SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 1-13990
LANDAMERICA FINANCIAL GROUP, INC.
(Exact name of registrant as specified in its charter)
Virginia 54-1589611
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
101 Gateway Centre Parkway
Richmond, Virginia 23235-5153
(Address of principal executive offices) (Zip Code)
(804) 267-8000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Securities Name of Exchange on Which Registered
Common Stock, no par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
7% Series B Cumulative Convertible Preferred Stock
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
The aggregate market value of voting stock held by non-affiliates of
the registrant on March 16, 1999 was approximately $384,153,000. Executive
officers and directors of the registrant and beneficial owners of more than 10%
of the Common Stock are considered affiliates for purposes of this calculation
but should not necessarily be deemed affiliates for any other purpose.
The number of shares of Common Stock, without par value, outstanding on
March 16, 1999 was 15,297,502.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K. [ X ]
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the 1999 Annual Meeting
of Shareholders (to be filed) are incorporated by reference into Part III
hereof.
<PAGE>
PART I
ITEM 1. BUSINESS
The Company
LandAmerica Financial Group, Inc. (the "Company") is a holding company
organized under the laws of the Commonwealth of Virginia on June 24, 1991. The
Company, through its subsidiaries, is engaged in the business of issuing title
insurance policies and performing other real estate-related services for both
residential and commercial real estate transactions. As a holding company, the
Company has greater flexibility in conducting certain operations, especially
with regard to capital transactions, while the operating title insurance
subsidiaries remain subject to regulation by the various states. See
"Regulation" below.
The Company has its principal executive offices at 101 Gateway Centre
Parkway, Richmond, Virginia 23235-5153. Its telephone number is (804) 267-8000.
Unless the context otherwise requires, the Company, as used herein, refers to
the Company and each of its subsidiaries.
Overview of the Company's Operations
Title Insurance. The Company issues title insurance policies through
its various title underwriting subsidiaries. The Company's three principal title
underwriting subsidiaries are Commonwealth Land Title Insurance Company
("Commonwealth"), Lawyers Title Insurance Corporation ("Lawyers Title") and
Transnation Title Insurance Company ("Transnation"). The Company also owns 11
other title insurance underwriters, including Commonwealth Land Title Insurance
Company of New Jersey, Oregon Title Insurance Company, Title Insurance Company
of America and Industrial Valley Title Insurance Company. The collective
operations of these subsidiaries cover the entire United States (with the
exception of Iowa, which does not recognize title insurance) and certain
territories of the United States.
In connection with the issuance of title insurance policies, the
Company performs title search and examination services and also offers closing
protection letters to lenders and owners who purchase title insurance. The
Company also furnishes certificates of title and abstracts of title in some
states.
Escrow and Closing Services. In addition to the issuance of title
insurance policies, the Company provides escrow and closing services to a
broad-based customer group that includes lenders, developers, real estate
agents, attorneys and home buyers and sellers. In California and a number of
western states, it is a general practice, incident to the issuance of title
insurance policies, to hold funds and documents in escrow for delivery in real
estate transactions upon fulfillment of the conditions to such delivery. In the
mid-western states, Florida and some eastern cities, it is customary for the
title company to close the transaction and disburse the sale or loan proceeds.
Fees for such escrow and closing services are generally separate and distinct
from premiums paid for title insurance policies.
Ancillary Services. The Company offers a full range of residential real
estate services to the national and regional mortgage lending community through
its LandAmerica OneStop operation. The services of LandAmerica OneStop include
the coordination of title insurance orders, credit reporting, flood
certification, property appraisal and valuation, centralized closing and escrow
services, real estate tax services, document preparation and property
inspections. These services are available to national and regional mortgage
lenders through a single point of contact with the Company and are provided by
subsidiaries of the Company or through joint ventures or strategic alliances
with third parties.
-2-
<PAGE>
The Company also is a provider of certain specialized services
associated with real estate transactions through Commonwealth Relocation
Services, Inc. ("Commonwealth Relocation") and its exchange company
subsidiaries. Commonwealth Relocation offers national employee relocation
services. LandAmerica Exchange Company and The National 1031 Exchange
Corporation facilitate property exchanges pursuant to Section 1031 of the
Internal Revenue Code by holding the sale proceeds from one transaction until a
second acquisition occurs, thereby assisting customers in deferring the
recognition of taxable income.
Technology Subsidiaries. The title insurance industry has become
increasingly automated. The Company has two wholly owned subsidiaries devoted to
computer automation of various aspects of the title insurance business. Elliptus
Technologies, Inc. ("Elliptus") develops and markets title production and escrow
software that automates policy issuance, escrow and closing documentation and
support functions. Datatrace Information Services Company, Inc. provides
automated title plant services. In addition, the Company has one subsidiary, Day
One, Inc., which develops and markets property valuation software to the
appraisal industry.
Principal Title Underwriting Subsidiaries
Commonwealth. Commonwealth was founded as a title insurance company in
1876 and was incorporated in the Commonwealth of Pennsylvania on April 1, 1944.
Commonwealth is licensed by the insurance departments of 49 states, the District
of Columbia, Puerto Rico and the U.S. Virgin Islands.
Lawyers Title. Lawyers Title, a Virginia corporation, has been engaged
primarily in the title insurance business since 1925. Lawyers Title's business
is conducted in 49 states and in the District of Columbia, the territories of
Puerto Rico and the U.S. Virgin Islands, the Bahamas and a number of Canadian
provinces.
Transnation. Transnation, an Arizona corporation, is the successor to
Transamerica Title Insurance Company, which commenced business on March 26,
1910. Transnation is licensed by the insurance departments of 40 states and the
District of Columbia.
Title Insurance and Underwriting
Title Insurance. Title insurance policies are insured statements of the
condition of title to real property. Such policies indemnify the insured from
losses resulting from certain outstanding liens, encumbrances and other defects
in title to real property that appear as matters of public record, and from
certain other matters not of public record. Title insurance is generally
accepted as the most efficient means of determining title to, and priority of
interests in, real estate in nearly all parts of the United States. Many of the
principal customers of title insurance companies buy insurance for the accuracy
and reliability of the title search as well as for the indemnity features of the
policy. The beneficiaries of title insurance policies are generally owners or
buyers of real property or parties who make loans on the security of real
property. An owner's policy protects the named insured against title defects,
liens and encumbrances existing as of the date of the policy and not
specifically excluded or excepted from its provisions, while a lender's policy,
in addition to the foregoing, insures against the invalidity of the lien of the
insured mortgage and insures the priority of the lien as stated in the title
policy.
While most other forms of insurance provide for the assumption of risk
of loss arising out of unforeseen future events, title insurance serves to
protect the policyholder from the risk of loss from events that predate the
issuance of the policy. This distinction underlies the low claims loss
experience of title insurers as compared to other insurance underwriters. Losses
generally result either from judgment errors or mistakes made in the title
search and examination process or the escrow process or from hidden defects such
as fraud, forgery, incapacity or missing heirs.
-3-
<PAGE>
Operating expenses, on the other hand, are higher for title insurance companies
than for other companies in the insurance industry. Most title insurers incur
considerable costs relating to the personnel required to process forms, search
titles, collect information on specific properties and prepare title insurance
commitments and policies.
Underwriting. The Company issues title insurance policies on the basis
of a title report, which is prepared pursuant to underwriting guidelines
prescribed by the Company, after a search of the public records, maps and
documents to ascertain the existence of easements, restrictions, rights of way,
conditions, encumbrances, liens or other matters affecting the title to, or use
of, real property. In certain instances, a visual inspection of the property is
also made. Title examinations may be made by branch employees, agency personnel
or approved attorneys, whose reports are utilized by or rendered to a branch or
agent and are the basis for the issuance of policies by the Company. In the case
of difficult or unusual legal or underwriting issues involving potential title
risks, the branch office or agent is instructed to consult with a designated
supervising office. The Company's contracts with independent agents require that
the agent seek prior approval of the Company in order to commit the Company to
assume a risk over a stated dollar limit.
The Company owns a number of title plants and in some areas leases or
participates with other title insurance companies or agents in the cooperative
operation of such plants. Title plants are compilations of copies of public
records, maps and documents that are indexed to specific properties in an area,
and they serve to facilitate the preparation of title reports. In many of the
larger markets, the title plant and search procedures have been automated. To
maintain the value of the title plants, the Company continually updates its
records by regularly adding current information from the public records and
other sources. In this way, the Company maintains the ability to produce quickly
and at a reduced expense a statement of the instruments which constitute the
chain of title to a particular property.
Direct and Agency Operations
The Company issues title insurance policies through its direct
operations (which include branch offices of its title insurers and wholly owned
subsidiary agencies of the Company) or through independent title insurance
agents. Where the policy is issued through its direct operations, the search is
performed by or at the direction of the Company, and the premium is collected
and retained by the Company. Where the policy is issued through an independent
agent, the agent generally performs the search (in some areas searches are
performed by approved attorneys), examines the title, collects the premium and
retains a portion of the premium. The remainder of the premium is remitted to
the Company as compensation for bearing the risk of loss in the event a claim is
made under the policy. The percentage of the premium retained by an agent varies
from region to region and is sometimes regulated by the states. The Company is
obligated to pay title claims in accordance with the terms of its policies,
regardless of whether it issues policies through direct operations or
independent agents. In the fiscal year ended December 31, 1998, approximately
48.9% of total title insurance revenues were derived from direct operations and
51.1% came from independent agents.
The premium for title insurance is due in full when the real estate
transaction is closed. Title insurance premium revenues from direct operations
are recognized by the Company upon the closing of the transaction, whereas
premium revenues from agency operations are recognized by the Company upon
receipt of such premiums. Premiums from independent agents are typically
remitted to the Company an average of 90 days after the closing of the real
estate transaction.
Insured Risk on Policies in Force
The amount of the insured risk or "face amount" of insurance under a
title insurance policy is generally equal to either the purchase price of the
property or the amount of the loan secured by the property. The insurer is also
responsible for the cost of defending the insured title
-4-
<PAGE>
against covered claims. The insurer's actual exposure at any time is
significantly less than the total face amount of policies in force because the
risk on an owner's policy is often reduced over time as a result of subsequent
transfers of the property and the reissuance of title insurance by other title
insurance underwriters, and the coverage of a lender's policy is reduced and
eventually terminated as a result of payment of the mortgage loan. Because of
these factors, the total contingent liability of a title underwriter on
outstanding policies cannot be precisely ascertained.
In the ordinary course of business, the Company's underwriting
subsidiaries represent and defend the interests of their insureds, and provide
on the Company's consolidated books for estimated losses and loss adjustment
expenses. Title insurers are sometimes subject to unusual claims (such as claims
of Indian tribes to land formerly inhabited by them) and to claims arising
outside the insurance contract, such as for alleged negligence in search,
examination or closing, alleged improper claims handling and alleged bad faith.
The damages alleged in such claims arising outside the insurance contract may
often exceed the stated liability limits of the policies involved. While the
Company in the ordinary course of its business has been subject from time to
time to these types of claims, the Company's losses to date on such claims have
not been significant in number or material in dollar amount to the Company's
financial condition.
Liabilities for estimated losses and loss adjustment expenses represent
the estimated ultimate net cost of all reported and unreported losses incurred
through December 31, 1998. The reserves for unpaid losses and loss adjustment
expenses are estimated using individual case-basis valuations and statistical
analyses. Those estimates are subject to the effects of trends in loss severity
and frequency. Although considerable variability is inherent in such estimates,
management believes that the reserves for losses and loss adjustment expenses
are adequate. Independent actuaries review the adequacy of reserves on an
interim basis and certify as to their adequacy on an annual basis. The reserve
estimates are continually reviewed and adjusted as the Company's loss experience
develops or new information becomes known. Any adjustments to loss reserve
estimates are included as a current operating expense. The provision for policy
and contract claims as a percentage of operating revenues for 1998 was 5.2%, for
1997 was 5.4%, and for 1996 was 5.2%. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Results of Operations."
