FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1997 Commission File No. 0-13990
LAWYERS TITLE CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 54-1589611
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
6630 West Broad Street, Richmond, Virginia 23230
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (804) 281-6700
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes _X_ No ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock 8,938,491 October 16, 1997
No Par Value
<PAGE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets..................................3
Consolidated Statements of Operations
and Retained Earnings ...................................5
Consolidated Statements of
Cash Flows...............................................6
Notes to Consolidated
Financial Statements.....................................7
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations................................8
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.................. 11
Item 6. Exhibits and Reports on Form 8-K........................... 11
Signatures................................................. 12
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1997 1996
---- ----
<S> <C> <C>
INVESTMENTS:
Fixed maturities available-for-sale - at fair
value (amortized cost: 1997 - $245,161;
1996 - $214,875) $ 252,564 $ 218,224
Equity securities - at fair value (cost: 1997 -
$887; 1996 - $930) 1,664 1,725
Mortgage loans (less allowance for doubtful
accounts: 1997 and 1996 - $150) 456 480
Invested cash 26,773 71,626
----------- -----------
Total investments 281,457 292,055
CASH 36,258 23,997
NOTES AND ACCOUNTS RECEIVABLE:
Notes (less allowance for doubtful accounts:
1997 - $1,083; 1996 - $1,008) 6,050 6,657
Accounts receivable (less allowance for doubtful
accounts: 1997 - $2,571; 1996 - $2,197) 27,456 20,003
----------- -----------
Total notes and accounts receivable 33,506 26,660
PROPERTY AND EQUIPMENT - at cost (less
accumulated depreciation and amortization:
1997 - $50,584; 1996 - $44,670) 21,070 21,959
TITLE PLANTS 48,930 48,536
GOODWILL (less accumulated amortization:
1997 - $13,670; 1996 - $12,393) 58,813 59,669
DEFERRED INCOME TAXES 25,500 23,435
OTHER ASSETS 35,410 24,657
----------- -----------
$ 540,944 $ 520,968
=========== ===========
</TABLE>
3
<PAGE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
LIABILITIES 1997 1996
- ----------- ---- ----
<S> <C> <C>
POLICY AND CONTRACT CLAIMS $ 199,865 $ 196,285
ACCOUNTS PAYABLE AND
ACCRUED EXPENSES 43,288 47,211
INCOME TAXES PAYABLE 3,982 5,721
OTHER LIABILITIES 12,479 9,583
----------- -----------
Total liabilities 259,614 258,800
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, no par value, authorized
5,000,000 shares, none issued or outstanding - -
Common stock, no par value, authorized 45,000,000
shares, issued and outstanding, 8,928,041 in
1997 and 8,889,791 in 1996 167,621 167,044
Unrealized investment gains (less related
deferred income tax expense of $2,863
in 1997 and $1,450 in 1996) 5,317 2,694
Retained earnings 108,392 92,430
----------- -----------
Total shareholders' equity 281,330 262,168
----------- -----------
$ 540,944 $ 520,968
=========== ===========
</TABLE>
See accompanying notes.
