FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1996 Commission File No. 0-13990
LAWYERS TITLE CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 54-1589611
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
6630 West Broad Street, Richmond, Virginia 23230
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (804) 281-6700
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock 8,889,791 October 31, 1996
No Par Value ------------- --------------------
<PAGE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets.................................3
Consolidated Statements of Operations
and Retained Earnings ..................................5
Consolidated Statements of
Cash Flows..............................................6
Notes to Consolidated
Financial Statements....................................7
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations...............................8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...........................10
Signatures.................................................11
2
<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
Item 1. Consolidated Financial Statements
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
(Unaudited)
<CAPTION>
September 30, December 31,
ASSETS 1996 1995
- ------ ---- ----
<S> <C>
INVESTMENTS:
Fixed maturities:
Available-for-sale - at fair value (amortized
cost: 1996 - $195,706; 1995 - $179,182) $ 196,880 $ 187,270
Equity securities - at fair value (cost: 1996 -
$42,697; 1995 - $43,327) 58,364 56,540
Mortgage loans (less allowance for doubtful
accounts: 1996 and 1995 - $150) 674 1,015
Invested cash 25,464 21,805
------------ -----------
Total investments 281,382 266,630
CASH 18,506 18,842
NOTES AND ACCOUNTS RECEIVABLE:
Notes (less allowance for doubtful accounts:
1996 - $1,008; 1995 - $365) 6,765 7,565
Premiums (less allowance for doubtful accounts:
1996 - $2,330 - $1,898) 17,293 17,242
Income tax benefits - 301
------------ -----------
Total notes and accounts receivable 24,058 25,108
PROPERTY AND EQUIPMENT - at cost (less accumulated depreciation and amortization:
1996 - $42,269; 1995 - $36,581) 21,874 20,850
TITLE PLANTS 49,105 48,731
GOODWILL (less accumulated amortization:
1996 - $11,297; 1995 - $10,174) 56,930 53,645
DEFERRED INCOME TAXES 20,285 16,127
OTHER ASSETS 29,761 25,910
------------ -----------
$ 501,901 $ 475,843
============ ===========
</TABLE>
3
<PAGE>
<TABLE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
(Unaudited)
<CAPTION>
September 30, December 31,
LIABILITIES 1996 1995
- ----------- ---- ----
<S> <C>
POLICY AND CONTRACT CLAIMS $ 194,764 $ 193,791
ACCOUNTS PAYABLE AND
ACCRUED EXPENSES 40,216 34,933
INCOME TAXES PAYABLE 4,525 -
OTHER 8,440 8,734
------------ -----------
Total liabilities 247,945 237,458
------------ -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, no par value, authorized
5,000,000 shares, none issued or outstanding - -
Common stock, no par value, authorized 45,000,000
shares, issued and outstanding, 8,889,791 in
1996 and 8,885,991 in 1995 167,034 167,006
Unrealized investment gains (less related
deferred income tax expense of $5,894
in 1996 and $7,456 in 1995) 10,947 13,845
Retained earnings 75,975 57,689
Receivable from employee benefit plan - (155)
------------ -----------
Total shareholders' equity 253,956 238,385
------------ -----------
$ 501,901 $ 475,843
============ ===========
</TABLE>
See accompanying notes.
4
<PAGE>
<TABLE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND
RETAINED EARNINGS
NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(In thousands of dollars except per share amounts)
(Unaudited)
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C>
REVENUES
Premiums $ 328,438 $ 275,990 $ 115,251 $ 96,605
Title search, escrow and other 74,503 59,069 26,428 21,874
Investment income 15,438 11,146 4,593 4,566
---------- ---------- ---------- ----------
418,379 346,205 146,272 123,045
---------- ---------- ---------- ----------
EXPENSES
Salaries and employee benefits 137,127 114,763 47,359 39,888
Agents' commissions 134,116 118,382 47,731 39,176
Provision for policy and contract claims 21,075 18,295 7,491 6,137
Other 96,396 80,256 34,541 29,279
----------- ---------- ---------- ----------
388,714 331,696 137,122 114,480
----------- ---------- ---------- ----------
OPERATING INCOME BEFORE
INCOME TAXES 29,665 14,509 9,150 8,565
INCOME TAX EXPENSE
Current 12,642 1,071 5,107 4,446
Deferred (2,596) 2,990 (2,011) (2,118)
----------- ---------- ---------- ----------
10,046 4,061 3,096 2,328
----------- ---------- ---------- ----------
NET INCOME 19,619 10,448 6,054 6,237
DIVIDENDS (1,333) (1,155) (444) (444)
RETAINED EARNINGS BEGINNING
OF PERIOD 57,689 42,237 70,365 45,737
----------- ---------- ---------- ----------
RETAINED EARNINGS END OF PERIOD $ 75,975 $ 51,530 $ 75,975 $ 51,530
========== ========== ========== ==========
EARNINGS PER COMMON SHARE $ 2.21 $ 1.18 $ 0.68 $ 0.70
========== ========== ========== ==========
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 8,888 8,885 8,889 8,885
</TABLE>
See accompanying notes.
