
Sue Ann Fishbein, Esq. (Via Telecopy)
Edwin A. Howe, Jr., Esq. (Via Telecopy)
<PAGE> 165
[LETTERHEAD OF CHICAGO TITLE AND TRUST COMPANY]
December 8, 1989
VIA MESSENGER VIA TELECOPY
161 North Clark Street Limited 161 North Clark Street Limited
Partnership Partnership
c/o The Linpro Company The Linpro Company
55 West Wacker Drive 200 Berwyn Park
Suite 1120 Suite 300
Chicago, Illinois 60601 Berwyn, Pennsylvania 19312
Attention: Mr. Michael Pepper Attention: Mr. Eric Eichler
VIA TELECOPY
161 North Clark Street Limited
Partnership
c/o Argus Realty Services, Inc.
1211 Avenue of the Americas
New York, New York 10036
Attention: President
Gentlemen:
Reference is made to that certain Lease, dated July 24, 1989 by and
between LINPRO Chicago Land Limited Partnership, an Illinois Limited
Partnership, (LINPRO), and Chicago Title and Trust Company, an Illinois
Corporation ("Chicago Title"), as assigned by LINPRO to 161 North Clark Street
Limited Partnership ("161") (such Lease, as so assigned and as amended is herein
referred to as the "Lease"). All defined terms used herein, unless otherwise
defined herein, shall have the meanings ascribed to them in the Lease.
<PAGE> 166
December 8, 1989
Page 2
Please be advised that Chicago Title hereby elects to have the third pair
of escalators installed between the third and fourth floors in accordance with
Section 41 of the Lease.
Chicago Title has identified the location of the escalators via drawings
transmitted to LINPRO on December 7, 1989.
Very Truly yours,
CHICAGO TITLE AND TRUST COMPANY
By: /s/ [ILLEGIBLE]
---------------------------------
Its Senior Vice President and
General Counsel
----------------------------
cc: Sigmund T. Weiner, Esq.
Sue Ann Fishbein Esq.
Edwin A. Howe, Jr., Esq.
<PAGE> 167
SECOND AMENDMENT TO LEASE
This Second Amendment to Lease ("Amendment") dated as of Dec 23, 1992, is
made by and between 161 NORTH CLARK STREET LIMITED PARTNERSHIP, a Delaware
limited partnership ("Landlord"), and CHICAGO TITLE AND TRUST COMPANY, an
Illinois corporation ("Tenant").
RECITALS:
A. Linpro Chicago Land Limited Partnership ("Linpro Land") and Tenant
heretofore entered into that certain Lease (the "Lease") dated as of July 24,
1989, by and between Landlord and Tenant and covering approximately 248,000
square feet of Rentable Area in the Building, as amended as described below.
B. Landlord, the beneficiary under LaSalle National Bank Trust Agreement
dated November 11, 1989, and known as Trust No. 114995, has succeeded to the
interest of Linpro Land under the Lease.
C. The Lease has been amended by First Amendment to Lease dated November
17, 1989, and by letter agreements dated October 31, 1989, November 17, 1989,
November 30, 1989, December 1, 1989, December 6, 1989, and December 8, 1989,
between Landlord (or its predecessor) and Tenant, copies of which are attached
hereto. The term "Lease" shall mean the Lease, as heretofore amended.
D. Landlord and Tenant now desire to amend the Lease in the manner
hereinafter set forth to, among other things, include additional space in the
Premises and to substitute space in the mid-rise portion of the Building for the
Top Floor.
WITNESSETH:
NOW, THEREFORE, for and in consideration of the covenants and agreements
contained in this Amendment and other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, Landlord and Tenant
hereby agree as follows:
1. Definitions. All capitalized or defined terms in this Amendment which
are not defined in this Amendment will have the same meanings as are ascribed to
such terms in the Lease. As used in this Amendment and in the Lease, the
following terms shall have the meanings set forth below:
(a) "Additional Space" means the space depicted on Exhibit B-1
hereto located on the tenth (10th) floor of the Building.
(b) "Additional Space Rent Commencement Date" means the date which
is nine (9) months from the Low-Rise Commencement Date.
<PAGE> 168
(c) "Initial Office Premises" is amended to mean the "Original
Office Space" and the "Additional Space." The Original Office Space
includes the Mid-Rise Substitute Floor.
(d) "Mid-Rise Substitute Floor" means the thirty-second (32nd) floor
of the Building.
