SCHEDULE 14A
(Rule 14a-101)
Information Required in Proxy Statement
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [ X ] Filed by a Party other than the Registrant [ ]
Check the appropriate box:
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[ X ] Preliminary Proxy Statement [ ] Confidential, For Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-
11(c) or Rule 14a-12
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LAWYERS TITLE CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ X ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, $2.00 par value, of Commonwealth Land Title
Insurance Company............................................
Common Stock, $1.00 par value, of Transnation Title Insurance
Company......................................................
(2) Aggregate number of securities to which transaction applies:
824,653 shares of Common Stock of Commonwealth Land Title
Insurance Company............................................
10,000,000 shares of Common Stock of Transnation Title
Insurance Company............................................
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
$267,372,000, representing the combined book value of the
Common Stock of the companies being acquired as of
June 30, 1997................................................
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(4) Proposed maximum aggregate value of transaction:
$267,372,000.................................................
(5) Total fee paid:
$53,474.40...................................................
[ ] Fee paid previously with preliminary materials.
.........................................................................
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
...................................................................
(2) Form, Schedule or Registration Statement no.:
...................................................................
(3) Filing Party:
...................................................................
(4) Date Filed:
...................................................................
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PRELIMINARY COPY, SUBJECT TO COMPLETION
[LAWYERS TITLE CORPORATION LOGO]
------------
SPECIAL MEETING OF SHAREHOLDERS
------------
November __, 1997
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders
(the "Special Meeting") of Lawyers Title Corporation (the "Company"), which is
to be held in the Company's Headquarters Building located in the Brookfield
office complex at 6630 West Broad Street, Richmond, Virginia, on December __,
1997, at 10:00 a.m., eastern time.
At the Special Meeting, you will be asked to consider and vote to
approve the Stock Purchase Agreement by and among the Company, Lawyers Title
Insurance Corporation ("LTIC"), Reliance Insurance Company ("RIC"), and Reliance
Group Holdings, Inc., dated as of August 20, 1997 (the "Stock Purchase
Agreement"). Pursuant to the Stock Purchase Agreement, the Company will acquire
from RIC all of the issued and outstanding shares of the capital stock of
Commonwealth Land Title Insurance Company ("Commonwealth") and Transnation Title
Insurance Company ("Transnation"), resulting in Commonwealth and Transnation
each becoming wholly owned subsidiaries of the Company (the "Acquisition"). In
voting to approve the Stock Purchase Agreement, shareholders will be deemed to
be voting to approve the issuance of 4,473,684 shares of Common Stock and
2,200,000 shares of 7% Series B Cumulative Convertible Preferred Stock to RIC,
and to approve an increase in the size of the Company's Board of Directors from
ten (10) to fourteen (14) directors as required by the Stock Purchase Agreement.
The consummation of the Acquisition is conditioned upon, among other things,
certain regulatory approvals being obtained and approval by the Company's
shareholders of the Stock Purchase Agreement and the transactions contemplated
thereby.
In addition, you will be asked to consider and vote to approve an
amendment to the Company's Articles of Incorporation to change the name of the
Company to "LandAmerica Financial Group, Inc." The name change will be made only
if the Acquisition is approved. The consummation of the Acquisition, however, is
not conditioned upon shareholder approval of the proposed name change. The
Acquisition and the proposal to change the Company's name is summarized in the
enclosed Proxy Statement, which you should read carefully.
The Board of Directors of the Company has determined that the
Acquisition and the change in corporate name to "LandAmerica Financial Group,
Inc." are in the best interests of the shareholders of the Company and
recommends that all shareholders of the Company vote for the approval of the
proposals. Management of the Company believes that the combination of the
Company with Commonwealth and Transnation will result in a stronger, more
effective organization. Through LTIC, Commonwealth and Transnation, LandAmerica
Financial Group, Inc. will have over 500 office locations across the country
and, based on 1996 data, will have a combined revenue base of over $1.3 billion.
Based on 1996 title revenues, LandAmerica Financial Group, Inc. will represent
the largest family of title insurance companies in the United States.
Whether or not you plan to attend the Special Meeting in person, it is
important that your shares be represented and voted at the Special Meeting. You
are requested to complete, sign, date and mail your Proxy promptly in the
enclosed postage-paid envelope.
We appreciate your support and look forward to seeing you at the
Special Meeting.
Sincerely,
Charles H. Foster, Jr.
Chairman and Chief Executive Officer
<PAGE>
LAWYERS TITLE CORPORATION
6630 West Broad Street
Richmond, Virginia 23230
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To the Shareholders of Lawyers Title Corporation:
Notice is hereby given that a special meeting of the shareholders (the
"Special Meeting") of Lawyers Title Corporation (the "Company") will be held in
the Company's Headquarters Building located in the Brookfield office complex at
6630 West Broad Street, Richmond, Virginia, on December __, 1997, at 10:00 a.m.,
eastern time, for the following purposes:
1. To consider and vote to approve the Stock Purchase Agreement,
dated as of August 20, 1997, by and among the Company, Lawyers
Title Insurance Corporation, Reliance Insurance Company, a
Pennsylvania corporation ("RIC"), and Reliance Group Holdings,
Inc., a Delaware corporation, and the transactions
contemplated thereby, pursuant to which the Company will
acquire from RIC all of the issued and outstanding shares of
the capital stock of Commonwealth Land Title Insurance
Company, a Pennsylvania corporation, and of Transnation Title
Insurance Company, an Arizona corporation. In voting to
approve the Stock Purchase Agreement, shareholders will be
deemed to be voting to approve the issuance of 4,473,684
shares of Common Stock and 2,200,000 shares of 7% Series B
Cumulative Convertible Preferred Stock to RIC, and to approve
an increase in the size of the Company's Board of Directors
from ten (10) to fourteen (14) directors as required by the
Stock Purchase Agreement. The Stock Purchase Agreement is
summarized in the enclosed Proxy Statement and is set forth in
its entirety as Appendix A.
2. To consider and vote to approve an amendment to the Company's
Articles of Incorporation to change the name of the Company to
"LandAmerica Financial Group, Inc."
3. To transact such other business as may properly come before
the Special Meeting or any adjournment of postponement
thereof.
Only holders of shares of Common Stock of record at the close of
business on November __, 1997 shall be entitled to notice of and to vote at the
Special Meeting or any adjournments or postponements thereof.
Please sign and promptly mail the enclosed Proxy to ensure the presence
of a quorum at the Special Meeting.
By Order of the Board of Directors,
Russell W. Jordan, III
Secretary
November __, 1997
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE VOTE, SIGN,
DATE AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE. IF YOU ATTEND THE
MEETING, YOU MAY VOTE YOUR SHARES IN PERSON, EVEN THOUGH YOU HAVE PREVIOUSLY
SIGNED AND RETURNED YOUR PROXY.
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LAWYERS TITLE CORPORATION
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
December __, 1997
This Proxy Statement is being furnished to the shareholders of Lawyers
Title Corporation, a Virginia corporation (the "Company"), in connection with
the solicitation of proxies by the Board of Directors of the Company for use at
a Special Meeting of the Company's shareholders to be held in the Company's
Headquarters Building located in the Brookfield office complex at 6630 West
Broad Street, Richmond, Virginia, on December __, 1997, at 10:00 a.m., eastern
time, and at any adjournment or postponement thereof (the "Special Meeting").
At the Special Meeting, the holders of the Company's common stock, no
par value ("Common Stock"), will be asked to consider and vote to approve the
Stock Purchase Agreement by and among the Company, Lawyers Title Insurance
Corporation, a Virginia corporation and wholly owned subsidiary of the Company
("LTIC"), Reliance Insurance Company, a Pennsylvania corporation ("RIC"), and
Reliance Group Holdings, Inc., a Delaware corporation ("Reliance"), dated as of
August 20, 1997 (the "Stock Purchase Agreement"). The Stock Purchase Agreement
provides for the Company's acquisition from RIC of all of the issued and
outstanding shares of the capital stock of Commonwealth Land Title Insurance
Company, a Pennsylvania corporation ("Commonwealth"), and Transnation Title
Insurance Company, an Arizona corporation ("Transnation" and, collectively with
Commonwealth, "Commonwealth/ Transnation"), resulting in Commonwealth and
Transnation each becoming wholly owned subsidiaries of the Company (the
"Acquisition"). In voting to approve the Stock Purchase Agreement, shareholders
will be deemed to be voting to approve the issuance of 4,473,684 shares of
Common Stock (the "Company Common Shares") and 2,200,000 shares of 7% Series B
Cumulative Convertible Preferred Stock (the "Series B Preferred Stock") to RIC,
and to approve an increase in the size of the Company's Board of Directors from
ten (10) to fourteen (14) directors as required by the Stock Purchase Agreement.
The purchase price payable by the Company to RIC upon consummation of
the Acquisition consists of (i) $207.5 million in cash, (ii) the Company Common
Shares, (iii) the Series B Preferred Stock and (iv) either the net cash proceeds
from a public or private offering of 1,315,789 shares of Common Stock completed
on or before closing or an unsecured subordinated note in an aggregate principal
amount equal to 95% of the product of 1,315,789 times the average closing price
on the New York Stock Exchange ("NYSE") for a share of Common Stock for the ten
(10) trading days prior to closing, subject in each such case to a minimum
amount of not less than $23.75 million. See "The Acquisition - Description of
the Acquisition" and "The Stock Purchase Agreement - Acquisition and Purchase
Price."
A copy of the Stock Purchase Agreement, including certain agreements
related to the Acquisition that are exhibits thereto, is attached to this Proxy
Statement as Appendix A. The summaries of the Stock Purchase Agreement and such
related agreements set forth in this Proxy Statement do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, the text of the Stock Purchase Agreement and such related agreements.
In addition, the shareholders will be asked to consider and vote to
approve an amendment to the Company's Articles of Incorporation (the "Company's
Charter") to change the name of the Company from "Lawyers Title Corporation" to
"LandAmerica Financial Group, Inc." The consummation of the Acquisition is not
conditioned upon shareholder approval of the proposed name change.
The Company's Board of Directors, after careful consideration, has
approved the Stock Purchase Agreement and the change in corporate name to
"LandAmerica Financial Group, Inc.," and has determined that the Acquisition and
the name change are in the best interests of the Company and its shareholders
and recommends that the shareholders vote "FOR" approval of these proposals at
the Special Meeting.
This Proxy Statement is being mailed to registered holders of Common
Stock on or about November __, 1997.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549-1004, and
at the following Regional Offices of the Commission: New York Regional Office, 7
World Trade Center, Suite 1300, New York, New York 10048 and Chicago Regional
Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material can also be obtained by mail from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549-1004, at prescribed rates. The Commission maintains an Internet address
(http: //www.sec.gov) that contains reports, proxy statements and other
information regarding registrants, such as the Company, that file electronically
with the Commission. The Common Stock is listed on the NYSE, and such reports,
proxy statements and other information relating to the Company can also be
inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005.
No person is authorized to give any information or to make any
representation not contained or incorporated by reference in this Proxy
Statement, and, if given or made, such information or representation should not
be relied upon as having been authorized by the Company. The delivery of this
Proxy Statement shall not, under any circumstances, create an implication that
there has been no change in the affairs of the Company, Commonwealth or
Transnation or the information set forth herein since the date of this Proxy
Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following reports previously filed by the Company with the
Commission under the Exchange Act are incorporated herein by reference:
(a) the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 (the "Form 10-K");
(b) the portions of the Company's Proxy Statement for the Annual
Meeting of Shareholders held on May 20, 1997 that have been
incorporated by reference into the Company's Form 10-K;
(c) the Company's Quarterly Reports on Form 10-Q for the three
months ended March 31, 1997 and the six months ended June 30,
1997;
(d) the Company's Current Report on Form 8-K filed September 2,
1997; and
(e) the description of the Common Stock and associated preferred
share purchase rights contained in the registration statement
on Form 8-A dated September 29, 1995 and filed October 2,
1995, as amended by Amendment No. 1 to the registration
statement on Form 8-A/A dated August 29, 1997 and filed
September 2, 1997.
All reports and other documents filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Proxy Statement and prior to the Special Meeting shall be deemed to be
incorporated by reference into this Proxy Statement and to be a part hereof from
the date of filing of such reports and other documents.
Any statement contained herein or in a report or document incorporated
or deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Proxy Statement to the extent that a
statement contained herein (or in any other subsequently filed document that
also is incorporated or deemed to be incorporated by reference herein) modifies
or supersedes such previous
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statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Proxy
Statement.
THIS PROXY STATEMENT INCORPORATES REPORTS AND OTHER DOCUMENTS BY
REFERENCE THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE REPORTS AND
OTHER DOCUMENTS (OTHER THAN EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED BY REFERENCE HEREIN) ARE AVAILABLE WITHOUT CHARGE UPON
ORAL OR WRITTEN REQUEST BY ANY PERSON TO WHOM THIS PROXY STATEMENT HAS BEEN
DELIVERED FROM THE SECRETARY OF THE COMPANY, WHOSE ADDRESS IS 6630 WEST BROAD
STREET, RICHMOND, VIRIGNIA 23230, TELEPHONE NUMBER (804) 281-6700. IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY SUCH REQUEST SHOULD BE MADE BY
NOVEMBER __, 1997.
FORWARD LOOKING AND CAUTIONARY STATEMENTS
This Proxy Statement contains or incorporates by reference certain
forward looking statements with respect to the financial conditions, results of
operations and businesses of the Company and Commonwealth/Transnation and,
assuming the consummation of the Acquisition, the combined company, including
statements relating to: (i) the cost savings and accretion to reported earnings
that will be realized from the Acquisition; and (ii) the potential impact on
financial ratios, margins, revenues and profitability as a result of the
Acquisition. These forward looking statements involve certain risks and
uncertainties, and any such statement is qualified in its entirety by reference
to the following cautionary statements.
In connection with the Acquisition, factors that may cause actual
results to differ materially from those contemplated by such forward looking
statements include the following: (i) expected costs savings from the
Acquisition cannot be fully realized or realized within the expected time frame;
(ii) costs or difficulties related to the integration of the businesses of the
Company and Commonwealth/Transnation are greater than expected; (iii) revenues
following the Acquisition are lower than expected; (iv) competitive pressure in
the title insurance industry increases significantly; (v) general economic
conditions, either nationally or in the states in which the combined company
will conduct business, are less favorable than expected; or (vi) legislation or
regulatory changes adversely affect the businesses conducted by the combined
company.
In connection with the title insurance industry in general, factors
that may cause actual results to differ materially from those contemplated by
such forward looking statements include the following: (i) the title insurance
business is characterized by low profit margins due to the high cost of
producing title evidence, whereas premium revenues are subject to regulatory and
competitive restraints; (ii) the amount of title insurance business available is
influenced by housing starts, housing resales and commercial real estate
transactions; (iii) real estate activity levels have historically been cyclical
and are influenced by such factors as interest rates and the condition of the
overall economy; (iv) the value of the Company's investment portfolio is subject
to fluctuation based on similar factors; (v) the title insurance industry may be
exposed to substantial claims, such as claims of Indian tribes; and (vi) the
industry is regulated by state laws that require the maintenance of minimum
levels of capital and surplus and that restrict the amount of dividends that may
be paid without prior regulatory approval.
The Company cautions that the foregoing lists of important factors are
not exclusive. The Company does not undertake to update any forward looking
statement that may be made from time to time by or on behalf of the Company.
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TABLE OF CONTENTS
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Page
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Available Information...........................................................................................2
Incorporation of Certain Documents by Reference.................................................................2
Forward Looking and Cautionary Statements.......................................................................3
Summary.........................................................................................................6
The Companies..............................................................................................6
The Special Meeting........................................................................................6
The Acquisition............................................................................................7
The Stock Purchase Agreement..............................................................................10
Certain Related Agreements................................................................................12
Management and Ownership of the Company Following the Acquisition.........................................13
Comparative Per Share Data................................................................................14
Summary Historical and Pro Forma Combined Financial Data..................................................15
The Special Meeting............................................................................................18
Date, Time and Place......................................................................................18
Purpose of the Special Meeting............................................................................18
Voting Rights.............................................................................................18
Vote Required.............................................................................................19
Recommendation of the Board of Directors..................................................................19
Rights of Dissenting Shareholders.........................................................................19
The Acquisition................................................................................................20
Background................................................................................................20
Reasons for the Acquisition...............................................................................22
Description of the Acquisition............................................................................23
Certain Effects of the Transaction........................................................................24
Bank Commitment and Financing.............................................................................24
Opinion of the Company's Financial Advisor................................................................26
Interests of Certain Persons in the Acquisition...........................................................29
Amendment to Articles of Incorporation of the Company.....................................................30
Stock Exchange Listing....................................................................................30
Regulatory Approvals......................................................................................31
Certain Federal Income Tax Consequences...................................................................31
Accounting Treatment......................................................................................32
Resales of the Acquisition Shares.........................................................................32
Market for Common Stock and Dividend Policy...............................................................32
The Stock Purchase Agreement...................................................................................34
Acquisition and Purchase Price............................................................................34
Closing Date..............................................................................................34
Representations and Warranties............................................................................34
Certain Covenants of the Parties..........................................................................35
Conditions to Closing.....................................................................................38
Amendment, Waiver and Termination.........................................................................39
Indemnification...........................................................................................40
Post-Acquisition Employee Benefits........................................................................41
Certain Related Agreements.....................................................................................42
Voting and Standstill Agreement...........................................................................42
Covenants Regarding Non-Performance Remedies..............................................................49
Amended and Restated Rights Agreement.....................................................................51
Registration Rights Agreement.............................................................................51
Administrative Services Agreement.........................................................................52
Commonwealth Land Title Insurance Company and Transnation Title Insurance Company..............................53
Business..................................................................................................53
Management's Discussion and Analysis of Financial Condition and Results of Operations.....................55
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Management and Ownership of the Company Following the Acquisition..............................................58
Board of Directors........................................................................................58
Continuing Board Representation of RIC....................................................................59
Nominating Committee......................................................................................59
Committee Representation of RIC...........................................................................59
Executive Officers........................................................................................60
Headquarters..............................................................................................60
Security Ownership of Management..........................................................................61
Security Ownership of Certain Beneficial Owners...........................................................62
Pro Forma Condensed Combined Financial Statements (Unaudited)..................................................64
Pro Forma Condensed Combined Balance Sheet................................................................65
Pro Forma Condensed Combined Statements of Operations.....................................................66
Notes to Pro Forma Financial Statements...................................................................68
Description of Capital Stock...................................................................................69
Authorized and Outstanding Capital Stock..................................................................69
Common Stock..............................................................................................69
Preferred Stock...........................................................................................69
Preemptive Rights.........................................................................................69
Series B Preferred Stock..................................................................................70
Preferred Share Purchase Rights...........................................................................72
Certain Provisions of the Company's Charter and Bylaws....................................................73
Liability and Indemnification of Directors and Officers...................................................74
Affiliated Transactions...................................................................................74
Control Share Acquisitions................................................................................75
Comparison of Shareholders' Rights.............................................................................76
General...................................................................................................76
Name Change...............................................................................................76
Authorized and Outstanding Capital........................................................................76
Board of Directors........................................................................................76
Covenants Regarding Non-Performance Remedies..............................................................77
Rights Plan Amendments....................................................................................77
Legal Matters..................................................................................................77
Independent Auditors...........................................................................................77
Other Matters..................................................................................................78
Shareholder Proposals..........................................................................................78
Index to Financial Statements.................................................................................F-1
APPENDICES
A. Stock Purchase Agreement (with exhibits)
B. Articles of Amendment to Articles of Incorporation of the Company
C. Opinion of Wheat, First Securities, Inc.
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SUMMARY
The following is a summary of certain information contained elsewhere
in this Proxy Statement. This summary is not intended to be a complete
description of the matters covered in this Proxy Statement and is subject to and
qualified in its entirety by reference to the more detailed information
contained elsewhere in this Proxy Statement, including the Appendices hereto,
and in the documents incorporated by reference in this Proxy Statement. A copy
of the Stock Purchase Agreement is set forth as Appendix A to this Proxy
Statement, and reference is made thereto for a complete description of the
Acquisition. Shareholders are urged to read carefully the entire Proxy
Statement, including the Appendices. As used in this Proxy Statement, the terms
"the Company," "LTIC," "Reliance," "RIC," "Commonwealth," and "Transnation"
refer to such corporations, respectively, and where the context requires, such
corporations and their respective subsidiaries.
The Companies
Lawyers Title Corporation. The Company is a publicly held Virginia
corporation organized in 1991 to serve as a holding company for LTIC, which is
one of the largest companies in the United States engaged in the business of
issuing title insurance policies and performing other title-related services for
both residential and commercial real estate transactions through its network of
branches, service offices, subsidiaries and agencies. LTIC's business is
conducted in 49 states and in the District of Columbia, the territories of
Puerto Rico and the U.S. Virgin Islands, the Bahamas and a number of Canadian
provinces. Geographical coverage is provided by LTIC's nationwide network of 14
National Division offices and approximately 260 branch and closing/escrow
offices. In addition, LTIC has approximately 3,800 independent agents and 36,000
approved attorneys.
The Company's principal executive offices are located at 6630 West
Broad Street, Richmond, Virginia 23230, and its telephone number is (804)
281-6700. For additional information regarding the Company and its business, see
"Available Information," "Incorporation of Certain Documents by Reference," and
"- Summary Historical and Pro Forma Combined Financial Data."
Commonwealth Land Title Insurance Company and Transnation Title
Insurance Company. Commonwealth, a Pennsylvania corporation, and Transnation, an
Arizona corporation, are wholly owned subsidiaries of RIC. RIC is a wholly owned
subsidiary of Reliance Financial Services Corporation, a Delaware corporation,
which is a wholly owned subsidiary of Reliance. Reliance is a publicly held
Delaware corporation whose principal business is the ownership of property and
casualty and title insurance companies and an information technology consulting
company.
Commonwealth and Transnation, and their respective subsidiaries and
divisions, provide a complete range of title and closing services through an
extensive network of more than 4,000 policy-issuing locations nationwide,
including branch offices, independent agents and approved attorneys.
Commonwealth/Transnation operates as a single organization under a unified
management team and comprises the third largest title insurance operation in the
United States, in terms of total premiums and fees in 1996.
Commonwealth/Transnation is organized into five regions with approximately 340
offices in 49 states, the District of Columbia, Puerto Rico and the U.S. Virgin
Islands.
The principal executive offices of Commonwealth and Transnation
are located at 1700 Market Street, Philadelphia, Pennsylvania 19103, and the
telephone number is (215) 241-6000. See "Commonwealth Land Title Insurance
Company and Transnation Title Insurance Company."
The Special Meeting
Date, Time and Place. The Special Meeting will be held on December __,
1997, at the Company's Headquarters Building located in the Brookfield Office
Complex at 6630 West Broad Street, Richmond, Virginia, commencing at 10:00 a.m.,
eastern time.
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Purpose of the Special Meeting. The purpose of the Special Meeting is
to consider and vote to approve the Stock Purchase Agreement and the
transactions contemplated thereby, pursuant to which, among other things, the
Company will acquire from RIC all of the issued and outstanding shares of the
capital stock of Commonwealth and Transnation. In voting to approve the Stock
Purchase Agreement, shareholders will be deemed to be voting to approve the
issuance of the Company Common Shares and the Series B Preferred Stock to RIC,
and to approve an increase in the size of the Company's Board of Directors from
ten (10) to fourteen (14) directors as required by the Stock Purchase Agreement.
In addition, shareholders also will be asked to approve an amendment to the
Company's Charter to change the name of the Company from "Lawyers Title
Corporation" to "LandAmerica Financial Group, Inc." The proposed change in the
name of the Company, even if approved by the shareholders of the Company, will
not become effective unless the shareholders approve the Stock Purchase
Agreement and the transactions contemplated thereby. The consummation of the
Acquisition, however, is not conditioned upon shareholder approval of the
proposed name change. See "The Special Meeting - Purpose of the Special
Meeting."
Voting Rights. The Board of Directors has fixed the close of business
on November __, 1997 as the record date (the "Record Date") for the
determination of the Company's shareholders entitled to notice of and to vote at
the Special Meeting. As of the Record Date, the Company had __________ shares of
Common Stock outstanding, which were held by _____ holders of record. Holders of
Common Stock are entitled to one vote on each matter to be considered and voted
on at the Special Meeting for each share of Common Stock held of record on the
Record Date. See "The Special Meeting - Voting Rights."
Vote Required. The affirmative vote of a majority of the votes cast by
the holders of Common Stock entitled to vote thereon at the Special Meeting is
required to approve the Stock Purchase Agreement and the transactions
contemplated thereby; provided, however, that the total votes cast on such
proposal represent at least a majority of all holders of Common Stock entitled
to vote on such proposal. The affirmative vote of the holders of a majority of
the outstanding shares of Common Stock entitled to vote thereon at the Special
Meeting is required to approve the amendment to the Company's Charter to change
the name of the Company from "Lawyers Title Corporation" to "LandAmerica
Financial Group, Inc." As of the Record Date, directors and executive officers
of the Company and their affiliates as a group held __________ shares
representing approximately _____% of the outstanding shares of Common Stock
entitled to vote at the Special Meeting.
Recommendation of the Board of Directors. The Board of Directors of the
Company has approved the Acquisition and believes that the Stock Purchase
Agreement and the transactions contemplated thereby (including the issuance of
the Company Common Shares and the Series B Preferred Stock to RIC and the
increase in the size of the Board of Directors from ten (10) to fourteen (14)
directors) and the change in the name of the Company are in the best interests
of the shareholders. See "The Acquisition - Reasons for the Acquisition."
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR"
APPROVAL OF THE STOCK PURCHASE AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY AND "FOR" THE AMENDMENT TO THE ARTICLES OF INCORPORATION TO CHANGE THE
NAME OF THE COMPANY TO "LANDAMERICA FINANCIAL GROUP, INC."
Rights of Dissenting Shareholders. Shareholders of the Company will
not be entitled to exercise dissenters' rights in connection with the
Acquisition.
The Acquisition
General. The Stock Purchase Agreement provides that the Company will
acquire from RIC all of the issued and outstanding shares of capital stock of
Commonwealth and Transnation, both of which will become wholly owned
subsidiaries of the Company. The purchase price for Commonwealth and Transnation
will consist of a combination of cash from bank financing, shares of Common
Stock, shares of Series B Preferred Stock, and either the proceeds from a public
or private offering of Common Stock
7
<PAGE>
or an unsecured, subordinated note. In addition, the Company, Reliance and RIC
have agreed to enter into a Voting and Standstill Agreement to be executed at
closing that provides for, among other things, the designation by RIC of three
directors to the Board of Directors of the Company and certain prohibitions and
requirements on Reliance and RIC and their affiliates with respect to (i)
acquiring additional shares of Common Stock or Series B Preferred Stock, (ii)
voting their shares of Common Stock, (iii) selling or transferring shares of
Common Stock, shares of Series B Preferred Stock and shares of Common Stock
issuable upon conversion of the Series B Preferred Stock, and (iv) converting
shares of Series B Preferred Stock. See "The Acquisition," "The Stock Purchase
Agreement" and "Certain Related Agreements - Voting and Standstill Agreement."
Purchase Price. The purchase price to be paid by the Company for the
acquisition of Commonwealth and Transnation consists of (i) $207.5 million in
cash (subject to adjustment as provided in the Stock Purchase Agreement), (ii)
the issuance to RIC of 4,473,684 shares of Common Stock of which 575,000 shares
may be subject to deferred delivery as provided in the Stock Purchase Agreement,
(iii) the issuance to RIC of 2,200,000 shares of Series B Preferred Stock, which
as of the closing date will be initially convertible into 4,824,561 shares of
Common Stock, and (iv) if the Company offers and sells 1,315,789 shares of
Common Stock on a public or private basis on or before the closing, a cash sum
in an amount that is the greater of (a) $23.75 million or (b) the net offering
proceeds after payment of applicable underwriting discounts and commissions or
placement agents' commissions and the fees and expenses of the offering;
provided, however, that if the Company does not offer and sell 1,315,789 shares
of Common Stock on a public or private basis on or before the closing, the
Company shall deliver to RIC an unsecured, subordinated note in an aggregate
principal amount equal to the greater of (a) $23.75 million or (b) the product
of 1,315,789 times the average closing price on the NYSE for a share of Common
Stock for the ten (10) trading days prior to the closing date multiplied by
0.95. As of November ___, 1997, the aggregate principal amount of the
subordinated note would have been $________, which amount may be greater or
lesser than the actual amount of the subordinated note if issued on the closing
date.
Certain Effects of the Transaction. Upon consummation of the
Acquisition and the issuance by the Company of 1,315,789 shares of Common Stock
on a public or private basis, RIC will hold 4,473,684 shares of Common Stock
representing approximately 30.4% of the issued and outstanding shares of Common
Stock. See "Management and Ownership of the Company Following the Acquisition -
Security Ownership of Certain Beneficial Owners." As a result, RIC will be a
substantial shareholder and, subject to the limitations of the Voting and
Standstill Agreement, will have significant influence on the outcome of certain
matters requiring a shareholder vote. To the extent that the Company's Charter
requires the affirmative vote of the holders of at least 80% of the Common Stock
to approve certain business combination transactions, RIC and its affiliates
will be able to prevent approval of such transactions so long as it holds at
least 20% of the issued and outstanding shares of Common Stock of the Company.
See "Description Of Capital Stock - Certain Provisions of the Company's Charter
and Bylaws."
In addition, RIC will acquire the Series B Preferred Stock, which is
initially convertible into 4,824,561 shares of Common Stock, upon consummation
of the Acquisition. Under the terms of the Voting and Standstill Agreement,
unless certain specified events occur, RIC and its affiliates are prohibited
from converting the Series B Preferred Stock into Common Stock until RIC and its
affiliates dispose completely of the 4,473,684 shares of Common Stock acquired
by RIC on the closing date. See "Certain Related Agreements - Voting and
Standstill Agreement" and "Designation of Capital Stock - Series B Preferred
Stock." However, if any of the specified events were to occur, then RIC and its
affiliates would be able to convert some or all of the Series B Preferred Stock
into Common Stock. If all of the shares of Series B Preferred Stock were
converted into 4,824,561 shares of Common Stock following the Acquisition and
RIC and its affiliates had not disposed of any shares of Common Stock, RIC and
its affiliates would hold 9,298,245 shares of Common Stock or approximately
47.58% of the issued and outstanding shares of Common Stock following
consummation of all of the transactions contemplated by the Stock Purchase
Agreement. As a result, RIC and its affiliates would be able to
8
<PAGE>
exercise, subject to the limitations of the Voting and Standstill Agreement,
significant influence over the business and affairs of the Company. See "The
Acquisition - Certain Effects of the Transaction."
The Voting and Standstill Agreement provides that RIC and its
affiliates will vote the shares of Common Stock held by them (i) in accordance
with the recommendation of the Company's Board of Directors with respect to
nominees to the Board of Directors (other than the three (3) directors
designated by RIC), (ii) with respect to any contest for the election of
directors in connection with any tender offer, in the same proportion as the
total votes cast by or on behalf of all shareholders of the Company, (iii) with
respect to any matters related to share issuance, mergers, acquisitions and
divestitures, in accordance with the independent judgment of RIC and its
affiliates, and (iv) with respect to all other matters not otherwise provided,
in accordance with the recommendation of the Company's Board of Directors. See
"Certain Related Agreements - Voting and Standstill Agreement." These voting
requirements terminate if certain events occur. See "Certain Related Agreements
Covenants Regarding Non-Performance Remedies."
Bank Commitment and Financing. The Company has entered into a senior
credit facility commitment letter (the "Commitment Letter"), dated as of August
15, 1997, as amended September 16, 1997, with Bank of America National Trust and
Saving Association and Bank America Securities, Inc. ("BASI"), pursuant to which
the Company has requested BASI to structure, arrange and syndicate a senior
credit facility in an aggregate principal amount of up to $237.5 million (the
"Credit Facility") to (i) finance the $207.5 million payment to RIC in
connection with the Acquisition, and (ii) provide up to $30 million for general
corporate purposes. The Credit Facility is subject to, among other things,
certain conditions set forth or referred to in the Commitment Letter and a
related Summary of Terms and Conditions, which outlines business terms for the
Credit Facility to be included in the final loan documentation. The closing on
the Credit Facility is expected to occur prior to the closing of the
Acquisition, but such closing is not a condition to the consummation of the
Acquisition. See "The Acquisition - Bank Commitment and Financing."
Opinion of the Company's Financial Adviser. Wheat, First Securities,
Inc. ("Wheat First") has served as financial advisor to the Company in
connection with the Acquisition. Wheat First has also rendered a written opinion
to the Company's Board of Directors that, as of August 20, 1997, the
consideration to be paid by the Company to RIC was fair, from a financial point
of view, to the holders of the Common Stock. See "The Acquisition - Opinion of
the Company's Financial Advisor" and the opinion of Wheat First attached as
Appendix C to this Proxy Statement.
Interests of Certain Persons in the Acquisition. Upon consummation of
the Acquisition, Herbert Wender, Chairman and Chief Executive Officer of
Commonwealth/Transnation, will become Vice-Chairman of the Board of Directors
and Chief Operating Officer of the Company, and Jeffrey A. Tischler, Executive
Vice President and Chief Financial and Administrative Officer of
Commonwealth/Transnation, will become Executive Vice President and Chief
Financial Officer of the Company. See "Management and Ownership of the Company
Following the Acquisition." The Company intends after consummation of the
Acquisition to grant options to purchase shares of Common Stock to key employees
in accordance with its regular business practices. Following the Closing Date,
it is anticipated that Messrs. Wender and Tischler would be eligible to receive
option grants. As of the date hereof, neither Mr. Wender nor Mr. Tischler has an
employment or severance agreement with the Company or with
Commonwealth/Transnation. However, the Company expects that Messrs. Wender and
Tischler and other executive officers of the Company will enter into employment
agreements with the Company on or after the Closing Date. See "The Acquisition -
Interests of Certain Persons in the Acquisition."
Marshall B. Wishnack, a director of the Company, is President and Chief
Executive Officer of Wheat First, which has provided financial advisory services
to the Company and delivered a fairness opinion in connection with the
Acquisition. As compensation for those services, the Company has agreed to pay
Wheat First certain fees and expenses. See "The Acquisition - Opinion of the
Company's Financial Advisor."
9
<PAGE>
Amendment to Articles of Incorporation of the Company. Upon the
consummation of the Acquisition, the Company's Charter will be amended to (i)
establish a series of the Preferred Stock to be designated as "7% Series B
Cumulative Convertible Preferred Stock (Without Par Value)," (ii) change the
name of the Company from "Lawyers Title Corporation" to "LandAmerica Financial
Group, Inc." and (iii) increase the number of authorized shares of Series A
Junior Participating Preferred Stock to 200,000 in order to reserve a sufficient
number of shares for issuance in connection with the Rights under the Amended
and Restated Rights Agreement (as defined below). See "The Acquisition -
Amendment to Articles of Incorporation of the Company" and the Articles of
Amendment attached as Appendix B to this Proxy Statement.
Stock Exchange Listing. The Common Stock is listed and trades on the
NYSE under the symbol "LTI." It is a condition to the consummation of the
Acquisition that the shares of the Common Stock to be issued to RIC on the
closing date and the shares of the Common Stock issuable upon conversion of the
Series B Preferred Stock shall have been approved for listing on the NYSE,
subject only to official notice of issuance.
The Company has reserved the symbol "LFG" on the NYSE for use upon
consummation of the Acquisition and shareholder approval of the proposed change
in the name of the Company to "LandAmerica Financial Group, Inc." This symbol is
expected to be effective on and after the closing date.
Regulatory Approvals. The Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the rules and regulations promulgated thereunder (the
"HSR Act"), provide that certain acquisition transactions may not be consummated
until certain information has been furnished to the Federal Trade Commission and
the Antitrust Division of the Department of Justice and certain waiting period
requirements have been satisfied. The Acquisition is also subject to the receipt
of necessary approvals from various state insurance departments. The Company and
Reliance filed the requisite notification and report forms under the HSR Act on
September 5, 1997 and expect to complete all necessary filings with state
insurance departments in early October 1997. There can be no assurance that the
requisite approvals will be obtained or as to the timing or conditions of such
approvals. See "The Acquisition Regulatory Approvals."
Certain Federal Income Tax Consequences. The consummation of the
Acquisition will not be a taxable event for federal income tax purposes for the
Company or the shareholders of the Company. See "The Acquisition - Certain
Federal Income Tax Consequences."
Accounting Treatment. The Acquisition will be accounted for by the
Company under the "purchase" method of accounting in accordance with Accounting
Principles Board Opinion No. 16. See "The Acquisition - Accounting Treatment."
Resales of the Company's Securities. The shares of Common Stock and the
shares of Series B Preferred Stock to be issued to RIC pursuant to the Stock
Purchase Agreement and the shares of Common Stock issuable upon conversion of
the Series B Preferred Stock (collectively the "Acquisition Shares") will be
registered for resale under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to the terms of a Registration Rights Agreement to
be executed by the Company and RIC at the closing. See "Certain Related
Agreements - Registration Rights Agreement." As a result, the Acquisition Shares
may be sold pursuant to an effective registration statement as provided by the
Registration Rights Agreement or pursuant to Rule 144 or any other applicable
exemption from registration under the Securities Act. See "The Acquisition -
Resales of the Company's Securities."
The Stock Purchase Agreement
Closing Date. Subject to the conditions set forth in the Stock Purchase
Agreement, the closing of the Acquisition (the "Closing") will take place on
such date as is mutually agreed by the parties, provided that all conditions to
Closing have been satisfied or waived and the closing date is no earlier
10
<PAGE>
than the date of delivery to the Company of Commonwealth/Transnation's
financial statements for the quarter ended September 30, 1997 nor later than
March 31, 1998 (the "Closing Date"). The Company currently expects the Closing
to occur in December 1997.
Representations and Warranties and Certain Covenants of the Parties.
The Stock Purchase Agreement contains customary representations and warranties
by each of the Company, LTIC and RIC. In addition, RIC has agreed that, prior to
the Closing Date, RIC will cause Commonwealth and Transnation to carry on their
respective businesses only in the ordinary course of business, consistent with
regular custom and practice, and RIC will use its best efforts to maintain the
value of the Commonwealth and Transnation businesses as going concerns and the
relationships of Commonwealth and Transnation with customers, suppliers,
vendors, employees, agents, referral sources and governmental authorities. The
Stock Purchase Agreement contains covenants that (i) restrict the actions of the
parties regarding the solicitation of takeover proposals and the solicitation of
employment by RIC, (ii) prohibit RIC and its affiliates from competing with the
Company in the title insurance business following consummation of the
Acquisition, (iii) provide for the public or private sale of 1,315,789 shares of
Common Stock by the Company, and (iv) are customary to transactions similar to
the Acquisition. The obligation of the Company and RIC to close the Acquisition
is subject to various conditions, including approval of the Stock Purchase
Agreement and the transactions contemplated thereby by the Company's
shareholders and approvals by the appropriate regulatory agencies. See "The
Stock Purchase Agreement - Representations and Warranties" and "- Certain
Covenants of the Parties."
No assurances can be provided as to when or if all of the conditions
precedent to the Acquisition can or will be satisfied or waived by the
appropriate party. As of the date of this Proxy Statement, the Company has no
reason to believe that any of the conditions set forth in the Stock Purchase
Agreement will not be satisfied.
Amendment, Waiver and Termination. The Company and RIC may amend the
Stock Purchase Agreement by written agreement at any time. The Stock Purchase
Agreement also permits a party to waive compliance by another party with any of
the provisions thereof. The Stock Purchase Agreement may be terminated at any
time prior to the Closing Date (i) by mutual written consent of the Company and
RIC and (ii) by written notice by either the Company or RIC in the event of
certain breaches or failures to satisfy the conditions to Closing.
If either the Company or RIC terminates the Stock Purchase Agreement
pursuant to the exercise of its fiduciary duties, then the terminating party is
required to pay the non-terminating party the sum of $14,000,000 in cash in
immediately available funds contemporaneously with the delivery of its written
notice of termination. In addition, the Company is obligated to pay RIC the sum
of $14,000,000 in cash if the Company's shareholders fail to approve the
transaction following certain public announcements. See "The Acquisition -
Amendment, Waiver and Termination."
Indemnification. The Stock Purchase Agreement provides for the
indemnification of the Company, LTIC and their affiliates by RIC, and the
indemnification of RIC and its affiliates by the Company and LTIC, for certain
breaches of representations and warranties and violations of covenants and
agreements made by the indemnifying party. See "The Stock Purchase Agreement -
Indemnification."
Post-Acquisition Employee Benefits. The Stock Purchase Agreement
provides generally that the Company and LTIC will provide, to the employees of
Commonwealth/Transnation and their subsidiaries who continue employment after
the Closing, employee benefits that are substantially equal to the benefits
provided to similarly-situated employees of the Company, LTIC and their
subsidiaries. See "The Stock Purchase Agreement - Post-Acquisition Employee
Benefits."
11
<PAGE>
Certain Related Agreements
Voting and Standstill Agreement. The Company, Reliance and RIC have
agreed to enter into a Voting and Standstill Agreement to be executed at Closing
that provides for, among other things, the designation by RIC of three directors
to be nominated and recommended for election to the Board of Directors of the
Company (the "RIC Directors") and certain prohibitions and requirements on
Reliance and RIC and their affiliates with respect to (i) acquiring additional
shares of Common Stock or Series B Preferred Stock, (ii) voting their shares of
Common Stock, (iii) selling or transferring shares of Common Stock, shares of
Series B Preferred Stock and shares of Common Stock issuable upon conversion of
the Series B Preferred Stock, and (iv) converting shares of Series B Preferred
Stock. See "Certain Related Agreements - Voting and Standstill Agreement" and
the Voting and Standstill Agreement attached as Exhibit C to the Stock Purchase
Agreement.
Covenants Regarding Non-Performance Remedies. The provisions of the
Series B Preferred Stock contain covenants that will entitle RIC to certain
rights in specific default situations. Upon the occurrence of certain events,
RIC will be entitled to additional seats on the Company's Board of Directors,
and Reliance, RIC and their affiliates will no longer be subject to certain
restrictions under the Voting and Standstill Agreement. See "Certain Related
Agreements - Voting and Standstill Agreement." Such events include (i) the
Company's combined ratio exceeds the combined ratio of an index of comparable
title insurance companies by more than five percentage points for any twelve
month period and the Company's claims paying ability rating is downgraded by two
ratings agencies to or below a rating of "BBB -"; (ii) the failure of the
Company to pay a dividend on the Series B Preferred Stock on one occasion, on
two occasions, whether or not consecutive, and on three occasions, whether or
not consecutive, and (iii) the Company's default on any of its material debt
obligations in excess of $15 million (individually or at any one time in the
aggregate). See "Certain Related Agreements - Covenants Regarding
Non-Performance Remedies."
Amended and Restated Rights Agreement. Pursuant to the Rights
Agreement, dated as of October 1, 1991, between the Company and Sovran Bank,
N.A., as Rights Agent, each share of Common Stock then outstanding was issued
one preferred share purchase right (a "Right"). The Rights Agreement was amended
on June 22, 1992 to appoint Wachovia Bank of North Carolina, N.A., as the
successor to the Rights Agent. In connection with the execution of the Stock
Purchase Agreement, the Company executed an Amended and Restated Rights
Agreement, dated August 20, 1997, with Wachovia Bank, N.A., as Rights Agent (the
"Amended and Restated Rights Agreement").
The Amended and Restated Rights Agreement provides, among other things,
that (i) the approval, execution, delivery and performance of the Stock Purchase
Agreement or the Voting and Standstill Agreement, and any acquisition of the
Acquisition Shares by RIC or its affiliates as contemplated by the Stock
Purchase Agreement or the Voting and Standstill Agreement, will not cause the
Rights to become exercisable, (ii) the exercise price of the Rights shall be $85
per Right, an increase from $65 per Right to reflect current conditions, and
(iii) the Rights shall not be exercisable after August 20, 2007, thereby
extending the termination date of the Rights from October 1, 2001. See "Certain
Related Agreements - Amended and Restated Rights Agreement" and "Description of
Capital Stock - Preferred Share Purchase Rights."
Registration Rights Agreement. On the Closing Date, the Company and RIC
will enter into the Registration Rights Agreement attached to the Stock Purchase
Agreement as Exhibit A. In accordance with the procedures set forth in the
Registration Rights Agreement, the Company will file one or more Registration
Statements with the Commission to register the resale of the Acquisition Shares
under the Securities Act and, after such Registration Statement(s) become
effective, use its best efforts to maintain the effectiveness of any such
Registration Statement(s) for specified time periods. See "Certain Related
Agreements - Registration Rights Agreement."
Administrative Services Agreement. The Stock Purchase Agreement
provides that, prior to the Closing Date, the parties will use their best
efforts to reach agreement on the administrative services that
12
<PAGE>
will continue to be provided by RIC or its affiliates to
Commonwealth/Transnation after the Closing Date. The services that the parties
expect to include in a definitive Administrative Services Agreement include data
processing, investment management services and investment accounting services.
See "Certain Related Agreements - Administrative Services Agreement."
Management and Ownership of the Company
Following the Acquisition
Board of Directors. Upon the consummation of the Acquisition, the
Company will increase the size of its Board of Directors from ten (10) to
fourteen (14) directors. At that time, the Company will appoint Herbert Wender,
the Chief Executive Officer of Commonwealth and Transnation, and Robert M.
Steinberg, George E. Bello and Lowell C. Freiberg to fill the newly created
vacancies on the Board of Directors. The ten (10) current directors of the
Company will continue as directors following the Acquisition.
Executive Officers. Upon consummation of the Acquisition, the following
individuals are expected to serve initially as the principal executive officers
of the Company.
<TABLE>
<CAPTION>
<S> <C>
Name Expected Position
Charles H. Foster, Jr Chairman and Chief Executive Officer
Herbert Wender Vice-Chairman and Chief Operating Officer
Janet A. Alpert President
Jeffrey A. Tischler Executive Vice President and Chief Financial Officer
G. William Evans Executive Vice President - Information Technology
</TABLE>
Ownership of Common Stock by RIC. The Company Common Shares acquired by
RIC on the Closing Date will represent approximately 30.4% of the 14,717,514
shares of Common Stock assumed to be issued and outstanding following the
consummation of all the transactions contemplated by the Stock Purchase
Agreement. As a result, RIC will be a substantial shareholder and, subject to
the limitations of the Voting and Standstill Agreement, will have significant
influence on the outcome of certain matters requiring shareholder approval. See
"Management and Ownership of the Company Following the Acquisition - Security
Ownership of Certain Beneficial Owners" and "The Acquisition - Certain Effects
of the Transaction.
13
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth income, cash dividends and book value
per common share for the Company on a historical basis and on a pro forma basis.
The historical and pro forma equivalent per share data for Commonwealth and
Transnation are not meaningful because all of the outstanding shares of those
companies are held by one shareholder, RIC; therefore, the historical and pro
forma equivalent per share data of Commonwealth and Transnation have not been
provided. Pro forma information gives effect to the Acquisition under the
purchase method of accounting and reflects certain assumptions described in the
notes to the unaudited Pro Forma Condensed Combined Financial Statements. The
data set forth below should be read in conjunction with the audited and
unaudited consolidated historical financial statements of the Company, including
the notes thereto incorporated by reference into this Proxy Statement, and the
audited and unaudited combined historical financial statements of Commonwealth
and Transnation, including the notes thereto, and the unaudited Pro Forma
Condensed Combined Financial Statements, including the notes thereto, appearing
elsewhere in this Proxy Statement. See "Index to Financial Statements" and "Pro
Forma Condensed Combined Financial Statements (Unaudited)."
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1997 December 31, 1996
------------- -----------------
(Per Common Share)
<S> <C> <C>
The Company
Income:
Historical per common share and common share
equivalent.................................... $ 0.97 $ 4.01
Pro forma per common share and common share
equivalent (1)................................ 0.96 2.79
Pro forma assuming full dilution................ 0.92 2.49
Dividends:
Historical...................................... 0.10 0.20
Pro forma (1)................................... 0.10 0.20
Book Value (at end of period):
Historical...................................... 30.33 29.49
Pro forma (1)................................... $ 36.89 $ 36.39
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1997 December 31, 1996
------------- -----------------
(Per Common Share)
Commonwealth and Transnation
Income:
Historical per common share and common share
<S> <C> <C>
equivalent.................................... n/a n/a
Historical assuming full dilution............... n/a n/a
Pro forma per common share and common share
equivalent.................................... n/a n/a
Pro forma assuming full dilution................ n/a n/a
Dividends:
Historical...................................... n/a n/a
Pro forma equivalent............................ n/a n/a
Book Value (at end of period):
Historical...................................... n/a n/a
Pro forma equivalent............................ n/a n/a
</TABLE>
- ------------
(1) See "Pro Forma Condensed Combined Financial Statements (Unaudited)."
14
<PAGE>
SUMMARY HISTORICAL AND
PRO FORMA COMBINED FINANCIAL DATA
The following tables set forth (i) certain selected historical
financial information for the Company and certain unaudited combined pro forma
financial information giving effect to the Acquisition as if it had occurred on
the dates and for the periods indicated herein, after giving effect to the pro
forma adjustments described in the notes to the unaudited pro forma combined
financial statements appearing elsewhere in this Proxy Statement, and (ii)
certain selected historical financial information for Commonwealth and
Transnation on a combined basis. The pro forma financial information is not
necessarily indicative of the results that actually would have occurred had the
Acquisition been consummated on the dates indicated or that may be obtained in
the future. See "Pro Forma Condensed Combined Financial Statements (Unaudited)."
The historical operating results data, per share data and balance sheet
data for the Company are derived from the consolidated audited financial
statements of the Company for the five year period ended December 31, 1996. The
historical operating results data, per share data and balance sheet data set
forth below for the six months ended June 30, 1997 and 1996 are derived from
unaudited financial statements. The unaudited financial statements include all
adjustments, consisting of normal recurring accruals only, which the Company
considers necessary for a fair presentation of the financial position and the
results of operations for these periods. Operating results for the six months
ended June 30, 1997 are not necessarily indicative of results that may be
expected for the entire year ending December 31, 1997.
The historical operating results data and balance sheet data for
Commonwealth and Transnation on a combined basis are derived from the audited
combined financial statements of Commonwealth and Transnation for the five year
period ended December 31, 1996. The historical operating results data and
balance sheet data set forth below for the six months ended June 30, 1997 and
1996 are derived from unaudited financial statements. The unaudited financial
statements include all adjustments, consisting of normal recurring accruals
only, which Commonwealth and Transnation consider necessary for a fair
presentation of the financial position and the results of operations for these
periods. Operating results for the six months ended June 30, 1997 are not
necessarily indicative of results that may be expected for the entire year
ending December 31, 1997.
All historical operating results data, per share data and balance sheet
data set forth below should be read in conjunction with the consolidated
financial statements, related notes and other financial information included in,
or incorporated by reference into, this Proxy Statement.
15
<PAGE>
Lawyers Title Corporation
Selected Historical Financial Data
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------------------------
Pro Forma
1997 1997 1996
---- ---- ----
(Dollars in thousands, except per share and other data)
<S> <C> <C> <C>
Operating Results Data:
Revenues:
Title insurance premiums......................... $ 552,859 $ 225,140 $ 213,187
Title search, escrow and other fees.............. 113,032 54,048 48,167
------- ------ ------
Operating revenues............................... 665,891 279,188 261,354
Net investment income............................ 25,256 8,383 10,753
------ ----- ------
691,147 287,571 272,107
------- ------- -------
Expenses:
Salaries and employee benefits................... 208,971 96,818 89,768
Agents' commissions.............................. 266,239 95,766 86,385
Provision for policy and contract claims 34,065 15,320 13,584
General, administrative and other................ 154,039 66,189 61,855
------- ------ ------
663,314 274,093 251,592
------- ------- -------
Income Before Income Taxes......................... 27,833 13,478 20,515
Provision for Income Taxes......................... 9,698 4,620 6,950
Net Income......................................... $ 18,135 $ 8,858 $ 13,565
========= ======= ========
Preferred Stock Dividends.......................... $ 3,850
========
Income Available to Common Shareholders............ $ 14,285
=========
Per Share Data:
Net income per common share........................ $1.23 $ 0.99 $ 1.53
Weighted average number of shares (000s)........... 14,696 8,906 8,887
Dividends declared per common share................ $0.10 $ 0.10 $ 0.10
Other Data:
Direct title orders opened......................... 406,682 199,770 209,172
Direct title orders closed......................... 285,040 135,914 139,569
Average revenue per direct title order closed...... $1,049 $ 1,076 $ 1,028
Title policies issued - direct and agency.......... 979,430 373,873 375,024
Operating margin (1)............................... 5.5% 7.3% 8.9%
Provision for policy and contract claims as a
percentage of operating revenues................. 5.1% 5.5% 5.2%
Claims paid as a percent of operating revenues..... 5.3% 4.9% 5.2%
Title insurance operating revenues:
Percentage direct operations..................... 47.2% 52.4% 54.9%
Percentage agency operations..................... 52.8% 47.6% 45.1%
Employees at period end............................ 7,873 3,736 3,581
Return on average equity for common shareholders... 6.7% 6.7% 11.2%
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------------------
Pro Forma
1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
(Dollars in thousands, except per share and other data)
<S> <C> <C> <C> <C> <C> <C>
Operating Results Data:
Revenues:
Title insurance premiums......................... $1,125,184 $ 456,377 $ 385,871 $ 413,857 $ 405,080 $ 389,279
Title search, escrow and other fees.............. 212,731 101,381 81,490 73,200 78,965 59,274
------- ------- ------ ------ ------ ------
Operating revenues............................... 1,337,915 557,758 467,361 487,057 484,045 448,553
Net investment income............................ 67,225 36,424 15,471 14,143 19,836 22,608
------ ------ ------ ------ ------ ------
1,405,140 594,182 482,832 501,200 503,881 471,161
--------- ------- ------- ------- ------- -------
Expenses:
Salaries and employee benefits................... 390,357 184,274 155,920 143,817 137,328 118,672
Agents' commissions.............................. 548,424 192,590 167,031 205,147 192,454 199,636
Provision for policy and contract claims 90,327 29,211 24,297 46,775 54,139 59,594
General, administrative and other................ 301,236 132,567 111,724 96,492 90,995 81,395
------- ------- ------- ------ ------ ------
1,330,344 538,642 458,972 492,231 474,916 459,297
--------- ------- ------- ------- ------- -------
Income Before Income Taxes......................... 74,796 55,540 23,860 8,969 28,965 11,864
Provision for Income Taxes......................... 25,605 19,021 6,809 2,155 -- --
Net Income......................................... $ 49,191 $ 36,519 $ 17,051 $ 6,814 $ 28,965 $ 11,864
======== ======== ======== ======= ======== ========
Preferred Stock Dividends.......................... $ 7,700
=========
Income Available to Common Shareholders............ $ 41,491
========
Per Share Data:
Net income per common share........................ $3.35 $ 4.11 $ 1.92 $ 0.80 $ 4.31 $ 1.88
Weighted average number of shares (000s)........... 14,678 8,888 8,885 8,494 6,726 6,309
Dividends declared per common share................ $0.20 $ 0.20 $ 0.18 $ 0.12 $ 0.06 --
Other Data:
Direct title orders opened......................... 787,180 397,091 347,793 298,554 380,583 312,729
Direct title orders closed......................... 573,242 283,532 224,796 238,554 282,969 237,968
Average revenue per direct title order closed...... $1,021 $ 1,022 $ 1,069 $ 892 $ 837 $ 809
Title policies issued - direct and agency.......... 2,025,484 790,829 670,447 866,621 923,065 812,577
Operating margin (1)............................... 7.3% 8.7% 7.0% 8.5% 13.1% 10.9%
Provision for policy and contract claims as a
percentage of operating revenues................. 6.8% 5.2% 5.2% 9.6% 11.2% 13.3%
Claims paid as a percent of operating revenues..... 4.7% 4.8% 6.5% 7.6% 9.4% 9.3%
Title insurance operating revenues:
Percentage direct operations..................... 45.9% 52.2% 51.6% 43.9% 47.6% 43.0%
Percentage agency operations..................... 54.1% 47.8% 48.4% 56.1% 52.4% 57.0%
Employees at period end............................ 7,695 3,761 3,523 3,453 3,429 2,800
Return on average equity for common shareholders... 10.1% 14.6% 7.7% 3.4% 16.8% 8.5%
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
Balance Sheet Data: Pro Forma
1997 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash............................................... $ 39,988 $ 26,927 $ 21,137
Investments........................................ 692,748 270,613 271,874
Total assets....................................... 1,340,086 522,279 495,646
Reserve for policy and contract claims............ 460,004 198,023 193,824
Shareholders' equity............................... 542,362 270,308 247,347
Book value per share............................... $ 36.89 $ 30.33 $ 27.83
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------------------
Balance Sheet Data:
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash............................................... $ 23,997 $ 18,842 $ 15,892 $ 14,297 $ 13,826
Investments........................................ 292,055 266,630 236,119 255,073 219,320
Total assets....................................... 520,968 475,843 453,259 438,140 363,673
Reserve for policy and contract claims............ 196,285 193,791 198,906 187,619 179,022
Shareholders' equity............................... 262,168 238,385 203,323 201,161 143,978
Book value per share............................... $ 29.49 $ 26.83 $ 22.89 $ 23.90 $ 22.26
</TABLE>
- --------------
(1) Operating revenues less salary and employee benefits, agents' commissions
and other expenses as a percentage of operating revenues.
16
<PAGE>
<TABLE>
Commonwealth Land Title Insurance Company and Transnation Title Insurance Company
Combined Selected Historical Financial Data
<CAPTION>
Six Months Ended
June 30,
-----------------------------------
1997 1996
---- ----
(Dollars in thousands, except other data)
<S> <C> <C>
Operating Results Data:
Revenues:
Title insurance premiums............................ $ 324,165 $ 311,405
Title search, escrow and other fees................. 62,538 56,402
------ ------
Operating revenues.................................. 386,703 367,807
Net investment income............................... 16,873 14,405
------ ------
403,576 382,212
------- -------
Expenses:
Salaries and employee benefits...................... 112,153 103,035
Agents' commissions................................. 170,473 164,473
Provision for policy and contract claims............ 18,745 31,813
General, administrative and other................... 78,188 71,691
------ ------
379,559 371,012
------- -------
Income from operations before income taxes 24,017 11,200
Provision for income taxes............................ 8,460 3,817
Income from continuing operations..................... 15,557 7,383
Income from discontinued mortgage _ _
insurance operations, net of tax...................
Gain on disposal of discontinued mortgage _ _
insurance operations, net of taxes.................
Cumulative effect of change in accounting _ _
for income taxes...................................
Net income............................................ $ 15,557 $ 7,383
======== =======
Per Share Data (1)
Other Data:
Direct title orders opened............................ 206,912 208,412
Direct title orders closed............................ 149,126 146,386
Average revenue per direct title order closed 1,025 993
Title policies issued - direct and agency............. 605,557 593,381
Operating margin (2).................................. 6.7% 7.8%
Provision for policy and contract claims as a percentage
of operating revenues............................... 4.8% 8.6%
Claims paid as a percentage of operating revenues..... 5.6% 5.7%
Title insurance operating revenues:
Percentage direct operations........................ 43.5% 42.5%
Percentage agency operations........................ 56.5% 57.5%
Employees at end of period............................ 4,137 3,916
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in thousands, except other data)
<S> <C> <C> <C> <C> <C>
Operating Results Data:
Revenues:
Title insurance premiums............................ $ 668,807 $ 582,329 $ 792,919 $ 747,202 $ 704,110
Title search, escrow and other fees................. 111,350 89,607 63,843 146,148 66,409
------- ------ ------ ------- ------
Operating revenues.................................. 780,157 671,936 856,762 893,350 770,519
Net investment income............................... 30,801 29,662 26,971 29,010 16,702
------ ------ ------ ------ ------
810,958 701,598 883,733 922,360 787,221
------- ------- ------- ------- -------
Expenses:
Salaries and employee benefits...................... 206,083 188,097 211,150 219,904 185,443
Agents' commissions................................. 355,834 310,729 432,041 426,885 374,419
Provision for policy and contract claims............ 61,116 58,486 75,867 81,803 68,210
General, administrative and other................... 149,345 130,076 132,871 133,002 127,114
------- ------- ------- ------- -------
772,378 687,388 851,929 861,594 755,186
------- ------- ------- ------- -------
Income from operations before income taxes 38,580 14,210 31,804 60,766 32,035
Provision for income taxes............................ 13,347 4,755 10,809 20,480 10,248
Income from continuing operations..................... 25,233 9,455 20,995 40,286 21,787
Income from discontinued mortgage _ _ _ _
insurance operations, net of tax................... 10,649
Gain on disposal of discontinued mortgage _ _ _ _
insurance operations, net of taxes................. 7,549
Cumulative effect of change in accounting _ _ _ _
for income taxes................................... 1,316
Net income............................................ $ 25,233 $ 9,455 $ 20,995 $ 41,602 $ 39,985
======== ======= ======== ======== ========
Per Share Data (1)
Other Data:
Direct title orders opened............................ 390,089 354,115 377,327 607,202 519,919
Direct title orders closed............................ 289,710 246,252 304,891 449,840 387,380
Average revenue per direct title order closed 1,021 1,031 937 813 795
Title policies issued - direct and agency............. 1,234,655 1,094,467 1,736,134 1,651,806 1,496,960
Operating margin (2).................................. 8.8% 6.4% 9.4% 12.7% 10.8%
Provision for policy and contract claims as a percentage
of operating revenues............................... 7.8% 8.7% 8.9% 9.2% 8.9%
Claims paid as a percentage of operating revenues..... 4.7% 6.8% 5.7% 5.9% 6.8%
Title insurance operating revenues:
Percentage direct operations........................ 41.4% 40.2% 35.0% 40.9% 40.0%
Percentage agency operations........................ 58.6% 59.8% 65.0% 59.1% 60.0%
Employees at end of period............................ 3,934 3,755 4,035 4,623 3,977
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------
1997 1996
---- ----
<S> <C> <C>
Balance Sheet Data:
Cash.................................................. 13,061 11,021
Investments........................................... 422,135 428,649
Total assets.......................................... 595,625 583,282
Reserve for policy and contract claims................ 261,981 251,757
Shareholders' equity.................................. 267,372 270,768
Book value per share (1)
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash.................................................. 14,328 15,230 9,259 13,286 14,564
Investments........................................... 461,102 424,841 407,274 410,515 357,244
Total assets.......................................... 620,754 573,820 552,390 546,968 483,198
Reserve for policy and contract claims................ 264,838 240,777 228,063 200,874 173,327
Shareholders' equity.................................. 273,657 270,737 253,466 260,863 236,262
Book value per share (1)
</TABLE>
- --------------
(1) Per share data for Commonwealth and Transnation are not meaningful because
all of the outstanding shares of those companies are held by one
shareholder, RIC. Therefore, per share data of Commonwealth and
Transnation have not been provided.
(2) Operating revenues less salary and employee benefits, agents' commissions
and other expenses as a percentage of operating revenues.
17
<PAGE>
THE SPECIAL MEETING
Date, Time and Place
The Special Meeting will be held on December __, 1997, at the Company's
Headquarters Building located in the Brookfield Office Complex at 6630 West
Broad Street, Richmond, Virginia, commencing at 10:00 a.m., eastern time, and at
any adjournment or postponement thereof.
Purpose of the Special Meeting
The Stock Purchase Agreement. The purpose of the Special Meeting is to
consider and vote to approve and adopt the Stock Purchase Agreement and the
transactions contemplated thereby, pursuant to which, among other things, the
Company will acquire from RIC all of the issued and outstanding shares of the
capital stock of Commonwealth and of Transnation. In voting to approve the Stock
Purchase Agreement, shareholders will be deemed to be voting to approve the
issuance of the Company Common Shares and the Series B Preferred Stock to RIC,
and to approve an increase in the size of the Company's Board of Directors from
ten (10) to fourteen (14) directors as required by the Stock Purchase Agreement.
Immediately following the consummation of the Acquisition, Commonwealth and
Transnation will become wholly owned subsidiaries of the Company. See "The
Acquisition," "The Stock Purchase Agreement" and "Certain Related Agreements."
Name Change Amendment. At the Special Meeting, the shareholders also
will be asked to consider and vote to approve an amendment to the Company's
Charter to change the name of the Company from "Lawyers Title Corporation" to
"LandAmerica Financial Group, Inc." The proposed change in the name of the
Company, even if approved by the shareholders of the Company, will not become
effective unless the shareholders approve the Stock Purchase Agreement and the
transactions contemplated thereby. The consummation of the Acquisition, however,
is not conditioned upon shareholder approval of the proposed name change.
Voting Rights
The Board of Directors has fixed the close of business on November __,
1997 as the record date (the "Record Date") for the determination of the
Company's shareholders entitled to notice of and to vote at the Special Meeting
or any adjournment or postponement thereof. Only holders of record of shares of
the Common Stock at the close of business on the Record Date will be entitled to
notice of and to vote at the Special Meeting or any adjournment or postponement
thereof.
As of the Record Date, the Company had _________ shares of Common Stock
outstanding, which were held by _____ holders of record. Holders of Common Stock
are entitled to one vote on each matter to be considered and voted on at the
Special Meeting for each share of Common Stock held of record at the close of
business on the Record Date. The presence, in person or by properly executed
proxy, of the holders of a majority of the shares of Common Stock entitled to
vote at the Special Meeting is necessary to constitute a quorum at the Special
Meeting. For purposes of determining the presence of a quorum, abstentions will
be counted as shares present, but shares represented by a proxy from a broker or
nominee indicating that such person has not received instructions from the
beneficial owner or other person entitled to vote shares ("broker non-votes")
will not be counted as shares present. Neither abstentions nor broker non-votes
will be counted as votes cast for purposes of determining whether a proposal has
received sufficient votes for approval.
Proxies in the form accompanying this Proxy Statement are solicited by
the Company's Board of Directors. Shares of Common Stock represented by properly
executed proxies, if such proxies are received in time and are not revoked, will
be voted in accordance with the instructions indicated on the proxies. If no
instructions are indicated, such proxies will be voted (i) "FOR" approval of the
Stock Purchase Agreement and the transactions contemplated thereby, (ii) "FOR"
approval of the change in the Company's name from "Lawyers Title Corporation" to
"LandAmerica Financial Group, Inc.," and (iii) in the discretion of the proxies
as to any other matter that may come before the Special Meeting or any
adjournment or postponement thereof including, among other things, a motion to
adjourn or postpone the Special Meeting to another time and/or place, for the
purpose of soliciting additional proxies or otherwise; provided,
18
<PAGE>
however, that no proxy which is voted against the proposal to approve the Stock
Purchase Agreement will be voted in favor of any such adjournment or
postponement.
A shareholder who has given a proxy may revoke it at any time prior to
its exercise at the Special Meeting by (i) giving written notice of revocation
to the Secretary of the Company, (ii) properly submitting to the Company a duly
executed proxy bearing a later date, or (iii) voting in person at the Special
Meeting. All written notices of revocation and other communications with respect
to revocation of proxies should be addressed to the Company as follows: 6630
West Broad Street, Richmond, Virginia 23230, Attention: Russell W. Jordan, III,
Secretary. A proxy appointment will not be revoked by death or supervening
incapacity of the shareholder executing the proxy unless, before the shares are
voted, notice of such death or incapacity is filed with the Company's Secretary
or other person responsible for tabulating votes on behalf of the Company.
The expense of soliciting proxies for the Special Meeting will be paid
for by the Company. In addition to the solicitation of shareholders of record by
mail, telephone or personal contact, the Company will be contacting brokers,
dealers, banks and voting trustees or their nominees who can be identified as
record holders of Common Stock; such holders, after inquiry by the Company, will
provide information concerning quantity of proxy and other materials needed to
supply such materials to beneficial owners, and the Company will reimburse them
for the expense of mailing the proxy materials to such persons.
The Company has retained Corporate Investor Communications, Inc.
("CIC") to assist it in the solicitation of proxies from shareholders in
connection with the Special Meeting. CIC will receive a fee of approximately
$5,000 for its services and reimbursement of out-of-pocket expenses. The Company
has agreed to indemnify CIC against certain liabilities arising out of or in
connection with its engagement.
Vote Required
The affirmative vote of a majority of the votes cast by the holders of
Common Stock entitled to vote thereon at the Special Meeting is required to
approve the Stock Purchase Agreement and the transactions contemplated thereby;
provided, however, that the total votes cast on such proposal represent at least
a majority of all holders of Common Stock entitled to vote on such proposal. In
voting to approve the Stock Purchase Agreement, shareholders will be deemed to
be voting to approve an increase in the number of directors on the Board of
Directors from ten (10) to fourteen (14). The affirmative vote of the holders of
a majority of the outstanding shares of Common Stock entitled to vote thereon at
the Special Meeting is required to approve the amendment to the Company's
Charter to change the name of the Company from "Lawyers Title Corporation" to
"LandAmerica Financial Group, Inc."
As of the Record Date, directors and executive officers of the Company
and their affiliates as a group held __________ shares representing
approximately _____% of the outstanding shares of Common Stock entitled to vote
at the Special Meeting.
Recommendation of the Board of Directors
The Board of Directors of the Company has approved the Acquisition and
believes that the Stock Purchase Agreement and the transactions contemplated
thereby (including the issuance of the Company Common Shares and the Series B
Preferred Stock to RIC and the increase in the size of the Board of Directors
from ten (10) to fourteen (14) directors) and the proposed change in the name of
the Company are in the best interests of the shareholders. See "The Acquisition
- - Reasons for the Acquisition." The Board of Directors recommends that the
shareholders vote "FOR" approval of the proposals.
Rights of Dissenting Shareholders
Shareholders will not be entitled to exercise dissenters' rights in
connection with the Acquisition.
19
<PAGE>
THE ACQUISITION
The following information relating to the Acquisition is qualified in
its entirety by reference to the other information contained elsewhere in this
Proxy Statement, including the Appendices hereto, and the documents incorporated
herein by reference. A copy of the Stock Purchase Agreement is set forth in
Appendix A to this Proxy Statement and reference is made thereto for the
complete terms of the Acquisition. Shareholders are urged to read the Stock
Purchase Agreement and each of the other Appendices hereto carefully.
Background
In the past several years, the Company has faced a variety of
challenges brought about by strong competition from large national title
insurance companies, technological innovations in the delivery of title-related
services and interest rate fluctuations accompanying economic cycles. The
Company recognized that in order to remain competitive, it would need to add to
its portfolio of title-related services, reconfigure sales and marketing
strategies, enhance technology, redesign traditional workflow processes, protect
its position in the commercial title insurance market and reduce the impact of
economic cycles and interest rate fluctuations on the Company's profitability.
By 1995, the Company had developed a long term strategy focused on the
development of a diversified financial services company providing a broad array
of information, title insurance and closing services related to transactions
involving the transfer and financing of real estate. The Company's Board of
Directors and management determined that the implementation of this strategy
would require a strong capital base and that the acquisition of a large title
insurance underwriter was an alternative that could create a platform for making
larger investments in technology, moderating the effects of interest rate
fluctuations on profitability and margins and improving the Company's position
with respect to commercial title insurance business, credit and claims paying
ratings and state regulatory capital requirements. During the period from 1995
through May 1997, the Company considered the potential benefits of several
acquisition candidates.
In early 1996, the Company and Reliance commenced preliminary
discussions concerning the acquisition of Commonwealth/Transnation by the
Company. In connection with such discussions, the parties executed a
confidentiality agreement dated as of January 31, 1996. On April 11, 1996,
Charles H. Foster, Jr., Chairman of the Board of Directors and Chief Executive
Officer of the Company, updated the Executive Committee of the Board of
Directors on the discussions held between management of the Company and Reliance
with respect to a possible business combination transaction and the Executive
Committee authorized management of the Company to review preliminarily the
feasibility of any such transaction.
At a meeting of the Board of Directors of the Company on May 21, 1996,
Wheat First reviewed with the Board of Directors certain financial data with a
view to establishing a valuation for Commonwealth/Transnation. The Board of
Directors approved Mr. Foster's continued informal discussions with Reliance
with respect to a possible business combination. Thereafter, on June 5, 1996,
Mr. Foster, G. William Evans, Chief Financial Officer of the Company, and
Theodore L. Chandler, Jr., a director of and counsel to the Company, met with
the principals of Reliance to review the Company's valuation of
Commonwealth/Transnation. At the meeting, the parties could not reach agreement
on a valuation for Commonwealth/Transnation and discussions ceased at that time.
In September 1996, the parties resumed preliminary discussions
regarding acquisition of Commonwealth/Transnation by the Company. At a meeting
of the Executive Committee of the Company on September 12, 1996, Mr. Foster
discussed certain unresolved issues relating to financing, corporate governance
and the manner in which RIC's post-transaction holdings of the Company's equity
securities would be reduced. At the meeting, the Executive Committee approved
the engagement of Wheat First as financial advisor in connection with any
possible business combination transaction. On September 24, 1996, a special
meeting of the Board of Directors of the Company was held to review a specific
proposal to acquire Commonwealth/Transnation. Following a presentation by Wheat
First on the proposed structure of the transaction and a financial analysis of
the transaction, the Board of
20
<PAGE>
Directors approved the terms of a proposal to acquire Commonwealth/Transnation
subject to negotiation of a definitive purchase agreement, appropriate due
diligence review and approval by the Board of Directors of the final terms of
any transaction. Thereafter, in October and November, 1996, representatives of
the Company and Reliance met on several occasions to resolve outstanding issues
with respect to the purchase price and structure of the transaction.
In December 1996, each party conducted a due diligence review in
connection with the anticipated transaction. On December 18, 1996,
representatives of the parties met in Philadelphia, Pennsylvania to discuss
outstanding issues regarding the price and structure of the transaction.
However, such issues were not resolved and on December 19, 1996, Robert M.
Steinberg, the President and Chief Operating Officer of Reliance, called Mr.
Foster to express the desire of Reliance to terminate discussions at that time.
On June 5, 1997, Mr. Foster met with Robert M. Steinberg to discuss the
renewal of negotiations. Mr. Steinberg indicated in that meeting that there may
be a basis to resume negotiations if unresolved issues relating to the valuation
of Commonwealth/Transnation were reconsidered and if the Company reexamined the
structure of the transaction. Thereafter, management of the Company met with its
financial and legal advisors to discuss proposed revised terms of a transaction.
After presentations by Mr. Foster and Wheat First at a Board of Directors
meeting held on June 26, 1997, it was the consensus of the Board of Directors
that management of the Company should continue its discussions with Reliance
regarding the acquisition of Commonwealth/Transnation.
On July 2, 1997, the Company and Commonwealth/Transnation executed an
updated confidentiality agreement on substantially the same terms as the January
31, 1996 agreement. During the period from July 2, 1997 to August 20, 1997,
representatives of the Company and Reliance, together with their respective
legal and financial advisors, met or consulted frequently to conduct due
diligence, to identify and resolve open issues and to negotiate the terms of the
Stock Purchase Agreement and all ancillary documents.
A meeting of the Board of Directors of the Company was held on August
20, 1997 to consider the proposed Stock Purchase Agreement and the transactions
contemplated thereby. At this meeting, presentations on the Acquisition,
including the terms of the bank financing, were made to the Company's Board of
Directors by members of the senior management of the Company; the Company's
legal advisors reviewed the terms of the Stock Purchase Agreement and each of
the ancillary documents and advised the Board of Directors of required corporate
and governmental approvals; the Company's legal and accounting advisors informed
the Board of Directors of the results of their due diligence review of
Commonwealth/Transnation; and Wheat First made a presentation regarding its
financial analysis of the transaction and delivered its written opinion to the
Company's Board of Directors that, as of the date of such opinion and based upon
and subject to the matters stated therein, the consideration to be paid to RIC
pursuant to the Stock Purchase Agreement was fair, from a financial point of
view, to the holders of Common Stock. See "- Opinion of the Company's Financial
Advisor." After discussion and consideration of the terms of the Stock Purchase
Agreement and transactions contemplated thereby, the Company's Board of
Directors approved the terms of the Stock Purchase Agreement and the
transactions contemplated thereby, including the issuance of the Company Common
Shares and the Series B Preferred Stock to RIC and an increase in the number of
directors on the Board of Directors from ten (10) to fourteen (14) effective
upon the Closing of the transaction, and authorized the execution of the Stock
Purchase Agreement and ancillary documents. At the meeting, the Board of
Directors also approved a change in the name of the Company from "Lawyers Title
Corporation" to "LandAmerica Financial Group, Inc.," subject to approval by the
shareholders of the Company.
The parties then proceeded, following approval by the Board of
Directors of Reliance and finalization of the documents, to execute the Stock
Purchase Agreement, subject to shareholder and regulatory approvals and
satisfaction of all conditions set forth in the Stock Purchase Agreement.
Thereafter, on August 21, 1997, prior to the opening of trading on the NYSE, the
Company and Reliance publicly announced that they had agreed to the acquisition
by the Company of Commonwealth/Transnation.
21
<PAGE>
Reasons for the Acquisition
In determining to approve the Stock Purchase Agreement and the
transactions contemplated thereby, the Company's Board of Directors considered a
number of factors, including, without limitation, the following:
(i) the financial condition, results of operations, cash flow,
business and prospects of the Company and
Commonwealth/Transnation;
(ii) the assessment of the Company's Board of Directors that the
combined company should provide a platform to increase the
speed and reliability of product delivery and should serve to
accelerate the development of a diversified real estate
services company offering title insurance services, real
estate information services, relocation services, asset
management services and consumer-oriented real estate
services;
(iii) the Company's ability to achieve greater margins and increased
profitability through economies of scale; to increase its
return on equity; to increase its financial resources to
enable substantial investments in technology; and to establish
a larger capital base in order to enhance its commercial title
business capabilities, its credit/claims paying ability
ratings and its ability to meet state regulatory capital
requirements;
(iv) the assessment of the Company's Board of Directors that the
combined company, as a result of being a substantially larger
title company, should have access to greater financial,
managerial and technological resources;
(v) the previous consideration by the Company's Board of Directors
of strategic alternatives to enhance shareholder value, which
alternatives the Company's Board of Directors believed were
not likely to result in greater shareholder value than the
Acquisition;
(vi) the financial presentation and opinion of Wheat First rendered
to the Company's Board of Directors as to the fairness, from a
financial point of view, to the holders of the Common Stock of
the consideration to be paid by the Company in connection with
the Acquisition (see "Opinion of the Company's Financial
Advisor");
(vii) the operating environment for the Company, including, but not
limited to, the increasing competition in the title insurance
industry and the prospect for further changes in the industry;
and
(viii) the belief of the Company's Board of Directors, after
consultation with its legal counsel, that the regulatory
approvals necessary to consummate the Acquisition could be
obtained (see "-Regulatory Matters").
In reaching its determination to approve and recommend the Acquisition,
the Company's Board of Directors did not assign any relative or specific weights
to the various factors considered by it, and individual directors may have given
differing weights to different factors. The foregoing discussion of the
information and factors considered by the Company's Board of Directors is not
intended to be exhaustive but is believed to include all material factors
considered by the Company's Board of Directors.
BASED ON THE FOREGOING, THE BOARD OF DIRECTORS BELIEVES THAT THE
ACQUISITION IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS AND
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" APPROVAL OF THE STOCK PURCHASE
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND "FOR" THE AMENDMENT TO
THE ARTICLES OF INCORPORATION TO CHANGE THE NAME OF THE COMPANY TO "LANDAMERICA
FINANCIAL GROUP, INC."
22
<PAGE>
Description of the Acquisition
On August 20, 1997, the Company and its subsidiary, LTIC, entered into
the Stock Purchase Agreement with RIC and Reliance in which the Company agreed
to acquire all of the issued and outstanding capital stock of Commonwealth and
Transnation from RIC. The purchase price to be paid by the Company for the
acquisition of Commonwealth and Transnation consists of (i) $207.5 million in
cash (subject to adjustment as provided in the Stock Purchase Agreement) funded
by a credit facility to be entered into prior to the Closing of the Acquisition,
(ii) the issuance to RIC of 4,473,684 shares of Common Stock of which 575,000
shares may be subject to deferred delivery as provided in the Stock Purchase
Agreement, (iii) the issuance to RIC of 2,200,000 shares of 7% Series B
Cumulative Convertible Preferred Stock ("Series B Preferred Stock"), which will
be initially convertible into 4,824,561 shares of Common Stock, and (iv) if the
Company offers and sells 1,315,789 shares of Common Stock on a public or private
basis on or before the Closing, a cash sum in an amount that is the greater of
(a) $23.75 million or (b) the net offering proceeds after payment of applicable
underwriting discounts and commissions or placement agents' commissions and the
fees and expenses of the offering; provided, however, that if the Company does
not offer and sell 1,315,789 shares of Common Stock on a public or private basis
on or before the Closing, the Company shall deliver to RIC an unsecured,
subordinated note in an aggregate principal amount equal to the greater of (a)
$23.75 million or (b) the product of 1,315,789 times the average closing price
on the NYSE for a share of the Common Stock for the ten (10) trading days prior
to the Closing Date multiplied by 0.95. The Company has executed a commitment
letter dated as of August 15, 1997, as amended September 16, 1997, with Bank of
America National Trust and Savings Association to fund the $207.5 million cash
portion of the purchase price. See "- Bank Commitment and Financing." The
4,473,684 shares of Common Stock, the 2,200,000 shares of Series B Preferred
Stock and the 4,824,561 shares of Common Stock issuable upon conversion of the
Series B Preferred Stock (subject to adjustment as provided in the designation
of the Series B Preferred Stock) to be issued by the Company to RIC in
connection with the Acquisition (collectively, the "Acquisition Shares") will be
registered for resale under the Securities Act pursuant to the terms of a
Registration Rights Agreement to be executed by the Company and RIC at the
Closing. See "Certain Related Agreements - Registration Rights Agreement."
In connection with the transactions contemplated by the Stock Purchase
Agreement, the Company, Reliance and RIC have agreed to enter into a Voting and
Standstill Agreement to be executed at Closing that (i) provides for the
designation by RIC of three (3) directors to be nominated and recommended for
election to the Board of Directors of the Company, (ii) prohibits Reliance and
RIC and their affiliates from acquiring any additional shares of Common Stock or
Series B Preferred Stock (except as permitted under the Voting and Standstill
Agreement), (iii) requires that Reliance and RIC and their affiliates vote their
shares of Common Stock in a certain manner depending upon the matter that is
subject to a vote of the Company's shareholders, (iv) requires the sale of all
4,473,684 shares of Common Stock received by RIC from the Company pursuant to
the Stock Purchase Agreement within 6 1/2 years after the effective date of the
resale registration statement for such shares (subject to extension as provided
in the Voting and Standstill Agreement), (v) requires RIC, with respect to the
Series B Preferred Stock received by RIC from the Company on the Closing Date
and any shares of Common Stock received upon conversion of such shares of Series
B Preferred Stock, to sell so many of the shares of Series B Preferred Stock or
shares of Common Stock received upon conversion thereof held by it or its
affiliates as is necessary to reduce the RIC Ownership Percentage (as defined in
the Voting and Standstill Agreement) to less than 20% of the Adjusted
Outstanding Shares (as defined in the Voting and Standstill Agreement) by not
later than 8 1/2 years after the effective date of the registration statement
for such shares (subject to extension as provided in the Voting and Standstill
Agreement), (vi) restricts the ability of RIC and its affiliates to convert the
shares of Series B Preferred Stock then held by them until all of the 4,473,684
shares of Common Stock (and certain additional shares that may be issued with
respect to such shares) have been sold to persons that are not, at the time of
the sale, conveyance or transfer, an affiliate of RIC, provided that such
restriction shall not apply upon the occurrence of certain specified events set
forth in the Voting and Standstill Agreement, and (vii) prohibits the knowing
transfer of the Acquisition Shares to any person or group if, as a result of
such transfer, such person or group would have beneficial ownership of Common
Stock representing in the aggregate more than 9.9% of the issued and outstanding
shares of Common Stock (subject to exceptions set forth in the Voting and
Standstill Agreement). See "Certain Related Agreements - Voting and Standstill
Agreement."
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It is expected that the Acquisition will be consummated in December
1997, subject to the receipt of necessary regulatory approvals. See "-
Regulatory Approvals." In addition, the approval of the shareholders of the
Company will be required to consummate the Acquisition. The Board of Directors
of the Company approved the Stock Purchase Agreement and the transactions
contemplated thereby at a meeting duly called and held on August 20, 1997, and
recommended the proposed Acquisition to the shareholders of the Company. See "-
Background;" "Reasons of the Company for the Acquisition."
Certain Effects of the Transaction
Upon consummation of the Acquisition and the issuance by the Company of
1,315,789 shares of Common Stock on a public or private basis, RIC will hold
4,473,684 shares of Common Stock representing approximately 30.4% of the issued
and outstanding shares of Common Stock. See "Management and Ownership of the
Company Following the Acquisition - Security Ownership of Certain Beneficial
Owners." As a result, RIC will be a substantial shareholder and, subject to the
limitations of the Voting and Standstill Agreement, will have significant
influence on the outcome of certain matters requiring a shareholder vote. To the
extent that the Company's Charter requires the affirmative vote of the holders
of at least 80% of the Common Stock to approve certain business combination
transactions, RIC and its affiliates will be able to prevent approval of such
transactions so long as it holds at least 20% of the issued and outstanding
shares of Common Stock of the Company. See "Description Of Capital Stock -
Certain Provisions of the Company's Charter and Bylaws."
In addition, RIC will acquire the Series B Preferred Stock, which is
initially convertible into 4,824,561 shares of Common Stock, upon consummation
of the Acquisition. Under the terms of the Voting and Standstill Agreement,
unless certain specified events occur, RIC and its affiliates are prohibited
from converting the Series B Preferred Stock into Common Stock until RIC and its
affiliates dispose completely of the 4,473,684 shares of Common Stock acquired
by RIC on the Closing Date. See "Certain Related Agreements - Voting and
Standstill Agreement" and "Designation of Capital Stock - Series B Preferred
Stock." However, if any of the specified events were to occur, then RIC and its
affiliates would be able to convert some or all of the Series B Preferred Stock
into Common Stock. If all of the shares of Series B Preferred Stock were
converted into 4,824,561 shares of Common Stock following the Acquisition and
RIC and its affiliates had not disposed of any shares of Common Stock, RIC and
its affiliates would hold 9,298,245 shares of Common Stock or approximately
47.58% of the issued and outstanding shares of Common Stock following
consummation of all of the transactions contemplated by the Stock Purchase
Agreement. As a result, RIC and its affiliates would be able to exercise,
subject to the limitations of the Voting and Standstill Agreement, significant
influence over the business and affairs of the Company.
The Voting and Standstill Agreement provides that RIC and its
affiliates will vote the shares of Common Stock held by them (i) in accordance
with the recommendation of the Company's Board of Directors with respect to
nominees to the Board of Directors (other than the three (3) directors
designated by RIC), (ii) with respect to any contest for the election of
directors in connection with any tender offer, in the same proportion as the
total votes cast by or on behalf of all shareholders of the Company, (iii) with
respect to any matters related to share issuance, mergers, acquisitions and
divestitures, in accordance with the independent judgment of RIC and its
affiliates, and (iv) with respect to all other matters not otherwise provided,
in accordance with the recommendation of the Company's Board of Directors. See
"Certain Related Agreements - Voting and Standstill Agreement." These voting
requirements terminate if certain events occur. See "Certain Related Agreements
Covenants Regarding Non-Performance Remedies."
Bank Commitment and Financing
Generally. The Company has entered into a Commitment Letter with Bank
of America and BASI pursuant to which the Company has requested BASI to
structure, arrange and syndicate a senior Credit Facility in an aggregate
principal amount of up to $237.5 million to (i) finance the $207.5 million
payment to RIC in connection with the Acquisition, and (ii) provide up to $30
million for general
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corporate purposes. Bank of America has committed to provide up to the entire
amount of the Credit Facility and to act as sole and exclusive administrative
agent for a syndicate of lenders under the Credit Facility upon the terms and
subject to the conditions set forth or referred to in the Commitment Letter and
the related Summary of Terms and Conditions, dated September 16, 1997 (the "Term
Sheet"), which outlines business terms for the Credit Facility to be included in
the final loan documentation. The closing on the Credit Facility is expected to
occur prior to the Closing Date of the Acquisition, but such closing is not a
condition to the consummation of the Acquisition.
Conditions. The commitment to provide financing under the Credit
Facility is subject to, among other things, (i) negotiation and execution of a
definitive credit agreement and other related documentation satisfactory to the
lenders and to the Company (the "Loan Documents"); (ii) there being no material
adverse change in the financial condition, business, operations, properties or
prospects of the Company or Commonwealth/Transnation from the date of the
audited financial statements most recently provided prior to the date of the
Commitment Letter; (iii) the non-occurrence of any material adverse change in
the loan syndication or capital market conditions after the date of the
Commitment Letter, generally, which in the reasonable opinion of BASI, would
affect the syndication efforts in respect of the Credit Facility; and (iv) until
the notification by BASI of the completion of the syndication of the Credit
Facility, there being no competing offering, placement or arrangement of any
debt securities or bank financing by or on behalf of the Company.
As additional conditions to funding the loan for $207.5 million, the
Acquisition must be consummated on terms, and subject to documentation,
reasonably satisfactory to Bank of America and its counsel, and receipt of all
necessary final approvals (regulatory or otherwise), all requisite third party
consents, and evidence of compliance with all legal requirements, in each case
relating to the Acquisition. In addition, as conditions precedent to advances of
up to $30 million for general corporate purposes, (i) each of (x) the
preexisting $20 million credit facility at LTIC, (y) the preexisting $15 million
revolving credit facility at the Company and (z) the preexisting $10 million
credit facility at Commonwealth must be canceled, (ii) the Company shall have
received all necessary final approvals, all requisite third party consents, and
evidence of compliance with all legal requirements, in each case relating to the
Credit Facility, and (iii) no action, suit or proceeding shall have been
threatened or shall be pending which seeks to restrain, prevent or change the
loan documents or any matters attendant thereto, or which questions the validity
or legality of any such agreements, or seeks damages in an amount deemed
material in the sole opinion of Bank of America.
Indemnification. The Commitment Letter further requires the Company to
indemnify and hold harmless each of Bank of America and BASI, and their
respective directors, officers, employees and affiliates from and against any
and all losses, claims, damages, liabilities (or actions or other proceedings
commenced or threatened in respect thereof) and expenses that arise out of,
result from or in any way relate to the Commitment Letter, or the providing or
syndication of the Credit Facility, and to reimburse each indemnified person,
upon its demand, for any legal or other expenses reasonably incurred in
connection with investigating, defending or participating in any such loss,
claim, damage, liability or action or other proceeding, except to the extent
incurred by any indemnified person by reason of the gross negligence or willful
misconduct of such person.
The Company has agreed to reimburse Bank of America and BASI for their
reasonable out-of-pocket costs and expenses incurred in connection with the
negotiation and preparation of documents for the Credit Facility, regardless of
whether the Loan Documents are executed or the Credit Facility closes.
Term. The Credit Facility is a five-year senior unsecured revolving
Credit Facility which will terminate with all outstanding amounts being due and
payable five years from the closing of the Credit Facility. On the first and
second anniversary of the closing date of the Credit Facility, the final
maturity may be extended at the request of the Company for one additional year
if approved by the syndicate of lenders in their discretion.
Interest Rate. Prior to default, interest shall accrue on the
outstanding principal balance of the Credit Facility, at the Company's option
based upon (i) the Interbank Offered Rate ("IBOR") (reserve
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adjusted) for one, two, three or six months, or (ii) Bank of America's Base Rate
as defined in the Term Sheet. After default, interest on the outstanding
principal balance of the Credit Facility will accrue at a rate equal to Bank of
America's Base Rate plus two percent (2.0%) per annum.
The Company has agreed to pay a facility fee calculated at a rate per
annum in accordance with the pricing schedule set forth in the Term Sheet. The
facility fee is payable quarterly in arrears from the closing date under the
Credit Facility.
Covenants, Warranties and Events of Default. The Commitment Letter
further provides for the inclusion of various financial covenants including a
requirement that LTIC and Commonwealth each have a minimum statutory surplus of
80% of reported statutory surplus at each of the respective companies as of the
closing. In addition, debt to total capitalization must be maintained at levels
decreasing from 40% at the closing to and including December 31, 1998 to 30% for
the period from January 1, 2002, to maturity. Furthermore, the Commitment Letter
requires that the minimum debt coverage ratio, as defined in the Commitment
Letter, be maintained at a level equal to or greater than 2.25 times. The Loan
Documents shall contain other standard affirmative covenants (taking into
account the nature of the Company's business) including compliance with laws,
delivery of financial statements and maintenance of corporate existence.
Additionally the Loan Documents will include appropriate negative covenants
(taking into account the nature of the Company's business), including
restrictions on additional indebtedness, guarantees, dividends and share
repurchases, liens, types of investments, acquisitions, transactions with
affiliates and sales of assets.
The aggregate Credit Facility commitment shall be reduced by 100% of
the net cash proceeds from the issuance of debt or 75% of the net cash proceeds
from the issuance of any equity excluding any equity issuances related to the
Acquisition. In addition, the Term Sheet provides that the Loan Documents shall
contain (i) customary provisions protecting the syndicate of lenders in the
event of the unavailability of funding, illegality, increased costs, change of
circumstance, capital adequacy charges and funding losses and indemnities; (ii)
representations and warranties customary to credit agreements for similar
transactions and appropriate under the circumstances (taking into account the
nature of the Company's business); (iii) events of default customary for
financings of a similar kind, including non-payment of principal and interest
and fees, failure to meet covenants, inaccurate or false representations and
warranties, bankruptcy or insolvency, default under other indebtedness and
change of control; and (iv) conditions precedent to funding customary for
similar financings.
Opinion of the Company's Financial Advisor
The Company retained Wheat First to act as its financial advisor in
connection with the Acquisition. Wheat First was also retained to render a
written opinion to the Company's Board of Directors as to the fairness, from a
financial point of view, to the holders of the Common Stock of the consideration
to be paid by the Company to RIC in accordance with the Stock Purchase
Agreement.
Wheat First is a nationally recognized investment banking firm
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. The
Company's Board of Directors selected Wheat First to serve as its financial
advisor in connection with the Acquisition on the basis of such firm's
expertise. Wheat First regularly publishes research reports regarding the title
insurance industry and the Company.
Representatives of Wheat First attended the meeting of the Company's
Board of Directors on August 20, 1997, at which the Stock Purchase Agreement was
considered and approved. At the meeting, Wheat First issued its written opinion
(the "Wheat First Opinion"), dated as of August 20, 1997, that, as of such date,
the Consideration (as defined in the Wheat First Opinion) to be paid by the
Company to RIC was fair, from a financial point of view, to the holders of the
Common Stock.