5
<PAGE>
<TABLE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(In thousands of dollars)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
1996 1995
---- ----
<S> <C>
Cash flows from operating activities:
Net income $ 19,619 $ 10,448
Depreciation & amortization 6,517 6,322
Amortization of bond premium 568 887
Realized investment gains (5,399) (1,841)
Deferred income tax (2,596) 2,884
Change in assets & liabilities:
Notes receivable 800 289
Premiums receivable (51) 749
Current income taxes 4,865 2,169
Policy & contract claims 973 (5,971)
Accounts payable and accrued expenses 1,354 (8,612)
Other (2,393) (491)
---------- ----------
Net cash provided by operating activities 24,257 6,833
---------- ----------
Cash flows from investing activities:
Purchase of property & equipment - net (6,600) (3,364)
Purchase of businesses, net of cash acquired (2,320) (8,026)
Cost of investments acquired:
Fixed maturities (77,093) (55,394)
Equity securities (27,780) (25,127)
Mortgage loans - (5)
Proceeds from investment sales or maturities:
Fixed maturities 59,938 54,842
Equity securities 33,961 30,536
Mortgage loans 341 40
---------- ----------
Net cash used in investing activities (19,553) (6,498)
---------- ----------
Cash flows from financing activities:
Dividends paid (1,333) (1,155)
Change in notes payable (48) (3,176)
---------- ----------
Net cash provided by financing activities (1,381) (4,331)
---------- ----------
Net increase (decrease) in cash and invested cash 3,323 (3,996)
Cash & invested cash at beginning of period 40,647 31,989
---------- ----------
Cash & invested cash at end of period $ 43,970 $ 27,993
========== ==========
</TABLE>
See accompanying notes.
6
<PAGE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars except per share amounts)
1. Interim Financial Information
The unaudited consolidated financial information included in this report
has been prepared in conformity with the accounting principles and
practices reflected in the consolidated financial statements included in
the Form 10-K for the year ended December 31, 1995 filed with the
Commission under the Securities Exchange Act of 1934. This report should be
read in conjunction with the aforementioned Form 10-K. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation of this information have been made. The
results of operations for the interim periods are not necessarily
indicative of results for a full year.
7
<PAGE>
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
Results of Operations
Net Income
The Company reported net income of $6.1 million, or $.68 per share, for the
quarter ended September 30, 1996, compared to net income of $6.2 million, or
$.70 per share, for the quarter ended September 30, 1995. The 1996 quarter
included $0.9 million of capital gains compared to $1.4 million of capital gains
recognized in the third quarter of 1995. Net income per share exclusive of
capital gains was $.61 in the third quarter of 1996 versus $.60 in the year
earlier period. Net income for the first nine months of 1996 was $19.6 million,
or $2.21 per share, compared to $10.4 million, or $1.18 per share, in the first
nine months of 1995.
Operating Revenues
Operating revenues for the third quarter of 1996 increased by 19.6 percent over
the prior year comparable period to $141.7 million on the continued resilience
in the new home and housing resale markets. This year-over-year revenue gain
reflected improvement in business from both direct operations and the agency
network. For the nine months ended September 30, 1996, operating revenues
totaled $402.9 million, 20.3 percent ahead of 1995.
Investment Income
Investment income was $4.6 million in the third quarter of both 1995 and 1996.
Exclusive of capital gains, investment income improved to $3.7 million in the
third quarter of 1996 compared to $3.1 million in the third quarter of 1995.
Investment income improved $4.3 million, including a $3.5 million increase in
capital gains, in the first nine months of 1996 compared to the same period of
1995.
On November 11, 1996, the Pension and Portfolio Committee of the Board of
Directors approved a change in the Company's investment strategy for its
insurance company portfolios. This change will result in a shift out of equity
securities. This shift will take place before the end of 1996 and will result in
after tax capital gains of approximately $10.5 million. Proceeds from the sale
of equities will be moved into fixed income securities. The effect on future
operations will be to replace the lower dividend yields and variable capital
gains experience of the equity securities with the more steady and predictable
stream of interest income from fixed maturity securities.