2. Lease of Additional Space. Landlord hereby leases to Tenant, and Tenant
hereby leases from Landlord the Additional Space for a term commencing on the
Low-Rise Commencement Date and ending on the same date as the termination date
for the lease of the Original Premises, as extended, subject to earlier
termination as provided in the Lease. All the terms of the Lease apply to the
lease of Additional Space, except as provided in this Amendment.
3. Substitution of Mid-Rise Substitute Floor for Top Floor. Landlord and
Tenant agree that the Mid-Rise Substitute Floor shall be substituted for and
leased by Tenant in place of the Top Floor. All provisions of the Lease relating
to the Top Floor shall be applicable to the Mid-Rise Substitute Floor, except as
provided in this Amendment, and all references to the Top Floor shall be to the
Mid-Rise Substitute Floor.
(a) References in Section 35 and 51(c) to the substantial completion
or state of construction of the high-rise portion of the Building or the
Top Floor shall be to the mid-rise portion of the Building and Mid-Rise
Substitute Floor, respectively.
(b) References to the High-Rise Access Date shall be to the Mid-Rise
Access Date, which shall be deemed to be June 1, 1992, notwithstanding
anything to the contrary in the Lease. References to the High-Rise
Commencement Date shall be to the Mid-Rise Commencement Date, which shall
be deemed to be November 1, 1992, notwithstanding anything to the contrary
in the Lease. References to the High-Rise Rent Commencement Date shall be
to the Mid-Rise Rent Commencement Date, which shall be deemed to be June
15, 1993, notwithstanding anything to the contrary in the Lease.
(c) Rentable Area of the Mid-Rise Substitute Floor is deemed to be
18,963 square feet.
(d) The decimal used for computing Tenant's Proportionate Share
attributable to the Mid-Rise Substitute Floor is .0186.
4. Base Rent.
(a) Base Rent for the Additional Space shall be payable at the same
rate for the same periods as for the Original Office Space within the
low-rise portion of the Building, except that Base Rent for Additional
Space shall not commence until the Additional Space Rent Commencement
Date.
2
<PAGE> 169
(b) Base Rent for the license to use the Loading Dock Bay shall be
payable annually in advance commencing on each October 1, at the rate of
$17,500 for the year commencing October 1, 1992. Base Rent for the Loading
Dock Bay shall be payable annually in advance each year thereafter on each
October 1 and Base Rent shall be increased each year by $500. If the
Expiration Date is other than a September 30, Base Rent for the Loading
Dock Bay for the year in which the Expiration Date falls shall be prorated
for the period prior to the Expiration Date.
(c) Section 1(b) of the Lease is amended to delete the paragraph
relating to Base Rent for the Top Floor (on page 4) and replacing it with
the following:
"Base Rent for the Mid-Rise Substitute Floor will commence on the
Mid-Rise Rent Commencement Date. Base Rent per square foot of
Rentable Area per year for the Mid-Rise Substitute Floor for the
initial Term will be:
<TABLE>
<CAPTION>
Lease Years Base Rent
----------- ---------
<S> <C>
Lease Years 1 - 4 $16.50
Lease Years 5 - 8 $20.50
Lease Years 9 - 12 $24.50
Lease Years 13 - 16 $28.50
Lease Years 17 - 20 $33.50"
</TABLE>
5. Additional Rent for Additional Space. Tenant shall pay Additional
Rent with respect to the Additional Space as provided in Section 2 of the Lease.
6. Location of Premises. Pursuant to Section 1(a) of the Lease, Landlord
and Tenant are attaching floor plans identifying the precise location of the
Original Premises.
(a) Original Office Space is depicted on the floor plans attached as
Exhibit B-2 hereto (labeled B-2-1, B-2-2, B-2-3, B-2-4 and B-2-5).
(b) Original Vault Space and other Vault Space which Tenant has
elected to lease as of the date hereof is depicted on the floor plans
attached as Exhibit B-3 hereto.
(c) Lobby Space is depicted on Exhibit B-4 hereto.
(d) Exhibit B to the Lease consists of Exhibits B-1, B-2, B-3 and
B-4 and depicts the Initial Premises. References in Section 1(a) and
elsewhere in the Lease to the location of the Lobby Space, Vault Space or
Original Office Space as being as shown on Attachments 1, 10 or 20 (being
schematic drawings) shall refer to Exhibit B instead.