The Company generally pays losses in cash; however, it sometimes
settles claims by purchasing the interest of the insured in the real property or
the interest of the claimant adverse to the insured. Assets acquired in this
manner are carried at the lower of cost or estimated realizable value, net of
any indebtedness thereon.
Standard & Poors Corporation ("S&P") has assigned a financial strength
rating of "A" to the title insurance operations of the Company. According to
S&P, an insurer rated "A" has strong financial security characteristics, but is
somewhat more likely to be affected by adverse business conditions than are
insurers with higher ratings. Duff & Phelps Credit Rating Co. ("Duff & Phelps")
has assigned an "A" rating to the claims-paying ability of the Company.
According to Duff & Phelps, an "A" rating is assigned to those companies which
have a high claims-paying ability, protection factors are average and there is
an expectation of variability in risk over time due to economic and/or
underwriting conditions. Duff & Phelps also assigns a ratings outlook along with
its letter ratings to indicate its expectations of trends that relate to the
claims-paying ability rating for the rated company. The ratings outlook assigned
by Duff & Phelps may be either "positive," "stable" or "negative." According to
Duff & Phelps, the ratings outlook for the Company is "positive." The S&P and
Duff & Phelps ratings are not designed for the protection of investors and do
not constitute recommendations to buy, sell or hold any security.
The Company places a high priority on maintaining effective quality
assurance and claims administration programs. The Company's quality assurance
program focuses on quality control, claims prevention and product risk
assessment for its independent agencies. The claims administration program
focuses on improving liability analysis, prompt, fair and effective handling
-5-
<PAGE>
of claims, prompt evaluation of settlement or litigation with first and
third-party claimants and appropriate use of ADR (Alternative Dispute
Resolution) in claims processing. In addition, to reduce the incidence of agency
defalcations, the Company has implemented due diligence requirements in
connection with the appointment of new agents, adopted procedures for renewing
existing agents and established an Agency Audit Program. The Company continues
to refine its systems for maintaining effective quality assurance and claims
administration programs.
Reinsurance and Coinsurance
The Company distributes large title insurance risks through the
mechanisms of reinsurance and coinsurance. In reinsurance agreements, the
reinsurer accepts that part of the risk which the primary insurer (the "ceding
company" or "ceder") decides not to retain, in consideration for a portion of
the premium. A number of factors may enter into a company's decision to
reinsure, including retention limits imposed by state law, customer demands and
the risk retention philosophy of the company. The ceder, however, remains liable
to the insured for the total risk, whether or not the reinsurer meets its
obligation. The Company may reinsure from among its own title insurance
subsidiaries or may reinsure with unaffiliated reinsurers. As a general rule,
when the Company purchases reinsurance on a particular risk from unaffiliated
reinsurers, it will generally retain a primary risk of $5.0 million and may
participate with such reinsurers on liability amounts above the primary level on
a secondary level. Reinsurance is generally purchased from unaffiliated
reinsurers if the risk is greater than $150.0 million.
The Company assumes reinsurance from unaffiliated title insurance
underwriters pursuant to a standard reinsurance agreement concerning specific
title insurance risks for properties on which it assumes a portion of the
liability. The Company has entered into numerous reinsurance agreements with
other title insurance underwriters on specific transactions. The Company's
exposure on all reinsurance assumed is reduced due to retention by the ceding
company of a substantial primary risk level. In addition, exposure under these
agreements generally ceases upon a transfer of the insured properties and, with
respect to insured loans, is decreased by reductions in mortgage loan balances.
Because of this, the actual exposure is much less than the total reinsurance
which the Company has assumed. The Company provides loss reserves on assumed
reinsurance business on a basis consistent with reserves for direct business.
The Company utilizes coinsurance to enable it to provide coverage in
amounts greater than it would be willing or able to undertake individually. In
coinsurance transactions, each individual underwriting company issues a separate
policy and assumes a fraction of the overall total risk. Each coinsurer is
liable only for the particular fraction of the risk it assumes.
The Company enters into reinsurance and coinsurance arrangements with
most of the larger participants in the title insurance market and such
arrangements are not materially concentrated with any single title insurance
company. Revenues and claims from reinsurance are not material to the Company's
business as a whole.
Two of the Company's subsidiaries, Commonwealth and Transnation,
maintain excess-of-loss catastrophe reinsurance from Capital Title Reinsurance
Co. These policies cover losses of up to $40.0 million in excess of $10.0
million for single properties and up to $40.0 million in excess of $20.0 million
for multisite transactions.
-6-
<PAGE>
Title Insurance Revenues
The table below sets forth, for the years ended December 31, 1998 and
1997, the approximate dollars and percentages of the Company's revenues on a pro
forma and historic basis for the ten states representing the largest percentages
of such revenues and for all other states combined:
Revenues by State
(Dollars in thousands)
<TABLE>
<CAPTION>
Pro Forma (1) Historic
------------------------------------------ -----------------------------------------
1998 1997 1998 1997
-------------------- ------------------ -------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Texas $ 272,577 14.1% $ 209,382 14.1% $ 258,687 14.4% $ 114,848 18.4%
California 224,062 11.6% 163,314 11.0% 213,452 11.9% 66,933 10.7%
Florida 149,220 7.7% 121,569 8.2% 136,673 7.6% 41,928 6.7%
Pennsylvania 118,819 6.1% 87,329 5.9% 110,585 6.1% 36,878 5.9%
Michigan 107,954 5.6% 78,918 5.3% 100,623 5.6% 30,064 4.8%
New York 105,135 5.4% 95,903 6.5% 95,706 5.3% 27,761 4.5%
New Jersey 65,765 3.4% 51,131 3.4% 60,126 3.3% 17,125 2.7%
Washington 65,332 3.4% 50,229 3.4% 56,512 3.1% 128 0.0%
Arizona 61,112 3.2% 28,988 2.0% 56,391 3.1% 1,381 0.2%
Colorado 58,348 3.0% 39,451 2.7% 55,668 3.1% 32,011 5.1%
Other 623,041 32.1% 468,158 31.5% 582,895 32.4% 202,075 32.4%
----------- ------ ---------- ----- ----------- ------ --------- ------
Total title revenues 1,851,365 95.6% 1,394,372 94.0% 1,727,318 95.9% 571,132 91.4%
Non-title revenues 87,301 4.4% 92,155 6.0% 72,216 4.1% 51,649 8.6%
----------- ------ ---------- ----- ----------- ------ --------- ------
Total revenues $1,938,666 100.0% $1,486,527 100.0% $1,799,534 100.0% $622,781 100.0%
=========== ====== ========== ====== =========== ====== ========= ======
</TABLE>
(1) On February 27, 1998, the Company acquired all of the issued and
outstanding shares of capital stock of Commonwealth and Transnation. The pro
forma amounts included in the table assume that the acquisition occurred at the
beginning of 1998 and 1997, respectively.
Sales and Marketing
The Title Insurance Market. For sales and marketing purposes, the
Company generally views residential real estate activities and commercial real
estate activities as two distinct sources of title insurance business.
Residential real estate business results from the construction, sale, resale and
refinancing of residential properties, while commercial real estate business
results from similar activities with respect to properties with a business or
commercial use. The Company has emphasized the development of its residential
real estate business during the 1990's, while maintaining a leadership position
in insuring commercial real estate transactions. Although precise data are not
available to compare the percentage of total premium revenues of the Company
derived from commercial versus residential real estate activities, approximately
80% of such revenues in 1998 resulted from policies providing coverage of $1.0
million or less (which tend to be residential) and approximately 20% of such
revenues resulted from policies providing coverage in excess of $1.0 million.
Residential Transactions. The Company's primary source of residential
business is from the local real estate community, such as attorneys, real estate
brokers and developers, financial institutions, mortgage brokers and independent
escrow agents. Maintenance and expansion of these referral sources is integral
to the Company's marketing strategy for local residential business. Although
most of the Company's residential business arises from these local
relationships, large national and regional residential mortgage originators
continue to expand their
-7-
<PAGE>
role in the residential real estate market. These lenders are attracted to title
insurance providers who can offer a single source for title insurance and a
broad array of services related to residential real estate transactions. The
Company has responded to this developing trend in the market by establishing
LandAmerica OneStop as a single, convenient point of contact through which
national and regional mortgage lenders can place orders for title insurance and
other services related to real estate transactions. See "Overview of the
Company's Operations - Ancillary Services."
In addition, each of the Company's principal underwriting subsidiaries
has developed brand name recognition in particular markets. Using a multiple
brand strategy in which each of these subsidiaries markets and sells under its
own name, the Company seeks to capitalize on long-standing customer
relationships and referral sources and to target different market segments with
different brand names.
Commercial Transactions. The Company is one of the leading providers of
title insurance for commercial transactions. The Company's National Commercial
Services ("NCS") division specializes in the sale and servicing of title
insurance for complex commercial and multi-property transactions. The Company
has 16 NCS offices located in strategic metropolitan areas throughout the
country. Each of these NCS offices markets title insurance products and services
to large commercial customers located in its region and serves the customer's
title insurance needs throughout the country. The Company also markets title
insurance for commercial transactions through local direct operations and
independent agents.
In addition, the Company is one of the most strongly capitalized title
insurers in the industry, with an aggregate statutory surplus of $385.6 million
as of December 31, 1998. The financial strength of the Company is an important
factor in marketing the Company's commercial title business capabilities,
enabling it to underwrite larger title policies and retain higher levels of risk
without purchasing reinsurance from a third party. The Company's capital
position also supports a rating of "A" from each of Standard & Poors (financial
strength) and Duff & Phelps (claims-paying ability). These ratings are important
in competing for commercial title insurance business.
Customers
As of December 31, 1998, no single independent agent was responsible
for more than 5% of the title insurance revenues of any of the Company's
principal underwriting subsidiaries. In addition, the Company is not dependent
upon any single customer or any single group of customers. The loss of any one
customer would not have a material adverse effect on the Company.
Competition
The title insurance business is very competitive. Competition for
residential title business is based primarily on service and, to a lesser
extent, price. Service quality is based upon a number of factors, including
technological capabilities (resulting in a readily accessible, efficient and
reliable product) and the ability to respond quickly to customers. With respect
to national and regional mortgage lenders, service quality includes a large
distribution network and the ability to deliver a broad array of real estate
services quickly, efficiently and through a single point of contact. Competition
for commercial title business is based primarily on price, service, expertise in
complex transactions and the size and financial strength of the insurer. Title
insurance underwriters also compete for agents on the basis of service and
commission levels.
The Company is one of the largest title insurance underwriters in the
United States based on title premium revenues. Its principal competitors are
other major title insurance underwriters and their agency networks. The
Company's principal competitors during 1998 were Chicago Title
-8-
<PAGE>
Insurance Company, First American Title Insurance Company, Stewart Title
Guaranty Company, Old Republic National Title Insurance Company and Fidelity
National Title Insurance Company. Of the more than one hundred title insurance
underwriting companies licensed in the United States, the top six companies
account for approximately 89.2% of the title insurance market.
The Company's title insurance subsidiaries are subject to regulation by
the insurance authorities of the states in which they do business. See
"Regulation." Within this regulatory framework, the Company competes with
respect to premium rates, coverage, risk evaluation, service and business
development.
State regulatory authorities impose underwriting limits on title
insurers based primarily on levels of available capital and surplus. The Company
has underwriting limits that are comparable to its competitors. While such
limits may theoretically hinder the Company's title insurance subsidiaries'
assumption of a particular large underwriting liability, in practice the Company
has established its own internal risk limits at levels substantially lower than
those allowed by state law. In addition, the Company may spread the risk of a
large underwriting liability over its three principal title underwriting
subsidiaries. Therefore, statutory capital-based risk limits are not considered
by the Company to be a significant factor in the amount or size of underwriting
it may undertake.