8
<PAGE>
Expenses
The operating margin, before claims and investment income, was 8.5 percent in
the third quarter of 1996, roughly flat with the third quarter of 1995. The
margin comparison was adversely impacted by an increase of 0.75 percent in the
average effective agency commission rate as these rates were realigned in some
markets to improve the Company's competitive posture. Additionally, during the
third quarter, the Company opened offices which are not yet at full production
and increased its sales and product development efforts particularly in the
allied services area. It also increased its investment in technology, beginning
the development of a wide area network and enhancing electronic data interchange
capabilities. While these measures have put some pressure on the quarterly
margin comparison, they are part of the long-term strategy for earnings growth
in specific markets and for new product development. The operating margin for
the first three quarters of 1996 was 8.8 percent, solidly ahead of the 6.5
percent posted for the first three quarters of 1995.
Claims experience continued to show the effects of favorable development
patterns seen for the last two years; they were 5.3 percent of title revenues in
the third quarter of 1996, compared to the 5.2 percent posted in the third
quarter of 1995. For the first nine months of 1996 claims were 5.2 percent of
title revenues compared to 5.5 percent in the comparable 1995 period.
Liquidity and Capital Resources
The Company generated $24.3 million of cash from operations in the first nine
months of 1996 compared to $6.8 million in the same period of 1995. At September
30, 1996 the Company held cash and invested cash of $44.0 million and combined
fixed maturity and equity securities investments of $255.2 million.
Additionally, the Company had unutilized lines of credit totaling $32.5 million
at September 30, 1996. Management believes the Company can meet both its short
and long-term capital needs as of September 30, 1996.
9
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
10.1 Lawyers Title Corporation 1991 Stock Incentive Plan (as amended May
26, 1995, May 21, 1996 and November 1, 1996).*
* Filed Herewith
b. Reports on Form 8-K
None
10
<PAGE>
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LAWYERS TITLE CORPORATION
(Registrant)
Date: November 12, 1996 /s/ Charles Henry Foster, Jr.
-------------------------- --------------------------------
Charles Henry Foster, Jr.
Chairman and Chief Executive Officer
Date: November 12, 1996 /s/ George William Evans
-------------------------- ---------------------------
George William Evans
Vice President and Treasurer
11
Exhibit 10.1
LAWYERS TITLE CORPORATION
1991 STOCK INCENTIVE PLAN
(as amended May 16, 1995, May 21, 1996 and November 1, 1996)
Article I
DEFINITIONS
1.01 Affiliate means any "subsidiary" or "parent corporation" (within
the meaning of Section 424 of the Code) of the Company.
1.02 Agreement means a written agreement (including any amendment or
supplement thereto) between the Company and a Participant specifying the terms
and conditions of a Grant or an Award issued to such Participant.
1.03 Award means an award of Common Stock, Restricted Stock and/or
Phantom Stock.
1.04 Board means the Board of Directors of the Company.
1.05 Change of Control means and shall be deemed to have taken place
if: (i) any individual, entity or group (within the meaning of Sections 13(d)(3)
or 14(d)(2) of the Exchange Act) becomes the beneficial owner of shares of the
Company having 20 percent or more of the total number of votes that may be cast
for the election of directors of the Company, other than (x) as a result of any
acquisition directly from the Company, or (y) as a result of any acquisition by
any employee benefit plans (or related trusts) sponsored or maintained by the
Company or its Subsidiaries; or (ii) a change in the composition of the Board
such that the individuals who, as of the date hereof, constitute the Board (the
Board as of the date hereof shall be hereinafter referred to as the "Incumbent
Board") cease for any reason to constitute at least a majority of the Board;
provided, however, for purposes of this Section, that any individual who becomes
a member of the Board subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was approved by a vote of
at least a majority of those individuals who are members of the Board and who
were also members of the Incumbent Board (or deemed to be such pursuant to this
proviso) shall be considered as though such individual were a member of the
Incumbent Board; but, provided further, that any such individual whose initial
assumption of office occurs as a result of either an actual or threatened
election contest (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) or other actual or threatened solicitation
of proxies or consents by or on behalf of a person other than the Board shall
not be so considered as a member of the Incumbent Board.
1.06 Change of Control Date is the date on which an event described in
(i) or (ii) of Section 1.05 occurs.