3
<PAGE> 170
7. Rentable Area.
(a) Rentable Area of the Original Office Space is deemed to be
251,120 square feet; provided that for purposes of the calculation of the
Chicago Title Participation Percent it shall be 248,000.
(b) Rentable Area of the Original Vault Space and other Vault Space
included in the Premises is deemed to be 16,370.5 square feet (which shall
supersede any area shown in the letter agreement dated December 6, 1989).
(c) Rentable Area of the Lobby Space is deemed to be 1,500 square
feet.
(d) Rentable Area of the Additional Space is deemed to be 13,655.7
square feet.
(e) Rentable Area of the Initial Office Premises is 264,775.7, being
the sum of the Rentable Area of the Additional Space and the Original
Office Space.
8. Tenant's Proportionate Share. Tenant's Proportionate Share (including
the Original Office Space and Additional Space) is deemed to be .2722, being the
sum of (a) .2582 (for Original Office Space) plus (b) .0140 (for the Additional
Space).
9. Post-Occupancy Expansion Space. Landlord has previously identified
Post-Occupancy Expansion Space as being space on floors 11, 12 and 13, as
depicted on Exhibit J hereto. Rentable Area of Post-Occupancy Expansion Space on
the 11th floor is 28,814.2, on the 12th floor is 24,678.7 and on the 13th floor
is 25,067.1.
10. Landlord's Allowance. Landlord's Allowance described in Section 37
shall be applicable to the Additional Space and Mid-Rise Substitute Floor, being
part of the Initial Premises.
11. Low-Rise and Mid-Rise Access Date. The Low-Rise Access Date is agreed
to be February 3, 1992. The Mid-Rise Access Date is agreed to be June 1, 1992.
12. Low-Rise Commencement Date and Low-Rise Rent Commencement Date. The
Low-Rise Commencement Date is agreed to be October 1, 1992, and the Low-Rise
Rent Commencement Date is agreed to be November 1, 1992.
13. Mid-Rise Commencement Date and Mid-Rise Rent Commencement Date. The
Mid-Rise Commencement Date is agreed to be November 1, 1992. The Mid-Rise Rent
Commencement Date means June 15, 1993.
14. Parking. The phrase "Original Office Premises" used in Section 48 is
corrected to be the "Original Office Space." Tenant shall be entitled to use up
to thirty-one (31) parking spaces as a result of its lease of the Additional
Space,
4
<PAGE> 171
leaving a balance of nineteen (19) spaces to which Tenant may be entitled under
the circumstances set forth in Section 48 upon leasing more office space. The
number of spaces which Tenant is entitled to use is subject to reduction in case
of termination of its lease of any part of the Office Premises pursuant to
Section 48. Parking spaces shall be located as shown on new Attachment 9
attached hereto, which supersedes Attachment 9 attached to the Lease. Tenant has
advised Landlord that Tenant elects to use two (2) spaces during 1992 and 1993
and shall execute parking agreements in connection with such parking. On or
before each anniversary of the Low-Rise Commencement Date Tenant shall notify
Landlord on the number of spaces it elects to use during the next calendar year.
Once Tenant has elected a number of spaces to use for a year it shall pay for
such spaces for such year on the basis provided in Section 48 of the Lease and
shall not increase or decrease the number of spaces it uses during such year.
However, Tenant may either increase or decrease the number of spaces it uses in
any subsequent calendar year; provided, however, the number of parking spaces
shall not exceed the permitted maximum described above in this Section 14.
15. Delivery of Possession of Additional Space. The provisions of Sections
4, 6, 50, 51 and 62 shall apply to Landlord's delivery of possession of the
Additional Space, as part of the Initial Office Premises.
16. Pre-Occupancy Expansion Space. Tenant has not elected to lease
Pre-Occupancy Expansion Space and the option granted to Tenant under Section 39
has expired.
17. Janitorial. Tenant has elected not to contract with its own janitor to
provide janitorial services under Section 5(c) of the Lease for the period to
and including September 30, 1993; provided, however, Tenant has not waived its
right to provide its own cleaning services if Tenant is dissatisfied with
cleaning and janitorial services of Landlord's contractor, on the terms set
forth in Section 5(c).
18. Escalators. Pursuant to Section 41 of the Lease, by letter dated
December 8, 1989 Tenant has elected to have Landlord construct a third pair of
escalators, therefore, Landlord is not obligated to pay the lobby allowance
described in Section 41.