The full text of the Wheat First Opinion, which sets forth certain
assumptions made, matters considered and limitations on review undertaken, is
attached as Appendix C to this Proxy Statement, is
26
<PAGE>
incorporated herein by reference and should be read in its entirety in
connection with this Proxy Statement. The summary of the Wheat First Opinion set
forth in this Proxy Statement is qualified in its entirety by reference to the
full text of the Wheat First Opinion. The Wheat First Opinion is directed only
to the fairness, from a financial point of view, to the holders of the Common
Stock of the Consideration to be paid to RIC by the Company and does not
constitute a recommendation to any shareholder of the Company as to how such
shareholder should vote on any and all matters related to the Acquisition.
In arriving at its written opinion dated August 20, 1997, Wheat First
reviewed certain business and financial information relating to the Company and
Commonwealth/Transnation that was publicly available and undisclosed information
made available by the entities involved in the Acquisition. In addition to
certain other information provided to Wheat First, the following is among the
information reviewed by Wheat First: (i) the Company's Annual Reports to
Shareholders, Annual Reports on Form 10-K and related financial information for
the fiscal years ended December 31, 1996, December 31, 1995 and December 31,
1994; (ii) the Company's Quarterly Reports on Form 10-Q and related financial
information for the periods ended March 31, 1997 and June 30, 1997, as well as
certain other financial and business data provided by management of the Company
for the period ended June 30, 1997; (iii) certain financial and business data
provided by management of Commonwealth/Transnation for the five fiscal years
ended December 31, 1996 and the most recent quarters for the period ended March
31, 1997 and June 30, 1997, (iv) certain publicly available information with
respect to historical market prices and trading activities for the Common Stock
and for certain publicly traded title insurance companies which Wheat First
deemed relevant; (v) certain publicly available information with respect to
title insurance companies and the financial terms of certain other mergers and
acquisitions which Wheat First deemed relevant; (vi) the Stock Purchase
Agreement; (vii) certain estimates of the cost savings and revenue enhancements
projected by the Company for the combined company; (viii) other financial
information concerning the businesses and operations of the Company and
Commonwealth/Transnation, including certain audited financial information and
certain internal financial analyses and forecasts for the Company and
Commonwealth/Transnation; and (ix) such financial studies, analyses, inquiries
and other matters as Wheat First deemed necessary. In addition, Wheat First met
with members of the senior managements of the Company and
Commonwealth/Transnation to discuss the business and prospects of each company.
In connection with its review, Wheat First relied upon and assumed the
accuracy and completeness of all of the foregoing information provided to it or
otherwise publicly available, including representations and warranties of the
Company and RIC included in the Stock Purchase Agreement. Wheat First has not
assumed any responsibility for independent verification of such information.
Wheat First relied upon the managements of the Company and
Commonwealth/Transnation as to the reasonableness and achievability of their
financial and operational forecasts and projections and any assumptions and
bases provided to Wheat First. Wheat First assumed that such forecasts and
projections reflect the best currently available estimates and judgments of such
managements and that such forecasts and projections will be realized in the
amounts and in the time periods currently estimated by such managements. Wheat
First did not review or make an independent evaluation or appraisal of the
assets or liabilities of the Company or Commonwealth/Transnation.
Additionally, Wheat First considered certain financial data of the
Company and Commonwealth/Transnation and then compared that data with similar
data for certain publicly-held title insurance companies and considered the
financial terms of certain other comparable transactions that recently have been
announced or effected, as further discussed below. Wheat First also considered
such other information, financial studies, analyses, investigations and
financial, economic and market criteria as deemed relevant by Wheat First.
In connection with rendering its opinion, Wheat First performed a
variety of financial analyses. The preparation of a fairness opinion involves
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of those methods to the particular
circumstances; therefore, such an opinion is not readily susceptible to partial
analysis or summary description. Moreover, the evaluation of the fairness, from
a financial point of view, to holders of the Common Stock of the Consideration
to be paid to RIC was to some extent a subjective one based on the
27
<PAGE>
experience and judgment of Wheat First and not merely the result of mathematical
analysis of financial data. Accordingly, notwithstanding the separate factors
summarized below, Wheat First believes that its analyses must be considered as a
whole and that selecting portions of its analyses and of the factors considered
by it, without considering all analyses and factors, could create an incomplete
view of the evaluation process underlying its opinion. The ranges of valuations
resulting from any particular analysis described below should not be taken to be
Wheat First's view of the actual value of the Company or
Commonwealth/Transnation.
In performing its analyses, Wheat First made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters, many of which are beyond the control of the Company or
Commonwealth/Transnation. The analyses performed by Wheat First are not
necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by such analyses.
Additionally, analyses relating to the values of businesses do not purport to be
appraisals or to reflect the prices at which businesses actually may be sold. In
rendering its opinion, Wheat First assumed that, in the course of obtaining the
necessary regulatory approvals for the Acquisition, no conditions will be
imposed that will have a material adverse effect on the contemplated benefits of
the Acquisition, on a pro forma basis, to Commonwealth/Transnation, the Company
or holders of the Common Stock.
The Wheat First Opinion is just one of the many factors taken into
consideration by the Company's Board of Directors in determining to approve the
Stock Purchase Agreement. See "- Reasons of the Company for the Acquisition."
The Wheat First Opinion does not address the relative merits of the Acquisition
as compared to any alternative business strategies that might exist for the
Company, nor does it address the effect of any other business combination in
which the Company might engage.
The following is a summary of the analyses performed by Wheat First in
connection with its delivery of the Wheat First Opinion to the Company's Board
of Directors on August 20, 1997:
Transaction Impact Analysis. Wheat First analyzed the impact of the
Acquisition on certain of the Company's balance sheet and income statement items
including assets, liabilities, shareholders' equity and estimated earnings in
addition to the cost savings or synergies. The effect on the holders of 9.1
million fully diluted pre-Acquisition shares of the Common Stock is as follows:
(i) the Acquisition will be accretive to earnings per share for 1998 and (ii)
the post-Acquisition debt to capitalization ratio will increase to 29.3% from
0%.
Comparable Transaction Analysis. Wheat First performed an analysis of
purchase prices in seven (7) title insurance transactions announced since 1990.
Multiples of revenue, earnings before interest and taxes ("EBIT"), net income,
and book value were compared to the multiples implied by the Consideration
payable to RIC in the Acquisition.
The following comparisons of the multiples implied by the Consideration
payable by the Company to RIC were based on financial data as of and for the
twelve-month period ended June 30, 1997 for Commonwealth/Transnation and the
twelve months reporting period prior to the announcement of each transaction for
each acquiree in the selected transactions: (i) a transaction value over revenue
multiple of 0.6x versus the mean multiple in comparable transactions of 0.6x;
(ii) a transaction value over EBIT multiple of 6.9x versus the mean multiple in
comparable transactions of 6.2x; (iii) a transaction value over net income
multiple of 14.1x versus the mean multiple in comparable transactions of 16.7x;
and (iv) a transaction value over book value multiple of 1.7x versus the mean
multiple in comparable transactions of 2.0x.
Control Premium Analysis. Wheat First performed an analysis of premiums
paid over the market value in 61 selected pending or recently completed
acquisitions in various industries with consideration paid between $350 million
and $500 million and announced between January 1992 and August 1997 (the
"Selected Transactions"). The calculation of the amount of control premium paid
in the Selected Transactions was calculated by comparing the actual amount paid
in a transaction to one
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<PAGE>
day, one week and one month prior stock prices. The average control premium over
the one day prior stock price for the Selected Transactions was 32%.
In its control premium analysis, Wheat First applied the mean
comparable trading multiple of projected 1997 and 1998 net income for other
publicly traded title insurance companies to estimated 1997 and 1998 net income
for Commonwealth/Transnation and increased the resulting implied value by an
average control premium of 32%, which analysis yielded control values more
favorable than the implied Consideration payable in connection with the
Acquisition. For purposes of this analysis, the implied Consideration payable in
connection with the Acquisition was determined on the basis of the closing price
for a share of the Common Stock on the NYSE on August 19, 1997.
Discounted Cash Flow Analysis. Using discounted cash flow analysis,
Wheat First estimated the present value of the future stream of cash flows that
Commonwealth/Transnation could produce over the next five years, under various
circumstances, assuming the companies performed in accordance with the earnings
forecasts of the Commonwealth/Transnation management. Wheat First then estimated
the terminal value for Commonwealth/Transnation at the end of the period by
applying a multiple of 6.0x earnings before interest, taxes, depreciation and
amortization expenses ("EBITDA") projected in year five. The cash flow streams
and terminal value were then discounted to present values using different
discount rates (ranging from 12% to 16%) chosen to reflect different assumptions
regarding the required rates of return to holders of the Common Stock. This
discounted cash flow analysis indicated reference ranges more favorable than the
$457.9 million implied Consideration payable in connection with the Acquisition.
No company or transaction used as a comparison in the above analysis is
identical to the Company, Commonwealth/Transnation or the Acquisition.
Accordingly, an analysis of the results of the foregoing necessarily involves
complex considerations and judgments concerning differences in financial and
operating characteristics of the companies and other factors that could affect
the public trading value of the Company used for comparison in the above
analysis.
The Wheat First Opinion is dated as of August 20, 1997 and is based
solely upon the information available to Wheat First, and the economic, market
and other conditions as they existed as of such date. Events occurring after
that date could materially affect the assumptions and conclusions contained in
the Wheat First Opinion. Wheat First has not undertaken to reaffirm or revise
its opinion or otherwise comment on any events occurring after the date thereof.
Wheat First acts as a market maker for the Common Stock and, in the
course of its normal trading activities, Wheat First may from time to time
effect transactions and hold positions in the securities of the Company and
Reliance. Wheat First will receive a fee of $1.65 million upon consummation of
the Acquisition. The Company also has paid Wheat First a fee of $100,000 upon
the signing of an engagement letter dated September 18, 1996, and a fee of
$250,000 upon the signing of the Stock Purchase Agreement. The payment of the
above fees is not contingent upon Wheat First rendering a favorable opinion with
respect to the Acquisition. The Company has agreed to reimburse Wheat First for
its out-of-pocket expenses incurred in connection with the activities
contemplated by its engagement, regardless of whether the Acquisition is
consummated. The Company has further agreed to indemnify Wheat First against
certain liabilities, including liabilities under the federal securities laws.
Interests of Certain Persons in the Acquisition
Upon consummation of the Acquisition, Herbert Wender, Chairman and
Chief Executive Officer of Commonwealth/Transnation, will become Vice-Chairman
of the Board of Directors and Chief Operating Officer of the Company, and
Jeffrey A. Tischler, Executive Vice President and Chief Financial and
Administrative Officer of Commonwealth/Transnation, will become Executive Vice
President and Chief Financial Officer of the Company. See "Management and
Ownership of the Company Following the Acquisition." The Company intends after
consummation of the Acquisition to grant options to purchase shares of Common
Stock to key employees in accordance with its regular business practices.
Following the Closing Date, it is anticipated that Messrs. Wender and Tischler
would be eligible to receive option grants. As of the date hereof, neither Mr.
Wender nor Mr. Tischler has an
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<PAGE>
employment or severance agreement with the Company or with
Commonwealth/Transnation. However, the Company expects that Messrs. Wender and
Tischler and other executive officers of the Company will enter into employment
agreements with the Company on or after the Closing Date.
Marshall B. Wishnack, a director of the Company, is President and Chief
Executive Officer of Wheat First, which has provided financial advisory services
to the Company and delivered a fairness opinion in connection with the
Acquisition. As compensation for those services, the Company has agreed to pay
Wheat First certain fees and expenses. See "- Opinion of the Company's Financial
Advisor."
Amendment to Articles of Incorporation of the Company
The Stock Purchase Agreement requires the Company to deliver 2,200,000
shares of Series B Preferred Stock to RIC on the Closing Date. The Articles of
Incorporation of the Company authorize the Board of Directors, without
shareholder approval, to amend the Articles of Incorporation to provide for the
issuance and to fix the preferences, limitations and relative rights, within the
limits permitted by applicable law, of one or more series of the Company's
authorized class of Preferred Stock. See "Description of Capital Stock -
Preferred Stock." On August 20, 1997, the Company's Board of Directors approved
Articles of Amendment of the Articles of Incorporation of the Company (the
"Articles of Amendment") to establish a series of the Preferred Stock to be
designated as "7% Series B Cumulative Convertible Preferred Stock (Without Par
Value)." See "Description of Capital Stock - Series B Preferred Stock."
The Company's Board of Directors has determined that it is in the best
interests of the Company to change the name of the Company from "Lawyers Title
Corporation" to "LandAmerica Financial Group, Inc." effective as of the Closing
Date . The change in name for the parent holding company is intended to signify,
among other things, an expansion of the products and services beyond traditional
title insurance to be developed and offered by the combined company. LTIC,
Commonwealth and Transnation will continue to operate under their current names
for the foreseeable future. Approval of the Stock Purchase Agreement and the
proposed name change by the Company's shareholders is required in order for the
name change to take effect; however, the consummation of the Acquisition is not
conditioned upon shareholder approval of the proposed name change.
In connection with the issuance of the Rights to the holders of the
Common Stock in October 1991, the Company established a series of Preferred
Stock designated as "Series A Junior Participating Preferred Stock." See
"Description of the Capital Stock - Preferred Share Purchase Rights." At that
time, 50,000 shares of the Series A Junior Participating Preferred Stock were
authorized and reserved for issuance in connection with the Rights. On August
20, 1997, the Company's Board determined that in view of the increased number of
shares of Common Stock that will be outstanding upon consummation of the
Acquisition, it was in the best interests of the Company to increase the number
of authorized shares of Series A Junior Participating Preferred Stock to 200,000
in order to reserve a sufficient number of shares for issuance in connection
with the Rights. See "Certain Related Agreements - Amended and Restated Rights
Agreement." Pursuant to the Articles of Incorporation and Virginia law,
shareholder approval is not required for the amendment to become effective.
A copy of the Articles of Amendment containing each of the foregoing
amendments to the Company's Articles of Incorporation is set forth as Appendix
B.
Stock Exchange Listing
The Common Stock is listed and trades on the NYSE under the symbol
"LTI." It is a condition to the consummation of the Acquisition that the shares
of the Common Stock to be issued to RIC on the Closing Date and the shares of
Common Stock issuable upon conversion of the Series B Preferred Stock shall have
been approved for listing on the NYSE, subject only to official notice of
issuance.
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<PAGE>
The Company has reserved the symbol "LFG" on the NYSE for use upon
consummation of the Acquisition and shareholder approval of the proposed change
in the name of the Company to "LandAmerica Financial Group, Inc." This symbol is
expected to be effective on and after the Closing Date.
Regulatory Approvals
Antitrust. Under the HSR Act, the Acquisition may not be consummated
until notifications have been given and certain information has been furnished
to the Federal Trade Commission ("FTC") and the Antitrust Division of the
Department of Justice and specified waiting period requirements have been
satisfied. The Company and Reliance filed notification and report forms under
the HSR Act with the FTC and the Department of Justice on September 5, 1997. The
required waiting period under the HSR Act expires on October 5, 1997. However,
if on or prior to such date either the FTC or the Department of Justice requests
additional information concerning the Acquisition, the waiting period would be
extended until twenty (20) days after the Company and Reliance have each
"substantially complied" (as such term is defined under the HSR Act) with such
request, unless the FTC or the Department of Justice voluntarily terminates the
waiting period prior to substantial compliance. At any time before or after the
consummation of the Acquisition, the FTC or the Department of Justice could take
such action under the antitrust laws as it deems necessary or desirable in the
public interest, including seeking to enjoin the consummation of the Acquisition
or seeking divestiture of certain assets of the Company or
Commonwealth/Transnation. At any time before or after the consummation of the
Acquisition, and notwithstanding that the HSR Act waiting period has expired,
any state could take such action under the antitrust laws as it deems necessary
or desirable in the public interest. Such action could include seeking to enjoin
the consummation of the Acquisition or seeking divestiture of certain assets of
the Company or Commonwealth/Transnation. Private parties may also seek to take
legal action under the antitrust laws under certain circumstances.
Based upon available information, the Company believes that the
Acquisition can be effected in compliance with federal and state antitrust laws.
However, there can be no assurance that a challenge to the consummation of the
Acquisition on antitrust grounds will not be made or that, if such a challenge
is made, the Company would prevail or would not be required to accept certain
conditions in order to consummate the Acquisition.
Insurance. The Acquisition is also subject to the receipt of necessary
approvals from various state insurance departments. The Company and Reliance
(and certain of its affiliates) have filed an Application for Approval of
Acquisition of Control of or Merger with a Domestic Insurer (Form A) in states
where required. The insurance laws and regulations of certain of such states
require hearings by the state insurance departments before deciding whether to
grant approval of an acquisition described in a Form A filing. In addition to
the Form A filings, the Company and Reliance intend to file Pre-Acquisition
Notification Forms Regarding the Potential Competitive Impact of a Proposed
Merger or Acquisition by a Non-Domiciliary Insurer Doing Business in this State
or by a Domestic Insurer (Form E) in those states where such filings are
required. The Form E filings are generally reviewed within thirty (30) days
after filing with the state insurance departments, which may request additional
information on the competitive impact of a proposed acquisition. Once the
applicant responds to any such request, the applicable state insurance
department generally may take up to an additional thirty (30) days to approve an
acquisition. As of the date hereof, all required Form A filings have been made
and approvals are pending. All required Form E filings are expected to be made
by early October 1997.
Certain Federal Income Tax Consequences
The consummation of the Acquisition will not be a taxable event for
federal income tax purposes for the Company or the shareholders of the Company.
Pursuant to the Stock Purchase Agreement, RIC agreed to (i) sell all of
the capital stock of Commonwealth and Transnation to the Company and (ii) join
with the Company in the filing of an election under Section 338(h)(10) of the
Internal Revenue Code of 1986, as amended (the "Code"), and any comparable
election under state, local or foreign tax law. These elections should result in
the Acquisition being deemed to be a sale of Commonwealth's assets and
Transnation's assets for federal
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income tax purposes with Commonwealth and Transnation being deemed to have sold
their assets while still a member of RIC's "affiliated group" (as defined in the
Code). Accordingly, the economic burden of taxation resulting from the deemed
asset sale by Commonwealth and Transnation will be borne by RIC.
The discussion set forth above as to the material federal income tax
consequences of the Acquisition is based upon the provisions of the Code,
applicable Treasury Regulations thereunder, judicial decisions and current
administrative rulings, any of which may be changed at any time with retroactive
effect. The discussion does not address any aspect of state, local or foreign
taxation. No rulings have been or will be requested from the IRS with respect to
any of the matters discussed herein. There can be no assurance that future
legislation, regulations, administrative rulings or court decisions would not
alter the tax consequences set forth above.
Accounting Treatment
The Acquisition will be accounted for by the Company using the
"purchase" method of accounting in accordance with Accounting Principles Board
Opinion No. 16. Under purchase accounting, the fair market value of the
consideration given, and the market value of the liabilities assumed, by the
Company in the Acquisition will be used as the basis of the purchase price. The
assets and liabilities of Commonwealth/Transnation will be revalued to their
respective fair market values. The financial statements of the Company will
reflect the combined operations of the Company and Commonwealth/Transnation from
the Closing Date of the Acquisition.
Resales of the Acquisition Shares
All of the Acquisition Shares to be issued to RIC pursuant to the Stock
Purchase Agreement will be registered by the Company for resale into the public
market in accordance with the terms of the Registration Rights Agreement to be
executed by the Company and RIC on the Closing Date. See "Certain Related
Agreements Registration Rights Agreement." As a result, the Acquisition Shares
may be sold pursuant to an effective registration statement as provided by the
Registration Rights Agreement or pursuant to Rule 144 or any other applicable
exemption from registration under the Securities Act. In connection with any
sales under Rule 144, persons or entities who are deemed to be "affiliates," as
such term is defined under the Securities Act, of the Company may resell the
Acquisition Shares held by them only in transactions permitted by the resale
provisions of Rule 144 promulgated under the Securities Act. Persons who may be
deemed to be affiliates of the Company generally include individuals or entities
that control, are controlled by, or are under common control with, the Company
and may include certain officers and directors of the Company as well as
principal shareholders of the Company.
Market for Common Stock and Dividend Policy
The Company. Since October 1995, the Common Stock has been listed on
the NYSE under the symbol "LTI." Before October 1995, the Common Stock was
listed with The Nasdaq National Market under the symbol "LTCO." The Company has
reserved the symbol "LFG" on the NYSE for use upon consummation of the
Acquisition and shareholder approval of the proposed change in the name of the
Company to "LandAmerica Financial Group, Inc."
The following table sets forth the reported high and low sales prices
of the Common Stock on the NYSE Composite Tape, based on published financial
sources, and the dividends declared on the Common Stock for the calendar quarter
indicated.
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<TABLE>
<CAPTION>
Sales Price ($) Dividends ($)
--------------------------- -------------
High Low
---- ---
<S> <C> <C> <C>
Year Ended December 31, 1995
First quarter 13.25 10.50 0.03
Second quarter 15.88 12.38 0.05
Third quarter 16.63 13.50 0.05
Fourth quarter 19.25 14.63 0.05
Year Ended December 31, 1996
First quarter 19.13 16.63 0.05
Second quarter 19.88 16.00 0.05
Third quarter 22.38 17.38 0.05
Fourth quarter 21.75 17.63 0.05
Year Ended December 31, 1997
First quarter 23.75 19.00 0.05
Second quarter 21.13 16.75 0.05
Third quarter (through September 19, 1997) 33.50 18.00 0.05
</TABLE>
On August 20, 1997, the last day on which the Common Stock traded prior
to the announcement of the Acquisition, the closing price for the Common Stock
on the NYSE Composite Tape was $24.63 per share. On November __, 1997, the most
recent practicable date prior to the mailing of this Proxy Statement, the
closing price for the Common Stock on the NYSE Composite Tape was $_________ per
share. Holders of the Common Stock are urged to obtain current market quotations
prior to making any decision with respect to the Acquisition.
The Company's current dividend policy anticipates the payment of
quarterly dividends in the future. Future dividends will be dependent on the
future earnings, financial condition and capital requirements of the Company and
other factors. In a number of states, certain of the Company's subsidiaries are
subject to regulations that require minimum amounts of statutory equity and that
require that the payment of any extraordinary dividends receive prior approval
of the Insurance Commissioners of these states. An extraordinary dividend is
generally defined as one that, when added to other dividends paid in the
preceding twelve months, would exceed the lesser of 10% of statutory equity
accounts as of the preceding year end or statutory net income excluding realized
capital gains for the preceding year. Under such statutory requirements, the net
assets of consolidated subsidiaries aggregating approximately $258.0 million
were not available for dividends, loans or advances to the Company at June 30,
1997.
As of June 30, 1997, approximately $12.3 million was available for the
payment of dividends by the Company.
Commonwealth and Transnation. Commonwealth and Transnation are wholly
owned subsidiaries of RIC, which is a second-tier subsidiary of Reliance. See
"Commonwealth Land Title Insurance Company and Transnation Title Insurance
Company - Business." Accordingly, there is no established public trading market
for the capital stock of Commonwealth and Transnation.
The ability of Commonwealth and Transnation to pay dividends depends,
in part, on the earnings of their respective subsidiaries. In a number of
states, Commonwealth and Transnation are subject to regulations that require
minimum amounts of statutory equity and that require that the payment of any
extraordinary dividends receive prior approval of the Insurance Commissioners of
these states. An extraordinary dividend is generally defined as one that, when
added to other dividends paid in the preceding twelve months, would exceed the
greater of 10% of statutory equity accounts as of the preceding year end or
statutory net income excluding realized capital gains for the preceding year.
Under such statutory requirements, the net assets of the combined companies
aggregating approximately $267.3 million were not available for dividends, loans
or advances to RIC at June 30, 1997.
As of June 30, 1997, approximately $18.2 million was available for the
payment of dividends by Commonwealth/Transnation.
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<PAGE>
THE STOCK PURCHASE AGREEMENT
The following is a summary of certain provisions of the Stock Purchase
Agreement, a copy of which is attached hereto as Appendix A and incorporated
herein by reference. The following summary is qualified in its entirety by
reference to the complete text of the Stock Purchase Agreement.
Acquisition and Purchase Price
Pursuant to the Stock Purchase Agreement and on the terms and subject
to the conditions set forth in the Stock Purchase Agreement, Commonwealth and
Transnation will be acquired by the Company and will become wholly-owned
subsidiaries of the Company. The purchase price to be paid by the Company for
the acquisition of Commonwealth and Transnation consists of (i) $207.5 million
in cash (subject to adjustment as provided in the Stock Purchase Agreement),
(ii) the issuance to RIC of 4,473,684 shares of Common Stock of which 575,000
shares may be subject to deferred delivery as provided in the Stock Purchase
Agreement, (iii) the issuance to RIC of 2,200,000 shares of Series B Preferred
Stock, which as of the closing date will be initially convertible into 4,824,561
shares of Common Stock, and (iv) if the Company offers and sells 1,315,789
shares of Common Stock on a public or private basis on or before the closing,
RIC shall receive at closing, in cash, the greater of (a) $23.75 million or (b)
the net offering proceeds after payment of applicable underwriting discounts and
commissions or placement agents' commissions and the fees and expenses of the
offering; provided, however, that if the Company does not offer and sell
1,315,789 shares of Common Stock on a public or private basis on or before the
closing, the Company shall deliver to RIC an unsecured, subordinated note in an
amount equal to the greater of (a) $23.75 million or (b) the product of
1,315,789 times the average closing price on the NYSE for a share of Common
Stock for the ten (10) trading days prior to the closing date multiplied by
0.95.
Closing Date
Subject to the conditions set forth in the Stock Purchase Agreement,
the Closing of the Acquisition will take place on such date as is mutually
agreed by the parties, provided that all conditions to Closing have been
satisfied or waived and the Closing Date is no earlier than the date of delivery
to the Company of Commonwealth/Transnation's financial statements for the
quarter ended September 30, 1997 nor later than March 31, 1998. The Company
currently expects the Closing to occur in December 1997.
Representations and Warranties
The Stock Purchase Agreement contains customary representations and
warranties by each of the Company, LTIC and RIC as to, among other things, (a)
organization, good standing and similar corporate matters; (b) the due
authorization, execution, delivery and enforceability of the Stock Purchase
Agreement and agreements to be executed at the Closing; (c) required filings and
approvals; (d) the absence of violations of laws or breach of constitutive
documents; (e) ownership of subsidiaries; (f) capital structure; (g) the absence
of certain changes or events since the date of the most recent financial
statements; (h) the absence of undisclosed liabilities; (i) good title to
properties and assets, free of liens; (j) ownership of patents, trademarks,
service marks, copyrights, and other similar intellectual property rights; (k)
ownership of accounts; (l) the absence of breaches or defaults in material
contracts; (m) insurance policies; (n) transactions with affiliates; (o)
compliance with laws; (p) filing of tax returns and payment of taxes; (q)
employee benefit plans and other matters relating to the Employee Retirement
Income Security Act of 1974, as amended, and employment matters; (r)
environmental matters; (s) accounts receivable; (t) the absence of pending or
threatened litigation; (u) brokers' fees and expenses; and (v) ownership of
investment securities and compliance with insurance and trust laws with respect
thereto. In addition, the Company makes representations and warranties regarding
documents filed with the Commission and the accuracy of information contained
therein and representations and warranties as to the execution of the Amended
and Restated Rights Agreement excepting the Acquisition from its provisions. See
"Certain Related Agreements - Amended and Restated Rights Agreement."
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<PAGE>
Certain Covenants of the Parties
Conduct of Business Pending the Acquisition. Pursuant to the Stock
Purchase Agreement, RIC has agreed that, prior to the Closing Date, RIC will
cause Commonwealth and Transnation to carry on their respective businesses only
in the ordinary course of business, consistent with regular custom and practice,
and RIC will use its Best Efforts (as defined below) to maintain the value of
the Commonwealth and Transnation businesses as going concerns and the
relationships of Commonwealth and Transnation with customers, suppliers,
vendors, employees, agents, referral sources and governmental authorities. Prior
to the Closing Date, RIC has agreed to cause Commonwealth, Transnation and their
subsidiaries to make capital expenditures only in the ordinary course of
business and to obtain the prior written consent of the Company to any capital
expenditure equal to or greater than $250,000 or any capital expenditures in the
aggregate of more than $1,000,000, whether or not in the ordinary course of
business. In addition, on and prior to the Closing Date, RIC will cause
Commonwealth and Transnation to refrain from doing any of the following without
the prior written consent of the Company:
(a) enter into any transaction with RIC or any of its affiliates
except in the ordinary course of business or with respect to "affiliate debt" as
defined in the Stock Purchase Agreement;
(b) pay or accrue any compensation other than in the ordinary course
of business or increase any compensation of any officer or employee other than
such increases in compensation for individual employees as may be made in the
ordinary course of business;
(c) subject to certain exceptions, declare any dividends or make any
other distributions in respect of the capital stock of Commonwealth or
Transnation;
(d) incur any debt except capitalized leases entered into in the
ordinary course of business or intercompany advances between Commonwealth or
Transnation and any of their subsidiaries or between wholly owned subsidiaries
of only one of them, or incur any lien except in the ordinary course of
business;
(e) amend the charter or bylaws of Commonwealth or Transnation or any
of their subsidiaries;
(f) allow any material permit or license to lapse or terminate (to
the extent such lapse or termination is within the reasonable control of
Commonwealth, Transnation or any of their subsidiaries) or fail to renew any
material permit or license in accordance with reasonably prudent business
practice;
(g) fail to operate the Commonwealth and Transnation businesses and
maintain Commonwealth's, Transnation's and their subsidiaries' books, accounts
and records in the ordinary course of business and maintain in good repair
Commonwealth's, Transnation's and their subsidiaries' business premises,
fixtures, machinery, furniture and equipment in a manner consistent with past
practice;
(h) engage any new employee of Commonwealth, Transnation or any of
their subsidiaries for a salary in excess of $100,000 per annum;
(i) enter into, amend in any material respect, extend, terminate or
permit any renewal notice period or option to lapse with respect to any lease,
lease-out or any other contractual obligation (other than an agency agreement)
that contains either consideration to be given or performed by Commonwealth or
Transnation or any of their subsidiaries of a value exceeding $250,000 per year
or a term exceeding one year (except for the making of certain capital
expenditures);
(j) except with respect to real property acquired in connection with
the relocation services business, purchase or otherwise acquire, or enter into a
lease of any real property (where the purchase
35
<PAGE>
price or annual rental is greater than $250,000), except for lease renewals in
the ordinary course of business;
(k) (i) make any capital expenditures except in the ordinary course
of business, (ii) incur any debt, (iii) mortgage, pledge, sell, lease or dispose
of any material asset, (iv) make any change in the capital stock of
Commonwealth, Transnation or any of their subsidiaries, (v) make any loans or
cancel any debt other than in the ordinary course of business, (vi) purchase any
assets or become a party to a business combination, (vii) make any changes in
methods of accounting, (viii) waive, release or permit to lapse any material
right except in the ordinary course of business, (ix) institute or settle any
material claim, action or proceeding, (x) make any change in the relationships
of Commonwealth, Transnation or any of their subsidiaries with employees,
agents, independent contractors, customers, referral sources or suppliers that
would be materially adverse to the business of Commonwealth/Transnation, or (xi)
make any change in the rate of compensation paid to any director, officer,
manager, employee, consultant or agent, other than in the ordinary course of
business;
(l) consent or agree to do any of the foregoing; or
(m) enter into, amend in any material respect, extend, terminate or
permit any renewal notice period or option to lapse with respect to any
exclusive agency agreement, any agency agreement with a term of two (2) years or
more or any agency agreement which guarantees a specified level of national
referral business to the agent.
Solicitation of Takeover Proposals. Pursuant to the Stock Purchase
Agreement, the parties have agreed that they will not, directly or indirectly,
through any officer, director, employee, agent or otherwise, solicit, initiate
or encourage submission of proposals or offers from any person relating to any
acquisition or purchase of all or (other than in the ordinary course of
business) a substantial portion of the assets of, or any equity interest in, the
Company, on the one hand, or Commonwealth and/or Transnation, on the other hand,
or any business combination involving any of them or, except to the extent
required by fiduciary obligations under applicable law as advised by counsel,
participate in any negotiations regarding, or furnish to any other person any
information with respect to, or otherwise cooperate in any way with, or assist
or participate in, facilitate or encourage, any effort or attempt by any other
person to do or seek any of the foregoing. To the extent permitted by the terms
of each such party's confidentiality agreements with other persons existing on
the date of the Stock Purchase Agreement, the parties will promptly advise one
another if any such proposal or offer, or any inquiry or contact with any person
with respect thereto, is made, will promptly inform one another of all the terms
and conditions thereof, and will furnish to one another copies of any such
written proposal or offer and the contents of any communications in response
thereto. Neither party may waive any provisions of any "standstill" agreements
between such party and any other person, except to the extent that such waiver
is, as advised by counsel, required by fiduciary obligations under applicable
law.
Best Efforts. Pursuant to the Stock Purchase Agreement, each party has
agreed to use its Best Efforts to bring about the timely fulfillment of each of
the conditions precedent to the obligations of the other parties to the Stock
Purchase Agreement, including but not limited to the preparation and filing of
all notices and requests for approval under the HSR Act and state insurance laws
and the execution and delivery of each of the Registration Rights Agreement, the
Voting and Standstill Agreement, the Articles of Amendment to the Company's
Charter and each of the resignation agreements required by the Voting and
Standstill Agreement (the "Closing Agreements").
For purposes of the Stock Purchase Agreement, the term "Best Efforts"
means the efforts that a prudent business person desirous of achieving a result
would use in similar circumstances to ensure that such result is achieved as
expeditiously as possible; provided, however, that an obligation to use "Best
Efforts" does not require any such person to take actions that would result in a
materially adverse change in (i) the Company's business and the Commonwealth and
Transnation businesses taken as a whole or (ii) the financial condition of the
Company, Commonwealth, Transnation and their subsidiaries taken as a whole as of
the Closing Date.
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<PAGE>
Solicitation for Employment. Except for persons who will be employed by
RIC or an affiliate of RIC following the Closing, for the period beginning on
August 20, 1997 and ending on the second anniversary of the Closing Date, RIC
has agreed that neither it nor any of its affiliates will solicit to employ or
employ (except as a result of a response to a general solicitation in a
newspaper or magazine with a national or regional circulation) any individual
who is an employee (other than a secretarial or clerical employee) of
Commonwealth, Transnation or any of their subsidiaries on August 20, 1997, or at
any time following August 20, 1997, unless at least six (6) months have elapsed
following the Closing and following the cessation of such individual's
employment with the Company, LTIC, Commonwealth, Transnation or any of their
affiliates.
Noncompetition Covenant. In the Stock Purchase Agreement, Reliance and
RIC have agreed that, for the period from the Closing Date until the later of
the third anniversary of the Closing Date or the date upon which RIC and its
affiliates no longer hold any Common Stock or Series B Preferred Stock acquired
in the Acquisition, or any shares of Common Stock received upon conversion of
the Series B Preferred Stock, Reliance, RIC and their affiliates will not,
without the prior written consent of the Company, directly or indirectly engage
in the business of title insurance as regulated by the states and territories of
the United States or in any of the other lines of business which are currently
engaged in by Commonwealth or Transnation or their subsidiaries. The Stock
Purchase Agreement prohibits Reliance, RIC or any of their affiliates from
owning (other than ownership of less than five percent (5%) of the outstanding
capital stock of a publicly traded company), directly or indirectly, any person
(i) whose revenues from the business of providing title insurance regulated by
the states and territories of the United States or any other business which is
currently engaged in by Commonwealth or Transnation exceeds twenty percent (20%)
of such person's total consolidated revenues for the most recent fiscal year, or
(ii) which is one of the top seven (7) title insurance providers, as measured by
gross title revenues, and from permitting any officer, director or
executive-level employee of Reliance, RIC and their affiliates from serving as
an officer, director, employee or consultant of any such person (other than the
Company and its affiliates).
Sale of Company Common Stock. The Stock Purchase Agreement provides
that the Company must offer and sell at least 1,315,789 shares of Common Stock
on a public or private basis to a person or persons other than Reliance or its
affiliates either (i) on or before the Closing Date or (ii) after the Closing
Date and prior to the one year anniversary of the Closing Date. With RIC's
consent (which shall not be unreasonably withheld), the Company may include in
such offering, whether prior to, on, or after the Closing Date, such number of
additional shares of Common Stock (the "Additional Shares") that (i) if a public
offering, as of the date of filing the registration statement (or pre-effective
amendment thereto if Additional Shares are included in the offering following
the initial filing of the registration statement) with the Commission, have a
proposed maximum aggregate offering price of not more than $25,000,000,
exclusive of any overallotment option, or (ii) if a private offering, have a
maximum aggregate offering price of not more than $25,000,000. In connection
with any such public or private offering by the Company, the Company and RIC
have agreed to indemnify and hold harmless each other and each of their
respective officers, directors, employees, agents, representatives and
controlling persons under the federal securities laws, except that RIC's
liability under such indemnification provisions shall not exceed $23,750,000.
In connection with a public or private offering on or before the
Closing Date, (i) RIC shall pay the underwriting discounts and commissions or
placement agent commissions, as the case may be, on 1,315,789 shares of Common
Stock to be sold in such offering, (ii) if a public offering, the Company will
pay the underwriting discounts and commissions in the event of an exercise of
all or any portion of any overallotment option (not to exceed 15% of such
1,315,789 shares) and (iii) RIC shall pay the fees and expenses associated with
the offering of 1,315,789 shares of Common Stock and such overallotment option,
if applicable. The Company will deliver to RIC the net proceeds from the sale of
the 1,315,789 shares of Common Stock on such terms and in such manner as set
forth in the Stock Purchase Agreement. The Company will retain the net proceeds
(after payment by the Company of underwriting discounts and commissions or
placement agent commissions, as the case may be) from the sale of any Additional
Shares or, if applicable, from the exercise of all or any portion of any
overallotment option (not to exceed 15% of the sum of 1,315,789 shares of Common
Stock and any Additional Shares), such proceeds to be used to pay expenses
incurred by the Company in connection with the transactions
37
<PAGE>
contemplated by the Stock Purchase Agreement and/or to reduce borrowings
incurred under the Company's bank financing to enable the Company to pay the
cash purchase price of the Acquisition. If the size of any public offering by
the Company exceeds 1,315,789 shares of Common Stock plus any applicable
overallotment option (not to exceed 15% of 1,315,789 shares of Common Stock),
the Company will pay a pro rata portion of the fees and expenses of the offering
based upon the percentage that the Additional Shares represent in relation to
the entire offering of 1,315,789 shares of Common Stock, any overallotment
option (not to exceed 15% of the sum of 1,315,789 shares of Common Stock and any
Additional Shares) and any Additional Shares.
In connection with a public or private offering after the Closing Date,
the Company will pay all underwriting discounts and commissions or placement
agent commissions, as the case may be, and fees and expenses of the offering and
shall use the net proceeds to first satisfy its obligations to RIC under the
Subordinated Note and then to pay expenses incurred by the Company in connection
with the transactions contemplated by the Stock Purchase Agreement and/or to
reduce borrowings incurred under the Company's bank financing to enable the
Company to pay the cash purchase price of the Acquisition.
Certain Other Covenants. The Stock Purchase Agreement also contains
customary covenants applicable to transactions like the Acquisition, including
covenants relating to (a) extension of the confidentiality agreement between the
Company and Commonwealth/Transnation, dated July 2, 1997, (b) the filing of an
election under Section 338(h)(10) of the Internal Revenue Code of 1986, as
amended, indemnification for taxes attributable to a tax period prior to Closing
and other tax matters, (c) each party's obligation to pay its own fees and
expenses, (d) delivery of financial statements, (e) the listing on the NYSE of
the Company Common Shares to be issued in the Acquisition or shares of Common
Stock issuable upon conversion of the Series B Preferred Stock, (f) the filing
of resale registration statements covering the Company Common Shares, the Series
B Preferred Stock and the shares of Common Stock issuable upon conversion of the
Series B Preferred Stock, (g) the preparation of proxy materials relating to
approval of the Acquisition by the Company's shareholders, (h) the negotiation
prior to the Closing Date of an Administrative Services Agreement and (i)
reasonable access to each party's documents, books and records during normal
business hours.
Conditions to Closing
The obligation of the Company and RIC to close the Acquisition is
subject to various conditions which include the following: (a) the Stock
Purchase Agreement and the transactions contemplated thereby shall have been
approved by the requisite vote of the Company's shareholders; (b) all necessary
filings pursuant to the HSR Act and state insurance laws and regulations have
been made and all requisite approvals obtained and all applicable waiting
periods thereunder shall have expired or been terminated; (c) no action shall
have been instituted prior to the Closing which has not been withdrawn,
dismissed or settled prior to Closing by any court of other governmental
authority that seeks to delay, enjoin or otherwise make illegal the consummation
of the Acquisition; (d) the Acquisition is not prohibited by applicable law; (e)
the representations and warranties of the other party in the Stock Purchase
Agreement shall be true and correct as of the Closing Date, the other party
shall have performed the obligations required to be performed by it under the
Stock Purchase Agreement at or prior to the Closing Date, and a closing
certificate signed by the President and Chief Financial Officer of each party
shall have been delivered relating to the foregoing; (f) the parties shall have
executed each of the Closing Agreements to which it is a party; (g) the parties
shall have received opinions of counsel with respect to certain legal matters;
(h) each party shall have provided the other with a written update of all the
information contained in the disclosure letters delivered in connection with the
execution of the Stock Purchase Agreement; and (i) each party shall have
delivered such other customary closing documents as such other party may
reasonably request. Any of the foregoing conditions to Closing may be waived by
the parties.
In addition to the foregoing, the Company's obligation to close is
conditioned upon the absence of any "affiliate debt" (as defined in the Stock
Purchase Agreement) or other debt or advances owed to Commonwealth, Transnation
or any of their subsidiaries by RIC or its affiliates or by any present or
former employee, officer, shareholder or director of RIC.
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The obligation of RIC to close is also subject to additional
conditions, including (i) the issuance at Closing of the Company Common Shares
and the Series B Preferred Stock, (ii) the listing, on a when issued basis, on
the NYSE of the Company Common Shares and the shares of Common Stock issuable
upon conversion of the Series B Preferred Stock; (iii) the Amended and Restated
Rights Agreement of the Company shall continue to be in full force and effect
without revision, amendment or alteration; (iv) the Board of Directors of the
Company shall have been increased from ten (10) to fourteen (14) directors and
Robert M. Steinberg, George E. Bello and Lowell C. Freiberg, or a substitute for
any of them who is a senior executive officer of RIC or an affiliate of RIC, and
Herbert Wender shall have been elected to the Board of Directors of the Company
in accordance with the provisions of the Voting and Standstill Agreement; and
(iv) the Company shall have delivered to RIC the payments provided for in the
Stock Purchase Agreement and all other payments required to be made by the
Company on the Closing Date.
No assurances can be provided as to when or if all of the conditions
precedent to the Acquisition can or will be satisfied or waived by the
appropriate party. As of the date of this Proxy Statement, the Company has no
reason to believe that any of the conditions set forth above will not be
satisfied.
Amendment, Waiver and Termination
The Company and RIC may amend the Stock Purchase Agreement by written
agreement at any time. The Stock Purchase Agreement also permits a party to
waive compliance by another party with any of the provisions thereof. Such
waivers may include a waiver of any default in the performance of any term of
the Stock Purchase Agreement by the other party, a waiver or extension of the
time for the fulfillment by the other party of any of its obligations under the
Stock Purchase Agreement, or a waiver of any of the conditions precedent to the
obligations of such party under the Stock Purchase Agreement.
The Stock Purchase Agreement may be terminated at any time prior to the
Closing Date by mutual written consent of the Company and RIC. In addition, the
Stock Purchase Agreement may be terminated by written notice prior to the
Closing Date by either the Company or RIC (i) in the event that any
representation or warranty of the other party set forth in the Stock Purchase
Agreement is breached and such breach is not capable of cure or, if capable of
cure, is not so cured within a reasonable period following notice of such
breach, (ii) in the event that the other party materially breaches or violates
any material covenant or agreement contained in the Stock Purchase Agreement or
in any Closing Agreement to be performed by such other party and such breach or
violation is not capable of cure or, if capable of cure, is not so cured within
a reasonable period following notice of such breach or violation, (iii) if the
Closing shall not have occurred on or before March 31, 1998 by reason of the
failure to satisfy the conditions to Closing (unless the failure results
primarily from the failure of any representation or warranty made by or on
behalf of the other party herein or in any Closing Agreement containing
qualifications as to materiality or Material Adverse Effect (as defined in the
Stock Purchase Agreement) to be true and correct or any other representation or
warranty made on behalf of the other party or in any Closing Agreement to be
true and correct in all material respects or from the material breach or
violation by the other party of any covenant or agreement contained in the Stock
Purchase Agreement or in any Closing Agreement, and (iv) if an offer for the
acquisition of, merger with or other type of business combination of such party
by or with another person, which offer is contingent upon the termination of the
Stock Purchase Agreement and the transactions contemplated thereby, is received
by the Board of Directors of such party and, in the proper exercise of the
fiduciary duties of such Board under applicable law, the Board determines that
such party's acceptance of such offer is in the best interests of such party and
its shareholders. In addition, the Company may terminate the Stock Purchase
Agreement by written notice to RIC in the event that the Stock Purchase
Agreement and all of the transactions contemplated thereby are not approved and
adopted by the requisite vote of the shareholders of the Company following (i)
the public announcement by a third party of either an acquisition of, or merger
with, the Company, or the intent to acquire or merge with the Company or (ii)
the public announcement that the Board of Directors of the Company no longer
recommends that its shareholders approve the Stock Purchase Agreement and the
transactions contemplated thereby.
If either the Company or RIC terminates the Stock Purchase Agreement
pursuant to the exercise of its fiduciary duties as discussed in the preceding
paragraph, then the terminating party is required to pay the non-terminating
party the sum of $14,000,000 in cash in immediately available funds
contemporaneously with the delivery of its written notice of termination. In
addition, the Company is
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obligated to pay RIC the sum of $14,000,000 in cash if the Company's
shareholders fail to approve the transaction following certain public
announcements as described in the preceding paragraph.
In the event of the termination of the Stock Purchase Agreement by
either the Company or RIC, all obligations of the parties thereunder (other than
confidentiality obligations, agreements relating to payment of fees and expenses
and certain other matters) will terminate without any liability of any party to
any other party; provided, however, that no termination will relieve any party
from any liability arising from or relating to breach prior to termination.
Indemnification
In addition to certain tax indemnification obligations under the Stock
Purchase Agreement, RIC has agreed to indemnify the Company, LTIC and their
affiliates and hold each of them harmless, from, against and in respect of any
and all losses arising from or related to (i) any breach of, untruth of or
inaccuracy in (or any allegation by any third party of facts which, if true as
alleged, would constitute such a breach or inaccuracy in) any representation or
warranty made by or on behalf of RIC in the Stock Purchase Agreement or in any
Closing Agreement or other certificate delivered pursuant thereto or (ii) any
breach, non-fulfillment or violation of any covenant or agreement made by RIC in
the Stock Purchase Agreement or in any document or instrument delivered pursuant
thereto.
The Company and LTIC, jointly and severally, have agreed to indemnify
RIC and its affiliates and hold each of them harmless from, against and in
respect to any and all losses arising from or related to (i) any breach of,
untruth of or inaccuracy in (or any allegation by any third party of facts
which, if true as alleged, would constitute such a breach or inaccuracy in) any
representation or warranty made by or on behalf of the Company or LTIC in the
Stock Purchase Agreement or in any Closing Agreement or other document,
instrument or certificate delivered pursuant thereto; (ii) any breach,
non-fulfillment or violation of any covenant or agreement made by the Company or
LTIC in the Stock Purchase Agreement or in any document, instrument or
certificate delivered pursuant thereto; (iii) any liability of RIC or any of its
affiliates arising out of, with respect to or in connection with any guarantee
of any lease or other contractual obligation of Commonwealth, Transnation or any
of their subsidiaries; or (iv) any liability incurred by RIC or any of its
affiliates relating to or arising from any time period after the Closing Date
arising out of, with respect to or in connection with the business of
Commonwealth or Transnation or any matter or circumstance involving Commonwealth
or Transnation or any of their subsidiaries other than any losses covered by tax
indemnification obligations or any losses arising out of an illegal or tortious
course of conduct on the part of RIC or any of its affiliates.
No claim for indemnification may be made or suit instituted under any
of the indemnification provisions of the Stock Purchase Agreement more than
twenty-four (24) months after the Closing Date (the "General Survival Period")
except for Reserved Claims, which have a longer survival period. The term
"Reserved Claims" includes (i) claims as to which any indemnitee has given any
indemnifying party written notice on or prior to the end of the General Survival
Period, (ii) claims by any indemnitee based upon an alleged or actual breach of
or inaccuracy in certain of the representations or warranties contained in the
Stock Purchase Agreement, (iii) claims by any indemnitee with respect to RIC's
employee benefit obligations, (iv) claims by any indemnitee pursuant to certain
tax obligations and liabilities incurred in connection with the operations of
Commonwealth and Transnation, and (v) claims based upon fraud.
Except with respect to claims arising out of certain of the
representations or warranties or indemnities contained in the Stock Purchase
Agreement or with respect to certain Reserved Claims, an indemnifying party
shall not have any obligation to indemnify indemnitees in respect of any loss
incurred by such indemnitees unless the aggregate cumulative total of all losses
incurred by such indemnitees exceeds $6,000,000. Once the $6,000,000 threshold
is reached, the indemnitees will be entitled to indemnification for the
aggregate cumulative amount of such losses in excess of such amount. With
respect to the excepted claims referred to above, the minimum dollar limitation
or deductible does not apply.
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Post-Acquisition Employee Benefits
Group Benefit and Pension Plans. The Stock Purchase Agreement provides
generally that the Company and LTIC will, from and after the Closing Date of the
Acquisition, provide to the employees of Commonwealth/Transnation and their
subsidiaries who continue employment after the Closing, employee benefits that
are substantially equal to the benefits provided to similarly-situated employees
of the Company, LTIC and their subsidiaries, taking into account all relevant
employment factors, including employee position, employee duties, geographical
location, employee tenure, employee qualifications and employee abilities. The
Company has reserved the unrestricted right to change both the existing plans of
the Company and its subsidiaries, and the plans of Commonwealth and Transnation
and their subsidiaries, so as to achieve substantial equivalency in benefits
while otherwise providing all benefits within cost budgets determined desirable
by the Company. The Company also has reserved the right to continue the existing
Commonwealth/Transnation plans, pending consolidation of these plans with the
existing plans of the Company and its subsidiaries.
As the sole exceptions to the Company's unrestricted rights to continue
or modify group benefit plans, (i) the continuing Commonwealth/Transnation
employees will cease to participate in the Reliance Insurance Company Savings
Incentive Plan (the "RIC Savings Plan") as of the Closing Date, and (ii) the
Company has agreed to allow continuing employees of Commonwealth/Transnation to
continue participation in the existing Commonwealth/Transnation medical and
dental programs, without material amendment or termination, through June 30,
1998. The Company currently plans for the employees of the Company, LTIC,
Commonwealth and Transnation to all participate in the same tax qualified 401(k)
plan sponsored by the Company or one of its affiliates effective as of January
1, 1998 (or as soon after Closing as is administratively feasible).
It is anticipated that Commonwealth will continue to sponsor the
Commonwealth Land Title Insurance Company Pension Plan for the Commonwealth and
Transnation employees until studies are completed concerning the possible merger
or other disposition of the pension plans currently sponsored by LTIC and
Commonwealth.
Certain Retirement Benefits. Effective as of Closing, Herbert Wender,
Chairman and Chief Executive Officer of Commonwealth, will cease to participate
in the Reliance Group Holdings, Inc. Retirement Benefits Equalization Plan.
Pursuant to Mr. Wender's cessation of participation, he will not be entitled to
any benefits under the Reliance Group Holdings, Inc. Retirement Benefits
Equalization Plan. Accordingly, as provided for in the Stock Purchase Agreement,
either the Company, LTIC or Commonwealth/Transnation will assume the benefit
obligation previously accrued for Mr. Wender through the Closing Date under the
Retirement Benefits Equalization Plan, either under an existing Company plan or
a new executive benefit plan arrangement.
Stock Options. There are no stock options held by officers, directors
or employees of Commonwealth/Transnation that will be exchanged for stock
options of the Company after the Closing Date.
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CERTAIN RELATED AGREEMENTS
The following is a summary of certain agreements and covenants relating
to the Acquisition, other than the Stock Purchase Agreement, that have been or
will be entered into on or before the Closing Date. Copies of the Voting and
Standstill Agreement, the Registration Rights Agreement and the term sheet for
the Administrative Services Agreement are included as exhibits to the Stock
Purchase Agreement, a copy of which is attached hereto as Appendix A. The
covenants regarding non-performance remedies are set forth in Article 11 of the
Series B Preferred Stock designation included as an exhibit to the Articles of
Amendment, a copy of which is attached hereto as Appendix B. A copy of the
Amended and Restated Rights Agreement is on file with the Commission and is
incorporated by reference herein. The following summaries are qualified in their
entirety by reference to the complete texts of the actual agreements.
Capitalized terms not otherwise defined herein shall have the meanings set forth
in the respective agreements.
Voting and Standstill Agreement
Pursuant to the Stock Purchase Agreement, on the Closing Date, the
Company, RIC and Reliance will enter into a Voting and Standstill Agreement, the
form of which is attached to the Stock Purchase Agreement as Exhibit C, which
provides for certain standstill, voting and transfer restrictions on RIC,
Reliance and their respective affiliates, and provides for representation on the
Company's Board of Directors and the committees thereof by individuals selected
by Reliance and RIC.
Standstill Provisions. During the term of the Voting and Standstill
Agreement, except as otherwise expressly provided therein, Reliance and RIC will
not, and will not permit any of their respective affiliates to, directly or
indirectly, (i) exceed the Standstill Percentage (other than as a result of any
stock purchases or repurchases by the Company) or otherwise acquire (other than
acquisitions (x) pursuant to or contemplated by the Stock Purchase Agreement,
including without limitation the conversion of the Series B Preferred Stock, or
(y) resulting from corporate action taken by the Company's Board of Directors
with respect to any pro rata distribution of shares of Common Stock in
connection with any stock split, stock dividend, recapitalization,
reclassification or similar transaction), propose to acquire (or publicly
announce or otherwise disclose an intention to propose to acquire), offer to
acquire, or agree to acquire any Common Stock or Series B Preferred Stock; (ii)
propose (or publicly announce or otherwise disclose an intention to propose),
solicit, offer, seek to effect, negotiate with or provide any confidential
information relating to the Company or its business to any other person with
respect to, any tender or exchange offer, merger, consolidation, share exchange,
business combination, restructuring, recapitalization or similar transaction),
involving the Company (other than (x) any of the foregoing that may be approved
by the Company's Board of Directors or (y) in connection with any tender or
exchange offer in which the Company's Board of Directors has (a) recommended
that its shareholders accept such offer or (b) after ten (10) business days (as
defined in Rule 14d-1 under the Exchange Act as in effect on the date of the
Voting and Standstill Agreement) from the date of commencement of such offer,
expressed no opinion, remained neutral, was unable to take a position or
otherwise did not oppose or recommend that its shareholders reject such offer);
provided that RIC and its affiliates will not be prohibited from soliciting,
offering, seeking to effect or negotiating with any person with respect to
transfers of Common Stock or Series B Preferred Stock otherwise required or
permitted by the Voting and Standstill Agreement; and provided further that in
so soliciting, offering, seeking to effect or negotiating, neither RIC nor its
affiliates shall provide any confidential information relating to the Company or
its business to any person except as required by applicable law, including
without limitation Section 10(b) of the Exchange Act and Rule 10b-5 thereunder,
but only to the extent that any required disclosure of such confidential
information has been preceded by notice to the Company of the expected
disclosure of such information and the execution of a confidentiality agreement
by RIC (or its affiliates, as the case may be) and such person; (iii) make, or
in any way participate in, any solicitation of proxies to vote, solicit any
consent or communicate with or seek to advise or influence any person or entity
with respect to the voting of any Common Stock or become a participant in any
election contest with respect to the Company; (iv) form, participate in or join
any person or group with respect to any Common Stock or Series B Preferred
Stock, or otherwise act in concert with any third person for the purpose of
acquiring any Common Stock or Series B Preferred Stock, or holding or disposing
of the Common Stock or Series B Preferred Stock for any purpose otherwise
prohibited by the Voting and
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Standstill Agreement; (v) deposit any Common Stock or Series B Preferred Stock
into a voting trust or similar arrangement; (vi) initiate, propose or otherwise
solicit shareholders for the approval of any shareholder proposal with respect
to the Company as described in Rule 14a-8 under the Exchange Act, or induce or
attempt to induce any other person to initiate, propose or otherwise solicit any
shareholder proposal; (vii) except as specifically provided for in the Voting
and Standstill Agreement and in the Series B Preferred Stock designation, seek
election to or seek to place a representative on the Company's Board of
Directors, or seek the removal of any member of the Company's Board of Directors
(other than a director designated by RIC); (viii) except as specifically
provided in the Series B Preferred Stock designation, call or seek to have
called any meeting of the shareholders of the Company for any purpose; (ix)
except through the RIC Directors and except as specifically provided by the
Series B Preferred Stock designation, take any other action to seek to control,
disrupt or influence the management or policies of the Company; (x) except as
specifically provided in the Series B Preferred Stock designation, demand,
request or propose to amend, waive or terminate the foregoing provisions; or
(xi) agree to do any of the foregoing, or advise, assist, encourage or persuade
any third party to take any action with respect to any of the foregoing.
In addition, Reliance and RIC will notify the Company promptly if any
inquiries or proposals are received by, any information is exchanged with
respect to, or any negotiations or discussions are initiated or continued by or
with, Reliance, RIC or any of their respective affiliates regarding any of the
foregoing matters (other than permitted transfers under the Voting and
Standstill Agreement).
Board Representation. The Voting and Standstill Agreement provides
that, on the Closing Date, the Company (i) will increase the size of its Board
of Directors from ten (10) to fourteen (14), (ii) will fill three of the
vacancies created thereby with RIC Directors and (iii) will fill the fourth
vacancy created thereby with Herbert Wender, the Chairman and Chief Executive
Officer of Commonwealth. The Stock Purchase Agreement designates Robert M.
Steinberg, George E. Bello and Lowell C. Freiberg, or any substitute who is a
senior executive officer of RIC or its affiliates, as the three RIC Directors to
be appointed to the Company's Board of Directors on the Closing Date. Of the
three initial RIC Directors, one will be appointed to Class I (current term
expiring in 1998), one will be appointed to Class II (current term expiring in
1999) and one will be appointed to Class III (current term expiring in 2000).
Herbert Wender will be appointed to Class III on the Closing Date. The three RIC
Directors and Mr. Wender will serve until the Annual Meeting of Shareholders in
1998, at which time the Company will, subject to the right of RIC to designate
new RIC Directors as substitutes for the initial RIC Directors, recommend for
election at the next annual meeting of the Company's shareholders following such
appointments the initial Class I RIC Director for a three (3) year term expiring
in 2001 and each initial RIC Director in Class II and Class III for the
remainder of the term of his respective Class; provided that, if any such RIC
Director is not elected by the shareholders of the Company, the Company shall
have no further obligations under the Voting and Standstill Agreement for the
applicable year.
Any person designated by RIC to be a RIC Director who is not an
executive officer of either RIC or an affiliate of RIC must be acceptable to the
Continuing Directors, and, if found unacceptable by the Continuing Directors for
any reason whatsoever, (i) the Company will not be obligated to appoint or
recommend for election any such person to the Company's Board of Directors and
(ii) RIC will be entitled to designate a replacement that is acceptable to the
Continuing Directors.
Until the earlier to occur of (i) the date that the RIC Ownership
Percentage is less than twenty percent (20%) or (ii) the expiration of the
Preferred Shares Sales Period, the Company agrees that, except as otherwise
agreed to by a majority of the RIC Directors, the Company will not take or
recommend to its shareholders any action that would cause the Company's Board of
Directors to consist of any number of directors other than fourteen (14)
directors divided into two (2) classes of five (5) directors each and one class
of four (4) directors. At the time that the RIC Ownership Percentage is reduced
to less than twenty percent (20%), the Company may take such action as may be
necessary to reduce the Company's Board of Directors to twelve (12) directors,
and at the time that the RIC Ownership Percentage is reduced to less than
fifteen percent (15%), the Company may take such action as may be necessary to
reduce the Company's Board of Directors to eleven (11) directors. Until the
earlier to occur of (i) the date on which there are no RIC Directors serving on
the Company's Board of Directors pursuant to the Voting and Standstill Agreement
or (ii) the expiration of the Preferred Shares Sales Period, the Company
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agrees that it will not take or recommend to its shareholders any action that
would result in any amendment to the Company's Bylaws in effect on the date
hereof that would impose any qualifications on the eligibility of directors of
the Company to serve on any committee of the Company's Board of Directors,
except as may be required by the then-current rules and regulations of the NYSE,
the rules and regulations under the Internal Revenue Code of 1986, as amended,
relating to the qualification of employee stock benefit plans and the
deductibility of compensation paid to executive officers, the rules and
regulations under Section 16(b) of the Exchange Act, including Rule 16b-3
thereunder or any successor rule, and the Company's Bylaws.
Subject to the provisions of the Voting and Standstill Agreement
regarding reductions in the size of the Board of Directors and required
resignations of RIC Directors, the Company will recommend for election, in the
applicable year in which the respective Class term expires, one RIC Director in
Class I, one RIC Director in Class II and one RIC Director in Class III, in each
case as designated by RIC; provided that, if any such RIC Director is not
elected by the shareholders of the Company, the Company will have no further
obligations under the Voting and Standstill Agreement for the applicable year.
Until the earlier to occur of (i) the date that the RIC Ownership
Percentage is less than twenty percent (20%) or (ii) the expiration of the
Preferred Shares Sales Period, to the extent that, and for so long as, but only
insofar as required by applicable law or NYSE rules, any of the RIC Directors is
qualified under the then-current NYSE rules, the rules and regulations under the
Internal Revenue Code of 1986, as amended, relating to the qualification of
employee stock benefit plans and the deductibility of compensation paid to
executive officers, the rules and regulations under Section 16(b) of the
Exchange Act, including Rule 16b-3 thereunder or any successor rule, the
Company's Board of Directors will designate one of the RIC Directors to serve on
each of the committees of the Company's Board of Directors (whether existing on
the date hereof or formed or constituted after the date hereof) to the same
extent, and on the same basis, as the other members of the Company's Board of
Directors; provided that, if the number of RIC Directors is reduced to one
director pursuant to the terms of the Voting and Standstill Agreement, then such
remaining RIC Director will be entitled to maintain his or her membership on any
committee on which such RIC Director then may be serving until the earliest to
occur of (i) the expiration of such RIC Director's term as a director of the
Company, (ii) the date that the RIC Ownership Percentage is less than fifteen
percent (15%), or (iii) the expiration of the Preferred Shares Sales Period.
With respect to any RIC Director serving on the Company's Board of
Directors and any committee thereof pursuant to the provisions of the Voting and
Standstill Agreement, the Company shall at all times, with respect to matters
affecting the full Company's Board of Directors or a specific committee, as the
case may be, (i) consult with the RIC Director on all business and financial
matters on which Continuing Directors are consulted; (ii) provide the RIC
Director with the same financial and other information concerning the Company
and its subsidiaries as may be provided to the Continuing Directors, at the same
time as so provided; (iii) give the RIC Director the same notice of meetings as
the Continuing Directors are given and reasonable time to attend in person or
participate by telephone; (iv) permit the RIC Director access at all reasonable
times to senior officers of the Company; (v) hold meetings of the Company's
Board of Directors not less than four times per year; (vi) schedule regular
meetings of the Board of Directors at least six months in advance; and (vii) in
all other respects, deal with each RIC Director in the same manner and on the
same terms as it deals with all other directors, including, without limitation,
the Continuing Directors.
RIC shall have the right to request the resignation from the Company's
Board of Directors of any RIC Director. In the event that any RIC Director for
any reason ceases to serve as a member of the Company's Board of Directors
during his or her term of office and at such time RIC would have the right to a
designation hereunder if an election for the resulting vacancy were to be held,
RIC may designate a person to fill such vacancy (a "RIC Director Vacancy");
provided that, if the person so designated is not an executive officer of either
RIC or an affiliate of RIC, such person shall be acceptable to the Continuing
Directors. Subject to the foregoing and to the other terms of the Voting and
Standstill Agreement, the Company agrees to (i) appoint RIC's designee to the
Company's Board of Directors to fill the RIC Director Vacancy and to serve until
the next annual meeting of the Company's shareholders and (ii) recommend RIC's
designee for election to the Company's Board of Directors at the next annual
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meeting of the Company's shareholders to fill the remaining term of the class of
directors to which such designee was appointed; provided that the Company shall
be under no obligation to appoint or recommend for election any such designee to
fill a RIC Director Vacancy unless and until it has received from such designee
an executed letter agreement regarding resignation in the form attached to the
Voting and Standstill Agreement.
On the date when the RIC Ownership Percentage is less than twenty
percent (20%) but more than fifteen percent (15%) (the "Board Adjustment Date"),
RIC shall, within five (5) Business Days, cause two (2) of the three (3) RIC
Directors to resign from the Company's Board of Directors. The two (2) RIC
Directors that will be subject to resignation pursuant to the preceding sentence
will be those RIC Directors who have the shortest terms of office then
remaining, viz., those RIC Directors who are members of classes that will stand
for election at one of the next two annual meetings of the Company's
shareholders to be held following the Board Adjustment Date. From and after the
Board Adjustment Date, the remaining RIC Director may complete any unexpired
term as a director of the Company; provided that, upon the earlier to occur of
(i) the date that the RIC Ownership Percentage is less than fifteen percent
(15%) or (ii) the expiration of the Preferred Shares Sales Period, RIC shall,
within five (5) Business Days, cause the remaining RIC Director to resign from
the Company's Board of Directors. In the event that the RIC Ownership Percentage
is reduced from over twenty percent (20%) to less than fifteen percent (15%)
such that there is no Board Adjustment Date, RIC shall, within five (5) Business
Days, cause all three (3) of the RIC Directors to resign from the Company's
Board of Directors. In the event of any decrease in the RIC Ownership Percentage
to below such twenty percent (20%) and fifteen percent (15%) thresholds, any
subsequent increase in the RIC Ownership Percentage to or above such twenty
percent (20%) and fifteen percent (15%) thresholds (i) shall not entitle RIC to
reinstate, elect or designate any RIC Directors to the Company's Board of
Directors or any committee thereof, and (ii) with respect to any increase to or
above such twenty percent (20%) threshold, shall constitute a breach of the
Voting and Standstill Agreement. If RIC does not cause the resignation of the
applicable number of RIC Directors within such five (5) Business Day period, the
Company may seek such resignation or, in the alternative, the Continuing
Directors may seek the removal of the RIC Directors that are subject to such
resignation. Upon any shareholder vote relating to the removal of a RIC Director
for failure to resign pursuant to the foregoing provisions, RIC and its
affiliates shall (i) attend any meeting either in person or by proxy and (ii)
vote in favor of such removal. At such time as a RIC Director becomes subject to
resignation pursuant to the foregoing provisions, the Company may amend its
Bylaws or take such other action as it deems appropriate to reduce the number of
directors constituting the Company's Board of Directors proportionately or fill
the vacancy caused by such resignation(s) with its own nominee in accordance
with the applicable provisions of the Charter and Bylaws of the Company.
RIC shall notify the Company in writing not later than March 15th of
each year of its designation of RIC Directors to be nominated for election at
the next annual meeting of the Company's shareholders; provided that, if RIC
should fail to so notify the Company of its RIC Director designee(s) by such
date, RIC shall be deemed to have designated the RIC Director whose term expires
at the next annual meeting of shareholders. The rights of RIC and the RIC
Directors and the obligations of the Company set forth in the Voting and
Standstill Agreement with respect to the appointment or nomination of RIC
Directors shall not be subject to compliance with the notification requirements
of Section 2.7 of the Company's Bylaws. No affiliate of RIC shall have any right
to designate RIC Directors under the Voting and Standstill Agreement.
Nothing in the Voting and Standstill Agreement requires RIC to
designate any RIC Directors or requires an RIC Director to serve in office.
Until the earlier to occur of (i) the date on which there are no RIC Directors
serving on the Company's Board of Directors pursuant to the Voting and
Standstill Agreement or (ii) the expiration of the Preferred Shares Sales
Period, in the event there is a vacancy created on the Company's Board of
Directors by the death, resignation or removal of a RIC Director or the failure
of RIC to designate an RIC Director (other than certain resignations required by
the Voting and Standstill Agreement), upon the written request of RIC, the
Company will reduce the size of the Company's Board of Directors by the number
of such vacancies, and thereafter RIC will have no right to designate any
individual to be an RIC Director to the extent of such reduction.
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The Company agrees that, during the term of the Voting and Standstill
Agreement, it will not, without the written consent of RIC, appoint or recommend
for election to the Company's Board of Directors (i) any current or former
"executive officer" (as defined in Rule 3b-7 under the Exchange Act as in effect
on the date of the Voting and Standstill Agreement) of the Company or (ii) any
other person with a relationship of the kind described in Item 404(b) of
Regulation S-K as in effect on the date of the Voting and Standstill Agreement,
if the election of such director following such appointment or recommendation
would cause the total number of directors meeting the description set forth in
(i) and (ii) above to increase above the aggregate number of such directors on
the date of entry into the Voting and Standstill Agreement (after adjustment for
Herbert Wender, the Chairman and Chief Executive Officer of Commonwealth);
provided, however, that no RIC Director shall be included in determining whether
the Company has met the foregoing requirement.
The Company's obligations described above regarding board
representation are subject to compliance with the provisions of the Company's
Charter and Bylaws. The Company has agreed that it will make no modifications or
amendments to its Charter or Bylaws that would in any way hinder, impede or
otherwise limit RIC's rights under the foregoing provisions regarding board
representation.
Voting Provisions. During the term of the Voting and Standstill
Agreement, Reliance and RIC will take all such action as may be required so that
all of the Common Stock owned by Reliance, RIC and their affiliates, as a group,
are (i) voted for the Continuing Directors' nominees to the Company's Board of
Directors, in accordance with the recommendation of the Company's Board of
Directors or a nominating committee thereof; (ii) with respect to any "election
contest" (as such term is defined or used in Rule 14a-11 under the Exchange Act
as in effect on the date of the Voting and Standstill Agreement) initiated by
any person in connection with any tender offer, voted in the same proportion as
the total votes cast by or on behalf of all shareholders of the Company (other
than Reliance, RIC and their affiliates) with respect to such proxy contest;
(iii) with respect to any matters related to share issuance, mergers,
acquisitions and divestitures for which shareholder approval is sought, voted in
accordance with the independent judgment of Reliance, RIC and their affiliates,
without regard to any request or recommendation of the Company's Board of
Directors; provided that, if any such transaction is submitted for shareholder
approval by the Company in order to permit the Company to exercise its call
rights under the Voting and Standstill Agreement or its redemption rights under
the Series B Preferred Stock designation, then the Common Stock beneficially
owned and entitled to be voted by Reliance, RIC and their affiliates shall be
voted in accordance with the recommendation of the Company's Board of Directors;
and (iv) with respect to all matters (other than the election of RIC Directors)
brought before the Company's shareholders for a vote not otherwise provided for
in any of the foregoing, in accordance with the recommendation of the Company's
Board of Directors. In addition, RIC and its affiliates agree to be present, in
person or by proxy, at all duly held meetings of shareholders of the Company so
that all of the Common Stock held by RIC and its affiliates may be counted for
purposes of determining the presence of a quorum at such meetings.
Required Sales of Acquisition Shares. By the date that is six (6) years
and six (6) months after the effective date of the registration statement for
the RIC Common Shares (as defined below) as provided for in the Registration
Rights Agreement (the "Common Shares Exit Date"), RIC agrees that it will sell,
convey or otherwise transfer all of the Company Common Shares received by RIC
pursuant to the Stock Purchase Agreement and such additional shares of Common
Stock that the Company may issue with respect to such shares pursuant to any
stock splits, stock dividends, recapitalizations, restructurings,
reclassifications or similar transactions or pursuant to the exercise of any
rights under the Amended and Restated Rights Agreement (collectively, the "RIC
Common Shares") entirely to persons that are not, at the time of the sale,
conveyance or transfer, an affiliate of RIC. Such sales, conveyances or
transfers of the RIC Common Shares may occur at any time and from time to time
during the period between the Closing Date and the Common Shares Exit Date (such
period being hereafter referred to as the "Common Shares Sales Period");
provided that, for each Holdback Period and each Discontinuance Period (as those
terms are defined in the Registration Rights Agreement) required by the Company
under the Registration Rights Agreement, the Common Shares Sales Period shall be
extended by the number of days during which the relevant Holdback Period or
Discontinuance Period was in effect. In the event that RIC has not disposed of
all of the RIC Common Shares by the end of the Common Shares Sales Period, the
Company thereafter will have the absolute right (which shall not be abridged)
from time to
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time on thirty (30) days' written notice to make one or more calls to purchase
for cash all or a portion of the remaining RIC Common Shares then held by RIC at
a price equal to ninety-five percent (95%) of the fair market value of the
Common Stock at the time of the call(s), with such fair market value to be
calculated based upon the average of the closing prices of the Common Stock for
the ten (10) consecutive trading days preceding the notice by the Company to RIC
of the exercise of its call right.
If RIC has not converted any of the Series B Preferred Stock received
by RIC from the Company on the Closing Date, then by the date that is eight (8)
years and six (6) months after the effective date of the registration statement
for the Series B Preferred Stock as provided for in the Registration Rights
Agreement (the "Preferred Shares Exit Date"), RIC agrees that it will sell,
convey or otherwise transfer so many of the shares of the Series B Preferred
Stock as are necessary to reduce the RIC Ownership Percentage to less than
twenty percent (20%) of the Adjusted Outstanding Shares; provided, however, that
such sales, conveyances and transfers must be made entirely to persons that are
not, at the time of the sale, conveyance or transfer, an affiliate of RIC. Such
sales, conveyances or transfers of the Series B Preferred Stock by RIC may occur
at any time and from time to time during the period between the Closing Date and
the Preferred Shares Exit Date (such period being hereafter referred to as the
"Preferred Shares Sales Period"); provided that for each Holdback Period and
each Discontinuance Period (as those terms are defined in the Registration
Rights Agreement) required by the Company under the Registration Rights
Agreement, the Preferred Shares Sales Period shall be extended by the number of
days during which the relevant Holdback Period or Discontinuance Period was in
effect. The foregoing provisions shall not in any manner affect (i) the right of
the Company to redeem the Series B Preferred Stock held by RIC or (ii) the right
of RIC to convert the Series B Preferred Stock into Common Stock, in each case
in accordance with the terms of the Series B Preferred Stock designation set
forth in the Company's Charter.
If RIC has converted, at any time or from time to time during the
Preferred Shares Sales Period, any of the Series B Preferred Stock into shares
of Common Stock (all such shares of Common Stock received upon conversion of the
Series B Preferred Stock and such additional shares of Common Stock that the
Company may issue with respect to such shares pursuant to any stock splits,
stock dividends, recapitalizations, restructurings, reclassifications or similar
transactions or pursuant to the exercise of any rights under the Amended and
Restated Rights Agreement being hereafter referred to collectively as the
"Converted Shares") in accordance with the terms of the Series B Preferred Stock
designation set forth in the Company's Charter, then RIC agrees that it will
sell, convey or otherwise transfer by the expiration of the Preferred Shares
Sales Period (including any extension permitted thereunder upon the exercise by
the Company of any Holdback Period or Discontinuance Period) that number of
Converted Shares and that number of Series B Preferred Stock as is necessary to
reduce the RIC Ownership Percentage to less than twenty percent (20%); provided,
however, that such sales, conveyances and transfers of Converted Shares and
Series B Preferred Stock must be made entirely to persons that are not, at the
time of the sale, conveyance or transfer, an affiliate of RIC. In the event that
RIC has converted some or all of the Series B Preferred Stock to Common Stock
but has not reduced the RIC Ownership Percentage to below twenty percent (20%)
by the expiration of the Preferred Shares Sales Period, the Company thereafter
shall have the absolute right (which shall not be abridged) from time to time on
thirty (30) days' written notice to make one or more calls to purchase for cash
all or any part of that number of Converted Shares then held by RIC necessary to
reduce the RIC Ownership Percentage to below the twenty percent (20%) threshold
at a price equal to ninety-five percent (95%) of the fair market value of the
Common Stock at the time of the call(s), with such fair market value to be
calculated based upon the average of the closing prices of the Common Stock for
the ten (10) consecutive trading days preceding the notice by the Company to RIC
of the exercise of its call right.
Reliance and RIC have agreed that, unless (i) the Company should call
for redemption of the Series B Preferred Stock in accordance with the Series B
Preferred Stock designation set forth in the Company's Charter, or (ii) any one
of the following events shall occur: (x) the Company should declare a regular
quarterly dividend on the Common Stock of $.40 or more during any calendar year,
(y) the Company should declare one or more non-regular dividends on the Common
Stock in an aggregate amount of $.50 or more during any calendar year, or (z)
the Company should declare dividends on the Common Stock, whether regular or
non-regular, in an aggregate amount of $1.60 or more during any calendar year,
the Series B Preferred Stock shall not be convertible and RIC and its affiliates
will refrain
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from converting, or taking any steps to convert, any of the Series B Preferred
Stock then held by each of them, respectively, into shares of Common Stock until
such time as RIC and its affiliates have sold, conveyed or transferred all of
the RIC Common Shares entirely to persons that are not, at the time of the sale,
conveyance or transfer of the RIC Common Shares, an affiliate of RIC; provided,
however, that if the Company should call less than all of the Series B Preferred
Stock for redemption pursuant to clause (i) above, then RIC and its affiliates
shall be entitled to convert into shares of Common Stock only that number of the
Series B Preferred Stock that have been so called for redemption; and provided
further that, in the event the Company's Board of Directors has approved any
negotiated tender or exchange offer with a third party or approved any merger,
consolidation, share exchange, business combination, restructuring,
recapitalization or similar transaction involving the Company in which the
holders of Common Stock are entitled to tender or exchange their holdings of
Common Stock for, or to otherwise receive for their holdings of Common Stock,
other consideration (whether cash, non-cash or some combination thereof), the
Company agrees that it will, in its sole discretion, either (x) permit RIC and
its affiliates to convert all of the Series B Preferred Stock then held by them
contingent upon, and effective as of, the closing of such transaction and
without the right of RIC or any of its affiliates to vote the shares of Common
Stock received upon any such conversion on any matter in connection with such
transaction, or (y) make appropriate provision to provide to RIC and any of its
affiliates holding Series B Preferred Stock as of the closing date of such
transaction the same kind and amount of consideration receivable by the holders
of the Common Stock in such transaction (the amount of such consideration to be
received by RIC and any of its affiliates holding Series B Preferred Stock to be
determined by reference to the number of shares of Common Stock that RIC and its
affiliates would have been entitled to receive had the Series B Preferred Stock
been converted immediately prior to consummation of such transaction), except
that, if the Company elects to comply with clause (y) of this proviso, RIC and
its affiliates will not be entitled thereafter to receive any shares of stock,
other securities, cash or property pursuant to the Series B Preferred Stock
designation with respect to such of the Series B Preferred Stock as has received
full payment of the consideration set forth in clause (y) above.
In connection with the obligations of RIC to dispose of a substantial
portion of the Acquisition Shares under the foregoing provisions, the Company
agrees that it will take all actions and steps necessary, including the filing
of all required financial statements, reports and other documents, in order to
(i) maintain the effectiveness of the registration with the Commission under the
Securities Act of the RIC Common Shares in accordance with the Registration
Rights Agreement until the earlier of (x) the date on which RIC completes the
sale, conveyance or transfer of all of the RIC Common Shares in accordance with
the Voting and Standstill Agreement or (y) the expiration of the Common Shares
Sales Period, (ii) maintain the effectiveness of the registration with the
Commission under the Securities Act of the Series B Preferred Stock and any
shares of Common Stock issuable upon conversion of the Series B Preferred Stock
in accordance with the Registration Rights Agreement until the earlier of (x)
the date on which RIC completes the sale, conveyance or transfer of all of the
Series B Preferred Stock and/or the Converted Shares in accordance with the
Voting and Standstill Agreement or (y) the expiration of the Preferred Shares
Sales Period, (iii) comply with all applicable state securities (including
insurance securities) or blue sky laws, and (iv) maintain the listing of the RIC
Common Shares on the NYSE (or such other exchange or trading market as the
Common Stock may be listed from time to time), (v) maintain the listing, on a
when-issued basis, of the Common Stock issuable upon conversion of the Series B
Preferred Stock on the NYSE (or such other exchange or trading market as the
Common Stock may be listed from time to time) and (vi) if applicable, to cause
the Series B Preferred Stock to be originally listed on the NYSE (or such other
exchange or trading market as the Common Stock may be listed from time to time).
The Company will make its senior officers available to RIC at reasonable times
to facilitate the disposition of the RIC Common Shares, the Series B Preferred
Stock and the Converted Shares.
If, prior to the expiration of the Preferred Shares Sales Period, all
of the shares of the Series B Preferred Stock have been redeemed or converted
and are no longer outstanding but the RIC Ownership Percentage is at least
twenty percent (20%), then, until the earlier of (i) the date by which the RIC
Ownership Percentage is less than twenty percent (20%) or (ii) the expiration of
the Common Shares Sales Period, RIC and its affiliates shall be entitled to the
remedies set forth in Sections 11.3(a) and 11.3(d)(1) of the Series B Preferred
Stock designation as if such Sections had been set forth in full in the Voting
and Standstill Agreement. See "Covenants Regarding Non-Performance Remedies."
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The Company will make any Hart-Scott-Rodino filing that may be required
in order for RIC or its affiliates to convert the Series B Preferred Stock into
Common Stock, and such filing will occur as soon as practicable but not later
than thirty (30) days after RIC or its affiliates make any Hart-Scott-Rodino
filing with respect to such conversion. Each party agrees to bear its own costs
in connection with such filings.
Transfer Restrictions. During the term of the Voting and Standstill
Agreement, except as described below, RIC will not, directly or indirectly,
knowingly transfer any of the Acquisition Shares to any person or group without
the prior written consent of the Company (which consent shall not be
unreasonably withheld), if, as a result of such transfer, such person or group
would have beneficial ownership of Common Stock representing in the aggregate
more than 9.9% of the issued and outstanding shares of Common Stock. Subject to
the foregoing limitation, RIC may transfer the Acquisition Shares in the
following manner: (i) to the Company or any affiliate of the Company; (ii)
pursuant to an effective registration statement under the Securities Act as
provided in the Registration Rights Agreement; provided that the rights of RIC
under the Voting and Standstill Agreement shall not transfer to any
transferee(s) of such Acquisition Shares; (iii) pursuant to Rule 144, Rule 144A,
Regulation S or any other applicable exemption from registration under the
Securities Act; provided that the rights of RIC under the Voting and Standstill
Agreement shall not transfer to any transferee(s) of such Acquisition Shares;
(iv) pursuant to a pro rata distribution (including any such distribution
pursuant to any liquidation or dissolution of RIC) by RIC to its shareholders if
RIC has no knowledge that any distributee, or any person that controls such
distributee, will acquire from RIC beneficial ownership of Common Stock
representing more than 9.9% of the issued and outstanding shares of Common Stock
in such distribution (in each case other than any distributee that is an
affiliate of RIC), provided that the rights of RIC under the Voting and
Standstill Agreement shall not transfer to any distributee of such Acquisition
Shares (other than any distributee that is an affiliate of RIC); provided
further that, upon a change in Control of RIC occurring after the date of the
Voting and Standstill Agreement, RIC shall not distribute any of the Acquisition
Shares to its affiliates or otherwise unless RIC has received the prior written
consent of the Company (which may be withheld in the Company's sole discretion)
and obtained an agreement in writing by the distributee to be bound by the terms
and conditions of the Voting and Standstill Agreement; and provided further
that, in the event that any affiliate of RIC receives a distribution of any of
the Acquisition Shares pursuant to the Voting and Standstill Agreement, or
otherwise becomes the beneficial owner of any of the Acquisition Shares,
Reliance shall cause such affiliate of RIC to comply with all of the provisions
of the Voting and Standstill Agreement; (v) pursuant to a merger or
consolidation of the Company or pursuant to a plan of liquidation of the
Company, which has been approved by the affirmative vote of a majority of the
members of the Company's Board of Directors then in office; or (vi) pursuant to
a tender offer or exchange offer that the Company's Board of Directors, by
action taken by the affirmative vote of a majority of the members of the
Company's Board of Directors then in office, has determined not to oppose.
Term. Unless earlier terminated by written agreement of the parties,
the Voting and Standstill Agreement will continue in effect until the earlier of
(i) the date on which the RIC Ownership Percentage is less than 15% or (ii) the
expiration of the Preferred Shares Sales Period and the RIC Ownership Percentage
at such time is less than 20%; provided, however, that the provisions of the
Voting and Standstill Agreement with respect to the Company's right to call
shares of the Common Stock held by RIC or its affiliates will survive any
termination of the Voting and Standstill Agreement.
Covenants Regarding Non-Performance Remedies
On or before the Closing Date, the Company will file Articles of
Amendment to its Charter that contain the designation for the Series B Preferred
Stock. The form of the Articles of Amendment is attached hereto as Appendix B.
The provisions of the Series B Preferred Stock contain covenants that will
entitle RIC to certain rights in specific default situations. The holders of
Common Stock do not have such rights. These covenants may affect the rights of
Reliance, RIC and their affiliates in a manner that could be adverse to the
rights of holders of Common Stock. As described below, upon the occurrence of
certain events, RIC will be entitled to additional seats on the Company's Board
of Directors, and Reliance, RIC and
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their affiliates will no longer be subject to certain restrictions under the
Voting and Standstill Agreement. See "Certain Related Agreements Voting and
Standstill Agreement."
Such rights are cumulative and are available only until the earlier of
(i) the date that the RIC Ownership Percentage is less than twenty percent (20%)
or (ii) the expiration of the Preferred Shares Sales Period. In addition, such
rights are exercisable solely and exclusively by RIC, whether RIC holds all
shares of the Series B Preferred Stock or RIC and any of its affiliates hold any
shares of Series B Preferred Stock. The rights are not transferable or
assignable to subsequent holders of the Series B Preferred Stock. Any sale,
conveyance or transfer of shares of the Series B Preferred Stock by RIC to any
person who is not an affiliate of RIC at the time of such sale, conveyance or
transfer shall render these rights null and void as to the shares of Series B
Preferred Stock so sold, conveyed or transferred.
Industry-Related Defaults. In the event that (1) the Company's combined
ratio exceeds the combined ratio of an index of predetermined comparable title
insurance companies by more than five percentage points for any twelve month
period (beginning with the twelve month period commencing January 1, 1998), with
such calculation to be determined as of March 31, June 30, September 30 and
December 31 of each year for the previous twelve months, and (2) any two of
Standard & Poors Company, Duff & Phelps Company or A.M. Best have downgraded the
Company's claims paying ability rating to or below a rating of "BBB -" (or its
equivalent), the Company will take such action as may be necessary to increase
the size of the Board of Directors by three directors, fill the three vacancies
created thereby with additional RIC Directors and recommend such additional RIC
Directors for election as directors at the next annual meeting of the Company's
shareholders. Furthermore, in the event of the defaults described in this
paragraph, RIC and its affiliates will no longer be required to (i) sell the
shares of Common Stock that RIC acquired in the Acquisition within the time
period set forth in the Voting and Standstill Agreement, (ii) sell the shares of
Series B Preferred Stock that RIC acquired in the Acquisition within the time
period set forth in the Voting and Standstill Agreement, (iii) refrain from
taking certain actions prohibited by the standstill provisions of the Voting and
Standstill Agreement (other than the prohibition on acquiring additional shares
of Common Stock), (iv) vote the shares of Common Stock held by them in the
manner required by the Voting and Standstill Agreement or (v) sell the shares of
Common Stock held by them before converting shares of Series B Preferred Stock
into additional shares of Common Stock (collectively, the "Restriction
Releases").
Dividend Payment Defaults. In the event that RIC or any affiliate of
RIC beneficially owns shares of the Series B Preferred Stock and the Company
fails to pay in cash the full amount of the dividend on the Series B Preferred
Stock on one occasion within five days of the applicable dividend payment date,
the Company will take such action as may be necessary to increase the size of
the Board of Directors of the Company by three directors and fill the three
vacancies created thereby with additional RIC Directors and recommend such
additional RIC Directors for election as directors at the next annual meeting of
the Company's shareholders. Furthermore, in the event of the default described
in this paragraph, RIC and its affiliates will be entitled to the Restriction
Releases.
In the event that RIC or any affiliate of RIC beneficially owns shares
of the Series B Preferred Stock and the Company fails to pay in cash the full
amount of the dividend on the Series B Preferred Stock on two occasions, whether
or not consecutive, within five days of the applicable dividend payment dates,
RIC and its affiliates will no longer be required to (i) refrain from acquiring
additional shares of Common Stock or (ii) refrain from selling shares of Common
Stock or Series B Preferred Stock to any person or group if, as a result of the
sale, such person or group would beneficially own on a fully diluted basis more
than 9.9% of the issued and outstanding shares of Common Stock.
In the event that RIC or any affiliate of RIC beneficially owns shares
of the Series B Preferred Stock and the Company fails to pay in cash the full
amount of the dividend on the Series B Preferred Stock on three occasions,
whether or not consecutive, within five days of the applicable dividend payment
dates, the Company will take such action as may be necessary to increase the
size of the Board of Directors to a number that will permit the addition of
sufficient RIC Directors such that the total number of RIC Directors will
constitute a majority of the Board of Directors, fill the vacancies created
thereby with additional RIC Directors and recommend such additional RIC
Directors for election as directors at the next annual meeting of the Company's
shareholders. Furthermore, in the event of the
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default described in this paragraph, RIC and its affiliates will no longer be
subject to any of the restrictions placed on them in the Voting and Standstill
Agreement.
Material Obligation Defaults. In the event that the Company defaults on
any of its material debt obligations in excess of $15,000,000 (individually or
at any one time in the aggregate) (a "Material Default"), and the Material
Default is not cured or waived within the time period and manner prescribed by
the applicable agreements or instruments and results in the acceleration of the
amounts due thereunder, the Company will take such action as may be necessary to
increase the size of the Board of Directors to a number that will permit the
addition of sufficient RIC Directors such that the total number of RIC Directors
will constitute a majority of the Board of Directors, fill the vacancies created
thereby with additional RIC Directors and recommend such additional RIC
Directors for election as directors at the next annual meeting of the Company's
shareholders. Furthermore, in the event of the default described in this
paragraph, RIC and its affiliates will no longer be subject to any of the
restrictions placed on them in the Voting and Standstill Agreement.
Amended and Restated Rights Agreement
Pursuant to the Rights Agreement, dated as of October 1, 1991, between
the Company and Sovran Bank, N.A., as Rights Agent, one Right was issued for
each share of Common Stock then outstanding. The Rights Agreement was amended on
June 22, 1992 to appoint Wachovia Bank of North Carolina, N.A., as the successor
to the Rights Agent. In connection with the execution of the Stock Purchase
Agreement, the Company executed the Amended and Restated Rights Agreement, a
copy of which has been filed with the Commission on Form 8-K and is incorporated
by reference herein. See "Available Information" and "Incorporation of Certain
Documents By Reference."
The Amended and Restated Rights Agreement provides, among other things,
that (i) the approval, execution, delivery and performance of the Stock Purchase
Agreement or the Voting and Standstill Agreement, and any acquisition of shares
of Common Stock and Series B Preferred Stock by RIC or its affiliates as
contemplated by the Stock Purchase Agreement or the Voting and Standstill
Agreement, will not cause the Rights to become exercisable, (ii) the exercise
price of the Rights shall be $85 per Right, an increase from $65 per Right to
reflect current conditions, and (iii) the Rights shall not be exercisable after
August 20, 2007, thereby extending the termination date of the Rights from
October 1, 2001.
At its meeting on August 20, 1997, the Company's Board of Directors
also approved the filing of an amendment to the Articles of Incorporation of the
Company to increase the number of authorized shares of Series A Junior
Participating Preferred Stock, without par value, from 50,000 shares to 200,000
shares. See "The Acquisition - Amendment to Articles of Incorporation of the
Company." The amendment is expected to become effective on or before the Closing
Date of the Acquisition.
For additional information on the terms of the Amended and Restated
Rights Agreement, see "Description of Capital Stock - Preferred Share Purchase
Rights."
Registration Rights Agreement
On the Closing Date, the Company and RIC will enter into the
Registration Rights Agreement attached to the Stock Purchase Agreement as
Exhibit A. In accordance with the procedures set forth in the Registration
Rights Agreement, the Company will file one or more Registration Statements with
the Commission to register the resale of the Acquisition Shares under the
Securities Act and, after such Registration Statement(s) become effective, use
its best efforts to maintain the effectiveness of any such Registration
Statement(s) for specified time periods.
The Registration Rights Agreement will contain provisions under which
the Company may require RIC and its affiliates to temporarily refrain from
effecting public sales of the Acquisition Shares (a "Holdback Period"). For each
Holdback Period, the specified time period for which the Company is required to
maintain the effectiveness of any Registration Statement(s) related to the
Acquisition Shares will be extended for a period of time equal to the Holdback
Period. In addition, upon the issuance of a
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stop order suspending the effectiveness of any Registration Statement(s), or any
order suspending or preventing the use of any related Prospectus or suspending
the registration or qualification of any Acquisition Shares for sale in any
jurisdiction, RIC and its affiliates, upon written notice, will discontinue all
transfers and sales of the Acquisition Shares ("Discontinuance Period") and the
specified time period for which the Company is required to maintain the
effectiveness of any Registration Statement(s) related to the Acquisition Shares
will be extended for a period of time equal to the Discontinuance Period.
The Company will pay all expenses in connection with all registrations
of the Acquisition Shares and RIC will pay (i) any fees or disbursements of
counsel to RIC or any underwriter and (ii) all underwriting discounts and
commissions and transfer taxes, if any, and documentary stamp taxes, if any,
relating to the sale or disposition of the Acquisition Shares. In the case of an
underwritten offering of Acquisition Shares, RIC will have the right to select a
lead managing underwriter or underwriters and the Company will have the right to
select a co-managing underwriter or underwriters.
Under the Registration Rights Agreement, the Company will indemnify RIC
against certain liabilities, including liabilities arising under the federal
securities laws.
The Acquisition Shares will no longer be subject to the Registration
Rights Agreement when (i) a Registration Statement covering such Acquisition
Shares has been declared effective under the Securities Act and such Acquisition
Shares have been sold pursuant to such effective Registration Statement, (ii)
such Acquisition Shares are distributed to the public pursuant to Rule 144 under
the Securities Act, (iii) such Acquisition Shares have been otherwise
transferred or disposed of and new certificates have been issued without a
legend that restricts further transfer or disposition and, at such time, any
subsequent transfer or disposition of such securities will not require
registration or qualification under the Securities Act or any similar state law
then in force, or (iv) such Acquisition Shares have ceased to be outstanding.