Regulation
The title insurance business is regulated by state regulatory
authorities who possess broad powers relating to the granting and revoking of
licenses, and the type and amount of investments which the Company's title
insurance subsidiaries may make. These state authorities also regulate insurance
rates, forms of policies, claims handling procedures and the form and content of
required annual statements, and have the power to audit and examine the
financial and other records of these companies. Some states require title
insurers to own or lease title plants. A substantial portion of the assets of
the Company's title underwriting subsidiaries consists of their portfolios of
investment securities. Each of these subsidiaries is required by the laws of its
state of domicile to maintain assets of a statutorily defined quality and
amount. See "Investment Policies" below. Under state laws, certain levels of
capital and surplus must be maintained and certain amounts of portfolio
securities must be segregated or deposited with appropriate state officials.
State regulatory policies also restrict the amount of dividends which insurance
companies may pay without prior regulatory approval.
The National Association of Insurance Commissioners (the "NAIC") has
adopted model legislation which if enacted would regulate title insurers and
agents nationally and change certain statutory reporting requirements. The
proposed legislation also would require title insurers to audit agents
periodically and require licensed agents to maintain professional liability
insurance. The Company cannot predict whether the proposed legislation or any
provision thereof will be adopted in any state. Also, the NAIC has adopted an
instruction requiring an annual certification of reserve adequacy by a qualified
actuary. Because all of the states in which the Company's title insurance
subsidiaries are domiciled require adherence to NAIC filing procedures, each
such subsidiary, unless it qualifies for an exemption, must file an actuarial
opinion with respect to the adequacy of its reserves.
Many state insurance regulatory laws intended primarily for the
protection of policyholders contain provisions that require advance approval by
state agencies of any change in control of an insurance company or insurance
holding company that is domiciled (or, in some cases, doing business) in that
state. Under such current laws, any future transaction that would constitute a
change in control of the Company would generally require approval by the state
insurance departments of Virginia, California, Tennessee, Texas, Ohio, Oregon,
Pennsylvania, Arizona, New Jersey, New York, Florida, Alabama and Maryland. Such
requirement could have the effect of delaying or preventing certain transactions
affecting the control of the Company or
-9-
<PAGE>
the ownership of the Company's Common Stock, including transactions that could
be advantageous to the shareholders of the Company.
Investment Policies
The Company earns investment income from its portfolio of
fixed-maturity debt securities issued principally by corporations and United
States, state and local jurisdictions, as well as by United States government
agencies. Substantially all of this portfolio is located in the Company's title
underwriting subsidiaries. At December 31, 1998, approximately 98% of the
Company's investment portfolio consisted of investment grade securities. The
Company's portfolio is managed to comply with the various state regulatory
requirements while maximizing net after-tax yield. The Company does not invest
in common stock issued by unaffiliated entities. The investment portfolio is
managed by professional investment advisors under guidelines which govern the
types of permissible investments, investment quality, maturity and duration, and
concentration of issuer. These guidelines, and the Company's investment
strategies, are established and periodically re-examined by the Pension and
Portfolio Committee of the Company's Board of Directors. This Committee also
reviews the performance of the investment advisors on a quarterly basis. See
Note 3 to the Consolidated Financial Statements.
Cyclicality and Seasonality
The title insurance business is closely related to the overall level of
residential and commercial real estate activity, which is generally affected by
the relative strength or weakness of the United States economy. In addition,
title insurance volumes fluctuate based on the effect of changes in interest
rates on the level of real estate activity. Economic downturns, or periods of
increasing interest rates, usually have an adverse impact on real estate
activity and therefore premium and fee revenues.
Historically, residential real estate activity has been generally
slower in the winter, when fewer families move, buy or sell homes, with
increased volumes in the spring and summer. Residential refinancing activity is
generally more uniform throughout the seasons, subject to interest rate
stability. The Company typically reports its lowest revenues in the first
quarter, with revenues increasing into the second quarter and through the third
quarter. The fourth quarter customarily may be as strong as the third quarter,
depending on the level of activity in the commercial real estate market.
In 1998, the typical seasonality of the title insurance business was
somewhat tempered by the high level of refinancing activity, which may not
continue through 1999.
Employees
As of December 31, 1998, the Company had 9,543 full time and 790 part
time employees. The Company's relationship with its employees is good. Except
for 15 employees in Pittsburgh, Pennsylvania, no employees of the Company are
covered by any collective bargaining agreements, and the Company is not aware of
any union organizing activity relating to its employees.
Environmental Matters
Recent title insurance policies specifically exclude any liability for
environmental risks or contamination. Older policies, while not specifically
addressing environmental risks, are not considered to provide any coverage for
such matters, and the Company does not expect any significant expenses related
to environmental claims.
The Company, through its subsidiaries, sometimes acts as a temporary
title holder to real estate under a nominee holding agreement and sometimes
participates in holding agreements
-10-
<PAGE>
involving tax-deferred exchanges. The Company's customers in such situations
generally are financially strong entities from whom it secures indemnification
for potential environmental and other claims. In other situations where the
Company might acquire title to real estate, it will generally require that an
appropriate environmental assessment be made to evaluate and avoid any potential
liability.
Business Strategy
In February 1998, the Company significantly expanded its operations by
acquiring Commonwealth and Transnation from Reliance Group Holdings, Inc. With
the acquisition, the Company became one of the largest title insurers in the
United States. The Company's long term objective is to strengthen its position
as a premier, low cost national provider of title insurance, information and
closing services for transactions involving the transfer and financing of real
estate. To accomplish this objective, the Company is pursuing various business
strategies designed to enhance growth and maximize profitability throughout the
real estate cycle.
Expand Distribution Capabilities. The Company seeks to increase its
share of the title insurance market by expanding and enhancing its distribution
channels through the hiring and retention of experienced industry professionals
with strong local relationships, the opening of new direct offices in markets
with the potential for significant transaction volume, appointing new agents and
selectively acquiring or engaging in joint ventures with title insurance
companies and agencies in order to strengthen the Company's presence in
particularly attractive markets. The Company also seeks to increase its share of
title insurance revenues through its multiple brand strategy of marketing
locally through its various title underwriting subsidiaries, which should enable
the Company to capitalize on brand identification, establish more direct offices
and agencies in designated markets and maintain and expand customer
relationships and referral sources. In the case of the acquisition of agencies
or small to medium-size underwriters, the Company reviews the agency's or
underwriter's profitability, location, growth potential in its existing market,
claims experience and, in the case of an underwriter, the adequacy of its
reserves.
Provide Efficient, High Quality Services. Because the Company believes
that service quality is an important factor in competing for title insurance
business, the Company seeks to provide high quality market driven services in a
cost efficient manner. In this regard, the Company's strategy includes the
utilization of technology to further automate the title production process and
the delivery of related services and the increased development and marketing of
multiple products and services to large national and regional mortgage lenders
through the LandAmerica OneStop operation.
Increase Commercial Title Business. To enhance its position as a
leading provider of title insurance in commercial transactions, the Company
expects to use its increased financial strength and claims-paying ability since
the acquisition of Commonwealth and Transnation to underwrite larger commercial
policies and attract a greater share of the commercial title business.
Improve Margins and Manage Costs. The Company expects to maintain its
focus on improving the Company's margins through revenue growth and management
of operating costs, including cost reductions through consolidation of back
office operations and the use of temporary or part-time employees to reduce the
Company's fixed costs, thereby enhancing the Company's responsiveness to changes
in levels of real estate activity.
ITEM 2. PROPERTIES
The Company owns an office building and adjacent real estate in
Richmond, Virginia which it uses for its corporate headquarters. This property
consists of approximately 128,000 square feet of office space and a parking
deck. The Company's title insurance subsidiaries
-11-
<PAGE>
conduct their business operations primarily in leased office space. At December
31, 1998, the Company had numerous leases for its branch offices and
subsidiaries throughout the states in which it operates. In addition, it owns
several properties which in aggregate are not material to its business taken as
a whole.
The Company's title plants constitute a principal asset. Such plants
comprise copies of public records, maps, documents, previous reports and
policies which are indexed to specific properties in an area. The plants are
generally located at the office which serves a particular locality. They enable
title personnel to examine title matters relating to a specific parcel of real
property as reflected in the title plant, and eliminate or reduce the need for a
separate search of the public records. They contain material dating back a
number of years and are kept current on a daily or other frequent basis by the
addition of copies of documents filed of record which affect real property. The
Company maintains title plants covering many of the areas in which it operates,
although certain offices utilize jointly owned and maintained plants. The
Company capitalizes only the initial cost of title plants. The cost of
maintaining such plants is charged to expense as incurred.
The title plants and title examination procedures have been automated
and computerized to a large extent in many areas. To protect against casualty
loss, the Company's offices maintain duplicate files and backups of all title
plants.
On February 23, 1998, the Company entered into an Agreement Containing
Consent Order (the "Consent Order") with the Federal Trade Commission (the
"FTC") in connection with the acquisition of Commonwealth and Transnation. The
Consent Order required that the Company divest the rights, title and interest
held by the Company prior to consummation of the acquisition, or the rights,
title and interest held by Reliance Group Holdings, Inc. prior to consummation
of the acquisition, in and to all title plants serving each of 12 localities
named in the Consent Order. Seven of such localities were in Florida, three were
in Michigan, and one each was in Washington, D.C. and St. Louis, Missouri. The
Consent Order further required that the Company divest all user or access
agreements pertaining to each divested title plant. As of February 26, 1999, the
Company had completed the divestiture of all of the aforementioned title plants
in accordance with the Consent Order. Pursuant to the terms of the Consent
Order, the Company may not acquire, without prior notice to the FTC, any
interest in a title plant in any of the named localities for a period of 10
years following the date of the Consent Order.
The Company believes that its properties are maintained in good
operating condition and are suitable and adequate for its purposes.
ITEM 3. LEGAL PROCEEDINGS
General
The Company and its subsidiaries are involved in certain litigation
arising in the course of their businesses, some of which involve claims of
substantial amounts. Although the ultimate outcome of these matters cannot be
ascertained at this time, and the results of legal proceedings cannot be
predicted with certainty, the Company believes, based on current knowledge, that
the resolution of these matters will not have a material adverse effect on the
Company's financial position or results of operations.
Litigation Not in the Ordinary Course of Business
Commonwealth and certain of its current or former employees are
defendants in a suit filed on November 3, 1998 by Norwest Mortgage, Inc. and
Norwest Funding, Inc. (together, "Norwest") in the Superior Court for the County
of Los Angeles, California (Case No.
-12-
<PAGE>
VC028084) (the "Norwest Litigation"). Norwest seeks to recover from defendants
claimed losses in excess of $40 million plus punitive damages and attorneys'
fees. The complaint alleges that Norwest suffered such losses as the result of a
fraudulent mortgage loan scheme related to loans originated by Allstate Mortgage
Company ("Allstate"), a California mortgage broker. It further alleges that
approximately 254 fraudulent loans were purchased by Norwest Funding, Inc. in
1996 and 1997 under a 1994 Purchase Agreement between Norwest Funding, Inc. and
Allstate. Norwest contends that Commonwealth issued title insurance policies and
performed certain related sub-escrow functions on a number of these loans.
Commonwealth did not close any of the transactions. The complaint asserts that
by virtue of their alleged knowledge of certain information and their alleged
acts and omissions in the title insurance transactions, certain of
Commonwealth's employees conspired with and aided and abetted Allstate and
others in defrauding Norwest in the mortgage loan scheme. The complaint further
alleges that Commonwealth negligently misrepresented the genuiness of the loan
transactions and the absence of facts adverse to Norwest and other purchasers,
that Commonwealth and the individual defendants were negligent in the
performance of Commonwealth's sub-escrow function and as a title insurer and
that Commonwealth breached an alleged fiduciary duty to Norwest.