19. Section 66 Deleted. Section 66 of the Lease is hereby deleted.
20. Real Estate Brokers.
(a) Tenant represents and warrants that Tenant has directly dealt
with and only with Equis Corporation ("Equis") (whose commission, if any,
shall be paid by Landlord pursuant to separate agreement dated November
28, 1988, as amended by agreements dated May 5, 1989, June 30, 1989 and
November 1, 1989) as broker in connection with this Amendment and lease of
Additional Space and the substitution of Mid-Rise Substitute Floor and
agrees to indemnify and hold Landlord, and the Building Manager and
leasing agent of the Real Property harmless from all claims, losses,
liabilities, damages, liens, costs and expenses including without
limitation reasonable attorneys' fees, arising from any claims or demands
of any other broker or
5
<PAGE> 172
brokers or finders or Equis other than pursuant to the aforesaid brokerage
agreement for any commission due or alleged to be due such other broker or
brokers or finders or Equis other than pursuant to the aforesaid brokerage
agreement claiming to have dealt with Tenant in connection with this Lease
or with whom Tenant hereafter deals or whom Tenant hereafter employs.
(b) Landlord represents and warrants to Tenant that Landlord has not
dealt with any broker other than Equis in connection with this Amendment
and lease of Additional Space and the substitution of the Mid-Rise
Substitute Floor and agrees to indemnify and hold Tenant harmless from and
against any and all claims, losses, liabilities, damages, liens, costs and
expenses, including, without limitation, reasonable attorneys' fees
arising from any claims or demands of Equis arising pursuant to the
aforesaid brokerage agreement or any other broker or brokers or finders
for any commission due or alleged to be due Equis arising pursuant to the
aforesaid brokerage agreement or such other broker or brokers or finders
claiming to have dealt with Landlord in connection with this Lease or with
whom Landlord hereafter deals or whom Landlord hereafter employs.
21. Entire Agreement. The entire agreement of the parties with respect to
the Additional Space, Mid-Rise Substitute Floor and other matters contained in
this Amendment is set forth in this Amendment and in the Lease, as amended
hereby. No prior agreement or understanding with respect to such Additional
Space (including the January 31, 1992, letter agreement) or the Mid-Rise
Substitute Floor (including the June 19, 1992 letter agreement) or other matters
shall be valid or of any force or effect and are merged herein, and Tenant
acknowledges that Landlord has not made and Tenant has not relied on any
representation or warranty by Landlord in connection with the lease of the
Additional Space or Mid-Rise Substitute Floor, except as set forth in this
Amendment.
22. Lease in Full Force and Effect. Except as herein provided, all the
terms and provisions of the Lease shall remain in full force and effect, and are
hereby ratified and confirmed, including, without limitation, the terms of
Section 34 of the Lease which shall apply to the Lease, as amended by this
Amendment.
6
<PAGE> 173
IN WITNESS WHEREOF, Landlord and Tenant have caused this Amendment to be
duly executed by their authorized representatives as of the date first above
written.
LANDLORD:
161 NORTH CLARK STREET LIMITED
PARTNERSHIP, a Delaware limited partnership
By: LINPRO CHICAGO PROPERTY I
LIMITED PARTNERSHIP, an Illinois
limited partnership, General Partner
By: /s/ [ILLEGIBLE]
-----------------------------------
Managing General Partner
By:
-----------------------------------
Managing General Partner
By: CLARK STREET GENERAL
CORPORATION B.V., a Netherlands
corporation
By: /s/ [ILLEGIBLE]
-----------------------------------
Managing Director
By: /s/ [ILLEGIBLE]
-----------------------------------
Managing Director
TENANT:
CHICAGO TITLE AND TRUST COMPANY,
an Illinois corporation
By: /s/ [ILLEGIBLE]
----------------------------------------
Its: Sr. V.P.