Administrative Services Agreement
The Stock Purchase Agreement provides that, prior to the Closing Date,
the parties will use their Best Efforts to reach agreement on the terms of an
agreement for administrative services that will continue to be provided by RIC
or its affiliates to Commonwealth/Transnation after the Closing Date. Attached
to the Stock Purchase Agreement as Exhibit D is a term sheet which sets forth
the parties' intentions regarding the business terms of the contemplated
Administrative Services Agreement. The services which the parties expect to
include in a definitive Administrative Services Agreement include data
processing, investment management services and investment accounting services.
It is anticipated that the data processing services will be maintained at the
same service level for a period of twelve (12) months following the Closing
Date. It is contemplated that the investment management and investment
accounting services currently provided to Commonwealth/Transnation by RIC will
be maintained at the same service level for a period of six (6) months following
the Closing Date. The cost for the data processing services, investment
management services and accounting services shall be determined on a basis
consistent with charges for such services in 1996 and 1997, but in no event
shall charges for data processing services exceed an annualized cost of
$750,000, nor shall charges for investment management services and investment
accounting services exceed an annualized cost of $1,100,000. The parties have
agreed that the Company may terminate the Administrative Services Agreement at
any time, at its option, provided that it gives RIC thirty (30) days prior
written notice.
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COMMONWEALTH LAND TITLE INSURANCE COMPANY
AND TRANSNATION TITLE INSURANCE COMPANY
Business
General. Commonwealth was founded as a title insurance company in 1876
and was incorporated in the Commonwealth of Pennsylvania on April 1, 1944.
Commonwealth is licensed by the insurance departments of 49 states, the District
of Columbia, Puerto Rico and the U.S. Virgin Islands. Transnation was
incorporated as an insurance company in the State of Arizona on September 15,
1992. Transnation is the successor by merger to Transamerica Title Insurance
Company, a California corporation incorporated on March 26, 1910
("Transamerica"). The current name of the corporation was adopted on September
20, 1995. Transnation is licensed by the insurance departments of 40 states and
the District of Columbia.
Commonwealth and Transnation, and their respective subsidiaries and
divisions, provide a complete range of title and closing services through an
extensive network of more than 4,000 policy-issuing locations nationwide,
including branch offices, independent agents, and approved attorneys.
Commonwealth/Transnation operates as a single organization under a unified
management team and comprises the third largest title insurance operation in the
United States, in terms of total premiums and fees in 1996.
Commonwealth/Transnation had premiums and fees of $780.2 million, $671.9 million
and $856.8 million for the years 1996, 1995 and 1994, respectively.
Commonwealth/Transnation is organized into five regions with
approximately 340 offices. In 1996, California, Texas, Florida, New York,
Pennsylvania, Washington and Michigan accounted for approximately 11.0%, 10.5%,
9.6%, 7.7%, 6.4%, 6.0% and 5.7%, respectively, of revenues for premiums and
services related to title insurance. No other state accounted for more than 5%
of such revenues.
The principal executive offices of Commonwealth and Transnation are
located at 1700 Market Street, Philadelphia, Pennsylvania 19103, and the
telephone number is (215) 241-6000.
Commonwealth and Transnation are wholly owned subsidiaries of RIC. RIC
is a wholly owned subsidiary of Reliance Financial Services Corporation, a
Delaware corporation, which is a wholly owned subsidiary of Reliance. Reliance
is a publicly held company whose principal business is the ownership of property
and casualty and title insurance companies and an information technology
consulting company. The common stock of Reliance is traded on the NYSE under the
symbol "REL."
Title Insurance and Other Services. Through various divisions,
Commonwealth/Transnation writes title insurance for residential and commercial
real estate nationwide and provides escrow and settlement services in connection
with real estate closings. The National Title Services division of
Commonwealth/Transnation provides specialized title services for large and
multi-state commercial transactions. In addition to its nationwide title
insurance operations, Commonwealth/Transnation offers a full range of
residential real estate services to the national mortgage lending community
through its Commonwealth OneStop(R) network. Commonwealth OneStop(R) provides
(i) appraisal management services through the CLT Appraisal Services, Inc.
subsidiary, (ii) title insurance services through the National Residential Title
Services division, (iii) employee relocation and property disposition services
through Commonwealth Relocation Services, Inc., (iv) appraisal information
systems through the Day One, Inc. subsidiary, and (v) additional services
through independent service providers.
National Title Services Division. The National Title Services division
of Commonwealth/Transnation, with thirteen (13) offices located in major
metropolitan areas nationwide, delivers complete customized title insurance
packages for large commercial, multi-site and interstate real estate
transactions. The division consists of numerous title insurance and real estate
professionals that comprise an entire network of national branch offices and
agents. Expertise on the local level provides the division with a full
understanding of varying real estate customs and requirements.
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<PAGE>
Commonwealth OneStop(R). Through the Commonwealth OneStop(R) operation,
based in Wayne, Pennsylvania, Commonwealth/Transnation provides national and
regional lenders with a full range of residential closing services. Lenders can
obtain all of the services necessary to complete residential real estate
transactions through a single point of contact. Such services are easily
accessible through Electronic Data Interchange ("EDI"), by facsimile or through
COSMOS - Commonwealth/Transnation's electronic mail ordering system. COSMOS
offers lenders that have not yet converted to the EDI standard an opportunity to
place their orders electronically. The key services on the Commonwealth
OneStop(R) network are appraisal management services through CLT Appraisal
Services, Inc. and title insurance services through the National Residential
Title Services division.
CLT Appraisal Services, Inc. CLT Appraisal Services, Inc. provides the
mortgage lending industry with appraisal services through state-of-the-art
technology. A nationwide network of independent licensed or certified fee
appraisers provides unbiased, third-party opinions from experienced
professionals with knowledge of their local markets. Through a customized
computer interface, telephone or facsimile, branch offices can communicate with
the national processing center in Wayne, which handles all aspects of the
process from order placement to status reporting and delivery. Appraisers are
screened before being admitted to the network, and they must meet certain
standards in education, training, licensing and experience.
National Residential Title Services Division. In connection with
technological advancements that allow real estate transactions to close faster
than ever, the National Residential Title Services division provides lenders
with a single point of contact for a full range of residential title services.
The service of this division extends to Commonwealth/Transnation's entire
network of more than 4,000 policy-issuing locations nationwide, including branch
offices, independent agents and approved attorneys. National Residential Title
Services provides lenders with the convenience of one-stop shopping and the
flexibility of setting up procedures that meet with their individual
requirements, all the way through settlement.
The National 1031 Exchange Corporation. The National 1031 Exchange
Corporation serves as an independent, third party advisor to facilitate
tax-deferred real property exchanges under Section 1031 of the Code.
Commonwealth Relocation Services, Inc. Commonwealth Relocation
Services, Inc. ("CRS") is a full-service national relocation management company.
CRS provides complete, diversified services that seek to keep relocation
activities and costs under control. Founded in 1967, CRS is one of the oldest
firms in the relocation business, and, on average, its relocation specialists
have more than ten (10) years of company service.
Day One, Inc. Day One, Inc. is a supplier of appraisal and property
inspection services and valuation software.
Claims-Paying Ability. Standard & Poors Corporation ("S&P") has
assigned an "A-" rating to the claims-paying ability of
Commonwealth/Transnation. As a result, Commonwealth/Transnation falls under the
major rating category of "A." An "A" rating is assigned to those companies which
have good financial security, but capacity to meet policyholder obligations is
somewhat susceptible to adverse economic and underwriting conditions. The
addition of plus (+) or minus (-) to a major rating category (in this case, "A")
is considered a modifier to show the relative standing of the insurer within the
major rating category. There is no separate definition for an "A-" rating. Duff
& Phelps Credit Rating Co. ("Duff & Phelps") has assigned an "A+" rating to the
claims-paying ability of Commonwealth/Transnation. Duff & Phelps ratings are
based on a quantitative and qualitative analysis, with particular emphasis on
fundamental factors, recent operating results, reserves, capitalization and
invested assets. An "A+" rating is assigned to those companies which have a high
claims paying ability; protection factors are average and there is an
expectation of variability in risk over time due to economic and/or underwriting
conditions. The S&P and Duff & Phelps ratings are not designed for the
protection of investors and do not constitute recommendations to buy, sell or
hold any security.
54
<PAGE>
Management's Discussion And Analysis Of
Financial Condition And Results Of Operations
Revenues. Commonwealth/Transnation's premiums and fees are dependent on
overall levels of real estate activity which are influenced by a number of
factors including interest rates, access to capital, housing starts, housing
resales and the general state of the economy. In addition,
Commonwealth/Transnation's premiums and fees are affected by its sales and
marketing efforts and its strategic decisions based on the rate and claims
environment in particular markets.
Premiums and fees are determined both by competition and by state
regulation. Operating revenues from direct title operations are recognized at
the time real estate transactions close, which is generally sixty (60) to ninety
(90) days after the opening of a title order. Operating revenues from agents are
recognized upon an agent's reporting of the issuance of a policy to
Commonwealth/Transnation. Although agents generally report the issuance of
policies on a monthly basis, heightened levels of real estate activity may slow
this reporting process. This typically results in delays of sixty (60) to ninety
(90) days from the closing of real estate transactions until the recognition of
revenues from agents. Approximately 60% of Commonwealth/Transnation's title
insurance revenues are generated by agents.
In addition to the premiums and fees, Commonwealth/Transnation earns
investment income from its portfolio of fixed maturity securities.
Commonwealth/Transnation holds no equity securities in its investment portfolio.
Factors Affecting Profit Margins and Pre-Tax Profits.
Commonwealth/Transnation's operating results are affected by several factors,
including volume, policy amount and type of real estate activity. Volume is an
important determinant of profitability because Commonwealth/Transnation, like
other title insurance companies, has a significant level of fixed costs arising
from personnel, occupancy costs and maintenance of title plants. Because a
premium is based on the face amount of the policy, larger policies generate
higher premiums although expenses of issuance do not necessarily increase in
proportion to policy size. Profit margins are lower on refinancings than on
sales due to premium discounts and higher cancellation rates generally
experienced on refinancings. Cancellations affect profitability because costs
are incurred both in opening and in processing orders which are not necessarily
offset by fees.
Commonwealth/Transnation's principal variable expense is commissions
paid to independent agents. Commonwealth/Transnation regularly reviews the
profitability of its agency revenues. Commonwealth/Transnation continually
monitors its operating margin, which is the percentage of operating revenues
less salaries, employee benefits, agency commissions and other similar expenses
to operating revenues.
Claims. Generally, title insurance claim rates are lower than for other
types of insurance because title insurance policies insure against prior events
affecting the quality of real estate title, rather than against unforeseen, and
therefore less predictable, future events. Estimated future claim payments are
provided for at the time revenue is recognized. The reserve for title losses,
which is based on historical and anticipated loss experience, represents the
estimated costs to settle reported claims and estimated future claims relating
to policies issued.
Contingencies. Commonwealth/Transnation is involved in certain
litigation arising in the ordinary course of its business. Although the ultimate
outcome of these matters cannot be ascertained at this time, and the results of
legal proceedings cannot be predicted with certainty, Commonwealth/Transnation
is contesting the allegations of the complaints in each pending action against
it and believes, based on current knowledge and after consultation with counsel,
that the resolution of these matters will not have a material adverse effect on
the combined financial statements of Commonwealth/Transnation.
Seasonality. Historically, real estate activity has been generally
slower in the winter months with volumes showing significant improvements in the
spring and summer months. The percentage of
55
<PAGE>
title orders opened is typically lower in the first six months than at year end
because of this seasonal variance. In recent years low levels of mortgage
interest rates have caused fluctuations in real estate activity levels outside
of the historical seasonal pattern. Commonwealth/Transnation cannot predict
whether or when the historical seasonal pattern of real estate will resume.
Six Months Ended June 30, 1997
Compared to Six Months Ended June 30, 1996
Premiums and Fees. Premiums and fees increased to $386.7 million in the
first half of 1997 from $367.8 million in the first six months of 1996. The
increase in premiums and fees in 1997 reflect the continued strong residential
and commercial real estate markets. Mortgage interest rates have remained
relatively stable during the first half of 1997 and have, with the exception of
one month, remained below 8%.
Net Investment Income. Net investment income was $15.8 million in the
first six months of 1997 compared to $14.8 million in the corresponding 1996
period. The increase in net investment income reflects growth in the average
size of Commonwealth/Transnation's investment portfolio.
Expenses. Agency commissions were $170.4 million and $164.5 million for
the first half of 1997 and 1996, respectively, and as a percentage of agency
revenue were 78.0% and 77.8% for the first half of 1997 and 1996, respectively.
Other expenses were $190.4 million in the first six months of 1997 compared to
$174.7 million in the corresponding 1996 period. The increase in other expenses
reflects increased employee compensation expense due to the higher levels of
business activity. The expense ratios of Commonwealth/Transnation (which
includes agent commissions) were 92.8% in the first half of 1997 compared to
91.5% in the corresponding 1996 period. The provision for claim losses was $18.7
million in the first half of 1997 compared to $31.8 million in the corresponding
1996 period. This reflects Commonwealth/Transnation's favorable paid claims
experience in recent years.
Net Income. Commonwealth/Transnation reported net income of $15.6
million for the six months ended June 30, 1997, compared to $7.4 million in the
corresponding 1996 period. The improvement in net income reflects a decline in
provisions for claim losses due to Commonwealth/Transnation's favorable paid
claims experience in recent years.
Liquidity and Capital Resources. For the six months ended June 30,
1997, Commonwealth/Transnation utilized $11.7 million of cash flow from
operating activities, compared to $19.1 million of cash flow from operating
activities in the corresponding 1996 period. The decline in cash flow from
operating activities reflects an increase in accounts receivable and a decline
in accounts payable and accrued expenses.
Commonwealth/Transnation generated $31.4 million from investing
activities for the first half of 1997, including net sales of marketable
securities of $38.1 million. Commonwealth/Transnation used $23.3 million of cash
for investing activities in the first half of 1996, including net purchases of
marketable securities of $15.0 million.
Commonwealth/Transnation used $21.0 million of cash for financing
activities in the first six months of 1997 for the payment of dividends, while
no cash was used in the corresponding 1996 period.
Comparison of Years Ended December 31, 1996,
December 31, 1995 and December 31, 1994
Premiums and Fees. Commonwealth/Transnation reported premiums and fees
of $780.2 million in 1996 compared to $671.9 million in 1995 and $856.8 million
in 1994. The growth in premiums and fees in 1996, when compared to 1995,
resulted from an increase in residential resale and new home sale activity
reflecting a strong economy and favorable mortgage interest rates. Average
mortgage rates were 7% in January 1996 and, although fluctuating, never exceeded
8.4% for any month in 1996. In addition,
56
<PAGE>
Commonwealth/Transnation achieved a record level of commercial title insurance
premiums in 1996. The decline in premiums in 1995 , when compared to 1994,
primarily resulted from decreased agency revenues reflecting the weak real
estate markets that existed in late 1994 and early 1995 primarily due to
mortgage interest rates which averaged 9.2% in the beginning of 1995. Direct
title orders were 390.1 thousand in 1996 compared to 354.1 thousand in 1995 and
377.3 thousand in 1994.
Net Investment Income. Net investment income increased to $30.5 million
in 1996 from $27.9 million in 1995 and $26.5 million in 1994. These increases
reflect growth in the size of the fixed maturity investment portfolio.
Expenses. Agency commissions represent the portion of premiums retained
by agents pursuant to the terms of their agency contracts and are
Commonwealth/Transnation's single largest expense. Agency commissions were
$355.8 million in 1996, $310.7 million in 1995 and $432.0 million in 1994 and as
a percentage of agency revenue have remained relatively constant during the past
three years at 77.8% in 1996, 77.3% in 1995 and 77.6% in 1994. Other expenses
include personnel costs relating to marketing activities, title searches,
information gathering on specific properties and preparation of insurance
policies, as well as costs associated with the maintenance of title plants.
Other expenses were $355.4 million in 1996, compared to $318.2 million in 1995
and $344.0 million in 1994 and the expense ratio of Commonwealth/Transnation
(which includes agency commissions) was 90.5% in 1996 compared to 93.1% in 1995
and 90.0% in 1994. This decline in the expense ratio in 1996, when compared to
1995, resulted from an increase in direct title insurance premiums and effective
cost control measures. The provision for policy claims was $61.1 million in 1996
compared to $58.5 million in 1995 and $75.9 million in 1994.
Commonwealth/Transnation has benefited from favorable paid claims experience in
recent years, a trend which is expected to continue. Paid claim losses have
declined to $37.1 million in 1996 from $45.8 million in 1995 and $48.7 million
in 1994. This favorable trend has been caused by several factors, including the
1993 refinance market, enhanced underwriting policies and procedures and
technology advancements in the title production process.
Net Income. Commonwealth/Transnation reported net income of $25.2
million in 1996 compared to $9.5 million in 1995 and $21.0 million in 1994. The
increase in net income in 1996, when compared to 1995, resulted from an increase
in residential resale and new home sale activity reflecting a strong economy and
favorable mortgage interest rates. In addition, Commonwealth/Transnation
achieved a record level of commercial title insurance premiums in 1996. The
decline in net income in 1995, when compared to 1994, primarily resulted from
decreased agency revenues reflecting the weak real estate markets that existed
in late 1994 and early 1995. Operating results in 1994 benefited from increased
agency revenues reflecting the strong real estate market conditions that existed
in late 1993 and early 1994.
Liquidity and Capital Resources. For the year ended December 31, 1996,
Commonwealth/Transnation generated $67.3 million of cash flow from operating
activities compared to $16.0 million in 1995 and $39.9 million in 1994. The
increase in operating cash flow in 1996 resulted from increased net income and a
lower level of paid claims.
Commonwealth/Transnation used $50.0 million, $4.2 million and $27.3
million of cash flow for investing activities for the years ended December 31,
1996, 1995 and 1994, respectively. Net purchases of marketable securities were
$39.9 million in 1996 and $21.3 million in 1994, while net sales of marketable
securities were $3.0 million in 1995.
Commonwealth/Transnation used $18.2 million, $5.9 million and $16.6
million for financing activities for the years ended December 31, 1996, 1995 and
1994, respectively, principally for the payment of dividends.
57
<PAGE>
MANAGEMENT AND OWNERSHIP OF THE COMPANY
FOLLOWING THE ACQUISITION
Board of Directors
Upon the consummation of the Acquisition, the Company will increase the
size of its Board of Directors from ten (10) to fourteen (14) directors. At that
time, the Company will appoint Herbert Wender, the Chief Executive Officer of
Commonwealth and Transnation, as a director to fill one of the newly created
vacancies on the Board of Directors. In addition, the Company will appoint
Robert M. Steinberg, George E. Bello and Lowell C. Freiberg as initial RIC
Directors to fill the remaining vacancies on the Board of Directors. See
"Certain Related Agreements - Voting and Standstill Agreement." Similar to its
current structure, the post-Acquisition Board of Directors will be divided into
three classes, two of which will consist of five directors each and one of which
will consist of four directors. Mr. Wender will be placed in Class I, and one
RIC Director will be placed in each of the three classes.
The current members of the Board of Directors will continue to serve in
their respective classes and will serve staggered three-year terms expiring in
1998, 1999 and 2000, respectively. Mr. Wender and the RIC Directors will serve
as directors until the 1998 annual meeting of shareholders of the Company. At
that meeting, the Board of Directors will present for election such directors to
serve for the remaining terms of their respective classes, expiring in 1999 and
2000 (for Classes II and III) and for a three-year term expiring in 2001 (for
Class I).
The following table sets forth the composition of the Board of
Directors following the consummation of the Acquisition.
Class I Class II Class III
(Term Expiring in 1998) (Term Expiring in 1999) (Term Expiring in 2000)
Charles H. Foster, Jr. J. Garnett Nelson Janet A. Alpert
Herbert Wender* Robert F. Norfleet, Jr. Michael Dinkins
George E. Bello** Robert M. Steinberg** James Ermer
Theodore L. Chandler, Jr. Eugene P. Trani Lowell C. Freiberg**
Marshall B. Wishnack John P. McCann
- --------------
* Chief Executive Officer of Commonwealth and Transnation.
** RIC Director.
Charles H. Foster, Jr., will continue to serve as Chairman of the
Board, and Herbert Wender will become Vice-Chairman of the Board.
The following paragraphs set forth certain information, as of September
30, 1997, for Herbert Wender and for each of the persons who are expected to
serve as RIC Directors following the consummation of the Acquisition.
Herbert Wender, 60, has been Chairman and Chief Executive Officer of
Commonwealth since 1983 and Chairman and Chief Executive Officer of Transnation
since 1990.
Robert M. Steinberg, 55, has been President and Chief Operating Officer
of Reliance since 1982 and a director of Reliance since 1981. Mr. Steinberg has
also been Chairman of the Board and Chief Executive Officer of RIC since 1984.
Mr. Steinberg is a director of Zenith National Insurance Corp.
58
<PAGE>
George E. Bello, 61, has been Executive Vice President and Controller
and a director of Reliance since 1982. Mr. Bello is a director of Zenith
National Insurance Corp., United Dental Care, Inc. and Horizon Mental Health
Management, Inc.
Lowell C. Freiberg, 58, has been Chief Financial Officer of Reliance
since 1985 and Senior Vice President and a director of Reliance since 1982. Mr.
Freiberg also served as Treasurer of Reliance from 1982 to March 1994. Mr.
Freiberg is a director of Symbol Technologies, Inc..
Continuing Board Representation of RIC
The continuing representation of RIC on the Board of Directors is
provided for in the Voting and Standstill Agreement. The Board of Directors is
required, during the term of the Voting and Standstill Agreement, to nominate
and recommend for election the three RIC Directors that RIC is entitled to have
thereunder. However, as a condition to his or her appointment to the Board of
Directors, each RIC Director will execute a resignation agreement and provide
the same to the Company and RIC. Such agreement will require the RIC Director to
resign from the Board of Directors as RIC reduces its holdings of Common Stock
and Series B Preferred Stock, as described below. As long as RIC owns, on a
fully-diluted basis, 20% or more of the issued and outstanding shares of Common
Stock, RIC will be entitled to three members of the Board of Directors. At the
time when such ownership percentage is less than 20%, but more than 15%, the two
RIC Directors with the shortest remaining terms of office (i.e., those RIC
Directors that are scheduled to stand for election as directors at the next two
annual meetings of the Company's shareholders at that time) shall resign
immediately from the Board of Directors. The third RIC Director may complete the
remainder of his unexpired term at that time, but such director shall resign
upon the earlier of (i) the date that RIC's ownership percentage is less than
15% or (ii) the expiration of the period in which RIC is required to dispose of
its shares of Series B Preferred Stock. If RIC's fully diluted ownership
percentage shall be reduced from more than 20% to less than 15% at the same
time, all three RIC Directors then in office shall resign immediately. See
"Certain Related Agreements - Voting and Standstill Agreement."
Nominating Committee
To facilitate the Company's compliance with its obligations under the
Voting and Standstill Agreement, the Board of Directors will establish a
Nominating Committee effective as of the Closing Date of the Acquisition. It is
expected that the Nominating Committee will consist of at least three directors,
one of whom will be a RIC Director.
Committee Representation of RIC
The representation of the RIC Directors on the committees of the Board
of Directors is subject to the provisions of the Voting and Standstill
Agreement. See "Certain Related Agreements - The Voting and Standstill
Agreement."
RIC will be entitled to have one RIC Director represented on each
committee of the Board of Directors until the earlier of (i) the date that RIC's
ownership percentage is less than 20% or (ii) the expiration of the period in
which RIC is required to dispose of its shares of Series B Preferred Stock. Once
the number of RIC Directors has been reduced to one, the remaining RIC Director
may maintain his membership on any committee on which he may then be serving
until the earliest of (i) the expiration of his term as a director, (ii) the
date that RIC's ownership percentage is less than 15%, or (iii) the expiration
of the period in which RIC is required to dispose of its shares of Series B
Preferred Stock.
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<PAGE>
Executive Officers
Following the consummation of the Acquisition, the following
individuals are expected to serve initially as the principal executive officers
of the Company.
<TABLE>
<CAPTION>
Name Current Position Expected Position
- ---- ---------------- -----------------
<S> <C> <C>
Charles H. Foster, Jr. Chairman and Chief Executive Officer of Chairman and Chief Executive Officer
the Company
Herbert Wender Chairman and Chief Executive Officer of Vice-Chairman and Chief Operating
Commonwealth and Transnation Officer
Janet A. Alpert President and Chief Operating Officer of President
the Company
Jeffrey A. Tischler Executive Vice President and Chief Executive Vice President
Financial and Administrative Officer of and Chief Financial Officer
Commonwealth and Transnation
G. William Evans Vice President and Treasurer of the Executive Vice President -
Company Information Technology
</TABLE>
Headquarters
Following consummation of the Acquisition, the Company will be
headquartered in the Brookfield office complex at 6630 West Broad Street,
Richmond, Virginia. All major corporate functions, including accounting,
regulatory compliance, investor and public relations and legal departments, will
continue to be operated from Richmond.
60
<PAGE>
Security Ownership of Management
The following table sets forth, based on information as of September
19, 1997, the beneficial ownership of Common Stock and the anticipated
beneficial ownership, after giving effect to the Acquisition, of Common Stock as
to (a) each director of the Company and each person expected to be a director of
the Company upon consummation of the Acquisition, (b) each of the five most
highly compensated executive officers of the Company and each person expected to
be one of the five most highly compensated executive officers of the Company
upon consummation of the Acquisition, and (c) all current directors and
executive officers, as a group, and all persons expected to be directors and
executive officers upon consummation of the Acquisition, as a group.
<TABLE>
<CAPTION>
Pre-Acquisition Ownership Post-Acquisition Ownership
of of
Common Stock Common Stock
------------ ------------
Number Percent Number Percent
Name of Shares (1) of Class (%) of Shares of Class (%)(2)
- ---- ------------- ------------ --------- ---------------
<S> <C> <C> <C> <C>
Janet A. Alpert (3)(4) 79,378 * 79,378 *
Kenneth Astheimer (3) 41,376 * 41,376 *
George E. Bello (4)(5) 0 - 0 -
Theodore L. Chandler, Jr. (3)(4) 19,000 * 19,000 *
Michael Dinkins (3)(4) 1,500 - 1,500 -
James Ermer (3)(4) 12,000 * 12,000 *
G. William Evans (3)(4) 27,612 * 27,612 *
Lowell C. Freiberg (4)(5) 0 - 0 -
Charles H. Foster, Jr. (3)(4) 166,005 1.86 166,005 1.13
Charles W. Keith (3) 35,076 * 35,076 *
John P. McCann (3)(4) 6,500 * 6,500 *
J. Garnett Nelson (3)(4) 15,000 * 15,000 *
Robert F. Norfleet, Jr. (3)(4) 9,750 * 9,750 *
Robert M. Steinberg (4)(5) 0 - 0 -
Eugene P. Trani (3)(4) 7,885 * 7,885 *
Herbert Wender (4) 0 - 0 -
Marshall B. Wishnack (3)(4) 11,500 * 11,500 *
Jeffrey A. Tischler (4) 0 - 0 -
All directors and executive officers as a
group (19 persons, including those named)
493,592 5.53 493,592 3.35
All post-Acquisition directors and
executive officers as a group
(24 persons, including those named) 493,592 5.53 493,592 3.35
</TABLE>
* Percentage of ownership is less than 1% of the outstanding shares of Common
Stock of the Company.
- ----------
(1) The number of shares of Common Stock disclosed in the table includes 50,061
shares held for certain directors and executive officers in the LTIC
Savings and Stock Ownership Plan as of September 19, 1997, and 387,651
shares that certain directors and executive officers have the right to
acquire through the exercise of stock options within 60 days following
September 19, 1997. The number of shares also includes 4,000 shares of
Common Stock held in fiduciary capacities. Such shares may be deemed to be
beneficially owned by the rules of the Commission, but inclusion of the
shares in the table does not constitute admission of beneficial ownership.
(2) Percent of post-Acquisition ownership of Common Stock assumes 14,717,514
shares of Common Stock issued and outstanding, which represents 8,928,041
shares of Common Stock issued and outstanding as of September 19, 1997,
4,473,684 shares of Common Stock to be issued to RIC upon consummation of
the Acquisition, and 1,315,789 shares to be issued by the Company in a
public or private offering (exclusive of any shares issued in
61
<PAGE>
connection with the exercise of an overallotment option in a public
offering). See "The Acquisition Description of the Acquisition."
(3) Director or executive officer of the Company.
(4) Director or executive officer of the Company upon consummation of the
Acquisition. (5) Individual disclaims beneficial ownership with respect to
the Acquisition Shares.
Security Ownership of Certain Beneficial Owners
The following table sets forth, based on information as of September
19, 1997, the beneficial ownership of each person known to the Company to own
more than 5% of the outstanding shares of Common Stock and the anticipated
beneficial ownership of each person expected by the Company to own more than 5%
of the outstanding shares of Common Stock upon consummation of the Acquisition.
<TABLE>
<CAPTION>
Pre-Acquisition Ownership of Post-Acquisition Ownership of
Common Stock Common Stock
------------ ------------
Number of Percent of Number of Percent of
Name Shares Class (%) Shares Class (%)(1)
- ---- ------ --------- ------ ------------
<S> <C> <C> <C> <C>
LTIC Savings and Stock Ownership Plan 885,6235 9.92 885,623 6.02
(2)
6630 West Broad Street
Richmond, Virginia 23231
Dimensional Fund Advisors 484,312 5.45 484,312 3.29
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Focused Capital Partners L.P. (3) 527,611 5.94 527,611 3.58
Cadence Fund, L.P.
Brookhaven Capital Management Co., Ltd.
Vincent A. Carrino
Daniel R. Coleman
3000 Sandhill Road
Building 4, Suite 130
Menlo Park, California 94025
and
500 108th Avenue NE, Suite 380
Bellevue, Washington 98004
FMR Corp. (4) 1,217,600 13.70 1,217,600 8.27
Edward C. Johnson 3d
Abigail P. Johnson
Fidelity Management & Research Company
Fidelity Low-Priced Stock Fund
82 Devonshire Street
Boston, MA 02109
Reliance Group Holdings, Inc. (5) 0 - 4,473,684 30.40
Reliance Financial Services Corporation
Reliance Insurance Company
55 East 52nd Street
New York, New York 10055
</TABLE>
(1) Percent of post-Acquisition ownership of Common Stock assumes 14,717,514
shares of Common Stock issued and outstanding, which represents 8,928,041
shares of Common Stock issued and outstanding as of September
62
<PAGE>
19, 1997, 4,473,684 shares of Common Stock to be issued to RIC upon
consummation of the Acquisition, and 1,315,789 shares to be issued by the
Company in a public or private offering (exclusive of any shares issued
in connection with the exercise of an overallotment option in a public
offering). See "The Acquisition Description of the Acquisition."
(2) Each participant in the 401(k) Plan has the right to instruct Merrill Lynch
Trust Company, trustee for the 401(k) Plan, with respect to the voting of
shares allocated to his or her account. The trustee, however, will vote any
shares for which it receives no instructions in the same proportion as
those shares for which it has received instructions.
(3) In a Schedule 13D jointly filed with the Commission by Focused Capital
Partners L.P. ("FCP"), Cadence Fund, L.P. ("CF"), Brookhaven Capital
Management Co., Ltd. ("BCM"), an investment advisor to FCP and CF, Vincent
A. Carrino, a general partner of FCP and CF and the sole director and
president of BCM, and Daniel R. Coleman, a general partner of FCP and CF,
FCP, CF, BCM, and Messrs. Carrino and Coleman reported ownership as of
October 30, 1995, of 527,611 shares of Common Stock, representing 5.94% of
such shares outstanding on such date. The Schedule 13D reported that (a)
512,111 of the shares were beneficially owned by BCM, (b) 206,900 of the
shares were beneficially owned by CF, (c) 151,161 of the shares were
beneficially owned by FCP, (d) 373,561 of the shares were beneficially
owned by Mr. Carrino and (e) 358,061 of the shares were beneficially owned
by Mr. Coleman. According to the Schedule 13D, (i) BCM had sole voting and
dispositive power over 9,500 of the shares and shared voting and
dispositive power over 502,611 of the shares, (ii) CF had shared voting and
dispositive power over 206,900 of the shares, (iii) FCP had shared voting
and dispositive power over 151,161 of the shares, (iv) Mr. Carrino had sole
voting and dispositive power over 15,500 of the shares and shared voting
and dispositive power over 358,061 of the shares and (v) Mr. Coleman had
shared voting and dispositive power over 358,061 of the shares. The
reported business address of FCP, CF, BCM and Mr. Carrino was 3000 Sandhill
Road, Building 4, Suite 130, Menlo Park, California 94025, and the reported
business address of Mr. Coleman was 500 108th Avenue NE, Suite 380,
Bellevue, Washington 98004.
(4) In an Amendment No. 1 to Schedule 13G (the "Schedule 13G/A") jointly filed
with the Commission on February 12, 1997 by FMR Corp., Edward C. Johnson
3d, Chairman of FMR Corp., Abigail P. Johnson, a Director of FMR Corp.,
Fidelity Management & Research Company ("Fidelity"), a wholly owned
subsidiary of FMR Corp. and an investment advisor to various investment
companies registered under Section 8 of the Investment Company Act of 1940,
and Fidelity Low-Priced Stock Fund, one such investment company, FMR Corp.,
Fidelity, Mr. Johnson and Ms. Johnson reported beneficial ownership as of
December 31, 1996 of 1,124,600 shares of Common Stock, representing 12.65%
of such shares outstanding on such date. The Schedule 13G/A reported that
the ownership interest of Fidelity Low-Priced Stock Fund amounted to
617,800 shares of Common Stock, representing 6.95% of such shares
outstanding on such date. According to the Schedule 13G/A, (i) FMR Corp.,
Fidelity, Mr. Johnson and the Fidelity Funds with an ownership interest in
the shares each has sole power to dispose of all 1,124,600 of the shares,
and (ii) the sole power to vote the shares owned directly by the Fidelity
Funds resides with the Funds' Boards of Trustees. The reported business
address of FMR Corp., Fidelity and Fidelity Low-Priced Stock Fund was 82
Devonshire Street, Boston, Massachusetts 02109. Information available to
the Company indicates that the number of shares of Common Stock
beneficially owned by Fidelity and the other members of the group had
increased to 1,217,600 shares as of September 4, 1997.
(5) Number of shares and percent of post-Acquisition ownership of Common Stock
does not include shares of Common Stock that RIC or its affiliates may
acquire upon conversion of the Series B Preferred Stock. Unless certain
specified events occur, such conversion is prohibited until RIC and its
affiliates dispose completely of the RIC Common Shares. See "The
Acquisition - Certain Effects of the Transaction" and "Certain Related
Agreements - Voting and Standstill Agreement."
63
<PAGE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(Unaudited)
The following unaudited Pro Forma Condensed Combined Balance Sheet as
of June 30, 1997 and the unaudited Pro Forma Condensed Combined Statements of
Operations for the six months ended June 30, 1997 and the year ended December
31, 1996 (the "Pro Forma Financial Statements") are based upon the respective
consolidated/combined financial statements of the Company, which are
incorporated by reference into this Proxy Statement, and of
Commonwealth/Transnation, which are included herein. See "Available
Information," "Incorporation of Certain Documents by Reference," and "Index to
Financial Statements."
The Pro Forma Condensed Combined Balance Sheet as of June 30, 1997 is
presented as if the Acquisition had occurred on June 30, 1997. The Pro Forma
Condensed Combined Statements of Operations for the six months ended June 30,
1997 and the year ended December 31, 1996 are presented as if the Acquisition
had occurred at the beginning of the periods presented. The Pro Forma Financial
Statements give effect to the Acquisition under the purchase method of
accounting in accordance with Accounting Standards Board Opinion No. 16.
The Pro Forma Financial Statements are presented for comparative
purposes only and are not necessarily indicative of what the actual financial
position of the Company would have been at June 30, 1997 had the Acquisition
occurred at that date or of what the actual results of the Company would have
been if the Acquisition occurred at the beginning of the periods presented nor
indicative of the results of operations in future periods. The Pro Forma
Financial Statements should be read in conjunction with, and are qualified in
their entirety by, the respective unaudited financial statements and notes
thereto, of the Company and of Commonwealth/Transnation for the six months ended
June 30, 1997 and the respective historical financial statements and notes
thereto of the Company and of Commonwealth/Transnation for the year ended
December 31, 1996.
64
<PAGE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED BALANCE SHEET
June 30, 1997
(In thousands of dollars)
(Unaudited)
<TABLE>
<CAPTION>
Lawyers Commonwealth/
Title Transnation Pro Forma
Historical Historical Adjustments Pro Forma
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Investments........................... $ 270,613 $ 422,135 $ 692,748
Cash.................................. 26,927 13,061 39,988
Notes and accounts receivable......... 35,487 30,193 65,680
Property and equipment - net.......... 21,371 17,527 38,898
Title plants.......................... 48,556 50,227 98,783
Goodwill.............................. 59,279 16,548 217,182 [1] 280,300
(12,709) [2]
Deferred income tax benefit........... 26,622 27,381 17,709 [2] 71,712
Other assets.......................... 33,424 18,553 51,977
------ ------ ------
Total assets..................... $ 522,279 $ 595,625 $ 222,182 $ 1,340,086
========= ========= ========= ===========
LIABILITIES
Policy and contract claims............ $ 198,023 $ 261,981 $ 460,004
Accounts payable and accrued
expenses............................ 53,948 66,272 5,000 [1] 130,220
5,000 [2]
Long term debt........................ 207,500 [1] 207,500
------- ------- ------- -------
Total liabilities................ 251,971 328,253 217,500 797,724
------- ------- ------- -------
SHAREHOLDERS' EQUITY
Preferred stock....................... 110,000 [1] 110,000
Common stock.......................... 167,494 11,649 150,405 [1] 329,548
Additional paid in capital........... 127,551 (127,551) [1] 0
Unrealized gains..................... 2,417 2,805 (2,805) [1] 2,417
Retained earnings..................... 100,397 125,367 (125,367) [1] 100,397
------- ------- --------- -------
Total shareholders' equity....... 270,308 267,372 4,682 542,362
------- ------- ----- -------
Total liabilities and shareholders'
equity........................... $522,279 $ 595,625 $ 222,182 $ 1,340,086
======== ========= ========= ===========
</TABLE>
See notes to the pro forma condensed combined financial statements. Bracketed
numbers to the right of the "Pro Forma Adjustments" column refer to such notes.
65
<PAGE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 1997
(In thousands of dollars, except shares and per share data)
(Unaudited)
<TABLE>
<CAPTION>
Lawyers Commonwealth/ Pro Forma
Title Transnation Adjustments Pro Forma
----- ----------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUES
Premiums............................. $ 225,140 $ 324,165 $ 552,859
Title search, escrow and other....... 54,048 62,538 113,032
Investment income.................... 8,383 16,873 25,256
----- ------ ------
287,571 403,576 $ 0 691,147
------- ------- - -------
EXPENSES
Salaries and employee benefits....... 96,818 112,153 208,971
Agents' commissions.................. 95,766 170,473 266,239
Provision for policy and contract
claims............................. 15,320 18,745 34,065
General, administrative and other.... 66,189 78,188 9,662 [3] 154,039
------ ------ ----- -------
274,093 379,559 9,662 663,314
------- ------- ----- -------
OPERATING INCOME BEFORE
INCOME TAXES......................... 13,478 24,017 (9,662) 27,833
INCOME TAX EXPENSE....................... 4,620 8,460 (3,382) [3] 9,698
----- ----- ------- -----
NET INCOME............................... $ 8,858 $ 15,557 $ (6,280) $ 18,135
======= ======== ========= ========
PREFERRED STOCK DIVIDENDS................ $ 3,850
========
INCOME AVAILABLE TO
COMMON SHAREHOLDERS.................... $ 14,285
========
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE....................... $ 0.97 $ 0.96
EARNINGS PER COMMON SHARE
ASSUMING FULL DILUTION................. $ 0.97 $ 0.92
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON
EQUIVALENT SHARES
OUTSTANDING........................... 9,149 14,939
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING ASSUMING
FULL DILUTION......................... 9,149 19,763
</TABLE>
See notes to the pro forma condensed combined financial statements. Bracketed
numbers to the right of the "Pro Forma Adjustments" column refer to such notes.
66
<PAGE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1996
(In thousands of dollars, except shares and per share data)
(Unaudited)
<TABLE>
<CAPTION>
Lawyers Commonwealth/
Title Transnation Pro Forma
Historical Historical Adjustments Pro Forma
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUES
Premiums............................. $ 456,377 $ 668,807 $ 1,125,184
Title search, escrow and other....... 101,381 111,350 212,731
Investment income.................... 36,424 30,801 67,225
------ ------ ------
594,182 810,958 $ 0 1,405,140
------- ------- - ---------
EXPENSES
Salaries and employee benefits....... 184,274 206,083 390,357
Agents' commissions.................. 192,590 355,834 548,424
Provision for policy and contract
claims............................. 29,211 61,116 90,327
General, administrative and other.... 132,567 149,345 19,324 [3] 301,236
------- ------- ------ -------
538,642 772,378 19,324 1,330,344
------- ------- ------ ---------
OPERATING INCOME BEFORE
INCOME TAXES......................... 55,540 38,580 (19,324) 74,796
INCOME TAX EXPENSE....................... 19,021 13,347 (6,763) [3] 25,605
------ ------ ------- ------
NET INCOME............................... $ 36,519 $ 25,233 $ (12,561) $ 49,191
======== ======== ========== ========
PREFERRED STOCK DIVIDENDS................ $ 7,700
=========
INCOME AVAILABLE TO COMMON
COMMON SHAREHOLDERS.................... $ 41,491
========
EARNINGS PER COMMON SHARE
AND COMMON EQUIVALENT SHARE............ $ 4.01 $ 2.79
EARNINGS PER COMMON SHARE
ASSUMING FULL DILUTION................. $ 4.01 $ 2.49
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON
EQUIVALENT SHARES
OUTSTANDING............................ 9,100 14,889
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING ASSUMING
FULL DILUTION.......................... 9,110 19,724
</TABLE>
See notes to the pro forma condensed combined financial statements. Bracketed
numbers to the right of the "Pro Forma Adjustments" column refer to such notes.
67
<PAGE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
Pro Forma Condensed Financial Statements
June 30, 1997 and December 31, 1996
Notes to Pro Forma Financial Statements
1. This pro forma adjustment reflects the acquisition of
Commonwealth/Transnation by the Company resulting in (i) the issuance of an
aggregate of 5,789,473 shares of Common Stock to RIC and the public at an
assumed price of $25.82 per share, (ii) the issuance of 2,200,000 shares of
Series B Preferred Stock to RIC with an issue price of $50.00 per share,
which is assumed to be converted to 4,824,561 shares of Common Stock at
$25.82 per share and (iii) the incurrence by the Company of $207,500,000 of
bank financing. The pro forma adjustment to Common Stock includes $14
million which represents the difference between the stated value of the
Series B Preferred Stock issuance and the market value of the shares if
they were converted to Common Stock based on a Common Stock per share
market price of $25.82. The pro forma adjustments to Common Stock also
include an assumption that 1,315,789 shares will be publicly or privately
offered and sold prior to Closing. The terms of the Stock Purchase
Agreement provide that if the Company does not offer the 1,315,789 shares
prior to Closing, up to 575,000 of the 4,473,684 shares due RIC would be
withheld until such time as at least 575,000 shares are issued to the
public or RIC disposes of that number of shares.
2. This pro forma adjustment reflects adjustment to deferred taxes resulting
from purchase accounting changes and the accrual of
Commonwealth/Transnation's existing OPEB transition obligation.
3. This pro forma adjustment reflects (i) interest paid on debt incurred in
conjunction with the Acquisition at an assumed interest rate of 6%, (ii)
amortization of goodwill acquired at the time of the Acquisition over a
period of thirty years and (iii) income taxes incurred at the federal
statutory rate of 35%.
68
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following summary description of the capital stock of the Company
is qualified in its entirety by reference to applicable provisions of Virginia
law and the Company's Charter and Bylaws, the complete text of which are on file
with the Commission.
Authorized and Outstanding Capital Stock
The Company's authorized capital stock consists of 45,000,000 shares of
Common Stock, without par value, and 5,000,000 shares of preferred stock,
without par value (the "Preferred Stock"). At September 19, 1997, there were
8,928,041 shares of Common Stock issued and outstanding, No shares of Preferred
Stock have been issued.
Common Stock
The holders of Common Stock are entitled to one vote for each share on
all matters voted on by shareholders, including elections of directors, and,
except as otherwise required by law or provided in any resolution adopted by the
Board of Directors with respect to any series of Preferred Stock, the holders of
such shares exclusively possess all voting power. The Company's Charter does not
provide for cumulative voting in the election of directors. Subject to any
preferential rights of any outstanding series of Preferred Stock created by the
Board of Directors from time to time, the holders of Common Stock are entitled
to such dividends as may be declared from time to time by the Board of Directors
from funds available therefor, and upon liquidation are entitled to receive pro
rata all assets of the Company available for distribution to such holders.
Preferred Stock
Under the Company's Charter, the Board of Directors, without
shareholder approval, is authorized to issue shares of Preferred Stock in one or
more series and to designate, with respect to each such series of Preferred
Stock, the number of shares in each such series, the dividend rates, preferences
and date of payment, voluntary and involuntary liquidation preferences, the
availability of redemption and the prices at which it may occur, whether or not
dividends shall be cumulative and, if cumulative, the date or dates from which
the same shall be cumulative, the sinking fund provisions, if any, for
redemption or purchase of shares, the rights, if any, and the terms and
conditions on which shares can be converted into or exchanged for shares of any
other class or series, and the voting rights, if any. Any Preferred Stock issued
may be senior to the Common Stock as to dividends and as to distribution in the
event of liquidation, dissolution or winding up of the Company. The ability of
the Board of Directors to issue Preferred Stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, could, among
other things, adversely affect the voting power of holders of Common Stock.
The Board of Directors has authorized and reserved 200,000 shares of
Series A Junior Participating Preferred Stock (the "Series A Preferred Stock")
for issuance upon the exercise of the preferred share purchase rights (the
"Rights") described below. See "- Preferred Share Purchase Rights."
Upon the approval of the Acquisition by the Company's shareholders, the
Board of Directors will have further authorized and reserved 2,200,000 shares of
7% Series B Cumulative Convertible Preferred Stock (the "Series B Preferred
Stock") for issuance to RIC upon the consummation of the Acquisition. See "-
Series B Preferred Stock."
The creation and issuance of any other series of Preferred Stock, and
the relative rights and preferences of such series, if and when established,
will depend upon, among other things, the future capital needs of the Company,
then-existing market conditions and other factors that, in the judgment of the
Board of Directors, might warrant the issuance of Preferred Stock.
Preemptive Rights
No holder of any share of Common Stock or Preferred Stock has any
preemptive right to subscribe to any securities of the Company of any kind or
class.
69
<PAGE>
Series B Preferred Stock
General. The following summary is a brief description of the terms of
the Series B Preferred Stock to be issued to RIC upon consummation of the
Acquisition. The description of the Series B Preferred Stock is qualified in its
entirety by reference to the exhibit to the Articles of Amendment attached to
this Proxy Statement as Appendix B (the "Preferred Stock Designation").
Dividend Rights. The holders of Series B Preferred Stock will be
entitled to receive when and as declared by the Board of Directors, out of funds
legally available therefor, quarterly cumulative cash dividends at an annual
rate of seven percent (7%) of the stated value of $50.00 per share, or $3.50 per
share. Such dividends will be payable on the last day of March, June, September
and December of each year, commencing on the date on which shares of the Series
B Preferred Stock are initially issued by the Company (the "Initial Issuance
Date").
Dividends on the Series B Preferred Stock will be cumulative. As a
result, if the Board of Directors chooses not to declare a dividend on the
Series B Preferred Stock for a particular dividend period, holders of the Series
B Preferred Stock will retain the right to receive that dividend in the future.
The Board of Directors may declare dividends that are in arrears at any time.
The Series B Preferred Stock will be senior to the Common Stock and the
Series A Preferred Stock. Accordingly, no dividends may be declared, paid or set
aside, on the Common Stock and the Series A Preferred Stock unless all dividends
on the Series B Preferred Stock, including all unpaid dividends for past
periods, have been paid in cash or cash sums sufficient therefor have been set
aside.
Each dividend on the Series B Preferred Stock will be payable to
holders of record as of the 15th day of the month in which the dividend is
payable or such other date as may be fixed by the Board of Directors, which date
shall not be less than 10 days or more than 30 days prior to the date of
payment.
Holders of the Series B Preferred Stock will not be entitled to receive
any dividends in excess of the dividends described above and, except as provided
in the provisions of the Series B Preferred Stock, will not be entitled to
participate in the earnings or assets of the Company.
Conversion Rights. Shares of the Series B Preferred Stock will be
convertible at any time at the option of the holder into fully-paid and
nonassessable shares of Common Stock at a conversion price of $22.80 per share
of Common Stock (equivalent to a Conversion Ratio of approximately 2.193 shares
of Common Stock for each share of Series B Preferred Stock), subject to
adjustment as described below.
To protect against dilution, the Conversion Price will be subject to
adjustment from time to time upon certain events, including the issuance of
Common Stock as a dividend or distribution on shares of Common Stock, splits or
combinations of outstanding shares of Common Stock, the issuance to holders of
Common Stock generally of options, rights or warrants to subscribe for Common
Stock or other securities of the Company at less than the current market price
of the Common Stock, or the issuance of Common Stock upon the exercise of the
Rights.
If the Company (i) consolidates with or merges into any other person
and is not the continuing or surviving corporation of such consolidation or
merger, (ii) permits any other person to consolidate with or merge into the
Company and the Company is the continuing or surviving person but, in connection
with such consolidation or merger, the Common Stock is changed into or exchanged
for stock or other securities of any other person or cash or any other property,
(iii) transfers all or substantially all of the assets or property of the
Company to any other person, or (iv) effects a capital reorganization or
reclassification of the Common Stock (other than a capital reorganization or
reclassification resulting in the issue of additional shares of Common Stock for
which adjustment in the Conversion Price is required to be made), then there
will be no adjustment of the Conversion Price, but each holder of Series B
Preferred Stock, upon the conversion thereof at any time after the consummation
of such consolidation, merger, exchange, sale, transfer, reorganization or
reclassification, shall be entitled to receive (at the Conversion Price in
effect at the time of such consummation) the kind and amount of shares of stock
and other securities, cash and property that the holder would have owned or been
entitled to receive immediately after such consolidation,
70
<PAGE>
merger, exchange, sale, transfer, reorganization or reclassification if such
share had been converted immediately before such event.
Upon conversion of any shares of Series B Preferred Stock, the holder
thereof shall remain entitled to receive any unpaid dividends in respect of the
shares so converted, provided that such holder held such shares on the date for
determination of holders of the Series B Preferred Stock entitled to receive
payment of such dividends.
Fractional shares of Common Stock will not be delivered upon
conversion. Instead, a cash adjustment will be paid in respect of such
fractional interest, in an amount equal to the Conversion Price as of the date
of conversion multiplied by such fractional interest.
Limitation on RIC's Conversion Rights. The right of RIC and its
affiliates to convert shares of Series B Preferred Stock into shares of Common
Stock will be subject to additional restrictions. The Series B Preferred Stock
held by RIC and its affiliates shall not be convertible into shares of Common
Stock until such time as RIC and its affiliates have sold, conveyed or
transferred all of the 4,473,684 shares of Common Stock received by RIC from the
Company in connection with the Acquisition and such additional shares of Common
Stock that the Company may issue with respect to such shares pursuant to any
stock splits, stock dividends, recapitalizations, restructurings,
reclassifications or similar transactions or pursuant to the exercise of any
Rights. RIC and its affiliates shall not be subject to such restriction in the
event that (i) the Company calls for the redemption of the Series B Preferred
Stock held by RIC or (ii) either the Company declares a regular quarterly
dividend on the Common Stock of $.40 or more during any calendar year, or the
Company declares one or more non-regular dividends on the Common Stock during
any calendar year in an aggregate amount of $.50 or more, or the Company
declares dividends on the Common Stock, whether regular or non-regular, in an
aggregate amount of $1.60 or more during any calendar year. If the Company calls
for redemption less than all of the Series B Preferred Stock held by RIC and its
affiliates, then RIC and its affiliates shall be entitled to convert into shares
of Common Stock only that number of the Series B Preferred Stock that have been
so called for redemption.
Furthermore, in the event that the Board of Directors has approved any
negotiated tender or exchange offer with a third party or approved any merger,
consolidation, share exchange, business combination, restructuring,
recapitalization or similar transaction involving the Company in which the
holders of Common Stock are entitled to tender or exchange their holdings of
Common Stock for, or to otherwise receive for their holdings of Common Stock,
other consideration (whether cash, non-cash or some combination thereof), the
Company will either (i) permit RIC and its affiliates to convert all of the
Series B Preferred Stock then held by them contingent upon, and effective as of,
the closing of such transaction and without the right of RIC or any of its
affiliates to vote the shares of Common Stock received upon any such conversion
on any matter in connection with such transaction, or (ii) make appropriate
provision to provide to RIC and any of its affiliates holding Series B Preferred
Stock as of the closing date of such transaction the same kind and amount of
consideration receivable by the holders of the Common Stock in such transaction.
If the Company elects to make such appropriate provision, RIC and its affiliates
shall not be entitled thereafter to receive any shares of stock, other
securities, cash or property with respect to such of the Series B Preferred
Stock as has received full payment of the consideration.
Redemption. At any time on or after the fifth anniversary of the
Initial Issuance Date, the Company, at the option of the Board of Directors, may
redeem all or part of the outstanding shares of the Series B Preferred Stock
upon the specified notice. If less than all of the outstanding shares of Series
B Preferred Stock are to be redeemed, the Company shall redeem a pro rata
portion from each holder of Series B Preferred Stock.
If the Company elects to redeem the Series B Preferred Stock on or
after the fifth anniversary of the Initial Issuance Date, the Company shall pay
the stated value of $50.00 per share plus a premium over such $50.00, which
premium shall be 4% on the fifth anniversary of the Initial Issuance Date and
decline by 1% per year over the next five years. At that time and thereafter,
the Series B Preferred Stock may be redeemed at $50.00 per share. The Company
shall also pay upon redemption all accrued and unpaid dividends to and including
the dated fixed for redemption. The Series B Preferred Stock places no limits on
the source of funds to be used for any redemption of the Series B Preferred
Stock.
71
<PAGE>
No shares of Series B Preferred Stock may be redeemed, unless all
dividends on the Series B Preferred Stock have been declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all prior dividend periods and the current dividend period; provided, however,
that the foregoing shall not prevent the purchase or acquisition of shares of
Series B Preferred Stock by the Company pursuant to a purchase or acquisition
made on the same terms to holders of all outstanding shares of Series B
Preferred Stock.
Liquidation. In the event of any voluntary or involuntary dissolution,
liquidation, or winding up of the Company, the holders of shares of Series B
Preferred Stock shall be entitled to be paid, out of the assets of the Company
available for distribution to its shareholders, before any payment shall be made
in respect of the Common Stock or any other class of stock of the Company
ranking junior to the Series B Preferred Stock, a liquidation preference equal
to $50.00 plus accrued and unpaid dividends to the date of such payment. If,
upon such dissolution, liquidation or winding up, the amounts payable as the
liquidation preference to holders of Series B Preferred Stock and any other
shares of stock ranking as to such distribution on a parity with the Series B
Preferred Stock are not paid in full, the holders of Series B Preferred Stock
and of such other shares will share ratably in any such distribution of assets
in proportion to the liquidation preference that each holder is entitled to
receive.
Voting. The holders of Series B Preferred Stock will not be entitled to
vote at any meeting of the Company's shareholders, except as required by the
Virginia Stock Corporation Act (the "Virginia Act") and as described below.
Whenever dividends on any shares of Series B Preferred Stock shall be
in arrears for six or more quarterly periods, whether or not consecutive, the
holders of such shares, voting separately as a class, will be entitled to vote
for the election of two additional directors of the Company at a special meeting
called by the holders of record of at least 10% of the Series B Preferred Stock
so in arrears or at the next annual meeting of shareholders, if such request is
received less than 60 days before the date fixed for the next annual meeting of
the shareholders. Such holders will continue to be entitled to vote for the
election of two additional directors at each subsequent annual meeting until all
dividends accumulated on such shares of Series B Preferred Stock for past
dividend periods and the then current dividend period shall have been fully paid
in cash. Each such director elected as described above shall be elected by the
affirmative vote of the holders of record of a majority of the shares of Series
B Preferred Stock present and voting at such meeting, at a meeting called, held
and conducted in accordance with the terms of the Series B Preferred Stock. Each
such director shall serve as a director until all dividends accumulated on such
shares of Series B Preferred Stock for past dividend periods and the then
current dividend period shall have been fully paid in cash, at which time the
term of each such director shall terminate and the number of directors shall be
reduced accordingly.
The holders of Series B Preferred Stock will be entitled to one vote
per share on matters subject to a vote by such holders.
Preferred Share Purchase Rights
Pursuant to the Amended and Restated Rights Agreement, each Right
entitles the registered holder to purchase from the Company one one-hundredth of
a share of Series A Junior Participating Preferred Stock, without par value (the
"Series A Preferred Shares"), of the Company at a price of $85 per one
one-hundredth of a Series A Preferred Share (the "Purchase Price"), subject to
adjustment.
The Rights will become exercisable only if a person or group of
affiliated or associated persons has acquired beneficial ownership of, or has
announced a tender offer for, 20% or more of the outstanding shares of Common
Stock. Under certain circumstances, the Board of Directors may reduce this
threshold percentage to 10%. If a person or group of affiliated or associated
persons has acquired beneficial ownership of, or has announced a tender offer
for, the threshold percentage, each Right will entitle the registered holder,
other than such person or group, to buy shares of Common Stock or Series A
Preferred Stock having a market value equal to twice the exercise price. If the
Company is acquired in a merger or other business combination, each Right will
entitle the registered holder, other than such person or group, to purchase
securities of the surviving company having a market value equal to twice the
Purchase Price. The
72
<PAGE>
Rights will expire on August 20, 2007, and may be redeemed or exchanged by the
Company at any time before they become exercisable.
Until the Rights become exercisable, they are evidenced by the Common
Stock certificates and are transferred with and only with such certificates.
Pursuant to the Amended and Restated Rights Agreement, the Rights are
not, and will not become, exercisable by virtue of the approval, execution,
delivery or performance of the Stock Purchase Agreement or the Voting and
Standstill Agreement, or by the acquisition of shares of Common Stock or Series
B Preferred Stock by RIC or any affiliate of RIC as contemplated by the Stock
Purchase Agreement or the Voting and Standstill Agreement.
The foregoing summary of certain terms of the Rights is qualified in
its entirety by reference to the Amended and Restated Rights Agreement, a copy
of which has been filed with the Commission and is incorporated by reference
into this Proxy Statement.
Certain Provisions of the Company's Charter and Bylaws
The Company's Charter and Bylaws contain provisions which may have the
effect of delaying or preventing a change in control of the Company. The
Company's Charter and Bylaws provide (i) for division of the Board of Directors
into three classes, with one class elected each year to serve a three-year term;
(ii) that directors may be removed only for cause and only upon the affirmative
vote of the holders of at least 80% of the outstanding shares entitled to vote;
(iii) that a vacancy on the Board of Directors shall be filled by the remaining
directors; and (iv) that the affirmative vote of the holders of at least 80% of
the outstanding shares entitled to vote is required to alter, amend or repeal
the foregoing provisions. The Company's Bylaws require advance notification for
a shareholder to bring business before a shareholders' meeting or to nominate a
person for election as a director. The Company's Charter and Bylaws provide
that, subject to the rights of holders of any series of Preferred Stock, special
meetings of shareholders may be called only by the Chairman of the Board or a
majority of the total number of directors which the Board of Directors would
have if there were no vacancies, and may not be called by the shareholders. The
business permitted to be conducted at any special meeting of shareholders is
limited to the business brought before the meeting by or at the direction of the
Board of Directors.
The Company's Charter also contains an "affiliated transaction
provision" that provides that, in the event that holders of Common Stock are
entitled to vote on certain transactions, a supermajority of at least 80% of all
the votes that the holders of Common Stock are entitled to cast thereon shall be
required for the approval of such transactions. Such supermajority approval
would be required for (i) a merger or consolidation involving any person or
entity who directly or indirectly owns or controls 10% or more of the voting
power of the Company (an "Interested Shareholder") at the record date for
determining shareholders entitled to vote and (ii) a sale, lease or exchange of
substantially all of the Company's assets or property to or with an Interested
Shareholder, or for the approval of a sale, lease or exchange of substantially
all of the assets or property of an Interested Shareholder to or with the
Company. In addition, the Company's Charter provides that the same 80% vote
shall be required for the approval of certain transactions including a
reclassification of securities, recapitalization or other transaction designed
to decrease the number of holders of Common Stock after any person or entity has
become an Interested Shareholder. Notwithstanding the foregoing, the
supermajority approval requirement does not apply to any transaction that is
approved by the Board of Directors prior to the time that the Interested
Shareholder becomes an Interested Shareholder. Upon consummation of the
Acquisition, RIC and its affiliates will become Interested Shareholders within
the meaning of these provisions. However, the supermajority approval requirement
does not apply to the Acquisition because of its prior approval by the Board of
Directors.
The shares of Common Stock and Preferred Stock authorized by the
Company's Charter provide the Board of Directors with as much flexibility as
possible in using such shares for corporate purposes. However, these additional
shares may also be used by the Board of Directors to deter future attempts to
gain control of the Company. The Board of Directors has sole authority to
determine the terms of any series of the Preferred Stock, including voting
rights, conversion rates and liquidation preferences. As a result of the ability
to fix voting rights for a series of Preferred Stock, the Board of Directors has
the power to issue a series of Preferred Stock to persons friendly to management
in order to attempt to block a post-tender offer merger or other transaction by
which a third party seeks a change in control of the Company.
73
<PAGE>
The foregoing provisions of the Company's Charter and Bylaws are
intended to prevent inequitable shareholder treatment in a two-tier takeover and
to reduce the possibility that a third party could effect a sudden or surprise
change in majority control of the Board of Directors without the support of the
incumbent Board of Directors, even if such a change were desired by, or would be
beneficial to, a majority of the Company's shareholders. Such provisions
therefore may have the effect of discouraging certain unsolicited offers for the
Company's capital stock.
Liability and Indemnification of Directors and Officers
As permitted by the Virginia Act, the Company's Charter contain
provisions that indemnify directors and officers of the Company to the full
extent permitted by Virginia law and seek to eliminate the personal liability of
directors and officers for monetary damages to the Company or its shareholders
for breach of their fiduciary duties, except to the extent such indemnification
or elimination of liability is prohibited by the Virginia Act. These provisions
do not limit or eliminate the rights of the Company or any shareholder to seek
an injunction or any other non-monetary relief in the event of a breach of a
director's or officer's fiduciary duty. In addition, these provisions apply only
to claims against a director or officer arising out of his role as a director or
officer and do not relieve a director or officer from liability for violations
of statutory law, such as certain liabilities imposed on a director or officer
under the federal securities laws.
In addition, the Company's Charter provide for the indemnification of
both directors and officers for expenses incurred by them in connection with the
defense or settlement of claims asserted against them in their capacities as
directors and officers. In certain cases, this right of indemnification extends
to judgments or penalties assessed against them. The Company has limited its
exposure to liability for indemnification of directors and officers by
purchasing directors and officers liability insurance coverage.
The purpose of these provisions is to assist the Company in retaining
qualified individuals to serve as directors by limiting their exposure to
personal liability for serving as such.
The Company is not aware of any pending or threatened action, suit or
proceeding involving any of its directors, officers, employees or agents for
which indemnification from the Company may be sought. Insofar as indemnification
for liabilities arising under the Securities Act, may be permitted to directors,
officers and controlling persons of the Company, or of an affiliate of the
Company pursuant to the Company's Charter or otherwise, the Board of Directors
has been advised that, in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
Affiliated Transactions
The Virginia Act contains provisions governing "Affiliated
Transactions." Affiliated Transactions include certain mergers and share
exchanges, material dispositions of corporate assets not in the ordinary course
of business, any dissolution of the corporation proposed by or on behalf of an
Interested Shareholder (as defined below), or reclassifications, including
reverse stock splits, recapitalizations or mergers of the corporation with its
subsidiaries which have the effect of increasing the percentage of voting shares
beneficially owned by an Interested Shareholder by more than 5%. For purposes of
the Virginia Act, an Interested Shareholder is defined as any beneficial owner
of more than 10% of any class of the voting securities of a Virginia
corporation.
Subject to certain exceptions discussed below, the provisions governing
Affiliated Transactions require that, for three years following the date upon
which any shareholder becomes an Interested Shareholder, a Virginia corporation
cannot engage in an Affiliated Transaction with such Interested Shareholder
unless approved by the affirmative vote of the holders of two-thirds of the
outstanding shares of the corporation entitled to vote, other than the shares
beneficially owned by the Interested Shareholder, and by a majority (but not
less than two) of the "Disinterested Directors." A Disinterested Director means,
with respect to a particular Interested Shareholder, a member of a corporation's
board of directors who (i) was a member before the later of January 1, 1988 and
the date on which an Interested Shareholder became an Interested Shareholder and
(ii) was recommended for election by, or was elected to fill a vacancy and
received the affirmative vote of, a majority of the Disinterested Directors then
on the corporation's board of
74
<PAGE>
directors. At the expiration of the three year period, these provisions require
approval of Affiliated Transactions by the affirmative vote of the holders of
two-thirds of the outstanding shares of the corporation entitled to vote, other
than those beneficially owned by the Interested Shareholder.
The principal exceptions to the special voting requirement apply to
Affiliated Transactions occurring after the three-year period has expired and
require either that the transaction be approved by a majority of the
Disinterested Directors or that the transaction satisfy certain fair price
requirements of the statute. In general, the fair price requirements provide
that the shareholders must receive the highest per share price for their shares
as was paid by the Interested Shareholder for his shares or the fair market
value of their shares, whichever is higher. The fair price requirements also
require that, during the three years preceding the announcement of the proposed
Affiliated Transaction, all required dividends have been paid and no special
financial accommodations have been accorded the Interested Shareholder, unless
approved by a majority of the Disinterested Directors.
None of the foregoing limitations and special voting requirements
applies to an Affiliated Transaction with an Interested Shareholder whose
acquisition of shares making such a person an Interested Shareholder was
approved by a majority of the corporation's Disinterested Directors. Upon
consummation of the Acquisition, RIC and its affiliates will become Interested
Shareholders whose acquisition of the Acquisition Shares has been approved by a
majority of the Board of Directors, each of whom is a Disinterested Director.
These provisions were designed to deter certain takeovers of Virginia
corporations. In addition, the statute provides that, by affirmative vote of a
majority of the voting shares other than shares owned by any Interested
Shareholder, a corporation may adopt, by meeting certain voting requirements, an
amendment to its articles of incorporation or bylaws providing that the
Affiliated Transactions provisions shall not apply to the corporation. The
Company has not adopted such an amendment.
Control Share Acquisitions
The Virginia Act also contains provisions regulating certain "control
share acquisitions," which are transactions causing the voting strength of any
person acquiring beneficial ownership of shares of a public corporation in
Virginia to meet or exceed certain threshold percentages (20%, 33% or 50%) of
the total votes entitled to be cast for the election of directors. Shares
acquired in a control share acquisition have no voting rights unless: (i) the
voting rights are granted by a majority vote of all outstanding shares other
than those held by the acquiring person or any officer or employee director of
the corporation, or (ii) the articles of incorporation or bylaws of the
corporation provide that these Virginia law provisions do not apply to
acquisitions of its shares. The acquiring person may require that a special
meeting of the shareholders be held to consider the grant of voting rights to
the shares acquired in the control share acquisition. The Company's Charter make
these provisions inapplicable to acquisitions of shares of the Company.
75
<PAGE>
COMPARISON OF SHAREHOLDERS' RIGHTS
General
The current shareholders of the Company will remain shareholders of the
Company following the Acquisition, and, except as described below, the rights of
such shareholders will not change as a result of the Acquisition.
Name Change
Following the consummation of the Acquisition and the approval of the
change in the name of the Company by the shareholders, the Company will change
its name from "Lawyers Title Corporation" to "LandAmerica Financial Group, Inc."
Authorized and Outstanding Capital
Common Stock. The Company's Charter authorizes the issuance of up to
45,000,000 shares of Common Stock. As of the Record Date, the Company had
__________ shares of Common Stock issued and outstanding held by _____
shareholders of record. Upon the consummation of the Acquisition, the amount of
authorized Common Stock will remain the same. However, the Company will issue an
additional 4,473,684 shares of Common Stock to RIC in connection with the
Acquisition. In addition, the Company expects to issue an additional 1,315,789
shares of Common Stock in a public or private offering in connection with the
Acquisition, plus (i) any additional shares consented to by RIC and (ii) if a
public offering, any shares issued upon exercise of any underwriters'
overallotment option. As a result, each shareholder's percentage of ownership of
Common Stock will be diluted by the increase in issued and outstanding shares of
Common Stock. In addition, the Series B Preferred Stock may be converted into
shares of Common Stock after consummation of the Acquisition if certain
pre-conditions are met by RIC. See "The Acquisition - Certain Effects of the
Transaction."
Series A Preferred Stock. The Company currently has authorized up to
50,000 shares of Series A Preferred Stock. Pursuant to the authority granted to
it in the Company's Charter and by the Virginia Act, the Board of Directors has
authorized the issuance of up to an additional 150,000 shares of Series A
Preferred Stock. Upon the consummation of the Acquisition, the Company will
complete the necessary actions so that 200,000 shares of Series A Preferred
Stock are authorized. The Series A Preferred Stock has been reserved for use in
connection with the Company's Amended and Restated Rights Agreement. See
"Description of Capital Stock Preferred Share Purchase Rights."
As of the Record Date, the Company had no shares of Series A Preferred
Stock issued and outstanding.
Series B Preferred Stock. Pursuant to the authority granted to it in
the Company's Charter and by the Virginia Act, the Board of Directors has
authorized the issuance of up to 2,200,000 shares of Series B Preferred Stock.
Upon the consummation of the Acquisition, the Company will complete the
necessary actions so that 2,200,000 shares of Series B Preferred Stock are
authorized. The Series B Preferred Stock contains preferences over the Common
Stock as to dividends and on liquidation. See "Description of Capital Stock -
Series B Preferred Stock."
As of the Record Date, the Company had no shares of Series B Preferred
Stock issued and outstanding. Upon the consummation of the Acquisition, the
Company will issue 2,200,000 shares of Series B Preferred Stock to RIC.
Board of Directors
Under the Company's Charter and Bylaws, the number of directors of the
Company shall be fixed from time to time exclusively by the Board of Directors
through a resolution adopted by a majority of the total number of directors that
the Company would have if no board seats were vacant. The number of directors is
currently fixed by resolution at ten (10).
76
<PAGE>
The Stock Purchase Agreement provides for the addition of four (4)
directors to the Company's Board of Directors immediately following the
consummation of the acquisition. See "Certain Related Agreements - Voting and
Standstill Agreement" and "Management and Ownership of the Company Following the
Acquisition." Accordingly, upon the consummation of the Acquisition, the Board
of Directors will consist of fourteen (14) directors. In addition, the Company
has agreed that, upon the occurrence of certain events, it will increase the
size of the Board of Directors to include additional directors designated by
RIC. See "Certain Related Agreements - Covenants Regarding Non-Performance
Remedies."
Covenants Regarding Non-Performance Remedies
On or before the Closing Date, the Company will file Articles of
Amendment to its Charter that contain the designation for the Series B Preferred
Stock. The form of the Articles of Amendment is attached hereto as Appendix B.
The provisions of the Series B Preferred Stock contain covenants that will
entitle RIC to certain rights in specific default situations. The holders of
Common Stock do not have such rights. These covenants may affect the rights of
Reliance, RIC and their affiliates in a manner that could be adverse to the
rights of holders of Common Stock. Upon the occurrence of certain events, RIC
will be entitled to additional seats on the Company's Board of Directors, and
Reliance, RIC and their affiliates will no longer be subject to certain
restrictions under the Voting and Standstill Agreement. See "Certain Related
Agreements - Voting and Standstill Agreement" and "- Covenants Regarding
Non-Performance Remedies."
Rights Plan Amendments
In connection with the execution of the Stock Purchase Agreement, the
Company executed the Amended and Restated Rights Agreement. See "Certain Related
Agreements - Amended and Restated Rights Agreement." The Amended and Restated
Rights Agreement provides, among other things, that (i) the approval, execution,
delivery and performance of the Stock Purchase Agreement or the Voting and
Standstill Agreement, or any acquisition of shares of Common Stock or Series B
Preferred Stock by RIC or its affiliates as contemplated by the Stock Purchase
Agreement or the Voting and Standstill Agreement, will not cause the Rights to
become exercisable, (ii) the exercise price of the Rights shall be $85 per
Right, an increase from $65 per Right to reflect current conditions, and (iii)
the Rights shall not be exercisable after August 20, 2007, thereby extending the
termination date of the Rights from October 1, 2001. See "Description of Capital
Stock - Preferred Share Purchase Rights."
LEGAL MATTERS
The validity of the shares of Common Stock to be offered to RIC in the
Acquisition is being passed upon for the Company by Williams, Mullen, Christian
& Dobbins. Theodore L. Chandler, Jr., a principal in Williams, Mullen, Christian
& Dobbins, is a director of the Company and beneficially owns an aggregate of
19,000 shares of Common Stock as of September 24, 1997. Other attorneys of that
firm beneficially owned an aggregate of approximately 20,545 shares of Common
Stock as of that date.
INDEPENDENT AUDITORS
The consolidated financial statements of the Company appearing in the
Company's Annual Report (Form 10-K) for the year ended December 31, 1996, have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon and included therein and incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
Representatives from Ernst & Young LLP are expected to be present at
the Special Meeting, will have the opportunity to make a statement if they
desire to do so, and are expected to be available to respond to appropriate
questions from shareholders.
The combined financial statements of Commonwealth/Transnation as of
December 31, 1996 and 1995 and for the three years then ended included in this
Proxy Statement have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report herein.
77
<PAGE>
OTHER MATTERS
As of the date of this Proxy Statement, the Company's Board of
Directors knows of no matters that will be presented for consideration at the
Special Meeting other than as described in this Proxy Statement. However, if any
other matter shall come before the Special Meeting or any adjournment or
postponement thereof and shall be voted upon, the proposed proxy will be deemed
to confer authority to the individuals named as authorized therein to vote the
shares represented by such proxy as to any such matters that fall within the
purposes set forth in the Notice of Special Meeting as determined by a majority
of the Board of Directors, provided, however, that no proxy which is voted
against the proposal to approve the Stock Purchase Agreement will be voted in
favor of any adjournment or postponement.
SHAREHOLDER PROPOSALS
Under the regulations of the Commission, any shareholder desiring to
make a proposal to be acted upon at the 1998 annual meeting of shareholders must
cause such proposal to be delivered, in proper form, to the Secretary of the
Company, whose address is 6630 West Broad Street, Richmond, Virginia 23230, no
later than December 9, 1997, in order for the proposal to be considered for
inclusion in the Company's Proxy Statement and form of proxy for that meeting.
The Company anticipates holding the 1998 annual meeting of shareholders on May
19, 1998.
The Company's Bylaws also prescribe the procedure a shareholder must
follow to nominate directors or to bring other business before shareholders'
meetings. For a shareholder to nominate a candidate for director at the 1998
annual meeting of shareholders, notice of nomination must be received by the
Secretary of the Company not less than 60 days and not more than 90 days prior
to the meeting. The notice must describe various matters regarding the nominee
and the shareholder giving notice. For a shareholder to bring other business
before the 1998 annual meeting of shareholders, notice must be received by the
Secretary of the Company not less than 60 days and not more than 90 days prior
to the meeting. The notice must include a description of the proposed business,
the reasons therefor, and other specified matters. Any shareholder may obtain a
copy of the Company's Bylaws, without charge, upon written request to the
Secretary of the Company.
78
<PAGE>
INDEX TO FINANCIAL STATEMENTS
COMMONWEALTH LAND TITLE INSURANCE COMPANY
TRANSNATION TITLE INSURANCE COMPANY
Page
----
Independent Auditors' Report........................................... F-2
Combined Statement of Income for the Three Years Ended
December 31, 1996, 1995 and 1994..................................... F-3
Combined Balance Sheet at December 31, 1996 and 1995................... F-4
Combined Statement of Changes in Shareholder's Equity for
the Three Years Ended December 31, 1996, 1995 and 1994............... F-5
Combined Statement of Cash Flows for the Three Years Ended
December 31, 1996, 1995 and 1994..................................... F-6
Notes to Combined Financial Statements................................. F-7
Combined Statement of Income for the Quarter and the Six Months
Ended June 30, 1997 and 1996 (unaudited)............................. F-18
Combined Balance Sheet at June 30, 1997 and
December 31, 1996 (unaudited)........................................ F-19
Combined Statement of Changes in Shareholder's Equity for
the Six Months Ended June 30, 1997 (unaudited)....................... F-20
Combined Statement of Cash Flows for the Quarter and the Six Months
Ended June 30, 1997 and 1996 (unaudited)............................. F-21
Notes to Combined Financial Statements (unaudited)..................... F-22
F-1
<PAGE>
Independent Auditors' Report
Board of Directors and Shareholder
Commonwealth Land Title Insurance Company
Transnation Title Insurance Company
Philadelphia, Pennsylvania
We have audited the accompanying combined balance sheets of Commonwealth Land
Title Insurance Company and subsidiaries ("Commonwealth") and Transnation Title
Insurance Company and subsidiaries ("Transnation") (both of which are wholly
owned subsidiaries of Reliance Group Holdings, Inc.) as of December 31, 1996 and
1995, and the related combined statements of income, changes in shareholder's
equity, and cash flows for each of the three years in the period ended December
31, 1996. Commonwealth and Transnation (the "Companies") are under common
ownership and common management. These financial statements are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these 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, such combined financial statements present fairly, in all
material respects, the combined financial position of Commonwealth and
Transnation at December 31, 1996 and 1995, and the combined results of their
operations and their combined cash flows for the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
February 12, 1997
(August 20, 1997 as to Note 10)
F-2
<PAGE>
COMMONWEALTH AND TRANSNATION TITLE INSURANCE COMPANIES
COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Premiums and fees .................... $780,157,000 $671,936,000 $856,762,000
Net investment income ................ 30,455,000 27,933,000 26,455,000
Gain on sale of investments .......... 346,000 1,729,000 516,000
------------ ------------ ------------
810,958,000 701,598,000 883,733,000
------------ ------------ ------------
EXPENSES:
Commissions to agents ................ 355,834,000 310,729,000 432,041,000
Compensation and employee benefits ... 206,083,000 188,097,000 211,150,000
Provision for losses ................. 61,116,000 58,486,000 75,867,000
Taxes, other than federal income taxes 12,923,000 9,782,000 8,082,000
Other operating expenses ............. 136,422,000 120,294,000 124,789,000
------------ ------------ ------------
772,378,000 687,388,000 851,929,000
------------ ------------ ------------
Income before income taxes ........... 38,580,000 14,210,000 31,804,000
Provision for income taxes ........... 13,347,000 4,755,000 10,809,000
------------ ------------ ------------
NET INCOME ........................... $ 25,233,000 $ 9,455,000 $ 20,995,000
============ ============ ============
</TABLE>
See notes to combined financial statements.
F-3
<PAGE>
COMMONWEALTH AND TRANSNATION TITLE INSURANCE COMPANIES
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS December 31 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investments:
Fixed maturities held for investment -- at amortized
cost (quoted market $140,789,000 and $126,623,000)................................. $ 139,798,000 $ 120,545,000
Fixed maturities available for sale -- at quoted market
(amortized cost $284,381,000 and $248,280,000)..................................... 289,991,000 260,194,000
Short-term investments............................................................... 25,860,000 41,220,000
First mortgage and other secured loans............................................... 5,453,000 2,882,000
Cash ................................................................................... 14,328,000 15,230,000
Accounts receivable, less allowances of
$5,663,000 and $5,006,000............................................................ 23,987,000 26,372,000
Real estate and equipment -- at cost, less accumulated
depreciation of $25,746,000 and $22,685,000.......................................... 15,373,000 14,303,000
Title plants............................................................................ 49,750,000 49,208,000
Deferred federal income tax benefit..................................................... 27,243,000 20,366,000
Goodwill................................................................................ 12,944,000 9,163,000
Other assets............................................................................ 16,027,000 14,337,000
-------------- ---------------
$ 620,754,000 $ 573,820,000
LIABILITIES AND SHAREHOLDER'S EQUITY
- ---------------------------------------------------------------------------------------------------------------------------
Reserve for losses...................................................................... $ 264,838,000 $ 240,777,000
Accounts payable and accrued expenses................................................... 76,168,000 62,306,000
Current federal income taxes............................................................ 6,091,000 -
---------------- ---------------
347,097,000 303,083,000
---------------- ---------------
Commitments
Shareholder's equity:
Common stock......................................................................... 11,649,000 11,649,000
Additional paid-in capital........................................................... 127,551,000 127,551,000
Retained earnings.................................................................... 130,810,000 123,793,000
Net unrealized gain on investments................................................... 3,647,000 7,744,000
---------------- ---------------
273,657,000 270,737,000
---------------- ---------------
$ 620,754,000 $ 573,820,000
================ ===============
</TABLE>
See notes to combined financial statements.
F-4
<PAGE>
COMMONWEALTH AND TRANSNATION TITLE INSURANCE COMPANIES
COMBINED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net
Additional Unrealized
Common Paid-in Retained Gain (loss) on Shareholder's
Stock Capital Earnings Investments Equity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994 ....................... $ 11,374,000 $ 127,278,000 $ 116,343,000 $ 5,868,000 $ 260,863,000
Net income ..................................... - - 20,995,000 - 20,995,000
Dividends ...................................... - - (19,000,000) - (19,000,000)
Depreciation after applicable deferred
income tax benefit of $5,058,000 ........... - - - (9,392,000) (9,392,000)
------------- ------------- ------------- ------------- -------------
Balance, December 31, 1994 ..................... 11,374,000 127,278,000 118,338,000 (3,524,000) 253,466,000
Net income ..................................... - - 9,455,000 - 9,455,000
Increase in par value of
Commonwealth's common stock
from $1.67 to $2.00 per share ............. 275,000 (275,000) - - -
Dividends ...................................... - - (4,000,000) - (4,000,000)
Capital contribution ........................... - 548,000 - - 548,000
Appreciation after applicable deferred
income tax provision of $6,068,000 ........ - - - 11,268,000 11,268,000
------------- ------------- ------------- ------------- -------------
------------- -------------
Balance, December 31, 1995 ..................... 11,649,000 127,551,000 123,793,000 7,744,000 270,737,000
Net income ..................................... - - 25,233,000 - 25,233,000
Dividends ...................................... - - (18,216,000) - (18,216,000)
Depreciation after applicable deferred
income tax benefit of $2,207,000 .......... - - - (4,097,000) (4,097,000)
------------- ------------- ------------- ------------- -------------
Balance, December 31, 1996 ..................... $ 11,649,000 $ 127,551,000 $ 130,810,000 $ 3,647,000 $ 273,657,000
============= ============= ============= ============= =============
</TABLE>
See notes to combined financial statements.
F-5
<PAGE>
COMMONWEALTH AND TRANSNATION TITLE INSURANCE COMPANIES
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................. $ 25,233,000 $ 9,455,000 $ 20,995,000
Adjustments to reconcile net income to net cash
provided from operating activities:
Increase in reserve for losses .................................... 24,061,000 12,714,000 27,189,000
Change in accounts receivable ..................................... 1,780,000 557,000 1,982,000
Depreciation, bad debts and amortization .......................... 7,797,000 6,838,000 5,145,000
Change in accounts payable, accrued expenses and other ............ 8,478,000 (13,539,000) (15,451,000)
------------- ------------- -------------
NET CASH PROVIDED FROM OPERATING ACTIVITIES ............................ 67,349,000 16,025,000 39,860,000
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of fixed maturities available for sale ............. 88,225,000 29,677,000 12,212,000
Proceeds from sales of fixed maturities held for investment ............ 3,300,000 4,267,000 4,014,000
Proceeds from redemptions of fixed maturities available for sale ....... 13,671,000 2,869,000 3,976,000
Proceeds from redemptions of fixed maturities held for investment ...... 2,700,000 2,005,000 1,643,000
Proceeds from sales of short-term investments -- net ................... 15,360,000 13,055,000 3,730,000
Purchases of fixed maturities available for sale ....................... (138,310,000) (37,922,000) (10,628,000)
Purchases of fixed maturities held for investment ...................... (24,817,000) (10,982,000) (36,266,000)
Purchases of title plants .............................................. (577,000) (985,000) (378,000)
Purchase of real estate and equipment .................................. (6,266,000) (4,439,000) (5,563,000)
Cash outlay for acquisitions ........................................... (3,000,000) - -
Other -- net ........................................................... (321,000) (1,730,000) (50,000)
------------- ------------- -------------
NET CASH USED IN INVESTING ACTIVITIES .................................. (50,035,000) (4,185,000) (27,310,000)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Intercompany receivables and payables -- net ........................... - (1,909,000) 2,423,000
Dividends .............................................................. (18,216,000) (4,000,000) (19,000,000)
Cash received from capital contribution ................................ - 40,000 -
------------- ------------- -------------
NET CASH USED IN FINANCING ACTIVITIES .................................. (18,216,000) (5,869,000) (16,577,000)
------------- ------------- -------------
INCREASE (DECREASE) IN CASH ............................................ (902,000) 5,971,000 (4,027,000)
Cash, beginning of year ................................................ 15,230,000 9,259,000 13,286,000
------------- ------------- -------------
Cash, end of year ...................................................... $ 14,328,000 $ 15,230,000 $ 9,259,000
============= ============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Federal income taxes paid............................................... $ 10,944,000 $ 6,299,000 $ 18,073,000
============= ============= =============
</TABLE>
See notes to combined financial statements.
F-6
<PAGE>
COMMONWEALTH AND TRANSNATION TITLE INSURANCE COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS/SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Combination
The combined financial statements of Commonwealth Land Title Insurance Company
("Commonwealth") and Transnation Title Insurance Company ("Transnation") include
the accounts of all subsidiaries and have been prepared in conformity with
generally accepted accounting principles. Such statements include informed
estimates and judgments of management for those transactions that are not yet
complete or for which the ultimate effects cannot be precisely determined.
Actual results may differ from these estimates. All intercompany accounts and
transactions have been eliminated. Certain reclassifications have been made to
the 1995 and 1994 combined financial statements to conform with current year
presentation.
Commonwealth and Transnation (the "Companies") are wholly owned subsidiaries of
Reliance Insurance Company ("Reliance Insurance"). Reliance Group Holdings, Inc.
("Reliance"), through a subsidiary, owns 100% of the common stock of Reliance
Insurance. Together the Companies comprise the title insurance operations of
Reliance Insurance.
Nature of Operations
The principal operations of the Companies consist of title insurance
underwriting. The Companies write, through direct and agency operations, title
insurance for residential and commercial real estate nationwide and provide
escrow and settlement services in connection with real estate closings.
Investments
Fixed maturity investments include bonds, notes and redeemable preferred stocks.
Fixed maturity investments classified as "available for sale" represent
securities that will be held for an indefinite period of time and are carried at
quoted market value with the net unrealized gain or loss included in
shareholder's equity. Such investments may be sold in response to changes in
interest rates, future general liquidity needs and similar factors. Fixed
maturity investments classified as "held for investment" are carried at
amortized cost since the Companies have the positive intent and ability to hold
these securities to maturity. Short-term investments consist primarily of United
States government securities, certificates of deposit and commercial paper
carried at cost, which approximates market value. First mortgage and other
secured loans are carried at cost, which approximates their fair value. Realized
gains and losses, determined on a specific identification basis, are included in
income.
F-7
<PAGE>
COMMONWEALTH AND TRANSNATION TITLE INSURANCE COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
Title Insurance
Direct title insurance premiums and fees are recognized as revenue when policies
become effective. Agency insurance premiums are recognized as revenue when
reported by the agent. Title insurance claims arise principally from unknown
title defects that exist at the time policies become effective. The reserve for
title losses, which is based on historical and anticipated loss experience,
represents the estimated costs to settle reported claims and claims incurred but
not reported. The process of estimating claims is a complex task and the actual
payments may be more or less than such estimates indicate. Changes in loss
estimates, based on subsequent developments, are included in operations
currently.
Title Plants
Title plants are capitalized at the lower of cost or appraised value at date of
acquisition. Title plants are not being depreciated since there has been no
diminution of value; however, impairments of title plant carrying amounts deemed
to be other than temporary are expensed. Costs of maintaining and updating title
plants are expensed as incurred.
Fair Value of Financial Instruments
The estimated fair value of publicly traded financial instruments is determined
by the Companies using quoted market prices, dealer quotes and prices obtained
from independent third parties. For financial instruments not publicly traded,
fair values are estimated based on values obtained from independent third
parties or quoted market prices of comparable instruments. However, judgment is
required to interpret market data to develop the estimates of fair value.
Accordingly, the estimates are not necessarily indicative of the amounts that
could be realized in a current market exchange. See Note 2 regarding fair value
information for the Companies' financial instruments.
Income Taxes
The Companies are included in the consolidated federal income tax return of
Reliance. Federal income taxes are computed as if Commonwealth and Transnation
filed separate consolidated tax returns.
Adoption of New Accounting Standard
Effective January 1, 1996, the Companies adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of". The adoption of
this Statement had no material effect on the Companies' combined financial
statements.
In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishing of
Liabilities". The adoption of this Statement, which is not required until 1997,
is not expected to have a material effect on the Companies' combined financial
statements.
F-8
<PAGE>
COMMONWEALTH AND TRANSNATION TITLE INSURANCE COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
2. INVESTMENTS
Fixed maturities held for investment at December 31, 1996 consisted of:
<TABLE>
<CAPTION>
Gross Gross
Amortized Market Unrealized Unrealized
Cost Value Gains Losses
-------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Bonds and notes:
U.S. government and government
agencies and authorities........................ $ 1,053,000 $ 1,069,000 $ 16,000 $ -
Public utilities..................................... 90,421,000 90,610,000 1,107,000 918,000
Corporate bonds and other......................... 36,621,000 37,211,000 1,330,000 740,000
Redeemable preferred stock........................... 11,703,000 11,899,000 196,000 -
-------------- --------------- --------------- --------------
$ 139,798,000 $ 140,789,000 $ 2,649,000 $ 1,658,000
============== =============== =============== ==============
</TABLE>
Fixed maturities available for sale at December 31, 1996 consisted of:
<TABLE>
<CAPTION>
Gross Gross
Market Amortized Unrealized Unrealized
Valuet Cost Gains Losses
-------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Bonds and notes:
U.S. government and government
agencies and authorities........................ $ 95,147,000 $ 95,345,000 $ 660,000 $ 858,000
Public utilities..................................... 72,880,000 73,457,000 348,000 925,000
Corporate bonds and other......................... 63,619,000 62,713,000 1,671,000 765,000
Redeemable preferred stock........................... 58,345,000 52,866,000 5,487,000 8,000
---------------- --------------- ---------------- ---------------
$ 289,991,000 $ 284,381,000 $ 8,166,000 $ 2,556,000
================ =============== ================ ===============
</TABLE>
Fixed maturities held for investment at December 31, 1995 consisted of:
<TABLE>
<CAPTION>
Gross Gross
Amortized Market Unrealized Unrealized
Cost Value Gains Losses
-------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Bonds and notes:
U.S. government and government
agencies and authorities........................ $ 1,057,000 $ 1,109,000 $ 52,000 $ -
Public utilities..................................... 67,175,000 70,069,000 2,896,000 2,000
Corporate bonds and other......................... 38,061,000 40,536,000 2,498,000 23,000
Redeemable preferred stock........................... 14,252,000 14,909,000 657,000 -
---------------- --------------- ---------------- ---------------
$ 120,545,000 $ 126,623,000 $ 6,103,000 $ 25,000
================ =============== ================ ===============
</TABLE>
F-9
<PAGE>
COMMONWEALTH AND TRANSNATION TITLE INSURANCE COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
Fixed maturities available for sale at December 31, 1995 consisted of:
<TABLE>
<CAPTION>
Gross Gross
Market Amortized Unrealized Unrealized
Valuet Cost Gains Losses
-------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Bonds and notes:
U.S. government and government
agencies and authorities........................ $ 43,875,000 $ 42,929,000 $ 1,003,000 $ 57,000
Public utilities.................................. 88,655,000 85,795,000 2,963,000 103,000
Corporate bonds and other......................... 75,904,000 72,207,000 3,833,000 136,000
Redeemable preferred stock........................... 51,760,000 47,349,000 4,411,000 -
---------------- --------------- ---------------- --------------
$ 260,194,000 $ 248,280,000 $ 12,210,000 $ 296,000
================ =============== ================ ==============
</TABLE>
The contractual maturities of fixed maturity investments at December 31, 1996
were as follows:
<TABLE>
<CAPTION>
Held for Investment Available for Sale
Amortized Market Amortized Market
Cost Value Cost Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Fixed maturity investments:
Due within one year ................................. $ 1,053,000 $ 1,069,000 $ 2,200,000 $ 2,205,000
Due after one year through five years ............... 1,849,000 2,032,000 15,856,000 15,976,000
Due after five years through ten years .............. 45,777,000 46,679,000 36,537,000 37,029,000
Due after ten years ................................. 79,416,000 79,110,000 96,960,000 96,705,000
------------ ------------ ------------ ------------
128,095,000 128,890,000 151,553,000 151,915,000
Redeemable preferred stock ............................. 11,703,000 11,899,000 52,866,000 58,345,000
Mortgage-backed securities ............................. - - . 79,962,000 79,731,000
------------ ------------ ------------ ------------
$139,798,000 $140,789,000 $284,381,000 $289,991,000
============ ============ ============ ============
</TABLE>
Net investment income consisted of:
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment income:
Fixed maturities..................... $ 29,632,000 $ 26,971,000 $ 25,987,000
Short-term investments............... 1,588,000 1,689,000 1,590,000
Other................................ 883,000 773,000 669,000
--------------- ---------------- ---------------
32,103,000 29,433,000 28,246,000
Investment expenses..................... 1,648,000 1,500,000 1,791,000
--------------- ---------------- ---------------
$ 30,455,000 $ 27,933,000 $ 26,455,000
=============== ================ ===============
</TABLE>
F-10
<PAGE>
COMMONWEALTH AND TRANSNATION TITLE INSURANCE COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
Gain on sales of investments consisted of:
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
Fixed maturities held for investment:
<S> <C> <C> <C>
Realized gains .......................................... $ 410,000 $ 128,000 $ 147,000
Realized losses ......................................... (25,000) - (1,000)
----------- ----------- -----------
385,000 128,000 146,000
Fixed maturities available for sale:
Realized gains .......................................... 1,308,000 1,626,000 531,000
Realized losses ......................................... (1,347,000) (25,000) (161,000)
----------- ----------- -----------
(39,000) 1,601,000 370,000
----------- ----------- -----------
$ 346,000 $ 1,729,000 $ 516,000
=========== =========== ===========
</TABLE>
During 1996, 1995 and 1994, the Companies sold fixed maturities held for
investment with an amortized cost of $2,963,000, $4,221,000 and $3,892,000
respectively, resulting in realized gains of $337,000, $45,000 and $123,000
respectively. These sales were principally in response to a significant
deterioration in the issuers' creditworthiness.