4
<PAGE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND
RETAINED EARNINGS
NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(In thousands of dollars except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Premiums $ 353,775 $ 328,438 $ 128,635 $ 115,251
Title search, escrow and other 85,769 74,503 31,721 26,428
Investment income 12,419 15,438 4,036 4,593
---------- ---------- ----------- ----------
451,963 418,379 164,392 146,272
---------- ---------- ----------- ----------
EXPENSES
Salaries and employee benefits 148,596 137,127 51,778 47,359
Agents' commissions 149,944 134,116 54,178 47,731
Provision for policy and contract claims 23,910 21,075 8,590 7,491
General, administrative and other 102,994 96,396 36,805 34,541
----------- ---------- ----------- ----------
425,444 388,714 151,351 137,122
----------- ---------- ----------- ----------
OPERATING INCOME BEFORE
INCOME TAXES 26,519 29,665 13,041 9,150
INCOME TAX EXPENSE
Current 12,919 12,642 5,259 5,107
Deferred (3,699) (2,596) (659) (2,011)
----------- ---------- ----------- ----------
9,220 10,046 4,600 3,096
----------- ---------- ----------- ----------
NET INCOME 17,299 19,619 8,441 6,054
DIVIDENDS (1,337) (1,333) (446) (444)
RETAINED EARNINGS BEGINNING
OF PERIOD 92,430 57,689 100,397 70,365
---------- ---------- ----------- ----------
RETAINED EARNINGS END OF PERIOD $ 108,392 $ 75,975 $ 108,392 $ 75,975
========== ========== =========== ==========
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE $ 1.87 $ 2.16 $ 0.91 $ 0.66
EARNINGS PER COMMON SHARE ASSUMING
FULL DILUTION $ 1.85 $ 2.14 $ 0.90 $ 0.66
AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING 9,231 9,097 9,260 9,135
AVERAGE NUMBER OF SHARES OUTSTANDING
ASSUMING FULL DILUTION 9,332 9,158 9,340 9,159
</TABLE>
See accompanying notes.
5
<PAGE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(In thousands of dollars)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 17,299 $ 19,619
Depreciation & amortization 7,736 6,517
Amortization of bond premium 339 568
Realized investment gains (113) (5,399)
Deferred income tax (3,699) (2,596)
Change in assets & liabilities:
Notes receivable 607 800
Accounts receivable (7,453) (51)
Current income taxes (1,739) 4,865
Policy & contract claims 3,580 973
Accounts payable and accrued expenses (3,923) 1,354
Cash surrender value of life insurance (1,081) 3,050
Other (2,740) (5,443)
---------- ---------
Net cash provided by operating activities 8,813 24,257
---------- ---------
Cash flows from investing activities:
Purchase of property & equipment - net (5,090) (6,600)
Purchase of businesses, net of cash acquired - (2,320)
Cost of investments acquired:
Fixed maturities (84,128) (77,093)
Equity securities (6) (27,780)
Mortgage loans - -
Proceeds from investment sales or maturities:
Fixed maturities 53,575 59,938
Equity securities 90 33,961
Mortgage loans 24 341
---------- ---------
Net cash used in investing activities (35,535) (19,553)
---------- ---------
Cash flows from financing activities:
Repayment of cash surrender value loan (7,713) -
Dividends paid (1,337) (1,333)
Change in notes payable 3,180 (48)
---------- ---------
Net cash provided by financing activities (5,870) (1,381)
---------- ---------
Net (decrease) increase in cash and invested cash (32,592) 3,323
Cash & invested cash at beginning of period 95,623 40,647
---------- ---------
Cash & invested cash at end of period $ 63,031 $ 43,970
========== =========
</TABLE>
See accompanying notes.
6
<PAGE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars except per share amounts)
1. Interim Financial Information
The unaudited consolidated financial information included in this report
has been prepared in conformity with the accounting principles and
practices reflected in the consolidated financial statements included in
the Form 10-K for the year ended December 31, 1996 filed with the
Commission under the Securities Exchange Act of 1934. This report should be
read in conjunction with the aforementioned Form 10-K. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation of this information have been made. The
results of operations for the interim periods are not necessarily
indicative of results for a full year.
Certain 1996 amounts have been reclassified to conform to the 1997
presentation.
2. Pending Legal Proceedings
For additional information, see Pending Legal Proceedings on page F-27 of
the December 31, 1996 Form 10-K.
3. Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share (Statement 128), which is required to be
adopted on December 31, 1997. At that time, the Company will be required to
change the method currently used to compute earnings per share and to
restate all prior periods. Under the new requirements for calculating
primary earnings per share, the dilutive effect of stock options will be
excluded and dual presentation is required regardless of the difference
between basic and diluted earnings per share. The impact of Statement 128
on the calculation of primary and diluted earnings per share for these
quarters is not expected to be material.