SEE RIDER ATTACHED HERETO AND MADE A PART HEREOF:
LA SALLE NATIONAL TRUST, N.A. as Trustee under
Trust No. 114995 and not personally
By /s/ [ILLEGIBLE] Vice President
Attest /s/ Nancy A. Stack Assistant Secretary
7
<PAGE> 174
RIDER ATTACHED TO AND MADE A PART OF SECOND AMENDMENT TO LEASE DATED 12-23-92
This Second Amendment to LEASE is executed by LA SALLE NATIONAL TRUST, N.A., not
personally but as Trustee as aforesaid, in the exercise of the power and
authority conferred upon and vested in it as such Trustee, and under the express
direction of the beneficiaries of a certain Trust Agreement dated 11-17-89 and
known as Trust No. 114995 at LA SALLE NATIONAL TRUST, N.A., to all provisions of
which Trust Agreement this LEASE is expressly made subject. It is expressly
understood and agreed that nothing herein or in said LEASE contained shall be
construed as creating any liability whatsoever against said Trustee personally,
and in particular without limiting the generality of the foregoing, there shall
be no personal liability to pay any indebtedness accruing hereunder or to
perform any covenants, either express or implied, herein contained, or to keep,
preserve or sequester any property of said Trust, and that all personal
liability of said Trustee of every sort, if any, is hereby expressly waived by
said Lessee, and that so far as said Trustee is concerned the owner of any
indebtedness or liability accepting hereunder shall look solely to the premises
hereby leased for the payment thereof. It is further understood and agreed that
said Trustee has no agents or employees and merely holds naked legal title to
the property herein described; that said Trustee has no control over, and under
this LEASE assumes no responsibility for (1) the management or control of such
property, (2) the upkeep, inspection, maintenance or repair of such property (3)
the collection of rents or rental of such property, or (4) the conduct of any
business which is carried on upon such premises. Trustee does not warrant,
indemnify, defend title nor is it responsible for any environmental damage.
<PAGE> 175
SUPPLEMENT TO LEASE
CONFIRMING LEASE TERM
THIS LEASE SUPPLEMENT is made the 13th day of July, 1993 by and between
LASALLE NATIONAL BANK, not personally but solely as Trustee under Trust
Agreement dated November 17, 1989 and know as Trust No. 114995, as Landlord, and
Chicago Title and Trust Company an Illinois corporation, as Tenant.
RECITALS
A. By lease ("Lease") dated July 24, 1989, between Landlord and Tenant,
Landlord leased to the Tenant and the Tenant leased from Landlord, for the Term
and upon the terms and conditions therein set forth, certain space on the 2-10,
32 floors of the building located at 161 North Clark Street Chicago, Illinois.
Capitalized terms used herein shall have the meanings set forth in the Lease.
B. The Lease provided that the parties shall execute a supplement to the
Lease confirming the Commencement Date of the Term, if the actual Commencement
Date differs from the Commencement Date set forth in the Lease.
The parties hereto agree as follows:
1. The Commencement Date shall be October 1, 1992.
2. The Term shall expire on September 30, 2012, being the Expiration Date,
unless sooner terminated.
3. This instrument incorporates Section 34 of the Lease as if fully set
forth herein. This instrument is executed by LaSalle National Bank, not
personally but solely as Trustee, as aforesaid, in the exercise of the power and
authority conferred upon and vested in it as such Trustee. All the terms,
provision, stipulations, covenants and conditions to be performed by LaSalle
National Bank are undertaken by it solely as Trustee, as aforesaid, and not
individually, and no personal liability shall be asserted or be enforceable
against LaSalle National Bank by reason of any of the terms, provisions,
stipulations, covenants or statements contained in this instrument.
LANDLORD:
LASALLE NATIONAL BANK, not personally
but as Trustee, aforesaid
By: /s/ [ILLEGIBLE]
----------------------------------
Its: [ILLEGIBLE]
----------------------------------
TENANT:
CHICAGO TITLE AND TRUST
----------------------------------
By: /s/ [ILLEGIBLE]
----------------------------------
Its: VP, REAL ESTATE
----------------------------------
ATTEST:
By: /s/ Doreen K. Joyce
----------------------------------
Its: [ILLEGIBLE]
----------------------------------
"OFFICIAL SEAL"
Doreen K. Joyce
Notary Public, State of Illinois
My Commission Expires 6/30 [ILLEGIBLE]
<PAGE> 176
[LETTERHEAD OF CHICAGO TITLE AND TRUST COMPANY]
September 24, 1996
Mr. John Lamb
Equity Office Properties, L.L.C.
161 North Clark Street
Chicago, IL 60601
RE: Lobby Space, Chicago Title & Trust Center
Dear John:
IAW Paragraph 46(P) of the lease between 161 North Clark Street Limited
Partnership (as successor to Linpro Chicago Land Limited Partnership) and
Chicago Title and Trust Company, you are hereby advised that this correspondence
will serve as a "Lobby Termination Notice."
The "Lobby Termination Date" will be September 30, 1997. Via separate
correspondence, please acknowledge receipt of this notice and provide a
calculation supporting the amount of the termination payment due on September
30, 1997.