Commonwealth and two of its employees are defendants in a similar suit
filed on January 11, 1999 by Fleet Mortgage Corp. ("Fleet") in the same Court
(Case No. VCO28488) (the "Fleet Litigation"). Fleet has alleged in the Fleet
Litigation and in a separate suit brought by Fleet against Allstate that it
purchased approximately 30 loans, totaling approximately $8 million, from
Allstate. In the Fleet Litigation, Fleet seeks to recover damages in excess of
$1 million plus punitive damages and attorneys' fees. The complaint alleges that
Fleet suffered such losses as a result of a mortgage loan fraud scheme allegedly
perpetuated by Allstate and various individuals. It also contains allegations
that the defendants were involved in the fraud scheme.
Commonwealth is challenging the legal sufficiency of the complaints in
the Norwest Litigation and the Fleet Litigation, and it continues to investigate
the plaintiffs' factual allegations. On March 12, 1999, the court in the Norwest
Litigation entered an order in favor of Commonwealth and the other defendants
sustaining demurrers to the complaint with leave to amend. Management is unable
at this time to make a meaningful estimate of the amount or range of loss that
could result from an unfavorable outcome of the suits or determine the amount of
any potential offsetting recoveries that may be available. The Company intends
to vigorously defend the suits and any attempt to shift to it mortgage lending
business risks or responsibilities outside the scope of the title insurance
policy.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of 1998.
-13-
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the persons who serve as executive officers of the
registrant, their ages and positions as of March 16, 1999, and their business
experience during the prior five years. There are no family relationships
between any of such persons and any director, executive officer, or person
nominated to become a director or executive officer.
<TABLE>
<CAPTION>
Name Age Office and Experience
<S> <C> <C>
Charles H. Foster, Jr. 56 Chairman and Chief Executive Officer of the Company since
October 1991. Mr. Foster also serves as Chairman and Chief
Executive Officer of Lawyers Title, a position he has held
for more than five years
Herbert Wender 61 Vice - Chairman and Chief Operating Officer of the Company
since February 27, 1998. Mr. Wender also serves as Chairman
and Chief Executive Officer of Commonwealth and Transnation,
positions he has held for more than five years.
Janet A. Alpert 52 President of the Company since January 1993. Ms. Alpert also
serves as President of Lawyers Title, a position she has held
for more than five years. In addition, since March 1, 1998,
Ms. Alpert has served as President of Commonwealth and
Transnation. Ms. Alpert also served as Chief Operating
Officer of the Company and Lawyers Title from January 1993 to
February 27, 1998.
Jeffrey A. Tischler 42 Executive Vice President and Chief Financial Officer of the
Company since February 27, 1998. Mr. Tischler also serves as
Executive Vice President and Chief Financial Officer of
Commonwealth, Lawyers Title and Transnation, positions he has
held since March 1, 1998. He served as Treasurer of the
Company from February 27, 1998 to February 1, 1999. He also
served as Executive Vice President and Chief Financial and
Administrative Officer of Commonwealth and Transnation from
May 1997 to February 1998 and as Senior Vice President and
Chief Financial Officer of Commonwealth and Transnation from
January 1994 to April 1997.
John M. Carter 43 Executive Vice President - Law and Employee Relations of the
Company since February 27, 1998. Mr. Carter also serves as
Executive Vice President - Law and Employee Relations of
Commonwealth, Lawyers Title and Transnation, positions he has
held since March 1, 1998. He served as Assistant Secretary of
the Company from February 1995 to February 1998. He also
served as Senior Vice President - Law and Employee Relations
of Lawyers Title from April 1997 to February 1998. Mr. Carter
served as Vice President, General Corporate Counsel and
Secretary of Lawyers Title from 1994 to April 1997.
-14-
<PAGE>
Name Age Office and Experience
George William Evans 44 Executive Vice President - Information Technology of the
Company since February 27, 1998. Mr. Evans also serves as
Executive Vice President - Information Technology of
Commonwealth, Lawyers Title and Transnation, positions he has
held since March 1, 1998. He served as Vice President and
Treasurer of the Company from October 1991 to February 1998.
He also served as Senior Vice President, Chief Financial
Officer and Treasurer of Lawyers Title from October 1991 to
February 1998.
Jeffrey D. Vaughan 40 Executive Vice President - Real Estate Services Group of the
Company since September 1, 1998. Mr. Vaughan served as
Executive Vice President - Director of National Commercial
Services of the Company from April 1, 1998 to September 1,
1998, and served as Executive Vice President - Commercial and
National Residential Operations of Lawyers Title from April
1, 1997 to April 1, 1998. From 1991 to 1997, he was Senior
Vice President - National Division Manager of Lawyers Title.
Mr. Vaughan also serves as President of LandAmerica OneStop,
a position he has held since September 1, 1998.
Jeffrey C. Selby 53 Executive Vice President - Director of National Commercial
Services and Manager of National Agents and Affiliates of the
Company since February 17, 1999. Mr. Selby served as Senior
Vice President - Manager of National Agents and Affiliates of
the Company from March 1, 1998 to February 17, 1999. He also
served as Senior Vice President - National Accounts Manager
of Commonwealth from May 1996 to March 1, 1998 and as Senior
Vice President - Regional Manager of Commonwealth from 1993
to May 1996. Mr. Selby continues to serve as a Senior Vice
President of Commonwealth and Transnation.
Russell W. Jordan, III 58 Senior Vice President, General Counsel and Secretary of the
Company since February 27, 1998. Mr. Jordan also serves as
Senior Vice President and General Counsel of Lawyers Title, a
position he has held for more than five years. In addition,
since March 1, 1998, Mr. Jordan has served as Senior Vice
President and General Counsel of Commonwealth and
Transnation. Mr. Jordan served as Secretary and General
Counsel of the Company from October 1991 to February 1998.
-15-
<PAGE>
Name Age Office and Experience
John R. Blanchard 50 Senior Vice President and Corporate Controller of the Company
since February 27, 1998. Mr. Blanchard also serves as Senior
Vice President and Corporate Controller of Commonwealth,
Lawyers Title and Transnation, positions he has held since
March 1, 1998. He served as Controller of the Company from
February 1992 to February 1998. He also served as Senior Vice
President and Controller of Lawyers Title from October 1991
to February 1998.
Christopher L. Rosati 39 Senior Vice President and Operations Controller of the
Company since February 27, 1998. Mr. Rosati also serves as
Senior Vice President and Operations Controller of
Commonwealth, Lawyers Title and Transnation, positions he has
held since March 1, 1998. He served as Vice President and
Controller of Commonwealth and Transnation from March 1996 to
February 1998. Mr. Rosati also served as Vice President and
Assistant Controller of Commonwealth and Transnation from
1992 to March 1996.
H. Randolph Farmer 60 Senior Vice President - Corporate Communications of the
Company since February 27, 1998. Mr. Farmer also serves as
Senior Vice President - Corporate Communications of
Commonwealth, Lawyers Title and Transnation, positions he has
held since March 1, 1998. He served as Senior Vice President
- Communications and Advertising of Lawyers Title from April
1, 1991 to February 27, 1998.
</TABLE>
-16-
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
Market Price and Dividends
Effective March 2, 1998, the Common Stock of the Company began trading
on the New York Stock Exchange ("NYSE") under the symbol "LFG." From October
1995 through February 1998, the Common Stock traded on the NYSE under the symbol
"LTI."
The following table sets forth the reported high and low sales prices
per share of the Common Stock on the NYSE Composite Tape, based on published
financial sources, and the dividends per share declared on the Common Stock for
the calendar quarter indicated.
Market Price Dividends
------------ ---------
High Low
---- ---
Year Ended December 31, 1997
First quarter $23.75 $19.00 $0.05
Second quarter 21.13 16.75 0.05
Third quarter 33.69 18.00 0.05
Fourth quarter 33.38 29.13 0.05
Year Ended December 31, 1998
First quarter $46.56 $31.00 $0.05
Second quarter 59.63 44.00 0.05
Third quarter 65.00 48.00 0.05
Fourth quarter 61.75 44.00 0.05
As of March 16, 1999, there were approximately 2,337 shareholders of
record of the Company's Common Stock.
The Company's current dividend policy anticipates the payment of
quarterly dividends in the future. The declaration and payment of dividends to
holders of Common Stock will be in the discretion of the Board of Directors,
will be subject to contractual restrictions contained in a Company loan
agreement, as described below, and will be dependent upon the future earnings,
financial condition and capital requirements of the Company and other factors.
Because the Company is a holding company, its ability to pay dividends
will depend largely on the earnings of, and cash flow available from, its
subsidiaries. In a number of states, certain of the Company's insurance
subsidiaries are subject to regulations that require minimum amounts of
statutory surplus. Under these and other such statutory regulations,
approximately $64.3 million of the net assets of the Company's consolidated
subsidiaries are available for dividends, loans or advances to the Company
during 1999.
In addition to the minimum statutory surplus requirements described
above, these insurance subsidiaries are also subject to state regulations that
require that the payment of any extraordinary dividends receive prior approval
of the insurance regulators of such states. The following table summarizes the
insurance regulations that restrict the amount of dividends that
-17-
<PAGE>
Commonwealth, Lawyers Title and Transnation can distribute to the Company in any
12-month period without prior regulatory approval:
<TABLE>
<CAPTION>
Regulatory
Subsidiary Agency Regulatory Limitation Financial Limitation (1)
---------- ------ --------------------- ------------------------
<S> <C> <C> <C>
Commonwealth Pennsylvania Payment of dividends or distributions $38.7 million
Department of may not exceed the greater of:
Insurance
(1) 10% of such insurer's surplus
as of the preceding year end,
or
(2) the net income of such insurer
for such preceding year.
Lawyers Title Virginia Bureau Payment of dividends or distributions $17.0 million
of Insurance is limited to the lesser of:
(1) 10% of such insurer's surplus
as of the preceding December
31, or
(2) the net income, not including
realized capital gains, of
such insurer for the preceding
calendar year.
Transnation Arizona Payment of dividends or distributions $7.6 million
Department of is limited to the lesser of:
Insurance
(1) 10% of such insurer's surplus
as of the preceding December
31, or
(2) such insurer's net investment
income for the preceding
calendar year.
</TABLE>
___________________
(1) Based on statutory financial results for the year ended December 31, 1998.
In addition to regulatory restrictions, the Company's ability to
declare dividends is subject to restrictions under a Revolving Credit Agreement,
dated as of November 7, 1997, between the Company and Bank of America National
Trust and Savings Association, which generally limits the aggregate amount of
all cash dividends and stock repurchases by the Company to 25% of its cumulative
consolidated net income arising after December 31, 1996. As of December 31,
1998, approximately $18.5 million was available for the payment of dividends by
the Company under the Revolving Credit Agreement. Management does not believe
that the restrictions contained in the Revolving Credit Agreement will, in the
foreseeable future, adversely affect the Company's ability to pay cash dividends
at the current dividend rate.
-18-
<PAGE>
Recent Sales of Unregistered Securities
On November 30, 1998, the Company acquired all of the issued and
outstanding shares of capital stock of Atlantic Title & Abstract Company, a
Delaware corporation ("Atlantic"), pursuant to a Stock Purchase Agreement dated
as of November 30, 1998 by and between the Company, Commonwealth, Atlantic and
Dean M. Lusky. In consideration for the acquisition of such shares of Atlantic,
the Company issued 41,573 shares of its Common Stock, no par value, to Mr.
Lusky, representing a purchase price of approximately $2.2 million. The Company
and Atlantic also entered into an Employment Agreement with Mr. Lusky dated as
of November 30, 1998. The 41,573 shares of Common Stock were offered and sold by
the Company in connection with the negotiated acquisition of Atlantic from its
sole shareholder, Dean M. Lusky, pursuant to the exemption from registration
under Section 5 of the Securities Act of 1933, as amended, provided by Section
4(2) of that Act.
-19-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The information set forth in the following table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and Notes
thereto.