3. PROVISION FOR INCOME TAXES
Income tax provision from operations consisted of:
<TABLE>
<CAPTION>
Year ended December 31 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current................................................................ $ 18,094,000 $ 5,066,000 $ 16,265,000
Deferred............................................................... (4,747,000) (311,000) (5,456,000)
------------- ------------- -------------
$ 13,347,000 $ 4,755,000 $ 10,809,000
============= ============= =============
</TABLE>
F-11
<PAGE>
COMMONWEALTH AND TRANSNATION TITLE INSURANCE COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
The reconciliation of taxes computed at the statutory rate of 35% to the
provision for income taxes is as follows:
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income from operations before income taxes............................. $ 38,580,000 $ 14,210,000 $ 31,804,000
============= ============= =============
Tax provision at U.S. statutory rate................................... $ 13,503,000 $ 4,974,000 $ 11,131,000
Reconciliation to actual tax rate:
Dividends received deduction........................................ (1,248,000) (1,199,000) (1,148,000)
Goodwill............................................................ 268,000 126,000 88,000
Non-deductible meals and entertainment.............................. 652,000 578,000 644,000
Tax exempt interest income.......................................... (46,000) (67,000) (81,000)
Other............................................................... 218,000 343,000 175,000
------------- ------------- -------------
$ 13,347,000 $ 4,755,000 $ 10,809,000
============= ============= =============
</TABLE>
The tax effects of items comprising the Companies net deferred tax asset were as
follows:
<TABLE>
<CAPTION>
December 31 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Title loss reserves.................................................................. $ 83,004,000 $ 73,422,000
Tax basis differential for equipment................................................. 6,133,000 4,370,000
Allowance for doubtful accounts...................................................... 2,044,000 1,747,000
Pension reserves..................................................................... 3,318,000 2,829,000
Other deferred tax assets............................................................ 3,211,000 4,055,000
---------------- ---------------
97,710,000 86,423,000
---------------- ---------------
Deferred tax liabilities:
Statutory premium reserve............................................................ 56,095,000 50,887,000
Financing lease arrangement.......................................................... 5,222,000 3,740,000
Unrealized security gains............................................................ 1,963,000 4,170,000
Other deferred tax liabilities....................................................... 7,187,000 7,260,000
---------------- ---------------
.................................................................................. 70,467,000 66,057,000
---------------- ---------------
Net deferred tax asset.................................................................. $ 27,243,000 $ 20,366,000
================ ===============
</TABLE>
4. RESTRICTED ASSETS AND SHAREHOLDER'S EQUITY
State laws require the Companies to maintain statutory premium reserves, which
are restrictions on shareholder's equity. Qualified investments are maintained
in an amount equal to these reserves, which aggregated $258,729,000 at December
31, 1996 and $239,993,000 at December 31, 1995.
F-12
<PAGE>
COMMONWEALTH AND TRANSNATION TITLE INSURANCE COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
The Companies had investments on deposit with insurance departments of various
states as required by law with aggregate carrying values of $12,462,000 at
December 31, 1996 and $14,150,000 at December 31, 1995.
Commonwealth's common stock has a par value of $2 per share and 1,000,000 shares
were authorized and 824,653 shares were issued and outstanding at December 31,
1996 and 1995. Transnation's common stock has a par value of $1 per share and
10,000,000 shares were authorized, issued and outstanding at December 31, 1996
and 1995. Total shareholder's equity of Commonwealth was $184,926,000 and
$180,640,000 at December 31, 1996 and 1995, respectively. Total shareholder's
equity of Transnation was $88,731,000 and $90,097,000 at December 31, 1996 and
1995, respectively.
Future dividend payments by the Companies are limited by statutory restrictions
to 100% of the prior year's statutory net income or 10% of policyholders'
surplus at December 31 of the preceding year, whichever is greater. In
accordance with these restrictions, $39,260,000 is available for dividends in
1997.
5. POSTRETIREMENT BENEFIT PLANS
Retirement benefits, covering substantially all employees, are provided under a
noncontributory trusteed defined benefit pension plan. Contributions to the
pension plan are based on the minimum funding requirements of the Employee
Retirement Income Security Act of 1974.
Retirement benefits are paid to eligible employees based principally on years of
service and salary. Pension plan assets consist primarily of corporate and
government debt securities and 314,100 shares of Reliance Group Holdings, Inc.
common stock.
Net periodic pension cost includes the following components:
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost -- benefits earned during the period...................... $ 3,945,000 $ 3,076,000 $ 3,832,000
Interest cost on projected benefit obligation.......................... 4,227,000 3,859,000 3,563,000
Actual return on plan assets........................................... (1,552,000) (5,342,000) 2,082,000
Net amortization and deferral.......................................... (3,770,000) 1,047,000 (6,832,000)
--------------- ---------------- ---------------
Net periodic pension cost.............................................. $ 2,850,000 $ 2,640,000 $ 2,645,000
=============== ================ ===============
</TABLE>
F-13
<PAGE>
COMMONWEALTH AND TRANSNATION TITLE INSURANCE COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
The reconciliation of the pension plan funded status with the accrued pension
cost included in accounts payable and accrued expenses is as follows:
<TABLE>
<CAPTION>
December 31 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested............................................................................... $ 43,935,000 $ 43,319,000
Nonvested............................................................................ 3,494,000 $ 3,971,000
---------------- ---------------
Accumulated benefit obligation.......................................................... 47,429,000 47,290,000
Effect of anticipated future compensation levels........................................ 10,911,000 11,736,000
---------------- ---------------
Projected benefit obligation............................................................ 58,340,000 59,026,000
Plan assets at market value............................................................. (49,313,000) (43,087,000)
---------------- ---------------
Projected benefit obligation in excess of plan assets................................... 9,027,000 15,939,000
Unrecognized net assets at date of plan adoption........................................ 2,969,000 3,605,000
Unrecognized net loss................................................................... (4,319,000) (10,732,000)
---------------- ---------------
Accrued pension cost.................................................................... $ 7,677,000 $ 8,812,000
================ ===============
</TABLE>
Contributions to the pension plan were $3,985,000 in 1996 and $1,148,000 in
1994. No contributions were made in 1995.
The assumptions used to measure the projected benefit obligation at December 31,
1996 and 1995 included discount rates of 8.0% and 7.5%, respectively, and
weighted average rates of compensation increase of 4.0% and 4.5%, respectively.
The expected long-term investment rates of return on plan assets for the years
ended December 31, 1996 and 1995 were 10.0% and 9.5%, respectively.
In addition to pension benefits, Commonwealth provides unfunded postretirement
medical and life insurance plans for certain employees who were hired prior to
1990.
Postretirement benefit cost includes the following components:
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost -- benefits earned during the period...................... $ 168,000 $ 167,000 $ 227,000
Interest cost on accumulated postretirement benefit obligation......... 500,000 510,000 468,000
Net amortization and deferral.......................................... 346,000 303,000 342,000
--------------- ---------------- ---------------
Postretirement benefit cost............................................ $ 1,014,000 $ 980,000 $ 1,037,000
=============== ================ ===============
</TABLE>
F-14
<PAGE>
COMMONWEALTH AND TRANSNATION TITLE INSURANCE COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
The components of the accumulated postretirement benefit obligation included in
accounts payable and accrued expenses were as follows:
<TABLE>
<CAPTION>
December 31 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees............................................................................. $ 3,462,000 $ 3,234,000
Other active plan participants.......................................................... 3,240,000 3,618,000
---------------- ---------------
Accumulated benefit obligation.......................................................... 6,702,000 6,852,000
Unrecognized net gain................................................................... 559,000 371,000
Unrecognized transition obligation...................................................... (5,533,000) (5,879,000)
---------------- ---------------
Accrued postretirement benefit cost..................................................... $ 1,728,000 $ 1,344,000
================ ===============
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation as of December 31, 1996 was 10.0% for 1997,
decreasing until it reaches 6.0% in 2007, after which it remains constant. A
one-percentage-point change in the assumed health care cost trend rate for each
year would change the accumulated postretirement benefit obligation as of
December 31, 1996 and the 1996 net postretirement health care cost by
approximately 2.6% and 2.2%, respectively. The assumed discount rates used in
determining the accumulated postretirement benefit obligation at December 31,
1996 and 1995 were 8.0% and 7.5%, respectively.
6. RESERVE FOR LOSSES
The reconciliation of the beginning to ending reserve for losses is as follows:
<TABLE>
<CAPTION>
December 31 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Reserve for losses, beginning of year .............................. $240,777,000 $228,063,000 $200,874,000
------------ ------------ ------------
Provision for policy claims and related expenses:
Provision for insured events of the current year ................ 59,771,000 57,900,000 71,060,000
Increase in provision for insured events of prior years ......... 1,345,000 586,000 4,807,000
------------ ------------ ------------
Total provision ............................................... 61,116,000 58,486,000 75,867,000
------------ ------------ ------------
Payments, net of recoveries, for policy claims and related expenses:
Attributable to insured events of the current year .............. 1,755,000 2,187,000 4,475,000
Attributable to insured events of prior years ................... 35,300,000 43,585,000 44,203,000
------------ ------------ ------------
Total payments ................................................ 37,055,000 45,772,000 48,678,000
------------ ------------ ------------
Reserve for losses, end of year .................................... $264,838,000 $240,777,000 $228,063,000
============ ============ ============
</TABLE>
F-15
<PAGE>
COMMONWEALTH AND TRANSNATION TITLE INSURANCE COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
7. ESCROW FUNDS
Customers' funds held in escrow for real estate transactions are not included in
the combined balance sheet. These funds consisted of:
<TABLE>
<CAPTION>
December 31 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash ............................................................................ $ 263,348,000 $ 215,393,000
Investments held for specific accounts........................................... $ 333,658,000 249,830,000
-------------- --------------
$ 597,006,000 $ 465,223,000
============== ==============
</TABLE>
8. STATUTORY INFORMATION
The Companies had combined policyholders' surplus of $199,587,000 and
$182,167,000 at December 31, 1996 and 1995, respectively, and combined statutory
net income of $40,094,000, $12,439,000 and $32,421,000 for the years ended
December 31, 1996, 1995 and 1994, respectively. Commonwealth had policyholders'
surplus of $136,559,000 and $121,826,000 at December 31, 1996 and 1995,
respectively, and statutory net income of $31,806,000, $10,580,000 and
$26,244,0000 for the years ended December 31, 1996, 1995 and 1994, respectively.
Transnation had policyholders' surplus of $63,028,000 and $60,341,000 at
December 31, 1996 and 1995, respectively, and statutory net income of
$8,288,000, $1,859,000 and $6,177,000 for the years ended December 31, 1996,
1995 and 1994, respectively.
Commonwealth and Transnation have entered into a credit support arrangement to
which each Company will commit credit support, if necessary, to the other and to
its wholly owned subsidiaries. This agreement provides financial support in
order that each company remains solvent, able to meet its financial obligations
as they come due in the ordinary course of business and protects the interests
of the policyholders.
9. COMMITMENTS
The Companies lease certain office facilities and equipment under lease
agreements that expire at various dates through 2011. Rental expense in 1996,
1995 and 1994 was $31,552,000, $30,956,000 and $29,860,000 respectively. At
December 31, 1996, future minimum rental commitments under noncancelable
operating leases, principally for office space, were:
Year Ended December 31
1997 .......................................................... $ 17,651,000
1998 .......................................................... 13,340,000
1999 .......................................................... 9,643,000
2000 .......................................................... 6,694,000
2001 .......................................................... 4,377,000
2002 and later................................................. 8,030,000
-------------
$ 59,735,000
=============
F-16
<PAGE>
COMMONWEALTH AND TRANSNATION TITLE INSURANCE COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
10. SUBSEQUENT EVENT
One August 20, 1997, Reliance agreed to sell the Companies to Lawyers Title
Corporation ("LTC") for cash, common stock and convertible preferred stock. The
sale is subject to regulatory approvals as well as approval of LTC's
shareholders.
F-17
<PAGE>
COMMONWEALTH AND TRANSNATION TITLE INSURANCE COMPANIES
COMBINED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Premiums and fees ................................ $ 204,818,000 $ 197,741,000 $ 386,703,000 $ 367,807,000
Net investment income ............................ 7,819,000 7,474,000 15,772,000 14,832,000
Gain (loss) on sale of investments ............... 84,000 (934,000) 1,101,000 (427,000)
------------- ------------- ------------- -------------
212,721,000 204,281,000 403,576,000 382,212,000
============= ============= ============= =============
EXPENSES:
Commissions to agents ............................ 86,187,000 88,718,000 170,473,000 164,473,000
Compensation and employee benefits ............... 59,959,000 53,007,000 112,153,000 103,035,000
Provision for losses ............................. 9,985,000 17,247,000 18,745,000 31,813,000
Taxes, other than federal income ................. 2,551,000 3,679,000 5,947,000 6,420,000
Other operating expenses ......................... 37,495,000 34,223,000 72,241,000 65,271,000
------------- ------------- ------------- -------------
196,177,000 196,874,000 379,559,000 371,012,000
Income from operations before federal
income taxes .................................. 16,544,000 7,407,000 24,017,000 11,200,000
Income tax provision ............................. 5,833,000 2,581,000 8,460,000 3,817,000
------------- ------------- ------------- -------------
NET INCOME ....................................... $ 10,711,000 $ 4,826,000 $ 15,557,000 $ 7,383,000
============= ============= ============= =============
</TABLE>
F-18
<PAGE>
COMMONWEALTH AND TRANSNATION TITLE INSURANCE COMPANIES
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
June 30 December 31
ASSETS 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(Unaudited)
Investments:
Fixed maturities held for investment -- at amortized cost
(quoted market $143,313,000 and $140,789,000)............................................ $ 142,922,000 $ 139,798,000
Fixed maturities available for sale -- at quoted market
(amortized cost $251,168,000 and $284,381,000)........................................... 255,484,000 289,991,000
Short-term investments..................................................................... 18,867,000 25,860,000
First mortgage and other secured loans..................................................... 4,862,000 5,453,000
Cash......................................................................................... 13,061,000 14,328,000
Accounts receivable, less allowances of $6,107,000 and $5,663,000............................ 30,193,000 23,987,000
Real estate and equipment -- at cost, less accumulated
depreciation of $28,502,000 and $25,746,000................................................ 17,527,000 15,373,000
Title plants................................................................................. 50,227,000 49,750,000
Deferred federal income tax benefit.......................................................... 27,381,000 27,243,000
Goodwill..................................................................................... 16,548,000 12,944,000
Other assets................................................................................. 18,553,000 16,027,000
--------------- ---------------
$ 595,625,000 $ 620,754,000
============== ===============
LIABILITIES AND SHAREHOLDER'S EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
Reserve for losses........................................................................... $ 261,981,000 $ 264,838,000
Accounts payable and accrued expenses........................................................ 66,272,000 76,168,000
Current federal income taxes................................................................. - 6,091,000
--------------- ---------------
328,253,000 347,097,000
=============== ===============
Commitments
Shareholder's equity:
Common stock............................................................................... 11,649,000 11,649,000
Additional paid-in capital................................................................. 127,551,000 127,551,000
Retained earnings.......................................................................... 125,367,000 130,810,000
Net unrealized gain on investments......................................................... 2,805,000 3,647,000
--------------- ---------------
267,372,000 273,657,000
--------------- ---------------
$ 595,625,000 $ 620,754,000
=============== ================
</TABLE>
F-19
<PAGE>
COMMONWEALTH AND TRANSNATION TITLE INSURANCE COMPANIES
COMBINED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Net
Additional Unrealized
Common Paid-in Retained Gain (loss) on Shareholder's
Stock Capital Earnings Investments Equity
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997.............. $ 11,649,000 $127,551,000 $130,810,000 $ 3,647,000 $273,657,000
Net income............................ - - 15,557,000 - 15,557,000
Dividends............................. - - (21,000,000) - (21,000,000)
Depreciation after applicable ........
deferred income tax benefit
of $452,000........................ - - - (842,000) (842,000)
------------ ------------ ------------ ------------ ------------
Balance, June 30, 1997................ $ 11,649,000 $127,551,000 $125,367,000 $ 2,805,000 $267,372,000
============ ============ ============ ============ ============
</TABLE>
F-20
<PAGE>
COMMONWEALTH AND TRANSNATION TITLE INSURANCE COMPANIES
COMBINED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Six Month Ended
June 30 June 30
1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................. $ 10,711,000 $ 4,826,000 $ 15,557,000 $ 7,383,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for losses ................................... 9,985,000 17,247,000 18,745,000 31,813,000
Change in premium and other receivables ................ (3,986,000) (1,479,000) (7,099,000) 259,000
Depreciation, bad debts and amortization ............... 2,312,000 1,561,000 4,593,000 3,172,000
Claims paid, net of recoveries ......................... (12,440,000) (9,775,000) (21,602,000) (20,833,000)
Change in accounts payable, accrued
expenses and other ................................... (4,951,000) (15,000) (21,906,000) (2,726,000)
------------- ------------- ------------- -------------
1,631,000 12,365,000 (11,712,000) 19,068,000
------------- ------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of fixed maturities available
for sale ................................................. 20,051,000 26,322,000 47,049,000 79,640,000
Proceeds from redemptions of fixed maturities
available for sale ....................................... 5,366,000 2,529,000 10,872,000 5,287,000
Proceeds from redemptions of fixed maturities
held for investment ...................................... 612,000 - 612,000 2,485,000
(Increase) of short-term investments -- net ................ 12,323,000 (4,728,000) 6,993,000 15,692,000
Purchases of fixed maturities available for sale ........... (9,248,000) (28,784,000) (23,765,000) (104,168,000)
Purchases of fixed maturities held for investment .......... (3,437,000) (4,179,000) (3,689,000) (13,952,000)
Increase in title plants ................................... (242,000) (4,000) (512,000) (241,000)
Cash outlay for acquisition ................................ - - - (3,000,000)
Investments receivable/payable ............................. (1,151,000) (2,016,000) - (18,000)
Other -- net ............................................... (2,658,000) (2,862,000) (6,115,000) (5,002,000)
------------- ------------- ------------- -------------
21,616,000
(13,722,000) (31,445,000) (23,277,000)
------------- ------------- ------------- -------------
CASH FLOW FROM FINANCING ACTIVITIES:
Dividends .................................................. (21,000,000) - (21,000,000) -
------------- ------------- ------------- -------------
INCREASE (DECREASE) IN CASH ................................ 2,247,000 (1,357,000) (1,267,000) (4,209,000)
Cash, beginning of period .................................. 10,814,000 12,378,000 14,328,000 15,230,000
------------- ------------- ------------- -------------
Cash, end of period ........................................ $ 13,061,000 $ 11,021,000 $ 13,061,000 $ 11,021,000
============= ============= ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Federal income taxes paid .................................. $ 9,500,000 $ 4,900,000 $ 15,591,000 $ 4,900,000
============= ============= ============= =============
</TABLE>
F-21
<PAGE>
COMMONWEALTH AND TRANSNATION TITLE INSURANCE COMPANIES
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited combined financial statements of Commonwealth Land Title
Insurance Company and Transaction Title Insurance Company included the
Accounts of all subsidiaries and have been prepared in conformity with
generally accepted accounting principles. Such statements included
informed estimates and judgments of management for those transactions
that are not yet complete or for which the ultimate effects cannot be
precisely determined. Actual results may differ from these estimates.
All intercompany accounts and transactions have been eliminated.
These financial statements, which are for interim periods, do not
include all disclosures provided in the annual combined financial
statements. These unaudited combined financial statements should be
read in conjunction with the annual audited combined financial
statements and the accompanying footnotes. The December 31, 1996
balance sheet was derived from audited combined financial statements,
but does not include all disclosures required by generally accepted
accounting principles.
In the opinion of the Companies, the accompanying unaudited combined
financial statements contain all adjustments necessary for a fair
presentation of the financial statements. The results of operations for
the six months ended June 30, 1997 are not necessarily indicative of
the results to be expected for the full year.
F-22
<PAGE>
Appendix A
STOCK PURCHASE AGREEMENT
By and Among
Lawyers Title Corporation
a Virginia Corporation
and
Lawyers Title Insurance Corporation
a Virginia Corporation
and
Reliance Insurance Company
a Pennsylvania Corporation
and
Reliance Group Holdings, Inc.
a Delaware Corporation
Dated as of August 20, 1997
<PAGE>
TABLE OF CONTENTS
ARTICLE I - Definitions.....................................................A-1
Section 1.1. Certain Matters of Construction........................A-1
Section 1.2. Cross Reference Table..................................A-2
Section 1.3. Certain Definitions....................................A-5
ARTICLE II - The Acquisition...............................................A-11
Section 2.1. Acquisition...........................................A-11
Section 2.2. Consideration and Closing.............................A-11
ARTICLE III - Representations and Warranties of Seller.....................A-13
Section 3.1. Corporate Matters.....................................A-13
Section 3.2. Financial Statements..................................A-15
Section 3.3. Change in Condition...................................A-15
Section 3.4. Liabilities...........................................A-17
Section 3.5. Assets................................................A-18
Section 3.6. Intellectual Property Rights..........................A-19
Section 3.7. Accounts..............................................A-20
Section 3.8. Certain Contractual Obligations.......................A-20
Section 3.9. Insurance.............................................A-22
Section 3.10. Transactions with Affiliates..........................A-23
Section 3.11. Compliance with Laws..................................A-23
Section 3.12. Tax Matters...........................................A-24
Section 3.13. Employee Relations and Employee Benefit Plans.........A-25
Section 3.14. Environmental Matters.................................A-31
Section 3.15. Accounts Receivable...................................A-32
Section 3.16. Litigation............................................A-32
Section 3.17. Brokers...............................................A-32
Section 3.18. Investment Securities.................................A-32
Section 3.19. Exceptions............................................A-32
ARTICLE IV - Representations and Warranties of Buyer and LTIC..............A-33
Section 4.1. Corporate Matters.....................................A-33
Section 4.2. Financial Statements..................................A-35
Section 4.3. Change in Condition...................................A-36
Section 4.4. Liabilities...........................................A-37
Section 4.5. Assets................................................A-38
Section 4.6. Intellectual Property Rights..........................A-39
Section 4.7. Accounts..............................................A-40
Section 4.8. Certain Contractual Obligations.......................A-40
Section 4.9. Insurance.............................................A-42
Section 4.10. Transactions with Affiliates..........................A-42
Section 4.11. Compliance with Laws..................................A-43
A-i
<PAGE>
Section 4.12. Tax Matters...........................................A-43
Section 4.13. Employee Relations and Employee Benefit Plans.........A-44
Section 4.14. Environmental Matters.................................A-50
Section 4.15. Accounts Receivable...................................A-50
Section 4.16. Litigation............................................A-50
Section 4.17. Brokers...............................................A-51
Section 4.18. Investment Securities.................................A-51
Section 4.19. Buyer SEC Documents...................................A-51
Section 4.20. Amended and Restated Rights Agreement.................A-51
Section 4.21. Exceptions............................................A-51
ARTICLE V - Certain Covenants of the Parties...............................A-52
Section 5.1. Access to Premises and Information of Buyer
and LTIC..............................................A-52
Section 5.2. Access to Premises and Information of Company.........A-52
Section 5.3. Confidentiality Letter................................A-52
Section 5.4. Operation of Company Business Prior to the
Closing Date..........................................A-53
Section 5.5. Certain Notices.......................................A-54
Section 5.6. Preparation for Closing...............................A-55
Section 5.7. Tax Matters...........................................A-55
Section 5.8. Expenses of Transaction; Accounts.....................A-61
Section 5.9. Books and Records; Personnel..........................A-62
Section 5.10. Use of Certain Names and Marks........................A-62
Section 5.11. Further Assurances....................................A-62
Section 5.12. Reimbursement by the Parties..........................A-63
Section 5.13. Financial Statement Deliveries........................A-63
Section 5.14. Insurance Policies....................................A-63
Section 5.15. No Solicitation for Employment........................A-64
Section 5.16. No Solicitation of Proposals or Offers................A-64
Section 5.17. Noncompetition Covenant...............................A-64
Section 5.18. Sale of Buyer Common Stock............................A-65
Section 5.19. Registration and Listing of Common Shares.............A-66
Section 5.20. Proxy Materials.......................................A-67
Section 5.21. Administrative Services Agreement.....................A-68
ARTICLE VI - Conditions to the Obligation of Buyer to Close................A-68
Section 6.1. Representations, Warranties and Covenants.............A-68
Section 6.2. Closing Agreements....................................A-68
Section 6.3. Legality; Governmental Authorization; Litigation......A-69
Section 6.4. Affiliate Debt........................................A-69
Section 6.5. Opinion of Counsel....................................A-69
Section 6.6. Update................................................A-69
Section 6.7. General...............................................A-69
Section 6.8. Shareholder Approval..................................A-69
ARTICLE VII - Conditions to the Obligation of Seller to Close..............A-70
Section 7.1. Representations, Warranties and Covenants.............A-70
Section 7.2. Closing Agreements; Buyer Stock.......................A-70
Section 7.3. Legality; Government Authorization; Litigation........A-70
A-ii
<PAGE>
Section 7.4. Opinion of Counsel....................................A-70
Section 7.5. General...............................................A-71
Section 7.6. Update................................................A-71
Section 7.7. Listing of Common Shares and Shares Issuable Upon
Conversion of Preferred Shares........................A-71
Section 7.8. Amended and Restated Rights Agreement.................A-71
Section 7.9. Board of Directors....................................A-71
Section 7.10. Payment...............................................A-71
Section 7.11. Shareholder Approval..................................A-71
ARTICLE VIII - Employment and Employee Benefits Arrangements...............A-71
Section 8.1. Benefit Plans and Arrangements........................A-71
ARTICLE IX - Indemnification...............................................A-74
Section 9.1. Indemnification by Seller.............................A-74
Section 9.2. Indemnification by Buyer..............................A-75
Section 9.3. Time Limitation on Indemnification....................A-75
Section 9.4. Monetary Limitations on Indemnification...............A-76
Section 9.5. Certain Matters of Construction.......................A-76
Section 9.6. Third Party Claims....................................A-76
Section 9.7. No Circular Recovery..................................A-77
Section 9.8. Nature of Indemnification Payments....................A-77
Section 9.9. Remedies..............................................A-77
ARTICLE X - Consent to Jurisdiction; Governing Law.........................A-78
Section 10.1. Consent to Jurisdiction...............................A-78
Section 10.2. Governing Law.........................................A-79
ARTICLE XI - Termination...................................................A-79
Section 11.1. Termination of Agreement..............................A-79
Section 11.2. Effect of Termination.................................A-80
ARTICLE XII - Miscellaneous................................................A-80
Section 12.1. Entire Agreement; Waivers.............................A-80
Section 12.2. Amendment or Modification.............................A-80
Section 12.3. Survival..............................................A-81
Section 12.4. Independence of Representations and Warranties........A-81
Section 12.5. Severability..........................................A-81
Section 12.6. Knowledge.............................................A-81
Section 12.7. Successors and Assigns................................A-81
Section 12.8. Notices...............................................A-82
Section 12.9. Public Announcements..................................A-82
Section 12.10. Headings..............................................A-83
Section 12.11. Third Party Beneficiaries.............................A-83
Section 12.12. Counterparts..........................................A-83
A-iii
<PAGE>
EXHIBITS
Exhibit A - Registration Rights Agreement
Exhibit B - Subordinated Note
Exhibit C - Voting and Standstill Agreement
Exhibit D - Administrative Services Term Sheet
Exhibit E - Form of Legal Opinion of Seller's Counsel
Exhibit F - Form of Legal Opinion of Buyer's and LTIC's Counsel
A-iv
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered into
as of the 20th day of August, 1997, by and among LAWYERS TITLE CORPORATION, a
Virginia corporation ("Buyer"), LAWYERS TITLE INSURANCE CORPORATION, a Virginia
corporation ("LTIC"), RELIANCE INSURANCE COMPANY, a Pennsylvania corporation
("Seller") and RELIANCE GROUP HOLDINGS, INC., a Delaware corporation ("Seller's
Parent").
RECITALS
1. Seller owns all of the issued and outstanding shares of the capital
stock of Commonwealth Land Title Insurance Company, a Pennsylvania corporation
("Commonwealth"), and of Transnation Title Insurance Company, an Arizona
corporation ("Transnation"). The issued and outstanding shares of Commonwealth
and Transnation are referred to herein collectively as the "Company Shares" and
separately as the "Commonwealth Shares" and the "Transnation Shares,"
respectively.
2. Seller desires to sell and transfer the Company Shares to Buyer, and
Buyer desires to purchase and accept transfer of (the "Purchase") the Company
Shares from Seller. Seller's Parent is executing this Agreement for the sole
purpose of agreeing to the covenants set forth in Section 5.17 hereof and
Seller's Parent shall not be deemed to be a party hereto for any other purpose.
AGREEMENT
Therefore, in consideration of the foregoing and the mutual agreements and
covenants set forth below, which are acknowledged by each party to be fair and
adequate consideration for its obligations and commitments hereunder, the
parties hereby agree as follows:
ARTICLE I
Definitions
For the purposes of this Agreement:
Section 1.1. Certain Matters of Construction. In addition to the
definitions referred to as set forth below in this Section 1:
(a) The words "hereof," "herein," "hereunder" and words of
similar import shall refer to this Agreement as a whole and not to any
particular Section or provision of this Agreement, and any reference to a
particular Section of this Agreement shall include all subsections thereof.
(b) The words "party" and "parties" shall refer to Seller,
Seller's Parent (for the sole purpose of agreeing to the covenants set forth in
Section 5.17 hereof), Buyer and LTIC.
(c) Definitions shall be equally applicable to both the
singular and plural forms of the terms defined, and references to the masculine,
feminine or neuter gender shall include each other gender.
A-1
<PAGE>
(d) Accounting terms used herein and not otherwise defined
herein are used herein as defined by GAAP.
Section 1.2. Cross Reference Table. The following terms are defined in the
Sections set forth opposite the term and shall have the respective meaning
therein set forth:
Term Definition
---- ----------
"Action" Section 1.3.1
"Additional Shares" Section 5.18(b)
"Affiliate" Section 1.3.2
"Affiliate Debt" Section 1.3.3
"Agreement" Preamble
"Alternative Accountants" Section 1.3.4
"Appraiser" Section 5.7(g)
"Best Efforts" Section 1.3.5
"Books and Records" Section 5.9(b)(i)
"Business Day" Section 1.3.6
"Buyer" Preamble
"Buyer Affiliate Relationships" Section 4.10
"Buyer Affiliated Group" Section 4.12(b)
"Buyer Annual Balance Sheets" Section 4.2.1(a)
"Buyer Annual Financials" Section 4.2.1(a)
"Buyer Assets" Section 4.5.1
"Buyer Benefit Arrangement" Section 1.3.7
"Buyer Business" Section 1.3.8
"Buyer Common Shares" Section 1.3.9
"Buyer Common Stock" Section 1.3.10
"Buyer Contracts" Section 4.8
"Buyer Disclosure Letter" Article IV
"Buyer Equipment" Section 4.8(f)
"Buyer Financial Statements" Section 4.2.1(a)
"Buyer Insurance Policies" Section 4.9
"Buyer Intangibles" Section 4.6
"Buyer Interim Balance Sheet" Section 4.2.1(b)
"Buyer Interim Financials" Section 4.2.1(b)
"Buyer Leases" Section 4.5.2
"Buyer Leases-Out" Section 4.5.2
"Buyer Licenses" Section 4.6
"Buyer Plan" Section 1.3.11
"Buyer Real Property" Section 4.5.1
"Buyer SEC Documents" Section 4.19
"Buyer Series B Preferred Shares" Section 1.3.12
"Buyer Tax Returns" Section 4.12(a)
"Buyer's Deemed Sales Price Notice" Section 5.7(g)
"Bylaws" Section 1.3.13
"Cash Purchase Price" Sections 2.2.1(a) and 2.2.2(c)
"Charter" Section 1.3.14
"Closing" Section 2.2.3
"Closing Agreements" Section 6.2
"Closing Date" Section 2.2.3
A-2
<PAGE>
"CMAC" Section 5.7(d)
"CMAC Agreement" Section 5.7(d)
"Code" Section 1.3.15
"Commonwealth" Recitals
"Commonwealth Shares" Recitals
"Company Annual Balance Sheets" Section 3.2.1(a)
"Company Annual Financials" Section 3.2.1(a)
"Company Assets" Section 3.5.1
"Company Benefit Arrangement" Section 1.3.16
"Company Business" Section 1.3.17
"Company Contracts" Section 3.8
"Company Employees" Section 1.3.16
"Company Equipment" Section 3.8(f)
"Company Financial Statements" Section 3.2.1(a)
"Company Insurance Policies" Section 3.9
"Company Intangibles" Section 3.6
"Company Interim Balance Sheet" Section 3.2.1(b)
"Company Interim Financials" Section 3.2.1(b)
"Company Leases" Section 3.5.2
"Company Leases-Out" Section 3.5.2
"Company Licenses" Section 3.6
"Company Marks" Section 1.3.18
"Company Plan" Section 1.3.19
"Company Real Property" Section 3.5.1
"Company Shares" Recitals
"Compensation" Section 1.3.20
"Confidentiality Agreement" Section 5.3
"Consolidated Returns" Section 5.7(f)(i)
"Contractual Obligation" Section 1.3.21
"Controlled Group" Section 1.3.22
"Debt" Section 1.3.23
"Distribution" Section 1.3.24
"Enforceable" Section 1.3.25
"Environmental Condition" Section 9.9
"Environmental Laws" Section 1.3.26
"Environmental Response" Section 9.6
"Equity Securities" Section 1.3.27
"ERISA" Section 1.3.28
"Excepted Amounts" Section 5.7(b)(i)
"Exchange Act" Section 4.19
"Form 5500-series" Sections 3.13.2(i) and 4.13.2(i)
"GAAP" Section 1.3.29
"General Survival Period" Section 9.3
"Governmental Authority" Section 1.3.30
"Governmental Order" Section 1.3.31
"Guarantee" Section 1.3.32
"Hazardous Substances" Section 1.3.33
"HSR Act" Section 3.1.4
"IVT Agreement" Section 5.7(d)(ii)
"Income Tax" Section 1.3.34
"Indemnifying Party" Sections 9.1 and 9.2
A-3
<PAGE>
"Indemnitee" Sections 9.1 and 9.2
"Interim Balance Sheet Date" Section 3.2.1(b)
"LandAmerica Financial Group, Inc." Section 5.20
"Legal Requirement" Section 1.3.35
"Liabilities" Section 1.3.36
"Lien" Section 1.3.37
"Losses" Section 1.3.38
"LTIC" Preamble
"MADSP" Section 5.7(g)
"Material Adverse Effect" Section 1.3.39
"Multiemployer Plan" Sections 3.13.2(c)(v) and 4.13.2(c)(v)
"New Benefit Plans" Section 8.1(a)
"Ordinary Course of Business" Section 1.3.40
"PBGC" Sections 3.13.2(c)(ii) and 4.13.2(c)(ii)
"Person" Section 1.3.41
"Post-Closing Claims" Section 5.14
"Post-Closing Tax Period" Section 5.7(b)(i)
"Post-Third Quarter Tax Liability" Section 5.7(b)(i)
"Post-Third Quarter Tax Period" Section 5.7(b)(i)
"Pre-Closing Tax Period" Section 5.7(b)(i)
"Proxy Materials" Section 5.20
"Purchase" Recitals
"Registration Rights Agreement" Section 1.3.42
"Reserved Claims" Section 9.3
"Section 338(h)(10) Election" Section 5.7(a)
"Securities Act" Section 4.19
"Seller" Preamble
"Seller Affiliate Relationships" Section 3.10
"Seller Affiliated Group" Section 3.12(b)
"Seller Disclosure Letter" Article III
"Seller Tax Returns" Section 3.12(a)
"Seller Tax Sharing Agreement" Section 5.7(b)(i)
"Seller's Parent" Preamble
"Single Employer Plan" Sections 3.13.2(e) and 4.13.2(e)
"Stockholder's Equity" Section 2.2.2(a)
"Subordinated Note" Section 2.2.1(b)
"Subsidiaries" Section 1.3.43
"Subsidiary" Section 1.3.44
"Taxes" Section 1.3.45
"Tax Basket" Section 5.7(b)(i)
"Tax Loss" Section 5.7(b)(i)
"Tax Return" Section 1.3.46
"Third Quarter Financials" Section 2.2.2(a)
"Third Party Action" Section 10.1
"Transfer Taxes" Section 5.7(e)
"Transferred Employees" Section 8.1(h)
"Transnation" Recitals
"Transnation Shares" Recitals
"Voting and Standstill Agreement" Section 1.3.47
"Wheat, First" Section 4.17
"Withheld Shares" Section 2.2.1(c)
A-4
<PAGE>
Section 1.3. Certain Definitions. The following terms shall have the
following meanings:
1.3.1. "Action" shall mean any claim, action, cause of action or suit (in
contract or tort or otherwise), arbitration, proceeding or investigation by or
before any Governmental Authority (and whether brought by any Governmental
Authority or any other Person).
1.3.2. "Affiliate" shall mean, as to any specified Person, each other
Person directly or indirectly controlling, controlled by or under direct or
indirect common control with that specified Person.
1.3.3. "Affiliate Debt" shall mean all Debt between Commonwealth,
Transnation or any of their Subsidiaries, on the one hand, and Seller or any
Affiliate of Seller, on the other hand, and all intercompany advances of funds
between the Seller or any of its Affiliates, on the one hand, and Commonwealth,
Transnation or any of their Subsidiaries, on the other hand.
1.3.4. "Alternative Accountants" shall mean an accounting firm of
recognized national standing other than the accounting firms that regularly
audit the annual financial statements of any of the parties or Commonwealth or
Transnation which is mutually acceptable to the parties or, if the parties do
not designate such a mutually acceptable firm within three Business Days of the
date any dispute under this Agreement is required to be submitted to such a
firm, then an accounting `firm of nationally recognized standing (other than the
accounting firms that regularly audit any of the parties or Commonwealth or
Transnation) chosen by lot.
1.3.5. "Best Efforts" shall mean the efforts that a prudent business
Person desirous of achieving a result would use in similar circumstances to
ensure that such result is achieved as expeditiously as possible; provided,
however, that an obligation to use Best Efforts under this Agreement does not
require the Person subject to that obligation to take actions that would result
in a materially adverse change in (i) the Buyer Business and the Company
Business taken as a whole or (ii) the financial condition of Buyer,
Commonwealth, Transnation and their Subsidiaries taken as a whole as of the
Closing Date.
1.3.6. "Business Day" shall mean any day on which banking institutions in
New York, New York are customarily open for the purpose of transacting business.
1.3.7. "Buyer Benefit Arrangement" shall mean each plan, arrangement,
contract, policy or practice (any of the foregoing, an "arrangement") which (i)
is maintained, sponsored, contributed to or participated in by Buyer, LTIC, any
Subsidiary of Buyer or LTIC or any other Person in the same Controlled Group as
any of the foregoing, or with respect to which Buyer, LTIC or any of their
Subsidiaries has or may have a material Liability, which arrangement provides
any of the following benefits, coverages or insurance: pension, profit-sharing,
savings, bonus, stock bonus, supplemental pension, deferred compensation
(including so called "excess" or "top hat" deferred compensation), health
(including dental, vision, prescription drug and hospitalization), life
insurance, short-term disability, long-term disability, severance, salary
continuation, holiday, vacation, sick leave, scholarship, tuition assistance,
dependent care spending, employee assistance, relocation, company car or
automobile allowance, stock options, stock purchase, restricted stock, stock
appreciation rights, phantom stock, or any other retirement, welfare, fringe
benefit or other employment or service-related benefit (including any
arrangement that facilitates the provisions of such benefits, such as a
"cafeteria plan" or spending account under Section 125 of the Code) and (ii) is
not a Buyer Plan.
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1.3.8. "Buyer Business" shall mean, collectively, the businesses conducted
by Buyer, LTIC and their Subsidiaries as such businesses are currently being
conducted by them.
1.3.9. "Buyer Common Shares" shall mean 4,473,684 shares of the Buyer
Common Stock to be issued by Buyer to Seller pursuant and subject to the terms
and conditions set forth herein and in the Voting and Standstill Agreement.
1.3.10. "Buyer Common Stock" shall mean the Common Stock, without par
value, of Buyer.
1.3.11. "Buyer Plan" shall mean each "employee benefit plan" as defined at
Section 3(3) of ERISA which (i) is maintained, sponsored, contributed to, or
participated in by Buyer, LTIC, any Subsidiary of Buyer or LTIC or any other
Person in the same Controlled Group as any of the foregoing or (ii) with respect
to which Buyer, LTIC, any Subsidiary of Buyer or LTIC or any other Person in the
same Controlled Group as any of the foregoing has or may have a material
Liability.
1.3.12. "Buyer Series B Preferred Shares" shall mean 2,200,000 shares of
Buyer's 7% Series B Cumulative Convertible Preferred Stock, without par value,
to be issued by Buyer to Seller at Closing pursuant and subject to the terms and
conditions set forth herein and in the Voting and Standstill Agreement.
1.3.13. "Bylaws" shall mean all written rules, regulations and bylaws, and
all other documents (other than the Charter), relating to the governance of a
Person (other than an individual) or interpretative of the Charter of such
Person, each as from time to time in effect.
1.3.14. "Charter" shall mean the certificate or articles of incorporation
or organization, statute, constitution, joint venture or partnership agreement
or articles or other charter documents of any Person (other than an individual),
each as from time to time in effect.
1.3.15. "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.3.16. "Company Benefit Arrangement" shall mean each plan, arrangement,
contract, policy or practice (any of the foregoing, an "arrangement") of Seller,
Commonwealth, Transnation, any Subsidiary of Commonwealth or Transnation or any
other Person in the same Controlled Group as any of the foregoing, which
arrangement (i) provides any of the following benefits, coverages or insurance:
pension, profit-sharing, savings, bonus, stock bonus, supplemental pension,
deferred compensation (including so called "excess" or "top hat" deferred
compensation), health (including dental, vision, prescription drug and
hospitalization), life insurance, short-term disability, long-term disability,
severance, salary continuation, holiday, vacation, sick leave, scholarship,
tuition assistance, dependent care spending, employee assistance, relocation,
company car or automobile allowance, stock options, stock purchase, restricted
stock, stock appreciation rights, phantom stock, or any other retirement,
welfare, fringe benefit, or other employment or service-related benefit
(including any arrangement that facilitates the provision of such benefits, such
as a "cafeteria plan" or spending account under Section 125 of the Code); (ii)
covers or benefits one or more employees of Commonwealth, Transnation or any
Subsidiary of Commonwealth or Transnation ("Company Employees") or their spouses
or dependents or with respect to which Commonwealth, Transnation or any of their
Subsidiaries has or may have a material Liability; and (iii) is not a Company
Plan.
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1.3.17. "Company Business" shall mean, collectively, the businesses
conducted by Commonwealth, Transnation and their Subsidiaries as such businesses
are currently being conducted by them.
1.3.18. "Company Marks" shall mean the names "Commonwealth" and
"Transnation" and those trademarks required by Section 3.6 to be listed in the
Seller Disclosure Letter, and all confusingly similar variations of the
foregoing.
1.3.19. "Company Plan" shall mean each "employee benefit plan" as defined
at Section 3(3) of ERISA which (i) is maintained, sponsored, contributed to, or
participated in by Seller, Commonwealth, Transnation, any Subsidiary of
Commonwealth or Transnation or any other Person in the same Controlled Group as
any of the foregoing, and (ii) covers or benefits one or more Company Employees
or their spouses or dependents or with respect to which Commonwealth,
Transnation or any of their Subsidiaries has or may have a material Liability.
1.3.20. "Compensation," as applied to any Person, shall mean all salaries,
compensation, remuneration or bonuses of any character, paid or provided
directly or indirectly by or on behalf of LTIC, Commonwealth or Transnation or
their Subsidiaries to such Person or members of the immediate family of such
Person.
1.3.21. "Contractual Obligation" shall mean, with respect to any Person,
any written contract, agreement, deed, mortgage, lease, sublease, license,
indenture, Guarantee, commitment, undertaking or arrangement, or other
consensual document or instrument, including, without limitation, any document
or instrument evidencing or otherwise relating to any indebtedness but excluding
the Charter and Bylaws of such Person, to which or by which such Person is a
party or otherwise subject or bound or to which or by which any property of such
Person is subject or bound; provided, that the term "Contractual Obligation"
shall not include obligations with respect to title insurance policies
underwritten by Commonwealth, Transnation, Buyer, LTIC or any of their
respective Subsidiaries.
1.3.22. "Controlled Group," with respect to any Person, shall mean all
those Persons which are members of the same "controlled group," or under "common
control," within the meaning of Section 414(b) or (c) of the Code or Section
4001(b) of ERISA, with such Person.
1.3.23. "Debt" of any Person shall mean all obligations of such Person (i)
in respect of indebtedness for borrowed money, (ii) evidenced by notes, bonds,
debentures or similar instruments, (iii) for the deferred purchase price of
goods or services (other than trade payables or accruals incurred in the
Ordinary Course of Business or, with respect to a Person other than LTIC,
Commonwealth and Transnation, in the ordinary course of the business of such
Person), (iv) under capital leases and (v) in the nature of Guarantees of the
obligations described in clauses (i) through (iv) above of any other Person;
provided, that, when used with respect to Commonwealth, Transnation, Buyer, LTIC
or their respective Subsidiaries, the term "Debt" shall not include any loan,
the proceeds of which are used to purchase securities or instruments which are
held by, or on behalf of, the financial institution to which the loan is owed,
as security for such loan.
1.3.24. "Distribution" shall mean, with respect to the capital stock of or
other equity interests in any Person, (i) the declaration or payment of any
dividend on or in respect of any shares of any class of such capital stock or in
respect of any such equity interest; (ii) the purchase, redemption or other
retirement of any shares of any class of such capital stock or of any such
equity interest, directly, or indirectly through a Subsidiary or otherwise; and
(iii) any
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other distribution on or in respect of any shares of any class of such capital
stock or on or in respect of any such equity interest.
1.3.25. "Enforceable" shall mean, with respect to any Contractual
Obligation, that such Contractual Obligation is the legal, valid and binding
obligation of the Person in question, enforceable against such Person in
accordance with its terms, subject to bankruptcy, reorganization, insolvency and
other similar laws affecting the enforcement of creditors' rights in general and
to general principles of equity (regardless of whether considered in a
proceeding in equity or an action at law).
1.3.26. "Environmental Laws" shall mean any Legal Requirement in effect on
or prior to the Closing Date relating to (i) releases or threatened releases of
Hazardous Substances; (ii) the manufacture, handling, transport, use, treatment,
storage or disposal of Hazardous Substances; or (iii) otherwise relating to
pollution of the environment or the protection of human health or the
environment.
1.3.27. "Equity Securities" shall mean, with respect to any Person that is
not a natural person, all shares of capital stock or other equity or beneficial
interests issued by or created in or by such Person, all stock appreciation or
similar rights or grants of, or other Contractual Obligation for, any right to
share in the equity, income, revenues or cash flow of such Person, and all
securities or other rights, warrants or other Contractual Obligations to acquire
any of the foregoing, whether by conversion, exchange, exercise or otherwise.
1.3.28. "ERISA" shall mean the federal Employee Retirement Income Security
Act of 1974 or any successor statute, and the rules and regulations thereunder,
and in the case of any referenced section of any such statute, rule or
regulation, any successor section thereto, collectively and as from time to time
amended and in effect.
1.3.29. "GAAP" shall mean generally accepted United States accounting
principles, as in effect on the date hereof, applied on a basis consistent with
the basis upon which the Financial Statements were prepared.
1.3.30. "Governmental Authority" shall mean any United States federal,
state or local government, governmental authority, regulatory or administrative
agency, governmental commission, court or tribunal (or any department, bureau or
division thereof) or any arbitral body.
1.3.31. "Governmental Order" shall mean any order, writ, judgment,
injunction, decree, stipulation, determination or award entered by or with any
Governmental Authority.
1.3.32. "Guarantee," with respect to any Person, shall mean (i) any
guarantee of the payment or performance of, or any contingent obligation in
respect of, any Debt or performance obligation (other than in connection with
transactions referred to in the proviso to Section 1.3.23) of any other Person,
(ii) any other arrangement whereby credit is extended to any other Person on the
basis of any promise or undertaking of such Person (A) to pay the Debt of such
other Person, (B) to purchase any obligation owed by such other Person, (C) to
purchase or lease assets (other than inventory in the ordinary course of
business) under circumstances that would enable such other Person to discharge
one or more of its obligations, or (D) to maintain the capital, working capital,
solvency or general financial condition of such other Person, and (iii) any
liability of
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such Person as a general partner of a partnership or as a venturer in a joint
venture in respect of Debt or other obligations of such partnership or venture.
1.3.33. "Hazardous Substances" shall mean (i) substances defined in or
regulated under the following federal statutes and their state counterparts as
amended on or prior to the Closing Date, as well as these statutes' implementing
regulations as amended on or prior to the Closing Date and as interpreted by
administering Governmental Authorities on or prior to the Closing Date: the
Hazardous Materials Transportation Act, the Resource Conservation and Recovery
Act, the Comprehensive Environmental Response, Compensation and Liability Act,
the Clean Water Act, the Safe Drinking Water Act, the Asbestos Hazard Emergency
Response Act, the Atomic Energy Act, the Toxic Substances Control Act, the
Federal Insecticide, Fungicide, and Rodenticide Act, and the Clean Air Act; (ii)
petroleum and petroleum products, including crude oil and any fractions thereof;
(iii) natural gas, synthetic gas and any mixtures thereof; (iv) radon; (v) PCBs;
and (vi) asbestos.
1.3.34. "Income Tax" means any Tax which is, in whole or in part, based on
or measured by income or gains.
1.3.35. "Legal Requirement" shall mean any United States federal, state or
local law, statute, ordinance, code, order, rule, regulation, or any
Governmental Order, or any license, consent, approval, permit or similar right
granted under any of the foregoing, or any similar provision having the force
and effect of law.
1.3.36. "Liabilities" shall mean any and all liabilities and obligations,
whether accrued, fixed, absolute or contingent, matured or unmatured or
determined or determinable, or otherwise.
1.3.37. "Lien" shall mean any mortgage, pledge, lien, security interest,
charge, attachment, equity or other encumbrance, or restriction on the creation
of any of the foregoing, whether relating to any property or right or the income
or profits therefrom; provided, however, that the term "Lien" shall not include
(i) statutory liens for Taxes to the extent that the payment thereof is not in
arrears or otherwise due, (ii) encumbrances in the nature of zoning
restrictions, easements, rights or restrictions of record on the use of real
property if the same do not detract from the value of the property encumbered
thereby or impair the use of such property in the conduct of the Company
Business or the Buyer Business as currently conducted or proposed to be
conducted, (iii) statutory or common law liens to secure landlords, lessors or
renters under leases or rental agreements confined to the premises rented to the
extent that no payment or performance under any such lease or rental agreement
is in arrears or is otherwise due, (iv) deposits or pledges made in connection
with, or to secure payment of, worker's compensation, unemployment insurance,
old age pension programs mandated under applicable Legal Requirements or other
social security, (v) statutory or common law liens in favor of carriers,
warehousemen, mechanics and materialmen, statutory or common law liens to secure
claims for labor, materials or supplies and other like liens, which secure
obligations to the extent that (A) payment of such obligations is not in arrears
or otherwise due and (B) such liens do not and will not, individually or in the
aggregate, have a Material Adverse Effect or materially affect the use of any
Company Real Property or Buyer Real Property, as the case may be, (vi)
restrictions on transfer of securities imposed by applicable state and federal
securities laws and state insurance holding company laws and (vii) liens or
security interests which arise in connection with transactions referred to in
the proviso to Section 1.3.23.
1.3.38. "Losses" shall mean any and all losses, damages, obligations,
Liabilities, claims, awards (including, without limitation, awards of punitive
or treble damages or interest),
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assessments, amounts paid in settlement, judgments, orders, decrees, fines and
penalties, costs and expenses (including, without limitation, reasonable legal
costs and expenses and costs and expenses of collection).
1.3.39. "Material Adverse Effect" shall mean, as the case may be, any
adverse change in or effect on the business, condition (financial or otherwise),
operations, performance or properties of Commonwealth, Transnation or any of
their Subsidiaries, of Buyer, LTIC or any of their Subsidiaries, or of another
specified Person and its Subsidiaries, that is material to Commonwealth,
Transnation and their Subsidiaries, or to Buyer, LTIC and their Subsidiaries, or
to such other specified Person and its Subsidiaries, each such group taken as a
whole; provided, however, that such term shall not include any change or effect
attributable to the transactions contemplated by this Agreement.
1.3.40. "Ordinary Course of Business" shall mean the ordinary course of
the Company Business or the Buyer Business, as the case may be, consistent with
regular custom and practice.
1.3.41. "Person" shall mean any individual, partnership, corporation,
association, trust, limited liability company or partnership, joint venture,
unincorporated organization or other entity, and any Governmental Authority.
1.3.42. "Registration Rights Agreement" shall mean the Registration Rights
Agreement to be entered into by Buyer and Seller at the Closing in the form
attached hereto as Exhibit A.
1.3.43. "Subsidiaries" shall mean, collectively, all Persons which are
Subsidiaries of either Buyer, LTIC, Commonwealth or Transnation (or another
specified Person), as the case may be.
1.3.44. "Subsidiary" shall mean, as the case may be, any Person of which
either Buyer, LTIC, Commonwealth or Transnation (or other specified Person)
shall own directly or indirectly at least a majority of the outstanding capital
stock (or other shares of equity interest) entitled to vote generally in the
election of directors or in which either Buyer, LTIC, Commonwealth or
Transnation (or other specified Person) is a general partner or joint venturer
without limited liability.
1.3.45. "Taxes" shall mean all federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, customs duties, capital stock, franchise,
profits, withholding, social security (or similar), unemployment, disability,
real property, personal property, sales, use, transfer, registration, value
added, alternative or add-on minimum, estimated, or other tax, fee, levy, duty,
impost or charge of any kind whatsoever, including any interest, penalty, or
addition thereto.
1.3.46. "Tax Return" shall mean any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof, required to
be filed with any taxing authority, domestic or foreign.
1.3.47. "Voting and Standstill Agreement" shall mean the Voting and
Standstill Agreement to be entered into by Buyer, Seller and Seller's Parent at
the Closing in the form attached hereto as Exhibit C.
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ARTICLE II
The Acquisition
Section 2.1. Acquisition. Upon the terms, subject to the conditions, and
in reliance on the representations, warranties and covenants set forth herein,
Seller agrees to sell and transfer to Buyer, and Buyer agrees to purchase and
accept from Seller, on the Closing Date, all of the Company Shares.
Section 2.2. Consideration and Closing.
2.2.1. Transaction Price. In consideration of the sale and transfer of the
Company Shares by Seller to Buyer and of the agreement by Seller to perform each
of the other obligations and covenants to be fulfilled or complied with by it
hereunder, Buyer shall:
(a) pay to Seller at the Closing (by wire transfer of
immediately available funds to an account designated in writing by Seller to
Buyer not fewer than three (3) Business Days prior to the Closing Date), the
cash sum of $207,500,000 (the "Cash Purchase Price"), which Cash Purchase Price
shall be subject to reduction in accordance with Section 2.2.2 below; and
(b) (i) if Buyer consummates a public or private sale (the
price terms of which private sale shall be subject to the prior approval of
Seller, which approval shall not be unreasonably withheld) of at least 1,315,789
shares of Buyer Common Stock on or before the Closing Date pursuant to Section
5.18(a)(i), pay to Seller at the Closing (by wire transfer of immediately
available funds to an account designated in writing by Seller to Buyer not fewer
than three (3) Business Days prior to the Closing Date) the cash sum
constituting the greater of (x) $23,750,000 or (y) the net proceeds as set forth
in Section 5.18(a)(i) from the sale of 1,315,789 shares of Buyer Common Stock;
or (ii) if Buyer does not consummate a public or private sale of at least
1,315,789 shares of Buyer Common Stock on or before the Closing Date pursuant to
Section 5.18(a)(i), deliver to Seller at the Closing an unsecured, subordinated
promissory note in an aggregate principal amount equal to the greater of (1)
$23,750,000 or (2) the product of 1,315,789 times the average closing price on
the New York Stock Exchange for a share of Buyer Common Stock for the ten (10)
trading days prior to the Closing Date multiplied by .95, with such other terms
and conditions as are set forth in the form of note attached hereto as Exhibit B
(the "Subordinated Note"); and
(c) issue to Seller, and deliver certificates representing
575,000 shares of the Buyer Common Shares, less that number of shares of Buyer
Common Stock sold by Buyer between the date hereof and the Closing Date up to a
total of 575,000 shares (such 575,000 shares of the Buyer Common Shares, as
reduced if applicable, the "Withheld Shares"), on the later of (i) the Closing
Date or (ii) the consummation of the sale of at least 1,315,789 shares of Buyer
Common Stock in accordance with Section 5.18; provided that after the Closing
Date, if Seller shall from time to time sell any shares of Buyer Common Stock,
Buyer shall issue to Seller and deliver certificates representing an equivalent
amount of the Withheld Shares within three Business Days after receipt of
written notice from Seller of such sale of shares of Buyer Common Stock; and
(d) issue to Seller, and deliver certificates representing the
remainder of the Buyer Common Shares (i.e., the Buyer Common Shares less the
Withheld Shares) and all of the Buyer Series B Preferred Shares on the Closing
Date.
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Buyer and Seller agree that each component of consideration
described in clauses (a) through (d) above shall be received by Seller in part
for Commonwealth Shares and in part for Transnation Shares based on the relative
values thereof.
2.2.2. Possible Reduction of Cash Purchase Price.
(a) As soon as is reasonably practicable after September 30,
1997 and in any event no later than November 15, 1997, Seller shall prepare and
deliver to Buyer the unaudited combined balance sheet and the related statements
of income, stockholder's equity and cash flows as of and for the period ended
September 30, 1997 for Commonwealth, Transnation and their Subsidiaries (the
"Third Quarter Financials"). "Stockholder's Equity" shall mean the combined
stockholder's equity of Commonwealth, Transnation and their Subsidiaries
reflected on the Third Quarter Financials.
(b) The Third Quarter Financials shall be (i) unaudited
and accompanied by a certificate of Seller's chief financial officer to the
effect that it fairly presents, in all material respects, the combined financial
position of Commonwealth, Transnation and their Subsidiaries and (ii) prepared
in accordance with GAAP on a basis consistent with prior periods, subject to an
absence of footnotes and subject to normal adjustments which will not be
material in the aggregate. The Third Quarter Financials shall not give effect to
costs, expenses and charges resulting from the transactions contemplated by this
Agreement.
(c) On the Closing Date, the Cash Purchase Price payable
pursuant to Section 2.2.1(a) hereof shall be reduced by the greater of (i) that
amount, if any, by which the Stockholder's Equity is less than $270,000,000 and
(ii) that amount, if any, by which the unused dividend paying capacity of
Commonwealth and Transnation, determined on a statutory basis, as of the Closing
Date is less than (x) $9,000,000 for calendar year 1997 if the Closing takes
place on or before December 31, 1997, (y) $9,000,000 immediately available for
dividends if the Closing takes place between January 1, 1998 and February 28,
1998, or (z) $4,500,000 immediately available for dividends if the Closing takes
place on or after March 1, 1998. Should the Cash Purchase Price be so reduced,
such reduced amount shall thereafter be considered to be the "Cash Purchase
Price" for all purposes hereunder.
2.2.3. Time and Place of Closing. The closing of the purchase and sale of
the Company Shares and the other transactions contemplated by this Agreement
(the "Closing") shall take place at a place and on such date (the "Closing
Date") as is mutually agreed by the parties hereto at 10:00 a.m. (local time);
provided that: (i) all conditions to Closing have been satisfied or waived as
provided in Articles VI and VII hereof, and (ii) the Closing Date shall in no
event be earlier than the date of delivery of the Third Quarter Financials to
Buyer pursuant to Section 2.2.2(a) nor later than March 31, 1998.
2.2.4. Delivery. At the Closing, Seller will convey, transfer and assign
the Company Shares to Buyer free and clear of any Liens (including without
limitation restrictions on transfer or voting other than as set forth in Section
1.3.37), and will deliver to Buyer certificates evidencing all of the Company
Shares duly endorsed or accompanied by separate stock power(s) duly endorsed, in
each case with signature(s) guaranteed, with all required stock transfer Tax
stamps affixed and in form proper for transfer, against delivery by Buyer of the
Cash Purchase Price and issuance by Buyer of the Buyer Common Shares and the
Buyer Series B Preferred Shares as set forth in Section 2.2.1 above.
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ARTICLE III
Representations and Warranties of Seller
Except as disclosed, or as qualified by information set forth, in the
Seller's disclosure letter dated of even date herewith and delivered to Buyer
concurrently herewith (the "Seller Disclosure Letter"), Seller represents and
warrants to Buyer and LTIC as of the date hereof and as of the Closing Date
(except to the extent that Seller's representations and warranties expressly
speak as of a specified earlier date) as follows:
Section 3.1. Corporate Matters.
3.1.1. Incorporation and Authority of Seller. Seller is a corporation duly
incorporated, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania. Seller has all requisite power and authority,
corporate and otherwise, to enter into this Agreement and each of the Closing
Agreements to which it is a party, to carry out and perform its obligations
hereunder and to consummate the transactions contemplated hereby.
3.1.2. Organization, Power and Standing. Commonwealth is a corporation
duly incorporated, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania, and Transnation is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Arizona. Each of the Subsidiaries of Commonwealth and Transnation is a
corporation duly incorporated, validly existing and in good standing under the
jurisdiction of its incorporation or organization. Each of Commonwealth,
Transnation and their Subsidiaries has all requisite power and authority,
corporate and otherwise, to carry on the Company Business as currently
conducted, and to consummate the transactions contemplated hereby. Each of
Commonwealth, Transnation and their Subsidiaries is duly qualified or licensed
to do business as a foreign corporation or otherwise, and is in good standing as
such, in each jurisdiction where the nature of Commonwealth's, Transnation's or
such Subsidiaries' activities or their ownership or leasing of property requires
such qualification or license, except to the extent that the failure to be so
qualified or licensed would not have a Material Adverse Effect.
3.1.3. Authorization and Enforceability. This Agreement has been duly
authorized, executed and delivered by Seller and Seller's Parent and is
Enforceable against Seller and Seller's Parent. Each of the Closing Agreements
to which Seller or any of its Affiliates, including Commonwealth and
Transnation, is a party as reflected on the signature page thereof has been duly
authorized, and, on or before the Closing Date, will be duly executed and
delivered by Seller or its applicable Affiliate and will be Enforceable against
Seller or such Affiliate, as the case may be.
3.1.4. Non-Contravention. No approval, consent, waiver, authorization or
other order of, and no filing, registration, qualification or recording with,
any Governmental Authority or any other Person is required to be obtained or
made by or on behalf of Seller, Commonwealth or Transnation or any of their
Subsidiaries, in connection with the execution, delivery or performance of this
Agreement and the consummation of the transactions contemplated hereby, except
for (i) satisfaction of the requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), and (ii) the items listed
in the Seller Disclosure Letter, each of which shall have been obtained or made
and shall be in full force and effect at the Closing. Specifically, and not by
way of limitation, all required filings with and approvals of state Departments
of Insurance and similar Governmental Authorities are set forth in the Seller
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Disclosure Letter. Except as set forth in the Seller Disclosure Letter, neither
the execution, delivery and performance of this Agreement nor the consummation
of any of the transactions contemplated hereby (including, without limitation,
the execution, delivery and performance of the Closing Agreements) does or will
constitute, result in or give rise to (i) a breach or violation or default under
any material Legal Requirement applicable to Seller, Commonwealth, Transnation
or the Subsidiaries of Commonwealth and Transnation (assuming the accuracy of
the representations and warranties of Buyer and LTIC), (ii) a breach of or a
default under any Charter or Bylaws provision of Seller, Commonwealth,
Transnation or any of the Subsidiaries of Commonwealth and Transnation, (iii)
the acceleration of the time for performance of any material obligation under
any material Contractual Obligation of Seller, Commonwealth, Transnation or any
of the Subsidiaries of Commonwealth and Transnation, (iv) the imposition of any
material Lien upon or the forfeiture of any material Company Assets, (v) a
breach of or a default under any material Contractual Obligation of Seller, or
Commonwealth, Transnation or any of the Subsidiaries of Commonwealth and
Transnation, or (vi) the right to severance payments in excess of $500,000 in
the aggregate (other than by operation of law) (including without limitation if
such payments become due only if employment is terminated following the
Closing).
3.1.5. Title to Company Shares. Seller is the beneficial and record holder
of, and has good and marketable title to, the Company Shares free and clear of
any Liens (including without limitation restrictions on transfer or voting other
than as set forth in Section 1.3.37). Except for this Agreement, there is no
Contractual Obligation pursuant to which Seller has, directly or indirectly,
granted any Equity Security in Commonwealth, Transnation or any of their
Subsidiaries to any Person or any right to acquire any of, or any interest in,
any Company Asset material to the Company Business. Upon delivery of
certificates representing the Company Shares, and delivery of the consideration
therefor as herein contemplated, Buyer will receive good and marketable title to
the Shares, free and clear of any Liens and subject to no rescission rights or
similar rights or equities of any kind.
3.1.6. Capitalization. The only issued and outstanding shares of capital
stock of Commonwealth are the Commonwealth Shares and of Transnation are the
Transnation Shares, all of which are duly authorized, validly issued, fully paid
and nonassessable. There is no Contractual Obligation or Charter or Bylaw
provision that obligates Commonwealth, Transnation or any of their Subsidiaries
to issue, purchase or redeem, or make any payment in respect of, any Equity
Security.
3.1.7. Subsidiaries. Commonwealth and Transnation have only the
Subsidiaries listed in the Seller Disclosure Letter, which sets forth the name
and jurisdiction of incorporation or organization of each such Subsidiary.
Except as set forth in the Seller Disclosure Letter, each of Commonwealth and
Transnation, or a Subsidiary of one of them, is the direct record and beneficial
owner of all of the issued and outstanding shares of capital stock of each of
its respective Subsidiaries, such shares of capital stock have been duly
authorized and validly issued and are fully paid and nonassessable, and the
direct record and beneficial owner of such shares has good and marketable title
to such shares free and clear of any Liens. Except as set forth in the Seller
Disclosure Letter, there is no outstanding Equity Security of any Subsidiary of
Commonwealth or Transnation other than its issued and outstanding shares of
capital stock. Except as set forth in the Seller Disclosure Letter or as is part
of the investment portfolio of Commonwealth, Transnation and their Subsidiaries,
neither Commonwealth nor Transnation has any equity investment in any Person
other than its Subsidiaries.
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3.1.8. Charters and Bylaws. Seller has heretofore delivered to Buyer true
and complete copies of the Charters and Bylaws of Commonwealth and Transnation,
in each case in the form currently in effect and as will be in effect
immediately prior to the Closing.
Section 3.2. Financial Statements.
3.2.1. Financial Information. Attached to the Seller Disclosure Letter
are true and complete copies of each of the following:
(a) The audited combined balance sheets of Commonwealth,
Transnation and their Subsidiaries as of December 31, 1996, 1995 and 1994
(collectively, the "Company Annual Balance Sheets") and the related audited
combined statements of income, stockholder's equity and cash flows of such
entities for such fiscal years ended December 31, 1996, 1995 and 1994
(collectively, the "Company Annual Financials" and, together with the Company
Interim Financials, the "Company Financial Statements").
(b) The unaudited combined balance sheet (the "Company Interim
Balance Sheet") of Commonwealth, Transnation and their Subsidiaries as of June
30, 1997 (the "Interim Balance Sheet Date") and related unaudited combined
statements of income, stockholder's equity and cash flows for the six months
ended June 30, 1997 and 1996 (collectively, the "Company Interim Financials").
3.2.2. Character of Financial Information. The Company Annual Financials
and the Company Interim Financials, including in each case, the notes thereto,
were prepared in accordance with GAAP on a basis consistent with prior periods
and present fairly, in all material respects, the financial position and results
of operations of each of Commonwealth and Transnation and their respective
Subsidiaries at the respective dates and for the periods specified therein,
subject, in the case of the Company Interim Financials, to an absence of
footnotes and subject to normal adjustments which will not be material in the
aggregate. No financial statements of any Person other than Commonwealth,
Transnation and their Subsidiaries shall be included in the Company Financial
Statements.
3.2.3. Annual Convention Statements. The financial statements included in
the Annual Convention Statements on NAIC Form 9 for the fiscal years ended
December 31, 1996, 1995 and 1994 (including the financial statements on a
statutory basis and the accompanying exhibits and schedules) for each of
Commonwealth and Transnation, all of which have heretofore been delivered to
Buyer, were prepared in accordance with accounting practices prescribed or
permitted for title insurance companies by state regulatory authorities, of the
states of domicile of Commonwealth and Transnation, applied on a consistent
basis except as otherwise stated therein, and present fairly in all material
respects the statutory financial position of each of Commonwealth and
Transnation, as the case may be, as of the dates of, and the statutory results
of their operations for the periods covered by, such Annual Convention
Statements.
Section 3.3. Change in Condition.
Except for the matters set forth in the Seller Disclosure Letter and except
for transactions in the investment portfolio of Commonwealth or Transnation in
the Ordinary Course of Business, since the Interim Balance Sheet Date:
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(a) The Company Business has been conducted only in the
Ordinary Course of Business (except as may be otherwise permitted by the terms
of this Agreement), and without limiting the generality of the foregoing,
Commonwealth, Transnation and their Subsidiaries have only made capital
expenditures in the Ordinary Course of Business;
(b) Neither Commonwealth, Transnation nor any of their
Subsidiaries has:
(i) made any capital expenditure greater than $250,000
except for expenditures for repairs and maintenance in the Ordinary Course of
Business;
(ii) incurred or otherwise become liable in respect of
any Debt (other than Affiliate Debt, none of which will be outstanding as of the
Closing) or become liable in respect of any Guarantee, other than Debt,
intercompany advances or any Guarantee between Commonwealth or Transnation and
their respective wholly owned Subsidiaries or between Subsidiaries wholly owned
by one of them;
(iii) mortgaged or pledged any material Company Asset or
subjected any Company Asset to any material Lien;
(iv) made any change in its authorized or issued capital
stock or granted or issued any option, purchase right, convertible stock, other
sort of security or registration right, purchased, redeemed or retired any
shares or other securities, or declared or made any Distribution (other than (A)
distributions of cash or of any receivable constituting Affiliate Debt in
connection with the repayment or cancellation of Affiliate Debt, and (B)
distributions or contributions in connection with an increase in or the
repayment or cancellation (in whole or in part) of Debt or intercompany advances
between Commonwealth or Transnation and their respective wholly owned
Subsidiaries or between Subsidiaries wholly owned by one of them);
(v) sold, leased to others or otherwise disposed of any
material Company Asset;
(vi) purchased any Equity Security of any Person other
than of a direct or indirect wholly owned Subsidiary of Commonwealth or
Transnation, or any assets material in amount or constituting a business, or
been party to any merger, consolidation or other business combination or entered
into any Contractual Obligation relating to any such purchase, merger,
consolidation or business combination;
(vii) made any loan, advance or capital contribution to or
investment in any Person other than loans, advances or capital contributions to
or investments in or to Commonwealth, Transnation or their respective wholly
owned Subsidiaries and other than loans or advances made in the Ordinary Course
of Business which are not material either singly or in the aggregate;
(viii) canceled or compromised any Debt or claim other than
in the Ordinary Course of Business and other than any Affiliate Debt or any
Debt, intercompany advances or claim between Commonwealth or Transnation and its
respective wholly owned Subsidiaries or between Subsidiaries wholly owned only
by one of them;
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(ix) sold, transferred, licensed or otherwise disposed of
any material Company Intangibles other than in the Ordinary Course of Business;
(x) made or agreed to make any material change in its
customary methods of accounting or accounting practices;
(xi) engaged in or become obligated in respect of any
transaction with Seller or any Affiliate of Seller;
(xii) waived or released or permitted to lapse any right
of material value except in the Ordinary Course of Business or suffered any
material damage to or material destruction or loss of any material asset or
property, whether or not covered by insurance;
(xiii) instituted, settled or agreed to settle any material
Action (other than title insurance claims settled in the Ordinary Course of
Business); or
(xiv) amended its Charter or Bylaws.
(c) Neither Commonwealth, Transnation nor any of their
Subsidiaries has (i) had any change in its relationships with its employees,
agents, independent contractors, customers, referral sources or suppliers
materially adverse to the Company Business, or (ii) made any changes in the rate
of Compensation payable (or paid or agreed in writing to pay any extra
Compensation) to any director, officer, manager, employee, consultant or agent
(other than changes in the Ordinary Course of Business);
(d) There has been no amendment of any material provision of
any Equity Security of Commonwealth, Transnation or their Subsidiaries;
(e) Neither Seller nor any of its Affiliates nor Commonwealth
nor Transnation nor any of their Subsidiaries has entered into any Contractual
Obligation (and Seller and its Affiliates have not entered into any Contractual
Obligation obligating Commonwealth, Transnation or any of their Subsidiaries) to
do any of the things referred to in clauses (a) through (d) above with respect
to Commonwealth, Transnation, any of their Subsidiaries or the Company Business;
and
(f) No Material Adverse Effect has occurred.
Section 3.4. Liabilities. Neither Commonwealth nor Transnation nor any of
their Subsidiaries has any Liabilities, other than:
(a) as set forth on the Company Interim Balance Sheet;
(b) incurred since the date of the Company Interim Balance
Sheet in the Ordinary Course of Business;
(c) incurred in respect of Company Leases and Company
Contracts;
(d) incurred in the Ordinary Course of Business in respect of
the issuance of title insurance policy commitments, title insurance policies,
title reinsurance agreements or closing protection letters; or
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(e) between Commonwealth or Transnation and its respective
wholly owned Subsidiaries or between wholly owned Subsidiaries of any one of
them.
Section 3.5. Assets.
3.5.1. Title to Assets; Owned Real Estate. Commonwealth, Transnation and
their Subsidiaries have good and marketable title to, or, in the case of
property held under lease or other Contractual Obligation, a valid and
Enforceable right to use under an Enforceable lease or license, all of their
properties and assets, whether real property or personal or intellectual
property and whether tangible or intangible, reflected in the Company Interim
Balance Sheet or acquired after the date of the Company Interim Balance Sheet
(except as sold or otherwise disposed of since the date of the Company Interim
Balance Sheet in the Ordinary Course of Business or as otherwise permitted by
this Agreement to be disposed of since the date of the Company Interim Balance
Sheet) (collectively, the "Company Assets"). Except for real property owned in
connection with the relocation services business, the Seller Disclosure Letter
contains a true, correct and complete list of all real property and buildings
owned by Commonwealth or Transnation or any of their Subsidiaries (collectively,
the "Company Real Property") and identifies the respective owner of each. No
Company Asset material to the Company Business is subject to any Lien except as
described in the Seller Disclosure Letter. The Company Assets (including,
without limitation, the Company Real Property, the Company Intangibles, the
Company Leases and the Company Contracts), constitute at least the properties,
rights and assets held for or used in, or necessary for the continued conduct
of, the Company Business as currently conducted.
3.5.2. Real Property Leases. With respect to leases and subleases with
$250,000 or more in annual rentals, the Seller Disclosure Letter sets forth a
true, correct and complete list of each facility or location which is leased or
subleased, or which has been agreed to be leased or subleased, as lessee or
sublessee by Commonwealth, Transnation or any of their Subsidiaries (all of the
leases, subleases or other Contractual Obligations pursuant to which such
facilities or locations are held or are to be held being referred to herein
collectively as the "Company Leases"). The Seller Disclosure Letter also sets
forth a true, correct and complete list of each lease, sublease or other
Contractual Obligation (the "Company Leases-Out") under which Commonwealth,
Transnation or any of their Subsidiaries is a lessor or sublessor of any
facility or location and includes information comparable to that required in the
Seller Disclosure Letter for the Company Leases.
Except as set forth in the Seller Disclosure Letter, in each case
without considering the transactions contemplated hereby, and as to
subparagraphs (a), (c), (d) and (f), to the best of Seller's knowledge:
(a) each Company Lease and each Company Lease-Out is an
Enforceable agreement of Commonwealth, Transnation or the Subsidiary of
Commonwealth or Transnation which is party thereto, and each Company Lease or
Company Lease-Out is an Enforceable agreement of the other parties thereto;
(b) Commonwealth, Transnation or the Subsidiary of Commonwealth
or Transnation which is a party thereto has fulfilled all material obligations
required pursuant to the Company Leases and the Company Leases-Out to have been
performed by Commonwealth, Transnation or the Subsidiary party thereto on its
part;
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(c) neither Commonwealth, Transnation nor any Subsidiary is
in material breach of or material default under any Company Lease or Company
Lease-Out, and no event has occurred which with the passage of time or giving of
notice or both would constitute such a breach or default, result in a loss of
rights or result in the creation of any Lien thereunder or pursuant thereto;
(d) (i) there is no existing material breach or material
default by any other party to any Company Lease or Company Lease-Out, and (ii)
no event has occurred which with the passage of time or giving of notice or both
would constitute such a breach or default by such other party, result in a loss
of rights or result in the creation of any Lien thereunder or pursuant thereto;
(e) neither Commonwealth nor Transnation nor any Subsidiary
of Commonwealth or Transnation is obligated to pay any material leasing or lease
brokerage commission as a result of the transactions contemplated hereby; and
(f) there is no pending or threatened eminent domain taking
affecting any of the properties which are the subject of the Company Leases or
the Company Leases-Out.
3.5.3. Condition and Sufficiency of Assets. Except as set forth in the
Seller Disclosure Letter, the buildings, title plants and equipment of
Commonwealth, Transnation and their Subsidiaries are in good operating condition
and repair, and are adequate for the uses to which they are being put, and none
of such buildings, title plants or equipment is in need of maintenance or
repairs except for ordinary maintenance and repairs that are not material in
nature or cost. The buildings, title plants and equipment of Commonwealth,
Transnation and their Subsidiaries are sufficient for the continued conduct of
the Company Business after the Closing in substantially the same manner as
conducted prior to the Closing Date.
Section 3.6. Intellectual Property Rights. The Seller Disclosure Letter
lists and identifies all trade names; patents, patent applications, trademarks,
service marks, logos and registered copyrights (including registrations and
applications); and computer software; in each case that are directly or
indirectly owned, licensed or otherwise used by Commonwealth or Transnation or
any of their Subsidiaries and are material to the Company Business (the "Company
Intangibles") and identifies the owner and any licensee or other user thereof.
The Seller Disclosure Letter also lists and identifies each license or other
Contractual Obligation (including all amendments) under which any material
Company Intangible is held or used by Commonwealth or Transnation or any of
their Subsidiaries in the conduct of the Company Business or otherwise (the
"Company Licenses"). Except as disclosed in the Seller Disclosure Letter, all
Company Intangibles are owned solely by Commonwealth or Transnation or a
Subsidiary of Commonwealth or Transnation or are licensed to Commonwealth or
Transnation or a Subsidiary of Commonwealth or Transnation under an Enforceable
License (other than in the case of Company Licenses of software in the Ordinary
Course of Business). Except as set forth in the Seller Disclosure Letter, there
is no material Company License or other Contractual Obligation under which
Commonwealth or Transnation or any Subsidiary of Commonwealth or Transnation is
liable as licensor with respect to any Company Intangibles and neither
Commonwealth nor Transnation nor any of their Subsidiaries has granted any
material license to any third party with respect to any Company Intangible.
Except as set forth in the Seller Disclosure Letter, the use or sale by
Commonwealth, Transnation and their Subsidiaries of any products or services in
the Company Business and use by Commonwealth and Transnation and their
Subsidiaries of any material Company Intangible does not infringe any rights of
any third
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party, and to the Seller's knowledge no activity of any third party infringes
upon the rights of Commonwealth or Transnation or any of their Subsidiaries with
respect to any of the Company Intangibles. Except as set forth in the Seller
Disclosure Letter, no Action alleging or relating to any such infringement
against the rights of Commonwealth or Transnation or any Subsidiary of
Commonwealth or Transnation or any third parties is currently pending or, to the
knowledge of Seller, threatened.
Section 3.7. Accounts. Except as disclosed in the Seller Disclosure
Letter, each bank account or similar account for the deposit of cash or
securities (other than agent escrow accounts) maintained or utilized by
Commonwealth, Transnation or any of their Subsidiaries is (i) wholly owned by
Commonwealth, Transnation or one or more of their Subsidiaries; (ii) reconciled
to its bank statements on a regular and timely basis; and (iii) to the extent
such accounts of Commonwealth, Transnation and their Subsidiaries in the
aggregate hold monies or securities in an escrow or trust capacity, contain in
the aggregate a balance sufficient to meet in the aggregate all escrow and trust
obligations of Commonwealth, Transnation and their Subsidiaries to which such
monies or securities relate.
Section 3.8. Certain Contractual Obligations. Set forth in the Seller
Disclosure Letter is a true and complete list of all of the material Contractual
Obligations of Commonwealth or Transnation or any of their Subsidiaries (except
for or with respect to the Company Plans and the Company Benefit Arrangements),
including without limitation, each of the following, to the extent material to
the Company Business:
(a) All collective bargaining agreements and other
labor agreements; all material employment or consulting agreements; and all
other written plans, agreements, arrangements or practices which constitute
Compensation or benefits to any of the directors, officers or employees of
Commonwealth or Transnation or any of their Subsidiaries, other than those
identified pursuant to Section 3.13.4;
(b) All Contractual Obligations under which Commonwealth
or Transnation or any of their Subsidiaries is reasonably likely to become
obligated to pay any legal, accounting, brokerage, finder's or similar fees or
expenses in connection with, or incur any severance pay or special Compensation
obligations which would become payable by reason of, this Agreement or the
consummation of the transactions contemplated hereby, other than those
identified pursuant to Section 3.13.4;
(c) All Contractual Obligations under which Commonwealth
or Transnation or any of their Subsidiaries is or will after the Closing be
restricted from carrying on any business or other activities anywhere in the
world;
(d) Except for transactions in the investment portfolio
of Commonwealth, Transnation and their Subsidiaries in the Ordinary Course of
Business and except for transactions arising from the relocation services
business of Commonwealth, Transnation and their Subsidiaries, all Contractual
Obligations of Commonwealth, Transnation or any of their Subsidiaries
(including, without limitation, options) to: (i) sell or otherwise dispose of
any material Company Asset except in the Ordinary Course of Business or (ii)
purchase or otherwise acquire any material property or properties or other
assets except for purchase orders in the Ordinary Course of Business and less
than $500,000 in amount;
(e) All Contractual Obligations under which Commonwealth
or Transnation or any of their Subsidiaries has any liability for Debt or
constituting or giving rise to a Guarantee
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of any liability or obligation of any Person (other than any lease, any Debt or
intercompany advances between Commonwealth or Transnation and their respective
wholly owned Subsidiaries or between wholly owned Subsidiaries of one of
Commonwealth or Transnation), or under which any Person has any liability or
obligation constituting or giving rise to a Guarantee of any liability or
obligation of Commonwealth or Transnation or any of their Subsidiaries
(including, without limitation, partnership and joint venture agreements) other
than any Guarantee by Commonwealth or Transnation or any of their Subsidiaries
of any lease, or under which any material default could arise or material
penalty or payment could be required in the event of any action or inaction of
Seller or any of its Affiliates or the Company other than any Guarantee by
Seller or its Affiliates or Commonwealth or Transnation or any of their
Subsidiaries of any lease;
(f) Any lease or other Contractual Obligation under which
any tangible personal property (the "Company Equipment") having a cost or
capital lease obligation in excess of $250,000 is held or used by Commonwealth
or Transnation or any of their Subsidiaries;
(g) Any Contractual Obligation under which Commonwealth
or Transnation or any of their Subsidiaries is reasonably likely to become
obligated to pay any amount in excess of $500,000 in respect of indemnification
obligations or purchase price adjustment provisions in connection with any (i)
acquisition or disposition of assets, securities or real property, (ii) other
acquisition or disposition of assets other than in the Ordinary Course of
Business, (iii) assumption of liabilities or warranty, (iv) settlement of
claims, (v) merger, consolidation or other business combination, or (vi) series
or group of related transactions or events of a type specified in subclauses (i)
through (v); and if with respect to any Contractual Obligation there exists any
pending or, to the knowledge of Seller, threatened Action that could reasonably
be expected to result in Commonwealth, Transnation, the Subsidiaries of
Commonwealth or Transnation or any of them being liable to pay an amount in
excess of $500,000 or there currently exist circumstances that would reasonably
be expected to give rise to such an Action, such Action or circumstances are
described in the Seller Disclosure Letter;
(h) All written contracts or commitments relating to
commission arrangements with others (other than those listed under subsection
(j) below), pursuant to which $500,000 or more is expected to be paid by
Commonwealth, Transnation or their Subsidiaries in 1997, other than those
identified pursuant to Section 3.13.4 and other than written contractual
obligations with agents or approved attorneys;
(i) All reinsurance treaties (including forfeiture agreements)
(other than facultative reinsurance agreements entered into in the Ordinary
Course of Business) to which Commonwealth, Transnation or any of their
Subsidiaries is a party, or otherwise the beneficiary of or obligated under,
either as ceding party or as reinsurer;
(j) All written agreements with agents or independent
contractors (other than approved attorneys), which are the exclusive
representative of Commonwealth, Transnation or any of their Subsidiaries in a
specified market, relating to the sale of insurance policies issued by
Commonwealth, Transnation or their Subsidiaries; and
(k) Any other Contractual Obligation of a type not specifically
covered in clauses (a) through (j) above entered into other than in the Ordinary
Course of Business, which involved payments by or on behalf of, or to,
Commonwealth or Transnation or any of their Subsidiaries in excess of $250,000
during the calendar year ended December 31, 1996 or $250,000 over the remaining
term of such Contractual Obligation or the termination of which
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may reasonably be expected to require payments by Commonwealth or Transnation or
any of their Subsidiaries exceeding $250,000 (other than purchase orders entered
into in the Ordinary Course of Business).
Seller has heretofore delivered to Buyer a true and complete copy of each
of the Contractual Obligations listed in the Seller Disclosure Letter,
including, without limitation, all amendments (such Contractual Obligations
required to be listed in the Seller Disclosure Letter, together with the Company
Licenses and Company Insurance Policies, but excluding the Company Plans and
Company Benefit Arrangements, being referred to herein collectively as the
"Company Contracts"). Each Company Contract is Enforceable by Commonwealth,
Transnation or the Subsidiary which is party thereto, against each Person (other
than Commonwealth, Transnation or such Subsidiary) party thereto. No material
breach or default by Commonwealth, Transnation or any of their Subsidiaries
under any of the Company Contracts has occurred and is continuing, and, to the
knowledge of Seller, no event has occurred or circumstance exists which with
notice or lapse of time would constitute a material breach or default or permit
termination, modification or acceleration by any other Person under any of the
Company Contracts or would result in creation of any Lien thereunder or pursuant
thereto except as would arise from execution, delivery and performance of this
Agreement and the Closing Agreements. To the knowledge of Seller, no material
breach or default by any Person (other than Commonwealth, Transnation or any of
their Subsidiaries) under any of the Company Contracts has occurred and is
continuing, and no event has occurred or circumstance exists that with notice or
lapse of time would constitute a material breach or default or permit
termination, modification or acceleration by Commonwealth, Transnation or any of
their Subsidiaries under any of the Company Contracts or would result in
creation of any Lien thereunder or pursuant thereto except as would arise from
execution, delivery and performance of this Agreement and the Closing
Agreements.
Section 3.9. Insurance. The Seller Disclosure Letter sets forth a list of
all: (i) fire, theft, casualty, general liability, workers compensation,
fidelity, errors and omissions, business interruption, environmental, product
liability, automobile and other insurance (other than title reinsurance)
policies maintained at any time in the three (3) years preceding the date hereof
by Commonwealth, Transnation or any of their Subsidiaries, or by Seller relating
to Commonwealth or Transnation or the Company Business, and (ii) all life
insurance policies maintained by Commonwealth, Transnation or any of their
Subsidiaries on the life of any of its employees officers or directors
(collectively, the "Company Insurance Policies"), specifying the type of
coverage, the amount of coverage, the premium, the insurer, the policyholder,
each covered insured, the policy owner, the expiration date of each such policy
and a description of any retroactive premium adjustments or other loss-sharing
arrangements, (iii) any self-insurance arrangements by or affecting Commonwealth
or Transnation, any sharing of risk contracts or arrangements affecting
Commonwealth or Transnation and any obligations of Commonwealth, Transnation or
any of their Subsidiaries to any third party with respect to insurance, and (iv)
excess of loss or catastrophic loss reinsurance arrangements maintained by
Commonwealth, Transnation or any of their Subsidiaries or to which any of them
is a party. True, correct and complete copies of all Company Insurance Policies
have been previously delivered by Seller to Buyer. The Company Insurance
Policies presently in effect are Enforceable and will continue to be Enforceable
immediately after the Closing in accordance with the terms as in effect
immediately before the Closing. All premiums due and payable on any of the
Company Insurance Policies or renewals thereof have been paid or will be paid
timely through the Closing Date, and there is no default (including with respect
to the payment of premiums or the giving of notices) by Commonwealth,
Transnation or any of their Subsidiaries under the Company Insurance Policies
nor any default by any other party to the Company Insurance Policies that is
known by Seller, and to the knowledge of Seller, no event has occurred which,
with notice or the
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lapse of time, would constitute such a breach or default or permit termination,
modification or acceleration, under any Company Insurance Policy. Neither
Commonwealth nor Transnation nor Seller nor any Subsidiary of Commonwealth or
Transnation has received any written notice from the insurer denying coverage or
reserving rights with respect to a particular claim currently pending under any
Company Insurance Policy or with respect to any Company Insurance Policy in
general. Since the Interim Balance Sheet Date, neither Commonwealth nor
Transnation nor any Subsidiary of Commonwealth or Transnation has incurred any
material loss, damage, expense or liability that was or would be covered by any
Company Insurance Policy for which it has not properly asserted a claim under
any Insurance Policy. Each of Commonwealth, Transnation and their Subsidiaries
is covered by types of insurance customary for the industry in which it is
engaged and in coverage amounts reasonable for a company of its size.
Section 3.10. Transaction with Affiliates. Except for the matters specified
in the Seller Disclosure Letter (the "Seller Affiliate Relationships"), none of
Seller or any of its Affiliates is an officer, director, employee, consultant,
distributor, supplier or vendor of, or is party to any Contractual Obligation
with, Commonwealth, Transnation or any of their Subsidiaries, and after the
Closing neither Commonwealth nor Transnation nor any of their Subsidiaries will
have any liability or obligation to or for the benefit of Seller or any of its
Affiliates. Except for the matters specified in the Seller Disclosure Letter,
there are no Company Assets that Seller or any of its Affiliates owns or is
licensed or otherwise has the right to use which are used in or necessary to the
conduct of the Company Business nor are there any services or staffing being
provided to the Company Business by Seller or any of its Affiliates other than
pursuant to written Contractual Obligations set forth in the Seller Disclosure
Letter.
Section 3.11. Compliance with Laws. Except as set forth in the Seller
Disclosure Letter and without regard to environmental matters which are covered
in Section 3.14 of this Agreement, Commonwealth, Transnation and their
Subsidiaries have all licenses, permits and qualifications necessary to conduct
their businesses in the jurisdictions listed in the Seller Disclosure Letter,
which is each jurisdiction in which Commonwealth, Transnation or their
Subsidiaries do business or own property, or in which such license, permit or
qualification is otherwise required. Except as set forth in the Seller
Disclosure Letter, during the three (3) years prior to the date hereof, (a)
neither Commonwealth nor Transnation nor any of their title insurance
Subsidiaries has had its license or qualification to conduct title insurance
business in any jurisdiction revoked or suspended or been involved in a
proceeding to revoke or suspend such license or qualification, nor to the best
of Seller's knowledge has any investigation been conducted, or is pending, in
any such jurisdiction with a view to revocation or suspension of any such
license, (b) Commonwealth, Transnation and their Subsidiaries have complied in
all material respects with all laws, regulations and orders applicable to their
businesses and the present use by Commonwealth, Transnation and their
Subsidiaries of their respective properties, and the business conducted by
Commonwealth, Transnation and their Subsidiaries, does not violate in any
material respect any such laws, regulations or orders and (c) Commonwealth,
Transnation and their Subsidiaries have timely filed all reports and returns
required by law, rule, regulation or policy of any regulatory authority and all
such returns and reports are true and correct in all material respects, and
there are no material deficiencies with respect to such filings or submissions.
The Seller Disclosure Letter indicates the two (2) most recent dates of the last
completed insurance regulatory examinations and audits, regular or special, as
the case may be, as to Commonwealth, Transnation and their title insurance
Subsidiaries for the jurisdictions listed therein, and a copy of the two most
recent reports of such examinations has heretofore been delivered to Buyer.
There is no agreement or understanding between Seller, Commonwealth, Transnation
or any title insurance Subsidiary of Commonwealth or Transnation, on the one
hand, and any regulatory authority, on the other hand, concerning the payment of
dividends by
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Commonwealth, Transnation or such title insurance Subsidiary or the maintenance
of any NAIC Insurance Regulatory Information System Ratio or adequacy of
reserves. The Seller Disclosure Letter contains a complete description of all
securities of Commonwealth, Transnation or their Subsidiaries on deposit with
each state insurance department as of July 31, 1997.
Section 3.12. Tax Matters. Except as set forth in the Seller Disclosure
Letter or the Company Interim Balance Sheet:
(a) (i) All Tax Returns required to be filed on or before the
Closing Date by, or with respect to Commonwealth, Transnation or any of their
Subsidiaries (the "Seller Tax Returns") have been or will be timely filed
(taking into account permitted extensions) with the appropriate taxing
authorities; (ii) the Seller Tax Returns have accurately reflected and will
accurately reflect all material liability for Taxes of Commonwealth, Transnation
and their Subsidiaries required to be shown thereon for the periods covered
thereby; (iii) Commonwealth, Transnation and their Subsidiaries have timely
paid, withheld or made provision in the Company Financial Statements (or will
make provision in the Third Quarter Financials) for all Taxes shown as due and
payable on any Seller Tax Return and have timely paid, withheld, or made
provision in the Company Financial Statements (or will make provision in the
Third Quarter Financials) for all material Taxes, whether or not shown on any
Seller Tax Return; (iv) no Liens for Taxes on the Company Assets exist; (v)
neither Commonwealth nor Transnation nor any of their Subsidiaries currently is
the beneficiary of any extension of time within which to file any Seller Tax
Return; and (vi) no written claim has ever been made by an authority in a
jurisdiction where any of Commonwealth, Transnation or their Subsidiaries does
not file Seller Tax Returns that any of them is or may be subject to taxation by
that jurisdiction.