7
<PAGE>
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations.
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
Results of Operations
Net Income
Net income for the three and nine months ended September 30, 1997, was $8.4
million and $17.3 million, respectively, compared to $6.1 and $19.6 million for
the same periods in 1996. The 1996 results include after tax capital gains of
$0.6 million and $3.5 million, respectively, for the three and nine month
periods while there were no significant gains in 1997. Excluding realized gains,
net operating income grew 54.8% to $8.4 million, and 6.8% to $17.2 million for
the three and nine months ended September 30, 1997, respectively, when compared
to the same periods in 1996.
The Company's results for the nine months ended September 30, 1997 compare
favorably to those for the corresponding period in 1996 notwithstanding the fact
that the Company experienced an unusually high level of refinancings in the
first quarter of 1996 which bolstered the results for the period.
Revenues
Operating revenues, which include premiums, title search, escrow and other fees,
increased 13.2% to $160.4 million and 9.1% to $439.5 million for the three and
nine months ended September 30, 1997, respectively, compared to the same periods
in 1996.
Premium revenue increased 11.6% to $128.6 million and 7.7% to $353.8 million for
the three and nine months ended September 30, 1997, respectively. These
increases reflect a favorable interest rate and general economic environment
which resulted in an increased number of new home sales and mortgage
refinancings.
Title search, escrow and other fee revenue increased 20.0% to $31.7 million and
15.1% to $85.8 million for the three and nine months ended September 30, 1997,
respectively, compared to the same periods in 1996. The increase in escrow fees
and other fee revenue can be attributed to increased title order activity in the
Company's direct operations. Additionally, the increase in other fees and
revenue has been favorably affected by increased revenues in the Company's real
estate-related services such as relocation services.
Orders opened in the Company's direct operations grew 12.6% to approximately
109,600 for the three months ended September 30, 1997, compared to approximately
97,300 for the same period in 1996. While there is no assurance that opened
orders will close, management
8
<PAGE>
believes that the current order level is a favorable indication for fourth
quarter 1997 operating revenues.
Investment income excluding realized gains increased to $4.0 million and $12.3
million for the three and nine month periods ended September 30, 1997, from $3.7
million and $10.1 for the same periods in 1996. The increase was due to an
overall increase in the size of the portfolio as well as the higher component of
fixed income investments resulting from the Company's sale of its equity
investments in the fourth quarter of 1996.
Expenses
The Company's expense ratios, total expenses less the provision for policy and
contract claims as a percentage of operating revenues, for the three and nine
months ended September 30, 1997 were 89.0% and 91.4%, respectively, compared to
91.5% and 91.2% for the comparable periods in 1996. The decrease in expense
ratio in the third quarter of 1997 reflects the operating leverage that is
realized as the Company's revenues grow. The Company's expense ratios reflect
its continuing focus on expense management.
Salaries and employee benefits for the three and nine months ended September 30,
1997 increased 9.3% to $51.8 million and 8.4% to $148.6 million, respectively.
Agents' commissions for the three and nine months ended September 30, 1997
increased 13.5% to $54.2 million and 11.8% to $149.9 million, respectively.
These increases are largely tied to higher business volumes.
The provision for policy and contract claims as a percentage of operating
revenues was 5.4% for the three and nine months ended September 30, 1997
compared to 5.3% and 5.2% for the same periods in 1996. Claims paid as a
percentage of operating revenues was 4.2% and 4.6% for the three and nine months
ended September 30, 1997, respectively, compared to 4.6% and 5.0% for the
comparable periods in 1996.
Income tax expense was $4.6 million and $9.2 million for the three month and
nine month periods ending September 30, 1997. This represented a 35.3% and 34.8%
effective tax rate, respectively.