1.07 Code means the Internal Revenue Code of 1986, and any amendments
thereto.
1.08 Commission means the Securities and Exchange Commission or any
successor agency.
<PAGE>
1.09 Committee means the Compensation Committee of the Board.
1.10 Common Stock means the Common Stock of the Company.
1.11 Company means Lawyers Title Corporation.
1.12 Exchange Act means the Securities Exchange Act of 1934, as amended
from time to time, and any successor thereto.
1.13 Fair Market Value means, on any given date, the closing price of a
share of Common Stock as reported on the New York Stock Exchange composite tape
on such day or, if the Common Stock was not traded on the New York Stock
Exchange on such day, then on the next preceding day that the Common Stock was
traded on such exchange, all as reported by such source as the Committee may
select.
1.14 Grant means the grant of an Option and/or an SAR.
1.15 Incentive Stock Option means an Option that is intended to qualify
as an "incentive stock option" under Section 422 of the Code.
1.16 Initial Value means, with respect to an SAR, the Fair Market Value
of one share of Common Stock on the date of grant, as set forth in the
Agreement.
1.17 Non-Qualified Stock Option means an option other than an Incentive
Stock Option.
1.18 Option means a stock option that entitles the holder to purchase
from the Company a stated number of shares of Common Stock at the price set
forth in an Agreement.
1.19 Option Price means the price per share for Common Stock purchased
on the exercise of an Option as provided in Article VI.
1.20 Participant means an officer, director or key employee of the
Company or of a Subsidiary who satisfies the requirements of Article IV and is
selected by the Committee to receive a Grant or an Award.
1.21 Phantom Stock means a bookkeeping entry on behalf of a Participant
by which his account is credited (but not funded) as though Common Stock had
been transferred to such account.
1.22 Plan means the Lawyers Title Corporation 1991 Stock Incentive
Plan, as amended.
1.23 Restricted Stock means shares of Common Stock awarded to a
Participant under Article IX. Shares of Common Stock shall cease to be
Restricted Stock when, in accordance with the terms of the applicable Agreement,
they become transferable and free of substantial risks of forfeiture.
1.24 Rule 16b-3 means Rule 16b-3, as promulgated by the Commission
under Section 16(b) of the Exchange Act, as amended from time to time.
Page 2
<PAGE>
1.25 SAR means a stock appreciation right granted pursuant to this Plan
that entitles the holder to receive, with respect to each share of Common Stock
encompassed by the exercise of such SAR, the lesser of (a) the excess of the
Fair Market Value at the time of exercise over the Initial Value of the SAR or
(b) the Initial Value of the SAR; provided, that any limited stock appreciation
right granted by the Committee and exercisable upon a Change of Control shall
entitle the holder to receive, with respect to each share of Common Stock
encompassed by the exercise of such SAR, the higher of (x) the highest sales
price of a share of Common Stock as reported on the New York Stock Exchange
composite tape during the 60-day period prior to and including the Change of
Control Date, or (y) the highest price per share paid in a Change of Control
transaction, except that in the case of SARs related to Incentive Stock Options,
such price shall be based only on the Fair Market Value of the Common Stock on
the date that the Incentive Stock Option is exercised.
1.26 Securities Broker means the registered securities broker
acceptable to the Company who agrees to effect the cashless exercise of an
Option pursuant to Section 8.05 hereof.
1.27 Subsidiary means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations in the chain (other than the last corporation) owns stock
possessing at least 50 percent of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
Article II
PURPOSES
The Plan is intended to assist the Company in recruiting and retaining
officers, directors and key employees with ability and initiative by enabling
such persons who contribute significantly to the Company or an Affiliate to
participate in its future success and to associate their interests with those of
the Company and its shareholders. The Plan is intended to permit the award of
Common Stock, Restricted Stock, and Phantom Stock, and the issuance of Options
qualifying as Incentive Stock Options or Non-Qualified Stock Options as
designated by the Committee at time of grant, and SARs. No Option that is
intended to be an Incentive Stock Option however, shall be invalid for failure
to qualify as an Incentive Stock Option under Section 422 of the Code but shall
be treated as a Non-Qualified Stock Option.