(b) Commonwealth, Transnation and each of their Subsidiaries
is a member of the affiliated group of which Seller's Parent is the common
parent, within the meaning of Section 1504(a) of the Code (the "Seller
Affiliated Group"), and such affiliated group files a consolidated federal
Income Tax Return. Neither Commonwealth nor Transnation nor any of their
Subsidiaries has at any time been a member of an affiliated group filing a
consolidated federal Income Tax Return other than the Seller Affiliated Group.
All Income Taxes shown on any Tax Return of the Seller Affiliated Group have
been paid for each taxable period during which any of Commonwealth, Transnation
and their Subsidiaries was a member of the Seller Affiliated Group.
(c) Each of Commonwealth, Transnation and their Subsidiaries
has withheld and paid all material Taxes required to have been withheld and paid
on or before the date hereof in connection with amounts paid or owing to any
employee, independent contractor, creditor, shareholder, foreign person, or
other third party.
(d) There is no dispute or claim concerning any material Tax
liability of any of Commonwealth, Transnation and their Subsidiaries as to which
Seller has knowledge. The Seller Disclosure Letter lists all Seller Tax Returns
filed on or after January 1, 1994 that have been audited, and indicates all
Seller Tax Returns that currently are the subject of audit. Seller has delivered
or made available to Buyer correct and complete copies of all portions of
federal Income Tax Returns and examination reports which pertain to
Commonwealth, Transnation and their Subsidiaries, and statements of deficiencies
assessed against or agreed to by any of Commonwealth, Transnation and their
Subsidiaries since December 31, 1993.
(e) Neither Commonwealth nor Transnation nor any of their
Subsidiaries has waived any statute of limitations in respect of Taxes or agreed
to any extension of time with respect to a Tax assessment or deficiency.
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<PAGE>
(f) No Power of Attorney has been granted by Commonwealth,
Transnation or any of their Subsidiaries with respect to any tax matter which is
currently in force.
(g) Neither Commonwealth nor Transnation nor any of their
Subsidiaries (i) has made any payments, (ii) is obligated to make any payments,
or (iii) is a party to any agreement that under certain circumstances could
obligate it to make any payments that will not be deductible under Code Section
280G, absent, in each case, the making of any other payments.
(h) There are no tax sharing, allocation, indemnification or
similar agreements or arrangements in effect between Commonwealth, Transnation
or any of their Subsidiaries, or any predecessor or affiliate thereof, and any
other party under which Commonwealth, Transnation or any of their Subsidiaries
could be liable for any Taxes or other claims of any party.
(i) Neither Commonwealth nor Transnation nor any of their
Subsidiaries has applied for, been granted, or agreed in writing to any
accounting method change for which it will be required to take into account any
adjustment under Section 481 of the Code or any similar provision of the Code or
the corresponding tax laws of any nation, state or locality.
(j) No indebtedness of Commonwealth, Transnation or any of
their Subsidiaries consists of "corporate acquisition indebtedness" within the
meaning of Section 279 of the Code.
Section 3.13. Employee Relations and Employee Benefit Plans.
3.13.1. Employee Relations. Except as set forth in the Seller Disclosure
Letter:
(a) Commonwealth, Transnation and each of their Subsidiaries
are in material compliance with all federal, state or other applicable laws,
domestic or foreign, respecting employment and employment practices, terms and
conditions of employment and wages and hours of employment;
(b) no legal claim in respect of application for employment,
employment or termination of employment of any person has been asserted or, to
the knowledge of Seller, threatened, against Commonwealth, Transnation or any of
their Subsidiaries;
(c) Commonwealth, Transnation and each of their Subsidiaries
have not, and are not, engaged in any unfair labor practice;
(d) no unfair labor practice complaint against Commonwealth,
Transnation or any of their Subsidiaries is pending before the National Labor
Relations Board;
(e) there is no labor strike, dispute, slowdown or stoppage
actually pending or, to the knowledge of Seller, threatened against or involving
Commonwealth, Transnation or any of their Subsidiaries;
(f) neither Commonwealth nor Transnation nor any of their
Subsidiaries is a party to any collective bargaining agreement and no collective
bargaining agreement is currently being negotiated by any of them;
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<PAGE>
(g) none of the employees of Commonwealth, Transnation or any
of their Subsidiaries is represented by a labor union;
(h) no petition has been filed or proceedings instituted by
any employee or group of employees of Commonwealth, Transnation or any of their
Subsidiaries with any labor relations board seeking recognition of a bargaining
representative;
(i) to the knowledge of Seller, there is no organizational
effort currently being made or threatened by or on behalf of any labor union to
organize any Company Employees;
(j) there are no other controversies or disputes pending
between Commonwealth, Transnation, or any of their Subsidiaries on the one hand
and any of their respective employees on the other hand, except for such other
controversies and disputes with individual employees arising in the Ordinary
Course of Business that have not had and may not reasonably be expected to have
a Material Adverse Effect; and
(k) Seller, Commonwealth, Transnation and the Subsidiaries
of Commonwealth and Transnation have taken any and all actions necessary to
comply with the Worker Adjustment and Retraining Notification Act, with respect
to any event or occurrence since the effective date of such Act.
3.13.2. Employee Benefit Plans.
(a) List of Plans. Set forth in the Seller Disclosure Letter
is an accurate and complete list of all Company Plans and Company Benefit
Arrangements which specifies which of said plans and arrangements are sponsored
by any Affiliate of Seller other than Commonwealth, Transnation or their
Subsidiaries.
(b) Status of Plans. Except as set forth in the Seller
Disclosure Letter:
(i) each Company Plan and Company Benefit Arrangement
has, at all times, been maintained and operated in compliance in all material
respects with its terms and the requirements of all applicable laws, including,
without limitation, ERISA and the Code;
(ii) no complete or partial termination of any Company
Plan or Company Benefit Arrangement has occurred or is expected to occur as a
result of this Agreement and the consummation of the transactions contemplated
hereby;
(iii) and apart from the amendments to the Seller's
401(k) plan contemplated by this Agreement, neither Commonwealth nor Transnation
nor any of their Subsidiaries has any commitment or understanding to create,
modify or terminate any Company Plan or Company Benefit Arrangement;
(iv) and except as required by applicable law or the
terms of a current collective bargaining agreement, no condition or circumstance
exists that would prevent the subsequent unrestricted amendment or termination
of any Company Plan or Company Benefit Arrangement; and
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<PAGE>
(v) and apart from the transactions contemplated by
this Agreement, no event has occurred and no condition or circumstance has
existed that will, or could, result in a material increase in the benefits
under, or the expense of maintaining, any Company Plan or Company Benefit
Arrangement from the level of benefits or expense incurred for the most recently
concluded fiscal year thereof.
(c) Liabilities. Except as set forth in the Seller Disclosure
Letter:
(i) no Company Plan subject to Section 412 or 418B of
the Code or Section 302 of ERISA has incurred any material accumulated funding
deficiency within the meaning of Section 412 or 418B of the Code or Section 302
of ERISA, respectively, or has applied for or obtained a waiver from the
Internal Revenue Service of any minimum funding requirement under Section 412 of
the Code;
(ii) and except for timely payments of premiums to the
Pension Benefit Guaranty Corporation ("PBGC"), neither Commonwealth nor
Transnation nor any of their Subsidiaries has incurred any liability (including,
for this purpose and for the purpose of all of the representations in this
Section 3.13, any indirect, contingent, or secondary liability) to the PBGC in
connection with any Company Plan, including, without limitation, any liability
under Section 4069 or 4212(c) of ERISA or any penalty imposed under Section 4071
of ERISA;
(iii) neither Commonwealth nor Transnation nor any of
their Subsidiaries has any liability under Section 4062, 4063 or 4064 of ERISA;
(iv) neither Seller, nor Commonwealth, nor Transnation
nor any of the Subsidiaries of Commonwealth or Transnation knows of any facts or
circumstances that might give rise to any liability of Commonwealth, Transnation
or any of their Subsidiaries to the PBGC under Title IV of ERISA that could
reasonably be anticipated to result in any Actions being brought against Seller
by the PBGC that could result in any liability to Commonwealth, Transnation or
any of their Subsidiaries;
(v) neither Commonwealth nor Transnation nor any of
their Subsidiaries has incurred any withdrawal liability (including any
contingent or secondary withdrawal liability) within the meaning of Section 4201
or 4204 of ERISA to any Company Plan which is a "multiemployer plan" (as such
term is defined in Section 4001(a)(3) of ERISA) ("Multiemployer Plan");
(vi) no event has occurred and no condition or
circumstance has existed, that presents a material risk of the occurrence of any
withdrawal from or the partition, termination, reorganization or insolvency of
any such Multiemployer Plan which could result in any liability of Commonwealth,
Transnation or any of their Subsidiaries to any such Multiemployer Plan;
(vii) neither Commonwealth nor Transnation nor any of
their Subsidiaries maintains any Company Plan or Company Benefit Arrangement
which is a "group health plan" (as such term is defined in Section 5000(b)(1) of
the Code) that has not been administered and operated in all material respects
in compliance with the applicable requirements of Sections 601, 701 and 702 of
ERISA and Sections 4980B(f), 9801 and 9802 of the Code; and, neither
Commonwealth nor Transnation nor any of their Subsidiaries is subject
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<PAGE>
to any liability, including, without limitation, additional contributions,
fines, penalties or loss of tax deduction as a result of such administration and
operation;
(viii) neither Commonwealth nor Transnation nor any of
their Subsidiaries maintains any Company Plan or Company Benefit Arrangement
(whether qualified or nonqualified within the meaning of Section 401(a) of the
Code) providing for retiree health and/or life benefits and having unfunded
liabilities;
(ix) neither Commonwealth nor Transnation nor any of
their Subsidiaries maintains any Company Plan which is an "employee welfare
benefit plan" (as such term is defined in Section 3(1) of ERISA) that has
provided any "disqualified benefit" (as such term is defined in Section 4976(b)
of the Code) with respect to which any excise tax could be imposed;
(x) no person is entitled to, with respect to
employment with Commonwealth, Transnation or any of their Subsidiaries, (A) any
pension benefit that is unfunded or (B) any pension or other benefit to be paid
after termination of employment (other than pursuant to a Company Plan that is
tax-qualified under Section 401(a) of the Code); and, no other benefits
whatsoever are payable to any Company Employee after termination of employment;
(xi) neither Commonwealth nor Transnation nor any of
their Subsidiaries has incurred any liability for any tax or excise tax arising
under Section 4971, 4977, 4978, 4978B, 4979, 4980, 4980B or 4980D of the Code,
and no event has occurred and no condition or circumstance has existed that
could give rise to any such liability;
(xii) no asset of Commonwealth, Transnation or any of
their Subsidiaries is subject to any lien arising under Section 302(f) of ERISA
or Section 412(n) of the Code, and no event has occurred and no condition or
circumstance has existed that could give rise to any such lien;
(xiii) neither Commonwealth nor Transnation nor any of
their Subsidiaries has been required to provide any security under Section 307
of ERISA or Section 401(a)(29) or 412(f) of the Code; and, no event has occurred
and no condition or circumstance has existed that could give rise to any such
requirement to provide any such security;
(xiv) no Actions are pending, or, to the knowledge of
Seller, threatened, anticipated or expected to be asserted against any Company
Plan or Company Benefit Arrangement or the assets of any such Company Plan or
Company Benefit Arrangement (other than routine claims for benefits and appeals
of denied routine claims);
(xv) no civil or criminal action brought pursuant to the
provisions of Title I, Subtitle B, Part 5 of ERISA is pending, threatened,
anticipated, or expected to be asserted against Commonwealth, Transnation or any
of their Subsidiaries or any fiduciary of any Company Plan or Company Benefit
Arrangement, with respect to any Company Plan or Company Benefit Arrangement;
and
(xvi) on or after January 1, 1994, no Company Plan or
Company Benefit Arrangement or, with respect to any Company Plan or Company
Benefit Arrangement, any fiduciary thereof, is or has been the direct or
indirect subject of an audit, investigation or
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examination by any governmental or quasi-governmental agency; or, has entered
into a settlement with such agency.
(d) Contributions. Except as set forth in the Seller Disclosure
Letter:
(i) full payment has been made, or by the Closing Date
will have been made, of all material amounts which Commonwealth, Transnation or
any of their Subsidiaries is required, under applicable law, under any Company
Plan or Company Benefit Arrangement or under any agreement relating to any
Company Plan or Company Benefit Arrangement to which Commonwealth, Transnation
or any of their Subsidiaries is a party, to have paid as contributions thereto
as of the last day of the most recent fiscal year of such Company Plan or
Company Benefit Arrangement ended prior to Closing;
(ii) all contributions by Commonwealth or Transnation or
any of their Subsidiaries to a Company Plan or a Company Benefit Arrangement
have been deducted, or can be deducted, in the taxable year for which such
contributions are made; and, no such contribution deduction has been challenged
or disallowed;
(iii) Commonwealth and Transnation have made adequate
provision for reserves to make Company Plan or Company Benefit Arrangement
contributions that have accrued or will have accrued through Closing, but that
have not been made because they are not yet due under the terms of any Company
Plan or Company Benefit Arrangement or related agreements; and
(iv) benefits under all Company Plans or Company Benefit
Arrangements are materially as represented in this Agreement and have not been
increased subsequent to the date as of which plan documents were provided or
made available to Buyer.
(e) Funded Status. Except as disclosed in the Company
Financial Statements or as set forth in the Seller Disclosure Letter, with
respect to each Company Plan which is covered by Title IV of ERISA and which is
a "Single Employer Plan" (as such term is defined in Section 4001 (a) (15) of
ERISA) ("Single Employer Plan"), as of the date of the most recent actuarial
valuation of each such Single Employer Plan, the current value of the
accumulated benefit obligations (based on the actuarial assumptions used in such
actuarial valuation) do not exceed in any material amount the current fair
market value of the assets of each such Single Employer Plan allocable to such
accrued benefits; and, to the knowledge of Seller nothing has occurred since
such date which would materially affect such status.
(f) Tax Qualification. Except as set forth in the Seller
Disclosure Letter:
(i) each Company Plan intended to be qualified under
Section 401(a) of the Code has been determined to be so qualified, as to design,
by the Internal Revenue Service. Each Company Plan intended to be tax-qualified
is qualified under Section 401(a) of the Code (and with respect to the Seller's
401(k) plan, Section 401(k) of the Code);
(ii) each trust established in connection with any
Company Plan which is intended to be exempt from federal income taxation under
Section 501(a) of the Code continues to be exempt; and
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<PAGE>
(iii) since the date of each most recent determination
referred to in this paragraph (f), to the knowledge of Seller, no event has
occurred and no condition or circumstance has existed that resulted or is likely
to result in the revocation of any such determination or that could adversely
affect the qualified status of any Company Plan or the exempt status of any such
related trust.
(g) Transactions. Except as set forth in the Seller Disclosure
Letter:
(i) no "reportable event" (as such term is defined
in Section 4043 of ERISA) for which the notice requirement has not been waived
by the PBGC has occurred or is expected to occur with respect to any Company
Plan; and
(ii) neither Commonwealth nor Transnation nor any of
their Subsidiaries nor, to the knowledge of Seller, any of their respective
directors, officers, employees or other persons who participate in the operation
of any Company Plan or Company Benefit Arrangement or related trust or funding
vehicle, has engaged in any transaction with respect to any Company Plan or
Company Benefit Arrangement or breached any applicable fiduciary
responsibilities or obligations under Title I of ERISA with respect to any
Company Plan or Company Benefit Arrangement that would subject any of them to a
tax, penalty or liability for prohibited transactions under ERISA or the Code or
would result in any claim being made under, by or on behalf of any such Company
Plan or Company Benefit Arrangement, by any party with standing to make such
claim for which Commonwealth, Transnation or any Subsidiary of Commonwealth or
Transnation would have a liability.
(h) Triggering Events. Except as set forth in the Seller
Disclosure Letter:
(i) and apart from the amendments to the Seller's
401(k) plan contemplated by this Agreement, the execution of this Agreement and
the consummation of the transactions contemplated hereby, do not constitute a
triggering event under any Company Plan or Company Benefit Arrangement, policy,
arrangement, statement, commitment or agreement, whether or not legally
enforceable, which (either alone or upon the occurrence of any additional or
subsequent event) will or may result in any payment (whether of severance pay or
otherwise), acceleration, vesting or increase in benefits to any employee or
former employee or director of Commonwealth, Transnation or any of their
Subsidiaries; and
(ii) no Company Plan or Company Benefit Arrangement
provides for the payment of severance benefits upon the termination of
employment of an employee of Commonwealth, Transnation or any of their
Subsidiaries.
(i) Documents. Seller has delivered or caused to be delivered
to Buyer or its counsel true and complete copies of all material documents in
connection with each Company Plan and Company Benefit Arrangement, including,
without limitation, as applicable: (i) all Company Plans and Company Benefit
Arrangements as in effect on the date hereof, together with all amendments
thereto, including, in the case of any Company Plan or Company Benefit
Arrangement not set forth in writing, a written description thereof; (ii) all
current summary plan descriptions, summaries of material modifications, and,
except with respect to the Seller's 401(k) plan, material communications; (iii)
all current trust agreements, declarations of trust and, except with respect to
the Seller's 401(k) plan, other documents establishing other funding
arrangements (and all amendments thereto and the latest financial statements
thereof); (iv) the most recent Internal Revenue Service determination letter
obtained with respect to each
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Company Plan or Company Benefit Arrangement intended to be qualified under
Section 401(a) of the Code or exempt under Section 501(a) of the Code; (v) the
annual report on Internal Revenue Service Form 5500-series (the "Form
5500-series") for each of the last four years for each Company Plan or Company
Benefit Arrangement required to file such form (except that, with respect to the
Seller's 401(k) plan, only such most recently filed Form 5500-series filings
have been delivered); (vi) the most recently prepared actuarial valuation report
for each Company Plan or Company Benefit Arrangement covered by Title IV of
ERISA; (vii) the most recently prepared financial statements for each Company
Plan or Company Benefit Arrangement; and (viii) all Contractual Obligations
relating to each Company Plan (other than the Seller's 401(k) plan) or Company
Benefit Arrangement, including, without limitation, service provider agreements,
insurance contracts, annuity contracts, investment management agreements,
subscription agreements, participation agreements and record keeping agreements.
3.13.3. Compensation of Employees. Set forth in the Seller Disclosure
Letter, is an accurate and complete list for fiscal year 1996 showing the names
of all persons employed by Commonwealth or Transnation and their Subsidiaries
who received more than $200,000 in 1996 cash compensation (including, without
limitation, salary, commission and bonus) and who are expected to be employed by
Commonwealth or Transnation and their Subsidiaries on the Closing Date. Such
list sets forth the present (1997) salary or hourly wage and the total cash
compensation in 1996.
3.13.4. Employment Agreements. Except as set forth in the Seller Disclosure
Letter, neither Commonwealth, Transnation nor any of their Subsidiaries is a
party to or bound by (i) any written employment agreement or arrangement
providing annual cash compensation in excess of $200,000, other than written
agreements or arrangements that may be terminated at any time by Commonwealth,
Transnation or their Subsidiaries, as the case may be, upon no more than ninety
(90) days' notice without penalty or other payment, or any extension of any
benefit or other coverage, or (ii) any employment agreement that causes an
employee to be other than an "at will" employee.
Section 3.14. Environmental Matters.
(a) Except as set forth in the Seller Disclosure Letter,
Commonwealth, Transnation and each of their Subsidiaries are, and have at all
times been, in compliance in all respects with all Environmental Laws. Except as
set forth in the Seller Disclosure Letter, neither Commonwealth nor Transnation
has received written notice of any Action pending against it or any of its
Subsidiaries nor, to the knowledge of Seller, is there any reasonable basis for
any Action or is any Action threatened against Commonwealth, Transnation or any
of their Subsidiaries, in each case in respect of (i) noncompliance by
Commonwealth or Transnation or any of their Subsidiaries with any Environmental
Laws, or (ii) the presence or release or threatened release into the environment
of any Hazardous Substance whether or not generated by Commonwealth or
Transnation or any of their Subsidiaries or located at or about or emanating
from or to a site included in the Company Real Property or any other facility,
location, building or site currently or heretofore owned, leased or otherwise
used by Commonwealth, Transnation or any of their Subsidiaries or any
predecessor entity of any of them.
(b) Except as set forth in the Seller Disclosure Letter and for
any other matters that would not result in any material liability to
Commonwealth, Transnation and their Subsidiaries taken as a whole, no event has
occurred or condition exists or operating practice is being engaged in that
could give rise to any Liability or Losses on the part of Commonwealth or
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Transnation or any of their Subsidiaries (or, after the Closing, Buyer) either
at the present or at any future time (including, without limitation, any
obligation to conduct any remedial or monitoring work) under any Environmental
Laws or otherwise resulting from or relating to the handling, storage, use,
transportation or disposal of any Hazardous Substance by or on behalf of
Commonwealth or Transnation or any of their Subsidiaries.
(c) Seller has previously provided to Buyer true and correct
copies of all written reports in the possession of Seller, Commonwealth,
Transnation or any of their Subsidiaries and arising out of environmental
inspections, investigations, studies, audits, tests, reviews or other analyses
conducted with respect to any Company Real Property listed in the Seller
Disclosure Letter pursuant to Section 3.5.1 or any real property leased by
Commonwealth, Transnation or any of their Subsidiaries.
Section 3.15. Accounts Receivable. All accounts receivable of Commonwealth,
Transnation and their Subsidiaries that are reflected on the Company Financial
Statements represent or will represent valid obligations arising from title
policies issued or committed to or title or other services actually performed in
the Ordinary Course of Business.
Section 3.16. Litigation. Except as set forth in the Seller Disclosure
Letter and except for title insurance or reinsurance Actions in the Ordinary
Course of Business, and without regard to environmental matters which are
covered in Section 3.14 of this Agreement, there is no Action pending or, to the
knowledge of Seller, threatened with respect to which Commonwealth, Transnation
or any of their Subsidiaries are or would reasonably be expected to be parties.
There is no Action pending or, to the knowledge of Seller, threatened, that
seeks rescission of, seeks to enjoin the consummation of, or otherwise relates
to, this Agreement or any of the transactions contemplated hereby. No
Governmental Order material to the Company Business and directed specifically at
Commonwealth, Transnation or any of their Subsidiaries has been issued.
Section 3.17. Brokers. Except for Donaldson, Lufkin and Jennrette, no
broker, finder, investment bank or similar agent is entitled to any brokerage,
finder's or other similar fee, Compensation or reimbursement of expenses in
connection with the transactions contemplated by this Agreement based upon
agreements or arrangements made by or on behalf of (or the conduct of) Seller,
Commonwealth, Transnation, any Subsidiary of Commonwealth or Transnation, or any
of their respective Affiliates. Seller shall be solely responsible for the
payment of the fees and expenses of Donaldson, Lufkin and Jennrette.
Section 3.18. Investment Securities. The ownership by Commonwealth,
Transnation and their Subsidiaries of stocks, bonds and other securities
complies in all material respects with all applicable insurance and trust laws
and regulations. Each of Commonwealth and Transnation, as the case may be, has
good and valid title to all such investment securities shown as their assets in
the Company Interim Financials (unless disposed of in the Ordinary Course of
Business thereafter), free and clear of all material Liens except for
restrictions in respect of deposits, statutory premium reserve requirements and
statutory pledges with state regulatory authorities disclosed in the Company
Interim Financials.
Section 3.19. Exceptions. The exceptions to the representations and
warranties of Seller set forth in this Article III are not, individually or in
the aggregate, material to the assets or business of Commonwealth, Transnation
and their Subsidiaries, taken as a whole. For the purposes of the representation
in the immediately preceding sentence, when the word "material" is used as an
adjective qualifying a representation or warranty set forth in this Article III
and when a representation or warranty contains an exception if no Material
Adverse Effect would
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result, or be caused or be reasonably expected to occur, or no material adverse
effect on the consummation of the transactions contemplated hereunder could be
reasonably expected to occur, then all items, matters, occurrences and
circumstances which would have been covered by that representation or warranty
but for the use of such qualification or exception shall be deemed to be an
exception from such representation or warranty.
ARTICLE IV
Representations and Warranties of Buyer and LTIC
Except as disclosed, or as qualified by information set forth, in Buyer's
disclosure letter dated of even date herewith and delivered to Seller
concurrently herewith (the "Buyer Disclosure Letter"), Buyer and LTIC, jointly
and severally, represent and warrant to Seller as of the date hereof and as of
the Closing Date (except to the extent that Buyer's and LTIC's representations
and warranties expressly speak as of a specified earlier date) as follows:
Section 4.1. Corporate Matters.
4.1.1. Incorporation and Authority of Buyer and LTIC. Buyer and LTIC are
corporations duly incorporated, validly existing and in good standing under the
laws of the Commonwealth of Virginia. Buyer and LTIC have all requisite power
and authority, corporate and otherwise, to enter into this Agreement and each of
the Closing Agreements to which they are parties, to carry out and perform their
obligations hereunder and to consummate the transactions contemplated hereby.
4.1.2. Organization, Power and Standing. Each of the Subsidiaries of Buyer
and LTIC is a corporation duly incorporated, validly existing and in good
standing under the jurisdiction of its incorporation or organization. Each of
Buyer, LTIC and their Subsidiaries has all requisite power and authority,
corporate and otherwise, to carry on the Buyer Business as currently conducted,
and to consummate the transactions contemplated hereby. Each of Buyer, LTIC and
their Subsidiaries is duly qualified or licensed to do business as a foreign
corporation or otherwise, and is in good standing as such, in each jurisdiction
where the nature of Buyer's, LTIC's or such Subsidiaries' activities or their
ownership or leasing of property requires such qualification or license, except
to the extent that the failure to be so qualified or licensed would not have a
Material Adverse Effect.
4.1.3. Authorization and Enforceability. This Agreement has been duly
authorized, executed and delivered by Buyer and LTIC and is Enforceable against
Buyer and LTIC. Each of the Closing Agreements to which Buyer and LTIC or any of
their Affiliates, including LTIC, is a party as reflected on the signature page
thereof has been duly authorized, and, on or before the Closing Date, will be
duly executed and delivered by Buyer, LTIC or their applicable Affiliate and
will be Enforceable against Buyer, LTIC or such Affiliate, as the case may be.
4.1.4. Non-Contravention. No approval, consent, waiver, authorization or
other order of, and no filing, registration, qualification or recording with,
any Governmental Authority or any other Person is required to be obtained or
made by or on behalf of Buyer, LTIC or any of their Subsidiaries, in connection
with the execution, delivery or performance of this Agreement and the
consummation of the transactions contemplated hereby, except for (i)
satisfaction of the requirements of the HSR Act, and (ii) the items listed in
the Buyer Disclosure Letter, each of which shall have been obtained or made and
shall be in full force and effect at the Closing. Specifically, and not by way
of limitation, all required filings with and approvals of state
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Departments of Insurance and similar Governmental Authorities are set forth in
the Buyer Disclosure Letter. Except as set forth in the Buyer Disclosure Letter,
neither the execution, delivery and performance of this Agreement nor the
consummation of any of the transactions contemplated hereby (including, without
limitation, the execution, delivery and performance of the Closing Agreements)
does or will constitute, result in or give rise to (i) a breach or violation or
default under any material Legal Requirement applicable to Buyer, LTIC or their
Subsidiaries (assuming the accuracy of the representations and warranties of
Seller), (ii) a breach of or a default under any Charter or Bylaws provision of
Buyer, LTIC or any of their Subsidiaries, (iii) the acceleration of the time for
performance of any material obligation under any material Contractual Obligation
of Buyer, LTIC or any of their Subsidiaries, (iv) the imposition of any material
Lien upon or the forfeiture of any material Buyer Assets, (v) a breach of or a
default under any material Contractual Obligation of Buyer, LTIC or any of their
Subsidiaries, or (vi) the right to severance payments in excess of $500,000 in
the aggregate (other than by operation of law) (including without limitation if
such payments become due only if employment is terminated following the
Closing).
4.1.5. Capitalization; Ownership of Buyer Common Stock. The authorized
capitalization of Buyer on the date hereof consists of 45,000,000 shares of
Buyer Common Stock, of which 8,923,791 shares are issued and outstanding and
5,000,000 shares of preferred stock, without par value, of which no shares are
issued and outstanding but of which 50,000 shares have been designated and
reserved for issuance. All of the outstanding shares of Buyer Common Stock are
duly authorized, validly issued, fully paid and nonassessable. Except as set
forth in the Buyer Disclosure Letter and except as have been issued under the
Buyer's 401(k) Plan or its 1991 Stock Incentive Plan or its 1992 Stock Option
Plan for Non-employee Directors, there are no outstanding options, warrants,
rights, agreements, contracts, calls, commitments or demands of any character to
which Buyer or any of its Subsidiaries is a party, relating to the capital stock
of Buyer or its Subsidiaries. The Buyer Disclosure Letter lists all unexercised
options issued under Buyer's 1991 Stock Incentive Plan and 1992 Stock Option
Plan for Non-Employee Directors which are outstanding on the date of such
letter. When issued pursuant to Section 2.2.1, the Buyer Common Shares and the
Buyer Series B Preferred Shares will be duly authorized, validly issued, fully
paid and nonassessable. Upon delivery of the Buyer Common Shares and the Buyer
Series B Preferred Shares as provided herein, the Seller will acquire good and
marketable title to the Buyer Common Shares and the Buyer Series B Preferred
Shares, free and clear of any encumbrance, pledge, commitment (other than
pursuant to this Agreement or the Voting and Standstill Agreement), Lien or
other claim. All of the shares of Buyer Common Stock issuable upon conversion of
the Buyer Series B Preferred Shares will be, when issued upon proper exercise of
the conversion rights of the holder, duly authorized, validly issued, fully paid
and nonassessable and Buyer has reserved for issuance such number of shares of
Buyer Common Stock as is sufficient to provide for the conversion of the Buyer
Series B Preferred Shares into shares of Buyer Common Stock.
4.1.6. Subsidiaries. Buyer and LTIC have only the Subsidiaries listed in
the Buyer Disclosure Letter, which sets forth the name and jurisdiction of
incorporation or organization of each such Subsidiary. Except as set forth in
the Buyer Disclosure Letter, each of Buyer and LTIC, or a Subsidiary of one of
them, is the direct record and beneficial owner of all of the issued and
outstanding shares of capital stock of each of its respective Subsidiaries, such
shares of capital stock have been duly authorized and validly issued and are
fully paid and nonassessable, and (except with respect to the shares of capital
stock of LTIC which have been pledged to secure a line of credit described in
the Buyer Disclosure Letter) the direct record and beneficial owner of such
shares has good and marketable title to such shares free and clear of any Liens.
Except as set forth in the Buyer Disclosure Letter, there is no outstanding
Equity Security
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of any Subsidiary of Buyer or LTIC other than its issued and outstanding shares
of capital stock. Except as set forth in the Buyer Disclosure Letter or as is
part of the investment portfolio of Buyer, LTIC and their Subsidiaries, neither
Buyer nor LTIC has any equity investment in any Person other than its
Subsidiaries.
4.1.7. Charters and Bylaws. Buyer has heretofore delivered to Seller true
and complete copies of the Charters and Bylaws of Buyer and LTIC, in each case
in the form currently in effect and as will be in effect immediately prior to
the Closing.
Section 4.2. Financial Statements.
4.2.1. Financial Information. Attached to the Buyer Disclosure Letter are
true and complete copies of each of the following:
(a) The audited consolidated balance sheets of Buyer, LTIC
and their Subsidiaries as of December 31, 1996, 1995 and 1994 (collectively, the
"Buyer Annual Balance Sheets") and the related audited consolidated statements
of income, stockholders' equity and cash flows of such entities for such fiscal
years ended December 31, 1996, 1995 and 1994 (collectively, the "Buyer Annual
Financials" and, together with the Buyer Interim Financials, the "Buyer
Financial Statements").
(b) The unaudited consolidated balance sheet ("Buyer Interim
Balance Sheet") of Buyer, LTIC and their Subsidiaries as of the Interim Balance
Sheet Date and related unaudited consolidated statements of income,
stockholders' equity and cash flows for the six months ended June 30, 1997 and
1996 (collectively, the "Buyer Interim Financials").
4.2.2. Character of Financial Information. The Buyer Annual Financials and
the Buyer Interim Financials, including in each case, the notes thereto, were
prepared in accordance with GAAP on a basis consistent with prior periods and
present fairly, in all material respects, the consolidated financial position
and results of operations of Buyer, LTIC and their Subsidiaries at the
respective dates and for the periods specified therein, subject, in the case of
the Buyer Interim Financials, to an absence of footnotes and subject to normal
year-end audit adjustments which will not be material in the aggregate. No
financial statements of any Person other than Buyer, LTIC and their Subsidiaries
shall be included in the Buyer Financial Statements.
4.2.3. Annual Convention Statements. The financial statements included in
the Annual Convention Statements on NAIC Form 9 for the fiscal years ended
December 31, 1996, 1995 and 1994 (including the financial statements on a
statutory basis and the accompanying exhibits and schedules) for LTIC, which
have heretofore been delivered to Seller, were prepared in accordance with
accounting practices prescribed or permitted for title insurance companies by
the state regulatory authority of the state of domicile of LTIC, applied on a
consistent basis except as otherwise stated therein, and present fairly in all
material respects the statutory financial position of LTIC, as of the dates of,
and the statutory results of its operations for the periods covered by, such
Annual Convention Statements.
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Section 4.3. Change in Condition.
Except for the matters set forth in the Buyer Disclosure Letter and except
for transactions in the investment portfolio of Buyer or LTIC in the Ordinary
Course of Business, since the Interim Balance Sheet Date:
(a) The Buyer Business has been conducted only in the Ordinary
Course of Business (except as may be otherwise permitted by the terms of this
Agreement), and without limiting the generality of the foregoing, Buyer, LTIC
and their Subsidiaries have only made capital expenditures in the Ordinary
Course of Business;
(b) Neither Buyer, LTIC nor any of their Subsidiaries has:
(i) made any capital expenditure greater than $250,000
except for expenditures for repairs and maintenance in the Ordinary Course of
Business;
(ii) incurred or otherwise become liable in respect of
any Debt (other than Affiliate Debt) or become liable in respect of any
Guarantee, other than Debt, intercompany advances or any Guarantee between Buyer
or LTIC and their respective wholly owned Subsidiaries or between Subsidiaries
wholly owned by one of them;
(iii) mortgaged or pledged any material Buyer Asset or
subjected any Buyer Asset to any material Lien;
(iv) made any change in its authorized or issued capital
stock or granted or issued any option, purchase right, convertible stock, other
sort of security or registration right, purchased, redeemed or retired any
shares or other securities, or declared or made any Distribution (other than (A)
distributions of cash or of any receivable constituting Affiliate Debt in
connection with the repayment or cancellation of Affiliate Debt, and (B)
distributions or contributions in connection with an increase in or the
repayment or cancellation (in whole or in part) of Debt or intercompany advances
between Buyer or LTIC and their respective wholly owned Subsidiaries or between
Subsidiaries wholly owned by one of them);
(v) sold, leased to others or otherwise disposed of any
material Buyer Asset;
(vi) purchased any Equity Security of any Person other
than of a direct or indirect wholly owned Subsidiary of Buyer or LTIC, or any
assets material in amount or constituting a business, or been party to any
merger, consolidation or other business combination or entered into any
Contractual Obligation relating to any such purchase, merger, consolidation or
business combination;
(vii) made any loan, advance or capital contribution to
or investment in any Person other than loans, advances or capital contributions
to or investments in or to Buyer, LTIC or their respective wholly owned
Subsidiaries and other than loans or advances made in the Ordinary Course of
Business which are not material either singly or in the aggregate;
(viii) canceled or compromised any Debt or claim other
than in the Ordinary Course of Business and other than any Affiliate Debt or any
Debt, intercompany
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advances or claim between Buyer or LTIC and its respective wholly owned
Subsidiaries or between Subsidiaries wholly owned only by one of them;
(ix) sold, transferred, licensed or otherwise disposed
of any material Buyer Intangibles other than in the Ordinary Course of Business;
(x) made or agreed to make any material change in its
customary methods of accounting or accounting practices;
(xi) engaged in or become obligated in respect of any
transaction with any Affiliate of Buyer;
(xii) waived or released or permitted to lapse any right
of material value except in the Ordinary Course of Business or suffered any
material damage to or material destruction or loss of any material asset or
property, whether or not covered by insurance;
(xiii) instituted, settled or agreed to settle any
material Action (other than title insurance claims settled in the Ordinary
Course of Business); or
(xiv) amended its Charter or Bylaws.
(c) Neither Buyer, LTIC nor any of their Subsidiaries has (i)
had any change in its relationships with its employees, agents, independent
contractors, customers, referral sources or suppliers materially adverse to the
Buyer Business, or (ii) made any changes in the rate of Compensation payable (or
paid or agreed in writing to pay any extra Compensation) to any director,
officer, manager, employee, consultant or agent (other than changes in the
Ordinary Course of Business);
(d) There has been no amendment of any material provision of
any Equity Security of Buyer, LTIC or their Subsidiaries;
(e) Neither Buyer, LTIC nor any of their Subsidiaries has
entered into any Contractual Obligation (and Buyer and LTIC have not entered
into any Contractual Obligation obligating any of their Subsidiaries) to do any
of the things referred to in clauses (a) through (d) above with respect to
Buyer, LTIC or any of their Subsidiaries or the Buyer Business; and
(f) No Material Adverse Effect has occurred.
Section 4.4. Liabilities. Neither Buyer nor LTIC nor any of their
Subsidiaries has any Liabilities, other than:
(a) as set forth on the Buyer Interim Balance Sheet;
(b) incurred since the date of the Buyer Interim Balance Sheet
in the Ordinary Course of Business;
(c) incurred in respect of Buyer Leases and Buyer Contracts;
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(d) incurred in the Ordinary Course of Business in respect of
the issuance of title insurance policy commitments, title insurance policies,
title reinsurance agreements or closing protection letters; or
(e) between Buyer or LTIC and its respective wholly owned
Subsidiaries or between wholly owned Subsidiaries of any one of them.
Section 4.5. Assets.
4.5.1. Title to Assets; Owned Real Estate. Buyer, LTIC and their
Subsidiaries have good and marketable title to, or, in the case of property held
under lease or other Contractual Obligation, a valid and Enforceable right to
use under an Enforceable lease or license, all of their properties and assets,
whether real property or personal or intellectual property and whether tangible
or intangible, reflected in the Buyer Interim Balance Sheet or acquired after
the date of the Buyer Interim Balance Sheet (except as sold or otherwise
disposed of since the date of the Buyer Interim Balance Sheet in the Ordinary
Course of Business or as otherwise permitted by this Agreement to be disposed of
since the date of the Buyer Interim Balance Sheet) (collectively, the "Buyer
Assets"). Except for real property owned in connection with the relocation
services business, the Buyer Disclosure Letter contains a true, correct and
complete list of all real property and buildings owned by Buyer or LTIC or any
of their Subsidiaries (collectively, the "Buyer Real Property") and identifies
the respective owner of each. No Buyer Asset material to the Buyer Business is
subject to any Lien except as described in the Buyer Disclosure Letter. The
Buyer Assets (including, without limitation, the Buyer Real Property, the Buyer
Intangibles, the Buyer Leases and the Buyer Contracts), constitute at least the
properties, rights and assets held for or used in, or necessary for the
continued conduct of, the Buyer Business as currently conducted.
4.5.2. Real Property Leases. With respect to leases and subleases with
$250,000 or more in annual rentals, the Buyer Disclosure Letter sets forth a
true, correct and complete list of each facility or location which is leased or
subleased, or which has been agreed to be leased or subleased, as lessee or
sublessee by Buyer, LTIC or any of their Subsidiaries (all of the leases,
subleases or other Contractual Obligations pursuant to which such facilities or
locations are held or are to be held being referred to herein collectively as
the "Buyer Leases"). The Buyer Disclosure Letter also sets forth a true, correct
and complete list of each lease, sublease or other Contractual Obligation (the
"Buyer Leases-Out") under which Buyer, LTIC or any of their Subsidiaries is a
lessor or sublessor of any facility or location and includes information
comparable to that required in the Buyer Disclosure Letter for the Buyer Leases.
Except as set forth in the Buyer Disclosure Letter, in each case
without considering the transactions contemplated hereby, and as to
subparagraphs (a), (c), (d) and (f), to the best of Buyer's and LTIC's
knowledge:
(a) each Buyer Lease and each Buyer Lease-Out is an Enforceable
agreement of Buyer, LTIC or the Subsidiary of Buyer or LTIC which is party
thereto, and each Buyer Lease or Buyer Lease-Out is an Enforceable agreement of
the other parties thereto;
(b) Buyer, LTIC or the Subsidiary of Buyer or LTIC which is a
party thereto has fulfilled all material obligations required pursuant to the
Buyer Leases and the Buyer Leases-Out to have been performed by Buyer, LTIC or
the Subsidiary party thereto on its part;
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(c) neither Buyer, LTIC nor any Subsidiary is in material
breach of or material default under any Buyer Lease or Buyer Lease-Out, and no
event has occurred which with the passage of time or giving of notice or both
would constitute such a breach or default, result in a loss of rights or result
in the creation of any Lien thereunder or pursuant thereto;
(d) (i) there is no existing material breach or material
default by any other party to any Buyer Lease or Buyer Lease-Out, and (ii) no
event has occurred which with the passage of time or giving of notice or both
would constitute such a breach or default by such other party, result in a loss
of rights or result in the creation of any Lien thereunder or pursuant thereto;
(e) neither Buyer nor LTIC nor any Subsidiary of Buyer or LTIC
is obligated to pay any material leasing or lease brokerage commission as a
result of the transactions contemplated hereby; and
(f) there is no pending or threatened eminent domain taking
affecting any of the properties which are the subject of the Buyer Leases or the
Buyer Leases-Out.
4.5.3. Condition and Sufficiency of Assets. Except as set forth in the
Buyer Disclosure Letter, the buildings, title plants and equipment of Buyer,
LTIC and their Subsidiaries are in good operating condition and repair, and are
adequate for the uses to which they are being put, and none of such buildings,
title plants or equipment is in need of maintenance or repairs except for
ordinary maintenance and repairs that are not material in nature or cost. The
buildings, title plants and equipment of Buyer, LTIC and their Subsidiaries are
sufficient for the continued conduct of the Buyer Business after the Closing in
substantially the same manner as conducted prior to the Closing Date.
Section 4.6. Intellectual Property Rights. The Buyer Disclosure Letter
lists and identifies all trade names; patents, patent applications, trademarks,
service marks, logos and registered copyrights (including registrations and
applications); and computer software; in each case that are directly or
indirectly owned, licensed or otherwise used by Buyer, LTIC or any of their
Subsidiaries and are material to the Buyer Business (the "Buyer Intangibles")
and identifies the owner and any licensee or other user thereof. The Buyer
Disclosure Letter also lists and identifies each license or other Contractual
Obligation (including all amendments) under which any material Buyer Intangible
is held or used by Buyer or LTIC or any of their Subsidiaries in the conduct of
the Buyer Business or otherwise (the "Buyer Licenses"). Except as disclosed in
the Buyer Disclosure Letter, all Buyer Intangibles are owned solely by Buyer or
LTIC or a Subsidiary or are licensed to Buyer or LTIC or a Subsidiary of Buyer
or LTIC under an Enforceable License (other than in the case of Buyer Licenses
of software in the Ordinary Course of Business). Except as set forth in the
Buyer Disclosure Letter, there is no material Buyer License or other Contractual
Obligation under which Buyer or LTIC or any Subsidiary of Buyer or LTIC is
liable as licensor with respect to any Buyer Intangibles and neither Buyer nor
LTIC nor any of their Subsidiaries has granted any material license to any third
party with respect to any Buyer Intangible. Except as set forth in the Buyer
Disclosure Letter, the use or sale by Buyer, LTIC and their Subsidiaries of any
products or services in the Buyer Business and use by Buyer and LTIC and their
Subsidiaries of any material Buyer Intangible does not infringe any rights of
any third party, and to Buyer's knowledge no activity of any third party
infringes upon the rights of Buyer, LTIC or any of their Subsidiaries with
respect to any of the Buyer Intangibles. Except as set forth in the Buyer
Disclosure Letter, no Action alleging or relating to any such infringement
against the rights of Buyer, LTIC or any Subsidiary of Buyer, LTIC or any third
parties is currently pending or, to the knowledge of Buyer, threatened.
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Section 4.7. Accounts. Except as disclosed in the Buyer Disclosure Letter,
each bank account or similar account for the deposit of cash or securities
(other than agent escrow accounts) maintained or utilized by Buyer, LTIC or any
of their Subsidiaries is (i) wholly owned by Buyer, LTIC or one or more of their
Subsidiaries; (ii) reconciled to its bank statements in a regular and timely
basis; and (iii) to the extent such accounts of Buyer, LTIC and their
Subsidiaries in the aggregate hold monies or securities in an escrow or trust
capacity, contain in the aggregate a balance sufficient to meet in the aggregate
all escrow and trust obligations of Buyer, LTIC and their Subsidiaries to which
such monies or securities relate.
Section 4.8. Certain Contractual Obligations. Set forth in the Buyer
Disclosure Letter is a true and complete list of all of the material Contractual
Obligations of Buyer or LTIC or any of their Subsidiaries (except for or with
respect to the Buyer Plans and the Buyer Benefit Agreements), including without
limitation, each of the following, to the extent material to the Buyer Business:
(a) All collective bargaining agreements and other labor
agreements; all material employment or consulting agreements; and all other
written plans, agreements, arrangements or practices which constitute
Compensation or benefits to any of the directors, officers or employees of Buyer
or LTIC or any of their Subsidiaries;
(b) All Contractual Obligations under which Buyer or LTIC or
any of their Subsidiaries is reasonably likely to become obligated to pay any
legal, accounting, brokerage, finder's or similar fees or expenses in connection
with, or incur any severance pay or special Compensation obligations which would
become payable by reason of, this Agreement or the consummation of the
transactions contemplated hereby;
(c) All Contractual Obligations under which Buyer or LTIC or
any of their Subsidiaries is or will after the Closing be restricted from
carrying on any business or other activities anywhere in the world;
(d) Except for transactions in the investment portfolio of
Buyer, LTIC and their Subsidiaries in the Ordinary Course of Business and except
for transactions arising from the relocation services business of Buyer, LTIC
and their Subsidiaries, all Contractual Obligations of Buyer, LTIC or any of
their Subsidiaries (including, without limitation, options) to: (i) sell or
otherwise dispose of any material Buyer Asset except in the Ordinary Course of
Business or (ii) purchase or otherwise acquire any material property or
properties or other assets except for purchase orders in the Ordinary Course of
Business and less than $500,000 in amount;
(e) All Contractual Obligations under which Buyer or LTIC or
any of their Subsidiaries has any liability for Debt or constituting or giving
rise to a Guarantee of any liability or obligation of any Person (other than any
lease, any Debt or intercompany advances between Buyer or LTIC and their
respective wholly owned Subsidiaries or between wholly owned Subsidiaries of one
of Buyer or LTIC), or under which any Person has any liability or obligation
constituting or giving rise to a Guarantee of any liability or obligation of
Buyer or LTIC or any of their Subsidiaries (including, without limitation,
partnership and joint venture agreements) other than any Guarantee by Buyer or
LTIC or any of their Subsidiaries of any lease, or under which any material
default could arise or material penalty or payment could be required in the
event of any action or inaction of Seller or any of its Affiliates or the
Company other than any Guarantee by Seller or its Affiliates or Buyer or LTIC or
any of their Subsidiaries of any lease;
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(f) Any lease or other Contractual Obligation under which
any tangible personal property (the "Buyer Equipment") having a cost or capital
lease obligation in excess of $250,000 is held or used by Buyer or LTIC or any
of their Subsidiaries;
(g) Any Contractual Obligation under which Buyer or LTIC or any
of their Subsidiaries is reasonably likely to become obligated to pay any amount
in excess of $500,000 in respect of indemnification obligations or purchase
price adjustment provisions in connection with any (i) acquisition or
disposition of assets, securities or real property, (ii) other acquisition or
disposition of assets other than in the Ordinary Course of Business, (iii)
assumption of liabilities or warranty, (iv) settlement of claims, (v) merger,
consolidation or other business combination, or (vi) series or group of related
transactions or events of a type specified in subclauses (i) through (v); and if
with respect to any Contractual Obligation there exists any pending or, to the
knowledge of Buyer and LTIC, threatened Action that could reasonably be expected
to result in Buyer, LTIC, the Subsidiaries of Buyer or LTIC or any of them being
liable to pay an amount in excess of $500,000 or there currently exist
circumstances that would reasonably be expected to give rise to such an Action,
such Action or circumstances are described in the Buyer Disclosure Letter;
(h) All written contracts or commitments relating to commission
arrangements with others (other than those listed under subsection (j) below),
pursuant to which $500,000 or more is expected to be paid by Buyer, LTIC or
their Subsidiaries in 1997, other than written contractual obligations with
agents or approved attorneys;
(i) All reinsurance treaties (including forfeiture agreements)
(other than facultative reinsurance agreements entered into in the Ordinary
Course of Business) to which Buyer, LTIC or any of their Subsidiaries is a
party, or otherwise the beneficiary of or obligated under, either as ceding
party or as reinsurer;
(j) All written agreements with agents or independent
contractors (other than approved attorneys), which are the exclusive
representative of Buyer, LTIC or any of their Subsidiaries in a specified
market, relating to the sale of insurance policies issued by Buyer, LTIC or
their Subsidiaries; and
(k) Any other Contractual Obligation of a type not specifically
covered in clauses (a) through (j) above entered into other than in the Ordinary
Course of Business, which involved payments by or on behalf of, or to, Buyer or
LTIC or any of their Subsidiaries in excess of $250,000 during the calendar year
ended December 31, 1996 or $250,000 over the remaining term of such Contractual
Obligation or the termination of which may reasonably be expected to require
payments by Buyer or LTIC or any of their Subsidiaries exceeding $250,000 (other
than purchase orders entered into in the Ordinary Course of Business).
Buyer has heretofore delivered to Seller a true and complete copy of each
of the Contractual Obligations listed in the Buyer Disclosure Letter, including,
without limitation, all amendments (such Contractual Obligations required to be
listed in the Buyer Disclosure Letter, together with the Buyer Licenses and
Buyer Insurance Policies, being referred to herein collectively as the "Buyer
Contracts"). Each Buyer Contract is Enforceable by Buyer, LTIC or the Subsidiary
which is party thereto, against each Person (other than Buyer, LTIC or such
Subsidiary) party thereto. No material breach or default by Buyer, LTIC or any
of their Subsidiaries under any of the Contracts has occurred and is continuing,
and, to the knowledge of Seller, no event has occurred or circumstance exists
which with notice or lapse of time would constitute a material breach or default
or permit termination, modification or acceleration by any
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other Person under any of the Contracts or would result in creation of any Lien
thereunder or pursuant thereto except as would arise from execution, delivery
and performance of this Agreement and the Closing Agreements. To the knowledge
of Buyer, and LTIC, no material breach or default by any Person (other than
Buyer, LTIC or any of their Subsidiaries) under any of the Contracts has
occurred and is continuing, and no event has occurred or circumstance exists
that with notice or lapse of time would constitute a material breach or default
or permit termination, modification or acceleration by Buyer, LTIC or any of
their Subsidiaries under any of the Buyer Contracts or would result in creation
of any Lien thereunder or pursuant thereto except as would arise from execution,
delivery and performance of this Agreement and the Closing Agreements.
Section 4.9. Insurance. The Buyer Disclosure Letter sets forth a list of
all: (i) fire, theft, casualty, general liability, workers compensation,
fidelity, errors and omissions, business interruption, environmental, product
liability, automobile and other insurance (other than title reinsurance)
policies maintained at any time in the three (3) years preceding the date hereof
by Buyer, LTIC or any of their Subsidiaries, and (ii) all life insurance
policies maintained by Buyer, LTIC or any of their Subsidiaries on the life of
any of its employees officers or directors (collectively, the "Buyer Insurance
Policies"), specifying the type of coverage, the amount of coverage, the
premium, the insurer, the policyholder, each covered insured, the policy owner,
the expiration date of each such policy and a description of any retroactive
premium adjustments or other loss-sharing arrangements, (iii) any self-insurance
arrangements by or affecting Buyer, LTIC, any sharing of risk contracts or
arrangements affecting Buyer or LTIC and any obligations of Buyer, LTIC or any
of their Subsidiaries to any third party with respect to insurance, and (iv)
excess of loss or catastrophic loss reinsurance arrangements maintained by
Buyer, LTIC or any of their Subsidiaries or to which any of them is a party.
True, correct and complete copies of all Insurance Policies have been previously
delivered by Buyer to Seller. The Buyer Insurance Policies presently in effect
are Enforceable and will continue to be Enforceable immediately after the
Closing in accordance with the terms as in effect immediately before the
Closing. All premiums due and payable on any of the Buyer Insurance Policies or
renewals thereof have been paid or will be paid timely through the Closing Date,
and there is no default (including with respect to the payment of premiums or
the giving of notices) by Buyer, LTIC or any of their Subsidiaries under the
Buyer Insurance Policies nor any default by any other party to the Insurance
Policies that is known by the Buyer and LTIC, and to the knowledge of Buyer and
LTIC, no event has occurred which, with notice or the lapse of time, would
constitute such a breach or default or permit termination, modification or
acceleration, under any Insurance Policy. Neither Buyer nor LTIC nor any
Subsidiary of Buyer or LTIC has received any written notice from the insurer
denying coverage or reserving rights with respect to a particular claim
currently pending under any Buyer Insurance Policy or with respect to any Buyer
Insurance Policy in general. Since the Interim Balance Sheet Date, neither Buyer
nor LTIC nor any Subsidiary of Buyer or LTIC has incurred any material loss,
damage, expense or liability that was or would be covered by any Insurance
Policy for which it has not properly asserted a claim under any Buyer Insurance
Policy. Each of Buyer, LTIC and their Subsidiaries is covered by types of
insurance customary for the industry in which it is engaged and in coverage
amounts reasonable for a company of its size.
Section 4.10. Transactions with Affiliates. Except for the matters
specified in the Buyer Disclosure Letter (the "Buyer Affiliate Relationships"),
none of Buyer or any of its Affiliates is an officer, director, employee,
consultant, distributor, supplier or vendor of, or is party to any Contractual
Obligation with, LTIC or any of its Subsidiaries, and after the Closing neither
LTIC nor any of its Subsidiaries will have any liability or obligation to or for
the benefit of Buyer or any of its Affiliates. Except for the matters specified
in the Buyer Disclosure Letter,
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there are no Buyer Assets that Buyer or any of its Affiliates owns or is
licensed or otherwise has the right to use which are used in or necessary to the
conduct of the Buyer Business nor are there any services or staffing being
provided to the Buyer Business by Buyer or any of its Affiliates other than
pursuant to written Contractual Obligations set forth in the Buyer Disclosure
Letter.
Section 4.11. Compliance with Laws. Except as set forth in the Buyer
Disclosure Letter and without regard to environmental matters which are covered
in Section 4.14 of this Agreement, Buyer, LTIC and their Subsidiaries have all
licenses, permits and qualifications necessary to conduct their businesses in
the jurisdictions listed in the Buyer Disclosure Letter, which is each
jurisdiction in which Buyer, LTIC or their Subsidiaries do business or own
property, or in which such license, permit or qualification is otherwise
required. Except as set forth in the Buyer Disclosure Letter, during the three
(3) years prior to the date hereof, (a) neither Buyer nor LTIC nor any of their
title insurance Subsidiaries has had its license or qualification to conduct
title insurance business in any jurisdiction revoked or suspended or been
involved in a proceeding to revoke or suspend such license or qualification, nor
to the best of Buyer's and LTIC's knowledge has any investigation been
conducted, or is pending, in any such jurisdiction with a view to revocation or
suspension of any such license, (b) Buyer, LTIC and their Subsidiaries have
complied in all material respects with all laws, regulations and orders
applicable to their businesses and the present use by Buyer, LTIC and their
Subsidiaries of their respective properties, and the business conducted by
Buyer, LTIC and their Subsidiaries, does not violate in any material respect any
such laws, regulations or orders and (c) Buyer, LTIC and their Subsidiaries have
timely filed all reports and returns required by law, rule, regulation or policy
of any regulatory authority and all such returns and reports are true and
correct in all material respects, and there are no material deficiencies with
respect to such filings or submissions. The Buyer Disclosure Letter indicates
the two (2) most recent dates of the last completed insurance regulatory
examinations and audits, regular or special, as the case may be, as to Buyer,
LTIC and their title insurance Subsidiaries for the jurisdictions listed
therein, and a copy of the two most recent reports of such examinations has
heretofore been delivered to Seller. There is no agreement or understanding
between Buyer, LTIC or any title insurance Subsidiary of Buyer or LTIC, on the
one hand, and any regulatory authority, on the other hand, concerning the
payment of dividends by Buyer, LTIC or such title insurance Subsidiary or the
maintenance of any NAIC Insurance Regulatory Information System Ratio or
adequacy of reserves. The Buyer Disclosure Letter contains a complete
description of all securities of Buyer, LTIC or their Subsidiaries on deposit
with each state insurance department as of July 31, 1997.
Section 4.12. Tax Matters. Except as set forth in the Buyer Disclosure
Letter:
(a) (i) All Tax Returns required to be filed on or before the
Closing Date by, or with respect to Buyer, LTIC or any of their Subsidiaries
(the "Buyer Tax Returns") have been or will be timely filed (taking into account
permitted extensions) with the appropriate taxing authorities; (ii) the Buyer
Tax Returns have accurately reflected and will accurately reflect all material
liability for Taxes of Buyer, LTIC and their Subsidiaries required to be shown
thereon for the periods covered thereby; (iii) Buyer, LTIC and their
Subsidiaries have timely paid, withheld or made provision in the Buyer Financial
Statements for all Taxes shown as due and payable on any Buyer Tax Return and
have timely paid, withheld, or made provision in the Buyer Financial Statements
for all material Taxes, whether or not shown on any Buyer Tax Return; (iv) no
Liens for Taxes on the Buyer Assets exist; (v) neither Buyer nor LTIC nor any of
their Subsidiaries currently is the beneficiary of any extension of time within
which to file any Buyer Tax Return; and (vi) no written claim has ever been made
by an authority in a jurisdiction where any of Buyer, LTIC or their Subsidiaries
does not file Buyer Tax Returns that any of them is or may be subject to
taxation by that jurisdiction.
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(b) Buyer, LTIC and each of their Subsidiaries is a member of
the affiliated group, within the meaning of Section 1504(a) of the Code of which
Buyer is the common parent (the "Buyer Affiliated Group"), and such Buyer
Affiliated Group files a consolidated federal Income Tax Return. Neither Buyer,
LTIC nor any of their Subsidiaries has at any time been a member of an
affiliated group filing a consolidated federal Income Tax Return other than the
Buyer Affiliated Group. All Income Taxes shown on any Tax Return of the Buyer
Affiliated Group have been paid for each taxable period during which any of
Buyer, LTIC and their Subsidiaries was a member of the Buyer Affiliated Group.
(c) Each of Buyer, LTIC and their Subsidiaries has withheld
and paid all material Taxes required to have been withheld and paid on or before
the date hereof in connection with amounts paid or owing to any employee,
independent contractor, creditor, shareholder, foreign person, or other third
party.
(d) There is no dispute or claim concerning any material Tax
liability of any of Buyer, LTIC and their Subsidiaries as to which Buyer has
knowledge. The Buyer Disclosure Letter lists all Buyer Tax Returns filed on or
after January 1, 1994 that have been audited, and indicates all Buyer Tax
Returns that currently are the subject of audit. Buyer has delivered or made
available to Seller correct and complete copies of all federal Income Tax
Returns and examination reports which pertain to Buyer, LTIC and their
Subsidiaries, and statements of deficiencies assessed against or agreed to by
any of Buyer, LTIC and their Subsidiaries since December 31, 1993.
(e) Neither Buyer nor LTIC nor any of their Subsidiaries has
waived any statute of limitations in respect of Taxes or agreed to any extension
of time with respect to a Tax assessment or deficiency.
(f) No Power of Attorney has been granted by Buyer, LTIC or any
of their Subsidiaries with respect to any tax matter which is currently in
force.
(g) Neither Buyer nor LTIC nor any of their Subsidiaries (i)
has made any payments, (ii) is obligated to make any payments, or (iii) is a
party to any agreement that under certain circumstances could obligate it to
make any payments that will not be deductible under Code Section 280G, absent,
in each case, the making of any other payments.
(h) There are no tax sharing, allocation, indemnification or
similar agreements or arrangements in effect between Buyer, LTIC or any of their
Subsidiaries, or any predecessor or affiliate thereof, and any other party under
which Buyer, LTIC or any of their Subsidiaries could be liable for any Taxes or
other claims of any party.
(i) Neither Buyer nor LTIC nor any of their Subsidiaries has
applied for, been granted, or agreed in writing to any accounting method change
for which it will be required to take into account any adjustment under Section
481 of the Code or any similar provision of the Code or the corresponding tax
laws of any nation, state or locality.
(j) No indebtedness of Buyer, LTIC or any of their Subsidiaries
consists of "corporate acquisition indebtedness" within the meaning of Section
279 of the Code.
Section 4.13. Employee Relations and Employee Benefit Plans.
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4.13.1. Employee Relations. Except as set forth in the Buyer Disclosure
Letter:
(a) Buyer, LTIC and each of their Subsidiaries are in material
compliance with all federal, state or other applicable laws, domestic or
foreign, respecting employment and employment practices, terms and conditions of
employment and wages and hours of employment;
(b) no legal claim in respect of application for employment,
employment or termination of employment of any person has been asserted or, to
the knowledge of Buyer, threatened against Buyer, LTIC or any of their
Subsidiaries;
(c) Buyer, LTIC and each of their Subsidiaries have not, and
are not, engaged in any unfair labor practice;
(d) no unfair labor practice complaint against Buyer, LTIC or
any of their Subsidiaries is pending before the National Labor Relations Board;
(e) there is no labor strike, dispute, slowdown or stoppage
actually pending or, to the knowledge of Buyer, threatened against or involving
Buyer, LTIC or any of their Subsidiaries;
(f) neither Buyer nor LTIC nor any of their Subsidiaries is a
party to any collective bargaining agreement and no collective bargaining
agreement is currently being negotiated by any of them;
(g) none of the employees of Buyer, LTIC or any of their
Subsidiaries is represented by a labor union;
(h) no petition has been filed or proceedings instituted by
any employee or group of employees of Buyer, LTIC or any of their Subsidiaries
with any labor relations board seeking recognition of a bargaining
representative;
(i) to the knowledge of Buyer, there is no organizational
effort currently being made or threatened by or on behalf of any labor union to
organize any employees of Buyer, LTIC or any of their Subsidiaries;
(j) there are no other controversies or disputes pending
between Buyer, LTIC or any of their Subsidiaries on the one hand and any of
their respective employees on the other hand, except for such other
controversies and disputes with individual employees arising in the Ordinary
Course of Business that have not had and may not reasonably be expected to have
a Material Adverse Effect; and
(k) Buyer, LTIC and the Subsidiaries of Buyer and LTIC have
taken any and all actions necessary to comply with the Worker Adjustment and
Retraining Notification Act, with respect to any event or occurrence since the
effective date of such Act.
4.13.2. Employee Benefit Plans.
(a) List of Plans. Set forth in the Buyer Disclosure Letter is
an accurate and complete list of all Buyer Plans and Buyer Benefit Arrangements.
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(b) Status of Plans. Except as set forth in the Buyer
Disclosure Letter:
(i) each Buyer Plan and Buyer Benefit Arrangement has,
at all times, been maintained and operated in compliance in all material
respects with its terms and the requirements of all applicable laws, including,
without limitation, ERISA and the Code;
(ii) no complete or partial termination of any Buyer
Plan or Buyer Benefit Arrangement has occurred or its expected to occur as a
result of this Agreement and the consummation of the transactions contemplated
hereby;
(iii) neither Buyer nor LTIC nor any of their
Subsidiaries has any commitment or understanding to create, modify or terminate
any Buyer Plan or Buyer Benefit Arrangement;
(iv) and except as required by applicable law or the
terms of a current collective bargaining agreement, no condition or circumstance
exists that would prevent the subsequent unrestricted amendment or termination
of any Buyer Plan or Buyer Benefit Arrangement; and
(v) and apart from the transactions contemplated by this
Agreement, no event has occurred and no condition or circumstance has existed
that will, or could, result in a material increase in the benefits under, or the
expense of maintaining, any Buyer Plan or Buyer Benefit Arrangement from the
level of benefits or expense incurred for the most recently concluded fiscal
year thereof.
(c) Liabilities. Except as set forth in the Buyer Disclosure
Letter:
(i) no Buyer Plan subject to Section 412 or 418B of
the Code or Section 302 of ERISA has incurred any material accumulated funding
deficiency within the meaning of Section 412 or 418B of the Code or Section 302
of ERISA, respectively, or has applied for or obtained a waiver from the
Internal Revenue Service of any minimum funding requirement under Section 412 of
the Code;
(ii) and except for timely payments of premiums to the
Pension Benefit Guaranty Corporation ("PBGC"), neither Buyer nor LTIC nor any of
their Subsidiaries has incurred any liability (including, for this purpose and
for the purpose of all of the representations in this Section 4.13, any
indirect, contingent, or secondary liability) to the PBGC in connection with any
Buyer Plan, including, without limitation, any liability under Section 4069 or
4212(C) of ERISA or any penalty imposed under Section 4071 of ERISA;
(iii) neither Buyer nor LTIC nor any of their
Subsidiaries has any liability under Section 4062, 4063 or 4064 of ERISA;
(iv) neither Buyer nor LTIC nor any of the Subsidiaries
of Buyer or LTIC knows of any facts or circumstances that might give rise to any
liability of Buyer, LTIC or any of their Subsidiaries to the PBGC under Title IV
of ERISA that could reasonably be anticipated to result in any Actions being
brought against Buyer by the PBGC;
(v) neither Buyer nor LTIC nor any of their
Subsidiaries has incurred any withdrawal liability (including any contingent or
secondary withdrawal liability) within the
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meaning of Section 4201 or 4204 of ERISA to any Buyer Plan which is a
"multiemployer plan" (as such term is defined in Section 4001(a) (3) of ERISA
("Multiemployer Plan");
(vi) no event has occurred and no condition or
circumstance has existed, that presents a material risk of the occurrence of any
withdrawal from or the partition, termination, reorganization or insolvency of
any such Multiemployer Plan which could result in any liability of Buyer, LTIC
or any of their Subsidiaries to any such Multiemployer Plan;
(vii) neither Buyer nor LTIC nor any of their
Subsidiaries maintains any Buyer Plan or Buyer Benefit Arrangement which is a
"group health plan" (as such term is defined in Section 5000(b) (1) of the Code)
that has not been administered and operated in all material respects in
compliance with the applicable requirements of Sections 601, 701 and 702 of
ERISA and Sections 4980B(f), 9801 and 9802 of the Code; and, neither Buyer nor
LTIC nor any of their Subsidiaries is subject to any liability, including,
without limitation, additional contributions, fines, penalties or loss of tax
deduction as a result of such administration and operation;
(viii) neither Buyer nor LTIC nor any of their
Subsidiaries maintains any Buyer Plan or Buyer Benefit Arrangement (whether
qualified or nonqualified within the meaning of Section 401(a) of the Code)
providing for retiree health and/or life benefits and having unfunded
liabilities;
(ix) neither Buyer nor LTIC nor any of their
Subsidiaries maintains any Buyer Plan which is an "employee welfare benefit
plan" (as such term is defined in Section 3(1) of ERISA) that has provided any
"disqualified benefit" (as such term is defined in Section 4976(b) of the Code)
with respect to which any excise tax could be imposed;
(x) no person is entitled to, with respect to
employment with Buyer, LTIC or any of their Subsidiaries, (A) any pension
benefit that is unfunded or (B) any pension or other benefit to be paid after
termination of employment (other than pursuant to a Buyer Plan that is
tax-qualified under Section 401(a) of the Code); and, no other benefits
whatsoever are payable to any person after termination of employment;
(xi) neither Buyer nor LTIC nor any of their
Subsidiaries has incurred any liability for any tax or excise tax arising under
Section 4971, 4977, 4978, 4978B, 4979, 4980, 4980B or 4980D of the Code; and, no
event has occurred and no condition or circumstance has existed that could give
rise to any such liability;
(xii) no asset of Buyer, LTIC or any of their
Subsidiaries is subject to any lien arising under Section 302(f) of ERISA or
Section 412(n) of the Code, and no event has occurred and no condition or
circumstance has existed that could give rise to any such lien;
(xiii) neither Buyer nor LTIC nor any of their
Subsidiaries has been required to provide any security under Section 307 of
ERISA or Section 401(a) (29) or 412(f) of the Code; and, no event has occurred
and no condition or circumstance has existed that could give rise to any such
requirement to provide any such security;
(xiv) no Actions are pending, or to the knowledge of
Buyer, threatened, anticipated, or expected to be asserted against any Buyer
Plan or Buyer Benefit Arrangement or the assets of any such Buyer Plan or Buyer
Benefit Arrangement (other than routine claims for benefits and appeals of
denied routine claims);
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(xv) no civil or criminal action brought pursuant to
the provisions of Title I, Subtitle B, Part 5 of ERISA is pending, threatened,
anticipated, or expected to be asserted against Buyer, LTIC or any of their
Subsidiaries or any fiduciary of any Buyer Plan or Buyer Benefit Arrangement,
with respect to any Buyer Plan or Buyer Benefit Arrangement; and
(xvi) on or after January 1, 1994, no Buyer Plan or Buyer
Benefit Arrangement, or, with respect to any Buyer Plan or Buyer Benefit
Arrangement, any fiduciary thereof, is or has been the direct or indirect
subject of an audit, investigation or examination by any governmental or
quasi-governmental agency; or, has entered into a settlement with such agency.
(d) Contributions. Except as set forth in the Buyer Disclosure
Letter:
(i) full payment has been made, or by Closing will have
been made, of all material amounts which Buyer, LTIC or any of their
Subsidiaries is required, under applicable law, under any Buyer Plan or Buyer
Benefit Arrangement or under any agreement relating to any Buyer Plan or Buyer
Benefit Arrangement to which Buyer, LTIC or any of their Subsidiaries is a
party, to have paid as contributions thereto as of the last day of the most
recent fiscal year of such Buyer Plan or Buyer Benefit Arrangement ended prior
to Closing;
(ii) all contributions to a Buyer Plan or a Buyer
Benefit Arrangement have been deducted, or can be deducted, in the taxable year
for which such contributions are made; and, no contribution deduction has been
challenged or disallowed;
(iii) Buyer and LTIC have made adequate provision for
reserves to make Buyer Plan or Buyer Benefit Arrangement contributions that have
accrued or will have accrued through Closing, but that have not been made
because they are not yet due under the terms of any Buyer Plan or Buyer Benefit
Arrangement or related agreements; and
(iv) benefits under all Buyer Plans and Buyer Benefit
Arrangements are materially as represented in this Agreement and have not been
increased subsequent to the date as of which plan documents were provided or
made available to Seller.
(e) Funded Status. Except as set forth in the Buyer
Disclosure Letter, with respect to each Buyer Plan which is covered by Title IV
of ERISA and which is a "Single Employer Plan" (as such term is defined in
Section 4001(a) (15) of ERISA) ("Single Employer Plan"), as of the date of the
most recent actuarial valuation of each such Single Employer Plan, the current
value of the accumulated benefit obligations (based on the actuarial assumptions
used in such actuarial valuation) do not exceed in any material amount the
current fair market value of the assets of each such Single Employer Plan
allocable to such accrued benefits; and, to the knowledge of Buyer, nothing has
occurred since such date which would materially affect such status.
(f) Tax Qualification. Except as set forth in the Buyer
Disclosure Letter:
(i) each Buyer Plan intended to be qualified under
Section 401(a) of the Code has been determined to be so qualified, as to design,
by the Internal Revenue Service. Each Buyer Plan intended to be tax-qualified is
qualified under Section 401(a) of the Code (and with respect to each Buyer Plan
that is a 401(k) plan of LTIC, Section 401(k) of the Code);
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(ii) each trust established in connection with any Buyer
Plan which is intended to be exempt from federal income taxation under Section
501(a) of the Code continues to be exempt; and
(iii) since the date of each most recent determination
referred to in this paragraph (f), to the knowledge of Buyer, no event has
occurred and no condition or circumstance has existed that resulted or is likely
to result in the revocation of any such determination or that could adversely
affect the qualified status of any Buyer Plan or the exempt status of any such
related trust.
(g) Transactions. Except as set forth in the Buyer Disclosure
Letter:
(i) no "reportable event" (as such term is defined
in Section 4043 of ERISA) for which the notice requirement has not been waived
by the PBGC has occurred or is expected to occur with respect to any Buyer Plan;
and
(ii) neither Buyer nor LTIC nor any of their
Subsidiaries nor, to the knowledge of Buyer, any of their respective directors,
officers, employees or other persons who participate in the operation of any
Buyer Plan or Buyer Benefit Arrangement or related trust or funding vehicle, has
engaged in any transaction with respect to any Buyer Plan or Buyer Benefit
Arrangement or breached any applicable fiduciary responsibilities or obligations
under Title I of ERISA with respect to any Buyer Plan or any Buyer Benefit
Arrangement that would subject any of them to a tax, penalty or liability for
prohibited transactions under ERISA or the Code or would result in any claim
being made under, by or on behalf of any such Buyer Plan or Buyer Benefit
Arrangement, by any party with standing to make such claim, for which Buyer,
LTIC or any Subsidiary of Buyer or LTIC would have a liability.
(h) Triggering Events. Except as set forth in the Buyer
Disclosure Letter:
(i) the execution of this Agreement and the
consummation of the transactions contemplated hereby, do not constitute a
triggering event under any Buyer Plan or Buyer Benefit Arrangement, policy,
arrangement, statement, commitment or agreement, whether or not legally
enforceable, which (either alone or upon the occurrence of any additional or
subsequent event) will or may result in any payment (whether of severance pay or
otherwise), acceleration, vesting or increase in benefits to any employee or
former employee or director of Buyer or LTIC or any of their Subsidiaries; and
(ii) no Buyer Plan or Buyer Benefit Arrangement provides
for the payment of severance benefits upon the termination of employment of an
employee of Buyer, LTIC or any of their Subsidiaries.
(i) Documents. Buyer has delivered or made available to Seller
or its counsel true and complete copies of all material documents in connection
with each Buyer Plan and Buyer Benefit Arrangement, including, without
limitation, as applicable: (i) all Buyer Plans and Buyer Benefit Arrangements as
in effect on the date hereof, together with all amendments thereto, including,
in the case of any Buyer Plan or Buyer Benefit Arrangement not set forth in
writing, a written description thereof; (ii) all current summary plan
descriptions, summaries of material modifications and, except with respect to
the 401(k) plan of LTIC, material communications; (iii) all current trust
agreements, declarations of trust and, except with respect to the 401(k) plan of
LTIC, other documents establishing other funding arrangements (and all
amendments thereto and the latest financial statements thereof); (iv) the most
recent Internal
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Revenue Service determination letter obtained with respect to each Buyer Plan or
Buyer Benefit Arrangement intended to be qualified under Section 401(a) of the
Code or exempt under Section 501(a) of the Code; (v) the annual report on
Internal Revenue Service Form 5500-series (the "Form 5500-series") for each of
the last four years for each Buyer Plan or Buyer Benefit Arrangement required to
file such form; (vi) the most recently prepared actuarial valuation report for
each Buyer Plan or Buyer Benefit Arrangement covered by Title IV of ERISA; (vii)
the most recently prepared financial statements for each Buyer Plan or Buyer
Benefit Arrangement; and (viii) all Contractual Obligations relating to each
Buyer Plan (other than the 401(k) plan of LTIC) or Buyer Benefit Arrangement,
including, without limitation, service provider agreements, insurance contracts,
annuity contracts, investment management agreements, subscription agreements,
participation agreements, and record keeping agreements.
Section 4.14. Environmental Matters.
(a) Except as set forth in the Buyer Disclosure Letter, Buyer,
LTIC and each of their Subsidiaries are, and have at all times been, in
compliance in all respects with all Environmental Laws. Except as set forth in
the Buyer Disclosure Letter, neither Buyer nor LTIC has received written notice
of any Action pending against it or any of its Subsidiaries nor, to the
knowledge of Buyer, is there any reasonable basis for any Action or is any
Action threatened against Buyer, LTIC or any of their Subsidiaries, in each case
in respect of (i) noncompliance by Buyer or LTIC or any of their Subsidiaries
with any Environmental Laws, or (ii) the presence or release or threatened
release into the environment of any Hazardous Substance whether or not generated
by Buyer or LTIC or any of their Subsidiaries or located at or about or
emanating from or to a site included in the Buyer Real Property or any other
facility, location, building or site currently or heretofore owned, leased or
otherwise used by Buyer, LTIC or any of their Subsidiaries or any predecessor
entity of any of them.
(b) Except as set forth in the Buyer Disclosure Letter and for
any other matters that would not result in any material liability to Buyer, LTIC
and their Subsidiaries taken as a whole, no event has occurred or condition
exists or operating practice is being engaged in that could give rise to any
Liability or Losses on the part of Buyer or LTIC or any of their Subsidiaries
either at the present or at any future time (including, without limitation, any
obligation to conduct any remedial or monitoring work) under any Environmental
Laws or otherwise resulting from or relating to the handling, storage, use,
transportation or disposal of any Hazardous Substance by or on behalf of Buyer
or LTIC or any of their Subsidiaries.
(c) Buyer has previously provided to Seller true and correct
copies of all written reports in the possession of Buyer, LTIC or any of their
Subsidiaries and arising out of environmental inspections, investigations,
studies, audits, tests, reviews or other analyses conducted with respect to any
Buyer Real Property listed in the Buyer Disclosure Letter pursuant to Section
4.5.1 or any real property leased by Buyer, LTIC or any of their Subsidiaries.
Section 4.15. Accounts Receivable. All accounts receivable of Buyer, LTIC
and their Subsidiaries that are reflected in the Buyer Financial Statements
represent or will represent valid obligations arising from title policies issued
or committed to or title or other services actually performed in the Ordinary
Course of Business.
Section 4.16. Litigation. Except as set forth in the Buyer Disclosure
Letter and except for title insurance or reinsurance Actions in the Ordinary
Course of Business, and without regard to environmental matters which are
covered in Section 4.14 of this Agreement, there is no Action pending or, to the
knowledge of Buyer and LTIC, threatened with respect to which Buyer, LTIC
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or any of their Subsidiaries are or would reasonably be expected to be parties.
There is no Action pending or, to the knowledge of Buyer and LTIC, threatened,
that seeks rescission of, seeks to enjoin the consummation of, or otherwise
relates to, this Agreement or any of the transactions contemplated hereby. No
Governmental Order material to the Buyer Business and directed specifically at
Buyer, LTIC or any of their Subsidiaries has been issued.
Section 4.17. Brokers. Except for Wheat, First Securities, Inc. ("Wheat,
First"), no broker, finder, investment bank or similar agent is entitled to any
brokerage, finder's or other similar fee, Compensation or reimbursement of
expenses in connection with the transactions contemplated by this Agreement
based upon agreements or arrangements made by or on behalf of (or the conduct
of) Buyer or its Affiliates. Buyer shall be solely responsible for the payment
of the fees and expenses of Wheat, First.
Section 4.18. Investment Securities. The ownership by Buyer, LTIC and
their Subsidiaries of stocks, bonds and other securities complies in all
material respects with all applicable insurance and trust laws and regulations.
Each of Buyer and LTIC, as the case may be, has good and valid title to all such
investment securities shown as their assets in the Buyer Interim Financial
Statements (unless disposed of in the Ordinary Course of Business thereafter),
free and clear of all material Liens except for restrictions in respect of
deposits, statutory premium reserve requirements and statutory pledges with
state regulatory authorities disclosed in the Buyer Interim Financial
Statements.
Section 4.19. Buyer SEC Documents. Buyer has filed all required reports,
schedules, forms, statements and other documents with the Securities and
Exchange Commission since January 1, 1994 (the "Buyer SEC Documents"). As of
their respective dates, the Buyer SEC Documents complied as to form, in all
material respects, with the requirements of the Securities Act of 1933, as
amended (the "Securities Act") and the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and the rules and regulations promulgated
thereunder applicable to the Buyer SEC Documents, and none of the Buyer SEC
Documents, as of their respective filing dates, contained any untrue statements
of a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Section 4.20. Amended and Restated Rights Agreement. As of the date hereof,
and prior to the execution of this Agreement, Buyer and Wachovia Bank, N.A.
executed an Amended and Restated Rights Agreement excepting from the provisions
thereof the transactions contemplated by this Agreement and the Voting and
Standstill Agreement.
Section 4.21. Exceptions. The exceptions to the representations and
warranties of Buyer and LTIC set forth in this Article IV are not, individually
or in the aggregate, material to the assets or business of Buyer, LTIC and their
Subsidiaries, taken as a whole. For the purposes of the representation in the
immediately preceding sentence, when the word "material" is used as an adjective
qualifying a representation or warranty set forth in this Article IV and when a
representation or warranty contains an exception if no Material Adverse Effect
would result, or be caused or be reasonably expected to occur, or no material
adverse effect on the consummation of the transactions contemplated hereunder
could be reasonably expected to occur, then all items, matters, occurrences and
circumstances which would have been covered by that representation or warranty
but for the use of such qualification or exception shall be deemed to be an
exception from such representation or warranty.
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ARTICLE V
Certain Covenants of the Parties
Section 5.1. Access to Premises and Information of Buyer and LTIC. Prior to
the Closing, Buyer and LTIC will permit Seller and its representatives, to have
full access to Buyer's and LTIC's premises and documents, books and records and
to make copies during normal business hours of such financial and operating data
and other information with respect to Buyer and LTIC as Seller, or any of its
representatives shall reasonably request in connection with the transactions
contemplated hereby and the issuance of the Buyer Common Shares and the Buyer
Series B Preferred Shares. In addition, Buyer and LTIC shall cause their
management to be available to Seller and its representatives at such times, and
from time to time, as Seller may reasonably request in connection with the
transactions contemplated hereby and the issuance of the Buyer Common Shares and
the Buyer Series B Preferred Shares. Buyer and LTIC will cause to be delivered
as soon as is practicable such additional information and copies of documents,
books and records relating to Buyer and LTIC as may be reasonably requested by
Seller, or any of its representatives, as well as all financial statements
(audited and unaudited) that are prepared prior to the Closing Date, including,
without limitation, the unaudited financial statements for the quarter ending
September 30, 1997. Notwithstanding any other provision of this Agreement, in
the event that Seller requests that it or any other Person on its behalf perform
soil or groundwater sampling or analysis with respect to any property owned or
leased by Buyer, LTIC or any of their Subsidiaries, Buyer may, in its sole
discretion, refuse to permit such sampling or analysis on or prior to the
Closing Date.
Section 5.2. Access to Premises and Information of Company. Prior to the
Closing, Seller will cause Commonwealth, Transnation and their Subsidiaries to
permit Buyer and its prospective lenders listed in the Buyer Disclosure letter
(which shall execute appropriate confidentiality agreements), and their
respective representatives, to have full access to their premises and documents,
books and records and to make copies during normal business hours of such
financial and operating data and other information with respect to Commonwealth,
Transnation and their Subsidiaries as Buyer, such lenders, or any of their
representatives shall reasonably request; provided, however, that Seller shall
not be required to provide access to, or copies of, the portions of any
documents, books and records or other data that contain information relating
solely to entities other than Commonwealth, Transnation and their Subsidiaries.
In addition, Seller shall cause the management of Commonwealth, Transnation and
the Subsidiaries to be available to Buyer and its prospective lenders at such
times, and from time to time, as Buyer and its prospective lenders may
reasonably request in connection with the transactions contemplated hereby and
their review of the Company Business. Seller will cause to be delivered as soon
as is practicable such additional information and copies of documents, books and
records relating to Commonwealth, Transnation and their Subsidiaries or the
Company Business as may be reasonably requested by Buyer, such lenders, or any
of their representatives, all financial statements, audited and unaudited, of
Commonwealth, Transnation or their Subsidiaries that are prepared prior to the
Closing Date, including, without limitation, the unaudited financial statements
for the quarter ending September 30, 1997. Notwithstanding any other provision
of this Agreement, in the event that Buyer requests that it or any other Person
on its behalf perform soil or groundwater sampling or analysis with respect to
any property owned or leased by Commonwealth, Transnation or any of their
Subsidiaries, Seller may, in its sole discretion, refuse to permit such sampling
or analysis on or prior to the Closing Date.
Section 5.3. Confidentiality Letter. The provisions of that certain letter
agreement between Buyer and Commonwealth and Transnation dated July 2, 1997 (the
"Confidentiality
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Agreement") are hereby confirmed and remain in effect and are acknowledged to be
Enforceable with respect to Buyer, LTIC, Seller, Commonwealth and Transnation as
fully as if each of them had been an original signatory and to apply to all
documents and materials disclosed hereunder or in the due diligence review of
any party in connection with the transactions contemplated hereunder; provided,
however, that the Confidentiality Agreement is hereby amended so that (i) it
shall terminate with respect to the obligations of the Buyer thereunder upon the
consummation of the Closing, (ii) it shall not prohibit any retention of records
or disclosure made in connection with the enforcement of any right or remedy
relating to this Agreement or the transactions contemplated hereby and (iii) in
the event the Closing does not occur and this Agreement is terminated, the term
of the standstill provisions of such Confidentiality Agreement shall be extended
until the first anniversary of the date hereof and the confidentiality
provisions of such Confidentiality Agreement shall continue indefinitely.
Section 5.4. Operation of Company Business Prior to the Closing Date. On
or prior to the Closing Date, to the extent permitted by Section 2.2.2(c) and
consistent with all applicable Legal Requirements, Seller may cause Commonwealth
and Transnation to declare and pay dividends on the Commonwealth Shares and the
Transnation Shares, respectively. On and prior to the Closing Date, except as
otherwise required or permitted by this Agreement, Seller will cause
Commonwealth and Transnation to conduct the Company Business only in the
Ordinary Course of Business, and Seller will use its Best Efforts to maintain
the value of the Company Business as a going concern and the relationships of
Commonwealth and Transnation with customers, suppliers, vendors, employees,
agents, referral sources and Governmental Authorities. Seller agrees to cause
Commonwealth, Transnation and the Subsidiaries to make capital expenditures only
in the Ordinary Course of Business up to the Closing Date and prior to the
Closing Date will obtain the prior written consent of Buyer to any capital
expenditure equal to or greater than $250,000 or any capital expenditures in the
aggregate of more than $1,000,000, whether or not in the Ordinary Course of
Business. Without in any way limiting the generality of the foregoing, on and
prior to the Closing Date Seller will cause Commonwealth and Transnation to
refrain from doing any of the following without the prior written consent of
Buyer:
(a) Enter into any transaction with Seller or any of its
Affiliates except in the Ordinary Course of Business or with respect to
Affiliate Debt as set forth in the Seller Disclosure Letter;
(b) Pay or accrue any Compensation other than in the Ordinary
Course of Business or increase any Compensation of any officer or employee other
than such increases in Compensation for individual employees as may be made in
the Ordinary Course of Business;
(c) Make any Distribution other than (x) the distributions set
forth in the Seller Disclosure Letter pursuant to Section 3.3(b)(iv)(A); (y)
distributions of cash or of any receivable constituting Affiliate Debt in
connection with the repayment or cancellation of Affiliate Debt; and (z)
distributions or contributions in connection with an increase in or the
repayment or cancellation (in whole or in part) of Debt or intercompany advances
between Commonwealth or Transnation, on the one hand, and any of its respective
wholly owned Subsidiaries, on the other hand, or between their wholly owned
Subsidiaries;
(d) Except as set forth in the Seller Disclosure Letter
pursuant to Section 5.4(a), incur any Debt except capitalized leases entered
into in the Ordinary Course of Business or intercompany advances between
Commonwealth or Transnation and any of its respective
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Subsidiaries or between wholly owned Subsidiaries of only one of them, or incur
any Lien except in the Ordinary Course of Business;
(e) Amend the Charter or Bylaws of Commonwealth or Transnation
or any of their Subsidiaries;
(f) Allow any material permit or license to lapse or terminate
(to the extent such lapse or termination is within the reasonable control of
Commonwealth, Transnation or their Subsidiaries) or fail to renew any material
permit or license in accordance with reasonably prudent business practice;
(g) Fail to operate the Company Business and maintain
Commonwealth's, Transnation's and their Subsidiaries' books, accounts and
records in the Ordinary Course of Business and maintain in good repair
Commonwealth's, Transnation's and their Subsidiaries' business premises,
fixtures, machinery, furniture and equipment in a manner consistent with past
practice;
(h) Engage any new employee of Commonwealth, Transnation or any
of their Subsidiaries for a salary in excess of $100,000 per annum;
(i) Enter into, amend in any material respect, extend,
terminate or permit any renewal notice period or option to lapse with respect to
any Company Lease, Company Lease-Out or any other Contractual Obligation (other
than an agency agreement) that contains either consideration to be given or
performed by the Company or any of its Subsidiaries of a value exceeding
$250,000 per year or a term exceeding one year (except for the making of capital
expenditures consistent with the opening paragraph of this Section 5.4);
(j) Except with respect to real property acquired in connection
with the relocation services business, purchase, or otherwise acquire, or enter
into a lease of any real property (where the purchase price or annual rental is
greater than $250,000) except for Company Lease renewals in the Ordinary Course
of Business;
(k) Take any of the actions specified in any of subsections
(a) through (d) of Section 3.3;
(l) Consent or agree to do any of the foregoing; or
(m) Enter into, amend in any material respect, extend,
terminate or permit any renewal notice period or option to lapse with respect to
any exclusive agency agreement, any agency agreement with a term of two (2)
years or more or any agency agreement which guarantees a specified level of
national referral business to the agent.
Section 5.5. Certain Notices. On and prior to the Closing Date, Seller will
promptly upon becoming aware thereof give Buyer written notice of any material
development affecting the Company Business, or the financial condition of
Commonwealth or Transnation and any material breach of or inaccuracy in any
representation or warranty of Seller contained in this Agreement; provided,
however, that no such disclosure shall be deemed to amend the Seller Disclosure
Letter, or prevent or cure any breach of or inaccuracy in, or disclose any
exception to, any of the representations and warranties set forth herein. On and
prior to the Closing Date, Buyer will promptly upon becoming aware thereof give
Seller written notice of any material
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development affecting the Buyer Business, or the financial condition of Buyer or
LTIC and any material breach of or inaccuracy in any representation or warranty
of Buyer and LTIC contained in this Agreement; provided, however, that no such
disclosure shall be deemed to amend the Buyer Disclosure Letter, or prevent or
cure any breach of or inaccuracy in, or disclose any exception to, any of the
representations and warranties set forth herein.
Section 5.6. Preparation for Closing. Each party will use its Best
Efforts to bring about the timely fulfillment of each of the conditions
precedent to the obligations of the other parties hereto set forth in this
Agreement. Without limiting the generality of the foregoing, the parties shall
take the actions set forth below in this Section 5.6.
5.6.1. HSR and Insurance Department Filings. Promptly upon execution and
delivery of this Agreement, each of Seller and Buyer will prepare and file, or
cause to be prepared and filed, with the appropriate Governmental Authorities,
all filings, notices and requests for approval with state insurance departments
and similar state Governmental Authorities required for the consummation of the
transactions contemplated hereunder (including without limitation, as required
under state market share statutes as contemplated by the Buyer Disclosure Letter
and the Seller Disclosure Letter) and a notification with respect to the
transactions contemplated hereunder pursuant to the HSR Act. Each of Seller and
Buyer will promptly provide, or cause to be provided, all additional information
requested which is necessary to comply with notification requirements under
state insurance statutes, state market share statutes and the HSR Act and each
of Seller and Buyer will cooperate with each other and use their Best Efforts to
cause the expiration of all waiting periods under state insurance statutes,
state market share statutes and the HSR Act.
5.6.2. Closing Agreements. Seller will enter into each of the Closing
Agreements to which it is intended to be a party, and Seller will cause each of
its Subsidiaries and Affiliates which is intended to be a party to any Closing
Agreement to enter into each Closing Agreement to which such Person is intended
to be a party. Buyer will enter into each of the Closing Agreements to which it
is intended to be a party, and Buyer will cause each of its Subsidiaries and
Affiliates which is intended to be party to any Closing Agreement to enter into
each Closing Agreement to which such Person is intended to be a party.
Section 5.7. Tax Matters.
(a) Section 338(h)(10) Election. Seller and Buyer (i) shall
join in making a timely, effective and irrevocable election under Section
338(h)(10) of the Code and any corresponding elections under state, local, or
foreign tax law that have substantially the same effect as an election under
Section 338(h)(10) of the Code (collectively, the "Section 338(h)(10) Election")
with respect to Commonwealth, Transnation and each of their Subsidiaries and
(ii) shall file such election in accordance with applicable regulations. Seller
and Buyer agree to cooperate in all respects for the purpose of effectuating a
timely and effective Section 338(h)(10) Election, including without limitation,
cooperating with respect to the execution and filing of any forms or returns.
(b) Tax Indemnification.