<TABLE>
<CAPTION>
For the year ended
December 31: 1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In thousands of dollars, except per common share amounts)
<S> <C> <C> <C> <C> <C>
Revenues............... $1,848,870 $639,099 $594,182 $482,832 $501,200
Net income............. 93,028 26,157 36,519 17,051 6,814
Net income per
common share........... 6.13 2.93 4.11 1.92 0.80
Net income per
common share
assuming dilution...... 5.05 2.84 4.01 1.89 0.79
Dividends per
common share........... 0.20 0.20 0.20 0.18 0.12
At December 31:
Total assets........... 1,692,358 554,693 520,968 475,843 453,259
Shareholders'
equity................. 771,189 292,404 262,168 238,385 203,323
</TABLE>
-20-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
On February 27, 1998, the Company acquired all of the issued and
outstanding shares of capital stock of Commonwealth and Transnation from
Reliance Insurance Company, a subsidiary of Reliance Group Holdings, Inc. The
assets and liabilities of Commonwealth and Transnation have been revalued to
their respective fair market values. The financial statements of the Company
reflect the combined operations of the Company, including Commonwealth and
Transnation, from the closing date of the acquisition.
Overview
The following discussion includes, in addition to actual results of
operations, information on pro forma results of operations that assumes the
Commonwealth and Transnation acquisition was effective for the entire years of
1998, 1997 and 1996. The Company reported improved operating earnings in 1998 as
well as in 1997 and 1996. The Company's primary business is the insurance of
titles to real property, which is greatly influenced by the real estate economy.
During the three year period from 1996 to 1998, the Company benefited from the
execution of three distinct aspects of its business strategy. Operations were
expanded through the acquisition of title insurance agents and underwriters,
expenses were tightly monitored and controlled, and claims experience improved
due to quality control efforts and an improved claims environment. During 1998,
the Company also benefited from the acquisition of Commonwealth and Transnation
and the strong national real estate economy.
Revenues
The Company's operating revenues, consisting of premiums, title search,
escrow and other fees, are dependent on overall levels of real estate activity,
which are influenced by a number of factors including interest rates and the
general state of the economy. In addition, the Company's revenues are affected
by the Company's sales and marketing efforts and its strategic decisions based
on the rate structure and claims environment in particular markets.
Premiums and fees are determined both by competition and by state
regulation. Operating revenues from direct title operations are recognized at
the time real estate transactions close, which is generally 60 to 90 days after
the opening of a title order. Operating revenues from agents are recognized when
the issuance of a policy is reported to the Company by an agent. Although agents
generally report the issuance of policies on a monthly basis, heightened levels
of real estate activity may slow this reporting process. This typically results
in delays averaging 90 days from the closing of real estate transactions until
the recognition of revenues from agents. As a result, there can be a significant
lag between changes in general real estate activity and their impact on the
Company's revenues.
In addition to the premiums and related fees, the Company earns
investment income from its portfolio of fixed-maturity securities. Investment
income includes dividends and interest as well as realized capital gains or
losses on the portfolio. The Company regularly reexamines its portfolio
strategies in light of changing earnings or tax situations. In the fourth
quarter of 1996 the Company shifted its investment strategy, eliminating its
investment in equity securities, and moved the majority of its investment
portfolio into fixed-maturity securities. The repositioning of the portfolio
eliminated the exposure of the regulated surplus of the Company's insurance
subsidiaries to market fluctuations inherent in equity portfolios. Additionally,
the commensurate increase in fixed-maturity securities increased the level of
more stable, predictable interest income earned.
-21-
<PAGE>
Factors Affecting Profit Margins and Pre-Tax Profits
The Company's profit margins are affected by several factors, including
the volume of real estate activity, policy amount and the nature of real estate
transactions. Volume is an important determinant of profitability because the
Company, like any other title insurance company, has a significant level of
fixed costs arising from personnel, occupancy costs and maintenance of title
plants. Because premiums are based on the face amount of the policy, larger
policies generate higher premiums although expenses of issuance do not
necessarily increase in proportion to policy size. Cancellations affect
profitability because costs incurred both in opening and in processing orders
typically are not offset by fees. Commercial transactions tend to be more
profitable than residential transactions.
The Company's principal expense is commissions paid to independent
agents. The Company regularly reviews the profitability of its agents, adjusting
commission levels or cancelling certain agents where profitability objectives
are not being met and expanding operations where acceptable levels of
profitability are available. The Company continually monitors its expense ratio,
which is the sum of salaries and employee benefits, agency commissions and other
expenses (exclusive of interest, goodwill and assimilation costs) expressed as a
percentage of operating revenues.
Claims
Generally, title insurance claim rates are lower than other types of
insurance because title insurance policies insure against prior events affecting
the quality of real estate titles, rather than against unforeseen, and therefore
less predictable, future events. A provision is made for estimated future claim
payments at the time revenue is recognized. Both the Company's experience and
industry data indicate that claims activity occurs for more than 20 years after
the policy is issued. Management uses actuarial techniques to estimate future
claims by analyzing past claim payment patterns. Independent actuaries review
the adequacy of reserves on an interim basis and certify as to their adequacy on
an annual basis. Management has continued to emphasize and strengthen claims
prevention and product quality programs.
In the fourth quarter of 1996, the Company made a change from reporting
policy and contract claims on a discounted basis to an undiscounted basis. In
addition, during the fourth quarter of 1996 the Company changed its estimate of
the ultimate net cost of all reported and unreported losses incurred through
September 30, 1996 to reflect favorable experience. Under the Company's
reserving methodology, the provision for losses on policies issued in each year
is based on historical experience determined over a period of years. As a
result, the very high incidence of losses on policies issued in the 1980s had
the effect of pushing up the rate at which losses were provided in the 1990s.
The early 1990s were also affected by a high volume of residential refinance
business which time has proven is experiencing a lower incidence of losses.
Both the change in reserve estimate and the change from discounting to
not discounting reserves were contemplated by the Company as a result of the
shift in the business that now reflects a higher amount of refinance
transactions and an increase in frequency of housing resales. See Note 2 to the
Consolidated Financial Statements for a description of the effect of these
changes on the Company's operations.
Other Expenses
The most significant components of other expenses are rent for office
space, outside costs of title production, travel, communications and taxes
levied by states on premiums.
-22-
<PAGE>
Seasonality
Historically, residential real estate activity has been generally
slower in the winter, when fewer families move, buy or sell homes, with
increased volumes in the spring and summer. Residential refinancing activity is
generally more uniform throughout the seasons, subject to interest rate
stability. The Company typically reports its lowest revenues in the first
quarter, with revenues increasing into the second quarter and through the third
quarter. The fourth quarter customarily may be as strong as the third quarter,
depending on the level of activity in the commercial real estate market.
In 1998, the typical seasonality of the title insurance business was
somewhat tempered by the high level of refinancing activity, which may not
continue through 1999.
Contingencies
For a discussion of pending legal proceedings for the periods covered
by this discussion of the Company's financial condition and results of
operation, see "Item 3 - Legal Proceedings."
Results of Operations
Comparison of Years Ended December 31, 1998,
December 31, 1997 and December 31, 1996
Net Income
The Company reported net income of $93.0 million or $5.05 per share on
a diluted basis for 1998 compared to $26.2 million or $2.84 per share on a
diluted basis in 1997 and $36.5 million or $4.01 per share on a diluted basis in
1996. Exclusive of assimilation costs associated with the Commonwealth and
Transnation acquisition, net income was $100.5 million or $5.46 per share on a
diluted basis in 1998. The 1996 earnings were favorably impacted by capital
gains resulting from a shift in the Company's investment portfolio from equities
to fixed-income securities as discussed under "Investment Income." Net operating
income (which excludes realized investment gains) was $91.2 million, $26.3
million and $21.3 million for the years ended 1998, 1997 and 1996, respectively.
On a pro forma basis and excluding assimilation costs net income would
have been $105.7 million or $5.22 per share on a diluted basis in 1998, $55.8
million or $2.79 per share on a diluted basis in 1997 and $41.3 million or $2.48
per share on a diluted basis in 1996. On a pro forma basis, and excluding
assimilation costs, net operating income was $103.7 million, $54.9 million and
$33.4 million for the years ended 1998, 1997 and 1996, respectively.
Operating Revenues
Operating revenues reported for 1998 were $1.80 billion compared to
$622.8 million in 1997 and $557.8 million in 1996. On a pro forma basis,
operating revenues in 1998 were $1.94 billion compared to $1.49 billion in 1997
and $1.34 billion in 1996. In addition to the inclusion of Commonwealth and
Transnation revenues in 1998, the increase is the result of increased volumes in
residential and commercial resale and refinancing transactions, reflecting the
continuing favorable interest rate environment and the general health of the
national real estate markets.
Investment Income
The Company reported pre-tax investment income of $49.3 million, $16.3
million and $36.4 million in 1998, 1997 and 1996, respectively. Excluding
capital gains and losses, investment income was $46.5 million, $16.6 million and
$13.1 million in 1998, 1997 and 1996,
-23-
<PAGE>
respectively. The improvement in 1998 was principally due to the addition of
earnings from the investments acquired in the Commonwealth and Transnation
transaction. The 1996 results included capital gains associated with the
Company's change in investment strategy where it sold its equity portfolio and
began investing principally in fixed-maturity securities.
Expenses
Operating Expenses. The Company's expense ratio was 87.6% in 1998
compared to 90.1% in 1997 and 91.0% in 1996. The improvement in the expense
ratio reflects increased operating leverage resulting from the Company's growth
in revenues, and the continuing focus on expense management.
Assimilation Costs. Assimilation costs on a pre-tax basis of
approximately $11.5 million were incurred in 1998 in connection with the
acquisition of Commonwealth and Transnation. No such costs were incurred in 1997
or 1996.
Salaries and Employee Benefits. Personnel-related expenses are a
significant portion of total operating expenses in the title insurance industry.
These expenses require intensive management through changing real estate cycles.
The level of these expenses is directly related to business volumes which
increased in 1998 over 1997 and in 1997 over 1996. As a percentage of gross
title revenues, salary and related expenses were 29.3%, 32.2% and 33.0% in 1998,
1997 and 1996, respectively.
Agents' Commissions. Commissions paid to title insurance agents are the
largest single expense incurred by the Company. The commission rate varies by
geographic area in which the commission was earned. Commissions as a percentage
of agency revenue were 77.6% in 1998, 75.0% in 1997 and 74.2% in 1996.
General, Administrative and Other Expenses. The most significant
components of other expenses are outside costs of title production, rent for
office space, travel, communications and taxes levied by states on premiums.
Provision for Policy and Contract Claims. The Company's claims
experience has shown improvement in recent years. The loss ratio (the provision
for policy and contract claims as a percentage of operating revenues) was 5.2%,
5.4% and 5.2% in 1998, 1997 and 1996, respectively. As previously discussed, the
Company changed its method of reporting policy and contract claims in the fourth
quarter of 1996. Claims paid as a percentage of operating revenues were 2.8%,
4.4% and 4.8% in 1998, 1997 and 1996, respectively.
Income Taxes
The Company pays U.S. federal and state income taxes based on laws in
the jurisdictions in which it operates. The effective tax rates reflected in the
income statement for 1998, 1997 and 1996 differ from the U.S. federal statutory
rate principally due to non-taxable interest, dividend deductions, travel and
entertainment and company-owned life insurance.
At December 31, 1998 the Company had recorded gross deferred tax assets
of $96.6 million related primarily to policy and contract claims and employee
benefit plans. Substantially all of this deferred tax asset balance could be
realized in the future through the reversal of existing temporary taxable
differences. Accordingly, it is more likely than not that the income tax
benefits will be realized for all of the temporary deductible differences
existing at December 31, 1998, therefore no valuation allowance has been
established.
The Company reassesses the realization of deferred assets quarterly
and, if necessary, adjusts its valuation allowance accordingly.
-24-
<PAGE>
Liquidity and Capital Resources
Cash provided by operating activities for the years ended December 31,
1998, 1997 and 1996 was $165.1 million, $18.8 million and $33.2 million,
respectively. As of December 31, 1998, the Company held cash and invested cash
of $174.0 million and fixed-maturity securities of $774.9 million.