Sincerely,
/s/ James R. Taylor
- ----------------------------
James R. Taylor
Vice-President, Real Estate
cc: Stuart Bilton
Michael Powers
Richard P. Toft
John Wallace
Martin Woodrow
<PAGE> 1
Exhibit 10.21
CHICAGO TITLE CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
........................................................
SECTION 1. PURPOSE OF THE PLAN
The purpose of the Chicago Title Corporation Employee Stock Purchase Plan
(the "Plan") is to provide employees of Chicago Title Corporation ("Chicago
Title") and designated Subsidiaries an opportunity to acquire a proprietary
interest in Chicago Title through the purchase of shares of the common stock,
$1.00 par value, of Chicago Title ("Common Stock"). It is intended that the Plan
qualify as an "employee stock purchase plan" under Section 423 of the Internal
Revenue Code of 1986, as amended ("Code"), and the provisions of the Plan shall
be construed accordingly.
SECTION 2. DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set forth
below:
(a) "Business Day" means each day that the New York Stock Exchange, Inc.
(or such other exchange on which Common Stock is principally traded on the date
of reference) is open for the transaction of business.
(b) "Corporate Transaction" means either:
(i) a merger or consolidation in which securities possessing more than
fifty percent (50%) of the total combined voting power of Chicago Title's
outstanding securities are transferred to a person or persons different
from the persons holding those securities immediately prior to such
transaction; or
1
<PAGE> 2
(ii) the complete liquidation or dissolution of Chicago Title.
(c) "Fair Market Value" means, with respect to Common Stock, the mean of
the high and low sales prices of Common Stock on the relevant date as reported
on the stock exchange or market on which the Common Stock is primarily traded,
or if no sale is made on such date, then the Fair Market Value is the weighted
average of the mean of the high and low sales prices of Common Stock on the next
preceding day and the next succeeding day on which such sales were made, as
reported on the stock exchange or market on which Common Stock is primarily
traded.
(d) "Participating Company" shall mean Chicago Title and each Subsidiary
which the Committee has designated to participate in the Plan.
(e) "Offering Period" means each period which begins on a Commencement Date
and ends on a Purchase Date during which Eligible Employees may purchase Common
Stock pursuant to an Offering under the Plan.
(f) "Commencement Date" shall mean the first Business Day of each Offering
Period.
(g) "Eligible Employee" means any person who, on a Commencement Date, (i)
is customarily employed by any Participating Company as an employee for more
than twenty (20) hours per week and for more than five (5) months in any
calendar year, and (ii) has completed two (2) years of employment with Chicago
Title and any Subsidiary, or such lesser periods as the Committee may from time
to time establish with respect to an Offering.
(h) "Purchase Date" shall mean the last Business Day of each Offering
Period.
2
<PAGE> 3
(i) "Offering" means any proposal made in accordance with the terms and
conditions of the Plan permitting Eligible Employees to purchase Common Stock
under the Plan during an Offering Period.
(j) "Subsidiary" shall mean any corporation which is a "subsidiary" of
Chicago Title, as that term is defined in Section 424(f) of the Code.
SECTION 3. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Compensation Committee of the Board
of Directors of Chicago Title (the "Committee"). Any action of the Committee in
administering the Plan shall be final, conclusive and binding on all persons,
including Chicago Title, its Subsidiaries, employees, persons claiming rights
from or through employees and the stockholders of Chicago Title.
Subject to the provisions of the Plan, the Committee shall have full and
final authority in its discretion (a) to designate the Subsidiaries whose
employees will participate in the Plan, (b) to determine the maximum number of
shares of Common Stock to be acquired by each Eligible Employee during each
Offering Period, (c) to determine the terms and conditions of each Offering; (d)
to determine the length of each Offering Period and the Commencement Date
thereof; (e) to correct any defect or supply any omission or reconcile any
inconsistency in the Plan; (f) to adopt, amend and rescind such rules and
regulations as, in its opinion, may be advisable in the administration of the
Plan and the conduct of each Offering; and (g) to make all other determinations
as it may deem necessary or advisable for the administration of the Plan.
3
<PAGE> 4
SECTION 4. PARTICIPATION IN THE PLAN
(a) Only individuals who are an employee of Chicago Title or a Subsidiary
shall be eligible to acquire Common Stock pursuant to any Offering under the
Plan. Except as provided in paragraph (b) hereof, every Eligible Employee (as
established by the Committee) on the Commencement Date of an Offering shall be
eligible to participate in such Offering, provided such individual remains an
Eligible Employee until the Purchase Date.