(i) Seller shall be liable for and shall indemnify and
hold Buyer harmless from and against (w) all Taxes with respect to Commonwealth,
Transnation and their Subsidiaries for any Pre-Closing Tax Period, (x) all Taxes
with respect to Commonwealth, Transnation and their Subsidiaries attributable to
any deferred intercompany gains in excess of
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deferred intercompany losses that are recognized on or before the Closing Date,
(y) any Taxes attributable to the Section 338(h)(10) Election net of any benefit
attributable to the Section 338(h)(10) Election realized by Buyer, Commonwealth,
Transnation or any of their Subsidiaries with respect to premium taxes and (z)
any and all federal Income Taxes of the Seller Affiliated Group imposed on
Commonwealth, Transnation or any of their Subsidiaries on or after the Closing
Date pursuant to Section 1.1502-6 of the Treasury Regulations, in each case
incurred or suffered by Buyer, any of its Affiliates or, effective upon the
Closing, Commonwealth, Transnation or any of their Subsidiaries ((w), (x), (y)
and (z) being referred to as a "Tax Loss"); provided, however, that Seller shall
not be liable for and shall not be required to indemnify and hold Buyer harmless
from and against any Taxes attributable to any extraordinary transaction (i.e.
any transaction not in the Ordinary Course of Business) occurring on the Closing
Date after the Closing and such amounts shall not be treated as Taxes for
purposes of (w), (x), (y) and (z) above, and Seller shall only be liable for and
shall only be required to indemnify and hold Buyer harmless from and against the
Taxes set forth in (w), (x), (y) and (z) above to the extent, if any, that the
cumulative amount of such Taxes exceeds the sum of (1) the amount accrued for
Taxes, other than federal Income Taxes, in the Third Quarter Financials for
returns timely filed (including extensions) after the Closing Date, (2) amounts
accrued for Taxes, other than federal Income Taxes, for a Post-Third Quarter Tax
Period by Commonwealth, Transnation or any of their Subsidiaries that are
attributable to the operation of the Company Business prior to or on the Closing
Date determined and accrued in a manner consistent with prior practices without
any change in an election or an accounting method (a "Post-Third Quarter Tax
Liability") and (3) the amount payable by Commonwealth, Transnation, or any of
their Subsidiaries under the tax sharing agreement between Seller and its
non-life insurance companies dated April 1, 1992 (the "Seller Tax Sharing
Agreement") with respect to a consolidated federal Income Tax Return of the
Seller Affiliated Group for any Pre-Closing Tax Periods beginning on or after
January 1, 1997 attributable to the operation of the Company Business and
determined in a manner consistent with prior practices without any change in an
election or accounting method, (the amounts in (1), (2) and (3) collectively the
"Excepted Amounts"); provided further, however, that, notwithstanding the
foregoing proviso, Seller shall have an obligation to indemnify Buyer under this
section 5.7(b) in respect of any Tax Loss with respect to Taxes described in
(w), other than federal Income Taxes, that relate to Tax Returns timely filed
(including extensions) after the Closing Date, to the extent (and only to the
extent) that the aggregate cumulative total of all such Tax Losses exceeds the
sum of (i) the Excepted Amounts provided in (1) and (2) above and (ii) $25,000
(the "Tax Basket"), whereupon Buyer shall be entitled to indemnification by
Seller for such excess (and only such excess). Buyer shall be liable for and
shall pay (and shall promptly indemnify and hold Seller harmless from and
against) all Taxes of or attributable to Commonwealth, Transnation or their
Subsidiaries that are not indemnifiable or payable by Seller pursuant to the
previous sentence. The term "Pre-Closing Tax Period" shall mean all taxable
periods ending on or before the Closing Date and the portion ending on the
Closing Date of any taxable period that includes (but does not end on) the
Closing Date. The term "Post-Closing Tax Period" shall mean all taxable periods
that begin after the Closing Date and the portion beginning after the Closing
Date of any taxable period that includes (but does not end on) the Closing Date.
The term "Post-Third Quarter Tax Period" shall mean any tax period that begins
on or after October 1, 1997 and the portion of any tax period beginning on
October 1, 1997 of any tax period that includes (but does not end on) September
30, 1997.
(ii) Prior to the Closing Date, Commonwealth,
Transnation and their Subsidiaries shall make a payment to Seller equal to the
amount of any accruals for Taxes with respect to periods ending on or prior to
December 31, 1996, excluding deferred taxes determined in accordance with GAAP,
provided in the Company Interim Balance Sheet. Such amounts are set forth in the
Seller Disclosure Letter.
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(iii) For purposes of this Section 5.7(b), in the case of
any Taxes that are imposed on a periodic basis and are payable for a Tax period
that includes (but does not end on) the Closing Date, the portion of such Tax
related to the portion of such Tax period ending on the Closing Date shall (x)
in the case of any Taxes other than Taxes based upon or related to income,
sales, gross receipts, premiums, wages, capital expenditures or expenses, be
deemed to be the amount of such Tax for the entire Tax period multiplied by a
fraction the numerator of which is the number of days in the Tax period ending
on the Closing Date and the denominator of which is the number of days in the
entire Tax period, and (y) in the case of any Tax based upon or related to
income, sales, gross receipts, premiums, wages, capital expenditures or
expenses, be deemed to be equal to the amount which would be payable if the
relevant Tax period ended on the Closing Date. In the case of Income Taxes
described in the preceding sentence, if either Buyer or Seller is adversely
affected as a consequence of an increase in liability or a reduction of refund
or other tax attribute that would have been available to it if the relevant tax
period had ended on the Closing Date, and the other party is benefited from such
circumstance, the party benefited shall reimburse the party adversely affected
to the extent of the lesser of (1) the benefit realized or (2) the detriment
incurred.
(iv) Subject to clause (vi) below, any payment by Seller
pursuant to this Section 5.7(b) shall be made (x) if reflected on a Tax Return,
prepared by, or at the direction of, Buyer pursuant to Section 5.7(f)(ii),
contemporaneously with the filing of such Return and (y) in all other cases, not
later than 30 days after receipt by Seller of written notice from Buyer stating
(1) that a Tax Loss has been paid by Buyer, any of its Affiliates or, effective
upon the Closing, Commonwealth, Transnation or any of their Subsidiaries, (2)
the amount by which such Tax Loss exceeds the applicable amount set forth in the
provisos in the first sentence of Section 5.7(b)(i) and (3) the amount of the
indemnity payment requested.
(v) Any payment made pursuant to this Section 5.7(b)
shall be increased by any Tax detriment arising from receipt of the indemnity
payment and shall be reduced by any Tax benefit realized by the recipient
thereof resulting from payment of the Taxes with respect to which the indemnity
payment is made. If any adjustment, event or other circumstance giving rise to a
payment pursuant to this Section 5.7(b) also gives rise to a Tax benefit to the
recipient thereof, the party deriving the Tax benefit shall pay to the party
making the payment the lesser of the amount of such Tax benefit or the payment.
Any payment made pursuant to the previous sentence with respect to a Tax benefit
shall be made at the time the Tax benefit is realized.
(vi) If any claim or demand for Taxes in respect of
which indemnity may be sought pursuant to this Section 5.7(b) is asserted in
writing against Buyer, any of its Affiliates or, effective upon the Closing,
Commonwealth, Transnation or any of their Subsidiaries, Buyer shall promptly
notify Seller of such claim or demand within sufficient time that would allow
Seller to timely respond to such claim or demand, and shall give Seller such
information with respect thereto as Seller may reasonably request. Seller may
discharge, at any time, its indemnification obligation under this Section 5.7(b)
by paying to Buyer the amount of the applicable Tax Loss in excess of the
applicable amount set forth in the provisos in the first sentence of Section
5.7(b)(i), calculated on the date of such payment. Seller may, at its own
expense, participate in and, upon notice to Buyer, assume the defense of any
such claim, suit, action, litigation or proceeding (including any Tax audit). If
Seller assumes such defense and if the relevant claim, suit, action, litigation
or proceeding relates to a taxable period that includes (but does not end on)
the Closing Date, Buyer shall have the right (but not the duty) to participate
in the defense thereof and to employ counsel, at its own expense, separate from
the counsel employed by Seller. Whether or not Seller chooses to defend or
prosecute any claim, all of the
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parties hereto shall cooperate in the defense or prosecution thereof. Seller
shall not be liable under this Section 5.7(b), for (x) any Tax claimed or
demanded by any taxing authority, the payment of which was made without Seller's
prior written consent unless Seller refused to participate in the proceedings
and assume the defense or (y) any settlements effected without the consent of
Seller, or resulting from any claim, suit, action, litigation or proceeding in
which Seller was not permitted an opportunity to participate. Notwithstanding
anything to the contrary herein, Seller shall, at its option, have sole control
of any audit, examination, investigation, proceeding or suit with respect to
liability for any Tax for which Seller may have sole liability hereunder.
(c) Tax Sharing Agreements. Except for this Agreement and
as provided in the following sentence, all Tax sharing agreements or similar
agreements with respect to or involving Commonwealth, Transnation and their
Subsidiaries shall be terminated as of the Closing Date and, after the Closing
Date, Commonwealth, Transnation and their Subsidiaries shall not be bound
thereby or have any liability thereunder. The Seller Tax Sharing Agreement shall
not be terminated as regards the liability of Commonwealth, Transnation or their
Subsidiaries to Seller, and vice versa, and Seller, Commonwealth, Transnation
and their Subsidiaries shall continue to be bound by and be subject to liability
under such agreement as regards the amount payable by or to Commonwealth,
Transnation and their Subsidiaries under such agreement with respect to any
consolidated federal Income Tax Returns of the Seller Affiliated Group for any
Pre-Closing Tax Periods beginning on or after January 1, 1997, including amounts
owed by Commonwealth, Transnation or any of their Subsidiaries to Seller at the
time when Seller is required to make any estimated Tax payments, to the extent
that the amounts payable are attributable to the operation of the Company
Business and determined in a manner consistent with prior practices without any
change in an election or accounting method. Notwithstanding anything to the
contrary in this Agreement, no payment made by Commonwealth, Transnation, or any
of their Subsidiaries with respect to any liability under the Seller Tax Sharing
Agreement contemplated by the foregoing sentence or any amount paid by Buyer,
Commonwealth, Transnation or any of their Subsidiaries as contemplated by
Section 5.7(b)(ii) hereof shall be treated as a Tax Loss nor shall any such
payment otherwise give rise to any indemnification hereunder and nothing in this
Agreement shall be construed as preventing Seller from extracting such payments
from Commonwealth, Transnation or any of their Subsidiaries.
(d) CMAC Tax Sharing Agreement and IVT Indemnity Agreement.
(i) Buyer agrees that Commonwealth, Transnation and
their Subsidiaries may enter into an agreement with Seller on or prior to the
Closing Date that (a) effective on the Closing Date, assigns to Seller all
rights, claims and benefits to which they would otherwise be entitled under the
letter agreement dated October 28, 1992, between CMAC Investment Corporation,
Commonwealth Mortgage Assurance Company and its Subsidiaries, Commonwealth
Mortgage Assurance Company of Arizona and Commonwealth Mortgage Assurance
Company Service Company (collectively, "CMAC"), Commonwealth, Seller, and
Seller's Parent (the "CMAC Agreement") and (b) provides that they will comply
with the provisions of the following sentence. To the extent that Buyer,
Commonwealth, Transnation or any of their Subsidiaries receive, directly or
indirectly, any amount from CMAC pursuant to the CMAC Agreement, Buyer agrees
that the party receiving such amount shall within three (3) Business Days remit
such amount to Seller.
(ii) Buyer agrees that, after the Closing Date, with
respect to the letter agreement dated April 1992 between Ensign Trust, PLC, IVT
Group, Inc., Commonwealth and
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Industrial Valley Title Insurance Company ("IVT") (the "IVT Agreement"), it will
cause Commonwealth and IVT (i) to seek indemnification under the IVT Agreement
for any amounts due thereunder and (ii) to take all commercially reasonable
steps, including legal actions and remedies under the IVT Agreement, prior to
making any claim against Seller under this Section 5.7. Any indemnification
obligation of Seller under this Section 5.7(d)(ii) shall be limited to the
excess of the amount paid by Commonwealth or IVT for the Shares Tax Liability
(as defined in the IVT Agreement) over the indemnification amount received under
the IVT Agreement following the events described in (i) and (ii) of the previous
sentence. Buyer agrees that Commonwealth and IVT shall be permitted to enter
into an agreement with Seller on or prior to the Closing Date that, independent
of the obligations of Buyer under this paragraph, they will comply with clauses
(i) and (ii) in the first sentence of this Section 5.7(d)(ii).
(e) Transfer Taxes. All transfer, documentary, sales, use,
stamp, registration and other such Taxes and fees incurred in connection with
this Agreement ("Transfer Taxes") shall be borne equally by Seller and Buyer.
(f) Return Filings, Payments, Refunds and Credits.
(i) Subject to Seller's right of indemnification under
Section 5.7(b), Seller shall include the income of Commonwealth, Transnation and
their Subsidiaries for the Pre-Closing Tax Period in Seller's federal
consolidated Income Tax Return and any state consolidated, combined or unitary
Income Tax Returns that are required and that include (i) Commonwealth,
Transnation or any of their Subsidiaries and (ii) any other member of the Seller
Affiliated Group other than Commonwealth, Transnation, or any of their
Subsidiaries (the "Consolidated Returns"), and shall file and be responsible for
remitting all Taxes reflected on such Consolidated Returns. Buyer shall cause
Commonwealth, Transnation and their Subsidiaries to provide to Seller on a
timely basis their proforma Income Tax Returns for the Pre-Closing Tax Period to
be included in Seller's Consolidated Returns. Seller shall prepare or cause to
be prepared and file or cause to be filed all Tax Returns with respect to
Commonwealth, Transnation or any of their Subsidiaries, other than Seller's
Consolidated Returns, due on or before the Closing Date (taking into account
extensions) and shall be responsible for remitting or causing to be remitted all
Taxes reflected on such Tax Returns. Copies of all such Tax Returns (or the
relevant portion thereof relating to Commonwealth, Transnation and their
Subsidiaries) shall be furnished to Buyer.
(ii) Buyer shall prepare or cause to be prepared and
file or cause to be filed on a timely basis (with the assistance of Seller to
the extent provided in any separate agreement for continuing services) all Tax
Returns, other than the Consolidated Returns referred to in Section 5.7(f)(i),
with respect to Commonwealth, Transnation and their Subsidiaries due after the
Closing Date (taking into account extensions) and shall be responsible for
remitting all Taxes reflected on such Tax Returns. Pursuant to Section
5.7(b)(i), Seller shall be liable for and shall indemnify Buyer from and against
Taxes paid by Buyer, Commonwealth, Transnation or any of their Subsidiaries with
such Tax Returns filed by Buyer, Commonwealth, Transnation or any of their
Subsidiaries or otherwise paid by Buyer, Commonwealth, Transnation or any of
their Subsidiaries with respect to Pre-Closing Tax Periods of Commonwealth,
Transnation and their Subsidiaries, only if and to the extent that such amounts
exceed the applicable amounts set forth in the provisos in the first sentence of
Section 5.7(b)(i). If requested by Seller, Buyer shall furnish to Seller copies
of all such Tax Returns prepared and filed by Buyer (or the relevant portion
thereof relating to Commonwealth, Transnation and their Subsidiaries) that
include a Pre-Closing Tax Period.
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(iii) Seller and Buyer shall reasonably cooperate, and
shall cause their respective Affiliates, agents, auditors, representatives,
officers and employees to reasonably cooperate, in preparing and filing all Tax
Returns (including amended returns and claims for refund), including maintaining
and making available to each other all records necessary in connection with
Taxes and in resolving all disputes and audits with respect to all taxable
periods relating to Taxes. Buyer and Seller agree to retain or cause to be
retained all books and records pertinent to Commonwealth, Transnation and their
Subsidiaries until the applicable period for assessment under applicable law
(giving effect to any and all extensions or waivers) has expired, and to abide
by or cause the abidance with all record retention agreements entered into with
any taxing authority. Commonwealth, Transnation and their Subsidiaries agree to
give Seller reasonable notice prior to transferring, discarding or destroying
any such books relating to Tax matters and, if Seller so requests, Commonwealth,
Transnation or any of their Subsidiaries shall allow Seller to take possession
of such books and records. Buyer and Seller shall cooperate with each other in
the conduct of any audit or other proceedings involving Commonwealth,
Transnation or any of their Subsidiaries for any Tax purposes and each shall
execute and deliver such powers of attorney and other documents as are necessary
to carry out the intent of this subsection.
(iv) Any Tax Return prepared by Seller pursuant to
Section 5.7(f)(i) for which the Seller intends to seek reimbursement from Buyer
or, effective after Closing, Commonwealth, Transnation or any of their
Subsidiaries, for any portion of the Taxes reflected on such Return or any Tax
Return prepared by, or at the direction of, Buyer pursuant to Section 5.7(f)(ii)
for which Buyer intends to seek indemnification from Seller for any portion of
the Taxes reflected on such Tax Return shall be prepared in a manner consistent
with past practice and without a change of any election or any accounting method
and shall be submitted to Seller or Buyer, as the case may be, in sufficient
time to permit a reasonable review prior to the due date (including extensions)
of such Tax Return. Buyer or Seller, as the case may be, shall have the right to
review all work papers and procedures used to prepare any such Tax Return. If
Buyer or Seller, as the case may be, within twenty (20) Business Days after
delivery of any such Tax Return, notifies the other party in writing that it
objects to any items in such Tax Return, the parties shall proceed in good faith
to resolve the disputed items and, if they are unable to do so within ten (10)
Business Days, the disputed items shall be resolved (within a reasonable time,
taking into account the deadline for filing such Tax Return) with respect to (i)
items for which Seller or Buyer is solely liable by reference to such party's
treatment and (ii) all other items by the Alternative Accountants. Upon
resolution of all disputed items, the relevant Tax Return shall be adjusted to
reflect such resolution and shall be binding upon the parties without further
adjustment. The costs, fees and expense of such Alternative Accountants shall be
borne equally by Buyer and Seller.
(v) Except in the case of refunds attributable to
carrybacks from Post-Closing Tax Periods, any refunds with respect to Income Tax
Returns paid to Buyer or Commonwealth, Transnation or any of their Subsidiaries
for any period ending on or before the Closing Date other than refunds reflected
on the Third Quarter Financials and refunds of Post-Third Quarter Tax
Liabilities shall be paid to Seller by Buyer within three (3) Business Days
after receipt in cash or as a credit to Buyer's or its Affiliates' Tax
liability. Notwithstanding the preceding sentence, none of Buyer, Commonwealth,
Transnation or any of their Subsidiaries shall carryback any item of loss,
deduction or credit to a Pre-Closing federal consolidated Income Tax Return of
the Seller Affiliated Group.
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(g) Allocation of Consideration. In connection with the
Section 338(h)(10) Election, Buyer and Seller shall cooperate as provided herein
in determining the modified aggregate deemed sales price ("MADSP") (as such term
is defined in Treasury Regulations Section 1.338(h)(10)-1) of the assets and the
allocation of the MADSP on a company by company basis for purposes of Section
338(a)(1) of the Code in accordance with all applicable Treasury Regulations
promulgated under Section 338 of the Code. Buyer initially shall determine such
MADSP and allocation of the MADSP on a company by company basis and shall notify
Seller in writing of the price and allocation so determined ("Buyer's Deemed
Sales Price Notice") within 120 days after the Closing Date. Seller shall be
deemed to have accepted such determination unless, within thirty (30) days after
receipt of Buyer's Deemed Sales Price Notice, Seller notifies Buyer in writing
of (i) the amount that Seller proposes as the MADSP (if it differs from that
proposed by Buyer), (ii) the allocation of the MADSP proposed by Seller and
(iii) the reasons for Seller's allocations. If Seller provides such notice to
Buyer, the parties shall proceed in good faith to determine mutually the matters
in dispute and, if they are unable to do so within thirty (30) days, the matter
shall be referred to the Alternative Accountants, if the disagreement relates to
the determination of the MADSP, or an appraisal firm chosen by and mutually
acceptable to both Buyer and Seller (the "Appraiser"), if the disagreement
relates to the allocation of the MADSP, who shall within ninety (90) days decide
the matter. The decision of the Alternative Accountants or Appraiser shall be
final and binding on both parties. The Alternative Accountants or Appraiser's
fees shall be shared equally by Buyer and Seller. Neither Buyer nor Seller shall
take, nor shall they permit any affiliated corporation (including, without
limitation, Commonwealth, Transnation and their Subsidiaries) to take, any
position for Tax purposes relating to the Section 338(h)(10) Election that is
inconsistent with the MADSP and allocation thereof as finally determined
hereunder unless such position would be inconsistent with a final non-appealable
(except to the United States Supreme Court) judgment which has been rendered in
any judicial proceeding governing such position; provided, however, that the
deemed purchase price of the assets shall differ from the MADSP to the extent
necessary to reflect the inclusion in the total deemed purchase price of items
(for example, Buyer's capitalized acquisition costs in addition to the
consideration paid hereunder) not included in the MADSP.
Section 5.8. Expenses of Transaction; Accounts.
5.8.1. Transaction Costs of Seller. Except to the extent specifically
otherwise provided herein, Seller shall pay all financial advisory, legal,
accounting and other fees and expenses incurred by Seller or any of its
Affiliates (other than Commonwealth, Transnation and their Subsidiaries) in
connection with the transactions contemplated by this Agreement, and
Commonwealth and Transnation shall pay, and on the Closing Date Seller shall
provide Buyer with an itemized list of, all such fees and expenses which
Commonwealth, Transnation and their Subsidiaries incur in connection with the
transactions contemplated by this Agreement.
5.8.2. Transaction Costs of Buyer and LTIC. Except to the extent
specifically otherwise provided herein, Buyer shall bear all financial advisory,
legal, accounting and other fees and expenses incurred by Buyer, LTIC or any of
their Affiliates in connection with the transactions contemplated by this
Agreement and all such fees and expenses incurred by Commonwealth, Transnation
or their Subsidiaries from and after the Closing Date.
5.8.3. Accounts. Subject to the provisions of Section 5.12, after the
Closing Date, all monies and bank or other depository accounts arising out of,
relating to or established for the Company Business, Commonwealth, Transnation
or any of their Subsidiaries shall be held by, and accessible only to,
Commonwealth, Transnation or such Subsidiary.
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Section 5.9. Books and Records; Personnel.
(a) Seller acknowledges and agrees that from and after the
Closing Date, Commonwealth and Transnation will be entitled to own and possess,
subject to the next succeeding sentence, all documents, books, records,
agreements and financial data of any sort relating to Commonwealth or
Transnation, as the case may be, its Subsidiaries or the Company Business.
Seller agrees to deliver and cause its Affiliates to deliver, prior to the
Closing, all such books and records in their possession to Commonwealth or
Transnation, as appropriate, or, to the extent such books and records are not
readily separable from the books and records of Seller or any of its Affiliates
relating to their businesses other than the Company Business, true and complete
copies of such books and records.
(b) From and after the Closing Date:
(i) Buyer shall, and shall cause Commonwealth and
Transnation to, allow Seller and its agents reasonable access to all books and
records (other than books and records which are subject to the attorney/client
privilege or which constitute an attorney's work product) of Commonwealth or
Transnation or relating to the Company Business arising from or relating to
periods prior to the Closing Date and, to the extent reasonably necessary for
purposes of determining whether any matter is properly subject to
indemnification under Section 9.1 of this Agreement, arising from or relating to
periods after the Closing Date (the "Books and Records") during normal working
hours at Buyer's principal place of business or at any location where the Books
and Records are stored, and Seller shall have the right, at its own expense, to
have copies made of any Books and Records; provided, however, that any such
access or copying shall be had or done (A) in such a manner so as not to
interfere with the normal conduct of Buyer's business or the business of
Commonwealth or Transnation and (B) for a legitimate business purpose (such as
tax preparation) that does not involve direct or indirect competition with the
Company Business; and
(ii) Seller shall reimburse Buyer, Commonwealth,
Transnation and their Subsidiaries for the reasonable out-of-pocket expenses
incurred by any of them in performing the covenants contained in this Section
5.9. The parties agree that the confidentiality provisions of the
Confidentiality Agreement shall apply to the information disclosed pursuant to
this Section 5.9.
Section 5.10. Use of Certain Names and Marks. Seller acknowledges and
confirms that: (i) from and after the Closing, neither Seller nor any of its
Affiliates has or shall have any rights in the Company Marks, and (ii) neither
Seller nor any of its Affiliates will contest the ownership or validity of any
rights of Buyer or Commonwealth or Transnation in or to any of the Company
Marks, or registrations (or applications for registration) thereof. Promptly
following the Closing, Seller will deliver to Commonwealth or Transnation or,
upon the written notice of Buyer to Seller, destroy all letterhead, invoices and
other documents, if any, bearing any of the Company Marks and related symbols.
Neither Seller nor any of its Affiliates shall have any right, after the
Closing, to use or exploit any of the Company Marks.
Section 5.11. Further Assurances. Each party, upon the request from time to
time of any other party hereto after the Closing, and without further
consideration, will do each and every act and thing as may be necessary or
reasonably requested to consummate the transactions contemplated hereby in an
orderly fashion. Without limiting the foregoing, Buyer agrees to cause
Commonwealth, Transnation and their Subsidiaries to make available certain
employees, to provide such services (e.g., accounting or tax analysis)
information, calculations, etc., that are
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reasonably requested by Seller in connection with the promissory note dated
March 30, 1990 payable by Seller to Tansamerica Corporation.
Section 5.12. Reimbursement by the Parties. To the extent that Seller, on
the one hand, or Commonwealth or Transnation or Buyer, on the other hand,
receives any payment after the Closing which belongs to the other party, it
shall promptly pay over such payment to the other party.
Section 5.13. Financial Statement Deliveries.
5.13.1. Financial Statements of Seller. As soon as is reasonably
practicable following the date hereof and in any event not later than five (5)
Business Days after their preparation in final form and, in the case of clause
(a) below, no later than November 15, 1997, Seller shall cause to be delivered
to Buyer, at the cost and expense of Seller, each of the following:
(a) The Third Quarter Financials;
(b) Such additional audited or unaudited financial statements
of Commonwealth, Transnation and their Subsidiaries as are prepared prior to the
Closing Date and, after the Closing Date, as Buyer shall request for the purpose
of permitting Buyer to make required filings pursuant to the Exchange Act, all
of which shall be prepared in accordance with GAAP.
Seller shall cause all financial statements (including the notes thereto)
referred to in this Section 5.13.1 to be prepared in accordance with GAAP
consistently applied throughout the periods specified therein, and to present
fairly, in all material respects, the combined financial position and results of
operations of Commonwealth, Transnation and their Subsidiaries for the periods
specified therein, subject in the case of financial statements for interim
periods to an absence of footnotes and to normal audit adjustments which will
not in the aggregate be material.
5.13.2. Financial Statements of Buyer. As soon as is reasonably practicable
following the date hereof and in any event not later than five (5) Business Days
after their preparation in final form and, in the case of clause (a) below, no
later than November 15, 1997, Buyer shall cause to be delivered to Seller, at
the cost and expense of Buyer, each of the following:
(a) The unaudited consolidated balance sheets of the Buyer as
of September 30, 1997 and the related statements of earnings, stockholders'
equity and cash flows for the quarter and the nine (9) months then ended; and
(b) Such additional audited or unaudited financial statements
of Buyer as are prepared prior to the Closing Date.
Buyer shall cause all financial statements (including the notes thereto)
referred to in this Section 5.13.2 to be prepared in accordance with GAAP
consistently applied throughout the periods specified therein, and to present
fairly in all material respects, the consolidated financial position and results
of operations of the Buyer for the periods specified therein, subject in the
case of financial statements for interim periods to an absence of footnotes and
to normal year-end audit adjustments which will not in the aggregate be
material.
Section 5.14. Insurance Policies. Seller at its expense will cause
insurance coverage maintained by Seller or any of its Affiliates (other than
Commonwealth, Transnation or their Subsidiaries) relating to Commonwealth or
Transnation or the Company Business to remain in
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effect, to the extent available at commercially reasonable rates in the case of
renewals, for one (1) year following the Closing for claims which may be made
following the Closing in respect of events occurring prior to the Closing
("Post-Closing Claims"), and will not take or fail to take any action that would
impair the ability of Commonwealth, Transnation and their Subsidiaries to make
claims thereunder or to obtain the benefits afforded them thereby in accordance
with the terms of the insurance coverage maintained by Seller or any of its
Affiliates (other than Commonwealth, Transnation or their Subsidiaries) relating
to Commonwealth or Transnation or the Company Business as in effect on the date
hereof.
Section 5.15. No Solicitation for Employment. Except for the persons
listed in the Seller Disclosure Letter who will be employed by Seller or an
Affiliate of Seller following Closing, for a period beginning on the date hereof
and ending on the second anniversary of the Closing Date, neither Seller nor any
of its Affiliates shall solicit to employ or employ (except as a result of a
response to a general solicitation in a newspaper or magazine with a national or
regional circulation) any individual who is an employee (other than a
secretarial or clerical employee) of Commonwealth, Transnation or any of their
Subsidiaries on the date hereof, or at any time following the date hereof,
unless at least six (6) months shall have elapsed following the Closing and
following the cessation of such individual's employment with Buyer, LTIC,
Commonwealth, Transnation or any of their Affiliates.
Section 5.16. No Solicitation of Proposals or Offers. The parties hereto
shall not, after the date hereof and before the Closing Date, directly or
indirectly, through any officer, director, employee, agent or otherwise,
solicit, initiate or encourage submission of proposals or offers from any Person
relating to any acquisition or purchase of all or (other than in the Ordinary
Course of Business) a substantial portion of the assets of, or any equity
interest in, Buyer, on the one hand, or Commonwealth and/or Transnation, on the
other hand, or any business combination involving any of them or, except to the
extent required by fiduciary obligations under Legal Requirements as advised by
counsel, participate in any negotiations regarding, or furnish to any other
Person any information with respect to, or otherwise cooperate in any way with,
or assist or participate in, facilitate or encourage, any effort or attempt by
any other person to do or seek any of the foregoing. The parties shall, to the
extent permitted by the terms of each such party's confidentiality agreements
with other Persons existing on the date hereof, promptly advise one another if
any such proposal or offer, or any inquiry or contact with any Person with
respect thereto, is made, shall promptly inform one another of all the terms and
conditions thereof, and shall furnish to one another copies of any such written
proposal or offer and the contents of any communications in response thereto.
Neither party shall waive any provisions of any "standstill" agreements between
such party and any other Person, except to the extent that such waiver is, as
advised by counsel, required by fiduciary obligations under Legal Requirements.
Section 5.17. Noncompetition Covenant. Seller's Parent and Seller agree
that, for the period from the Closing Date until the later of the third
anniversary of the Closing Date or the date upon which Seller and its Affiliates
no longer hold any Buyer Common Shares, Buyer Series B Preferred Shares or
shares of Buyer Common Stock received upon conversion of the Buyer Series B
Preferred Shares, without the prior written consent of Buyer, Seller's Parent,
Seller and their Affiliates shall not, directly or indirectly through a
corporation, partnership, limited liability company, consulting arrangement or
any other form of business entity, in any capacity, in any state or territory of
the United States, engage in the business of title insurance as regulated by the
states and territories of the United States or in any of the other lines of
business which is currently engaged in by Commonwealth or Transnation or their
Subsidiaries. Seller's Parent and Seller understand and agree that the covenants
in this Section 5.17 prohibit each of them and any of their Affiliates from
owning (other than ownership of less than five percent
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(5%) of the outstanding capital stock of a publicly traded company), directly or
indirectly, any Person (i) whose revenues from the business of providing title
insurance regulated by the states and territories of the United States or any
other business which is currently engaged in by Commonwealth or Transnation
exceeds twenty percent (20%) of such Person's total consolidated revenues for
the most recent fiscal year, or (ii) which is one of the top seven (7) title
insurance providers, as measured by gross title revenues, and from permitting
any officer, director or executive-level employee of Seller's Parent, Seller and
their Affiliates from serving as an officer, director, employee or consultant of
any such Person (other than Buyer and its Affiliates). Seller's Parent, Seller
and their Affiliates, from and after the Closing Date, will take no action and
make no statement to discourage the continuation of any of the existing business
relationships of Commonwealth or Transnation or any of their Subsidiaries.
Seller's Parent and Seller acknowledge that Buyer and its Affiliates will be
irrevocably damaged if all of the provisions of this Section 5.17 are not
specifically enforced. Accordingly, Seller's Parent and Seller each agree that,
in addition to any other relief to which Buyer and its Affiliates may be
entitled, Buyer and its Affiliates will be entitled to seek and obtain
injunctive relief from a court of competent jurisdiction for the purpose of
restraining Seller's Parent and Seller from any actual or threatened breach of
this Section 5.17; provided that this sentence shall not be construed as an
assurance, guaranty or commitment by Seller's Parent or Parent that such
injunctive relief will be granted by such court. Seller's Parent and Seller
agree that all of the covenants contained in this Section 5.17 are reasonably
necessary to protect the legitimate interests of Buyer, are reasonable with
respect to time and territory and do not interfere with the interests of the
public and that the descriptions of the covenants contained in this Section 5.17
are sufficiently accurate and definite to inform each of them of the scope of
the covenants. Seller's Parent and Seller agree that the consideration to be
received by Seller hereunder, upon receipt of such consideration at the Closing,
will be full, fair and adequate to support the obligations of Seller's Parent
and Seller hereunder.
Section 5.18. Sale of Buyer Common Stock.
(a) Buyer must either:
(i) On or before the Closing Date, offer and sell at
least 1,315,789 shares of Buyer Common Stock on a public or private basis to a
Person or Persons other than Seller's Parent or its Affiliates as follows:
(A) If such offer and sale occurs in a public offering,
(i) Seller shall pay the underwriting discounts and commissions on 1,315,789
shares of Buyer Common Stock to be sold in such offering, (ii) Buyer shall pay
the underwriting discounts and commissions in the event of an exercise of all or
any portion of any overallotment option (not to exceed 15% of such 1,315,789
shares) and (iii) Seller shall pay the fees and expenses associated with the
offering of 1,315,789 shares of Buyer Common Stock and such overallotment
option. Buyer will deliver to Seller the net proceeds from the sale of 1,315,789
shares of Buyer Common Stock on such terms and in such manner as set forth in
Section 2.2.1(b). Buyer will retain the net proceeds (after payment by Buyer of
underwriting discounts and commissions) from the sale of any Additional Shares
(as defined in Section 5.18(b) below) or from the exercise of all or any portion
of any overallotment option (not to exceed 15% of the sum of 1,315,789 shares of
Buyer Common Stock and any Additional Shares), such proceeds to be used to pay
expenses incurred by Buyer in connection with the transactions contemplated by
this Agreement and/or to reduce borrowings incurred under Buyer's bank financing
to enable Buyer to pay the Cash Purchase Price. If the size of the public
offering by Buyer pursuant to this Section 5.18(a)(i)(A) exceeds 1,315,789
shares of Buyer Common Stock plus any overallotment option (not to exceed 15% of
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1,315,789 shares of Buyer Common Stock), Buyer will pay a pro rata portion of
the fees and expenses of the offering based upon the percentage that the
Additional Shares represent in relation to the entire offering of 1,315,789
shares of Buyer Common Stock, any overallotment option (not to exceed 15% of the
sum of 1,315,789 shares of Buyer Common Stock and any Additional Shares) and any
Additional Shares; or
(B) If such offer and sale occurs in a private
offering, Seller shall pay all placement agent commissions and the fees and
expenses associated with such offering of 1,315,789 shares of Buyer Common
Stock. Buyer will deliver to Seller the net proceeds from the sale of 1,315,789
shares of Buyer Common Stock on such terms and in such manner as set forth in
Section 2.2.1(b). Buyer will retain the net proceeds (after payment by Buyer of
placement agent commissions) from the sale of any Additional Shares (as defined
in Section 5.18(b) below) to be used to pay expenses incurred by Buyer in
connection with the transactions contemplated by this Agreement and/or to reduce
borrowings incurred under Buyer's bank financing to enable Buyer to pay the Cash
Purchase Price. If the size of the private offering by Buyer pursuant to this
Section 5.18(a)(i)(B) exceeds 1,315,789 shares of Buyer Common Stock, Buyer will
pay a pro rata portion of the fees and expenses of the offering based upon the
percentage that the Additional Shares represent in relation to the entire
offering of 1,315,789 shares of Buyer Common Stock and any Additional Shares; or
(ii) After the Closing Date and prior to the one year
anniversary of the Closing Date, offer and sell at least 1,315,789 shares of
Buyer Common Stock (plus any overallotment option, not to exceed 15% of
1,315,789 shares of Buyer Common Stock, if on a public basis) and any Additional
Shares, on a public or private basis to a Person or Persons other than Seller's
Parent or its Affiliates; provided that Buyer shall pay all underwriting
discounts and commissions or placement agent commissions, as the case may be,
and fees and expenses of the offering and shall use the net proceeds to first
satisfy its obligations under the Subordinated Note and then to pay expenses
incurred by Buyer in connection with the transactions contemplated by this
Agreement and/or to reduce borrowings incurred under Buyer's bank financing to
enable Buyer to pay the Cash Purchase Price.
(b) With Seller's consent (which shall not be unreasonably
withheld), Buyer may include in an offering under this Section 5.18, whether
prior to, on, or after the Closing Date, such number of additional shares of
Buyer Common Stock (the "Additional Shares") that (i) if a public offering, as
of the date of filing the registration statement (or pre-effective amendment
thereto if the Additional Shares are included in the offering following the
initial filing of the registration statement) with the Securities and Exchange
Commission, have a proposed maximum aggregate offering price of not more than
$25,000,000, exclusive of any overallotment option, or (ii) if a private
offering, have a maximum aggregate offering price of not more than $25,000,000.
(c) In connection with any public or private offering by Buyer
of at least 1,315,789 shares of Buyer Common Stock in accordance with this
Section 5.18, Buyer agrees to indemnify and hold harmless Seller and its
officers, directors, employees, agents, representatives and controlling Persons,
and Seller agrees to indemnify and hold harmless Buyer and its officers,
directors, employees, agents, representatives and controlling Persons, in the
same manner and to the same extent as set forth in Article IV of the
Registration Rights Agreement; provided that the Parent Liability Amount set
forth in Section 4.2 thereof shall be equal to $23,750,000.
Section 5.19. Registration and Listing of Common Shares. On or prior to
the Closing Date (or, if, after Buyer's consultation with the Securities and
Exchange Commission (which
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consultation shall include counsel to Seller) and counsel to Buyer, it is
determined by Buyer in its sole discretion that the private placement of the
Buyer Common Shares and the Buyer Series B Preferred Shares to Seller hereunder
may be integrated with Buyer's filing of one or more registration statements (as
described below) on or prior to the Closing Date, then in such case, not later
than three Business Days after the Closing Date), Buyer shall file, at its
expense, one or more registration statements with the Securities and Exchange
Commission to register the resale of the Buyer Common Shares, the shares of
Buyer Common Stock issuable upon conversion of the Buyer Series B Preferred
Shares and the Buyer Series B Preferred Shares under the Securities Act, in
accordance with the Registration Rights Agreement (other than as to the date of
filing and effectiveness of such registration statement which shall be governed
by this Section 5.19), on such registration form as Buyer and its counsel deem
appropriate, and Buyer shall use its best efforts to cause such registration
statements to become effective on or prior to the Closing Date or as soon as
practicable after the Closing Date, as the case may be. The Buyer Common Shares
and the shares of Buyer Common Stock issuable upon conversion of the Buyer
Series B Preferred Shares shall be listed, on a when-issued basis, on the New
York Stock Exchange on or prior to the Closing Date or immediately after the
Closing Date, as the case may be, and all requisite state securities law,
including Blue Sky and insurance securities, filings, shall be made and any and
all other filings or approvals shall be accomplished and obtained not later than
the effective date of such resale registration statements to make the Buyer
Common Shares, the shares of Buyer Common Stock issuable upon conversion of the
Buyer Series B Preferred Shares and the Buyer Series B Preferred Shares freely
tradable subject only to the provisions of the Voting and Standstill Agreement
and the Registration Rights Agreement. The Buyer Common Shares, the shares of
Buyer Common Stock issuable upon conversion of the Buyer Series B Preferred
Shares and the Buyer Series B Preferred Shares will be registered by Buyer at
its expense under the Exchange Act on or prior to the Closing Date or
immediately after the Closing Date, as the case may be. Buyer agrees that there
shall have been reserved, and Buyer shall at all times keep reserved, free from
preemptive rights, out of its authorized and unissued Buyer Common Stock, such
number of shares of Buyer Common Stock as is sufficient to provide for the
conversion of the Buyer Series B Preferred Shares into shares of Buyer Common
Stock.
Section 5.20. Proxy Materials. As soon as practicable after the date hereof
but in any event not later than ninety (90) days thereafter, Buyer shall solicit
the vote of its shareholders to approve this Agreement and all of the
transactions contemplated hereby (including without limitation the amendment of
Buyer's Charter to change the name of Buyer as of the Closing Date to
"LandAmerica Financial Group, Inc.") and shall prepare and file with the
Securities and Exchange Commission and mail to its shareholders appropriate
proxy materials (the "Proxy Materials"), including a notice of a special meeting
of the shareholders of Buyer, a proxy statement and a form of proxy that comply
as to form, in all material respects, with the Exchange Act and the rules and
regulations promulgated thereunder. In connection with the Proxy Materials,
Buyer agrees to recommend to its shareholders that this Agreement and all of the
transactions contemplated hereby be approved by such shareholders. Prior to
filing the Proxy Materials and any amendment, supplement or revisions thereof
with the Securities and Exchange Commission, or to submitting such materials to
Buyer's shareholders, Buyer shall submit such materials to Seller and provide
Seller a reasonable opportunity to review and comment upon such materials.
Seller agrees that (i) it will promptly provide Buyer with all information
concerning the Company Business, Seller, Commonwealth, Transnation or their
Subsidiaries required to be disclosed in the Proxy Materials and (ii) such
information provided by Seller to Buyer will not contain any statement which, at
the time and in light of the circumstances under which it is made, is false or
misleading with respect to any material fact, or omits to state any material
fact necessary in order to make the statement not misleading. Buyer hereby
agrees that the Proxy Materials (x) will comply as to form, in all material
respects, with the provisions of the Exchange
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Act and the rules and regulations promulgated thereunder and (y) except with
respect to information provided by Seller pursuant to clause (i) of this Section
5.20, will not contain any statement which, at the time and in light of the
circumstances under which it is made, is false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make the
statements therein not false or misleading.
Section 5.21. Administrative Services Agreement. The parties agree that
prior to the Closing Date they will use their Best Efforts to reach agreement on
the terms of an agreement for administrative services that will continue to be
provided by Seller or its Affiliates to Commonwealth, Transnation and their
Subsidiaries after the Closing Date. Attached hereto as Exhibit D is a term
sheet which sets forth the parties' current intentions regarding the business
terms of the contemplated administrative services agreement.
ARTICLE VI
Conditions to the Obligation of Buyer to Close
The obligations of Buyer at the Closing to purchase the Company Shares, to
issue the Buyer Common Shares and the Buyer Series B Preferred Shares and to
execute and deliver the Closing Agreements to which it is party are subject to
the satisfaction, at or prior to the Closing, of each of the following
conditions, compliance with which, or the occurrence of which, may be waived
prior to the Closing in writing by Buyer in its sole discretion:
Section 6.1. Representations, Warranties and Covenants.
6.1.1. Continued Accuracy of Representations and Warranties. The
representations and warranties of Seller contained in Section 3.1 (other than
the second sentence of Section 3.1.2, Section 3.1.4 and Section 3.1.7), Section
3.2 and Section 3.3(d) of this Agreement shall be true and correct as of the
Closing Date and the representations and warranties of Seller contained in the
second sentence of Section 3.1.2, Section 3.1.4, Section 3.1.7 and Sections
3.3(a) and (b) shall be true and correct in all material respects as of the
Closing Date.
6.1.2. Performance of Agreements. Seller shall have performed and satisfied
in all material respects all material obligations, covenants and agreements
required by this Agreement or any Closing Agreement to be performed or satisfied
by it at or prior to the Closing and shall have delivered the Company Shares and
all required instruments of transfer.
6.1.3. Closing Certificate. At the Closing, Seller shall furnish to Buyer
an unqualified certificate, signed by the President and the Chief Financial
Officer of Seller and the President of each of Commonwealth and Transnation,
dated the Closing Date, to the effect that the conditions specified in Sections
6.1.1 and 6.1.2 hereof have been satisfied.
Section 6.2. Closing Agreements. At or prior to the Closing, the parties
thereto shall have entered into each of the following documents or agreements
(the "Closing Agreements"), in substantially the form thereof attached hereto
without change other than such changes as may be reasonably satisfactory to
Buyer:
(i) the Voting and Standstill Agreement,
(ii) the Registration Rights Agreement,
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(iii) Amendments of Charter of Buyer, and
(iv) each of the Resignation Agreements attached as exhibits
to the Voting and Standstill Agreement.
Section 6.3. Legality; Governmental Authorization; Litigation. Buyer's
purchase of and payment for the Company Shares, and the consummation of the
other transactions contemplated hereby, shall not be prohibited by any Legal
Requirement. All necessary filings, including HSR Act and state insurance
department filings, shall have been made and all requisite approvals shall have
been obtained and all applicable waiting periods thereunder shall have expired
or been terminated. No Action shall have been instituted at or prior to the
Closing which has not been withdrawn, dismissed or settled prior to Closing by
any Governmental Authority that seeks to delay, enjoin or otherwise make illegal
the consummation of the transactions contemplated hereby; provided that if such
Action shall have been instituted by a non-federal Governmental Authority, there
must be a reasonable likelihood that the result of such Action could be to
delay, enjoin or otherwise make illegal Buyer's purchase of the Company Shares
or the consummation of any other transaction contemplated hereby.
Section 6.4. Affiliate Debt. There shall not be any outstanding Affiliate
Debt. In addition, there shall not be outstanding any Debt or other advances
owed to Commonwealth, Transnation or any of their Subsidiaries by Seller or any
of its Affiliates or by any present or former employee, officer, shareholder or
director of Seller.
Section 6.5. Opinion of Counsel. Seller shall have furnished Buyer with the
favorable opinion of Linda S. Kaiser, Esquire, General Counsel of Seller, dated
the Closing Date, in substantially the form of Exhibit E hereto.
Section 6.6. Update. Seller shall have provided Buyer with a written update
of all of the information provided in, and consistent with the form of, all
parts of the Seller Disclosure Letter as of a date which is no more than five
(5) Business Days prior to the Closing Date. The updated information so provided
shall not constitute an amendment of any representation or warranty contained
herein or of any Exhibit hereto or of any information furnished hereunder or in
the Seller Disclosure Letter.
Section 6.7. General. Seller shall have furnished Buyer with such officers'
certificates, good standing certificates, incumbency certificates and other
customary closing documents as it may reasonably request in connection with the
transactions contemplated hereby, including, without limitation (i) either a
"sworn affidavit" or a "qualifying statement" that complies with Section 1445 of
the Code and (ii) such director and officer resignation letters as Buyer may
reasonably have requested of any of such officers (who are also employees of
Seller) or directors of Commonwealth, Transnation or any of their Subsidiaries
prior to Closing.
Section 6.8. Shareholder Approval. This Agreement and all of the
transactions contemplated hereby shall have been approved and adopted by the
affirmative vote of that proportion of the outstanding shares of the capital
stock of Buyer as is required under applicable Legal Requirements, the
provisions of the Charter and Bylaws of Buyer and the requirements of the New
York Stock Exchange for the approval of such transactions.
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ARTICLE VII
Conditions to the Obligation of Seller to Close
The obligations of Seller at the Closing to sell and transfer the Company
Shares and to execute and deliver the Closing Agreements to which it is party
are subject to the satisfaction, at or prior to the Closing, of each of the
following conditions, compliance with which, or the occurrence of which, may be
waived prior to the Closing in writing by Seller in its sole discretion:
Section 7.1. Representations, Warranties and Covenants.
7.1.1. Continued Accuracy of Representations and Warranties. The
representations and warranties of Buyer contained in Section 4.1 (other than the
first sentence of Section 4.1.2, Section 4.1.4 and Section 4.1.6), Section 4.2
and Section 4.3(d) of this Agreement shall be true and correct as of the Closing
Date and the representations and warranties of Buyer contained in the first
sentence of Section 4.1.2, Section 4.1.4, Section 4.1.6 and Sections 4.3(a) and
(b) shall be true and correct in all material respects as of the Closing Date.
7.1.2. Performance of Agreements. Buyer shall have performed and satisfied
in all material respects all material covenants and agreements required by this
Agreement or any Closing Agreement to be performed or satisfied by Buyer at or
prior to the Closing and shall have delivered all payments, documents and
instruments of transfer required by Article II.
7.1.3. Closing Certificate. At the Closing, Buyer shall furnish to Seller
an unqualified certificate signed by the President and the Chief Financial
Officer of Buyer dated the Closing Date, to the effect that the conditions
specified in Sections 7.1.1 and 7.1.2 hereof have been satisfied.
Section 7.2. Closing Agreements; Buyer Stock. At or prior to the Closing,
Buyer shall have entered into each of the Closing Agreements to which it is
party, such agreements being in substantially the form attached hereto without
change other than such changes as may be reasonably satisfactory to Seller, and
Buyer shall have issued to Seller the Buyer Common Shares required to be issued
under Section 2.2.1 and the Buyer Series B Preferred Shares.
Section 7.3. Legality; Government Authorization; Litigation. Seller's sale
of the Company Shares, and the consummation of the other transactions
contemplated hereby, shall not be prohibited by any Legal Requirement. All
necessary filings, if any, pursuant to the HSR Act and state insurance
department filings shall have been made and all requisite approvals shall have
been obtained and all applicable waiting periods thereunder shall have expired
or been terminated. No Action shall have been instituted at or prior to the
Closing which has not been withdrawn, dismissed or settled prior to Closing by
any Governmental Authority that seeks to delay, enjoin or otherwise make illegal
the consummation of the transactions contemplated hereby; provided that if such
Action shall have been instituted by a non-federal Governmental Authority there
must be a reasonable likelihood that the result of such Action could be to
delay, enjoin or otherwise make illegal Seller's sale of the Company Shares or
the consummation of any other transaction contemplated hereby.
Section 7.4. Opinion of Counsel. Buyer and LTIC shall have furnished Seller
with the favorable opinion of Williams Mullen Christian & Dobbins, dated the
Closing Date, in substantially the form of Exhibit F hereto.
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Section 7.5. General. Seller shall have received copies of such officers'
certificates, good standing certificates, incumbency certificates and other
customary closing documents as it may reasonably request in connection with the
transactions contemplated hereby, including, without limitation either a "sworn
affidavit" or a "qualifying statement" that complies with Section 1445 of the
Code.
Section 7.6. Update. Buyer and LTIC shall have provided Seller with a
written update of all of the information provided in, and consistent with the
form of, all parts of the Buyer Disclosure Letter of a date which is no more
than five (5) Business Days prior to the Closing Date. The updated information
so provided shall not constitute an amendment of any representation or warranty
contained herein or of any Exhibit hereto or of any information furnished
hereunder or in the Buyer Disclosure Letter.
Section 7.7. Listing of Common Shares and Shares Issuable Upon Conversion
of Preferred Shares. On or prior to the Closing Date, the Buyer Common Shares
and the shares of Buyer Common Stock issuable upon conversion of the Buyer
Series B Preferred Shares shall be listed, on a when issued basis, on the New
York Stock Exchange.
Section 7.8. Amended and Restated Rights Agreement. On the Closing Date,
the Amended and Restated Rights Agreement of Buyer, in the form delivered to
Seller prior to the date hereof shall continue to be in full force and effect
without revision, amendment or alteration.
Section 7.9. Board of Directors. On or prior to the Closing Date, the Board
of Directors of Buyer shall have been increased from ten (10) to fourteen (14)
directors and Robert M. Steinberg, George E. Bello and Lowell C. Freiberg, or a
substitute for any of them who is a senior executive officer of Seller or an
Affiliate of Seller, and Herbert Wender shall have been elected to the Board of
Directors of Buyer in accordance with the provisions of the Voting and
Standstill Agreement.
Section 7.10. Payment. Buyer shall have delivered to Seller the payments
provided for in Section 2.2.1 hereof and all other payments required to be made
by Buyer on the Closing Date pursuant to the terms hereof.
Section 7.11. Shareholder Approval. This Agreement and all of the
transactions contemplated hereby, and the increase in the size of the Board of
Directors of Buyer described in Section 7.9, shall have been approved and
adopted by the affirmative vote of that proportion of the outstanding shares of
the capital stock of Buyer as is required under applicable Legal Requirements,
the provisions of the Charter and Bylaws of Buyer and the requirements of the
New York Stock Exchange for the approval of such transactions.
ARTICLE VIII
Employee Benefits Arrangements
Section 8.1. Benefit Plans and Arrangements.
(a) From and after the Closing Date, unless otherwise determined by
Buyer or its Subsidiaries in their sole discretion, the Company Plans and
Company Benefit Arrangements that are sponsored and maintained by Commonwealth,
Transnation or their Subsidiaries as of Closing shall remain in effect with
respect to the continuing eligible employees of Commonwealth and
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Transnation and their Subsidiaries previously covered by such plans and
arrangements as of Closing (except as to a participant's change in eligibility)
only until such time as Buyer or a Subsidiary of Buyer shall, subject to
applicable law and the terms of such plans and arrangements either (1) adopt new
benefit plans with respect to eligible employees of Commonwealth and Transnation
and their Subsidiaries (the "New Benefit Plans") or (2) approve participation of
certain employees of Commonwealth and Transnation and their Subsidiaries in
certain plans or arrangements of Buyer and its Subsidiaries (as Buyer and its
Subsidiaries shall determine). As the sole exceptions to the unrestricted rights
of Buyer and its Subsidiaries provided above, (i) the active participation of
employees of Commonwealth and Transnation and their Subsidiaries in the Seller's
401(k) Plan will cease as of Closing and (ii) the active participation of
employees of Commonwealth and Transnation and their Subsidiaries in Company
Plans maintained as of the execution of this Agreement that provide medical and
dental benefits shall be continued without material amendment until June 30,
1998.
(b) Prior to the Closing Date, Seller, Commonwealth, Transnation and
their Subsidiaries shall cooperate in Buyer's evaluating and analyzing the
Company Plans and Company Benefit Arrangements sponsored by Commonwealth and
Transnation and their Subsidiaries, to assist Buyer with its eventual
determination about adopting New Benefit Plans or arranging participation in
existing plans for eligible employees previously covered by the Company Plans
and Company Benefit Arrangements. It will be the general intention of Buyer and
its Subsidiaries to develop new Buyer Benefit Plans or arrange participation in
existing Buyer Benefit Plans so as to (1) treat similarly-situated employees of
Commonwealth, Transnation, Buyer and their respective Subsidiaries on a
substantially equivalent basis, taking into account all relevant factors,
including, without limitation, employee duties, geographical location, tenure,
qualifications and abilities, and (2) not materially discriminate between
similarly-situated employees of Commonwealth and Transnation and their
Subsidiaries and Buyer and its Subsidiaries.
(c) The foregoing provisions notwithstanding, Buyer and its
Subsidiaries agree to honor, in accordance with the terms of the Company Plans
and Company Benefit Arrangements, all benefits vested as of the Closing Date
under the Company Plans and Company Benefit Arrangements sponsored by
Commonwealth and Transnation or their Subsidiaries or the benefits vested as of
the Closing Date under any other contracts, arrangements, commitments or
understandings entered into or maintained by Commonwealth and Transnation or
their Subsidiaries, to the extent otherwise described in the Seller Disclosure
Letter.
(d) Notwithstanding the above provisions, however, Buyer and its
Subsidiaries shall have no obligation to honor or liability for honoring Company
Plans or Company Benefit Arrangements sponsored or maintained by Seller or its
Subsidiaries (other than Commonwealth and Transnation or their Subsidiaries),
unless otherwise specifically provided for in this Agreement.
(e) Subject to the provisions of Section 8.1(a) hereof, nothing in
this Article VIII shall be interpreted to prevent Buyer and its Subsidiaries
from amending, modifying, freezing or terminating any Company Plan or Benefit
Arrangement sponsored by Commonwealth and Transnation or their Subsidiaries, to
the extent that such actions are carried out in accordance with the terms of the
applicable plan or arrangement and applicable Legal Requirements.
(f) Nothing in this Article VIII shall be interpreted to prevent Buyer
and its Subsidiaries from amending, modifying, freezing or terminating any Buyer
Plan or Buyer Benefit Arrangement sponsored by Buyer or its Subsidiaries, to the
extent that such actions are
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carried out in accordance with the terms of the applicable plan or arrangement
and applicable Legal Requirements.
(g) With respect to the 401(k) plan of Seller or any other benefit
program or arrangement sponsored by Seller or other Subsidiaries of the Seller
(other than Commonwealth and Transnation and their Subsidiaries), nothing shall
prevent Seller or such other Subsidiaries from amending, modifying, freezing or
terminating such plans or arrangements, so long as all vested benefits for
employees of Commonwealth and Transnation or their Subsidiaries (including
benefits vested in accordance with Section 8.1(h) below) are distributable to
the extent permissible under the current terms of the applicable plan or benefit
arrangement and applicable Legal Requirements.
(h) Notwithstanding any above provision of Article VIII to the
contrary, Seller shall cause the Seller's 401(k) plan to fully vest, as of
Closing, all of the account balances accrued through Closing of Company
Employees employed by Commonwealth, Transnation or any Subsidiary of
Commonwealth or Transnation immediately prior to Closing (hereinafter referred
to as the "Transferred Employees"). Expressly subject to execution (within 15
days of public announcement of the transactions contemplated by this Agreement)
by each of Buyer and Seller of a written consent to cause the transfer described
herein, and subject to the Closing of the transactions contemplated by this
Agreement, Seller, upon at least 30 days prior notice from Buyer (unless a
shorter notice period is approved by Seller, in its sole discretion), shall
cause the Seller's 401(k) plan to transfer to the Buyer's 401(k) plan (in cash
or cash equivalents not subject to any transfer fees, except that amounts
invested under the Seller's 401(k) plan in common stock of Seller's Parent shall
be transferred in kind) an amount equal to the total value of the aggregate
account balances under the Seller's 401(k) plan of the Transferred Employees;
and, subject to the Buyer's consent provided for above, Buyer shall cause the
Buyer's 401(k) plan to accept such asset transfer. Subject to Closing and the
consent of Seller and Buyer provided for above, Seller and Buyer shall use their
reasonable efforts to cause such asset transfer to occur by the later of January
1, 1998 or on the first day of the first month next following the Closing; but
provided, however, that any such agreed transfer (i) shall not occur prior to
the date Commonwealth, Transnation and their Subsidiaries make (or reimburse the
Seller for) the 1997 plan year matching contribution described in this Section
8.1(h) and (ii) shall, in all events, occur within 90 days of Closing, subject
to any failure to perform by Seller or any independent record keeper or service
provider beyond the control of Buyer. Buyer shall cause Commonwealth,
Transnation and their Subsidiaries to pay to the trust funding the Seller's
401(k) plan (within 30 days after Closing) any employee pre-tax and after-tax
contributions, for periods prior to the Closing which have been withheld from
the paychecks of employees of Commonwealth, Transnation or any of their
Subsidiaries and which have not then been paid to such trust. Buyer shall cause
Commonwealth, Transnation and their Subsidiaries to make, for the period ending
at Closing, a 1997 plan year matching contribution (or shall reimburse Seller
for any such contribution made by Seller) to the trust funding the Seller's
401(k) plan based on a matching rate of $1.00 on the dollar for the year
(subject to applicable provisions of Seller's 401(k) plan) in such manner and
within such period as required by the Seller's 401(k) plan (i.e., no later than
March 5, 1998), provided that Seller has caused Commonwealth, Transnation and
their Subsidiaries to reserve for such matching contribution by the Closing Date
and to reserve for the pro rata portion of such matching contribution in the
Third Quarter Financials. There shall be no further contributions to the
Seller's 401(k) plan on behalf of the Transferred Employees with respect to pay
periods ending after the Closing Date. Upon the transfer of assets, Seller and
the Seller's 401(k) plan shall have no further liability or obligation with
respect to the account balances of the Transferred Employees. Seller shall
cooperate with Buyer, and Buyer shall cooperate with Seller, in providing
records and administrative information needed to implement the provisions
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of this Section 8.1(h) and to enable Seller to make distributions to the
Transferred Employees who terminate employment with Buyer, LTIC and their
Subsidiaries after the Closing and prior to the date the transfer contemplated
by this Section 8.1(h) occurs. Buyer shall use its reasonable efforts to cause
Buyer's 401(k) plan to cover the Transferred Employees as active participants
effective as of January 1, 1998 or, if later, the first day of the month that
immediately follows the Closing.
(i) Notwithstanding any provision of Article VIII or the Seller's
401(k) plan to the contrary, Seller, prior to and effective as of Closing, shall
amend the Seller's 401(k) plan to provide for the 1997 plan year matching
contribution described in Section 8.1(h) above, regardless of any current
provision of the Seller's 401(k) plan now requiring employment on December 31,
1997, in order to receive such matching contribution. Further, Seller will cause
Commonwealth, Transnation and their Subsidiaries to reserve by the Closing Date
sufficient funds to make the 1997 matching contribution described in Section
8.1(h) and shall cause Commonwealth, Transnation and their Subsidiaries to
reserve a pro rata portion of such funds in the Third Quarter Financials.
(j) Buyer and Seller agree that the bonuses in respect of the 1997
year will be paid in 1998 in accordance with past practice, taking into
consideration, among other things, an employee's performance and the
profitability of Commonwealth, Transnation and their Subsidiaries. Seller shall
cause Commonwealth, Transnation and their Subsidiaries to accrue the estimated
pro rata amount of such bonuses in the Third Quarter Financials.
(k) Buyer, LTIC, and their Subsidiaries and Seller's Parent, Seller,
Commonwealth, Transnation and their Subsidiaries agree that, effective as of the
Closing, Herbert Wender will cease to participate in, and will not be entitled
to any benefits under, the Seller's Parent Retirement Benefits Equalization Plan
(the "Seller Parent's SERP") and Buyer, LTIC or a Subsidiary of Buyer or LTIC
will assume all obligations through the Closing Date under the Seller Parent's
SERP with respect to Mr. Wender. Seller shall cause Commonwealth, Transnation
and their Subsidiaries to accrue amounts in respect of obligations under this
Section 8.1(k) as of September 30, 1997 in the Third Quarter Financials. For
purposes of this Section 8.1(k), after the Closing, "Subsidiary of Buyer or
LTIC" includes Commonwealth, Transnation and their Subsidiaries.
ARTICLE IX
Indemnification
Section 9.1. Indemnification by Seller. In addition to Seller's Tax
indemnification obligations under Section 5.7(b), Seller (in its capacity as
indemnifying party, the "Indemnifying Party") hereby agrees to indemnify each of
Buyer, LTIC and their Affiliates (including, without limitation, Commonwealth,
Transnation and each Subsidiary of either of them from and after the Closing
Date) (each in its capacity as indemnified party, an "Indemnitee"), regardless
of any investigation conducted by or knowledge obtained by any of them, and hold
each of Buyer, LTIC and such Affiliates harmless, from, against and in respect
of any and all Losses arising from or related to any of the following:
(i) any breach of, untruth of or inaccuracy in (or any
allegation by any third party of facts which, if true as alleged, would
constitute such a breach or inaccuracy in) any representation or warranty made
by or on behalf of Seller in this Agreement (including, without
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limitation, the Seller Disclosure Letter) or in any Closing Agreement or other
certificate delivered pursuant hereto; or
(ii) any breach, non-fulfillment or violation of any
covenant or agreement made by Seller in this Agreement or in any document or
instrument delivered pursuant hereto (other than documents or instruments
delivered solely pursuant to Section 5.2 hereof).
Section 9.2. Indemnification by Buyer. In addition to Buyer's Tax
indemnification obligations under Section 5.7(b), each of Buyer and LTIC (in its
capacity as indemnifying party, the "Indemnifying Party"), jointly and
severally, hereby agrees to indemnify Seller and its Affiliates other than
Commonwealth, Transnation and each Subsidiary of either of them from and after
the Closing Date (each in its capacity as indemnified party, an "Indemnitee"),
regardless of any investigation conducted by or knowledge obtained by any of
them, and hold each of Seller and such Affiliates harmless from, against and in
respect to any and all Losses arising from or related to any of the following:
(i) any breach of untruth of or inaccuracy in (or any
allegation by any third party of facts which, if true as alleged, would
constitute such a breach or inaccuracy in) any representation or warranty made
by or on behalf of Buyer or LTIC in this Agreement (including, without
limitation, the Buyer Disclosure Letter) or in any Closing Agreement or other
document, instrument or certificate delivered pursuant hereto;
(ii) any breach, non-fulfillment or violation of any
covenant or agreement made by Buyer or LTIC in this Agreement (including,
without limitation, the Buyer Disclosure Letter) or in any document, instrument
or certificate delivered pursuant hereto (other than documents or instruments
delivered solely pursuant to Section 5.1. hereof);
(iii) any Liability of Seller or any of its Affiliates
arising out of, with respect to or in connection with any Guarantee of any Lease
or other Contractual Obligation of Commonwealth, Transnation or any of their
Subsidiaries, provided that such Lease or Contractual Obligation is described in
the Seller Disclosure Letter; or
(iv) any Liability incurred by Seller or any of its
Affiliates relating to or arising from any time period after the Closing Date
arising out of, with respect to or in connection with the Company Business or
any matter or circumstance involving Commonwealth or Transnation or any of their
Subsidiaries, other than (a) any Losses covered by Section 5.7 or the indemnity
in Section 9.1 or (b) any Losses arising out of an illegal or tortious course of
conduct on the part of Seller or any of its Affiliates.
Section 9.3. Time Limitation on Indemnification. Notwithstanding the
foregoing, no claim may be made or suit instituted under any provision of this
Article IX more than twenty-four (24) months after the Closing Date (the
"General Survival Period") except for Reserved Claims. The term "Reserved
Claims" shall mean (a) all claims as to which any Indemnitee has given any
Indemnifying Party written notice on or prior to the end of the General Survival
Period, (b) all claims by any Indemnitee based upon an alleged or actual breach
of or inaccuracy in the representations or warranties contained in Sections
3.1.5, 3.12, 4.1.5 or 4.12, (c) all claims by any Indemnitee based upon an
alleged or actual breach of the representations or warranties contained in
Sections 3.13.2, 3.14, 4.13.2 or 4.14, (d) all claims by any Indemnitee pursuant
to Section 9.2(iii) or Section 9.1(ii) with respect to Seller's obligations
under Section 8.1(i), Section 8.1(j) and Section 8.1(k), (e) all claims by any
Indemnitee pursuant to Section 9.2(iv) or Section 5.7(b), and (f) all claims
based upon fraud. As to Reserved Claims under clauses (c) and (d) of
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this Section 9.3, no claim may be made or suit instituted under any provision of
this Article IX more than four (4) years after the Closing Date. As to all other
Reserved Claims, no claim may be made or suit instituted under any provision of
this Article IX after thirty (30) days after the expiration of the applicable
statute of limitations. As to all Reserved Claims under this Section 9.3, no
claim may be made or suit instituted under any provision of this Article IX
unless the Indemnitee provides written notice to the Indemnifying Party prior to
the expiration of the applicable period provided in this Section 9.3 (which
written notice shall describe the facts then known by the Indemnitee relating to
such claim, including, without limitation, the reason why the Indemnitee
believes the claim is subject to indemnification by the Indemnifying Party, and
which for third-party claims, shall attach, if available, a copy of the written
instrument or instruments in which the third party claim is asserted).
Section 9.4. Monetary Limitations on Indemnifications. Except with respect
to claims (i) arising out of the representations or warranties or indemnities
contained in Section 3.12, Section 4.12 or Section 5.7(b), or (ii) referred to
in clauses (b), (d) or (e) of the definition of Reserved Claims in Section 9.3,
an Indemnifying Party shall not have any obligation to indemnify Indemnitees
under Section 9.1 or Section 9.2, as the case may be, in respect of any Loss
incurred by such Indemnitees unless the aggregate cumulative total of all Losses
(other than Losses arising out of claims referred to in clauses (i) and (ii) of
this sentence) incurred by such Indemnitees exceeds $6,000,000, whereupon such
Indemnitees shall be entitled to indemnification for the aggregate cumulative
amount of such Losses in excess of such amount. With respect to claims referred
to in clauses (i) and (ii) of the first sentence of this Section 9.4, no such
minimum dollar limitation or deductible shall apply. The provisions of Article
IX shall not apply to Buyer's obligations under Section 2 and Section 5.18 of
this Agreement or to the obligations of any party under the Subordinated Note,
the Registration Rights Agreement, the Voting and Standstill Agreement or the
Series B Preferred Stock.
Section 9.5. Certain Matters of Construction. References in this Article IX
to claims with respect to or based upon a representation or warranty set forth
in a particular Section shall be deemed to include without limitation claims
relating to such representations or warranties based upon the certificates to be
furnished pursuant to Sections 6.1.3 and 7.1.3 hereof.
Section 9.6. Third Party Claims. Promptly after the receipt by any
Indemnitee of notice of the commencement of any Action against such Indemnitee
by a third party (other than any Action relating to Taxes or any Tax Return,
which shall be governed by Section 5.7) or of a demand upon such Indemnitee by a
third party to conduct any environmental study, investigation, response,
removal, remediation or cleanup (collectively, "Environmental Response"), such
Indemnitee shall, if a claim with respect thereto is or may be made against any
Indemnifying Party pursuant to this Article IX, give such Indemnifying Party
written notice thereof. The failure to give such notice shall not relieve any
Indemnifying Party from any obligation hereunder except where, and then solely
to the extent that, such failure actually and materially prejudices the rights
of such Indemnifying Party. Unless by means of such Action the third party
plaintiff is seeking injunctive or other equitable relief instead of or in
addition to money damages (except, however, that the preceding clause shall not
apply to third party demands to conduct such Environmental Response), such
Indemnifying Party shall have the right to defend such Action or conduct such
Environmental Response, at such Indemnifying Party's expense and with counsel of
its choice reasonably satisfactory to the Indemnitee, provided that the
Indemnifying Party so notifies the Indemnitee that it will defend such Action or
conduct such Environmental Response within fifteen (15) days after receipt of
such notice and then actually commences promptly the defense of such Action or
the performance of the Environmental Response. Otherwise, the Indemnitee shall
have the right to defend such Action or to conduct
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such Environmental Response and the Indemnifying Party will reimburse the
Indemnitee promptly and periodically for the costs thereof, including reasonable
attorneys' fees and expenses incurred. If the Indemnifying Party is defending
such Action or conducting such Environmental Response, the Indemnitee may retain
separate co-counsel at its sole cost and expense and may participate in defense
of such Action or the performance of the Environmental Response. If Seller, as
the Indemnifying Party, elects to conduct such Environmental Response, the
Indemnitee shall permit Seller, its contractors and other agents to enter the
site, upon reasonable notice and under Indemnitee's supervision, for the purpose
of conducting the Environmental Response. The Indemnifying Party shall perform
any Environmental Response in accordance with all Environmental Laws and shall
not unreasonably interfere with the business operations of the Indemnitee in the
course of performing the Environmental Response. The Indemnifying Party will not
be liable for any judgment or settlement with respect to such Action effected
without its prior written consent (unless the Indemnifying Party is not
conducting the defense of such Action pursuant to the provisions of this Section
9.6).
Section 9.7. No Circular Recovery. Seller hereby agrees that it will not
make any claim for indemnification against Buyer, LTIC, Commonwealth,
Transnation or any of their Subsidiaries by reason of the fact that Seller or
any of its officers, directors, agents or other representatives was a
controlling person, director, officer, employee, agent or other representative
of Commonwealth, Transnation or any of their Subsidiaries or was serving as such
for another Person at the request of Commonwealth, Transnation or any Subsidiary
of Commonwealth or Transnation (whether such claim is for Losses of any kind or
otherwise and whether such claim is pursuant to any statute, Charter, Bylaw,
Contractual Obligation or otherwise) with respect to any Action brought by Buyer
or any of its Affiliates against Seller (whether such Action is pursuant to this
Agreement, applicable law, or otherwise).
Section 9.8. Nature of Indemnification Payments. Any and all
indemnification payments pursuant to this Article IX or pursuant to Section
5.7(b) shall be deemed for all purposes to be adjustments to the aggregate
consideration provided in Section 2.2.1.
Section 9.9. Remedies. Notwithstanding anything to the contrary in this
Article IX, Section 5.7 hereof (and not this Article IX) shall provide the
exclusive remedy for any claim in respect of Taxes, including without
limitation, any breach of or inaccuracy in any representation or warranty
contained in Section 3.12 or Section 4.12, and no claim may be made or suit
instituted under Section 5.7 after thirty (30) days after the expiration of the
applicable statute of limitations. After the Closing Date, except as
specifically provided in the immediately preceding sentence, Sections 9.1 and
9.2 will provide the exclusive remedy for any breach of or inaccuracy in any
representation or warranty referred to in this Article IX. Each party
acknowledges and agrees that monetary damages alone would be an inadequate
remedy for the other parties hereto for breaches by it of its covenants and
agreements hereunder and under the Closing Agreements. Therefore, each of them
may seek and obtain specific performance and other appropriate equitable relief
for any such breach by the other party, provided that this sentence shall not be
construed as an assurance, guaranty or commitment by either party that such
equitable relief will be granted. Notwithstanding anything in this Agreement to
the contrary, Seller shall not be responsible for indemnifying Buyer or any of
its Affiliates (including Commonwealth, Transnation and any of their
Subsidiaries after the Closing) for any Losses pursuant to Section 9.1 to the
extent such indemnification relates to environmental compliance or
noncompliance, environmental conditions, contamination, releases or threatened
releases of Hazardous Substances or any other environmental matters (each, an
"Environmental Condition") unless the Buyer or any of its Affiliates is required
to incur such Losses pursuant to any Environmental Law or any Governmental Order
or by any Governmental Authority; provided that Buyer shall
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exercise all reasonable efforts to (A) limit or reduce any action to correct an
Environmental Condition, including, without limitation, any such Environmental
Response, to the extent reasonable and (B) conduct such action to correct an
Environmental Condition, including, without limitation, any Environmental
Response, reasonably efficiently and taking into account economic considerations
to the same extent as would a reasonably prudent business person. Buyer shall,
prior to or after commencing action to correct an Environmental Condition,
including, without limitation, any Environmental Response or other action, in
accordance with this Section 9.9, take such actions as Seller shall reasonably
request, at the cost and expense of Seller, for the purpose of making any such
lessee or known third party undertake or pay for such Environmental Response or
other action.
ARTICLE X
Consent to Jurisdiction; Governing Law
Section 10.1. Consent to Jurisdiction. Each party to this Agreement, by its
execution hereof, (i) hereby irrevocably submits, and agrees to cause each of
its Subsidiaries to submit, to the jurisdiction of the federal courts located
either in the City of Richmond, Virginia, or in the City of New York, New York,
and in the event that such federal courts shall not have subject matter
jurisdiction over the relevant proceeding, then of the state courts located
either in the City of Richmond, Virginia or in the City of New York, New York,
for the purpose of any Action arising out of or based upon this Agreement or any
Closing Agreement or relating to the subject matter hereof or thereof or the
transactions contemplated hereby or thereby, (ii) hereby waives, and agrees to
cause each of its Subsidiaries and Affiliates to waive, to the extent not
prohibited by applicable law, and agrees not to assert, and agrees not to allow
any of its Subsidiaries and Affiliates to assert, by way of motion, as a defense
or otherwise, in any such Action, any claim that it is not subject personally to
the jurisdiction of the above-named courts, that its property is exempt or
immune from attachment or execution, that any such proceeding brought in one of
the above-named courts is improper, or that this Agreement or any other Closing
Agreement, or the subject matter hereof or thereof, may not be enforced in or by
such court and (iii) hereby agrees not to commence or to permit any of its
Subsidiaries or Affiliates to commence any Action arising out of or based upon
this Agreement or any Closing Agreement or relating to the subject matter hereof
or thereof other than before one of the above-named courts nor to make any
motion or take any other action seeking or intending to cause the transfer or
removal of any such Action to any court other than one of the above-named court
whether on the grounds of inconvenient forum or otherwise. Each party hereby
consents to service of process in any such proceeding in any manner permitted by
Virginia or New York law, as the case may be, and agrees that service of process
by registered or certified mail, return receipt requested, at its address
specified pursuant to Section 12.8 hereof is reasonably calculated to give
actual notice. Notwithstanding anything contained in this Section 10.1 to the
contrary with respect to the parties' forum selection, if an Action is filed
against a party to this Agreement, including its Affiliates, by a person who or
which is not a party to this Agreement, an Affiliate of a party to this
Agreement, or an assignee thereof (a "Third Party Action"), in a forum other
than the federal district court or a state court located in the City of
Richmond, Virginia, or in the City of New York, New York, and such Third Party
Action is based upon, arises from, or implicates rights, obligations or
liabilities existing under this Agreement or acts or omissions pursuant to this
Agreement, then the party to this Agreement, including its Affiliates, joined as
a defendant in such Third Party Action shall have the right to file cross-claims
or third-party claims in the Third Party Action against the other party to this
Agreement, including its Affiliates, and even if not a defendant therein, to
intervene in such Third Party Action with or without also filing cross-claims or
third-party claims against the other party to this Agreement, including its
Affiliates.
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Section 10.2. Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic substantive law of the Commonwealth of
Virginia, without giving effect to any choice or conflict of law provision or
rule that would cause the application of the law of any other jurisdiction.
ARTICLE XI
Termination
Section 11.1. Termination of Agreement. This Agreement may be terminated by
the parties only as provided below:
(a) Buyer and Seller may terminate this Agreement by mutual
written consent at any time prior to the Closing.
(b) Buyer may terminate this Agreement by giving written notice
to Seller at any time prior to the Closing (i) in the event that any
representation or warranty of Seller referred to in Section 6.1 shall have been
inaccurate when made and such inaccuracy is not capable of cure or if capable of
cure is not so cured within a reasonable period following notice of such
inaccuracy, (ii) in the event that Seller materially breaches or violates any
material covenant or agreement contained herein or in any Closing Agreement to
be performed by Seller and such breach or violation is not capable of cure or if
capable of cure is not so cured within a reasonable period following notice of
such breach or violation, (iii) if the Closing shall not have occurred on or
before March 31, 1998 by reason of the failure of any condition set forth in
Article VI hereof (except for the condition set forth in Section 6.8 which is
specifically treated in subsection (b)(v) of this Section 11.1) to be satisfied
(unless the failure results primarily from the failure of any representation or
warranty made by or on behalf of Buyer herein or in any Closing Agreement
containing qualifications as to materiality or Material Adverse Effect to be
true and correct or any other representation or warranty made by or on behalf of
Buyer herein or in any Closing Agreement to be true and correct in all material
respects or from the material breach or violation by Buyer of any covenant or
agreement contained herein or in any Closing Agreement), (iv) subject to the
provisions of subsection (d) of this Section 11.1, if an offer for the
acquisition of, merger with or other type of business combination of Buyer by or
with another Person, which offer is contingent upon the termination of this
Agreement and the transactions contemplated hereunder, is received by the Board
of Directors of Buyer and, in the proper exercise of the fiduciary duties of
such Board under applicable Legal Requirements, the Board determines that
Buyer's acceptance of such offer is in the best interests of Buyer and its
shareholders, or (v) subject to the provisions of subsection (d) of this Section
11.1, in the event that this Agreement and all of the transactions contemplated
hereby are not approved and adopted by the affirmative vote of that proportion
of the outstanding shares of the capital stock of Buyer as is required under
applicable Legal Requirements, the provisions of the Charter and Bylaws of Buyer
and the rules of the New York Stock Exchange for the approval of such
transactions, following (1) the public announcement by a third party of either
an acquisition of, or merger with, Buyer, or the intent to acquire or merge with
Buyer or (2) the public announcement that the Board of Directors of Buyer no
longer recommends that its shareholders approve this Agreement and all of the
transactions contemplated hereby.
(c) Seller may terminate this Agreement by giving written
notice to Buyer at any time prior to the Closing (i) in the event that any
representation or warranty of Buyer referred to
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in Section 7.1 shall have been inaccurate when made and such inaccuracy is not
capable of cure or if capable of cure is not so cured within a reasonable period
following notice of such inaccuracy, (ii) in the event that Buyer materially
breaches or violates any material covenant or agreement contained herein or in
any Closing Agreement to be performed by Buyer and such breach or violation is
not capable of cure or if capable of cure is not so cured within a reasonable
period following notice of such breach or violation, or (iii) if the Closing
shall not have occurred on or before March 31, 1998 by reason of the failure of
any condition set forth in Article VII hereof to be satisfied (unless the
failure results primarily from the failure of any representation or warranty
made by or on behalf of Seller herein or in any Closing Agreement containing
qualifications as to materiality or Material Adverse Effect to be true and
correct or any other representation or warranty made by or on behalf of Seller
herein or in any Closing Agreement to be true and correct in all material
respects or from the material breach or violation by Seller of any covenant or
agreement contained herein or in any Closing Agreement), or (iv) subject to the
provisions of subsection (d) of this Section 11.1, if an offer for the
acquisition of, merger with or other type of business combination of
Commonwealth and Transnation, or either of them, by or with another Person is
received by the Board of Directors of Seller and, in the proper exercise of the
fiduciary duties of such Board under applicable Legal Requirements, the Board
determines that Seller's acceptance of such offer is in the best interests of
Seller and its shareholders.
(d) If Buyer should terminate this Agreement pursuant to
Subsection (b)(iv) or (b)(v) of this Section 11.1 or if Seller should terminate
this Agreement pursuant to Subsection (c)(iv) of this Section 11.1, then the
terminating party shall pay the non-terminating party the sum of $14,000,000 in
cash in immediately available funds contemporaneously with the delivery of its
written notice of termination.
Section 11.2. Effect of Termination. In the event of the termination of
this Agreement pursuant to Section 11.1, all obligations of the parties
hereunder (other than the obligations under Sections 5.3, 5.8, 10.1, 10.2, 12.1,
12.2, 12.8 and 12.11, each of which shall survive termination) shall terminate
without any liability of any party to any other party; provided, however, that
no termination shall relieve any party from any liability arising from or
relating to breach prior to termination.
ARTICLE XII
Miscellaneous
Section 12.1. Entire Agreement; Waivers. This Agreement (including all
Exhibits attached hereto), the Closing Agreements and the Confidentiality
Agreement constitute the entire agreement among the parties hereto pertaining to
the subject matter hereof and thereof and supersede all prior and
contemporaneous agreements, understandings, negotiations and discussions,
whether oral or written, of the parties with respect to such subject matter. No
waiver of any provision of this Agreement shall be deemed or shall constitute a
waiver of any other provision hereof (whether or not similar), shall constitute
a continuing waiver unless otherwise expressly provided nor shall be effective
unless in writing and executed (i) in the case of a waiver by Buyer, by Buyer
and (ii) in the case of a waiver by Seller, by Seller.
Section 12.2. Amendment or Modification. The parties hereto may not amend
or modify this Agreement except in such manner as may be agreed upon by a
written instrument executed and delivered by Buyer and Seller.
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Section 12.3. Survival. All representations, warranties, covenants and
agreements made by or on behalf of any party hereto in this Agreement, or
pursuant to any document, certificate or other instrument referred to herein or
delivered in connection with the transactions contemplated hereby, shall be
deemed to have been relied upon by the parties hereto, notwithstanding any
investigation made by or on behalf of any of the parties hereto or any
opportunity therefor (including without limitation the availability for review
of any document), and, subject to the provisions of Article IX, shall survive
the execution and delivery of this Agreement and the Closing. Subject to Article
IX, neither the period of survival nor the liability of any party with respect
to such party's representations, warranties covenants and agreements shall be
reduced by any investigation made at any time by or on behalf of any party.
Subject to Article IX, if written notice of a claim has been given prior to the
expiration of any time period set forth herein for any such notice by a party in
whose favor such representations, warranties, covenants or agreements have been
made to any party that made such representations, warranties, covenants or
agreements, then the relevant representations, warranties, covenants or
agreements shall survive as to such claim until such claims have been finally
resolved.
Section 12.4. Independence of Representations and Warranties. The parties
hereto intend that each representation, warranty, covenant and agreement
contained herein shall have independent significance. If any party has breached
any representation, warranty, covenant or agreement contained herein in any
respect, the fact that there exists any other representation, warranty, covenant
or agreement relating to the same subject matter (regardless of the relative
levels of specificity) that the party has not breached shall not detract from or
mitigate the fact that such party is in breach of the first representation,
warranty, covenant or agreement.
Section 12.5. Severability. In the event that any provision hereof would,
under applicable law, be invalid or unenforceable in any respect, such provision
shall (to the extent permitted under applicable law) be construed by modifying
or limiting it so as to be valid and enforceable to the maximum extent
compatible with, and possible under, applicable law. The provisions hereof are
severable, and in the event any provision hereof should be held invalid or
unenforceable in any respect, it shall not invalidate, render unenforceable or
otherwise affect any other provision hereof.
Section 12.6. Knowledge. Whenever reference is made herein to the knowledge
of any Person with respect to any matter, it is understood that such knowledge
extends only to the officers and directors of such Person (and, in the case of
Seller, the officers and directors of Commonwealth and Transnation or any of
their Subsidiaries) having responsibility for the areas of such Person's (and in
the case of Seller, also Commonwealth's, Transnation's or any of their
Subsidiaries') business covering such matter, which officers and directors have
made an inquiry that is reasonably appropriate to determine the accuracy of the
statement in question or, in the case of Actions, have made an inquiry that is
reasonably appropriate to determine the existence of Actions threatened in
writing against such Person (and in the case of Seller, against Commonwealth,
Transnation or any of their Subsidiaries).
Section 12.7. Successors and Assigns. All of the terms and provisions of
this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective transferees, successors and permitted
assigns (each of which such transferees, successors and permitted assigns shall
be deemed to be a party hereto for all purposes hereof); provided, however, that
no party hereto may assign or transfer (by operation of law or otherwise) any of
its respective rights or obligations hereunder.
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Section 12.8. Notices. Any notices or other communications required or
permitted hereunder shall be sufficiently given if in writing (including
telecopy or similar teletransmission), addressed as follows:
If to Seller, to it at: Reliance Insurance Company
55 East 52nd Street
New York, New York 10055
Telecopier: (212) 909-1864
Attention: Robert M. Steinberg
With a copy to: Reliance Group Holdings, Inc.
55 East 52nd Street
New York, New York 10055
Telecopier: (212) 909-1864
Attention: General Counsel
If to Buyer or LTIC, Lawyers Title Insurance Corporation
to them at: 6630 West Broad Street
Richmond, Virginia 23231
Telecopier: (804) 282-5453
Attention: Russell W. Jordan, III, Esquire
With a copy to: Williams Mullen Christian & Dobbins
1021 East Cary Street, 16th Floor
Richmond, Virginia 23219
Telecopier: (804) 783-6507
Attention: Theodore L. Chandler, Jr., Esquire
Unless otherwise specified herein, such notices or other communications shall be
deemed received (a) in the case of any notice or communication sent other than
by mail, on the date actually delivered to such address (evidenced, in the case
of delivery by overnight courier, by confirmation of delivery from the overnight
courier service making such delivery, and in the case of a telecopy, by receipt
of a transmission confirmation form or the addressee's confirmation of receipt),
or (b) in the case of any notice or communication sent by mail, three Business
Days after being sent, if sent by registered or certified mail, with first-class
postage prepaid. Each of the parties hereto shall be entitled to specify a
different address by giving notice as aforesaid to each of the other parties
hereto.
Section 12.9. Public Announcements. At all times on or before the Closing
Date, no party hereto will issue or make any reports, statements or releases to
the public or generally to any Persons to whom Buyer, LTIC, Commonwealth or
Transnation provides services or with whom Buyer, LTIC, Commonwealth or
Transnation otherwise has significant business relationships with respect to
this Agreement or the transactions contemplated hereby without the prior written
consent of the other party hereto. If any party hereto is unable to obtain,
after reasonable effort, the approval of its public report, statement or release
from the other parties hereto and such report, statement or release is, in the
opinion of legal counsel to such party, required by law in order to discharge
such party's disclosure obligations, then such party may make or issue the
legally required report, statement or release and promptly furnish the other
parties with a copy thereof. Each party hereto will also obtain the prior
approval by the other parties hereto of any press release to be issued
immediately following the Closing announcing the consummation of the
transactions contemplated by this Agreement.
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Section 12.10. Headings. Section and subsection headings are not to be
considered part of this Agreement, are included solely for convenience, are not
intended to be full or accurate descriptions of the content thereof and shall
not affect the construction hereof.
Section 12.11. Third Party Beneficiaries. Except as otherwise provided
in Article IX, nothing in this Agreement is intended or shall be construed to
entitle any Person other than the parties, Commonwealth, Transnation, or their
respective transferees, successors and assigns permitted hereby to any claim,
cause of action, remedy or right of any kind.
Section 12.12. Counterparts. This Agreement may be executed in any number
of counterparts and by the different parties on separate counterparts each of
which shall be deemed an original, but all of which together shall constitute
but one and the same instrument. The parties hereto acknowledge and agree that
original signatures delivered by facsimile transmission shall be accepted as
original to evidence execution of this Agreement and the other agreements,
documents and instruments contemplated herein.
[SIGNATURES ON NEXT PAGE]
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IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby (Seller's Parent solely for purposes of Section 5.17), have caused this
Stock Purchase Agreement to be executed, as of the date first above written by
their respective officers thereunto duly authorized.
SELLER: RELIANCE INSURANCE COMPANY
By: /s/ Lowell C. Freiberg
------------------------------
Name: Lowell C. Freiberg
Title: Senior Vice President
SELLER'S PARENT: RELIANCE GROUP HOLDINGS, INC.
By: /s/ George E. Bello
------------------------------
Name: George E. Bello
Title: Executive Vice President
and Controller
BUYER: LAWYERS TITLE CORPORATION
By: /s/ Charles H. Foster, Jr.
------------------------------
Name: Charles H. Foster, Jr.
Title: Chairman and
Chief Executive Officer
LTIC: LAWYERS TITLE INSURANCE CORPORATION
By: /s/ Charles H. Foster, Jr.
------------------------------
Name: Charles H. Foster, Jr.
Title: Chairman and
Chief Executive Officer
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Exhibit A
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement"), dated as of
__________ __, 1997, is made between LAWYERS TITLE CORPORATION, a Virginia
corporation ("Lawyers Title"), and RELIANCE INSURANCE COMPANY, a Pennsylvania
corporation ("RIC").
W I T N E S S E T H:
WHEREAS, Lawyers Title, Lawyers Title Insurance Corporation, a Virginia
corporation, RIC and Reliance Group Holdings, Inc., a Delaware corporation, have
entered into a Stock Purchase Agreement dated August 20, 1997 (the "Stock
Purchase Agreement"), under which Lawyers Title will acquire from RIC all of the
issued and outstanding shares of the capital stock of Commonwealth Land Title
Insurance Company, a Pennsylvania corporation, and of Transnation Title
Insurance Company, an Arizona corporation;
WHEREAS, pursuant to the Stock Purchase Agreement, RIC will acquire (i)
4,473,684 shares of Lawyers Title's Common Stock, without par value, and (ii)
2,200,000 shares of Lawyers Title's 7% Series B Cumulative Convertible Preferred
Stock, without par value, which shares of Series B Preferred Stock are initially
convertible into 4,824,561 shares of Common Stock pursuant to the terms of the
Series B Preferred Stock; and
WHEREAS, Lawyers Title has agreed to enter into this Agreement to
provide certain registration rights to RIC in order to facilitate the
distribution of such shares of Common Stock and Series B Preferred Stock.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and in the Stock Purchase Agreement, Lawyers Title and RIC
hereby agree as follows:
ARTICLE I
Definitions
Except as otherwise specified herein, capitalized terms used in this
Agreement shall have the respective meanings assigned to such terms in the Stock
Purchase Agreement. For purposes of this Agreement, the following terms have the
following meanings:
(a) "Affiliate" shall have the meaning ascribed to such term in
Rule 12b-2 under the Exchange Act as in effect on the date of this Agreement.
(b) "Blue Sky Filing" shall mean a filing made in connection with
the registration or qualification of the RIC Shares under a particular state's
securities (including without limitation insurance securities) or blue sky laws.
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(c) "Common Shares" shall mean the 4,473,684 shares of Common Stock
that RIC will acquire from Lawyers Title pursuant to the Stock Purchase
Agreement and such additional shares of Common Stock that Lawyers Title may
issue with respect to such shares pursuant to any stock splits, stock dividends,
recapitalizations, restructurings, reclassifications or similar transactions.
(d) "Common Stock" shall mean the Common Stock, without par value,
of Lawyers Title.
(e) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
(f) "NYSE" shall mean the New York Stock Exchange.
(g) "Person" shall have the meaning set forth in Section 3(a)(9) of
the Exchange Act as in effect on the date of this Agreement.
(h) "Prospectus" shall mean the prospectus included in any
Registration Statement (including a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A under the Securities Act), as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of the RIC Shares covered by such Registration
Statement, and all other amendments and supplements to such prospectus,
including post-effective amendments, and all material incorporated by reference
or deemed to be incorporated by reference in any such prospectus.
(i) "Registration Expenses" shall mean any and all out-of-pocket
expenses incident to Lawyers Title's performance of or compliance with this
Agreement, including, without limitation, (i) all registration and filing fees
with the SEC and the National Association of Securities Dealers, Inc., (ii) all
fees and expenses of complying with state securities (including without
limitation insurance securities) or blue sky laws, (iii) all printing, messenger
and delivery expenses, (iv) all fees and expenses incurred in connection with
the listing of the RIC Shares on the NYSE, or any other exchange or automated
interdealer quotation system as then applicable, (v) the fees and disbursements
of Lawyers Title's counsel and of its independent public accountants, (vi) the
fees and expenses of any special experts retained by Lawyers Title in connection
with the requested registration and (vii) out-of-pocket expenses of underwriters
customarily paid by the issuer to the extent provided for in any underwriting
agreement, but excluding (x) any fees or disbursements of counsel to RIC or any
underwriter and (y) all underwriting discounts and commissions, transfer taxes,
if any, and documentary stamp taxes, if any, relating to the sale or disposition
of the RIC Shares.
(j) "Registration Statement" shall mean one or more registration
statements of Lawyers Title under the Securities Act that cover the resale of
any portion of the RIC Shares pursuant to the terms of this Agreement, including
the related Prospectus, all amendments and supplements to such registration
statement, including pre- and post-effective amendments, all
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exhibits thereto and all material incorporated by reference or deemed to be
incorporated by reference in any such registration statement.
(k) "RIC Shares" shall mean collectively (i) the Common Shares,
(ii) the Series B Preferred Shares, and (iii) the shares of Common Stock into
which the Series B Preferred Shares are convertible pursuant to the terms of the
Series B Preferred Stock and such additional shares of Common Stock that Lawyers
Title may issue with respect to such shares pursuant to any stock splits, stock
dividends, recapitalizations, restructurings, reclassifications or similar
transactions.
(l) "SEC" shall mean the Securities and Exchange Commission.
(m) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(n) "Series B Preferred Shares" shall mean the 2,200,000 shares
of Series B Preferred Stock that RIC will acquire from Lawyers Title on the
Closing Date.
(o) "Series B Preferred Stock" shall mean the 7% Series B
Cumulative Convertible Preferred Stock, without par value, of Lawyers Title.
ARTICLE II
Registration of Securities
Section 2.1. Securities Subject to this Agreement. The securities
entitled to the benefits of this Agreement are the RIC Shares. For the purposes
of this Agreement, one or more of the RIC Shares will no longer be subject to
this Agreement when and to the extent that (i) a Registration Statement covering
such RIC Shares has been declared effective under the Securities Act and such
RIC Shares have been sold pursuant to such effective Registration Statement,
(ii) such RIC Shares are distributed to the public pursuant to Rule 144 under
the Securities Act, (iii) such RIC Shares shall have been otherwise transferred
or disposed of, new certificates therefor not bearing a legend restricting
further transfer or disposition shall have been delivered by Lawyers Title and,
at such time, subsequent transfer or disposition of such securities shall not
require registration or qualification of such RIC Shares under the Securities
Act or any similar state law then in force, or (iv) such RIC Shares have ceased
to be outstanding.