Article III
ADMINISTRATION
The Plan shall be administered by the Committee, which shall be
composed of two or more directors of the Company. The Committee shall have
authority to issue Grants and Awards upon such terms (not inconsistent with the
provisions of this Plan) as the Committee may consider appropriate. The terms of
such Grants and Awards may include conditions (in addition to those contained in
this Plan) on (i) the exercisability of all or part of an Option or SAR and (ii)
the transferability or forfeitability of Restricted Stock or Phantom Stock. In
addition, the Committee shall have complete authority to interpret all
provisions of this Plan; to prescribe the form of Agreements; to adopt, amend,
and rescind rules and regulations pertaining to the administration of the Plan;
and to make all other determinations necessary or advisable for the
administration of this Plan. To fulfill the purposes of the Plan without
amending the Plan, the Committee may also modify any Grants or Awards issued to
Page 3
<PAGE>
Participants who are nonresident aliens or employed outside of the United States
to recognize differences in local law, tax policy or custom.
The express grant in the Plan of any specific power to the Committee
shall not be construed as limiting any power or authority of the Committee. Any
decision made, or action taken, by the Committee or in connection with the
administration of this Plan shall be final and conclusive. All expenses of
administering this Plan shall be borne by the Company.
Article IV
ELIGIBILITY
4.01 General. Any officer, director or employee of the Company or of
any Subsidiary (including any corporation that becomes a Subsidiary after the
adoption of this Plan) who, in the judgment of the Committee, has contributed
significantly or can be expected to contribute significantly to the profits or
growth of the Company or a Subsidiary may receive one or more Awards or Grants,
or any combination or type thereof. Employee and non-employee directors of the
Company are eligible to participate in this Plan.
4.02 Grants and Awards. The Committee will designate individuals to
whom Grants and/or Awards are to be issued and will specify the number of shares
of Common Stock subject to each such Grant or Award. An Option may be granted
alone or in addition to other Grants and/or Awards under the Plan. The Committee
shall have the authority to grant any Participant Incentive Stock Options,
Non-Qualified Stock Options or both types of Options (in each case with or
without a related SAR); provided, however, that Incentive Stock Options may be
granted only to employees of the Company and its subsidiaries (within the
meaning of Section 424(f) of the Code). An SAR may be granted with or without a
related Option. All Grants or Awards issued under this Plan shall be evidenced
by Agreements which shall be subject to applicable provisions of this Plan and
to such other provisions as the Committee may determine. No Participant may be
granted Options that are Incentive Stock Options, or related SARs (under all
Incentive Stock Option Plans of the Company and Affiliates) which are first
exercisable in any calendar year for stock having an aggregate Fair Market Value
(determined as of the date an Option is granted) exceeding $100,000.
4.03 Designation of Option as an Incentive Stock Option or
Non-Qualified Stock Option. The Committee will designate at the time an Option
is granted whether the Option is to be treated as an Incentive Stock Option or a
Non-Qualified Stock Option. In the absence, however, of any such designation,
such Option shall be treated as an Incentive Stock Option.
4.04 Qualification of Incentive Stock Option under Section 422 of the
Code. Anything in the Plan to the contrary notwithstanding, no term of the Plan
relating to Incentive Stock Options shall be interpreted, amended or altered nor
shall any discretion or authority granted under the Plan be exercised so as to
disqualify the Plan under Section 422 of the Code or, without the consent of the
optionee affected, to disqualify any Incentive Stock Option under such Section
422.
Page 4
<PAGE>
Article V
STOCK SUBJECT TO PLAN
5.01 Maximum Number of Shares to be Awarded. Upon the exercise of any
Option (or tandem SAR), the award of Common Stock or Restricted Stock, or the
payment of an Award of Phantom Stock, the Company may deliver to the Participant
authorized but previously unissued shares of Common Stock or previously issued
shares of Common Stock reacquired by the Company. The maximum aggregate number
of shares of Common Stock available under the Plan for Grants and Awards made
prior to January 1, 1996, shall be 615,000. Commencing January 1, 1996, the
maximum number of shares of Common Stock available under the Plan for Grants and
Awards made in each calendar year shall be one and one-half percent (1.5%) of
the shares of Common Stock outstanding as of the first business day of each
calendar year. The shares of Common Stock available for Grants and Awards under
the Plan in 1996 and in each year thereafter shall be increased by the number of
shares of Common Stock available for Grants and Awards under the Plan in
previous years but not covered by Grants and Awards under the Plan in prior
years, plus any shares of Common Stock as to which Grants and Awards under the
Plan have terminated or been forfeited. In no event shall more than 500,000
shares of Common Stock be cumulatively available for Grants of Incentive Stock
Options under the Plan. Subject to the foregoing limitations, the maximum number
of shares of Common Stock available for Grants and Awards under the Plan is
subject to adjustment as provided in Article XI. If an Option is terminated, in
whole or in part, for any reason other than its exercise, the number of shares
of Common Stock allocated to the Option or portion thereof may be reallocated to
other Option, SAR, Common Stock, Restricted Stock or Phantom Stock Grants or
Awards to be made under this Plan. Any shares of Restricted Stock that are
forfeited may be reallocated to other Grants or Awards to be made under this
Plan.