(b) Notwithstanding any provisions of the Plan to the contrary, no Eligible
Employee shall be eligible to participate in any Offering if:
(i) on the Commencement Date, such Eligible Employee (or any other person
whose stock would be attributed to such Eligible Employee pursuant to
Section 424(d) of the Code) would own stock and/or hold outstanding options
to purchase stock possessing five (5) percent or more of the total combined
voting power or value of all classes of stock of Chicago Title or a
Subsidiary; or
(ii) the Eligible Employee belongs to a class or group of Eligible
Employees that the Committee deems ineligible for participation in any
Offering (as the Committee may do from time to time), so long as the
exclusion of such class or group of Eligible Employees from participation
in an Offering does not jeopardize the qualification of the Plan under
Section 423 of the Code or other applicable law.
4
<PAGE> 5
SECTION 5. OFFERINGS
(a) The Plan shall be implemented by a series of Offerings to all Eligible
Employees, the duration and frequency of which will be specified from time to
time by the Committee.
(b) Each Offering shall permit each Eligible Employee to purchase on the
Purchase Date Common Stock at a purchase price per share which shall not be less
than the lower of (i) eighty-five percent (85%) of the Fair Market Value of the
Common Stock on the Commencement Date, or (ii) eighty-five percent (85%) of the
Fair Market Value of Common Stock on the Purchase Date.
(c) No Offering Period pursuant to the Plan shall be for a period greater
than 27 months from the Commencement Date.
(d) All Eligible Employees participating in an Offering under the Plan
shall have the same rights and privileges, except that the Committee may from
time to time provide for differences in the rights and privileges of Eligible
Employees so long as such differences do not jeopardize the qualification of the
Plan under Section 423 of the Code or violate other applicable law.
SECTION 6. SHARES AVAILABLE UNDER THE PLAN
(a) Subject to the provisions of Section 7 hereof, the aggregate number of
shares of Common Stock available for purchase pursuant to all Offerings under
the Plan shall not exceed 1,000,000 shares. Shares of Common Stock to be
purchased under the Plan may be either authorized but unissued shares of Common
Stock or shares of Common Stock held as treasury shares.
(b) If the total number of shares of Common Stock to be purchased on any
Purchase Date when added to the number of shares of Common Stock previously
issued pursuant
5
<PAGE> 6
to Offerings under the Plan exceeds the maximum number of shares then available
under the Plan, the Committee shall make a pro rata allocation of the shares
available for purchase in such Offering in as nearly a uniform manner as shall
be practicable and as it shall determine to be equal, and the amounts received
from each Eligible Employee in excess of the amounts applied to purchase Common
Stock shall be refunded to each Eligible Employee.
SECTION 7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event that the Committee determines that any stock dividend,
recapitalization, forward split or reverse split, reorganization, merger,
consolidation, spin-off, combination share exchange or other similar corporate
transaction or event, affects the Common Stock such that an adjustment is
appropriate in order to prevent dilution or enlargement of the rights of
Eligible Employees under the Plan, then the Committee shall, in such manner as
it may deem equal, adjust any or all of (i) the number and kind of shares of
Common Stock which may thereafter be available under the Plan, (ii) the number
and kind of shares of Common Stock issuable in respect of any current Offering,
and (iii) the purchase price relating to any purchase of Common Stock to be
acquired in any Offering; provided, however, that no adjustment shall be made
if, or to the extent that, such adjustment would cause the Plan to violate
Section 423 of the Code.
SECTION 8. ACCRUAL LIMITATIONS
No Eligible Employee shall be entitled to accrue rights to acquire Common
Stock in any Offering under this Plan (which right shall accrue on the
Commencement Date for an Offering Period) if and to the extent such accrual,
when aggregated with (i) rights to purchase Common Stock accrued under any other
Offering under this Plan during the same calendar year
6
<PAGE> 7
and (ii) rights accrued under any other employee stock purchase plan (within the
meaning of Section 423 of the Code) of Chicago Title or any Subsidiary during
the same calendar year, would cause such Eligible Employee to be able to
purchase more than Twenty-Five Thousand Dollars ($25,000) worth of Common Stock
or stock of any Subsidiary (determined on the basis of the Fair Market Value of
such Common Stock or stock on the Commencement Date or the dates such other
rights are granted) for each calendar year such rights are at any time
outstanding.