Section 2.2. Registration Requirements.
(a) Not later than three (3) Business Days following the Closing
Date, Lawyers Title shall (i) file one or more Registration Statements with the
SEC to register the resale of the RIC Shares under the Securities Act and (ii)
use its best efforts to cause such Registration Statement(s) to become effective
as soon as practicable after the filing thereof with the SEC. Prior to or on the
Closing Date, Lawyers Title shall have listed the Common Shares and, on a when
issued basis, the shares of Common Stock issuable upon conversion of the Series
B Preferred Shares on the NYSE. The parties acknowledge that, as of the Closing
Date, the Series B Preferred Shares are not eligible for listing on the NYSE.
However, Lawyers Title will
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promptly list the Series B Preferred Shares at such time as the Series B
Preferred Shares become eligible for listing under the rules of the NYSE or of
any other exchange or automated interdealer quotation system on which the Common
Stock is then listed or quoted.
(b) Lawyers Title shall use its best efforts to:
(i) maintain the effectiveness of any registration relating
to the Common Shares, and the listing of such shares on the NYSE or any exchange
or automated interdealer quotation system on which the Common Stock is then
listed or quoted, for the period from the date of effectiveness of the
Registration Statement relating to such Common Shares to the date that is six
years and six months after such date of effectiveness, subject to extension as
provided in Section 2.2(c) below;
(ii) maintain the effectiveness of any registration relating
to the Series B Preferred Shares, and the listing of such shares on the NYSE or
any exchange or automated interdealer quotation system on which the Series B
Preferred Stock is then listed or quoted, for the period from the date of
effectiveness of the Registration Statement relating to such Series B Preferred
Shares to the date that is eight years and six months after such date of
effectiveness, subject to extension as provided in Section 2.2(c) below; and
(iii) maintain the effectiveness of any registration relating
to the shares of Common Stock into which the Series B Preferred Shares are
convertible, and the listing of such shares, on a when issued basis, on the NYSE
or any exchange or automated interdealer quotation system on which the Common
Stock is then listed or quoted, for the period from the date of effectiveness of
the Registration Statement relating to such shares of Common Stock to the date
which is eight years and six months after such date of effectiveness, subject to
extension as provided in Section 2.2(c) below.
(c) For each Holdback Period required by Lawyers Title under
Article III of this Agreement and for each Discontinuance Period (as defined in
Section 2.3(m) below), the periods specified in Section 2.2(b) above shall be
extended by the number of days during which the applicable Holdback Period or
Discontinuance Period was in effect.
Section 2.3. Registration Procedures. In order to comply with the
requirements of Section 2.2 above, Lawyers Title will:
(a) prepare and file with the SEC one or more Registration
Statements covering the RIC Shares on any form or forms for which Lawyers Title
then qualifies and that counsel for Lawyers Title shall deem appropriate, and
which form shall be available for the sale of the RIC Shares in accordance with
the intended methods of distribution thereof, and use its best efforts to cause
such Registration Statement(s) to become effective;
(b) prepare and file with the SEC pre- and post-effective
amendments to any Registration Statement and such amendments and supplements to
the Prospectus used in connection therewith as may be necessary to maintain the
effectiveness of such registration, or as
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may be required by the rules, regulations or instructions applicable to the
registration form utilized by Lawyers Title, or by the Securities Act or the
rules and regulations thereunder, necessary to keep such Registration Statement
effective, and cause the Prospectus as so supplemented to be filed pursuant to
Rule 424 under the Securities Act, and otherwise comply with the provisions of
the Securities Act with respect to the disposition of the RIC Shares;
(c) furnish to RIC (or any Affiliate of RIC that owns, either
beneficially or of record, any RIC Shares), and the underwriters if any, such
number of copies of any Registration Statement and each pre- and post-effective
amendment thereto, any Prospectus or Prospectus supplement and each amendment
thereto and such other documents as RIC (or any Affiliate of RIC that owns,
either beneficially or of record, any RIC Shares), and the underwriters if any,
may reasonably request in order to facilitate the transfer or disposition of the
RIC Shares by RIC (or any Affiliate of RIC that owns, either beneficially or of
record, any RIC Shares);
(d) make such Blue Sky Filings to register or qualify the RIC
Shares under such state securities (including without limitation insurance
securities) or blue sky laws of such jurisdictions as RIC (or any Affiliate of
RIC that owns, either beneficially or of record, any RIC Shares), and the
underwriters if any, may reasonably request, and do any and all other acts that
may be reasonably necessary or advisable to enable RIC to consummate the
transfer or disposition in such jurisdictions of the RIC Shares, except that
Lawyers Title shall not for any such purpose be required (i) to qualify
generally to do business as a foreign corporation in any jurisdiction where, but
for the requirements of this Section 2.3(d), it would not be obligated to be so
qualified, (ii) to subject itself to taxation in any such jurisdiction, or (iii)
to consent to general service of process in any such jurisdiction;
(e) notify RIC, and the underwriters if any, at any time when
a Prospectus is required to be delivered under the Securities Act while the RIC
Shares are subject to this Agreement, of Lawyers Title's becoming aware that a
Prospectus included in a Registration Statement, as then in effect, includes an
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, and prepare and furnish to RIC, and the
underwriters if any, a reasonable number of copies of an amendment to such
Prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such RIC Shares, such Prospectus shall not include an untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading;
(f) promptly notify RIC, and the underwriters if any,
(1) when any Prospectus or Prospectus supplement or pre-
or post-effective amendment has been filed, and, with respect to any
Registration Statement or post-effective amendment, when such Registration
Statement or post-effective amendment has become effective;
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(2) of any request by the SEC or any other applicable
regulatory authority for amendments or supplements to any Registration Statement
or Prospectus or for additional information;
(3) of the issuance by the SEC or any other applicable
regulatory authority of any stop order of which Lawyers Title or its counsel is
aware or should be aware suspending the effectiveness of any Registration
Statement or any order preventing the use of a related Prospectus, or the
initiation or any threats of any proceedings for such purpose; and
(4) of the receipt by Lawyers Title of any written
notification of the suspension of the registration or qualification of any of
the RIC Shares for sale in any jurisdiction, or the initiation or any threats of
any proceeding for such purpose;
(g) use its best efforts to comply with all applicable rules and
regulations of the SEC, and make available to its shareholders, as soon as
reasonably practicable, an earnings statement that shall satisfy the provisions
of Section 11(a) of the Securities Act, provided that Lawyers Title shall be
deemed to have complied with this Section 2.3(g) if it has complied with Rule
158 under the Securities Act;
(h) use its best efforts to provide a transfer agent and registrar
for the RIC Shares covered by any Registration Statement no later than the
effective date of such Registration Statement;
(i) if the RIC Shares are to be sold in an underwritten offering,
enter into a customary underwriting agreement and in connection therewith:
(1) make such representations and warranties to the
underwriters and to RIC and any Affiliate of RIC, to the extent that RIC and
such Affiliate(s) are selling shareholders, in form, substance and scope as are
customarily made by issuers to underwriters and selling shareholders in
comparable underwritten offerings;
(2) obtain opinions of counsel to Lawyers Title (in form,
substance and scope reasonably satisfactory to the managing underwriters),
addressed to the underwriters, and covering the matters customarily covered in
opinions requested in comparable underwritten offerings, including, if requested
by RIC or any Affiliate of RIC, a statement to the effect that such opinions may
be relied upon by RIC and such Affiliate(s) of RIC, to the extent that RIC and
such Affiliate(s) are selling shareholders;
(3) obtain "cold comfort" letters and bring-downs thereof
from Lawyers Title's independent certified public accountants addressed to the
underwriters and RIC, such letters to be in customary form and covering the
matters customarily covered in "cold comfort" letters by independent accountants
in comparable underwritten offerings;
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(4) if requested, provide indemnification in accordance
with the provisions and procedures of Article IV of this Agreement to all
parties to be indemnified pursuant to such Article;
(5) deliver such documents and certificates as the managing
underwriters or RIC may reasonably request to evidence compliance with Section
2.3(f) above and with any customary conditions contained in the underwriting
agreement; and
(6) make its officers and directors reasonably available
for "roadshows."
(j) cooperate with RIC, and the underwriters if any, to facilitate
the timely preparation and delivery of certificates (not bearing any restrictive
legends) representing the securities to be sold under any Registration
Statement, and enable such securities to be in such denominations and registered
in such names as RIC, or the underwriters if any, may request;
(k) if the managing underwriter or underwriters or RIC reasonably
request, incorporate in a Prospectus supplement or post-effective amendment
thereto such information as the managing underwriter or underwriters and RIC
agree should be included therein relating to Lawyers Title and its business and
financial condition and the plan of distribution with respect to such RIC
Shares, including, without limitation, information with respect to the number of
RIC Shares being sold to such underwriters, the purchase price being paid
therefor by such underwriters and with respect to any other terms of the
underwritten offering of the RIC Shares to be sold in such offering and make all
required filings of such Prospectus supplement or post-effective amendment as
promptly as practicable upon being notified of the matters to be incorporated in
such Prospectus supplement or post-effective amendment;
(l) provide RIC, any underwriter and any attorney, accountant or
other agent retained by RIC or underwriter (collectively, the "Inspectors") with
(i) the opportunity to participate in the preparation of any Registration
Statement, any Prospectus, and any amendment or supplement thereto and (ii)
reasonable access during normal business hours to appropriate officers of
Lawyers Title and its subsidiaries to ask questions and to obtain information
that any such Inspector may reasonably request and make available for inspection
all financial and other records, pertinent corporate documents and properties of
any of Lawyers Title and its subsidiaries and affiliates (collectively, the
"Records"), as shall be reasonably necessary to enable them to exercise their
due diligence responsibility; provided, however, that the Records that Lawyers
Title determines, in good faith, to be confidential and that it notifies the
Inspectors in writing are confidential shall not be disclosed to any Inspector
unless such Inspector signs or is otherwise bound by a confidentiality agreement
reasonably satisfactory to Lawyers Title; and
(m) in the event of the issuance of any stop order of which Lawyers
Title or its counsel is aware or should be aware suspending the effectiveness of
any Registration Statement or any order suspending or preventing the use of any
related Prospectus or suspending the registration or qualification of any RIC
Shares for sale in any jurisdiction, Lawyers Title promptly will use its best
efforts to obtain its withdrawal.
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RIC shall furnish to Lawyers Title in writing such information
regarding RIC and its Affiliates as is required to be disclosed pursuant to the
Securities Act. RIC agrees to notify Lawyers Title promptly of any inaccuracy or
change in information previously furnished by RIC to Lawyers Title or of the
happening of any event in either case as a result of which a Registration
Statement, a Prospectus, or any amendment or supplement thereto contains an
untrue statement of a material fact regarding RIC or omits to state a material
fact regarding RIC required to be stated therein or necessary to make the
statements therein not misleading and to furnish promptly to Lawyers Title any
additional information required to correct and update any previously furnished
information or required so that such Registration Statement, Prospectus, or
amendment or supplement, shall not contain, with respect to RIC, an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading.
RIC agrees that, upon receipt of any notice from Lawyers Title of the
happening of any event of the kind described in Sections 2.3(e) or (m) above,
RIC will forthwith discontinue the transfer or disposition of any RIC Shares
pursuant to the Prospectus relating to the Registration Statement covering such
RIC Shares until RIC's receipt of the copies of the amended or supplemented
Prospectus contemplated by Section 2.3(e) or the withdrawal of any order
contemplated by Section 2.3(m), and, if so directed by Lawyers Title, RIC will
deliver to Lawyers Title all copies, other than permanent file copies then in
RIC's possession, of the Prospectus covering such RIC Shares at the time of
receipt of such notice. The period during which any discontinuance under this
paragraph is in effect is referred to herein as a "Discontinuance Period."
Section 2.4. Registration Expenses. Lawyers Title will pay all
Registration Expenses in connection with all registrations of RIC Shares
pursuant to Section 2.3 above, and RIC shall pay (x) any fees or disbursements
of counsel to RIC or any underwriter and (y) all underwriting discounts and
commissions and transfer taxes, if any, and documentary stamp taxes, if any,
relating to the sale or disposition of the RIC Shares.
Section 2.5. Selection of Underwriters. In connection with any
underwritten offering pursuant to a Registration Statement filed pursuant to
Section 2.3 above, RIC shall have the right to select a lead managing
underwriter or underwriters to administer such offering, which lead managing
underwriter or underwriters shall be reasonably satisfactory to Lawyers Title;
provided, however, that Lawyers Title shall have the right to select a
co-managing underwriter or underwriters for such offering, which co-managing
underwriter or underwriters shall be reasonably satisfactory to RIC.
ARTICLE III
Holdback Period
If one or more underwritten public offerings of shares of Common Stock
(other than the Common Shares and the shares of Common Stock into which the
Series B Preferred Shares are convertible) by Lawyers Title occur during the
period from the Closing Date to the date which is eight years and six months
after the Closing Date, subject to extension as provided in Section 2.2(c)
above, then, in connection with each such public offering, Lawyers Title may
require RIC
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and its Affiliates to refrain from, and RIC and its Affiliates will refrain
from, selling any of the RIC Shares for a period determined by Lawyers Title but
not to exceed ninety (90) days (each such period referred to as a "Holdback
Period") so long as Lawyers Title delivers written notice to RIC of Lawyers
Title's requirement of a Holdback Period, and the length of such Holdback
Period, no less than five Business Days prior to the inception of the Holdback
Period; provided that Lawyers Title may require RIC to refrain from selling any
of the RIC Shares during no more than three such Holdback Periods during the
period from the Closing Date to the date which is eight years and six months
after the Closing Date; and provided further that Lawyers Title may require RIC
to refrain from selling any of the RIC Shares during no more than two Holdback
Periods in any one calendar year.
ARTICLE IV
Indemnification; Contribution
Section 4.1. Indemnification by Lawyers Title. As long as any RIC
Shares are registered under the Securities Act, Lawyers Title will, and hereby
does indemnify and hold harmless, to the fullest extent permitted by law, and,
subject to Section 4.3 below, defend RIC and RIC's officers, directors,
employees, agents, representatives and each other Person, if any, who controls
RIC within the meaning of the Securities Act, against any and all losses,
claims, damages, liabilities and expenses, joint or several, to which they or
any of them may become subject under the Securities Act or any other statute or
common law, including any amount paid in settlement of any litigation, commenced
or threatened, and to reimburse them for any reasonable legal or other expenses
incurred by them in connection with investigating any claims and defending any
actions, insofar as any such losses, claims, damages, liabilities, expenses or
actions arise out of or are based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement or
any pre- or post-effective amendment thereto or in any Blue Sky Filing, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading or
(ii) any untrue statement or alleged untrue statement of a material fact
contained in the Prospectus or any amendment or supplement thereto, or the
omission or alleged omission to state therein a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that the indemnification
agreement contained herein shall not (i) apply to such losses, claims, damages,
liabilities, expenses or actions arising out of, or based upon, any such untrue
statement or alleged untrue statement, or any such omission or alleged omission,
if such statement or omission was made in reliance upon and in conformity with
information furnished in writing to Lawyers Title by RIC from time to time
specifically for use in the Registration Statement, the Prospectus or any such
amendment or supplement thereto or any Blue Sky Filing or (ii) inure to the
benefit of any Person, to the extent that any such loss, claim, damage,
liability, expense or action arises out of such Person's failure to send or give
a copy of the Prospectus, as the same may be then supplemented or amended, to
the Person asserting an untrue statement or alleged untrue statement, or
omission or alleged omission, at or prior to the written confirmation of the
sale of the RIC Shares to such Person if such statement or omission was
corrected in the Prospectus or any amendment or supplement thereto prior to the
written confirmation of the sale. Such indemnity shall remain in full force and
effect regardless of any
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investigation made by or on behalf of RIC or any other Person and shall survive
the transfer of such securities by RIC.
Section 4.2. Indemnification by RIC. RIC will, and hereby does,
indemnify and hold harmless and, subject to Section 4.3 below, defend (in the
same manner and to the same extent as set forth in Section 4.1 above) Lawyers
Title and Lawyers Title's officers, directors, employees, agents,
representatives and each other Person, if any, who controls Lawyers Title within
the meaning of the Securities Act, with respect to any such untrue statement or
alleged untrue statement in, or any such omission or alleged omission from, any
Registration Statement, any Prospectus, or any amendment or supplement thereto,
if such statement or omission was made in reliance upon and in conformity with
information furnished in writing to Lawyers Title by RIC from time to time
specifically for use in the Registration Statement, the Prospectus, and any such
amendment or supplement thereto. Such indemnity shall remain in full force and
effect, regardless of any investigation made by or on behalf of Lawyers Title or
any such director, officer or any other Person and shall survive the transfer of
such securities by RIC. In no event shall RIC be liable for any amounts pursuant
to this Section 4.2 in excess of the net proceeds (net of all registration
expenses borne by RIC pursuant to Section 2.4 above) received by RIC upon the
resale of any RIC Shares pursuant to any Registration Statement (such amount
referred to as the "RIC Liability Amount").
Section 4.3. Notices of Claims. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in Sections 4.1 and 4.2 above, such indemnified
party will give, if a claim in respect thereof is to be made against an
indemnifying party, written notice to the latter of the commencement of such
action, provided that the failure of any indemnified party to give notice as
provided herein shall not relieve the indemnifying party of its obligations
under this Article IV, except to the extent that the indemnifying party is
actually prejudiced in any material respect by such failure to give notice. In
case any such action is brought against an indemnified party, the indemnifying
party shall be entitled to participate in and, unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, to assume the defense
thereof, jointly with any other indemnifying party similarly notified to the
extent that it may wish, with counsel reasonably satisfactory to such
indemnified party, and, after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of reasonable investigation. If the
indemnifying party advises an indemnified party that it will contest a claim for
indemnification hereunder, or fails, within thirty (30) days of receipt of any
indemnification notice to notify, in writing, such Person of its election to
defend, settle or compromise, at its sole cost and expense, any action,
proceeding or claim (or discontinues its defense at any time after it commences
such defense), then the indemnified party may, at its option, defend, settle or
otherwise compromise or pay such action or claim in each case at the
indemnifying party's expense. In any event, unless and until the indemnifying
party elects in writing to assume and does so assume the defense of any such
claim, proceeding or action, the indemnified party's reasonable costs and
expenses arising out of the defense, settlement or compromise of any such
action, claim or proceeding shall be losses subject to indemnification
hereunder. The indemnified party shall cooperate fully with the indemnifying
party in connection with any negotiation or defense of any such action or claim
by the indemnifying party and shall furnish to the indemnifying party all
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information reasonably available to the indemnified party that relates to such
action or claim. The indemnifying party shall keep the indemnified party fully
informed at all times as to the status of the defense or any settlement
negotiations with respect thereto. If the indemnifying party elects to defend
any such action or claim, then the indemnified party shall be entitled to
participate in such defense with counsel of its choice at its sole cost and
expense, except that the indemnifying party shall be liable for such reasonable
costs and expenses if, in such indemnified party's reasonable judgment, a
conflict of interest between such indemnified and indemnifying parties may exist
as described above. If the indemnifying party does not assume such defense, the
indemnified party shall keep the indemnifying party informed at all times as to
the status of the defense; provided, however, that the failure to keep the
indemnifying party so informed shall not affect the obligations of the
indemnifying party hereunder. No indemnifying party shall be liable for any
settlement of any action, claim or proceeding effected without its written
consent; provided, however, that the indemnifying party shall not unreasonably
withhold, delay or condition its consent. No indemnifying party shall, without
the consent of the indemnified party, consent to entry of any judgment or enter
into any settlement that does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a general
written release from all liability with respect to such claim or litigation.
Section 4.4. Indemnification Payments. The indemnification required by
this Article IV shall be made by periodic payments of the amount thereof during
the course of the investigation or defense as and when bills are received or
expense, loss, damage or liability is incurred, subject to the receipt of such
documentary support therefor as the indemnifying party may reasonably request.
Section 4.5. Contribution. If the indemnification provided for in this
Article IV is unavailable to or insufficient to hold harmless a party otherwise
entitled to be indemnified thereunder in respect to any losses, claims, damages
and expenses (or actions, whether commenced or threatened, in respect thereof)
referred to therein, then Lawyers Title and RIC shall contribute to the amount
paid or payable by such party as a result of such losses, claims, damages,
liabilities, expenses or actions in such proportion as is appropriate to reflect
the relative fault of Lawyers Title and RIC in connection with the statements or
omissions that resulted in such losses, claims, damages, liabilities, expenses
or actions. The relative fault of Lawyers Title and RIC shall be determined by
reference to whether the untrue statement or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by Lawyers Title or by RIC and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. Lawyers Title and RIC agree that it would
not be just and equitable if contributions pursuant to this Section 4.5 were
determined by pro rata allocation or by any other method of allocation that does
not take account of the equitable considerations referred to above in this
Section 4.5. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation. In no event shall RIC be required to contribute pursuant to
this Section 4.5 any amount in excess of the RIC Liability Amount.
Section 4.6. Other Rights and Liabilities. The indemnity and
contribution agreements contained herein shall be in addition to (i) any cause
of action or similar right of the indemnified party against the indemnifying
party or others and (ii) any liabilities the indemnifying party may be subject
to pursuant to the law.
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ARTICLE V
Miscellaneous
Section 5.1. Notices. Any notices or other communications required or
permitted hereunder shall be sufficiently given if in writing (including
telecopy or similar teletransmission), addressed as follows:
If to Lawyers Title,
to it at: Lawyers Title Insurance Corporation
6630 West Broad Street
Richmond, Virginia 23231
Telecopier: (804) 282-5453
Attention: Russell W. Jordan, III, Esquire
With a copy to: Williams Mullen Christian & Dobbins
1021 East Cary Street, 16th Floor
Richmond, Virginia 23219
Telecopier: (804) 783-6507
Attention: Theodore L. Chandler, Jr., Esquire
If to RIC or Reliance,
to them at: Reliance Insurance Company
55 East 52nd Street
New York, New York 10055
Telecopier: (212) 909-1864
Attention: Robert M. Steinberg
With a copy to: Reliance Group Holdings, Inc.
55 East 52nd Street
New York, New York 10055
Telecopier: (212) 909-1864
Attention: General Counsel
Unless otherwise specified herein, such notices or other communications shall be
deemed received (a) in the case of any notice or communication sent other than
by mail, on the date actually delivered to such address (evidenced, in the case
of delivery by overnight courier, by confirmation of delivery from the overnight
courier service making such delivery, and in the case of a telecopy, by receipt
of a transmission confirmation form or the addressee's confirmation of receipt),
or (b) in the case of any notice or communication sent by mail, three Business
Days after being sent, if
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sent by registered or certified mail, with first-class postage prepaid. Each of
the parties hereto shall be entitled to specify a different address by giving
notice as aforesaid to each of the other parties hereto.
Section 5.2. Amendments, Waivers, Etc. This Agreement may not be
amended, changed, supplemented, waived or otherwise modified or terminated
except by an instrument in writing signed by RIC and by Lawyers Title following
approval thereof by a majority of the Continuing Directors (as such term is
defined in the Voting and Standstill Agreement).
Section 5.3. Successors and Assigns. Except as otherwise provided
herein, this Agreement shall be binding upon and shall inure to the benefit of
and be enforceable by the parties and their respective successors and assigns,
including without limitation in the case of any corporate party hereto any
corporate successor by merger or otherwise; provided that no party may assign
this Agreement without the other party's prior written consent.
Section 5.4. Entire Agreement. This Agreement embodies the entire
agreement and understanding among the parties relating to the subject matter
hereof and supersedes all prior agreements and understandings relating to such
subject matter. There are no representations, warranties or covenants by the
parties hereto relating to such subject matter other than those expressly set
forth in this Agreement and the Stock Purchase Agreement.
Section 5.5. Specific Performance. The parties acknowledge that money
damages are not an adequate remedy for violations of this Agreement and that any
party may, in its sole discretion, apply to a court of competent jurisdiction
for specific performance or injunctive or such other relief as such court may
deem just and proper in order to enforce this Agreement or prevent any violation
hereof and, to the extent permitted by applicable law, each party waives any
objection to the imposition of such relief.
Section 5.6. Remedies Cumulative. All rights, powers and remedies
provided under this Agreement or otherwise available in respect hereof at law or
in equity shall be cumulative and not alternative, and the exercise or beginning
of the exercise of any thereof by any party shall not preclude the simultaneous
or later exercise of any other such right, power or remedy by such party.
Section 5.7. No Waiver. The failure of any party hereto to exercise any
right, power or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon compliance by any other
party hereto with its obligations hereunder, and any custom or practice of the
parties at variance with the terms hereof, shall not constitute a waiver by such
party of its right to exercise any such or other right, power or remedy or to
demand such compliance.
Section 5.8. No Third Party Beneficiaries. Except as provided in
Article IV above, this Agreement is not intended to be for the benefit of and
shall not be enforceable by any Person who or which is not a party hereto.
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Section 5.9. Consent to Jurisdiction. Each party to this Agreement, by
its execution hereof, (i) hereby irrevocably submits, and agrees to cause each
of its Affiliates to submit, to the jurisdiction of the federal courts located
either in the City of Richmond, Virginia, or in the City of New York, New York,
and in the event that such federal courts shall not have subject matter
jurisdiction over the relevant proceeding, then of the state courts located
either in the City of Richmond, Virginia, or in the City of New York, New York,
for the purpose of any Action arising out of or based upon this Agreement or
relating to the subject matter hereof or the transactions contemplated hereby,
(ii) hereby waives, and agrees to cause each of its Affiliates to waive, to the
extent not prohibited by applicable law, and agrees not to assert, and agrees
not to allow any of its Affiliates to assert, by way of motion, as a defense or
otherwise, in any such Action, any claim that it is not subject personally to
the jurisdiction of the above-named courts, that its property is exempt or
immune from attachment or execution, that any such proceeding brought in one of
the above-named courts is improper, or that this Agreement or the subject matter
hereof may not be enforced in or by such court and (iii) hereby agrees not to
commence or to permit any of its Affiliates to commence any Action arising out
of or based upon this Agreement or relating to the subject matter hereof other
than before one of the above-named courts nor to make any motion or take any
other action seeking or intending to cause the transfer or removal of any such
Action to any court other than one of the above-named courts whether on the
grounds of inconvenient forum or otherwise. Each party hereby consents to
service of process in any such proceeding in any manner permitted by Virginia or
New York law, as the case may be, and agrees that service of process by
registered or certified mail, return receipt requested, at its address specified
pursuant to Section 5.1 above is reasonably calculated to give actual notice.
Notwithstanding anything contained in this Section 5.9 to the contrary with
respect to the parties' forum selection, if an Action is filed against a party
to this Agreement, including its Affiliates, by a person who or which is not a
party to this Agreement, an Affiliate of a party to this Agreement, or an
assignee thereof (a "Third Party Action"), in a forum other than the federal
district court or a state court located in the City of Richmond, Virginia, or in
the City of New York, New York, and such Third Party Action is based upon,
arises from, or implicates rights, obligations or liabilities existing under
this Agreement or acts or omissions pursuant to this Agreement, then the party
to this Agreement, including its Affiliates, joined as a defendant in such Third
Party Action shall have the right to file cross-claims or third-party claims in
the Third Party Action against the other party to this Agreement, including its
Affiliates, and even if not a defendant therein, to intervene in such Third
Party Action with or without also filing cross-claims or third-party claims
against the other party to this Agreement, including its Affiliates.
Section 5.10. Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic substantive law of the Commonwealth of
Virginia, without giving effect to any choice or conflict of law provision or
rule that would cause the application of the law of any other jurisdiction.
Section 5.11. Name, Captions. The name assigned to this Agreement and
the section captions used herein are for convenience of reference only and shall
not affect the interpretation or construction hereof.
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Section 5.12. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one instrument. Each counterpart may consist
of a number of copies each signed by less than all, but together signed by all,
the parties hereto.
Section 5.13. Expenses. Each of the parties hereto shall bear their own
expenses incurred in connection with this Agreement and the transactions
contemplated hereby, except that in the event of a dispute concerning the terms
or enforcement of this Agreement, the prevailing party in any such dispute shall
be entitled to reimbursement of reasonable legal fees and disbursements from the
other party or parties to such dispute.
[SIGNATURES ON NEXT PAGE]
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IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have caused this Registration Rights Agreement to be executed, as of the
date first above written by their respective officers thereunto duly authorized.
LAWYERS TITLE CORPORATION
By: _________________________________
Name:
Title:
RELIANCE INSURANCE COMPANY
By: _________________________________
Name:
Title:
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Exhibit B
SUBORDINATED NOTE
Richmond, Virginia
[______ __, 199_]
FOR VALUE RECEIVED, the undersigned, LAWYERS TITLE CORPORATION, a
Virginia corporation located at 6630 W. Broad Street, Richmond, Virginia 23230
(the "Maker"), promises to pay to the order of RELIANCE INSURANCE COMPANY (the
"Holder"), at its address at [_____________________________], or at such other
place as the Holder may designate in writing, the sum of [amount equal to the
greater of (i) twenty-three million seven hundred fifty thousand dollars
($23,750,000) or (ii) the product of one million three hundred fifteen thousand
seven hundred eighty-nine (1,315,789) times the average closing price on the New
York Stock Exchange for a share of the Buyer Common Stock for the ten (10)
trading days prior to the Closing Date multiplied by .95]. Such sum shall be
payable in lawful money of the United States of America on the terms and
conditions set forth below in this subordinated note (the "Note").
Payments. Interest on the unpaid principal balance hereunder shall
accrue at the rate of seven and one-half percent (7.5%) per annum, compounded
quarterly, beginning on the date hereof and continuing until the principal
balance is paid on the basis of a year consisting of 365 days. Maker shall pay
to Holder accrued interest on the outstanding principal balance hereunder in
consecutive quarterly installments with the first payment due on the last
business day of the next calendar quarter end of the date hereof, and continuing
on the last business day of each calendar quarter thereafter until all amounts
of principal and interest outstanding hereunder have been paid in full. The
entire principal amount due and payable hereunder, plus all amounts of accrued
and unpaid interest, shall be paid in full on the earlier of (i) the sale of at
least one million three hundred fifteen thousand seven hundred eighty-nine
(1,315,789) shares of the Buyer Common Stock, on a public or private basis; or
(ii) [the first annual anniversary of the Closing Date].
Related Agreement. This Note is the Subordinated Note referred to in
that certain Stock Purchase Agreement, between Holder, Maker, and others, dated
August 20, 1997, as the same may have been amended from time to time (the "Stock
Purchase Agreement").
Subordinated Note. All sums due hereunder are subordinate in priority
and right of payment to the prior payment in full of all sums owed by the Maker
under the [insert description of the acquisition bank facility].
Default and Acceleration. The occurrence of any one or more of the
following shall constitute an event of default under this Note (an "Event of
Default"):
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(1) Maker shall fail to pay any interest required to be
paid under this Note within twenty-four (24) hours following the date on which
Holder gives notice to Maker of its failure to make such payment; or
(2) The occurrence of any event of default, which is not
cured within applicable cure periods, under the [insert description of the
acquisition bank facility].
Upon the occurrence of any of the Events of Default set forth above,
Holder, at its option, may: (i) declare this Note to be immediately due and
payable or (ii) give Maker an additional opportunity to cure the default. If
Holder elects to declare this Note due and payable, after the giving of any
applicable notice required hereunder, all payments of unpaid principal and
accrued interest under this Note shall become immediately due and payable
without presentment, demand, protest, or other notice of any kind, all of which
are waived by Maker herein. Thereupon, Holder shall have the right, immediately
and without notice to any party or further action by it, to set-off against this
Note all obligations for money or money's worth owed by Holder in any capacity
to Maker, whether or not due, and to exercise all rights and remedies granted
under this Note, the Stock Purchase Agreement or applicable law.
Maker agrees to waive and renounce any and all homestead and other
exemption rights and the benefit of all valuation and appraisement privileges as
against the indebtedness evidenced by this Note or any renewal or extension
hereof, and further waive demand, protest, notice of nonpayment and all lack of
diligence or delays in collection or enforcement hereof, and expressly consent
to any extension of time and release of any party liable for this obligation.
Late Charges. In the event Maker fails to fully pay any installment of
interest or otherwise fails to make any payment due under this Note within five
(5) days of its due date, Maker agrees to pay Holder a late charge of five
percent (5%) of such payment. Such late charge is to be immediately due and
payable without demand by Holder.
No Waiver. Failure of Holder to exercise any remedy granted to it
hereunder or under any documents or agreements relating to or otherwise securing
this Note, in any one or more instances, or the acceptance by Holder of partial
payments or partial performance, shall not constitute a waiver of any default
and all remedies hereunder shall remain continuously in force.
Right of Anticipation. Maker may prepay this Note at any time without
penalty.
Severability. Should any provision hereof be declared void or
unenforceable by a court of competent jurisdiction, such provision shall be
severable from the remainder of the terms herein, and all such lawful provisions
shall remain in full force and effect.
Modification. This Note may be changed, altered, modified or terminated
only by an agreement or discharge in writing to and signed by the party who is
the owner and Holder of the Note at the time enforcement of any change,
alteration, modification, or discharge is sought.
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Successors and Assigns. The terms, conditions and covenants contained
herein shall bind and inure to the benefit of the parties hereto, and their
respective legal representatives, successors and assigns.
Notice. Any notice provided hereunder shall be by written notice sent
by United States certified mail, return receipt requested, and shall be
considered given when deposited, postage prepaid, and mailed to Maker or Holder
at the addresses first above written or such other address as Maker or Holder
may designate in writing.
Consent to Jurisdiction. The Maker and the Holder (i) hereby
irrevocably submit to the jurisdiction of the federal courts located either in
the City of Richmond, Virginia, or in the City of New York, New York, and in the
event that such federal courts shall not have subject matter jurisdiction over
the relevant proceeding, then of the state courts located either in the City of
Richmond, Virginia or in the City of New York, New York, for the purpose of any
Action arising out of or based upon this Note, (ii) hereby waives, to the extent
not prohibited by applicable law, and agrees not to assert, by way of motion, as
a defense or otherwise, in any such Action, any claim that it is not subject
personally to the jurisdiction of the above-named courts, that its property is
exempt or immune from attachment or execution, that any such proceeding brought
in one of the above-named courts is improper, or that this Note may not be
enforced in or by such court and (iii) hereby agrees not to commence any Action
arising out of or based upon this Note other than before one of the above-named
courts nor to make any motion or take any other action seeking or intending to
cause the transfer or removal of any such Action to any court other than one of
the above-named courts whether on the grounds of inconvenient forum or
otherwise. Each party hereby consents to service of process in any such
proceeding in any manner permitted by Virginia or New York law, as the case may
be, and agrees that service of process by registered or certified mail, return
receipt requested, at its address specified pursuant to Section 12.8 of the
Agreement is reasonably calculated to give actual notice.
Governing Law. This Note is made under and shall be construed in
accordance with the laws of the Commonwealth of Virginia without regard to its
conflicts of law or choice of law principles if those principles would result in
the application of the law of a state other than Virginia.
Terms. Every capitalized term used herein, but not otherwise defined
herein, shall have the meaning ascribed to such term in the Stock Purchase
Agreement.
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IN WITNESS WHEREOF, Maker has caused this Note to be duly executed as
of this [___ day of __________, 1997].
MAKER:
LAWYERS TITLE CORPORATION
By: ______________________________
Title:______________________________
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Exhibit C
VOTING AND STANDSTILL AGREEMENT
THIS VOTING AND STANDSTILL AGREEMENT (the "Agreement"), dated as of
__________ __, 1997, is made between LAWYERS TITLE CORPORATION, a Virginia
corporation ("Lawyers Title"), RELIANCE INSURANCE COMPANY, a Pennsylvania
corporation ("RIC"), and RELIANCE GROUP HOLDINGS, INC., a Delaware corporation
("Reliance").
W I T N E S S E T H:
WHEREAS, Lawyers Title, Lawyers Title Insurance Corporation, a Virginia
corporation, RIC and Reliance have entered into a Stock Purchase Agreement dated
August 20, 1997 (the "Stock Purchase Agreement"), under which Lawyers Title will
acquire from RIC all of the issued and outstanding shares of the capital stock
of Commonwealth Land Title Insurance Company, a Pennsylvania corporation
("Commonwealth"), and of Transnation Title Insurance Company, an Arizona
corporation;
WHEREAS, pursuant to the Stock Purchase Agreement, RIC will acquire (i)
4,473,684 shares of Lawyers Title's Common Stock, without par value, and (ii)
2,200,000 shares of Lawyers Title's 7% Series B Cumulative Convertible Preferred
Stock, without par value, which shares of Series B Preferred Stock are initially
convertible into 4,824,561 shares of Common Stock pursuant to the terms of the
Series B Preferred Stock, and, as a result, will beneficially own on the Closing
Date not more than 49.5% of the issued and outstanding shares of Lawyers Title's
Common Stock on a fully diluted basis; and
WHEREAS, Lawyers Title, RIC and Reliance desire to establish in this
Agreement certain conditions of RIC's and Reliance's relationship with Lawyers
Title.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and in the Stock Purchase Agreement, Lawyers Title, RIC and
Reliance hereby agree as follows:
ARTICLE I
Definitions; Representations and Warranties
Section 1.1. Definitions. Except as otherwise specified herein,
capitalized terms used in this Agreement shall have the respective meanings
assigned to such terms in the Stock Purchase Agreement. For purposes of this
Agreement, the following terms have the following meanings:
(a) "Adjusted Outstanding Shares" shall mean, at any time and with
respect to the determination of (i) the RIC Ownership Percentage as it relates
to RIC and its Affiliates, (ii) the Standstill Percentage as it relates to RIC
and its Affiliates, and (iii) any other percentage of the
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beneficial ownership of Common Stock as it relates to a Person or Group, the
total number of shares of Common Stock then issued and outstanding together with
the total number of shares of Common Stock not then issued and outstanding that
would be outstanding if (x) all then existing shares of Series B Preferred Stock
had been converted and (y) all then existing warrants and options exercisable
into shares of Common Stock had been exercised (other than underwriters'
overallotment options and stock options granted under benefit plans of Lawyers
Title or any of its Affiliates), but excluding any rights that may be
exercisable under the Rights Agreement; provided that, if Lawyers Title issues
the Subordinated Note to RIC on the Closing Date, the Adjusted Outstanding
Shares also shall be deemed to include the total number of shares of Common
Stock subject to deferred issuance and delivery pursuant to Section 2.2.1(c) of
the Stock Purchase Agreement.
(b) "Affiliate" shall have the meaning ascribed to such term in
Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as in effect on the date of this Agreement, and shall include, with
respect to a determination of the Affiliates of RIC, any Affiliate of Reliance.
(c) "Beneficial ownership," "beneficial owner" and "beneficially
own" shall have the meanings ascribed to such terms in Rule 13d-3 under the
Exchange Act as in effect on the date of this Agreement; provided that RIC and
each of its Affiliates and any Person or Group shall be deemed to be the
beneficial owners of any shares of Common Stock that RIC or such Affiliate,
Person and/or Group, as the case may be, has the right to acquire within one
year pursuant to Section 2.2.1(c) of the Stock Purchase Agreement or pursuant to
any other agreement, arrangement or understanding or upon the exercise of
conversion or exchange rights, warrants, options or otherwise, including but not
limited to any right to acquire shares of Common Stock through the conversion of
the Series B Preferred Stock.
(d) "Common Stock" shall mean the Common Stock, without par value,
of Lawyers Title.
(e) "Continuing Directors" shall mean the members of the Board of
Directors of Lawyers Title immediately prior to the Closing Date and any future
members of the Board of Directors nominated by the Board of Directors; provided,
however, that no RIC Director shall constitute a Continuing Director or be
counted in determining the presence of a quorum of Continuing Directors.
(f) "Control" shall mean, with respect to a Person or a Group, (i)
beneficial ownership by such Person or Group of securities that entitle it to
exercise in the aggregate more than fifty percent (50%) of the votes in any
election of directors or other governing body of the entity in question; or (ii)
possession by such Person or Group of the power, directly or indirectly, (x) to
elect a majority of the board of directors (or equivalent governing body) of the
entity in question or (y) in case of a non-corporate entity, to manage or govern
the business, operations or investments of any such non-corporate entity.
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(g) "Group" shall have the meaning comprehended by Section 13(d)(3)
of the Exchange Act as in effect on the date of this Agreement.
(h) "Person" shall have the meaning set forth in Section 3(a)(9) of
the Exchange Act as in effect on the date of this Agreement.
(i) "Registration Rights Agreement" shall mean the Registration
Rights Agreement, dated __________ __, 1997, executed by Lawyers Title and RIC
in connection with the Stock Purchase Agreement.
(j) "RIC Director" shall mean a member of the Board of Directors
of Lawyers Title who was designated by RIC for nomination pursuant to this
Agreement, but shall not include Herbert Wender, the Chief Executive Officer of
Commonwealth.
(k) "RIC Ownership Percentage" shall mean, at any time, the
percentage of the Adjusted Outstanding Shares that is beneficially owned in the
aggregate by RIC and its Affiliates.
(l) "RIC Shares" shall mean collectively (i) the 4,473,684 shares
of Common Stock, (ii) the 2,200,000 shares of Series B Preferred Stock, and
(iii) the shares of Common Stock into which the 2,200,000 shares of Series B
Preferred Stock are convertible pursuant to the terms of the Series B Preferred
Stock designation, that RIC will acquire from Lawyers Title pursuant to the
Stock Purchase Agreement, and such additional shares of Common Stock that
Lawyers Title may issue with respect to such shares pursuant to any stock
splits, stock dividends, recapitalizations, restructurings, reclassifications or
similar transactions.
(m) "Rights Agreement" shall mean the Amended and Restated Rights
Agreement, dated as of August 20, 1997, between Lawyers Title and Wachovia Bank,
N.A., as such may be amended from time to time, or any successor shareholder
rights plan or agreement.
(n) "Series B Preferred Stock" shall mean the 7% Series B
Cumulative Convertible Preferred Stock, without par value, of Lawyers Title.
(o) "Standstill Percentage" shall mean, at any time, not more than
49.5% of the Adjusted Outstanding Shares; provided that, in the event that the
RIC Ownership Percentage is less than 49.5%, then the Standstill Percentage
shall be automatically reduced to the RIC Ownership Percentage; provided further
that, following any such reduction in the Standstill Percentage, the Standstill
Percentage shall not thereafter be subject to any increase.
(p) "Transfer" shall mean sell, transfer, assign, pledge,
hypothecate, give away or in any manner dispose of any Common Stock or Series B
Preferred Stock.
Section 1.2. Representations and Warranties of RIC. RIC represents and
warrants to Lawyers Title as follows:
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(a) RIC is a corporation duly organized, validly existing and in
good standing under the laws of the Commonwealth of Pennsylvania.
(b) Except for the RIC Shares, neither RIC nor any of its
Affiliates beneficially owns any Common Stock or any options, warrants or rights
of any nature (including conversion and exchange rights) to acquire beneficial
ownership of any Common Stock.
(c) RIC has full legal right, power and authority to enter into and
perform this Agreement, and the execution and delivery of this Agreement by RIC
have been duly authorized by all necessary corporate action on behalf of RIC.
This Agreement is Enforceable against RIC.
(d) The execution, delivery and performance of this Agreement by
RIC does not and will not conflict with or constitute a violation of or default
under the Charter or Bylaws (or comparable documents) of RIC, or any statute,
law, regulation, order or decree applicable to RIC, or any contract, commitment,
agreement, arrangement or restriction of any kind to which RIC is a party or by
which RIC is bound, other than such violations as would not prevent or
materially delay the performance by RIC of its obligations hereunder or
otherwise subject Lawyers Title to any claim or liability.
Section 1.3. Representations and Warranties of Reliance. Reliance
represents and warrants to Lawyers Title as follows:
(a) Reliance is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware.
(b) Reliance has full legal right, power and authority to enter
into and perform this Agreement, and the execution and delivery of this
Agreement by Reliance have been duly authorized by all necessary corporate
action on behalf of Reliance. This Agreement is Enforceable against Reliance.
(c) The execution, delivery and performance of this Agreement by
Reliance does not and will not conflict with or constitute a violation of or
default under the Charter or Bylaws (or comparable documents) of Reliance, or
any statute, law, regulation, order or decree applicable to Reliance, or any
contract, commitment, agreement, arrangement or restriction of any kind to which
Reliance is a party or by which Reliance is bound, other than such violations as
would not prevent or materially delay the performance by Reliance of its
obligations hereunder or otherwise subject Lawyers Title to any claim or
liability.
Section 1.4. Representations and Warranties of Lawyers Title. Lawyers
Title hereby represents and warrants to RIC and Reliance as follows:
(a) Lawyers Title is a corporation duly organized, validly existing
and in good standing under the laws of the Commonwealth of Virginia.
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(b) Lawyers Title has full legal right, power and authority to
enter into and perform this Agreement, and the execution and delivery of this
Agreement by Lawyers Title have been duly authorized by all necessary corporate
action on behalf of Lawyers Title. This Agreement is Enforceable against Lawyers
Title.
(c) The execution, delivery and performance of this Agreement by
Lawyers Title does not and will not conflict with or constitute a violation of
or default under the Charter or Bylaws of Lawyers Title, or any statute, law,
regulation, order or decree applicable to Lawyers Title, or any contract,
commitment, agreement, arrangement or restriction of any kind to which Lawyers
Title is a party or by which Lawyers Title is bound, other than such violations
as would not prevent or materially delay the performance by Lawyers Title of its
obligations hereunder or otherwise subject RIC to any claim or liability.
(d) Lawyers Title has taken all actions necessary or appropriate so
that (i) the acquisition by RIC or any Affiliate of RIC of any RIC Shares and
(ii) the Transfer of any RIC Shares permitted by this Agreement will not cause
to be applicable to RIC or any Affiliate of RIC either (x) the Rights Agreement
or (y) any applicable "fair price," "moratorium," "control share acquisition" or
"affiliated transaction" statute, law, rule or regulation in effect on the date
hereof.
ARTICLE II
Board Representation
Section 2.1. Initial Board Representation. On the Closing Date, Lawyers
Title will (a) take such action as may be necessary to increase the size of the
Board of Directors (the "Board of Directors") to fourteen (14), (b) upon receipt
from each RIC Director of an executed letter agreement regarding resignation in
the form attached to this Agreement as Exhibit A, fill three (3) of the
vacancies created thereby with RIC Directors in accordance with the applicable
provisions of the Charter and Bylaws of Lawyers Title, and (c) fill the fourth
vacancy created thereby with Herbert Wender, the Chief Executive Officer of
Commonwealth, in accordance with the applicable provisions of Lawyers Title's
Charter and Bylaws. Of the three (3) initial RIC Directors appointed to the
Board of Directors, Lawyers Title will (i) appoint one to Class I (current term
expiring in 1998), one to Class II (current term expiring in 1999) and one to
Class III (current term expiring in 2000) and (ii) subject to the right of RIC
to designate new RIC Directors as substitutes for the initial RIC Directors,
recommend for election at the next annual meeting of Lawyers Title's
shareholders following such appointments the initial Class I RIC Director for a
three (3) year term expiring in 2001 and each initial RIC Director in Class II
and Class III for the remainder of the term of his respective Class; provided
that, if any such RIC Director is not elected by the shareholders of Lawyers
Title, Lawyers Title shall have no further obligations under this Section 2.1
for the applicable year; and provided further that Lawyers Title shall be under
no obligation to appoint or recommend for election any RIC Director to the Board
of Directors unless and until it has received from such RIC Director an executed
letter agreement regarding resignation in the form attached to this Agreement as
Exhibit A. Herbert Wender, the Chief Executive Officer of Commonwealth, shall be
appointed, and recommended for election at the next annual meeting of Lawyers
Title's shareholders following such appointment, to Class III.
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Any person designated by RIC to be a RIC Director who is not an executive
officer of either RIC or an Affiliate of RIC shall be acceptable to the
Continuing Directors, and, if found unacceptable by the Continuing Directors for
any reason whatsoever, (i) Lawyers Title shall not be obligated to appoint or
recommend for election any such person to the Board of Directors and (ii) RIC
shall be entitled to designate a replacement that is acceptable to the
Continuing Directors.
Section 2.2. Continuing Board Representation.
(a) Until the earlier to occur of (i) the date that the RIC
Ownership Percentage is less than twenty percent (20%) or (ii) the expiration of
the Preferred Shares Sales Period (as defined in Section 4.1 below), Lawyers
Title agrees that, except as otherwise agreed to by a majority of the RIC
Directors, Lawyers Title will not take or recommend to its shareholders any
action that would cause the Board of Directors to consist of any number of
directors other than fourteen (14) directors divided into two (2) classes of
five (5) directors each and one class of four (4) directors. At the time that
the RIC Ownership Percentage is reduced to less than twenty percent (20%),
Lawyers Title may take such action as may be necessary to reduce the Board of
Directors to twelve (12) directors, and at the time that the RIC Ownership
Percentage is reduced to less than fifteen percent (15%), Lawyers Title may take
such action as may be necessary to reduce the Board of Directors to eleven (11)
directors. Until the earlier to occur of (i) the date on which there are no RIC
Directors serving on the Board of Directors pursuant to this Agreement or (ii)
the expiration of the Preferred Shares Sales Period (as defined in Section 4.1
below), Lawyers Title agrees that it will not take or recommend to its
shareholders any action that would result in any amendment to Lawyers Title's
Bylaws in effect on the date hereof that would impose any qualifications on the
eligibility of directors of Lawyers Title to serve on any committee of the Board
of Directors, except as may be required by the then-current rules and
regulations of the New York Stock Exchange (the "NYSE Rules"), the rules and
regulations under the Internal Revenue Code of 1986, as amended, relating to the
qualification of employee stock benefit plans and the deductibility of
compensation paid to executive officers, the rules and regulations under Section
16(b) of the Exchange Act, including Rule 16b-3 thereunder or any successor
rule, and Lawyers Title's Bylaws; and
(b) Subject to the provisions of Sections 2.2(a) and 2.6 hereof
regarding reductions in the size of the Board of Directors and required
resignations of RIC Directors, Lawyers Title will recommend for election, in the
applicable year in which the respective Class term expires, one RIC Director in
Class I, one RIC Director in Class II and one RIC Director in Class III, in each
case as designated by RIC; provided that, if any such RIC Director is not
elected by the shareholders of Lawyers Title, Lawyers Title shall have no
further obligations under this Section 2.2(b) for the applicable year; and
provided further that Lawyers Title shall be under no obligation to recommend
any RIC Director for election to the Board of Directors unless and until it has
received from such RIC Director an executed letter agreement regarding
resignation in the form attached to this Agreement as Exhibit A. Any person
designated by RIC to be a RIC Director who is not an executive officer of either
RIC or an Affiliate of RIC shall be acceptable to the Continuing Directors, and,
if found unacceptable by the Continuing Directors for any reason whatsoever, (i)
Lawyers Title shall not be obligated to recommend any such person for election
to
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the Board of Directors and (ii) RIC shall be entitled to designate a replacement
that is acceptable to the Continuing Directors.
Section 2.3. Committee Representation. Until the earlier to occur of
(i) the date that the RIC Ownership Percentage is less than twenty percent (20%)
or (ii) the expiration of the Preferred Shares Sales Period (as defined in
Section 4.1 below), to the extent that, and for so long as, but only insofar as
required by applicable law or NYSE rules, any of the RIC Directors is qualified
under the then-current NYSE rules, the rules and regulations under the Internal
Revenue Code of 1986, as amended, relating to the qualification of employee
stock benefit plans and the deductibility of compensation paid to executive
officers, the rules and regulations under Section 16(b) of the Exchange Act,
including Rule 16b-3 thereunder or any successor rule, the Board of Directors
shall designate one of the RIC Directors to serve on each of the committees of
the Board of Directors (whether existing on the date hereof or formed or
constituted after the date hereof) to the same extent, and on the same basis, as
the other members of the Board of Directors; provided that, if the number of RIC
Directors shall be reduced to one director pursuant to Section 2.6 hereof, then
such remaining RIC Director shall be entitled to maintain his or her membership
on any committee on which such RIC Director then may be serving until the
earliest to occur of (i) the expiration of such RIC Director's term as a
director of Lawyers Title, (ii) the date that the RIC Ownership Percentage is
less than fifteen percent (15%), or (iii) the expiration of the Preferred Shares
Sales Period (as defined in Section 4.1 below).
Section 2.4. Relationship with RIC Directors. With respect to any RIC
Director serving on the Board of Directors and any committee thereof pursuant to
the provisions of this Article II, Lawyers Title shall at all times, with
respect to matters affecting the full Board of Directors or a specific
committee, as the case may be:
(a) Consult with the RIC Director on all business and financial
matters on which Continuing Directors are consulted;
(b) Provide the RIC Director with the same financial and other
information concerning Lawyers Title and its Subsidiaries as may be provided to
the Continuing Directors, at the same time as so provided;
(c) Give the RIC Director the same notice of meetings as the
Continuing Directors are given and reasonable time to attend in person or
participate by telephone; and
(d) Permit the RIC Director access at all reasonable times to
senior officers of Lawyers Title.
(e) Hold meetings of the Board of Directors not less than four
times per year;
(f) Schedule regular meetings of the Board of Directors at least
six months in advance; and
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(g) In all other respects, deal with each RIC Director in the
same manner and on the same terms as it deals with all other directors,
including, without limitation, the Continuing Directors.
Section 2.5. Resignations at the Request of RIC; Vacancies. RIC shall
have the right to request the resignation from the Board of Directors of any RIC
Director pursuant to the terms of Exhibit A. In the event that any RIC Director
for any reason ceases to serve as a member of the Board of Directors during his
or her term of office and at such time RIC would have the right to a designation
hereunder if an election for the resulting vacancy were to be held, RIC may
designate a person to fill such vacancy (a "RIC Director Vacancy"); provided
that, if the person so designated is not an executive officer of either RIC or
an Affiliate of RIC, such person shall be acceptable to the Continuing
Directors. Subject to the foregoing and Section 2.2(b) hereof, Lawyers Title
agrees to (i) appoint RIC's designee to the Board of Directors to fill the RIC
Director Vacancy and to serve until the next annual meeting of Lawyers Title's
shareholders and (ii) recommend RIC's designee for election to the Board of
Directors at the next annual meeting of Lawyers Title's shareholders to fill the
remaining term of the class of directors to which such designee was appointed;
provided that Lawyers Title shall be under no obligation to appoint or recommend
for election any such designee to fill a RIC Director Vacancy unless and until
it has received from such designee an executed letter agreement regarding
resignation in the form attached to this Agreement as Exhibit A.
Section 2.6. Required Resignations. On the date when the RIC Ownership
Percentage is less than twenty percent (20%) but more than fifteen percent (15%)
(the "Board Adjustment Date"), RIC shall, within five (5) Business Days, cause
two (2) of the three (3) RIC Directors to resign from the Board of Directors.
The parties agree that the two (2) RIC Directors that will be subject to
resignation pursuant to the preceding sentence shall be those RIC Directors who
have the shortest terms of office then remaining, viz., those RIC Directors who
are members of classes that will stand for election at one of the next two
annual meetings of Lawyers Title's shareholders to be held following the Board
Adjustment Date. From and after the Board Adjustment Date, the remaining RIC
Director may complete any unexpired term as a director of Lawyers Title;
provided that, upon the earlier to occur of (i) the date that the RIC Ownership
Percentage is less than fifteen percent (15%) or (ii) the expiration of the
Preferred Shares Sales Period (as defined in Section 4.1), RIC shall, within
five (5) Business Days, cause the remaining RIC Director to resign from the
Board of Directors. In the event that the RIC Ownership Percentage is reduced
from over twenty percent (20%) to less than fifteen percent (15%) such that
there is no Board Adjustment Date, RIC shall, within five (5) Business Days,
cause all three (3) of the RIC Directors to resign from the Board of Directors.
In the event of any decrease in the RIC Ownership Percentage to below such
twenty percent (20%) and fifteen percent (15%) thresholds, any subsequent
increase in the RIC Ownership Percentage to or above such twenty percent (20%)
and fifteen percent (15%) thresholds (i) shall not entitle RIC to reinstate,
elect or designate any RIC Directors to the Board of Directors or any committee
thereof, and (ii) with respect to any increase to or above such twenty percent
(20%) threshold, shall constitute a breach of this Agreement. If RIC does not
cause the resignation of the applicable number of RIC Directors within such five
(5) Business Day period, Lawyers Title may seek such resignation or, in the
alternative, the Continuing Directors may seek the removal of the RIC Directors
that are
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subject to such resignation. Upon any shareholder vote relating to the removal
of a RIC Director for failure to resign pursuant to this Section 2.6, RIC and
its Affiliates shall (i) attend any meeting either in person or by proxy and
(ii) vote in favor of such removal. At such time as a RIC Director becomes
subject to resignation pursuant to this Section 2.6, Lawyers Title may amend its
Bylaws or take such other action as it deems appropriate to reduce the number of
directors constituting the Board of Directors proportionately or fill the
vacancy caused by such resignation(s) with its own nominee in accordance with
the applicable provisions of the Charter and Bylaws of Lawyers Title.
Section 2.7. Charter and Bylaws. The obligations of Lawyers Title set
forth in this Article II shall be subject to compliance with the applicable
provisions of the Charter and Bylaws of Lawyers Title, which in no respect
prevent Lawyers Title from fulfilling its obligations under this Agreement.
Lawyers Title will make no modifications or amendments to its Charter or Bylaws
that would in any way hinder, impede or otherwise limit RIC's rights under this
Article II.
Section 2.8. No Voting Trust. This Agreement does not create or
constitute, and shall not be construed as creating or constituting, a voting
trust agreement under the Virginia Stock Corporation Act or any other applicable
corporation law.
Section 2.9. Notification of Designation. RIC shall notify Lawyers
Title in writing not later than March 15th of each year of its designation of
RIC Directors to be nominated for election at the next annual meeting of Lawyers
Title's shareholders; provided that, if RIC should fail to so notify Lawyers
Title of its RIC Director designee(s) by such date, RIC shall be deemed to have
designated the RIC Director whose term expires at the next annual meeting of
shareholders. RIC shall cause each RIC Director and each RIC Director designee
to provide promptly information that may be required under the Exchange Act for
inclusion in Lawyers Title's proxy statement for such annual meeting and shall
cooperate with Lawyers Title in verifying any such information, including but
not limited to the prompt completion of any director questionnaires applicable
to the directors generally. The rights of RIC and the RIC Directors and the
obligations of Lawyers Title set forth in this Article II with respect to the
appointment or nomination of RIC Directors shall not be subject to compliance
with the notification requirements of Section 2.7 of Lawyers Title's Bylaws. No
Affiliate of RIC shall have any right to designate RIC Directors under this
Article II.
Section 2.10. No Duty to Designate; Reduction of Board Representation.
Nothing contained in this Article II shall be construed as requiring RIC to
designate any RIC Directors or as requiring any RIC Director, once designated
and elected, to continue to serve in office if such RIC Director elects to
resign. Until the earlier to occur of (i) the date on which there are no RIC
Directors serving on the Board of Directors pursuant to this Agreement or (ii)
the expiration of the Preferred Shares Sales Period (as defined in Section 4.1
below), in the event of any vacancy created by the death, resignation or removal
of a RIC Director or the failure of RIC to designate a RIC Director, other than
a vacancy created by the resignation or removal of a RIC Director pursuant to
Section 2.6 above, upon the written request of RIC, Lawyers Title shall take
such action as may be necessary to reduce the size of the Board of Directors to
a number equal to (x) fourteen (14) (or such lesser number as exists following
one or more previous reductions of the
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size of the Board pursuant to Sections 2.2(a), 2.6 or this Section 2.10) minus
(y) the number of such vacancies, and thereafter, notwithstanding any other
provisions of this Article II, RIC shall have no right to designate any
individual to be a RIC Director to the extent of such reduction.
Section 2.11. Limitation on Nominations by Lawyers Title. Lawyers Title
agrees that, during the term of this Agreement, it will not, without the written
consent of RIC, appoint or recommend for election to the Board of Directors (i)
any current or former "executive officer" (as defined in Rule 3b-7 under the
Exchange Act as in effect on the date of this Agreement) of Lawyers Title or
(ii) any other person with a relationship of the kind described in Item 404(b)
of Regulation S-K as in effect on the date of this Agreement, if the election of
such director following such appointment or recommendation would cause the total
number of directors meeting the description set forth in (i) and (ii) above to
increase above the aggregate number of such directors on the date hereof (after
adjustment for Herbert Wender, the Chief Executive Officer of Commonwealth);
provided, however, that no RIC Director shall be included in determining whether
Lawyers Title has met the foregoing requirement.
ARTICLE III
Standstill Restrictions; Voting Matters
Section 3.1. Standstill Restrictions.
(a) During the term of this Agreement, Reliance and RIC covenant
and agree that Reliance and RIC shall not, and shall not permit any of their
Affiliates to, either individually or as part of a Group, directly or
indirectly:
(i) exceed the Standstill Percentage (other than as a
result of any stock purchases or repurchases by Lawyers Title) or otherwise
acquire (other than acquisitions (x) pursuant to or contemplated by the Stock
Purchase Agreement, including without limitation the conversion of the Series B
Preferred Stock, or (y) resulting from corporate action taken by the Board of
Directors with respect to any pro rata distribution of shares of Common Stock in
connection with any stock split, stock dividend, recapitalization,
reclassification or similar transaction), propose to acquire (or publicly
announce or otherwise disclose an intention to propose to acquire), offer to
acquire, or agree to acquire any Common Stock or Series B Preferred Stock;
provided that this Section 3.1(a)(i) shall not apply to any acquisition (a) of
options, Common Stock, warrants, rights or other securities convertible or
exchangeable into Common Stock granted to any person, including without
limitation RIC Directors, pursuant to any benefit plan of Lawyers Title or any
of its Affiliates or the exercise of any such option, warrant or right or
conversion or exchange of any convertible or exchangeable security or (b) upon
the exercise by RIC or its Affiliates of rights pursuant to the Rights Agreement
but only to the extent that such acquisition does not cause an increase in the
RIC Ownership Percentage above that which existed immediately prior to the
rights becoming exercisable and provided that all of the shares of Common Stock
so acquired upon the exercise of the rights shall be subject to all of the terms
of this Agreement;
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(ii) propose (or publicly announce or otherwise disclose an
intention to propose), solicit, offer, seek to effect, negotiate with or provide
any confidential information relating to Lawyers Title or its business to any
other Person with respect to, any tender or exchange offer, merger,
consolidation, share exchange, business combination, restructuring,
recapitalization or similar transaction involving Lawyers Title (other than (x)
any of the foregoing that may be approved by the Board of Directors or (y) in
connection with any tender or exchange offer in which the Board of Directors has
(a) recommended that its shareholders accept such offer or (b) after ten (10)
business days (as defined in Rule 14d-1 under the Exchange Act as in effect on
the date of this Agreement) from the date of commencement of such offer,
expressed no opinion, remained neutral, was unable to take a position or
otherwise did not oppose or recommend that its shareholders reject such offer);
provided that nothing set forth in this Section 3.1(a)(ii) shall prohibit RIC or
its Affiliates from soliciting, offering, seeking to effect or negotiating with
any Person with respect to Transfers of Common Stock or Series B Preferred Stock
otherwise required or permitted by Article IV of this Agreement; provided
further that in so soliciting, offering, seeking to effect or negotiating,
neither RIC nor its Affiliates shall provide any confidential information
relating to Lawyers Title or its business to any Person except as required by
applicable law, including without limitation Section 10(b) of the Exchange Act
and Rule 10b-5 thereunder, but only to the extent that any required disclosure
of such confidential information has been preceded by notice to Lawyers Title of
the expected disclosure of such information and the execution of a
confidentiality agreement by RIC (or its Affiliates, as the case may be) and
such Person in the form attached hereto as Exhibit B (such confidentiality
agreement to be promptly forwarded to Lawyers Title for its execution, which
execution may be subsequent to the disclosure described in this proviso,
provided that the failure of Lawyers Title to so execute such confidentiality
agreement shall in no way be construed to be a failure on the part of RIC (or
its Affiliates, as the case may be) to fulfill its obligations under this
Section 3.1(a)(ii) or to limit or affect the validity of such confidentiality
agreement as between RIC (or its Affiliates, as the case may be) and such
Person);
(iii) make, or in any way participate in, any "solicitation"
of "proxies" to vote (as such terms are defined in Rule 14a-1 under the Exchange
Act), solicit any consent or communicate with or seek to advise or influence any
person or entity with respect to the voting of any Common Stock or become a
"participant" in any "election contest" (as such terms are defined or used in
Rule 14a-11 under the Exchange Act) with respect to Lawyers Title; provided that
nothing in this Section 3.1(a)(iii) shall apply to any deemed solicitation of
proxies by the RIC Directors that may result from such RIC Directors' position
or status as a director of Lawyers Title at the time of any general solicitation
of proxies by the management of Lawyers Title;
(iv) form, participate in or join any Person or Group with
respect to any Common Stock or Series B Preferred Stock, or otherwise act in
concert with any third Person for the purpose of (x) acquiring any Common Stock
or Series B Preferred Stock or (y) holding or disposing of Common Stock or
Series B Preferred Stock for any purpose prohibited by this Section 3.1(a);
(v) except as specifically provided in the Stock Purchase
Agreement or Section 3.2 below, deposit any Common Stock or Series B Preferred
Stock into a voting trust or subject
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any Common Stock or Series B Preferred Stock to any arrangement or agreement
with respect to the voting thereof;
(vi) initiate, propose or otherwise solicit shareholders for
the approval of any shareholder proposal with respect to Lawyers Title as
described in Rule 14a-8 under the Exchange Act, or induce or attempt to induce
any other Person to initiate, propose or otherwise solicit any such shareholder
proposal;
(vii) except as specifically provided in Article II of this
Agreement and in the Series B Preferred Stock designation, seek election to or
seek to place a representative on the Board of Directors, or seek the removal of
any member of the Board of Directors (other than a RIC Director);
(viii) except as specifically provided in the Series B
Preferred Stock designation, call or seek to have called any meeting of the
shareholders of Lawyers Title for any purpose;
(ix) except through the RIC Directors, and except as
specifically provided in the Series B Preferred Stock designation, take any
other action to seek to control, disrupt or influence the management or policies
of Lawyers Title;
(x) except as specifically provided in the Series B
Preferred Stock designation, demand, request or propose to amend, waive or
terminate the provisions of this Section 3.1(a); or
(xi) agree to do any of the foregoing, or advise, assist,
encourage or persuade any third party to take any action with respect to any of
the foregoing.
(b) Reliance and RIC agree that they will notify Lawyers Title
promptly if any inquiries or proposals are received by, any information is
exchanged with respect to, or any negotiations or discussions are initiated or
continued by or with, Reliance, RIC or any of their Affiliates regarding any
matter described in Section 3.1(a) above (excluding the first proviso of Section
3.1(a)(ii) above). RIC and Lawyers Title shall mutually agree upon an
appropriate response to be made to any such proposals received by Reliance, RIC
or any of their Affiliates.
(c) Nothing contained in this Article III shall be deemed to
restrict the manner in which the RIC Directors may participate in deliberations
or discussions of the Board of Directors or individual consultations with the
Chairman of the Board or any other members of the Board of Directors, so long as
such actions do not otherwise violate any provision of Section 3.1(a) above.
Section 3.2. Voting Matters.
(a) During the term of this Agreement, Reliance and RIC will take
all such action as may be required so that the Common Stock beneficially owned
and entitled to be voted by Reliance, RIC and their Affiliates, as a Group, are
voted or caused to be voted (in person or by proxy):
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(i) with respect to the Continuing Director's nominees to
the Board of Directors, in accordance with the recommendation of the Board of
Directors, or a nominating or similar committee of the Board of Directors, if
any such committee exists and makes a recommendation;
(ii) with respect to any "election contest" (as such term
is defined or used in Rule 14a-11 under the Exchange Act as in effect on the
date of this Agreement) initiated by any Person in connection with any tender
offer, in the same proportion as the total votes cast by or on behalf of all
shareholders of Lawyers Title (other than Reliance, RIC and their Affiliates)
with respect to such proxy contest;
(iii) with respect to any matters related to share issuance,
mergers, acquisitions and divestitures for which shareholder approval is sought,
in accordance with the independent judgment of Reliance, RIC and their
Affiliates, without regard to any request or recommendation of the Board of
Directors; provided that, if any such transaction is submitted for shareholder
approval by Lawyers Title in order to permit Lawyers Title to exercise its call
rights under Sections 4.1(a) and 4.1(c) hereof or its redemption rights under
the Series B Preferred Stock designation, then the Common Stock beneficially
owned and entitled to be voted by Reliance, RIC and their Affiliates, as a
Group, shall be voted in accordance with the recommendation of the Board of
Directors; and
(iv) with respect to all matters (other than the election
of RIC Directors) brought before Lawyers Title's shareholders for a vote not
otherwise provided for in this Section 3.2(a) or Section 2.6 above, in
accordance with the recommendation of the Board of Directors.
(b) RIC and its Affiliates who beneficially own any of the RIC
Shares shall be present, in person or by proxy, at all duly held meetings of
shareholders of Lawyers Title so that the Common Stock held by RIC and its
Affiliates may be counted for the purposes of determining the presence of a
quorum at such meetings.
ARTICLE IV
Transfers of RIC Shares
Section 4.1. Required Sales of RIC Shares.
(a) Subject to compliance by Lawyers Title with Section 4.1(e)
below, by the date that is six (6) years and six (6) months after the effective
date of the registration statement for the RIC Common Shares (as defined below)
as provided for in the Registration Rights Agreement (the "Common Shares Exit
Date"), RIC agrees that it will sell, convey or otherwise transfer all of the
4,473,684 shares of Common Stock received by RIC from Lawyers Title pursuant to
the Stock Purchase Agreement and such additional shares of Common Stock that
Lawyers Title may issue with respect to such shares pursuant to any stock
splits, stock dividends, recapitalizations, restructurings, reclassifications or
similar transactions or pursuant to the exercise of any rights under the Rights
Agreement (the "RIC Common Shares") entirely to Persons that are not, at the
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time of the sale, conveyance or transfer, an Affiliate of RIC. Such sales,
conveyances or transfers of the RIC Common Shares may occur at any time and from
time to time during the period between the Closing Date and the Common Shares
Exit Date (such period being hereafter referred to as the "Common Shares Sales
Period"); provided that, for each Holdback Period and each Discontinuance Period
(as those terms are defined in the Registration Rights Agreement) required by
Lawyers Title under the Registration Rights Agreement, the Common Shares Sales
Period shall be extended by the number of days during which the relevant
Holdback Period or Discontinuance Period was in effect. In the event that RIC
has not disposed of all of the RIC Common Shares by the end of the Common Shares
Sales Period, Lawyers Title thereafter shall have the absolute right (which
shall not be abridged) from time to time on thirty (30) days' written notice to
make one or more calls to purchase for cash all or a portion of the remaining
RIC Common Shares then held by RIC at a price equal to ninety-five percent (95%)
of the fair market value of the Common Stock at the time of the call(s), with
such fair market value to be calculated based upon the average of the closing
prices of the Common Stock for the ten (10) consecutive trading days preceding
the notice by Lawyers Title to RIC of the exercise of its call right.
(b) Subject to Section 4.1(c) and compliance by Lawyers Title with
Section 4.1(e) below but in addition to Section 4.1(a) above, if RIC has not
converted any of the 2,200,000 shares of Series B Preferred Stock received by
RIC from Lawyers Title on the Closing Date (the "RIC Series B Preferred
Shares"), then by the date that is eight (8) years and six (6) months after the
effective date of the registration statement for the RIC Series B Preferred
Shares as provided for in the Registration Rights Agreement (the "Preferred
Shares Exit Date"), RIC agrees that it will sell, convey or otherwise transfer
so many of the RIC Series B Preferred Shares as are necessary to reduce the RIC
Ownership Percentage to less than twenty percent (20%) of the Adjusted
Outstanding Shares; provided, however, that such sales, conveyances and
transfers must be made entirely to Persons that are not, at the time of the
sale, conveyance or transfer, an Affiliate of RIC. Such sales, conveyances or
transfers of the RIC Series B Preferred Shares may occur at any time and from
time to time during the period between the Closing Date and the Preferred Shares
Exit Date (such period being hereafter referred to as the "Preferred Shares
Sales Period"); provided that for each Holdback Period and each Discontinuance
Period (as those terms are defined in the Registration Rights Agreement)
required by Lawyers Title under the Registration Rights Agreement, the Preferred
Shares Sales Period shall be extended by the number of days during which the
relevant Holdback Period or Discontinuance Period was in effect. The provisions
of this Section 4.1(b) shall not in any manner affect (i) the right of Lawyers
Title to redeem the RIC Series B Preferred Shares or (ii) subject to Section
4.1(d), the right of RIC to convert the RIC Series B Preferred Shares into
Common Stock, in each case in accordance with the terms of the Series B
Preferred Stock designation set forth in Lawyers Title's Charter.
(c) Subject to Section 4.1(d) and compliance by Lawyers Title with
Section 4.1(e) below, if RIC has converted, at any time or from time to time
during the Preferred Shares Sales Period, any of the RIC Series B Preferred
Shares into shares of Common Stock (all such shares of Common Stock received
upon conversion of the RIC Series B Preferred Shares and such additional shares
of Common Stock that Lawyers Title may issue with respect to such shares
pursuant to any stock splits, stock dividends, recapitalizations,
restructurings, reclassifications or
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similar transactions or pursuant to the exercise of any rights under the Rights
Agreement being hereafter referred to collectively as the "Converted Shares") in
accordance with the terms of the Series B Preferred Stock designation set forth
in Lawyers Title's Charter, then RIC agrees that it will sell, convey or
otherwise transfer by the expiration of the Preferred Shares Sales Period
(including any extension permitted under Section 4.1(b) upon the exercise by
Lawyers Title of any Holdback Period or Discontinuance Period) that number of
Converted Shares and that number of RIC Series B Preferred Shares as is
necessary to reduce the RIC Ownership Percentage to less than twenty percent
(20%); provided, however, that such sales, conveyances and transfers of
Converted Shares and RIC Series B Preferred Shares must be made entirely to
Persons that are not, at the time of the sale, conveyance or transfer, an
Affiliate of RIC. In the event that RIC has converted some or all of the RIC
Series B Preferred Shares to Common Stock but has not reduced the RIC Ownership
Percentage to below twenty percent (20%) by the expiration of the Preferred
Shares Sales Period, Lawyers Title thereafter shall have the absolute right
(which shall not be abridged) from time to time on thirty (30) days' written
notice to make one or more calls to purchase for cash all or any part of that
number of Converted Shares then held by RIC necessary to reduce the RIC
Ownership Percentage to below the twenty percent (20%) threshold at a price
equal to ninety-five percent (95%) of the fair market value of the Common Stock
at the time of the call(s), with such fair market value to be calculated based
upon the average of the closing prices of the Common Stock for the ten (10)
consecutive trading days preceding the notice by Lawyers Title to RIC of the
exercise of its call right.
(d) Reliance and RIC agree that, unless (i) Lawyers Title should
call for redemption of the RIC Series B Preferred Shares in accordance with the
Series B Preferred Stock designation set forth in Lawyers Title's Charter, or
(ii) any one of the following events shall occur: (x) Lawyers Title should
declare a regular quarterly dividend on the Common Stock of $.40 or more during
any calendar year, (y) Lawyers Title should declare one or more non-regular
dividends on the Common Stock in an aggregate amount of $.50 or more during any
calendar year, or (z) Lawyers Title should declare dividends on the Common
Stock, whether regular or non-regular, in an aggregate amount of $1.60 or more
during any calendar year, the RIC Series B Preferred Shares shall not be
convertible and RIC and its Affiliates will refrain from converting, or taking
any steps to convert, any of the RIC Series B Preferred Shares then held by each
of them, respectively, into shares of Common Stock until such time as RIC and
its Affiliates have sold, conveyed or transferred all of the RIC Common Shares
entirely to Persons that are not, at the time of the sale, conveyance or
transfer of the RIC Common Shares, an Affiliate of RIC; provided, however, that
if Lawyers Title should call less than all of the RIC Series B Preferred Shares
for redemption pursuant to clause (i) above, then RIC and its Affiliates shall
be entitled to convert into shares of Common Stock only that number of the RIC
Series B Preferred Shares that have been so called for redemption; and provided
further that, in the event the Board of Directors has approved any negotiated
tender or exchange offer with a third party or approved any merger,
consolidation, share exchange, business combination, restructuring,
recapitalization or similar transaction involving Lawyers Title in which the
holders of Common Stock are entitled to tender or exchange their holdings of
Common Stock for, or to otherwise receive for their holdings of Common Stock,
other consideration (whether cash, non-cash or some combination thereof),
Lawyers Title agrees that it will, in its sole discretion, either (x) permit RIC
and its Affiliates to convert all of the Series B Preferred Stock then held by
them contingent upon, and effective as of,
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the closing of such transaction and without the right of RIC or any of its
Affiliates to vote the shares of Common Stock received upon any such conversion
on any matter in connection with such transaction, or (y) make appropriate
provision to provide to RIC and any of its Affiliates holding Series B Preferred
Stock as of the closing date of such transaction the same kind and amount of
consideration receivable by the holders of the Common Stock in such transaction
(the amount of such consideration to be received by RIC and any of its
Affiliates holding Series B Preferred Stock to be determined by reference to the
number of shares of Common Stock that RIC and its Affiliates would have been
entitled to receive had the Series B Preferred Stock been converted immediately
prior to consummation of such transaction), except that, if Lawyers Title elects
to comply with clause (y) of this proviso, RIC and its Affiliates shall not be
entitled thereafter to receive any shares of stock, other securities, cash or
property pursuant to Section 5.4 of the Series B Preferred Stock designation
with respect to such of the Series B Preferred Stock as has received full
payment of the consideration set forth in clause (y) above.
(e) In connection with the obligations of RIC under Sections
4.1(a), 4.1(b) and 4.1(c) above, Lawyers Title agrees that it will take all
actions and steps necessary, including the filing of all required financial
statements, reports and other documents, in order to (i) maintain the
effectiveness of the registration with the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Securities Act"), of the RIC
Common Shares in accordance with the Registration Rights Agreement until the
earlier of (x) the date on which RIC completes the sale, conveyance or transfer
of all of the RIC Common Shares in accordance with this Agreement or (y) the
expiration of the Common Shares Sales Period, (ii) maintain the effectiveness of
the registration with the Securities and Exchange Commission under the
Securities Act of the RIC Series B Preferred Shares and any shares of Common
Stock issuable upon conversion of the RIC Series B Preferred Shares in
accordance with the Registration Rights Agreement until the earlier of (x) the
date on which RIC completes the sale, conveyance or transfer of all of the RIC
Series B Preferred Shares and/or the Converted Shares in accordance with this
Agreement or (y) the expiration of the Preferred Shares Sales Period, (iii)
comply with all applicable state securities (including insurance securities) or
blue sky laws, and (iv) maintain the listing of the RIC Common Shares on the
NYSE (or such other exchange or trading market as the Common Stock may be listed
from time to time), (v) maintain the listing, on a when-issued basis, of the
Common Stock issuable upon conversion of the RIC Series B Preferred Shares on
the NYSE (or such other exchange or trading market as the Common Stock may be
listed from time to time) and (vi) if applicable, to cause the RIC Series B
Preferred Shares to be originally listed on the NYSE (or such other exchange or
trading market as the Common Stock may be listed from time to time). Lawyers
Title will make its senior officers available to RIC at reasonable times to
facilitate the disposition of the RIC Common Shares, the RIC Series B Preferred
Shares and the Converted Shares.
(f) If, prior to the expiration of the Preferred Shares Sales
Period, all of the shares of the Series B Preferred Stock shall have been
redeemed or converted and are no longer outstanding but the RIC Ownership
Percentage is at least twenty percent (20%), then, until the earlier of (i) the
date by which the RIC Ownership Percentage is less than twenty percent (20%) or
(ii) the expiration of the Common Shares Sales Period, RIC and its Affiliates
shall be entitled to
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the remedies set forth in Sections 11.3(a) and 11.3(d)(1) of the Series B
Preferred Stock designation as if such Sections had been set forth in full in
this Agreement.
(g) Lawyers Title will make any Hart-Scott-Rodino filing that may
be required in order for RIC or its Affiliates to convert the RIC Series B
Preferred Shares into Common Stock, and such filing will occur as soon as
practicable but not later than thirty (30) days after RIC or its Affiliates make
any Hart-Scott-Rodino filing with respect to such conversion. Each party agrees
to bear its own costs in connection with such filings.
Section 4.2. Transfer Restrictions. During the term of this Agreement,
RIC shall not, directly or indirectly, knowingly Transfer any of the RIC Shares
to any Person or Group without the prior written consent of Lawyers Title (which
consent shall not be unreasonably withheld), if, as a result of such Transfer,
such Person or Group would have beneficial ownership of Common Stock
representing in the aggregate more than 9.9% of the issued and outstanding
shares of Common Stock. Subject to the foregoing limitation, RIC may Transfer
the RIC Shares in the following manner:
(a) to Lawyers Title or any Affiliate of Lawyers Title;
(b) pursuant to an effective registration statement under the
Securities Act as provided in Section 4.1 above; provided that the rights of RIC
under this Agreement shall not transfer to any transferee(s) of such RIC Shares;
(c) pursuant to Rule 144, Rule 144A, Regulation S or any other
applicable exemption from registration under the Securities Act; provided that
the rights of RIC under this Agreement shall not transfer to any transferee(s)
of such RIC Shares;
(d) pursuant to a pro rata distribution (including any such
distribution pursuant to any liquidation or dissolution of RIC) by RIC to its
shareholders if RIC has no knowledge that any distributee, or any Person that
controls such distributee, will acquire from RIC beneficial ownership of Common
Stock representing more than 9.9% of the issued and outstanding shares of Common
Stock in such distribution (in each case other than any distributee that is an
Affiliate of RIC), provided that the rights of RIC under this Agreement shall
not transfer to any distributee of such RIC Shares (other than any distributee
that is an Affiliate of RIC); provided further that, upon a change in Control of
RIC occurring after the date of this Agreement, RIC shall not distribute any of
the RIC Shares to its Affiliates pursuant to this Section 4.2(d) or otherwise
unless RIC has received the prior written consent of Lawyers Title (which may be
withheld in Lawyers Title's sole discretion) and obtained an agreement in
writing by the distributee to be bound by the terms and conditions of this
Agreement; and provided further that, in the event that any Affiliate of RIC
receives a distribution of any of the RIC Shares pursuant to this Section
4.2(d), or otherwise becomes the beneficial owner of any of the RIC Shares,
Reliance shall cause such Affiliate of RIC to comply with all of the provisions
of this Agreement, including without limitation this Section 4.2.
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(e) pursuant to a merger or consolidation of Lawyers Title or
pursuant to a plan of liquidation of Lawyers Title, which has been approved by
the affirmative vote of a majority of the members of the Board of Directors then
in office; or
(f) pursuant to a tender offer or exchange offer that the Board of
Directors, by action taken by the affirmative vote of a majority of the members
of the Board of Directors then in office, has determined not to oppose.
ARTICLE V
Further Assurances
Each party shall execute and deliver such additional instruments and
other documents and shall take such further actions as may be necessary or
appropriate to effectuate, carry out and comply with all of its respective
obligations under this Agreement. RIC shall deliver to Lawyers Title, within
fifteen (15) days following the end of each quarterly period ending March 31,
June 30, September 30 and December 31, a written transaction statement for such
quarter verified by an officer of RIC that (i) identifies the date and amount of
each Transfer of the RIC Shares during such quarter and whether the Transfer was
to an Affiliate of RIC, and (ii) states the number of RIC Shares held,
beneficially and of record, by RIC and its Affiliates as of the last day of the
applicable quarter. If reasonably requested by Lawyers Title at any time during
the term of this Agreement, RIC agrees to execute a letter to Lawyers Title
confirming the number of RIC Shares held, beneficially and of record, by RIC and
its Affiliates as of the latest practicable date. Lawyers Title shall provide to
RIC as soon as practicable after each March 31, June 30, September 30 and
December 31 (but in any event no later than twenty-five (25) days after each
such date), a written statement as to the amount of net income of Lawyers Title
and its Subsidiaries for the three-month period ending on each such March 31,
June 30, September 30 and December 31 and RIC shall keep such information
confidential until Lawyers Title publicly announces its quarterly financial
results.
ARTICLE VI
Termination
Section 6.1. Termination of Entire Agreement. Unless earlier terminated
by written agreement of the parties hereto, this Agreement shall terminate on
the earlier of (i) the date on which the RIC Ownership Percentage is less than
fifteen percent (15%) or (ii) the expiration of the Preferred Shares Sales
Period (as defined in Section 4.1 above) and the RIC Ownership Percentage at
such time is less than twenty percent (20%); provided, however, that the
provisions of Sections 4.1(a) and 4.1(c) above with respect to Lawyers Title's
right to call the RIC Common Shares and the Converted Shares shall survive any
termination of this Agreement. Any termination of this Agreement as provided
herein shall be without prejudice to the rights of any party arising out of the
breach by any other party of any provisions of this Agreement that occurred
prior to the termination.
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ARTICLE VII
Miscellaneous
Section 7.1. Notices. Any notices or other communications required or
permitted hereunder shall be sufficiently given if in writing (including
telecopy or similar teletransmission), addressed as follows:
If to Lawyers Title,
to it at: Lawyers Title Insurance Corporation
6630 West Broad Street
Richmond, Virginia 23231
Telecopier: (804) 282-5453
Attention: Russell W. Jordan, III, Esquire
With a copy to: Williams Mullen Christian & Dobbins
1021 East Cary Street, 16th Floor
Richmond, Virginia 23219
Telecopier: (804) 783-6507
Attention: Theodore L. Chandler, Jr., Esquire
If to RIC or Reliance,
to them at: Reliance Insurance Company
55 East 52nd Street
New York, New York 10055
Telecopier: (212) 909-1864
Attention: Robert M. Steinberg
With a copy to: Reliance Group Holdings, Inc.
55 East 52nd Street
New York, New York 10055
Telecopier: (212) 909-1864
Attention: General Counsel
Unless otherwise specified herein, such notices or other communications shall be
deemed received (a) in the case of any notice or communication sent other than
by mail, on the date actually delivered to such address (evidenced, in the case
of delivery by overnight courier, by confirmation of delivery from the overnight
courier service making such delivery, and in the case of a telecopy, by receipt
of a transmission confirmation form or the addressee's confirmation of receipt),
or (b) in the case of any notice or communication sent by mail, three (3)
Business Days after being sent, if sent by registered or certified mail, with
first-class postage prepaid. Each of the parties hereto
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shall be entitled to specify a different address by giving notice as aforesaid
to each of the other parties hereto.
Section 7.2. Amendments, Waivers, Etc. This Agreement may not be
amended, changed, supplemented, waived or otherwise modified or terminated
except by an instrument in writing signed by Reliance, RIC and Lawyers Title
following approval thereof by a majority of the Continuing Directors.
Section 7.3. Successors and Assigns. Except as otherwise provided
herein, this Agreement shall be binding upon and shall inure to the benefit of
and be enforceable by the parties and their respective successors and assigns,
including without limitation in the case of any corporate party hereto any
corporate successor by merger or otherwise; provided that no party may assign
this Agreement without the other party's prior written consent.
Section 7.4. Entire Agreement. This Agreement, the Stock Purchase
Agreement, the Subordinated Note (if executed), the Series B Preferred Stock
designation and the Registration Rights Agreement embody the entire agreement
and understanding among the parties relating to the subject matter hereof and
collectively supersede all prior agreements and understandings relating to such
subject matter. There are no representations, warranties or covenants by the
parties hereto relating to such subject matter other than those expressly set
forth in this Agreement and the Stock Purchase Agreement.
Section 7.5. Specific Performance. The parties acknowledge that money
damages are not an adequate remedy for violations of this Agreement and that any
party may, in its sole discretion, apply to a court of competent jurisdiction
for specific performance or injunctive or such other relief as such court may
deem just and proper in order to enforce this Agreement or prevent any violation
hereof and, to the extent permitted by applicable law, each party waives any
objection to the imposition of such relief.
Section 7.6. Remedies Cumulative. All rights, powers and remedies
provided under this Agreement or otherwise available in respect hereof at law or
in equity shall be cumulative and not alternative, and the exercise or beginning
of the exercise of any thereof by any party shall not preclude the simultaneous
or later exercise of any other such right, power or remedy by such party.
Section 7.7. No Waiver. The failure of any party hereto to exercise any
right, power or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon compliance by any other
party hereto with its obligations hereunder, and any custom or practice of the
parties at variance with the terms hereof, shall not constitute a waiver by such
party of its right to exercise any such or other right, power or remedy or to
demand such compliance.
Section 7.8. No Third Party Beneficiaries. This Agreement is not
intended to be for the benefit of and shall not be enforceable by any Person who
or which is not a party hereto.
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Section 7.9. Consent to Jurisdiction. Each party to this Agreement, by
its execution hereof, (i) hereby irrevocably submits, and agrees to cause each
of its Affiliates to submit, to the jurisdiction of the federal courts located
either in the City of Richmond, Virginia, or in the City of New York, New York,
and in the event that such federal courts shall not have subject matter
jurisdiction over the relevant proceeding, then of the state courts located
either in the City of Richmond, Virginia, or in the City of New York, New York,
for the purpose of any Action arising out of or based upon this Agreement or
relating to the subject matter hereof or the transactions contemplated hereby,
(ii) hereby waives, and agrees to cause each of its Affiliates to waive, to the
extent not prohibited by applicable law, and agrees not to assert, and agrees
not to allow any of its Affiliates to assert, by way of motion, as a defense or
otherwise, in any such Action, any claim that it is not subject personally to
the jurisdiction of the above-named courts, that its property is exempt or
immune from attachment or execution, that any such proceeding brought in one of
the above-named courts is improper, or that this Agreement or the subject matter
hereof may not be enforced in or by such court and (iii) hereby agrees not to
commence or to permit any of its Affiliates to commence any Action arising out
of or based upon this Agreement or relating to the subject matter hereof other
than before one of the above-named courts nor to make any motion or take any
other action seeking or intending to cause the transfer or removal of any such
Action to any court other than one of the above-named courts whether on the
grounds of inconvenient forum or otherwise. Each party hereby consents to
service of process in any such proceeding in any manner permitted by Virginia or
New York law, as the case may be, and agrees that service of process by
registered or certified mail, return receipt requested, at its address specified
pursuant to Section 7.1 above is reasonably calculated to give actual notice.
Notwithstanding anything contained in this Section 7.9 to the contrary with
respect to the parties' forum selection, if an Action is filed against a party
to this Agreement, including its Affiliates, by a person who or which is not a
party to this Agreement, an Affiliate of a party to this Agreement, or an
assignee thereof (a "Third Party Action"), in a forum other than the federal
district court or a state court located in the City of Richmond, Virginia, or in
the City of New York, New York, and such Third Party Action is based upon,
arises from, or implicates rights, obligations or liabilities existing under
this Agreement or acts or omissions pursuant to this Agreement, then the party
to this Agreement, including its Affiliates, joined as a defendant in such Third
Party Action shall have the right to file cross-claims or third-party claims in
the Third Party Action against the other party to this Agreement, including its
Affiliates, and even if not a defendant therein, to intervene in such Third
Party Action with or without also filing cross-claims or third-party claims
against the other party to this Agreement, including its Affiliates.
Section 7.10. Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic substantive law of the Commonwealth of
Virginia, without giving effect to any choice or conflict of law provision or
rule that would cause the application of the law of any other jurisdiction.
Section 7.11. Name, Captions. The name assigned to this Agreement and
the section captions used herein are for convenience of reference only and shall
not affect the interpretation or construction hereof.
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Section 7.12. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one instrument. Each counterpart may consist
of a number of copies each signed by less than all, but together signed by all,
the parties hereto.
Section 7.13. Expenses. Each of the parties hereto shall bear their own
expenses incurred in connection with this Agreement and the transactions
contemplated hereby, except that in the event of a dispute concerning the terms
or enforcement of this Agreement, the prevailing party in any such dispute shall
be entitled to reimbursement of reasonable legal fees and disbursements from the
other party or parties to such dispute.
[SIGNATURES ON NEXT PAGE]
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IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have caused this Voting and Standstill Agreement to be executed, as of
the date first above written by their respective officers thereunto duly
authorized.
LAWYERS TITLE CORPORATION
By:_________________________________
Name:
Title:
RELIANCE INSURANCE COMPANY
By:_________________________________
Name:
Title:
RELIANCE GROUP HOLDINGS, INC.
By:_________________________________
Name:
Title:
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Exhibit A
Form of Resignation Agreement
Lawyers Title Corporation
6630 West Broad Street
Richmond, Virginia 23230
Reliance Insurance Company
[address]
Ladies and Gentlemen:
I hereby acknowledge that my position on the Board of Directors of
Lawyers Title Corporation ("Lawyers Title") is subject to the provisions of a
Voting and Standstill Agreement (the "Agreement"), dated __________ __, 1997,
between Lawyers Title, Reliance Insurance Company ("RIC") and Reliance Group
Holdings, Inc. Accordingly, I hereby agree to resign immediately from such Board
of Directors under the terms of Article II of the Agreement in the event that
RIC requests such resignation. I understand that, if I do not resign as
requested within five (5) Business Days (as defined in the Agreement), Lawyers
Title may seek specific performance of this letter agreement through court
proceedings or otherwise may seek to remove me from office. I agree that any
failure to resign upon request shall be deemed to be "cause" for my removal from
the Board of Directors pursuant to the Charter and Bylaws of Lawyers Title.
Date: ___________, 1997 ____________________________________
Name
Agreed to and Accepted:
LAWYERS TITLE CORPORATION
By:__________________________
Name:
Title:
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Exhibit B
Form of Confidentiality Agreement
________ __, 19__
CONFIDENTIAL
[Name]
[Address]
Re: Confidentiality Agreement
Ladies and Gentlemen:
In connection with our [soliciting, offering, seeking to effect or
negotiating] with you with respect to the [sale, transfer, assignment, pledge,
etc.] of shares of [Common Stock or 7% Series B Cumulative Convertible Preferred
Stock], without par value, of Lawyers Title Corporation (the "Company"), we are
prepared to make available to you certain confidential information relating to
the Company and its business (the "Confidential Information"). As a condition to
your being furnished the Confidential Information, you agree to comply with the
terms and conditions of this letter agreement (this "Agreement").
For the purposes of this Agreement, the term "Representatives" shall
mean your employees, agents and advisors and the directors, officers, employees
and agents of any of your advisors. The term "Third Party" shall be broadly
interpreted to include without limitation any corporation, company, group,
partnership, other entity or individual. The term "Confidential Information"
shall not include information that (i) was or becomes generally available to the
public other than as a result of a disclosure by you or your Representatives, or
(ii) was or becomes available to you on a non-confidential basis from a source
other than the Company or its advisors.