5.02 Independent SARs. Upon the exercise of an SAR granted
independently of an Option, the Company may deliver to the Participant
authorized but previously unissued Common Stock, cash, or a combination thereof
as provided in Section 8.03. The maximum aggregate number of shares of Common
Stock that may be issued pursuant to SARs that are granted independently of
Options is subject to the provisions of Section 5.01 hereof.
Article VI
OPTION PRICE
The price per share for Common Stock purchased on the exercise of an
Option shall be fixed by the Committee on the date of grant; provided, however,
that in the case of an Option that is an Incentive Stock Option, the price per
share shall not be less than the Fair Market Value on such date.
Article VII
EXERCISE OF OPTIONS
7.01 Maximum Option or SAR Period. The period in which an Option or SAR
may be exercised shall be determined by the Committee on the date of grant;
provided, however that an Incentive Stock Option or related SAR shall not be
exercisable after the expiration of 10 years from the date the Incentive Stock
Option was granted.
7.02 Nontransferability. Unless otherwise provided by the Committee in
an Agreement, any Option or SAR granted under this Plan shall be nontransferable
Page 5
<PAGE>
except by will or by the laws of descent and distribution. In the event of any
transfer by will or descent and distribution, the Option and any related SAR
must be transferred to the same person or persons, trust or estate. During the
lifetime of the Participant to whom a nontransferable Incentive Stock Option or
related SAR is granted, the Option or SAR may be exercised only by the
Participant. No right or interest of a Participant in any Option or SAR shall be
liable for, or subject to, any lien, obligation or liability of such
Participant.
7.03 Employee Status. For purposes of determining the applicability of
Section 422 of the Code (relating to Incentive Stock Options), or in the event
that the terms of any Grant provide that it may be exercised only during
employment or within a specified period of time after termination of employment,
the Committee may decide to what extent leaves of absence for governmental or
military service, illness, temporary disability, or other reasons shall not be
deemed interruptions of continuous employment.
Article VIII
METHOD OF EXERCISE
8.01 Exercise. Subject to the provisions of Articles VII and XII, an
Option or SAR may be exercised in whole at any time or in part from time to time
at such times and in compliance with such requirements as the Committee shall
determine; provided, however, that an SAR that is related to an Option may be
exercised only to the extent that the related Option is exercisable and when the
Fair Market Value exceeds the Option Price of the related Option. An Option or
SAR granted under this Plan may be exercised with respect to any number of whole
shares less than the full number for which the Option or SAR could be exercised.
Such partial exercise of an Option or SAR shall not affect the right to exercise
the Option or SAR from time to time in accordance with this Plan with respect to
remaining shares subject to the Option or related SAR. The exercise of an Option
shall result in the termination of the SAR to the extent of the number of shares
with respect to which the Option is exercised.
8.02 Payment. Unless otherwise provided by the Agreement, payment of
the Option Price shall be made in cash. If the Agreement provides, payment of
all or part of the Option Price (and any applicable withholding taxes) may be
made by the Participant surrendering shares of Common Stock to the Company or by
the Company withholding shares of Common Stock from the Participant upon
exercise, provided the shares surrendered or withheld have a Fair Market Value
(determined as of the day preceding the date of exercise) that is not less than
such price or part thereof and any such withholding taxes. In addition, the
Committee may establish such payment or other terms as it may deem to be
appropriate and consistent with these purposes.
8.03 Determination of Payment of Cash and/or Common Stock Upon Exercise
of SAR. At the Committee's discretion, the amount payable as a result of the
exercise of an SAR may be settled in cash, Common Stock, or a combination of
cash and Common Stock. No fractional shares shall be delivered upon the exercise
of an SAR but a cash payment will be made in lieu thereof.
8.04 Shareholder Rights. No participant shall have any rights as a
shareholder with respect to shares subject to his Option or SAR until the date
he exercises such Option or SAR.