Upon closing the acquisition of Commonwealth and Transnation on
February 27, 1998, the Company incurred debt of $207.5 million under a credit
facility and issued 2.2 million shares of 7% Series B Cumulative Convertible
Preferred Stock. The Company estimates that servicing the debt and preferred
stock will require approximately $20.0 million per year, which management
expects to be funded largely from cash flow from operations. Additionally,
management believes that these cash requirements will be partially offset by
approximately $15.0 million of federal income tax benefits related to the tax
deductibility of interest expense, amortization of intangibles and amortization
of tax reserve discount. In view of the historical ability of the Company to
generate strong, positive cash flows, and the strong cash position and
relatively conservative capitalization structure of the Company, management
believes that the Company will have sufficient liquidity and adequate capital
resources to meet both its short- and long-term capital needs. In addition, the
Company has a working capital line of credit in the amount of $30 million which
was unused at December 31, 1998.
Year 2000 Issues
Many existing computer programs use only two digits to identify a year
in the date field. These programs were designed and developed without
considering the impact of the change in the century. If not corrected, many
date-sensitive applications could fail or create erroneous results by or in the
year 2000. The Company understands the importance of having systems and
equipment operational through the year 2000 and beyond and is committed to
addressing these challenges while continuing to fulfill its business obligations
to its clients and business partners.
Year 2000 readiness is a major undertaking involving the review and
modification of multiple, interacting information technology systems, including
the Company's systems, equipment, facilities, services and products as well as
those of third party business partners (essential suppliers, vendors, service
contractors, distributors, joint venturers, creditors, borrowers, financial
service organizations, etc.). Certain equipment and facilities (such as
telephones, voicemail, elevators) may contain embedded chips or microcontrollers
that will need to be replaced.
The Company began its formal Year 2000 compliance program in 1996. The
Year 2000 Project Team was appointed to assess the Year 2000 vulnerability of
the Company's significant systems, equipment, facilities, services and products.
The Year 2000 Project Team is comprised of internal and external personnel.
Several Company executives, including the Company's President, serve as Project
Team Sponsors. The Year 2000 Project Team is separate and distinct from the
Company's information and technology department. Through the Year 2000 Project
Team, the Company has undertaken an internal quality assurance program to
evaluate and test its significant systems, equipment, facilities, services and
products. The Year 2000 Project Team is independently validating the initial
assessment and recommendations made by the quality assurance program. The
internal and external assessments are the basis of a full remediation and
testing process. In addition to the Project Team Sponsors, the Year 2000
compliance program is subject to the independent review of a Corporate Steering
Committee. Both the Project Team Sponsors and Corporate Steering Committee
review the Year 2000 compliance program for its impact (and the impact of the
Year 2000 issues) on all phases of the Company's business.
-25-
<PAGE>
The Year 2000 Project Team has divided its Year 2000 compliance program
into four (4) phases with estimated completion deadlines: assessment (internal
fourth quarter 1998, external first quarter 1999), remediation/replacement
(second quarter 1999), testing (second quarter 1999), and integration (third
quarter 1999). As of December 31, 1998, the Company had assembled and engaged
the Year 2000 Project Team and examined and created a budget for the remainder
of the project. The Company also hired Year 2000 dedicated resources including a
full time Contingency Planner, acquired and implemented mainframe remediation
tools and developed a mainframe Year 2000 specific test process and environment.
The Company's headquarters mainframe was upgraded and a compliant version of the
operating system was installed. Headquarters facilities had been assessed and
facilities related remediation plans were under development. A pilot program for
testing resources and facilities in the field had been implemented, a field test
lab had been designed and requisitioned and as of December 31, 1998,
substantially all of the field had been inventoried.
Although the Company has developed a Year 2000 compliance program,
there is no guarantee that the systems of other companies, upon which the
Company's systems rely, will be properly converted in a timely manner or will
not have an adverse effect on the Company's systems. Thus, the Company has
surveyed and continues to monitor its important business partners to analyze and
report any Year 2000-related issues that might impact the Company. The Company
considers the Year 2000 readiness of its business partners as an important
factor in its business dealings and relationships. Of course, notwithstanding
the Company's efforts or results, the actions or omissions of third parties
beyond the Company's knowledge or control may adversely affect its ability to
function unaffected to and through the Year 2000, including the possibility of
lost revenues or lawsuits by third parties.
Realizing the importance of Year 2000 readiness, the Company has
allocated approximately $14.1 million in the aggregate from its general
operating funds to the Year 2000 issue. Although significant, this amount is not
material to the Company's operational budget. An approximate allocation of the
budgeted amount is $4.0 million for assessment, $5.0 million for
remediation/replacement, $2.5 million for testing, $1.3 million for integration,
and $1.3 million for contingencies. Through December 31, 1998, approximately
$4.8 million has been spent in the assessment, remediation and testing phases.
Since the Year 2000 Project Team is separate from the Company's information and
technology department and the amount allocated to the Year 2000 issue is
specifically allocated for that purpose, the allocation has not resulted in the
delay of any other non-Year 2000 related information and technology projects.
The Company believes that it has identified all of the business systems
vital to its operations and that its Year 2000 compliance program will result in
the continuation of the Company's operations to and through the Year 2000 and
beyond. However, the Year 2000 issue, and its resolution, is complex and
multifaceted. The success of a response plan cannot be conclusively known until
the Year 2000 is reached (or an earlier date to the extent that systems and
equipment address Year 2000 date data prior to year 2000). Even with appropriate
and diligent pursuit of a well-conceived response plan, including testing
procedures, there is no certainty that any company will achieve complete
success. However, the Company is diligently trying to ensure that its
significant systems, equipment, facilities, services and products will not be
adversely affected by the Year 2000 problem. As such, the Company has engaged a
Corporate Contingency Planner to develop a contingency plan to address the worst
case scenario if the Company's Year 2000 compliance program should fail to
address the Year 2000. The contingency plan is currently under development.
Interest Rate Risk
The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates. For investment
securities, the table presents principal
-26-
<PAGE>
cash flows and related weighted-average interest rates by expected maturity
dates. Actual cash flows could differ from the expected amounts.
Interest Rate Sensitivity
Principal Amount by Expected Maturity
Average Interest Rate
(dollars in thousands)
<TABLE>
<CAPTION>
2004 and Fair
1999 2000 2001 2002 2003 after Total Value
---- ---- ---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Taxable
available-for-sale
securities:
Book value $12,771 $19,423 $23,479 $33,963 $71,095 $398,704 $559,435 $576,693
Average yield 6.1% 7.0% 6.3% 6.7% 6.2% 7.2%
Non-taxable
available-for-sale
securities:
Book value 1,182 659 802 7,997 7,837 114,703 133,180 137,706
Average yield 5.9% 6.4% 5.2% 5.1% 4.3% 5.0%
Preferred stock:
Book value - - - - - 63,993 63,993 60,457
Average yield - - - - - 7.5%
</TABLE>
The Company also has long-term debt of $207.5 million bearing interest
at 5.49% at December 31, 1998. A .25% change in the interest rate would affect
income before income taxes by approximately $0.5 million annually.
Forward-Looking and Cautionary Statements
Certain information contained in this Annual Report on Form 10-K
includes "forward-looking statements" within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. Among other things, these
statements relate to the financial condition, results of operation and business
of the Company. In addition, the Company and its representatives may from time
to time make written or oral forward-looking statements, including statements
contained in other filings with the Securities and Exchange Commission and in
its reports to shareholders. These forward-looking statements are generally
identified by phrases such as "the Company expects," "the Company believes" or
words of similar import. These forward-looking statements involve certain risks
and uncertainties and other factors that may cause the actual results,
performance or achievements to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Further, any such statement is specifically qualified in its
entirety by the following cautionary statements.
In connection with the title insurance industry in general, factors
that may cause actual results to differ materially from those contemplated by
such forward-looking statements include the following: (i) the costs of
producing title evidence are relatively high, whereas premium revenues are
subject to regulatory and competitive restraints; (ii) real estate activity
levels have historically been cyclical and are influenced by such factors as
interest rates and the condition of the overall economy; (iii) the value of the
Company's investment portfolio is subject to fluctuation based on similar
factors; (iv) the title insurance industry may be exposed to substantial claims
by large classes of claimants; (v) the industry is regulated by state laws that
require the maintenance of minimum levels of capital and surplus and that
restrict the amount of dividends that may be paid by the Company's insurance
subsidiaries without prior regulatory approval; and (vi) the risks
-27-
<PAGE>
and uncertainties associated with the Year 2000 readiness of third parties with
whom the Company does business.
The Company cautions that the foregoing list of important factors is
not exclusive. The Company does not undertake to update any forward-looking
statement that may be made from time to time by or on behalf of the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this Item is set forth under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Interest Rate Risk" in Item 7 of this report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item is submitted in a separate section of this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no changes in the Company's independent accountants and
no disagreements on accounting and financial disclosure that are required to be
reported hereunder.
-28-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Except as to certain information regarding executive officers included
in Part I, the definitive proxy statement for the 1999 Annual Meeting of
Shareholders to be filed within 120 days after the end of the last fiscal year
is incorporated herein by reference for the information required by this item.
ITEM 11. EXECUTIVE COMPENSATION
The definitive proxy statement for the 1999 Annual Meeting of the
Shareholders to be filed within 120 days after the end of the last fiscal year
is incorporated herein by reference for the information required by this item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The definitive proxy statement for the 1999 Annual meeting of
Shareholders to be filed within 120 days after the end of the last fiscal year
is incorporated herein by reference for the information required by this item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The definitive proxy statement for the 1999 Annual Meeting of
Shareholders to be filed within 120 days after the end of the last fiscal year
is incorporated herein by reference for the information required by this item.
-29-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) (1), (2) and (3). The response to this portion of Item 14 is
submitted as a separate section of this report.
(b) Reports on Form 8-K
Item 5
On December 3, 1998, the Registrant filed a Current Report on Form
8-K, dated December 3, 1998, reporting under Item 5 that
Commonwealth Land Title Insurance Company, a subsidiary of the
Company, and four current or former employees of Commonwealth, had
been named as defendants in a suit filed on November 3, 1998 by
Norwest Mortgage Inc. and Norwest Funding, Inc. in the Superior
Court for the County of Los Angeles, California.
(c) Exhibits - The response to this portion of Item 14 is submitted as
a separate section of this report.
(d) Financial Statement Schedules - The response to this portion of
Item 14 is submitted as a separate section of this report.
-30-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
LANDAMERICA FINANCIAL GROUP, INC.
By: /s/ Charles H. Foster, Jr.
------------------------------------
Charles H. Foster, Jr.
March 24, 1999 Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Charles H. Foster, Jr. Chairman and Chief Executive March 24, 1999
- -------------------------------------------- Officer and Director
Charles H. Foster, Jr. (Principal Executive Officer)
/s/ Herbert Wender Vice-Chairman and Chief Operating Officer March 24, 1999
- -------------------------------------------- and Director
Herbert Wender
/s/ Janet A. Alpert President and Director March 24, 1999
- --------------------------------------------
Janet A. Alpert
/s/ Jeffrey A. Tischler Executive Vice President and Chief March 24, 1999
- -------------------------------------------- Financial Officer
Jeffrey A. Tischler (Principal Financial Officer)
/s/ John R. Blanchard Senior Vice President - Corporate March 24, 1999
- -------------------------------------------- Controller
John R. Blanchard (Principal Accounting Officer)
/s/ Theodore L. Chandler, Jr. Director March 24, 1999
- --------------------------------------------
Theodore L. Chandler, Jr.
-31-
<PAGE>
/s/ Michael Dinkins Director March 24, 1999
- --------------------------------------------
Michael Dinkins
/s/ James Ermer Director March 24, 1999
- --------------------------------------------
James Ermer
/s/ John P. McCann Director March 24, 1999
- --------------------------------------------
John P. McCann
/s/ John Garnett Nelson Director March 24, 1999
- --------------------------------------------
John Garnett Nelson
/s/ Robert F. Norfleet, Jr. Director March 24, 1999
- --------------------------------------------
Robert F. Norfleet, Jr.