You hereby agree to treat the Confidential Information as confidential
and you shall not, and shall direct your Representatives not to, use in any way
or to disclose, directly or indirectly, the Confidential Information to any
Third Party without the written consent of the Company.
It is understood and agreed that money damages would not be a
sufficient remedy for any breach of this Agreement by you and that the Company
shall be entitled to specific performance and injunctive or other equitable
relief as a remedy for any such breach, and you further agree to waive any
requirement for the securing or posting of any bond in connection with such
remedy.
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Such remedy shall not be deemed to be the exclusive remedy for your breach of
this Agreement, but shall be in addition to all other remedies available at law
or equity to the Company.
If you are in agreement with the foregoing, please so indicate by
signing and returning one copy of this Agreement, whereupon it will constitute
our agreement with respect to the subject matter hereof.
Very truly yours,
[Name]
Officer of [RIC or Affiliate]
CONFIRMED AND AGREED as of
the date first written
above:
[NAME]
By:_________________________________
Name:
Title:
LAWYERS TITLE CORPORATION
By:_________________________________
Name:
Title:
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Exhibit D
ADMINISTRATIVE SERVICES TERM SHEET
I. DEFINED TERMS:
Capitalized terms used herein and not otherwise defined have the same
meaning as those terms in the Stock Purchase Agreement, dated August 20, 1997,
between Lawyers Title Corporation, Lawyers Title Insurance Corporation, Reliance
Insurance Company and Reliance Group Holdings, Inc.
II. SCHEDULE OF SERVICES:
Set forth below is a schedule of services provided by Seller to
Commonwealth and Transnation as of the date of the Agreement:
Number Activity Legend Annualized Amount
- ------ -------- ------ -----------------
1. Data Processing (CLT) (a) $ 291,000.00
2. Data Processing (CLT-ADU) (b) 98,000.00
3. Data Processing (Title & Trust) (c) 233,000.00
4. Data Processing (Title & Trust - ADU) (d) 96,000.00
5. Investment Services (e) 1,044,000.00
6. Investment Accounting Charge (f) 47,000.00
(a) Portion of system in Voorhees, NJ used for processing, printing, disk
space and tape backup for financial-related systems.
(b) Expenses related to information system personnel plus flat monthly fee for
managerial support.
(c) Title & Trust plant maintained at Voorhees, NJ - expense for running
system (tape storage, processing, printing, etc.) at $1,500 per month line
charge from FL to NJ.
(d) Expenses related to assigned personnel plus flat monthly fee for managerial
support.
(e) Allocation of Investment Department, Investment Accounting Department, and
PRISM.
(f) Allocation of one FTE (salary and benefits) for investment accounting.
III. TERM OF AGREEMENT:
It is contemplated that data processing services currently provided to
Commonwealth and Transnation by Seller set forth as Numbers 1-4 on the Schedule
of Services provided in Section II above (the "Data Processing Services"), will
be
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maintained at the same service level for a period of twelve (12) months
following the Closing Date.
It is contemplated that investment management and investment accounting
services currently provided to Commonwealth and Transnation by Seller set forth
as Numbers 5 and 6 on the Schedule of Services provided in Section II above (the
"Investment Management and Accounting Services"), will be maintained at the same
service level for a period of six (6) months following the Closing Date.
IV. COST OF SERVICES TO BE PROVIDED:
The Data Processing Services and the Investment Management and Accounting
Services shall be provided at a cost determined on a basis consistent with
charges for such services in 1996 and 1997, but in no event shall charges for
Data Processing Services exceed an annualized cost of seven hundred fifty
thousand dollars ($750,000.00), or shall charges for Investment Management and
Accounting Services exceed an annualized cost of one million one hundred
thousand dollars ($1,100,000.00).
V. TERMINATION OF AGREEMENT:
Buyer may terminate the Administrative Services Agreement at any time, at
its option, provided that it gives Seller thirty (30) days prior written notice.
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Exhibit E
[Closing Date]
Lawyers Title Corporation
6630 West Broad Street
Richmond, Virginia 23230
Dear Sirs/Ladies:
I am General Counsel of Reliance Insurance Company, a Pennsylvania
insurance corporation ("Seller"), and acting in such capacity, am familiar with
the Stock Purchase Agreement (the "Stock Purchase Agreement"), dated August 20,
1997, by and among Lawyers Title Corporation, a Virginia corporation ("Buyer"),
Lawyers Title Insurance Company, a Virginia insurance corporation ("LCS"),
Seller and Reliance Group Holdings, Inc., a Delaware corporation ("RGH"). This
opinion is being furnished to you pursuant to Section 6.5 of the Stock Purchase
Agreement.
I, or lawyers on my staff acting under my supervision, have examined
and relied upon such original, reproduced or certified copies of such reports of
Seller, RGH, Commonwealth and Transnation (as such terms and other terms used
herein and defined in the Stock Purchase Agreement are therein so defined) and
their respective subsidiaries and such certificates of public officials and
officers of Seller, RGH, Commonwealth and Transnation and their respective
subsidiaries, and such other documents as I, or they, have deemed necessary or
appropriate as a basis of the opinions hereinafter set forth. In such
examination, the genuineness of all signatures, the authenticity of all
documents submitted as originals and the conformity to authentic originals of
all documents submitted as certified or photostatic copies has been assumed. In
addition, I have examined such matters of law, statutes and authorities as I
have deemed necessary or appropriate for the purposes of this opinion.
References to my knowledge in the opinions hereinafter expressed refer only to
my personal knowledge and that of my staff. In rendering the opinions set forth
below, I have assumed that the Stock Purchase Agreement and each of Closing
Agreements to which Seller is a party have been duly authorized, executed and
delivered by Buyer and LCS and constitutes the legal, valid and binding
obligation of Buyer and LCS.
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Based upon the foregoing but subject to the assumptions and
qualifications set forth herein, I am of the opinion that:
1. Each of Seller, Commonwealth and Transnation is a corporation
duly incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation.
2. Each of Commonwealth and Transnation is duly qualified to
transact business and is in good standing in each jurisdiction in which such
qualification is required by law in order to carry out the Company Business,
except for any jurisdiction in which the failure to be so qualified could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
3. Each of Commonwealth and Transnation has all requisite power and
authority to carry on the Company Business as currently conducted.
4. Seller has all requisite corporate power and authority to execute
and deliver the Stock Purchase Agreement and each of the Closing Agreements to
which it is a party, to perform its obligations thereunder and to consummate the
transactions contemplated thereby.
5. The execution, delivery and performance by Seller and RGH of the
Stock Purchase Agreement and each of the Closing Agreements to which Seller or
RGH is a party and the consummation by Seller and RGH of the transactions
contemplated thereby have been duly and validly authorized by all necessary
corporate action on the party of Seller and RGH. The Stock Purchase Agreement
and each of the Closing Agreements to which Seller is a party has been duly
executed and delivered by Seller and constitutes the valid and binding
obligation of Seller, enforceable in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally, by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law) or by an
implied covenant of good faith and fair dealing. The Stock Purchase Agreement
has been duly executed and delivered by RGH and constitutes the valid and
binding obligation of RGH.
6. The execution, delivery and performance by Seller of the Stock
Purchase Agreement and each of the Closing Agreements to which it is a party do
not and will not require Seller or any subsidiary of Seller (including
Commonwealth and Transnation) to obtain any consent, approval or action of, or
make any filing with or give any notice to, any governmental or regulatory body
or judicial authority, except (a) as set forth
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in the Seller Disclosure Schedule and (b) such consents, approvals, actions,
filings or notices, which if not obtained, made or given, could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect or a material adverse effect on Buyer's ability to own, possess
or exercise the rights of an owner with respect to the Company Shares.
7. The execution, delivery and performance by Seller of the Stock
purchase Agreement and each of the Closing Agreements to which it is a party do
not and will not, except as set forth in the Seller Disclosure Schedule,
constitute, result in or give rise to: (a) a breach or violation or default
under any material Legal Requirement applicable to Seller, Commonwealth or
Transnation (assuming the accuracy of the representations and warranties of
Buyer and LCS), (b) a breach of or a default under any Charter or ByLaws
provision of Seller, Commonwealth or Transnation, (c) the acceleration of the
time for performance of any material obligation under any material Contractual
Obligation known to me of Seller, Commonwealth or Transnation, (d) the
imposition of any material Lien upon or the forfeiture of any material Company
Asset known to me, or (e) a breach of or a default under any material
Contractual Obligation known to me of Seller, Commonwealth or Transnation.
This opinion is limited to the matters stated herein, and no opinion is
implied or may be inferred beyond the matters expressly state herein. This
opinion is issued as of the date hereof, and I undertake no obligation to advise
any Person of changes in any matters set forth herein and hereby disclaim any
obligation to do so.
[Seller reserves the right to take the same qualifications set forth in
Buyer's Opinion.]
No opinion is expressed herein as to any laws other than Federal laws
and the laws of the Commonwealth of Pennsylvania or with respect to RGH and its
subsidiaries (other than Seller and its subsidiaries).
This opinion is furnished to you by me as the General Counsel of the
Seller and is solely for your benefit in connection with the subject
transactions and with the understanding that it will not be otherwise used,
disseminated, circulated, quoted, referred to or relied upon for any other
purpose or by any other person or entity without my prior written consent.
Very truly yours,
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Exhibit F
FORM OF LEGAL OPINION OF BUYER'S AND LTIC's COUNSEL
[Closing Date]
Reliance Insurance Company
55 East 52nd Street
New York, New York 10055
Re: Lawyers Title Corporation's Purchase from Reliance Insurance
Company of 100% of the Issued and Outstanding Shares of Capital
Stock of Commonwealth Land Title Insurance Company and
Transnation Title Insurance Company
Gentlemen:
We have acted as counsel to Lawyers Title Corporation ("Buyer") and
Lawyers Title Insurance Corporation ("LTIC") in connection with Buyer's purchase
from Reliance Insurance Company ("Seller") of all of the issued and outstanding
shares of the capital stock of Commonwealth Land Title Insurance Company and
Transnation Title Insurance Company (the "Company Shares" and separately, the
"Commonwealth Shares" and the "Transnation Shares") pursuant to the Stock
Purchase Agreement (the "Agreement") by and among Buyer, LTIC, Seller, and
Reliance Group Holdings, Inc., dated as of August 20, 1997.
Buyer and LTIC have authorized us to provide our opinion to you
pursuant to Section 7.4 of the Agreement. Capitalized terms that are not
otherwise defined herein have the meanings given to them in the Agreement.
In rendering the opinions expressed herein we have examined the
following documents:
(1) The Agreement;
(2) The Registration Rights Agreement;
[(3) The Subordinated Note;]
(4) The Voting and Standstill Agreement;
[(5) The Administrative Services Agreement;]
(6) The Articles of Incorporation and Bylaws of Buyer;
(7) The Articles of Amendment to Buyer's Articles of Incorporation;
(8) The Articles of Incorporation and Bylaws of LTIC;
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(9) The corporate minute books of Buyer and LTIC, respectively;
(10) Corporate resolutions adopted by the Board of Directors of
Buyer on August 20, 1997; and
(11) the Resignation Agreements executed pursuant to the Voting and
Standstill Agreement.
We have also examined such other corporate records, instruments and
certificates as we have deemed necessary or appropriate in order to enable us to
express our opinions stated herein.
We have assumed (i) except with respect to Buyer and LTIC, the
genuineness of all signatures on and the due authorization, execution, and
delivery of the Agreement and each of the Closing Agreements and the validity
and binding effect thereof, (ii) the authenticity of all documents submitted to
us as originals, (iii) the conformity to the originals of all documents
submitted to us as copies, and (iv) the legal competency of natural persons.
With respect to various factual matters material to our opinion we have
relied, to the extent that we deemed such reliance proper, upon certificates
from officers of Buyer and LTIC, respectively, upon the representations and
warranties made by Buyer and LTIC in the Agreement, and upon certificates of
public officials. We have assumed the correctness of the factual matters
contained in such reliance sources and do not have knowledge, without an
investigation for the purpose, that such factual matters are incorrect.
Whenever we express an opinion to be to our knowledge or known to us,
we mean that our attorneys who have given substantive legal attention to
representation of Buyer and LTIC in the transaction with you do not have
knowledge of, and have not made an investigation to ascertain, the existence or
absence of the facts forming the basis for such opinion but, without such
investigation, do not have information contradicting the existence or absence of
such facts.
The opinions expressed herein are limited in all respects to the
application of the laws of the Commonwealth of Virginia and the applicable
federal laws of the United States.
Based on the foregoing, and subject to the limitations and
qualifications set forth hereinafter, we give you our opinion as of the date
hereof, as follows:
1. Each of Buyer and LTIC is a corporation duly incorporated,
validly existing and in good standing under the laws of the Commonwealth of
Virginia.
2. Each of Buyer and LTIC has all requisite power and authority to
enter into the Agreement and each of the Closing Agreements to which each is a
party, to carry out and perform their obligations under the Agreement and the
Closing Agreements, and to consummate the transactions contemplated in the
Agreement and the Closing Agreements.
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3. Each of the Subsidiaries of Buyer and LTIC is a corporation duly
incorporated, validly existing and in good standing in the jurisdiction of its
incorporation.
4. Each of Buyer, LTIC and their Subsidiaries has all requisite
power and authority to carry on the Buyer Business as currently conducted and to
consummate the transactions contemplated in the Agreement.
5. Each of Buyer, LTIC and their Subsidiaries is to our knowledge
duly qualified to do business as a foreign corporation and is in good standing
as such in each jurisdiction in which the nature of Buyer's, LTIC's, or such
Subsidiaries' activities or their ownership or leasing of property requires such
qualification, except to the extent that a failure to be so qualified could not
individually or in the aggregate reasonably be expected to have a Material
Adverse Effect.
6. Each of Buyer and LTIC has duly authorized, executed and
delivered the Agreement, and the Agreement is Enforceable against them.
7. Each of the Closing Agreements [and the Subordinated Note] to
which Buyer [or LTIC] is a party has been duly authorized, executed and
delivered by [Buyer] [such party thereto] and is Enforceable against Buyer [or
LTIC, as the case may be].
8. Except (a) as set forth in the Agreement and in the Buyer
Disclosure Letter and (b) such consents, approvals, actions, filings or notices,
which if not obtained, made or given, could not, individually or in the
aggregate reasonably be expected to have a Material Adverse Effect, or a
material adverse effect on Seller's ability to own, possess or exercise the
rights of an owner with respect to the Buyer Common Shares or the Buyer Series B
Preferred Shares, no approval, consent, waiver, authorization or other order of,
and no filing, registration, qualification or recording with, any Governmental
Authority or any other Person is required to be obtained or made by or on behalf
of Buyer, LTIC or any of their Subsidiaries in connection with the execution,
delivery or performance of the Agreement and the consummation of the
transactions contemplated therein.
9. Except as set forth in the Buyer Disclosure Letter, neither the
execution, delivery and performance of the Agreement, nor the consummation of
any of the transactions contemplated therein does or will constitute, result in
or give rise to (i) a breach, violation, or default under any material Legal
Requirement applicable to Buyer or LTIC (assuming the accuracy of the
representations and warranties of Seller), (ii) a breach of or a default under
any Charter or Bylaws provision of Buyer or LTIC, (iii) the acceleration of the
time for performance of any material obligation under any material Contractual
Obligation known to us of Buyer or LTIC, (iv) the imposition of any material
Lien upon or the forfeiture of any material Buyer Asset known to us, or (v) a
breach of or a default under any material Contractual Obligation known to us of
Buyer or LTIC.
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10. The board of directors and the shareholders of Buyer have duly
adopted the Articles of Amendment of the Articles of Incorporation of Buyer in
accordance with the requirements of the Code of Virginia and such Articles of
Amendment have been duly filed with the State Corporation Commission of Virginia
and have become effective in accordance with the Code of Virginia.
The opinions expressed in paragraphs 6 and 7 above with respect to the
Agreement and the Closing Agreements being Enforceable is subject to the
following limitations and qualifications: (i) we express no opinion that the
transactions pursuant to the Agreement and the Closing Agreements comport with
the fiduciary obligations of the directors of Buyer and LTIC as articulated in
Paramount Communications, Inc. v. QVC Network, Inc., 637 A.2d 34 (Del. 1994);
(ii) we express no opinion that provisions conferring equitable remedies by
agreement are Enforceable; (iii) remedies provided in the Agreement and the
Closing Agreements or by law are subject to the procedural requirements of law
governing enforcement of creditors' rights and remedies; (iv) the judicial
discretion inherent in the forum addressing enforceability may affect the
enforcement of remedies sought; (v) enforceability may be limited by an implied
covenant of good faith and fair dealing; (vi) we express no opinion that
jurisdiction may be conferred on a judicial forum by agreement where such
jurisdiction is not otherwise provided by law; (vii) we express no opinion on
the enforceability of any "severability" provision under circumstances in which
portions of the Agreements or any of the Closing Agreements that are necessary
to achieve the essential purpose thereof are determined to be unenforceable;
(viii) we express no opinion as to the enforceability of any provision of the
Agreement or Closing Agreements which purports to require that Buyer or LTIC
indemnify any person for violation of federal or state securities laws or from
acts constituting fraud, intentional misconduct, or negligence; (ix) we express
no opinion with respect to any provision of the Agreement or the Closing
Agreements providing that no waiver shall be effective unless in a writing
signed by the waiving party in circumstances where a waiver is based upon an
oral waiver or course of dealing acquiesced in or accepted by the other party;
(x) we express no opinion that the Series B Preferred Shares will become
eligible for listing under the rules of the NYSE or of any other exchange or
automated interdealer quotation system on which the Common Stock is then listed
or quoted; (xi) we express no opinion that a party's failure to act or
indulgence of a failure to act may not constitute a waiver or estoppel by course
of dealing; (xii) we express no opinion with respect to the enforceability of
any obligation where the standard for performance is the exercise of best
efforts; (xiii) we express no opinion that a court of competent jurisdiction in
the State of New York will be bound by and apply the parties' choice of the law
of the Commonwealth of Virginia for the governance and construction of the
Agreement and the Closing Agreements; and (xiv) we have not been asked to give
our opinion that the provisions of the Voting and Standstill Agreement and of
the Registration Rights Agreement are enforceable in circumstances where they
conflict with directors' good faith business judgment of the best interests of
Buyer or LTIC pursuant to Code of Virginia ss. 13.1-690 (1950), as amended.
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The opinions expressed herein are for your benefit alone and, without
our prior written consent, may not be distributed to or relied upon by any other
person except your counsel and professional advisors. Our opinions are limited
to the matters expressly stated, no opinion is implied or may be inferred beyond
such matters. We note for your attention that one of our members, Theodore L.
Chandler, Jr., is a director of Buyer, and that, to the extent he participated
in providing our opinion, he did so solely in his capacity as legal counsel for
Buyer.
Sincerely,
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Appendix B
ARTICLES OF AMENDMENT
OF THE
ARTICLES OF INCORPORATION
OF
LAWYERS TITLE CORPORATION
1. The name of the Corporation is Lawyers Title Corporation
(the "Corporation").
2. On August 20, 1997, the Board of Directors of the Corporation
found that the following proposed amendment of its Articles of Incorporation was
in the best interests of the Corporation and directed that it be submitted to a
vote of the shareholders:
RESOLVED, that the Corporation's Articles of Incorporation
shall be amended to change the name of the Corporation by deleting the
reference to "Lawyers Title Corporation" in Article First of the
Articles of Incorporation and substituting therefor "LandAmerica
Financial Group, Inc."
The amendment proposed by the Board of Directors as set forth above was
adopted by the shareholders at a special meeting on __________ __, 1997. Only
holders of shares of the Corporation's common stock were entitled to vote on the
amendment. The number of shares of common stock of the Corporation outstanding
on the record date, the number of shares entitled to vote on the proposed
amendment and the number of shares voted for and against the amendment were as
follows:
Number of shares outstanding: ______________
Number of shares entitled to vote: ______________
Number of shares voted: For - ________; Against - _________.
3. The Corporation's Articles of Incorporation shall be amended
to increase the number of authorized shares of the Series A Junior Participating
Preferred Stock by deleting the reference to "50,000" in the first sentence of
Section 1 of Subsection A of Article Fourth of the Articles of Incorporation and
substituting therefor "200,000." Pursuant to Section 13.1-639 of the Virginia
Stock Corporation Act, the Corporation's Articles of Incorporation permit the
Corporation's Board of Directors to amend the Articles of Incorporation in order
to establish the preferences, limitations and relative rights of one or more
series of the Corporation's authorized class of Preferred Stock without the
approval of the Corporation's shareholders. The Corporation has not issued any
shares of the Series A Junior Participating Preferred Stock as of the date
hereof. The amendments to the Articles of Incorporation were adopted on August
20, 1997, by resolution of the Corporation's Board of Directors.
4. The Corporation's Articles of Incorporation shall be amended
to provide for the issuance, and to fix the preferences, limitations and
relative rights, within the limits permitted by applicable law, of 2,200,000
shares of the Corporation's 7% Series B Cumulative Convertible Preferred Stock,
all as set forth in the attached Exhibit A. Pursuant to Section 13.1-639 of the
Virginia
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Stock Corporation Act, the Corporation's Articles of Incorporation permit the
Corporation's Board of Directors to amend the Articles of Incorporation in order
to establish the preferences, limitations and relative rights of one or more
series of the Corporation's authorized class of Preferred Stock without the
approval of the Corporation's shareholders. The Corporation has not issued any
shares of the 7% Series B Cumulative Convertible Preferred Stock as of the date
hereof. The amendments to the Articles of Incorporation were adopted on August
20, 1997, by resolution of the Corporation's Board of Directors.
The undersigned, Chairman and Chief Executive Officer of the
Corporation, declares that the facts herein stated are true as of __________ __,
1997.
LAWYERS TITLE CORPORATION
By: ___________________________
Name:__________________________
Chairman and
Chief Executive Officer
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Exhibit A
7% SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK
(Without Par Value)
OF
LAWYERS TITLE CORPORATION
1. Designation and Number. A series of the Preferred Stock,
designated the 7% Series B Cumulative Convertible Preferred Stock, without par
value (the "Series B Preferred Stock"), is hereby established, consisting of
2,200,000 shares, each having a stated value of $50 per share (the "Stated
Value"), issuable by the Corporation pursuant to authority granted to the Board
of Directors by Article Fourth of the Articles of Incorporation, which
authorizes a Preferred Stock Designation.
All shares of Series B Preferred Stock which shall have been
issued and reacquired in any manner by the Corporation (including shares
purchased or redeemed and retired, shares converted pursuant to Section 5 hereof
and shares exchanged for any other security of the Corporation) shall not be
reissued and shall, upon their cancellation, become authorized but unissued
shares of the Corporation's Preferred Stock, without designation as to series,
and thereafter may be issued in any Preferred Stock Designation or as otherwise
required by law, but not as shares of Series B Preferred Stock.
2. Relative Seniority. The Series B Preferred Stock shall, with
respect to dividend rights and rights on liquidation, winding-up and dissolution
of the Corporation, rank senior to the Corporation's Series A Junior
Participating Preferred Stock, Common Stock and all other series and classes of
stock of the Corporation now or hereafter authorized, issued or outstanding,
other than any capital stock of the Corporation ranking on parity with the
Series B Preferred Stock as to dividend rights or rights upon liquidation,
winding-up or dissolution of the Corporation. The Corporation shall be permitted
to authorize and issue junior securities and securities on a parity with the
Series B Preferred Stock to the extent not expressly prohibited by this
Preferred Stock Designation.
3. Dividends.
3.1 General. The Series B Preferred Stock shall pay,
and the holders of the then outstanding shares of Series B Preferred Stock shall
be entitled to receive, when and as declared by the Board of Directors out of
any funds legally available therefor under the provisions of the Virginia Stock
Corporation Act, cumulative cash dividends at the rate of seven percent (7%) of
the Stated Value of the Series B Preferred Stock (equivalent to $3.50 per share)
per annum (subject to appropriate adjustment for stock splits, stock dividends,
combinations and similar recapitalizations affecting such shares), and, as
nonparticipating shares, no more, as long as shares of Series B Preferred Stock
remain outstanding. Such dividends shall be payable quarterly in arrears in cash
on the last day, or the next succeeding Business Day, of March, June, September
and December of each year, beginning on the first such date to occur after the
Initial Issuance Date (each such day being hereinafter called a "Dividend
Payment Date" and each period beginning on the day next following a Dividend
Payment Date being hereinafter called a "Dividend Period"). Such dividends shall
be paid to each
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shareholder of record at the close of business on the fifteenth day of the
calendar month in which the applicable Dividend Payment Date falls or such other
date as shall be fixed by the Board of Directors at the time of declaration of
the dividend (in any case as required by any securities exchange or market on
which the Series B Preferred Stock is listed or traded) (the "Dividend Record
Date"), which shall be not less than ten (10) nor more than thirty (30) days
preceding the Dividend Payment Date. The amount of any dividend payable for the
initial Dividend Period and for any other partial Dividend Period shall be
computed on the basis of a 360-day year consisting of twelve (12) 30-day months.
Dividends on the shares of Series B Preferred Stock shall accrue and be
cumulative from and including the date of original issue thereof, whether or not
(i) the Corporation has earnings, (ii) dividends on such shares are declared or
(iii) on any Dividend Payment Date there shall be funds legally available for
the payment of such dividends.
3.2 Preference of Series B Preferred Stock. When
dividends are not paid in full upon the shares of Series B Preferred Stock and
the shares of any other series of preferred stock ranking on a parity as to
dividends with the Series B Preferred Stock (or a cash sum sufficient for such
full payment is not set apart therefor), all dividends declared upon shares of
Series B Preferred Stock and any other series of preferred stock ranking on a
parity as to dividends with the Series B Preferred Stock shall be declared pro
rata so that the amount of dividends declared per share on the Series B
Preferred Stock and such other series of preferred stock shall in all cases bear
to each other the same ratio that accrued dividends per share on the shares of
Series B Preferred Stock and such other series of preferred stock bear to each
other.
Unless Full Cumulative Dividends on the Series B Preferred
Stock have been or contemporaneously are declared and paid in cash or declared
and a cash sum sufficient for the payment thereof set apart for payment on the
Series B Preferred Stock for all past dividend periods and the then current
dividend period, no dividends shall be declared or, prior to payment of Full
Cumulative Dividends, paid or set apart for payment on the Common Stock or any
other capital stock of the Corporation ranking, as to dividends or liquidation
rights, junior to or, except as provided in the immediately preceding paragraph,
on a parity with the Series B Preferred Stock for any period, nor shall any
Common Stock or any other capital stock of the Corporation ranking on a parity
with or junior to the Series B Preferred Stock be redeemed, purchased or
otherwise acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any shares of such stock) by
the Corporation (except by conversion into or exchange for Common Stock).
3.3 Declaration and Accrual of Cumulative Dividends.
No dividends on shares of Series B Preferred Stock shall be declared by the
Board of Directors of the Corporation or paid or set apart for payment by the
Corporation (i) at such time as the terms and provisions of any agreement of the
Corporation which existed on or prior to the Initial Issuance Date, including
any such agreement relating to its indebtedness, prohibits such declaration,
payment or setting apart for payment or provides that such declaration, payment
or setting apart for payment would constitute a breach thereof or a default
thereunder and such breach or default would result in an acceleration of amounts
due thereunder, or (ii) if such declaration or payment shall be restricted or
prohibited by law.
Dividends in arrears may be declared and paid at any time,
without reference to any Dividend Payment Date, to holders of record on such
date as shall be fixed by the Board of Directors
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of the Corporation, as long as such date does not exceed sixty (60) days
preceding the payment date of such dividends. The amount of any dividends
accrued on any shares of Series B Preferred Stock at any Dividend Payment Date
shall be the amount of any unpaid dividends accumulated thereon, to and
including such Dividend Payment Date, whether or not earned or declared, and the
amount of dividends accrued on any shares of Series B Preferred Stock at any
date other than a Dividend Payment Date shall be equal to the sum of the amount
of any unpaid dividends accumulated thereon, to and including the last preceding
Dividend Payment Date, whether or not earned or declared, plus an amount
calculated on the basis of the annual dividend rate for the period after such
last preceding Dividend Payment Date to and including the date as of which the
calculation is made, based on a 360-day year of twelve (12) 30-day months. No
interest or sum of money in lieu of interest shall be payable in respect of any
dividend payment or payments which may be in arrears. Any dividend payment made
on shares of the Series B Preferred Stock shall first be credited against the
earliest accrued but unpaid dividend due with respect to such shares which
remains payable.
Holders of shares of the Series B Preferred Stock shall not be
entitled to any dividends, whether payable in cash, property or stock, in excess
of Full Cumulative Dividends. Except as provided in this Preferred Stock
Designation, the Series B Preferred Stock shall not be entitled to participate
in the earnings or assets of the Corporation.
4. Liquidation Rights.
(a) Upon the voluntary or involuntary
dissolution, liquidation or winding up of the Corporation, the holders of shares
of the Series B Preferred Stock then outstanding shall be entitled to receive
and to be paid out of the assets of the Corporation legally available for
distribution to its shareholders, before any distribution shall be made to the
holders of Common Stock or any other capital stock of the Corporation ranking
junior to the Series B Preferred Stock upon liquidation, dissolution or
winding-up, a liquidation preference equal to the Stated Value, plus accrued and
unpaid dividends thereon (whether or not declared by the Board of Directors) to
the date of payment.
(b) If, upon any voluntary or involuntary
dissolution, liquidation, or winding up of the Corporation, the amounts payable
with respect to the liquidation preference of the shares of the Series B
Preferred Stock and any other shares of stock of the Corporation ranking as to
any such distribution on a parity with the shares of the Series B Preferred
Stock are not paid in full, the holders of the shares of the Series B Preferred
Stock and of such other shares will share ratably in any such distribution of
assets of the Corporation in proportion to the full respective liquidation
preferences to which they are entitled.
(c) After the payment to the holders of the
shares of the Series B Preferred Stock of the full liquidation preference
provided for in this Section 4, the holders of the Series B Preferred Stock will
have no right or claim to participate in any distribution of the remaining
assets of the Corporation.
(d) For the purposes of this Section 4, a
distribution of assets in any dissolution, winding up, liquidation or
reorganization shall not include (i) any consolidation or merger of the
Corporation with or into any other corporation, (ii) any dissolution,
liquidation, winding up or
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reorganization of the Corporation immediately followed by reincorporation of
another corporation or (iii) a sale or other disposition of all or substantially
all of the Corporation's assets to another corporation; provided, that in each
case, effective provision is made in the articles of incorporation or
certificate of incorporation of the resulting and surviving corporation or
otherwise for the protection of the rights of the holders of shares of Series B
Preferred Stock.
5. Conversion Rights.
5.1 General; Mechanics of Conversion.
(a) At any time or from time to time, the
holder of any share of Series B Preferred Stock may, without the payment of
additional consideration by such holder, convert pursuant to this Section 5 all
or any part (in whole number of shares only) of the Series B Preferred Stock
into shares of Common Stock. The number of shares of Common Stock into which
each share of Series B Preferred Stock may at any time be converted shall be
equal to the amount determined by dividing the Stated Value of such shares by
the Conversion Price (as such price may from time to time be determined pursuant
to the provisions of Sections 5.2 and 5.3 hereof).
(b) Each conversion of Series B Preferred Stock
shall be effected by the surrender of the certificate or certificates
representing the shares to be converted at the principal office of the Transfer
Agent (as designated by written notice to the holder or holders of the Series B
Preferred Stock) at any time during its usual business hours, together with
written notice by the holder of the Series B Preferred Stock stating that such
holder desires to convert the shares, or a stated number of the shares,
represented by such certificate or certificates, which notice also shall specify
the name or names (with addresses) and denominations in which the certificate or
certificates for Common Stock (and any remaining Series B Preferred Stock, if
appropriate) shall be issued and shall include instructions for delivery
thereof. Such conversion shall be deemed to have been effected as of the close
of business on the date on which such notice shall have been received and such
certificate or certificates shall have been surrendered in blank or with a
proper assignment of such certificate or certificates to the Corporation (the
"Conversion Date").
(c) On the Conversion Date, the rights of the
holder of such Series B Preferred Stock (or specified portion thereof) as to the
converted shares of Series B Preferred Stock shall cease, and the person or
persons entitled to receive a certificate or certificates for shares of Common
Stock upon conversion of such shares shall be treated for all purposes as having
become the holder or holders of record of the shares of Common Stock represented
thereby at the beginning of the Trading Day next following the Conversion Date.
(d) As soon as practicable after the Conversion
Date (and in no event more than three (3) Business Days after the Conversion
Date with respect to the certificate(s) specified in (i) below, nor more than
five (5) Business Days after the Conversion Date with respect to all other
materials), the Corporation shall deliver or cause to be delivered to the
converting holder, or, with respect to the certificate(s) specified in (i)
below, as specified by such converting holder:
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(i) a certificate or certificates
representing the number of shares of Common Stock issuable by reason of such
conversion registered in its name or such nominee name or names and in such
denomination or denominations as the converting holder shall have specified;
(ii) payment of the amount, if any,
payable under Section 5.1(e) in lieu of any fractional shares of Common Stock
otherwise issuable by reason of such conversion; and
(iii) a certificate representing any
unconverted shares of Series B Preferred Stock which constituted part of the
certificate or certificates for shares of Series B Preferred Stock so
surrendered.
(e) If any fractional interest in a share of
Common Stock would be deliverable upon any conversion, the Corporation, in lieu
of delivering such fractional share interest, shall pay or cause to be paid by a
duly appointed paying agent with respect to the Series B Preferred Stock an
amount equal to the Conversion Price multiplied by such fractional interest as
of the date of conversion.
(f) The Corporation will pay any and all taxes
that may be payable in connection with the issuance or delivery of certificates
for shares of Common Stock upon conversion of shares of Series B Preferred Stock
pursuant hereto. The Corporation shall not, however, be required to pay any tax
which may be payable in connection with any transfer involved in the delivery of
shares registered in a name other than that of the holder of the converted
Series B Preferred Stock, and no such issue or delivery shall be made unless and
until the person requesting such issue or delivery has paid to the Corporation
the amount of any such tax, or has established, to the satisfaction of the
Corporation, that such tax has been paid.
(g) The Corporation will not close its books
against the transfer of any shares of Series B Preferred Stock or of any shares
of Common Stock issued or issuable upon the conversion of such shares of Series
B Preferred Stock in any manner which interferes with the timely conversion of
such shares.
5.2 Initial Conversion Price. The initial Conversion
Price shall be $22.80. In order to prevent dilution of the conversion rights
granted under this Section 5, adjustments shall be made from time to time in the
Conversion Price pursuant to Section 5.3.
5.3 Adjustment of Conversion Price.
5.3.1 Dividends and Distributions.
(a) In case the Corporation at any time
or from time to time after the Initial Issuance Date shall pay or make, or fix a
Record Date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution of shares of Common Stock, the
Conversion Price in effect at the opening of business on the Business Day next
following the Record Date shall be reduced by multiplying the Conversion Price
by a fraction of which the numerator shall be the total number of shares of
Common Stock issued and outstanding at the close of business on the
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Record Date and the denominator shall be the sum of such number of shares and
the total number of shares constituting such dividend or distribution, such
reduction to become effective immediately after the opening of business on the
Business Day following the Record Date. Such adjustment shall be made
successively whenever any event specified above shall occur.
(b) In case the Corporation at any
time or from time to time after the Initial Issuance Date shall make or issue,
or fix a Record Date for the determination of holders of Common Stock entitled
to receive, a dividend or other distribution payable in securities of the
Corporation other than shares of Common Stock (the "Specified Date"), the
holders of the Series B Preferred Stock shall receive upon conversion thereof,
in addition to the number of shares of Common Stock receivable thereupon, the
amount of securities of the Corporation that such holders would have received
had the Series B Preferred Stock been converted into Common Stock on the
Specified Date (the "Other Securities") and had they thereafter, during the
period from the Specified Date to and including the Conversion Date, retained
such Other Securities receivable by them during such period, giving application
to all adjustments called for during such period under this Section with respect
to the rights of the holders of the Series B Preferred Stock. The holders of
Series B Preferred Stock shall also receive, upon conversion, all dividends,
interest, distributions or other payments made on or with respect to the Other
Securities from and including the Specified Date to and including the Conversion
Date.
(c) In case the Corporation shall, by
dividend or otherwise, distribute to all holders of its Common Stock or any
other class of capital stock of the Corporation evidences of its indebtedness or
assets (including securities, but excluding (x) any options, rights, warrants or
convertible or exchangeable securities referred to in Section 5.3.3 below, and
(y) any dividend or distribution referred to in Section 5.3.1 (a) or (b) above),
the Conversion Price shall be reduced so that the same shall equal the price
determined by multiplying the Conversion Price in effect immediately prior to
the close of business on the date fixed for the determination of shareholders
entitled to receive such distribution by a fraction of which the numerator shall
be the Current Market Price of the Common Stock on the date fixed for such
determination less the then fair market value (as reasonably determined by the
Board of Directors, whose determination shall be set forth in a written
resolution) of the portion of evidences of indebtedness or assets so distributed
applicable to one share of Common Stock and the denominator shall be such
Current Market Price of the Common Stock, such adjustment to become effective
immediately prior to the opening of business on the date following the date
fixed for the determination of shareholders entitled to receive such
distribution.
5.3.2 Stock Splits, Combinations, Etc. In case
the outstanding shares of Common Stock shall be subdivided into a greater number
of shares of Common Stock, the Conversion Price in effect at the opening of
business on the Business Day next following the date on which such subdivision
becomes effective shall be proportionately reduced. Conversely, in case
outstanding shares of Common Stock shall be combined into a smaller number of
shares of Common Stock, the Conversion Price in effect at the opening of
business on the Business Day next following the date upon which such combination
becomes effective shall be proportionately increased. Such reductions or
increases in the Conversion Price, as the case may be, shall become effective
immediately after the opening of business on the Business Day next following the
day upon which such subdivision or combination becomes effective.
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5.3.3 Options, Rights, Warrants, Etc. If the
Corporation shall, after the Initial Issuance Date, issue options, rights,
warrants or convertible or exchangeable securities, in each case other than the
Rights, to all holders of its Common Stock entitling them to subscribe for or
purchase or acquire upon conversion or exchange any shares of Common Stock at a
price per share less than the Current Market Price of the Common Stock on the
Record Date for the determination of shareholders entitled to receive such
options, rights, warrants or convertible or exchangeable securities, then in
each case the Conversion Price shall be adjusted by multiplying the Conversion
Price in effect on such Record Date by a fraction of which the numerator shall
be the number of shares of Common Stock issued and outstanding on the date of
issuance of such options, rights, warrants or convertible or exchangeable
securities, immediately prior to such issuance, plus the number of shares of
Common Stock which the aggregate offering price of the total number of shares of
Common Stock so offered for subscription or purchase pursuant to such options,
rights, warrants or convertible or exchangeable securities, would purchase at
the Current Market Price (determined by multiplying such total number of shares
by the exercise price of such options, rights, warrants or convertible or
exchangeable securities, and dividing the product by such Current Market Price),
and of which the denominator shall be the number of shares of Common Stock
issued and outstanding on the date of issuance of such options, rights, warrants
or convertible or exchangeable securities, immediately prior to such issuance,
plus the number of additional shares of Common Stock offered for subscription or
purchase or acquisition pursuant to such options, rights, warrants or
convertible or exchangeable securities. Such adjustment shall become effective
at the opening of business on the Business Day next following the Record Date
for the determination of shareholders entitled to receive such options, rights,
warrants or convertible or exchangeable securities. To the extent that shares of
Common Stock are not delivered after the expiration of such options, rights,
warrants or convertible or exchangeable securities, the Conversion Price shall
be readjusted to the Conversion Price which would then be in effect had the
adjustments made upon the issuance of such options, rights, warrants or
convertible or exchangeable securities been made upon the basis of the actual
number of shares of Common Stock delivered in connection with the issuance of
such options, rights, warrants or convertible or exchangeable securities.
5.3.4 Issuance Pursuant to Exercise of Rights.
If, after the Initial Issuance Date, the Corporation shall issue or sell shares
of Common Stock upon exercise of the Rights, or the Board of Directors exchanges
all or part of the then outstanding and exercisable Rights for shares of Common
Stock, pursuant to the terms of the Rights (the "Rights Exercise Event"), then,
and in such event, the Conversion Price shall be adjusted by multiplying the
Conversion Price in effect at the time of the Rights Exercise Event by a
fraction of which (i) the numerator shall be the sum of (a) the total number of
shares of Common Stock issued and outstanding immediately prior to the Rights
Exercise Event and (b) the number of shares of Common Stock obtained by dividing
the aggregate consideration received by the Corporation for shares of Common
Stock issued, sold or exchanged in connection with the Rights Exercise Event by
the Current Market Price and (ii) the denominator shall be the sum of (x) the
total number of shares of Common Stock issued and outstanding immediately prior
to the Rights Exercise Event and (y) the number of shares of Common Stock
issued, sold or exchanged in the Rights Exercise Event. Such adjustment shall
become effective upon the consummation of the issuance, sale or exchange.
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5.4 Adjustments for Consolidation, Merger, Sale of
Assets, Reorganization, Etc. If the Corporation, after the Initial Issuance
Date, (a) consolidates with or merges into any other person and is not the
continuing or surviving corporation of such consolidation or merger, or (b)
permits any other person to consolidate with or merge into the Corporation and
the Corporation is the continuing or surviving person but, in connection with
such consolidation or merger, the Common Stock is changed into or exchanged for
stock or other securities of any other person or cash or any other property, or
(c) transfers all or substantially all of the assets or property of the
Corporation to any other person, or (d) effects a capital reorganization or
reclassification of the Common Stock (other than a capital reorganization or
reclassification resulting in the issue of additional shares of Common Stock for
which adjustment in the Conversion Price is required to be made), then, and in
each such case, proper provision shall be made so that, upon the basis and the
terms and in the manner provided in this Section 5, each holder of Series B
Preferred Stock, upon the conversion thereof at any time after the consummation
of such consolidation, merger, exchange, sale, transfer, reorganization or
reclassification, shall be entitled to receive (at the Conversion Price in
effect at the time of such consummation) the kind and amount of shares of stock
and other securities, cash and property receivable upon such consolidation,
merger, exchange, sale, transfer, reorganization or reclassification by a holder
of the number of shares of Common Stock into which such shares of Series B
Preferred Stock so converted might have been converted immediately prior to such
consolidation, merger, exchange, sale, transfer, reorganization or
reclassification, subject to adjustments, which, for events subsequent to the
effective date of such consolidation, merger, exchange, sale, transfer,
reorganization or reclassification, shall be as nearly equivalent as possible to
the adjustments provided for in Section 5. The above provisions of this Section
5.4 shall similarly apply to successive consolidations, mergers, exchanges,
sales, transfers, reorganizations or reclassifications.
5.5 Discretionary Adjustments. The Corporation may make
such reduction in the Conversion Price, in addition to those required by this
Section 5, as it considers to be advisable in order that any event treated for
federal income tax purposes as a dividend of stock or stock rights, other than
the Rights, shall not be taxable to the recipients. In case any event shall
occur as to which the provisions of Section 5 are not strictly applicable but
the failure to make any adjustment would not fairly protect the conversion
rights of the holders of Series B Preferred Stock in accordance with the
essential intent and principles of such Section, then, in each such case, the
Board of Directors of the Corporation shall by resolution give their opinion
upon the adjustment, if any, on a basis consistent with the essential intent and
principles established in this Section 5, necessary to preserve, without
dilution, the conversion rights represented herein. The Corporation will
promptly make the adjustments described therein.
5.6 Minimum Adjustment of Conversion Price. No
adjustment in the Conversion Price pursuant to this Section 5 shall be required
unless such adjustment would require an increase or decrease of at least one
percent (1%) in such price; provided, however, that any adjustments which by
reason of this Section 5.6 are not required to be made shall be carried forward
and adjustment with respect thereto made at the time of and together with any
adjustment which, together with such amount and any other amount of amounts so
carried forward, shall aggregate at least one percent (1%) of such Conversion
Price. All calculations under this Section 5 shall be made to the nearest cent
or to the nearest one-hundredth (1/100) of a share, as the case may be.
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5.7 Notices of Adjustment. Upon the occurrence of
each adjustment or readjustment of the Conversion Price pursuant to this Section
5, the Corporation at its sole expense shall:
(a) promptly compute the adjusted Conversion
Price or other adjustment in accordance with the terms hereof and shall prepare
a report, which shall be certified by an officer of the Corporation, setting
forth the adjusted Conversion Price or other adjustment and showing in
reasonable detail the facts upon which all such adjustments are based, and
copies of such report forthwith shall be delivered to the duly appointed
Transfer Agent then acting as such with respect to the Series B Preferred Stock,
and shall be kept at the office of such Transfer Agent;
(b) make a timely public announcement stating
that the Conversion Price has been adjusted and setting forth the adjusted
Conversion Price; and
(c) promptly mail a notice setting forth such
adjusted Conversion Price or other adjustment in accordance with the terms
hereof to the holders of record of shares of Series B Preferred Stock, at their
last addresses as they shall appear upon the books of the Corporation; provided,
however, that if within ten (10) days after the completion of mailing of such a
notice an additional notice is required, such additional notice shall be deemed
to be required pursuant to this clause (c) as of the opening of business on the
tenth day after such completion of mailing and shall set forth the adjustment as
at such opening of business and, upon the completion of mailing of such
additional notice, no other notice need be given of any such adjustments
occurring at or prior to such opening of business and after the time that the
next preceding notice given by mail became required.
5.8 Notices of Actions. In the event:
(a) the Corporation declares a dividend (or
any other distribution) payable otherwise than in cash; or
(b) the Corporation shall authorize the
granting to holders of Common Stock of options, rights, warrants or convertible
or exchangeable securities, in each case other than the Rights, to subscribe for
or purchase any shares of capital stock of any class or of any other rights; or
(c) of any reclassification of the Common Stock
of the Corporation (other than a subdivision or combination of its outstanding
shares of Common Stock or a stock dividend or stock distribution thereon), or of
any consolidation or merger of the Corporation into or with another corporation,
or of the sale of all or substantially all of the assets of the Corporation;
(d) of the involuntary or voluntary dissolution,
liquidation or winding up of the Corporation; or
(e) the Corporation makes any distribution of
the type contemplated by Section 5.3.1(c) above or issues shares of Common Stock
in connection with a Rights Exercise Event as set forth in Section 5.3.4 above;
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the Corporation shall as promptly as practicable cause to be filed at the office
of the Transfer Agent of the Series B Preferred Stock and cause to be mailed to
the holders of shares of the Series B Preferred Stock at their last addresses as
shown on the records of the Corporation or such Transfer Agent, at least thirty
(30) days (or twenty (20) days in any case specified in clause (a) or (b) above)
prior to the Record Date hereinafter specified, a notice stating:
(i) the Record Date of such dividend,
distribution, options, rights, warrants or convertible or exchangeable
securities, or, if a record is not be taken, the date as of which the holders of
Common Stock of record to be entitled to such dividend, distribution, options,
rights, warrants or convertible or exchangeable securities are to be determined;
or
(ii) the date on which such
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up is expected to become effective, and the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other property deliverable upon
such reclassification, consolidation, merger, sale, dissolution or winding up.
6. Redemption.
6.1 Right of Optional Redemption. Unless previously
converted pursuant to Section 5, and subject to the limitations of this Section
6, on and after __________, 200_ [insert date that is the fifth anniversary of
the Initial Issuance Date], the Corporation shall have the right, at its option
and by resolution of its Board of Directors, to redeem at any time all or, from
time to time, part of the Series B Preferred Stock at a price per share (the
"Series B Redemption Price") set forth below, payable in cash, together with all
accrued and unpaid dividends to and including the date fixed for redemption (the
"Series B Redemption Date"), without interest. In case of redemption of less
than all shares of Series B Preferred Stock at the time outstanding, the shares
of Series B Preferred Stock to be redeemed shall be selected pro rata from the
holders of record of such shares in proportion to the number of shares of Series
B Preferred Stock held by such holders (as nearly as may be practicable without
creating fractional shares) or by any other equitable method determined by the
Corporation.
The Series B Redemption Price on and after __________, 200_
[insert date that is the fifth anniversary of the Initial Issuance Date], shall
be as follows:
Time Period Series B Redemption Price
----------- -------------------------
__________, 200_ through ___________, 200_ $52.00
__________, 200_ through ___________, 200_ $51.50
__________, 200_ through ___________, 200_ $51.00
__________, 200_ through ___________, 200_ $50.50
__________, 200_ and thereafter $50.00
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6.2 Procedures for Redemption.
(a) Until such time as the shares of Series B
Preferred Stock are listed on the New York Stock Exchange or another national
securities exchange, notice of any redemption (the "Redemption Notice") will be
mailed by the Corporation, postage prepaid, not less than thirty (30) nor more
than sixty (60) days prior to the Series B Redemption Date, addressed to the
respective holders of record of the Series B Preferred Stock to be redeemed at
the address for such holder last shown on the records of the Transfer Agent.
After such time as the Series B Preferred Stock may be listed on the New York
Stock Exchange or another national securities exchange, the Redemption Notice
also will be given by publication in a newspaper of general circulation in New
York, New York, such publication to be made once a week for two (2) successive
weeks commencing not less than thirty (30) nor more than sixty (60) days prior
to the Series B Redemption Date and in any case in accordance with the
applicable rules of such exchange. No failure to give the Redemption Notice or
any defect therein or in the mailing thereof shall affect the validity of the
proceedings for the redemption of any Series B Preferred Stock except as to the
holder to whom the Corporation has failed to give notice or except as to the
holder to whom the Redemption Notice was defective. In addition to any
information required by law or by the applicable rules of any exchange upon
which Series B Preferred Stock may be listed or admitted to trading, such
Redemption Notice shall state: (a) the Series B Redemption Date; (b) the Series
B Redemption Price; (c) the number of shares of Series B Preferred Stock to be
redeemed; (d) the place or places where certificates for such shares are to be
surrendered for payment of the Series B Redemption Price; (e) that dividends on
the shares to be redeemed will cease to accumulate on the Series B Redemption
Date; and (f) with respect to the convertibility of such shares, (i) the name
and address of the Transfer Agent, (ii) the Conversion Price, (iii) the date and
time when the conversion period will expire, including the dates when conversion
cannot be effected, if any, and (iv) if any dividend declared or accrued on or
before the Series B Redemption Date remains unpaid on such shares of Series B
Preferred Stock, whether or not shares issued upon conversion will be entitled
to receive such dividend. If less than all the shares of Series B Preferred
Stock held by any holder are to be redeemed, the Redemption Notice mailed to
such holder shall also specify the number of shares of Series B Preferred Stock
held by such holder to be redeemed.
(b) If the Redemption Notice of any shares of
Series B Preferred Stock has been mailed, and if published (if appropriate), in
accordance with Section 6.2(a) above and provided that on or before the Series B
Redemption Date specified in such Redemption Notice all funds necessary for such
redemption shall have been irrevocably delivered to the bank or trust company
described in Section 6.3 below, separate and apart from its other funds in trust
for the benefit of any holders of the shares of Series B Preferred Stock so
called for redemption, so as to be, and to continue to be available therefor,
then, from and after the Series B Redemption Date, dividends on such shares of
Series B Preferred Stock shall cease to accrue, and such shares shall no longer
be deemed to be outstanding and shall not have the status of Series B Preferred
Stock and all rights of the holders thereof as shareholders of the Corporation
(except the right to receive the Series B Redemption Price and to convert the
number of shares of Series B Preferred Stock specified in the Redemption Notice
into Common Stock) shall terminate. Upon surrender, in accordance with said
Redemption Notice, of the certificate for any shares of Series B Preferred Stock
so redeemed (properly endorsed or assigned
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for transfer, if the Corporation shall so require and the Redemption Notice
shall so state), such shares of Series B Preferred Stock shall be redeemed by
the Corporation at the Series B Redemption Price. In case less than all the
shares of Series B Preferred Stock represented by any such certificate are
redeemed, a new certificate or certificates shall be issued representing the
unredeemed shares of Series B Preferred Stock without cost to the holder
thereof.
6.3 Deposit of Redemption Price. On or before the
Series B Redemption Date, the Corporation shall deposit with a bank or trust
company in New York, New York, having a capital and surplus of at least
$50,000,000, in a trust to be applied to the redemption of the shares of Series
B Preferred Stock so called for redemption, the funds necessary for such
redemption. The deposit of funds with a bank or trust company for the purpose of
redeeming Series B Preferred Stock shall be irrevocable except that:
(a) the Corporation shall be entitled to
receive from such bank or trust company the interest or other earnings, if any,
earned on any money so deposited in trust and invested into one (1) or more of
the following obligations or securities, to which interest or other earnings the
holders of any shares redeemed shall have no claim:
(i) direct obligations of, and
obligations fully guaranteed by, the United States of America, or any agency
thereof, the obligations of which are backed by the full faith and credit of the
United States Government;
(ii) certificates of deposit, time
deposits, commercial paper and bankers' acceptances issued by any bank (or its
holding company) whose senior secured debt has the highest rating given by
Standard & Poor's Corporation, a New York corporation, or any successor thereto
by merger, consolidation, sale of substantially all of its assets or otherwise;
and
(iii) deposits which are fully insured by
the Federal Deposit Insurance Corporation of the Federal Savings and Loan
Insurance Corporation;
provided, that prior to the Series B Redemption Date, such investments shall be
made in such manner as to mature by their terms not later than the day preceding
the Series B Redemption Date; and
(b) any balance of moneys so deposited by the
Corporation and unclaimed by the holders of the Series B Preferred Stock
entitled thereto at the expiration of one (1) year from the applicable Series B
Redemption Date shall be repaid, together with any interest or other earnings
earned thereon, to the Corporation, and after any such repayment, the holders of
the shares entitled to the funds so repaid to the Corporation shall look only to
the Corporation for payment without interest or other earnings. Any interest
accrued on funds so deposited shall be paid to the Corporation at such times as
the Corporation may request.
6.4 Source of Funds. The Series B Redemption Price
may be paid, to the extent permitted by applicable law, from any source,
including sale proceeds of other capital stock of the Corporation.
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6.5 Rights to Dividends on Shares Called for Redemption.
If the Series B Redemption Date is after a Dividend Record Date and before the
related Dividend Payment Date, the dividend payable on such Dividend Payment
Date shall be paid to the holder in whose name the shares of Series B Preferred
Stock to be redeemed are registered at the close of business on such Dividend
Record Date notwithstanding the redemption thereof between such Dividend Record
Date and the related Dividend Payment Date. Except as provided in this Section
6, the Corporation will make no payment or allowance for unpaid dividends,
whether or not in arrears, on called Series B Preferred Stock.
6.6 Limitation on Redemption. Unless Full Cumulative
Dividends on all shares of Series B Preferred Stock shall have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment for all past Dividend Periods and the then
current Dividend Period (or portion thereof), no Series B Preferred Stock shall
be redeemed (unless all outstanding shares of Series B Preferred Stock are
simultaneously redeemed) or purchased or otherwise acquired directly or
indirectly (except by exchange for Common Stock); provided, however, that the
foregoing shall not prevent the redemption of Series B Preferred Stock pursuant
to Section 4 or the purchase or acquisition of Series B Preferred Stock pursuant
to an offer made on the same terms to holders of all outstanding shares of
Series B Preferred Stock.
7. Voting Rights.
7.1 General. Except as required by the Virginia
Stock Corporation Act and except as otherwise provided in this Section 7, the
holders of the Series B Preferred Stock shall not be entitled to vote at any
meeting of the shareholders for election of directors or for any other purpose
or otherwise to participate in any action taken by the Corporation or the
shareholders thereof, or to receive notice of any meeting of shareholders. On
matters subject to a vote by holders of the Series B Preferred Stock, such
holders are entitled to one (1) vote per share.
7.2 Right to Elect Directors. Whenever dividends on any
shares of Series B Preferred Stock shall be in arrears for six (6) or more
quarterly periods whether or not consecutive (a "Default"), the holders of such
shares of Series B Preferred Stock, voting separately as a class, will be
entitled to vote for the election of two (2) additional directors of the
Corporation at a special meeting called by the holders of record of a least 10%
of the Series B Preferred Stock so in arrears or at the next annual meeting of
shareholders, if such request is received less than 60 days before the date
fixed for the next annual meeting of the shareholders, and at each subsequent
annual meeting until all dividends accumulated on such shares of Series B
Preferred Stock for the past Dividend Periods and the then current Dividend
Period shall have been fully paid in cash. In such case, the Board of Directors
of the Corporation will be increased by two (2) directors. Each such director
elected pursuant to this Section 7.2 (a "Preferred Stock Director") shall be
elected by the affirmative vote of the holders of record of a majority of the
shares of Series B Preferred Stock present and voting at such meeting, at a
meeting called, held and conducted as provided in Section 7.3 through 7.5 below.
Each Preferred Stock Director shall serve as a director until the Default is
cured, at which time the term of each such Preferred Stock Director shall
terminate and the number of directors shall be reduced accordingly.
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7.3 Removal of Directors; Vacancies. Any Preferred
Stock Director may be removed at any time, either with or without cause, by (and
only by) an affirmative vote of the holders of record of a majority of the
shares of Series B Preferred Stock present and voting at a special meeting of
such shareholders called for such purpose, and any vacancy created by such
removal may also be filled at such meeting. Any vacancy caused by the death or
resignation of a Preferred Stock Director may be filled by only the holders of
record of Series B Preferred Stock at a meeting called for such purpose. The
quorum at any such meeting shall be a majority of the outstanding shares of
Series B Preferred Stock. The holders of a majority of the Series B Preferred
Stock present and voting at such meeting shall select a chairman of such
meeting. A meeting for the removal of a Preferred Stock Director and the filling
of the vacancy created thereby or by the death of a Preferred Stock Director
shall be called by the Secretary of the Corporation within ten (10) days after
receipt of a written request signed by the holders of record of at least ten
percent (10%) of the outstanding shares of Series B Preferred Stock by sending,
in each case, written notice of such meeting to each holder of Series B
Preferred Stock at his or her registered address on the books of the
Corporation. Such notice shall state the purposes of the meeting and the place
and time for the meeting, which shall be held in New York, New York, at the
earliest practicable date thereafter. The giving of such notice shall constitute
the only obligation of the Corporation pursuant to this Section 7.3.
7.4 Failure to Call Meeting. If the calling of any
meeting of the holders of Series B Preferred Stock required by this Section 7
shall not have been called by the Secretary of the Corporation within ten (10)
days after personal service of a written request therefor, or within fifteen
(15) days after the mailing of a written request therefor within the United
States of America by registered mail addressed to him or her at the principal
office of the Corporation, then the holders of record of at least ten percent
(10%) of the outstanding shares of Series B Preferred Stock may designate in
writing one of their number to give notice of such meeting at the expense of the
Corporation and such meeting may be called by such person so designated. Any
holders of Series B Preferred Stock so designated shall have access to the stock
books of the Corporation for the purpose of causing meetings of holders of
Series B Preferred Stock to be called pursuant to these provisions.
7.5 Written Consents. Notwithstanding anything
contained herein to the contrary, any action required or permitted to be taken
by the holders of record of Series B Preferred Stock at any annual or special
meeting of shareholders may be taken without a meeting, at any time without
prior notice and without a vote, by a consent in writing setting forth the
action so taken, signed by holders of Series B Preferred Stock holding a
sufficient number of shares of Series B Preferred Stock to vote in favor of such
action at any annual or special meeting of shareholders.
7.6 Termination of Voting Rights. The foregoing
voting provisions will not apply if, at or prior to the time when the act with
respect to which such vote would otherwise be required shall be effected, all
outstanding shares of Series B Preferred Stock shall have been redeemed and the
applicable Series B Redemption Price paid.
8. Listing of Shares; Other Covenants Relating to Conversion.
8.1 Listing of Shares. The Corporation will, as
permitted by the rules of the New York Stock Exchange, cause to be listed and
keep listed on such exchange, upon official notice of
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issuance, all shares of Common Stock issuable upon conversion of the Series B
Preferred Stock. If any shares of Common Stock required to be reserved for
purposes of conversions of shares of the Series B Preferred Stock hereunder
require, as a result of any change in law or regulation after the Initial
Issuance Date, registration with or approval of any governmental authority under
any federal or state law (other than any registration under the Securities Act
of 1933, as then in effect, or any similar federal statute then in force, or any
state securities law, required by reason of any transfer involved in such
conversion), or listing on any national securities exchange, the Corporation
will in good faith, at its own expense and as expeditiously as possible endeavor
to cause such shares to be duly registered or approved for listing or listed on
such national securities exchange, as the case may be.
8.2 Reservation of Shares. The Corporation will at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, or otherwise, solely for the purpose of issue upon the conversion
of the Series B Preferred Stock as provided in Section 5, such number of shares
of Common Stock as shall then be issuable upon the conversion of all outstanding
shares of Series B Preferred Stock.
8.3 Authorized Shares of Common Stock. The Corporation
will not take any action which results in any adjustment of the number of shares
of Common Stock acquirable upon conversion of a share of Series B Preferred
Stock if the total number of shares of Common Stock issuable after such action
upon conversion of the Series B Preferred Stock then outstanding, together with
the total number of shares of Common Stock and other securities of the
Corporation convertible or exchangeable into Common Stock then outstanding,
would exceed the total number of shares of Common Stock then authorized under
Article Fourth of the Corporation's Articles of Incorporation, as amended.
8.4 Shares Issued on Conversion to be Validly Issued,
Etc. The shares of Common Stock issuable upon conversion of the shares of Series
B Preferred Stock, when the same shall be issued in accordance with the terms
hereof, are hereby declared to be and shall be duly and validly authorized and
issued and fully paid and nonassessable shares of Common Stock in the hands of
the holders thereof.
8.5 No Fractional Shares. No fractional shares or
scrip representing fractional shares of Common Stock shall be issued upon
conversion of Series B Preferred Stock. Instead of any fractional share of
Common Stock that would otherwise be issuable upon conversion of any shares of
Series B Preferred Stock, the Corporation shall pay a cash adjustment in respect
of such fractional interest in an amount equal to the same fraction of the
Closing Price of a share of Common Stock (or, if there is no such Closing Price,
the Current Market Price of a share of Common Stock, as determined or prescribed
in good faith by the Board of Directors) at the close of Business on the Trading
Day immediately preceding the Conversion Date.
8.6 Other Action. If the Corporation shall take any
action affecting the Common Stock, other than action described in Section 5,
that in the opinion of the Board of Directors would materially adversely affect
the conversion rights of the holders of the shares of Series B Preferred Stock,
the Conversion Rate for the Series B Preferred Stock may be adjusted, to the
extent permitted
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by law, in such manner, if any, and at such time, as the Board of Directors may
determine to be equitable in the circumstances.
9. Preferred Stock Alterations and Restrictions.
9.1 Amendments to Articles of Incorporation. Except as
set forth in Section 9.2 of this Section 9, the Articles of Incorporation of the
Corporation shall not be changed so as to alter in an adverse manner the powers,
preferences or special rights of the Series B Preferred Stock without the
consent, either in writing or by a vote at a meeting called for that purpose, of
the holders of at least three-fourths (3/4) of the number of shares outstanding
of the Series B Preferred Stock. In giving such consent, the holders of the
Series B Preferred Stock shall vote as a single class. Any meeting for such
purpose shall be called, held and conducted as provided in Sections 7.3 through
7.5 above except that the Corporation may call a meeting for such purpose
without having received a written request signed by the holders of ten percent
(10%) of the outstanding shares of Series B Preferred Stock.
9.2 Changes to Preferred Stock. Without the consent of
the holders of at least nine-tenths (9/10) of the number of shares of the Series
B Preferred Stock at the time outstanding, either in writing or by a vote at a
meeting called for that purpose at which the holders of the Series B Preferred
Stock shall vote as a single class, neither by modification of the Articles of
Incorporation of the Corporation nor by written action of the Board of Directors
shall the Corporation:
(a) change the rate at which dividends accrue on
the Series B Preferred Stock;
(b) change the times at which dividends accrue
on the Series B Preferred Stock;
(c) change, reclassify or extinguish the
shares of Series B Preferred Stock, whether pursuant to (i) a merger or
consolidation of the Corporation with or into another corporation or
corporations, (ii) a transfer of all or substantially all of the assets of the
Corporation to another corporation or corporations or (iii) a plan of exchange;
or
(d) change the initial Conversion Price set
forth in Section 5.2 or any provision for adjusting the Conversion Price in
Section 5.3;
(e) change the Series B Redemption Price, or the
time or times when the Series B Preferred Stock may be redeemed; or
(f) change Section 11 hereof; or
(g) change the percentage of the number of
shares of the Series B Preferred Stock outstanding required to approve any act
described in (a)-(f) above.
Any meeting for such purpose shall be called, held and conducted as provided in
Sections 7.3 through 7.5 above except that the Corporation may call a meeting
for such purpose without having received a
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written request signed by the holders of ten percent (10%) of the outstanding
shares of Series B Preferred Stock.
9.3 No Preemptive Rights. No holder of shares of the
Corporation of any class, now or hereafter authorized, shall as such holder have
any preemptive right to subscribe to, purchase, or receive any shares of the
Corporation of any class, now or hereafter authorized.
10. Definitions. For purposes of this Preferred Stock Designation
of Series B Preferred Stock, the following terms shall have the meanings
indicated:
10.1 "Business Day" shall mean any day other than a
Saturday, Sunday, or a day on which banking institutions in the State of New
York are authorized or obligated by law or executive order to close or a day
which is declared a national or New York state holiday.
10.2 "Closing Price" with respect to any securities on any
day shall mean the closing sale price regular way on such day on the New York
Stock Exchange or, if such security is not listed or admitted to trading on such
exchange, on the principal national securities exchange or quotation system on
which such security is quoted or listed or admitted to trading, or, if not
quoted or listed or admitted to trading on any national securities exchange or
quotation system, the average of the closing bid and asked prices of such
security on over-the-counter market on the day in question as reported by the
National Association of Securities Dealers, Inc. Automated Quotation System, or
a similarly generally accepted reporting service, or if not so available, in
such manner as furnished by any New York Stock Exchange member firm independent
of the Corporation selected from time to time in good faith by the Board of
Directors for that purpose.
10.3 "Common Stock" shall mean the Corporation's common
stock, without par value.
10.4 "Conversion Date" shall have the meaning set forth
in Section 5.1.
10.5 "Conversion Price" shall have the meaning set forth
in Section 5.2.
10.6 "Current Market Price" shall mean the average of
the daily Closing Prices per share of Common Stock for the ten (10) consecutive
Trading Days (on which sales of shares have occurred) immediately prior to the
date in question; provided, however, that if any event that results in an
adjustment of the Conversion Price occurs during the period beginning on the
first day of such ten-day period and ending on the applicable Conversion Date,
the Current Market Price as determined pursuant to the foregoing shall be
appropriately adjusted to reflect the occurrence of such event.
10.7 "Default" shall have the meaning set forth in Section
7.2.
10.8 "Dividend Payment Date" shall have the meaning set
forth in Section 3.1.
10.9 "Dividend Period" shall have the meaning set forth
in Section 3.1.
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10.10 "Dividend Record Date" shall have the meaning set
forth in Section 3.1.
10.11 "Full Cumulative Dividends" shall mean, with respect
to the Series B Preferred Stock, or any other capital stock of the Corporation,
as of any date the aggregate amount of all then accumulated, accrued and unpaid
dividends payable on such shares of Series B Preferred Stock, or other capital
stock, as the case may be, in cash, whether or not earned or declared and
whether or not there shall be funds legally available for the payment thereof.
10.12 "Initial Issuance Date" shall mean the date on
which shares of Series B Preferred Stock are initially issued by the
Corporation.
10.13 "Preferred Stock" shall mean the Corporation's
preferred stock, without par value.
10.14 "Preferred Stock Director" shall have the meaning
set forth in Section 7.2.
10.15 "Preferred Stock Designation" shall mean a resolution
or resolutions adopted by the Board of Directors providing for the issue of a
series of the Corporation's Preferred Stock.
10.16 "Record Date" shall mean, with respect to any
dividend, distribution or other transaction or event in which the holders of
Common Stock have the right to receive the cash, securities or other property
granted by the Corporation, or in which the Common Stock (or other applicable
security) is exchanged or converted into any combination of cash, securities or
other property, the date fixed for determination of shareholders entitled to
receive such cash, securities or other property (whether such date is fixed by
the Board of Directors or by statute, contract or otherwise), and with respect
to any subdivision or combination of the Common Stock, the effective date of
such subdivision or combination.
10.17 "Redemption Notice" shall have the meaning set forth
in Section 6.2.
10.18 "RIC" shall mean Reliance Insurance Company, a
Pennsylvania corporation.
10.19 "Rights" shall mean the rights of the Corporation
which are issuable under the Amended and Restated Rights Agreement, dated August
20, 1997, between the Corporation and Wachovia Bank of North Carolina, N.A., as
the Rights Agent, as such may be amended from time from time, or rights to
purchase any capital stock of the Corporation under any successor shareholder
rights plan or plan adopted in replacement of the Amended and Restated Rights
Agreement.
10.20 "Series B Preferred Stock" shall have the meaning
set forth in Section 1.
10.21 "Series B Redemption Date" shall have the meaning
set forth in Section 6.1.
10.22 "Series B Redemption Price" shall have the meaning
set forth in Section 6.1.
10.23 "Stated Value" shall have the meaning set forth in
Section 1.
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10.24 "Trading Day" shall mean (a) if the applicable
security is listed or admitted for trading on the New York Stock Exchange or
another national securities exchange, a day on which such exchange is open for
business or (b) if the applicable security is quoted on the National Market
System of the National Association of Securities Dealers Automated Quotation
System, a day on which trades may be made on such National Market System or (c)
if the applicable security is not so listed, admitted for trading or quoted, any
day other than a Saturday or Sunday or a day on which banking institutions in
the State of New York are authorized or obligated by law or executive order to
close.
10.25 "Transfer Agent" shall mean Wachovia Bank, N.A., or
any other national or state bank or trust company having combined capital and
surplus of at least $50,000,000 and designated by the Corporation as the
transfer agent and/or registrar of the Series B Preferred Stock, or if no such
designation is made, the Corporation.
11. Certain Non-Performance Remedies Exercisable Solely by RIC
and its Affiliates.
11.1. Exclusivity of Remedies, Non-Transferability. On
August 20, 1997, the Corporation and its subsidiary, Lawyers Title Insurance
Corporation, entered into a certain Stock Purchase Agreement (the "Agreement")
with Reliance Insurance Company ("RIC") and Reliance Group Holdings, Inc.
("Reliance") in connection with the acquisition by the Corporation of all of the
issued and outstanding capital stock of RIC's two subsidiaries, Commonwealth
Land Title Insurance Company ("Commonwealth") and Transnation Title Insurance
Company. As part of the transactions contemplated by that Agreement, the parties
agreed that RIC shall be issued all 2,200,000 shares of the Series B Preferred
Stock ("RIC Series B Preferred Shares") authorized hereby and shall have certain
remedies upon the occurrence of the events set forth in Section 11.3 below. The
remedies contained in Section 11.3 are exercisable solely and exclusively by
RIC, to the extent RIC holds all of the RIC Series B Preferred Shares at the
time any of such remedies become exercisable, or by RIC and its Affiliates as a
Group, to the extent RIC and any Affiliate of RIC hold any of the RIC Series B
Preferred Shares at the time any of such remedies become exercisable. With
respect to holdings of RIC Series B Preferred Shares by RIC and its Affiliates
as a Group, the exercise of any remedy set forth in Section 11.3 shall be by
RIC, who is hereby designated as the "representative" of the Group for purposes
of exercising any such remedy, and any such exercise by RIC shall preclude the
exercise of such remedy by any other member of the Group. The remedies hereunder
are not transferable or assignable to subsequent holders of the shares of the
Series B Preferred Stock. Any sale, conveyance or transfer of shares of the
Series B Preferred Stock by RIC to any Person not an Affiliate of RIC at the
time of such sale, conveyance or transfer shall render the provisions of this
Section 11 null and void as to the shares of Series B Preferred Stock so sold,
conveyed or transferred.
11.2 Definitions. For purposes of this Section 11,
the following terms shall have the following meanings:
11.2.1 "Adjusted Outstanding Shares" shall mean,
at any time and with respect to the determination of (i) the RIC Ownership
Percentage as it relates to RIC and its Affiliates, and (ii) any other
percentage of the beneficial ownership of Common Stock as it relates to a Person
or
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Group, the total number of shares of Common Stock then issued and outstanding
together with the total number of shares of Common Stock not then issued and
outstanding that would be outstanding if (x) all then existing shares of Series
B Preferred Stock had been converted and (y) all then existing warrants and
options exercisable into shares of Common Stock had been exercised (other than
underwriters' overallotment options and stock options granted under benefit
plans of the Corporation or its Affiliates), but excluding any Rights which may
be exercisable under the Amended and Restated Rights Agreement, dated August 20,
1997, between the Corporation and Wachovia Bank, N.A, as such may be amended
from time to time, or any successor shareholder rights plan or agreement;
provided that if the Corporation issues the Subordinated Note to RIC on the
Closing Date as provided in the Agreement, the Adjusted Outstanding Shares also
shall be deemed to include the total number of shares of Common Stock subject to
deferred issuance and delivery pursuant to Section 2.2.1(c) of the Agreement.
11.2.2 "Affiliate" shall have the meaning
ascribed to such term in Rule 12b-2 under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), as in effect on the date of the Standstill
Agreement, and shall include, with respect to a determination of the Affiliates
of RIC, any Affiliate of Reliance.
11.2.3 "Beneficial ownership," "beneficial owner"
and "beneficially own" shall have the meanings ascribed to such terms in Rule
13d-3 under the Exchange Act as in effect on the date of the Standstill
Agreement; provided that RIC and each of its Affiliates and any Person or Group
shall be deemed to be the beneficial owners of any shares of Common Stock that
such RIC, Affiliate, Person and/or Group has the right to acquire within one
year pursuant to Section 2.2.1(c) of the Agreement or pursuant to any other
agreement, arrangement or understanding or upon the exercise of conversion or
exchange rights, warrants, options or otherwise, including but not limited to
any right to acquire shares of Common Stock through the conversion of the Series
B Preferred Stock.
11.2.4 "Combined Ratio" of any entity shall mean,
for any given period, all Title Insurance-Related Expenses divided by all Title
Insurance-Related Gross Operating Revenues, expressed as a percentage; provided,
however, that the Corporation's Combined Ratio also shall be net of any
transaction-related or reorganization expenses incurred within twelve (12)
months of the closing of the transactions contemplated by the Agreement.
11.2.5 "Debt Obligations" shall mean (i)
indebtedness or liability for borrowed money; (ii) obligations evidenced by
bonds, debentures, notes or other similar instruments; (iii) obligations under
letters of credit; and (iv) all guarantees, endorsements (other than for
collection or deposit in the ordinary course of business) and other contingent
obligations to insure a creditor against loss.
11.2.6 "Group" shall have the meaning
comprehended by Section 13(d)(3) of the Exchange Act as in effect on the date of
the Standstill Agreement.
11.2.7 "RIC Director" shall mean a person
designated by RIC for nomination and election to the Board of Directors of the
Corporation pursuant to the Standstill Agreement, but shall not include Herbert
Wender, the Chief Executive Officer of Commonwealth.
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11.2.8 "RIC Ownership Percentage" shall mean,
at any time, the percentage of the Adjusted Outstanding Shares that is
beneficially owned in the aggregate by RIC and its Affiliates.
11.2.9 "Peer Combined Ratio" shall mean the
Weighted Average of Combined Ratios of Chicago Title Insurance Company and its
affiliated title insurance companies, First American Title Insurance Company and
its affiliated title insurance companies, Fidelity National Title Insurance
Company and its affiliated title insurance companies and Old Republic Title
Insurance Company and its affiliated title insurance companies; provided that if
the Combined Ratio of any title insurance company in the Peer Combined Ratio is
no longer obtainable due to merger, consolidation, dissolution or otherwise, the
Corporation, with the agreement in writing of RIC, may substitute another title
insurance company that, at the time of such substitution, ranks in the top ten
of United States title insurance companies in terms of title insurance revenues.
In order to estimate the Combined Ratio for companies in the Peer Combined Ratio
where the information is not specifically available, certain adjustments will be
made as deemed reasonable by both the Corporation and RIC. To the extent that
the Combined Ratio for companies in the Peer Combined Ratio are affected by the
operating structure of the company, certain adjustments will be made as deemed
reasonable by both the Corporation and RIC. Should the Corporation and RIC be
unable to agree on any adjustments pursuant to this Section 11.2.9, a decision
regarding such adjustment will be made promptly by an independent "Big Six"
accounting firm selected by the Corporation and RIC.
11.2.10 "Person" shall have the meaning set
forth in Section 3(a)(9) of the Exchange Act as in effect on the date of the
Standstill Agreement.
11.2.11 "Preferred Shares Sales Period" shall mean
the period between the closing date of the Agreement and the date which is eight
years and six months after such closing date (subject to extension as described
in the Standstill Agreement).
11.2.12 "Standstill Agreement" shall mean the
Voting and Standstill Agreement, dated __________ __, 199_, by and between the
Corporation, RIC and Reliance.
11.2.13 "Title Insurance-Related Expenses" shall
mean the sum of an entity's provision for losses, net of extraordinary claims,
and all operating expenses associated with the conduct of such entity's title
insurance business, including an allocation of the entity's general and
administrative expense which reasonably reflects the proportion of the entity's
overall business that is comprised of title insurance operations, all determined
in accordance with generally accepted accounting principles.
11.2.14 "Title Insurance-Related Gross Operating
Revenues" shall mean all gross premiums and fees resulting from the conduct of
an entity's title insurance business, net of assumed and ceded reinsurance
premiums, all determined in accordance with generally accepted accounting
principles.
11.2.15 "Weighted Average of Combined Ratios"
shall mean the number determined by dividing (a) the sum of the amounts
calculated by multiplying the Combined Ratio of
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each company comprising the Peer Combined Ratio by their respective title
insurance revenues by (b) the sum of the title insurance revenues for all such
companies.
11.3 Remedies Upon Certain Defaults. Until the earlier of
(i) the date the RIC Ownership Percentage is less than twenty percent (20%) or
(ii) the expiration of the Preferred Shares Sales Period:
(a) in the event that (1) the Corporation's Combined
Ratio exceeds the Peer Combined Ratio by more than five (5) percentage
points for any twelve month period (beginning with the twelve month
period commencing January 1, 1998), with such calculation to be
determined as of March 31, June 30, September 30 and December 31 of
each year for the previous twelve months, and (2) any two of Standard &
Poors Corporation, Duff & Phelps Corporation or A.M. Best have
downgraded the Corporation's claims paying ability rating to or below a
rating of BBB - (or its equivalent),
(i) the Corporation will (a) take such action
as may be necessary to increase the size of the Board of
Directors of the Corporation by three (3) directors, (b) fill
the three (3) vacancies created thereby with additional RIC
Directors and (c) recommend such additional RIC Directors for
election as directors at the next annual meeting of the
Corporation's shareholders. Such additional RIC Directors
shall have the same rights and obligations as the RIC
Directors appointed or elected in accordance with Article II
of the Standstill Agreement except that such additional RIC
Directors shall not be subject to approval of the Continuing
Directors (as defined in the Standstill Agreement). Of the
three (3) RIC Directors, one shall be appointed to Class I,
one shall be appointed to Class II and one shall be appointed
to Class III, as such classes are designated in the Standstill
Agreement; and
(ii) the provisions of Article III (other than
Section 3.1(a)(i)) and Section 4.1 of the Standstill Agreement
and Section 12 hereof shall no longer apply to RIC or its
Affiliates.
(b) in the event that RIC or any Affiliate of RIC
beneficially owns shares of the Series B Preferred Stock and the
Corporation fails to pay in cash the full amount of the dividend on the
Series B Preferred Stock on one (1) occasion within five (5) days of
the applicable Dividend Payment Date,
(i) the Corporation will (a) take such action as
may be necessary to increase the size of the Board of
Directors of the Corporation by three (3) directors and (b)
fill the three (3) vacancies created thereby with additional
RIC Directors and (c) recommend such additional RIC Directors
for election as directors at the next annual meeting of the
Corporation's shareholder. Such additional RIC Directors shall
have the same rights and obligations as the RIC Directors
appointed or elected in accordance with Article II of the
Standstill Agreement except that such additional RIC Directors
shall not be subject to
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approval of the Continuing Directors (as defined in the
Standstill Agreement). Of the three (3) RIC Directors, one
shall be appointed to Class I, one shall be appointed to Class
II and one shall be appointed to Class III, as such classes
are designated in the Standstill Agreement; and
(ii) the provisions of Article III (other than
Section 3.1(a)(i)) and Section 4.1 of the Standstill Agreement
and Section 12 hereof shall no longer apply to RIC or its
Affiliates.
(c) in the event that RIC or any Affiliate of RIC
beneficially owns shares of the Series B Preferred Stock and the
Corporation fails to pay in cash the full amount of the dividend on the
Series B Preferred Stock on two (2) occasions, whether or not
consecutive, within five (5) days of the applicable Dividend Payment
Dates, the provisions of Section 3.1(a)(i) of Article III and Section
4.2 of Article IV of the Standstill Agreement shall no longer apply to
RIC or its Affiliates.
(d) in the event that (1) the Corporation defaults on
any of its Debt Obligations in excess of $15,000,000 (individually or
at any one time in the aggregate)(a "Material Default"), and the
Material Default is not cured or waived within the time period and
manner prescribed by the applicable agreements or instruments, and
which Material Default results in the acceleration of the amounts due
thereunder, or (2) RIC or any Affiliate of RIC beneficially owns shares
of the Series B Preferred Stock and the Corporation fails to pay in
cash the full amount of the dividend on the Series B Preferred Stock on
three (3) occasions, whether or not consecutive, within five (5) days
of the applicable Dividend Payment Dates,
(i) the Corporation will (a) take such action as
may be necessary to increase the size of the Board of
Directors to a number that will permit the addition of
sufficient RIC Directors such that the total number of RIC
Directors will constitute a majority of the Board of
Directors, (b) fill the vacancies created thereby with
additional RIC Directors and (c) recommend such additional RIC
Directors for election as directors at the next annual meeting
of the Corporation's shareholders. Such additional RIC
Directors shall have the same rights and obligations as the
RIC Directors appointed or elected in accordance with Article
II of the Standstill Agreement except that such additional RIC
Directors shall not be subject to approval of the Continuing
Directors (as defined in the Standstill Agreement). The number
of additional RIC Directors appointed or elected pursuant
hereto shall be divided among the three (3) classes of
directors designated in the Standstill Agreement so that such
classes are as nearly equal in number as reasonably possible;
and
(ii) the provisions of Article III and Article IV of
the Standstill Agreement and Section 12 hereof shall no longer
apply to RIC or its Affiliates.
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11.4 Provisions in Case Series B Preferred Stock is No
Longer Outstanding. If, prior to the expiration of the Preferred Shares Sales
Period, all of the shares of the Series B Preferred Stock shall have been
redeemed or converted and are no longer outstanding but the RIC Ownership
Percentage is at least twenty percent (20%), then until the earlier of (i) the
date by which the RIC Ownership Percentage is less than twenty percent (20%) or
(ii) the expiration of the Common Shares Sales Period (as defined in the
Standstill Agreement), RIC and its Affiliates shall be entitled to the remedies
set forth in Sections 11.3(a) and 11.3(d)(1) hereof.
12. Condition to RIC's Conversion of Series B Preferred Stock.
Unless (i) the Corporation should call for redemption of the Series B Preferred
Stock held by RIC in accordance with Section 6 hereof, or (ii) any one of the
following events shall occur: (x) the Corporation should declare a regular
quarterly dividend on the Common Stock of $.40 or more during any calendar year,
(y) the Corporation should declare one or more non-regular dividends on the
Common Stock during any calendar year in an aggregate amount of $.50 or more, or
(z) the Corporation should declare dividends on the Common Stock, whether
regular or non-regular, in an aggregate amount of $1.60 or more during any
calendar year, the Series B Preferred Stock held by RIC and its Affiliates shall
not be convertible and RIC and its Affiliates will refrain from converting, or
taking any steps to convert, any of the Series B Preferred Stock then held by
each of them, respectively, into shares of the Common Stock of the Corporation
pursuant to Section 5 hereof until such time as RIC and its Affiliates have
sold, conveyed or transferred all of the 4,473,684 shares of Common Stock
received by RIC from the Corporation in connection with the Stock Purchase
Agreement (as defined in Section 11.1 hereof) and such additional shares of
Common Stock that the Corporation may issue with respect to such shares pursuant
to any stock splits, stock dividends, recapitalizations, restructurings,
reclassifications or similar transactions or pursuant to the exercise of any
Rights (as defined in Section 10.19 hereof) to a Person (as defined in Section
11.2.10 hereof) that is not, at the time of the sale, conveyance or transfer of
such shares of Common Stock, an Affiliate (as defined in Section 11.2.2 hereof)
of RIC; provided, however, that if the Corporation should call less than all of
the Series B Preferred Stock held by RIC and its Affiliates for redemption
pursuant to clause (i) above, then RIC and its Affiliates shall be entitled to
convert into shares of Common Stock only that number of the Series B Preferred
Stock that have been so called for redemption; and provided further that, in the
event that the Board of Directors has approved any negotiated tender or exchange
offer with a third party or approved any merger, consolidation, share exchange,
business combination, restructuring, recapitalization or similar transaction
involving the Corporation in which the holders of Common Stock are entitled to
tender or exchange their holdings of Common Stock for, or to otherwise receive
for their holdings of Common Stock, other consideration (whether cash, non-cash
or some combination thereof), the Corporation agrees that it will, in its sole
discretion, either (x) permit RIC and its Affiliates to convert all of the
Series B Preferred Stock then held by them contingent upon, and effective as of,
the closing of such transaction and without the right of RIC or any of its
Affiliates to vote the shares of Common Stock received upon any such conversion
on any matter in connection with such transaction, or (y) make appropriate
provision to provide to RIC and any of its Affiliates holding Series B Preferred
Stock as of the closing date of such transaction the same kind and amount of
consideration receivable by the holders of the Common Stock in such transaction
(the amount of such consideration to be received by RIC and any of its
Affiliates holding Series B Preferred Stock to be determined by reference to the
number of shares of
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Common Stock that RIC and its Affiliates would have been entitled to receive had
the Series B Preferred Stock been converted immediately prior to consummation of
such transaction), except that, if the Corporation elects to comply with clause
(y) of this proviso, RIC and its Affiliates shall not be entitled thereafter to
receive any shares of stock, other securities, cash or property pursuant to
Section 5.4 above with respect to such of the Series B Preferred Stock as has
received full payment of the consideration set forth in clause (y) above.
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Appendix C
Wheat First
Butcher Singer Riverfront Plaza
Serving Investors Since 1934 901 East Byrd Street
Richmond, VA 23219
(804) 649-2311
August 20, 1997
CONFIDENTIAL
Lawyers Title Corporation
6630 West Broad Street
Richmond, VA 23230
Members of the Board:
You have requested our opinion as to the fairness, from a financial
point of view, to the holders of the outstanding shares of common stock, without
par value ("Lawyers Title Common Stock"), of Lawyers Title Corporation ("Lawyers
Title") of the consideration provided for in Section 2.2 of the Stock Purchase
Agreement, dated as of August 20, 1997 (the "Agreement"), by and among Lawyers
Title, Lawyers Title Insurance Corporation, Reliance Insurance Company, Inc.
("Reliance Insurance") and its parent company, Reliance Group Holdings, Inc.
Under the terms of the Agreement, Lawyers Title has agreed to acquire from
Reliance Insurance all of the outstanding shares of the common stock of
Commonwealth Land Title Insurance Company and Transnation Title Insurance
Company (collectively "Commonwealth"), each of which is a direct wholly-owned
subsidiary of Reliance Insurance. The total consideration for the stock of
Commonwealth consists of the following combination of cash and securities: (i)
$207,500,000, which is subject to reduction as provided in the Agreement; (ii)
the greater of $23,750,000 or the net offering proceeds (after payment of
underwriting discounts and commissions and offering fees and expenses) from the
sale of 1,315,789 shares of the Lawyers Title Common Stock; (iii) 2,200,000
shares of Lawyers Title's 7% Series B Cumulative Convertible Preferred Stock,
and (iv) 4,473,684 shares of Lawyers Title Common Stock (collectively, the
"Consideration"). The acquisition of the common stock of Commonwealth is
referred to herein as the "Acquisition."
Wheat First Butcher Singer is a trademark of Wheat, First Securities, Inc.,
Member New York Stock Exchange
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In arriving at our opinion, we reviewed the Agreement and held
discussions with certain senior officers, directors and other representatives
and advisors of Reliance Insurance, Commonwealth and Lawyers Title concerning
their respective businesses, operations and prospects of Commonwealth and
Lawyers Title. We examined certain publicly available business and financial
information relating to the respective businesses and operations of Commonwealth
and Lawyers Title as well as certain financial forecasts and other data for
Commonwealth and Lawyers Title which were provided to or otherwise discussed
with us by the respective managements of Commonwealth and Lawyers Title,
including information relating to certain strategic implications and operational
benefits anticipated to result from the Acquisition. We reviewed the financial
terms of the Acquisition in relation to, among other things: the historical and
projected earnings and other operating data of Commonwealth and Lawyers Title;
and the capitalization and financial condition of Commonwealth and Lawyers
Title.
We also considered, to the extent publicly available, the financial
terms of certain other similar transactions recently effected which we
considered relevant in evaluating the Acquisition and analyzed certain
financial, stock market and other publicly available information relating to the
businesses of other companies whose operations we considered relevant in
evaluating those of Commonwealth and Lawyers Title.
We also evaluated the potential pro forma financial impact of the
Acquisition on Lawyers Title. In addition to the foregoing, we conducted such
other analyses and examinations and considered such other financial, economic
and market criteria as we deemed appropriate in arriving at our opinion.
In rendering our opinion, we have assumed and relied, without
independent verification, upon the accuracy and completeness of all financial
and other information and data publicly available or furnished to or otherwise
reviewed by or discussed with us, including the representations and warranties
of Lawyers Title and Reliance Insurance included in the Agreement. With respect
to the financial forecasts and other information provided to or otherwise
reviewed by or discussed with us, including estimates relating to certain
strategic financial and operational benefits and synergies expected to result
from the Acquisition, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments as to the
future financial performance of Commonwealth and Lawyers Title and the strategic
implications and operational benefits anticipated to result from the
Acquisition. We are not expressing any opinion as to what the value of Lawyers
Title Common Stock actually will be when issued pursuant to the Acquisition or
the price at which Lawyers Title Common Stock will trade subsequent to the
Acquisition. We have not made or been provided with an independent valuation or
appraisal of the assets or liabilities (contingent or otherwise) of Commonwealth
or Lawyers Title. We have assumed, with your consent, that the
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tax effects, if any, to Lawyers Title and the holders of the Lawyers Title
Common Stock resulting from the transactions contemplated by the Agreement are
immaterial. Our opinion is necessarily based upon information available to us,
and financial, stock market and other conditions and circumstances existing and
disclosed to us, as of the date hereof.
Wheat, First Securities, Inc. ("Wheat") has been engaged to render
financial advisory services to Lawyers Title in connection with the Acquisition
and will receive a fee upon the consummation of the Acquisition. As part of our
investment banking business, we are regularly engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for estate,
corporate and other purposes. In the ordinary course of our business, we and our
affiliates may actively trade or hold the Lawyers Title Common Stock for our own
account or for the account of our customers and, accordingly, may at any time
hold a long or short position in such security.
Our advisory services and the opinion expressed herein are provided for
the information of the Board of Directors of Lawyers Title in its evaluation of
the proposed Acquisition. Our opinion does not address the relative merits of
the Acquisition as compared to any alternative business transactions that might
be available to Lawyers Title, and does not constitute a recommendation to any
stockholder of Lawyers Title as to how such stockholder should vote at any
stockholder's meeting in connection with the Acquisition. Our opinion may not be
published or otherwise used or referred to, nor shall any public reference to
Wheat be made, without our prior written consent; provided, however, that the
opinion may be included in its entirety in the Proxy Statement (as defined in
the Agreement) or any amendment or supplement thereto.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deem relevant, we are
of the opinion that, as of the date hereof, the Consideration is fair from a
financial point of view to the holders of Lawyers Title Common Stock.
Very truly yours,
/s/ Wheat, First Securities, Inc.
C-3
<PAGE>
LAWYERS TITLE CORPORATION
Proxy Solicited on Behalf of the Board of Directors
The undersigned hereby appoints John M. Carter, G. William Evans and
Russell W. Jordan, III, jointly and severally, proxies, with full power to act
alone, and with full power of substitution, to represent the undersigned at the
Special Meeting of Shareholders of Lawyers Title Corporation (the "Company") to
be held in the Company's Headquarters Building located in the Brookfield office
complex at 6630 West Broad Street, Richmond, Virginia, on December __, 1997, at
10:00 a.m., local time, or any adjournments or postponements thereof, and to
vote, as designated below and upon any and all other matters that may properly
be brought before such Special Meeting, all shares of Common Stock that the
undersigned would be entitled to vote if personally present. The matters to be
voted on at the Special Meeting are as follows:
1. To approve the Stock Purchase Agreement, dated as of August
20, 1997, by and among the Company, Lawyers Title Insurance
Corporation, Reliance Insurance Company, a Pennsylvania
corporation ("RIC"), and Reliance Group Holdings, Inc., a
Delaware corporation, and the transactions contemplated
thereby, pursuant to which the Company will acquire from RIC
all of the issued and outstanding shares of the capital stock
of Commonwealth Land Title Insurance Company, a Pennsylvania
corporation, and of Transnation Title Insurance Company, an
Arizona corporation. In voting to approve the Stock Purchase
Agreement, shareholders will be deemed to be voting to approve
the issuance of 4,473,684 shares of Common Stock and 2,200,000
shares of 7% Series B Cumulative Convertible Preferred Stock
to RIC, and to approve an increase in the size of the
Company's Board of Directors from ten (10) to fourteen (14)
directors as required by the Stock Purchase Agreement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. To approve the amendment to the Company's Articles of
Incorporation to change the name of the Company to
"LandAmerica Financial Group, Inc."
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, the proxies are authorized to vote upon
any other business as may properly come before the Special
Meeting or any adjournment of postponement thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE SHAREHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED FOR ITEMS 1 AND 2.
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<CAPTION>
<S> <C>
Date: ________________________, 1997 Please sign your name exactly as it appears hereon.
When shares of Common Stock are held of record by joint
_________________________________ tenants, both should sign. When signing as an
Signature (Title, if any) attorney, please give full title as such. If a
corporation, please sign in full corporate name by
_________________________________ president or authorized officer. If a partnership,
Signature (Title, if any) please sign in partnership name by authorized person.
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PLEASE MARK, DATE, SIGN AND RETURN PROMPTLY