Page 6
<PAGE>
8.05 Cashless Exercise. To the extent permitted under the applicable
laws and regulations, at the request of the Participant and with the consent of
the Committee, the Company agrees to cooperate in a "cashless exercise" of the
Option. The cashless exercise shall be effected by the Participant delivering to
the Securities Broker instructions to exercise all or part of the Option,
including instructions to sell a sufficient number of shares of Common Stock to
cover the costs and expenses associated therewith. The Committee may permit a
Participant to elect to pay any applicable withholding taxes by requesting that
the Company withhold the number of shares of Common Stock equivalent at current
market value to the withholding taxes due.
8.06 Cashing Out of Option. The Committee may elect to cash out all or
part of the portion of any Option to be exercised by paying the optionee an
amount, in cash or Common Stock, equal to the excess of the Fair Market Value of
the Common Stock that is the subject of the portion of the Option to be
exercised over the option price times the number of shares of Common Stock
subject to the portion of the Option to be exercised on the effective date of
such cash out.
Article IX
COMMON STOCK AND RESTRICTED STOCK
9.01 Award. In accordance with the provisions of Article IV, the
Committee will designate persons to whom an award of Common Stock and/or
Restricted Stock is to be made and will specify the number of shares of Common
Stock covered by such award or awards.
9.02 Vesting. In the case of Restricted Stock, on the date of the
award, the Committee may prescribe that the Participant's rights in the
Restricted Stock shall be forfeitable or otherwise restricted for a period of
time set forth in the Agreement and/or until certain financial performance
objectives are satisfied as determined by the Committee in its sole discretion.
Subject to the provisions of Article XII hereof, the Committee may award Common
Stock to a Participant which is not forfeitable and is free of any restrictions
on transferability.
9.03 Shareholder Rights. Prior to their forfeiture in accordance with
the terms of the Agreement and while the shares are Restricted Stock, a
Participant will have all rights of a shareholder with respect to Restricted
Stock, including the right to receive dividends, warrants and rights and vote
the shares; provided, however, that (i) a Participant may not sell, transfer,
pledge, exchange, hypothecate, or otherwise dispose of Restricted Stock, (ii)
the Company shall retain custody of the certificates evidencing shares of
Restricted Stock, and (iii) the Participant will deliver to the Company a stock
power, endorsed in blank, with respect to each award of Restricted Stock.
Article X
PHANTOM STOCK
10.01 Award. Pursuant to this Plan or an Agreement establishing
additional terms and conditions, the Committee may designate employees to whom
Awards of Phantom Stock may be made and will specify the number of shares of
Common Stock covered by the Award.
10.02 Vesting. The Committee may prescribe such terms and conditions
under which a Participant's right to receive payment for Phantom Stock shall
become vested.
Page 7
<PAGE>
10.03 Shareholder Rights. A Participant for whom Phantom Stock has been
credited generally shall have none of the rights of a shareholder with respect
to such Phantom Stock. However, a plan or Agreement for the use of Phantom Stock
may provide for the crediting of a Participant's Phantom Stock account with cash
or stock dividends declared with respect to Common Stock represented by such
Phantom Stock.
10.04 Payment. At the Committee's discretion, the amount payable to a
Participant for Phantom Stock credited to his account shall be made in cash,
Common Stock or a combination of both.
10.05 Nontransferability. Unless otherwise provided by the Committee in
an Agreement, any Phantom Stock awarded under this Plan shall be nontransferable
except by will or the laws of descent and distribution.
Article XI
ADJUSTMENT UPON CHANGE IN COMMON STOCK
Should the Company effect one or more (x) stock dividends, stock
split-ups, subdivisions or consolidations of shares or other similar changes in
capitalization; (y) spin-offs, spin-outs, split-ups, split-offs, or other such
distribution of assets to shareholders; or (z) direct or indirect assumptions
and/or conversions of outstanding Options due to an acquisition of the Company,
then the maximum number of shares as to which Grants and Awards may be issued
under this Plan shall be proportionately adjusted and their terms shall be
adjusted as the Committee shall determine to be equitably required. Any
determination made under this Article XI by the Committee shall be final and
conclusive.
The issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, for cash or property
or for labor or services, either upon direct sale or upon the exercise of rights
or warrants to subscribe therefor, or upon conversion of shares or obligations
of the Company convertible into such shares or other securities, shall not
affect, and no adjustment by reason thereof shall be made with respect to any
Grant or Award.