Liquidity and Capital Resources
Cash provided by operating activities was $8.8 million for the nine months ended
September 30, 1997. At September 30, 1997, the Company held cash and invested
cash of $63.0 million and fixed-maturity securities of $252.6 million.
Additionally, the Company had no long-term debt and had unutilized lines of
credit totaling $30.0 million.
Historically, the Company has not maintained significant levels of debt. As
previously reported, the Company entered into a stock purchase agreement to
acquire all of the issued and outstanding shares of capital stock of
Commonwealth Land Title Insurance Company and Transnation Title Insurance
Company from Reliance Insurance Company. The acquisition is subject to
shareholder and regulatory approval. Upon closing this acquisition, the Company
9
<PAGE>
expects to incur debt of $207.5 million under a credit facility obtained on
November 7, 1997 and have 2.2 million shares of Series B Preferred Stock
outstanding. The Company estimates that servicing the debt and preferred stock
will require about $20.0 million per year which management expects to be funded
largely from increased cash flow from operations resulting from the acquisition.
Additionally, management believes that these cash requirements will be partially
offset by approximately $8.0 million of federal income tax benefits related to
the interest expense and goodwill amortization. In view of the historic ability
of the Company and Commonwealth/Transnation to generate strong, positive cash
flows, and the projected strong cash position and relatively conservative
capitalization structure of the combined company following consummation of the
acquisition, the Company believes that the combined company will have sufficient
liquidity and adequate capital resources to meet both its short- and long-term
capital needs. Further, the Company expects to maintain approximately $30.0
million in unused credit facilities.
Reference is made to Item 7, "Forward-Looking and Cautionary Statements" on page
26 of the December 31, 1996 Form 10-K, regarding important factors that could
cause actual results to differ materially from those contained in any
forward-looking statement made by or on behalf of the Company, including
forward-looking statements contained in Item 2 of this Form 10-Q.
10
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
c. Recent Sales of Unregistered Securities
As previously reported on the Registrant's Form 8-K filed with the
Commission on September 2, 1997, the Registrant entered into a Stock
Purchase Agreement on August 20, 1997 with Lawyers Title Insurance
Corporation (the Registrant's wholly owned subsidiary), Reliance Insurance
Company ("RIC") and Reliance Group Holdings, Inc. ("Reliance"), whereby the
Registrant will purchase all of the shares of issued and outstanding
capital stock of Commonwealth Land Title Insurance Company and Transnation
Title Insurance Company (collectively, "Commonwealth/ Transnation") from
RIC, a subsidiary of Reliance. The purchase price for the acquisition of
the Commonwealth/Transnation shares (the "Acquisition") consists of: (i)
4,473,684 shares of the Registrant's Common Stock (the "Common Shares"),
(ii) 2,200,000 shares of the Company's 7% Series B Cumulative Convertible
Preferred Stock (the "Preferred Shares"), (iii) $207.5 million in cash 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 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.
The Acquisition is subject to shareholder and regulatory approval. The
consummation of the Acquisition and the issuance of the Common Shares and
Preferred Shares are expected to occur in late December 1997 or January
1998. Such shares were offered and sold in connection with the negotiated
acquisition of Commonwealth/Transnation from RIC pursuant to the exemption
from registration under Section 5 of the Securities Act of 1933, as amended
(the "Securities Act"), provided by Section 4(2) of the Securities Act.
The Preferred Shares will be convertible at any time at the option of the
holder into fully-paid and nonassessible shares of the Registrant's 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 Preferred Share), subject to certain anti-dilution adjustments. The
Preferred Shares are subject to certain restrictions on conversion. For a
description of these restrictions and a more complete description of the
Preferred Shares, see the proposed Articles of Amendment of the Articles of
Incorporation of Lawyers Title Corporation attached as Appendix B to the
Registrant's Proxy Statement for its Special Meeting of Shareholders to be
held in December 1997, filed with the Commission on September 30, 1997,
which Appendix is hereby incorporated herein by this reference.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
(2) Stock Purchase Agreement, dated August 20, 1997, by and among the
Registrant, Lawyers Title Insurance Corporation, Reliance
Insurance Company and Reliance Group Holdings, Inc., incorporated
by reference to Appendix A to the Registrant's Proxy Statement
for its Special Meeting of Shareholders to be held in December,
1997, filed with the Commission on September 30, 1997.