/s/ Eugene P. Trani Director March 24, 1999
- --------------------------------------------
Eugene P. Trani
/s/ Marshall B. Wishnack Director March 24, 1999
- --------------------------------------------
Marshall B. Wishnack
/s/ Robert M. Steinberg Director March 24, 1999
- --------------------------------------------
Robert M. Steinberg
/s/ Lowell C. Freiberg Director March 24, 1999
- --------------------------------------------
Lowell C. Freiberg
/s/ George E. Bello Director March 24, 1999
- --------------------------------------------
George E. Bello
</TABLE>
-32-
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEMS 14 (a)(1), (2) AND (3), (c) AND (d)
INDEX OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FINANCIAL STATEMENT SCHEDULES
CERTAIN EXHIBITS
YEAR ENDED DECEMBER 31, 1998
LANDAMERICA FINANCIAL GROUP, INC.
RICHMOND, VIRGINIA
-33-
<PAGE>
FORM 10-K ITEM 14 (a)(1), (2) AND (3)
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of LandAmerica Financial Group,
Inc. and subsidiaries are included in Item 8:
Page
Report of Independent Auditors..............................................F-1
Consolidated Balance Sheets, December 31, 1998 and 1997.....................F-2
Consolidated Statements of Operations,
Years Ended December 31, 1998, 1997 and 1996..............................F-4
Consolidated Statements of Cash Flows,
Years Ended December 31, 1998, 1997 and 1996..............................F-5
Consolidated Statements of Changes in Shareholders'
Equity, Years Ended December 31, 1998, 1997
and 1996..................................................................F-6
Notes to Consolidated Financial Statements,
December 31, 1998, 1997 and 1996..........................................F-7
The following consolidated financial statement schedules of LandAmerica
Financial Group, Inc. and subsidiaries are included in Item 14(d):
Schedule I Summary of Investments...............................F-31
Schedule II Condensed Financial Information of
Registrant ........................................F-32
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore, have been omitted.
-34-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
LandAmerica Financial Group, Inc.
We have audited the accompanying consolidated balance sheets of LandAmerica
Financial Group, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, changes in shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
1998. Our audits also included the financial statement schedules listed in the
Index at Item 14(a). These financial statements and schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of LandAmerica
Financial Group, Inc. and subsidiaries at December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
As discussed in Note 2 to the financial statements, in 1996 the Company changed
its method of accounting for policy and contract claims.
/s/ ERNST & YOUNG LLP
Richmond, Virginia
February 23, 1999
F-1
<PAGE>
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, DECEMBER 31
(In thousands of dollars)
<TABLE>
<CAPTION>
ASSETS 1998 1997
- ------ ---- ----
<S> <C> <C>
INVESTMENTS (Note 3):
Fixed maturities available-for-sale - at fair value
(amortized cost: 1998 - $756,608; 1997 - $250,295) $ 774,856 $ 261,112
Equity securities - at fair value (cost: 1998 - $3,426;
1997 - $887) 4,204 1,664
Mortgage loans (less allowance for doubtful accounts:
1998 - $155; 1997 - $150) 11,613 448
Invested cash 104,792 34,420
------------- -------------
Total investments 895,465 297,644
CASH 69,235 35,629
NOTES AND ACCOUNTS RECEIVABLE:
Notes (less allowance for doubtful accounts: 1998 -
$2,054; 1997 - $1,083) 7,340 5,911
Premiums (less allowance for doubtful accounts: 1998 -
$8,179; 1997 - $2,693) 61,203 28,659
Income tax recoverable - 2,392
------------- -------------
Total notes and accounts receivable 68,543 36,962
PROPERTY AND EQUIPMENT - at cost (less
accumulated depreciation and amortization: 1998 -
$86,767; 1997 - $51,775) 76,420 21,896
TITLE PLANTS 95,358 48,984
GOODWILL (less accumulated amortization: 1998 -
$24,630; 1997 - $14,507) 348,595 57,687
DEFERRED INCOME TAXES (Note 8) 80,557 21,610
OTHER ASSETS 58,185 34,281
------------- -------------
Total assets $ 1,692,358 $ 554,693
============= =============
</TABLE>
F-2
<PAGE>
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, DECEMBER 31
(In thousands of dollars)
<TABLE>
<CAPTION>
LIABILITIES 1998 1997
- ----------- ---- ----
<S> <C> <C>
POLICY AND CONTRACT CLAIMS (Notes 2 and 4) $ 521,894 $ 202,477
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 181,452 47,922
FEDERAL INCOME TAXES 841 -
NOTES PAYABLE 207,792 6,994
OTHER 9,190 4,896
-------------- -------------
Total liabilities 921,169 262,289
-------------- -------------
COMMITMENTS AND CONTINGENCIES
(Notes 11, 12 and 13)
SHAREHOLDERS' EQUITY (Notes 6 and 7)
Preferred stock, no par value, authorized 5,000,000 shares,
no shares of Series A Junior Participating Preferred Stock
issued or outstanding; 2,200,000 shares of 7% Series B
Cumulative Convertible Preferred Stock issued and
outstanding in 1998 175,700 -
Common stock, no par value, 45,000,000 shares authorized, shares
issued and outstanding: 1998 - 15,294,572; 1997
- 8,964,633 382,828 168,066
Accumulated other comprehensive income 12,367 7,536
Retained earnings 200,294 116,802
-------------- -------------
Total Shareholders' Equity 771,189 292,404
-------------- -------------
Total Liabilities and Shareholders' Equity $ 1,692,358 $ 554,693
============== =============
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31
(In thousands of dollars except per common share amounts)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
REVENUES
Premiums, title search, escrow and other (Note 5) $ 1,799,534 $ 622,781 $ 557,758
Investment income - net (Note 3) 49,336 16,318 36,424
------------- ----------- ----------
1,848,870 639,099 594,182
------------- ----------- ----------
EXPENSES (Notes 4, 10 and 11)
Salaries and employee benefits 527,827 200,488 184,274
Agents' commissions 712,933 218,358 192,590
Provision for policy and contract claims 93,563 33,749 29,211
Assimilation costs 11,517 - -
Interest expense 10,659 461 270
General, administrative and other 346,069 145,574 132,297
------------- ----------- ----------
1,702,568 598,630 538,642
------------- ----------- ----------
INCOME BEFORE INCOME TAXES 146,302 40,469 55,540
INCOME TAX EXPENSE (BENEFIT) (Note 8)
Current 54,715 15,316 20,320
Deferred (1,441) (1,004) (1,299)
------------- ----------- ----------
53,274 14,312 19,021
------------- ----------- ----------
NET INCOME 93,028 26,157 36,519
DIVIDENDS - PREFERRED STOCK (6,502) - -
------------- ----------- ----------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 86,526 $ 26,157 $ 36,519
============= =========== ==========
NET INCOME PER COMMON SHARE $ 6.13 $ 2.93 $ 4.11
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 14,120 8,924 8,888
NET INCOME PER COMMON SHARE ASSUMING
DILUTION $ 5.05 $ 2.84 $ 4.01
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING ASSUMING DILUTION 18,421 9,224 9,102
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31
(In thousands of dollars)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 93,028 $ 26,157 $ 36,519
Depreciation and amortization 25,757 10,527 9,927
Amortization of bond premium 960 507 722
Realized investment (gains) losses (2,817) 236 (23,371)
Deferred income tax (1,441) (1,004) (1,299)
Change in assets and liabilities, net of businesses
acquired:
Notes receivable (1,429) 746 -
Premiums receivable (222) (8,656) (1,419)
Income taxes receivable/payable 553 (8,113) 6,061
Policy and contract claims 43,305 6,192 2,494
Accounts payable and accrued expenses 5,395 711 5,772
Cash surrender value of life insurance (1,889) (9,877) (3,148)
Other 3,905 1,394 954
---------- ---------- ---------
Net cash provided by operating activities 165,105 18,820 33,212
---------- ---------- ---------
Cash flows from investing activities:
Purchase of property and equipment, net (47,796) (8,892) (8,612)
Purchase of business, net of cash acquired (126,346) - (2,320)
Cost of investments acquired:
Fixed maturities - available-for-sale (250,189) (96,634) (115,731)
Equity securities (1,506) - (34,815)
Mortgage loans (1,026) - -
Proceeds from investment sales or maturities:
Fixed maturities - available-for-sale 144,407 60,884 79,324
Equity securities - 43 100,533
Mortgage loans - 32 1,443
---------- ---------- ---------
Net cash (used in) provided by investing
activities (282,456) (44,567) 19,822
---------- ---------- ---------
Cash flows from financing activities:
Proceeds from the sale of common shares 81,833 - -
(Repayment of) proceeds from cash surrender value loan (1,517) - 3,891
Dividends paid (9,536) (1,785) (1,778)
Proceeds from issuance of notes payable 207,500 1,958 -
Payments on notes payable (56,951) - (171)
---------- ---------- ---------
Net cash from financing activities 221,329 173 1,942
---------- ---------- ---------
Net increase (decrease) in cash and invested cash 103,978 (25,574) 54,976
Cash and invested cash at beginning of year 70,049 95,623 40,647
---------- ---------- ---------
Cash and invested cash at end of year $ 174,027 $ 70,049 $ 95,623
========== ========== =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In thousands of dollars except per common share amounts)
<TABLE>
<CAPTION>
Accumulated
Other
Preferred Stock Common Stock Comprehensive Retained
Shares Amounts Shares Amounts Income Earnings
------ ------- ------ ------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1995 - $ - 8,885,991 $167,006 $13,845 $57,689
Comprehensive income
Net income - - - - - 36,519
Other comprehensive income, net of tax $1,450
Net unrealized loss on securities - - - - (11,151) -
Comprehensive income
Stock options and incentive plans - - 3,800 38 - -
Repayment from employee benefit plan - - - - - -
Dividends ($0.20/share) - - - - - (1,778)
-------- -------- ---------- -------- ------- --------
Balance - December 31, 1996 - - 8,889,791 167,044 2,694 92,430
Comprehensive income
Net income - - - - - 26,157
Other comprehensive income, net of tax $4,058
Net unrealized gains on securities - - - - 4,842 -
Comprehensive income
Stock options and incentive plans - - 74,842 1,022 - -
Common dividends ($0.20/share) - - - - - (1,785)
-------- -------- ---------- -------- ------- --------
Balance - December 31, 1997 - - 8,964,633 168,066 7,536 116,802
Comprehensive income
Net income - - - - - 93,028
Other comprehensive income, net of tax $6,659
Net unrealized gains on securities - - - - 4,831 -
Comprehensive income
Common and preferred stock issued 2,200,000 175,700 6,093,546 208,797 - -
Stock options and incentive plans - - 236,393 5,965 - -
Preferred dividends (7%) - - - - - (6,502)
Common dividends ($0.20/share) - - - - - (3,034)
--------- -------- ---------- -------- ------- --------
Balance - December 31, 1998 2,200,000 $175,700 15,294,572 $382,828 $12,367 $200,294
========= ======== ========== ======== ======= ========
</TABLE>
Receivable
from
Employee Total
Benefit Shareholders'
Plan Equity
---- ------
Balance - December 31, 1995 $(155) $238,385
Comprehensive income
Net income - 36,519
Other comprehensive income, net of tax $1,450
Net unrealized loss on securities - (11,151)
--------
Comprehensive income 25,368
--------
Stock options and incentive plans - 38
Repayment from employee benefit plan 155 155
Dividends ($0.20/share) - (1,778)
----- --------
Balance - December 31, 1996 - 262,168
Comprehensive income
Net income - 26,157
Other comprehensive income, net of tax $4,058
Net unrealized gains on securities - 4,842
--------
Comprehensive income 30,999
--------
Stock options and incentive plans - 1,022
Common dividends ($0.20/share) - (1,785)
----- --------
Balance - December 31, 1997 - 292,404
Comprehensive income
Net income - 93,028
Other comprehensive income, net of tax $6,659
Net unrealized gains on securities - 4,831
--------
Comprehensive income 97,859
--------
Common and preferred stock issued - 384,497
Stock options and incentive plans - 5,965
Preferred dividends (7%) - (6,502)
Common dividends ($0.20/share) - (3,034)
----- --------
Balance - December 31, 1998 $ - $771,189
===== ========
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In thousands of dollars except per common share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements of LandAmerica
Financial Group, Inc. (the "Company") and its wholly owned subsidiaries
have been prepared in conformity with generally accepted accounting
principles ("GAAP") which, as to the insurance company subsidiaries,
differ from statutory accounting practices prescribed or permitted by
regulatory authorities.