Article XII
COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES
No Grant shall be exercisable, no Common Stock shall be issued, no
certificates for shares of Common Stock shall be delivered, and no payment shall
be made under this Plan except in compliance with all applicable Federal and
state laws and regulations (including, without limitation, withholding tax
requirements) and the rules of all domestic stock exchanges on which the
Company's shares may be listed or NASDAQ. The Company may rely on an opinion of
its counsel as to such compliance. Any share certificate issued to evidence
Common Stock for which a Grant is exercised or an Award is issued may bear such
legends and statements as the Committee may deem advisable to assure compliance
with Federal and state laws and regulations. No Grant shall be exercisable, no
Common Stock shall be issued, no certificate for shares shall be delivered, and
no payment shall be made under this Plan until the Company has obtained such
consent or approval as the Committee may deem advisable from regulatory bodies
having jurisdiction over such matters.
Page 8
<PAGE>
Article XIII
GENERAL PROVISIONS
13.01 Effect on Employment. Neither the adoption of this Plan, its
operation, nor any documents describing or referring to this Plan (or any part
thereof) shall confer upon any employee any right to continue in the employ of
the Company or a Subsidiary or in any way affect any right and power of the
Company or a Subsidiary to terminate the employment of any employee at any time
with or without assigning a reason therefor.
13.02 Unfunded Plan. The Plan, insofar as it provides for a Grant or an
award of Phantom Stock, is not required to be funded, and the Company shall not
be required to segregate any assets that may at any time be represented by a
Grant or an Award of Phantom Stock under this Plan.
13.03 Change of Control. Notwithstanding any other provision of the
Plan to the contrary, in the event of a Change of Control:
(a) Any outstanding Option, SAR (including any limited SAR) or Phantom
Stock which is not presently exercisable and vested as of a Change of Control
Date shall become fully exercisable and vested to the full extent of the
original grant upon such Change of Control Date.
(b) The restrictions applicable to any outstanding Restricted Stock
shall lapse, and such Restricted Stock shall become free of all restrictions and
become fully vested, nonforfeitable and transferable to the full extent of the
original grant. The Committee may also provide in an Agreement that a
Participant may elect, by written notice to the Company within 60 days after a
Change of Control Date, to receive, in exchange for shares that were Restricted
Stock immediately before the Change of Control Date, a cash payment equal to the
Fair Market Value of the shares surrendered on the last business day the Common
Stock is traded on the New York Stock Exchange prior to receipt by the Company
of such written notice.
13.04 Rules of Construction. Headings are given to the articles and
sections of this Plan for ease of reference. The reference to any statute,
regulation, or other provision of law shall be construed to refer to any
amendment to or successor of such provision of law.
13.05 Amendment. The Board may amend or terminate this Plan from time
to time; provided, however, that no amendment may become effective until
shareholder approval is obtained if the amendment (i) materially increases the
aggregate number of shares that may be issued pursuant to Options and Common
Stock and Restricted Stock awards, (ii) materially increases the benefits to
Participants under the Plan, or (iii) materially changes the requirements as to
eligibility for participation in the Plan. No amendment shall, without a
Participant's consent, adversely affect any rights of such Participant under any
Grant or Award outstanding at the time such amendment is made except such an
amendment made to cause the Plan or a Grant or Award to qualify for the Rule
16b-3 exemption.
13.06 Duration of Plan. No Grant or Award may be issued under this Plan
before November 1, 1991, or after October 31, 2000. Grants and Awards issued on
or after November 1, 1991, but on or before October 31, 2000, shall remain valid
in accordance with their terms.
Page 9
<PAGE>
13.07 Effective Date. This Plan was initially approved by the Board of
Directors and shareholders of the Company effective as of October 1, 1991.
Amendments to the Plan were approved by the Board of Directors and shareholders
of the Company effective as of May 16, 1995, by the Board of Directors of the
Company effective as of May 21, 1996 and by the Executive Committee on behalf of
the Board effective as of November 1, 1996.
Page 10
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<DEBT-HELD-FOR-SALE> 196,880
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 58,364
<MORTGAGE> 674
<REAL-ESTATE> 0
<TOTAL-INVEST> 281,382
<CASH> 18,506
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 501,901
<POLICY-LOSSES> 194,764
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 167,034
<OTHER-SE> 86,922
<TOTAL-LIABILITY-AND-EQUITY> 501,901
328,438
<INVESTMENT-INCOME> 15,438
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 74,503
<BENEFITS> 21,075
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 367,639
<INCOME-PRETAX> 29,665
<INCOME-TAX> 10,046
<INCOME-CONTINUING> 19,619
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,619
<EPS-PRIMARY> 2.21
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