(11) Statement Re: Computation of Earnings Per Share.*
(27) Financial Data Schedule* (electronic copy only)
(99) Proposed Articles of Amendment to the Registrant's Articles of
Incorporation (as set forth in Appendix B to the Registrant's
Proxy Statement for its Special Meeting of Shareholders to be
held in December 1997, filed with the Commission on September 30,
1997).*
*Filed herewith.
b. Reports on Form 8-K
In a Form 8-K filed September 2, 1997, the Registrant announced the signing
of a definitive agreement to purchase all of the capital stock of
Commonwealth Land Title Insurance Company and Transnation Title Insurance
Company from Reliance Insurance Company (RIC). The Registrant also
announced that its Board of Directors had amended and restated the
Company's Rights Agreement, with the most significant changes involving (I)
provisions that the agreement with RIC would not "trigger" the rights, (ii)
an extension of the expiration date of the Rights Agreement from October 1,
2001 to August 20, 2007, and (iii) an increase in the exercise price of the
rights from $60 to $85.
11
<PAGE>
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LAWYERS TITLE CORPORATION
---------------------------------------------
(Registrant)
Date: November 12, 1997 /s/ Charles Henry Foster, Jr.
-------------------------- ---------------------------------
Charles Henry Foster, Jr.
Chairman and Chief Executive Officer
Date: November 12, 1997 /s/ George William Evans
-------------------------- ----------------------------
George William Evans
Vice President and Treasurer
12
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
EXHIBIT (11) - Statement Re: Computation of Earnings per Share
(In thousands of dollars except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30 September 30
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Earnings per common and common equivalent share:
Average shares outstanding 8,911 8,888 8,919 8,889
Net effect of dilutive stock options - based
on the treasury stock method using
average market price 320 209 341 246
-------- --------- --------- ---------
Totals 9,231 9,097 9,260 9,135
======== ========= ========= =========
Net income $ 17,299 $ 19,619 $ 8,441 $ 6,054
======== ========= ========= =========
Per share amount $ 1.87 $ 2.16 $ 0.91 $ 0.66
======== ========= ========= =========
Earnings per common share assuming full dilution:
Average shares outstanding 8,911 8,888 8,919 8,889
Net effect of dilutive stock options - based
on the treasury stock method using
ending market price which is greater
than average market price 421 270 421 270
-------- --------- --------- ---------
Totals 9,332 9,158 9,340 9,159
======== ========= ========= =========
Net income $ 17,299 $ 19,619 $ 8,441 $ 6,054
======== ========= ========= =========
Per share amount $ 1.85 $ 2.14 $ 0.90 $ 0.66
======== ========= ========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<DEBT-HELD-FOR-SALE> 252,564
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 1,664
<MORTGAGE> 456
<REAL-ESTATE> 0
<TOTAL-INVEST> 281,457
<CASH> 36,258
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 540,944
<POLICY-LOSSES> 199,865
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 167,621
<OTHER-SE> 113,709
<TOTAL-LIABILITY-AND-EQUITY> 540,944
353,775
<INVESTMENT-INCOME> 12,419
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 85,769
<BENEFITS> 23,910
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 401,534
<INCOME-PRETAX> 26,519
<INCOME-TAX> 9,220
<INCOME-CONTINUING> 17,299
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,299
<EPS-PRIMARY> 1.87
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
Exhibit 99
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
1
<PAGE>
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
2
<PAGE>
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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