SECTION 9. GENERAL PROVISIONS
(a) Neither the Plan nor any action taken hereunder shall be construed as
giving any employee any right to be retained in the employ of Chicago Title or
any Subsidiary, and no employee of any Subsidiary shall have any claim or right
to participate in any Offerings under the Plan.
(b) No right of an Eligible Employee to purchase Common Stock pursuant to
an Offering under the Plan shall be assigned or transferred by such Eligible
Employee and such rights to purchase Common Stock pursuant to an Offering shall
be exercisable during the lifetime of the Eligible Employee only by the Eligible
Employee.
(c) No Offering shall confer on any Eligible Employee any of the rights of
a stockholder of Chicago Title unless and until Common Stock is duly issued or
transferred to the Eligible Employee in accordance with the terms of the
Offering.
(d) Upon the date of any Corporate Transaction, any outstanding Offering
under the Plan will terminate and such date shall be treated as the Purchase
Date, and in lieu of the issuance of Common Stock to participating Eligible
Employees, there shall be paid for each
7
<PAGE> 8
share of Common Stock, as nearly as reasonably may be determined, the cash,
securities and/or property which a holder of one share of the Common Stock was
entitled to receive upon and at the time of such Corporate Transaction.
(e) The validity and construction of the Plan and the terms of each
Offering shall be governed by the laws of the State of Delaware.
SECTION 10. EFFECTIVE DATE; AMENDMENT; TERMINATION
(a) The Plan shall become effective if and when approved by the
stockholders of Chicago Title.
(b) The Board of Directors of Chicago Title may terminate the Plan or amend
the Plan from time to time; provided, however, that the Board of Directors of
Chicago Title shall not, without the approval of the stockholders of Chicago
Title (i) increase the number of shares available for purchase pursuant to all
Offerings, (ii) change the class of persons eligible to participate in Offering
under the Plan, or (iii) reduce the purchase price of Common Stock below that
set forth in Section 5(b) herein.
(c) Unless sooner terminated as provided in paragraph (b) above, the Plan
shall terminate when all shares available for issuance under the Plan have been
purchased pursuant to an Offering under the Plan, or the date of any Corporate
Transaction, if earlier.
8
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM CHICAGO TITLE AND TRUST COMPANY AND SUBSIDIARIES CONSOLIDATED
BALANCE SHEET AT 12/31/97 AND THE CONSOLIDATED STATEMENT OF INCOME
FOR THE 12 MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 MAR-31-1998
<DEBT-HELD-FOR-SALE> 1,032,089 940,096
<DEBT-CARRYING-VALUE> 0 0
<DEBT-MARKET-VALUE> 0 0
<EQUITIES> 34,489 35,803
<MORTGAGE> 0 0
<REAL-ESTATE> 0 0
<TOTAL-INVEST> 1,066,578 975,899
<CASH> 21,219 35,887
<RECOVER-REINSURE> 0 0
<DEFERRED-ACQUISITION> 0 0
<TOTAL-ASSETS> 1,702,207 1,812,464
<POLICY-LOSSES> 564,334 569,829
<UNEARNED-PREMIUMS> 0 0
<POLICY-OTHER> 0 0
<POLICY-HOLDER-FUNDS> 0 0
<NOTES-PAYABLE> 32,443 32,851
0 0
0 0
<COMMON> 13,676 13,676
<OTHER-SE> 389,871 416,131
<TOTAL-LIABILITY-AND-EQUITY> 1,702,207 1,812,464
1,411,496 385,804
<INVESTMENT-INCOME> 52,266 14,805
<INVESTMENT-GAINS> 3,684 371
<OTHER-INCOME> 0 0
<BENEFITS> 102,324 26,279
<UNDERWRITING-AMORTIZATION> 0 0
<UNDERWRITING-OTHER> 1,281,519 342,661
<INCOME-PRETAX> 83,603 32,040
<INCOME-TAX> 27,894 10,799
<INCOME-CONTINUING> 55,709 21,241
<DISCONTINUED> 12,162 4,979
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 67,871 26,220
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<RESERVE-OPEN> 0 0
<PROVISION-CURRENT> 0 0
<PROVISION-PRIOR> 0 0
<PAYMENTS-CURRENT> 0 0
<PAYMENTS-PRIOR> 0 0
<RESERVE-CLOSE> 0 0
<CUMULATIVE-DEFICIENCY> 0 0
</TABLE>