Organization
The Company is engaged principally in the title insurance business.
Title insurance policies are insured statements of the condition of
title to real property, showing ownership as indicated by public
records, as well as outstanding liens, encumbrances and other matters
of record and certain other matters not of public record. The Company's
business results from commercial real estate activity, resales and
refinancings of residential real estate and construction and sale of
new housing. The Company conducts its business on a national basis
through a network of branch and agency offices with approximately 41.6%
of consolidated title revenues generated in the states of Texas,
Florida, California and Pennsylvania. The Company manages its business
and reports its financial information as one segment.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
and operations, after intercompany eliminations, of LandAmerica
Financial Group, Inc., and its wholly owned subsidiaries, principally
Commonwealth Land Title Insurance Company, Lawyers Title Insurance
Corporation and Transnation Title Insurance Company.
Investments
The Company records its fixed-maturity investments which are classified
as available-for-sale at fair value and reports the change in the
unrealized appreciation and depreciation as a separate component of
shareholders' equity. The amortized cost of fixed-maturity investments
classified as available-for-sale is adjusted for amortization of
premiums and accretion of discounts. That amortization or accretion is
included in net investment income.
F-7
<PAGE>
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In thousands of dollars except per common share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Realized gains and losses on sales of investments, and declines in
value considered to be other than temporary, are recognized in
operations on the specific identification basis.
Title Plants
Title plants consist of title records relating to a particular region
and are generally stated at cost. Expenses associated with current
maintenance, such as salaries and supplies, are charged to expense in
the year incurred. The costs of acquired title plants and the building
of new title plants, prior to the time that a plant is put into
operation, are capitalized. Properly maintained title plants are not
amortized because there is no indication of diminution in their value.
Goodwill
The excess of cost over fair value of net assets of businesses acquired
(goodwill) is amortized on a straight-line basis over 40 years.
Long-Lived Assets
The Company reviews identifiable intangibles, including goodwill, for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. If indicators
of impairment are present, the Company estimates the future cash flows
expected to be generated from the use of those assets and their
eventual disposal. The Company would recognize an impairment loss if
the future cash flows were less than the carrying amount.
Depreciation
Property and equipment is depreciated principally on the straight-line
method over the useful lives of the various assets, which range from
three to 40 years.
Revenue Recognition
Premiums on title insurance written by the Company's employees are
recognized as revenue when the Company is legally or contractually
entitled to collect the premium. Premiums on insurance written by
agents are generally recognized when reported by the agent and recorded
on a "gross" versus "net" basis. Title search and escrow fees are
recorded as revenue when an order is closed.
F-8
<PAGE>
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In thousands of dollars except per common share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Policy and Contract Claims
Liabilities for estimated losses and loss adjustment expenses represent
the estimated ultimate net cost of all reported and unreported losses
incurred through December 31, 1998. The reserves for unpaid losses and
loss adjustment expenses are estimated using individual case-basis
valuations and statistical analyses. Those estimates are subject to the
effects of trends in loss severity and frequency. Title insurance
reserve estimates are subject to a significant degree of inherent
variability due to the effects of external factors such as general
economic conditions. Although management believes that the reserve for
policy and contract claims is reasonable, it is possible that the
Company's actual incurred policy and contract claims will not conform
to the assumptions inherent in the determination of these reserves.
Accordingly, the ultimate settlement of policy and contract claims may
vary significantly from the estimates included in the Company's
financial statements. Although considerable variability is inherent in
such estimates, management believes that the reserves for losses and
loss adjustment expenses are adequate. The estimates are continually
reviewed and adjusted as necessary as experience develops or new
information becomes known; such adjustments are included in current
operations.
Income Taxes
Deferred income taxes reflect the tax consequences on future years of
differences between the tax bases of assets and liabilities and their
financial reporting amounts. Future tax benefits are recognized to the
extent that realization of such benefits are more likely than not.
Escrow and Trust Deposits
As a service to its customers, the Company administers escrow and trust
deposits which amounted to approximately $1,769,040 and $436,000 at
December 31, 1998 and 1997, respectively, representing undisbursed
amounts received for settlements of mortgage loans and indemnities
against specific title risks. These funds are not considered assets of
the Company and, therefore, are excluded from the accompanying
consolidated balance sheets.
Deferred Land Exchanges
Through several non-insurance subsidiaries the Company facilitates
tax-free property exchanges for customers pursuant to Section 1031 of
the Internal Revenue Code. Acting as a qualified intermediary, the
Company holds the sale proceeds from sales transactions until a
qualifying acquisition occurs, thereby assisting its customers in
deferring the recognition of taxable income. At December 31, 1998 and
1997, the Company was holding $468,663 and $167,000, respectively, of
such proceeds which are not considered assets of the Company and are,
therefore, excluded from the accompanying consolidated balance sheets.
F-9
<PAGE>
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In thousands of dollars except per common share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Statement of Cash Flows
For purposes of the statement of cash flows, invested cash is
considered a cash equivalent. Invested cash includes all highly liquid
investments with a maturity of three months or less when purchased.
Fair Values of Financial Instruments
The carrying amounts reported in the balance sheet for invested cash
and short-term investments approximate those assets' fair values. Fair
values for investment securities are based on quoted market prices. The
carrying amount reported in the balance sheet for notes payable
approximates fair value since the interest rate on the notes payable is
variable. The Company has no other material financial instruments.
Stock Based Compensation
The Company grants stock options for a fixed number of shares to
employees with an exercise price equal to the fair value of the shares
at the date of grant. The Company accounts for stock option grants in
accordance with APB Opinion No. 25, Accounting for Stock Issued to
Employees, and accordingly, recognizes no compensation expense for the
stock option grants.
Reclassifications
Certain 1997 and 1996 amounts have been reclassified to conform to the
1998 presentation.
Recent Accounting Pronouncements
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS No.
130"), which establishes standards for the reporting and presentation
of changes in equity from nonowner sources in the financial statements.
Other comprehensive income consists of net income and unrealized
holding gains on securities and, as permitted under the provisions of
SFAS No. 130, is presented in the Consolidated Statement of Changes in
Shareholders' Equity. Prior year financial statements have been
reclassified to conform to the SFAS No.
130 requirements.
F-10
<PAGE>
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In thousands of dollars except per common share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Reclassification adjustments are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Unrealized holding gains arising $ 13,773 $ 7,851 $ 15,677
during period
Less-reclassification adjustment 1,406 315 12,983
----------- -------- ----------
for gains previously included
in other comprehensive income
Net unrealized holding gains on $ 12,367 $ 7,536 $ 2,694
marketable securities =========== ======== ==========
</TABLE>
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 132, Employers' Disclosures about Pensions and
Other Postretirement Benefits ("SFAS No. 132"), which standardizes the
disclosure requirements for pensions and other postretirement benefits
to the extent practical, requires additional information on changes in
the benefit obligations and fair values of plan assets and eliminates
certain disclosures. Prior year financial statements have been
reclassified to conform to the SFAS No. 132 requirements. See Note 10.
2. ACCOUNTING CHANGE
In the fourth quarter of 1996 the Company made a change from reporting
policy and contract claims on a discounted to an undiscounted basis.
This change was made to conform with industry practice and because it
is considered preferable by rating agencies and analysts. The effect of
the change for 1996 was to increase the provision for policy and
contract claims by $76 million and decrease net income by $49 million
and net income per share by $5.51 and net income per share assuming
dilution by $5.38.
In addition, during the fourth quarter of 1996 the Company determined
that the trend of favorable loss experience which had emerged over the
past few years could be relied upon and the Company changed its
estimate of the ultimate net cost of all reported and unreported losses
incurred through September 30, 1996 to reflect this favorable
experience. The effect of the change in estimate was to decrease the
provision for policy and contract claims by $78 million and to increase
net income by $50.7 million and net income per share by $5.70 and net
income per share assuming dilution by $5.57.
F-11
<PAGE>
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In thousands of dollars except per common share amounts)
2. ACCOUNTING CHANGE (Continued)
Because the change in accounting principle to no longer discount policy
and contract claims is inseparable from the change in estimate, both
have been accounted for as a change in estimate. Accordingly, the net
effect of the two changes, a decrease of $2.0 million in the provision
for policy and contract claims, was included in operations for the
fourth quarter of 1996 and no prior amounts have been restated. The
above changes were both made to conform with general industry practice.
3. INVESTMENTS
The amortized cost and estimated fair value of investments in fixed
maturities at December 31, 1998, and 1997 were as follows:
<TABLE>
<CAPTION>
1998
------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies $ 100,137 $ 6,013 $ 22 $ 106,128
Obligations of states and
political subdivisions 132,772 4,584 18 137,338
Fixed maturities issued by
foreign governments 13,027 264 - 13,291
Public utilities 206,217 6,168 189 212,196
Corporate securities 177,211 5,683 1,058 181,836
Mortgage backed
securities 63,251 359 - 63,610
Preferred stock 63,993 - 3,536 60,457
--------- -------- ------- ----------
Fixed maturities
available-for-sale $ 756,608 $ 23,071 $ 4,823 $ 774,856
========= ======== ======= ==========
</TABLE>
F-12
<PAGE>
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In thousands of dollars except per common share amounts)
3. INVESTMENTS (Continued)
<TABLE>
<CAPTION>
1997
------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies $ 55,359 $ 4,241 $ 8 $ 59,592
Obligations of states and
political subdivisions 96,493 3,737 7 100,223
Fixed maturities issued by
foreign governments 347 40 - 387
Public utilities 4,586 95 - 4,681
Corporate securities 73,814 2,165 38 75,941
Mortgage backed
securities 19,696 598 6 20,288
--------- ------- ---- ---------
Fixed maturities
available-for-sale $250,295 $10,876 $ 59 $ 261,112
========= ======= ==== =========
</TABLE>
The amortized cost and estimated fair value of fixed-maturity
securities at December 31, 1998 by contractual maturity are shown
below. Actual maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations.
F-13
<PAGE>
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In thousands of dollars except per common share amounts)
3. INVESTMENTS (Continued)
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
---- -----
<S> <C> <C>
Due in one year or less $ 13,953 $ 13,605
Due after one year through five years 165,963 167,590
Due after five years through ten years 213,649 222,007
Due after ten years 299,792 308,044
Mortgage backed securities 63,251 63,610
----------- -----------
$ 756,608 $ 774,856
=========== ===========
</TABLE>
Earnings on investments and net realized gains (losses) for the three
years ended December 31, follow:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Fixed maturities $ 41,519 $ 15,572 $ 12,453
Equity securities 21 2 692
Invested cash and other short-term
investments 6,252 1,503 979
Mortgage loans 477 18 88
Net realized gains (losses) 2,817 (236) 23,371
--------- --------- ----------
Total investment income 51,086 16,859 37,583
Investment expenses (1,750) (541) (1,159)
--------- --------- ----------
Net investment income $ 49,336 $ 16,318 $ 36,424
========= ========= ==========
</TABLE>
Realized and unrealized gains (losses) representing the change in
difference between fair value and cost (principally amortized cost for
fixed maturities) on fixed maturities and equity securities for the
three years ended December 31, are summarized below:
F-14
<PAGE>
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In thousands of dollars except per common share amounts)
3. INVESTMENTS (Continued)
Change in
Realized Unrealized
1998
Fixed maturities $ 2,817 $ 7,431
Equity securities - 1
---------- -----------
$ 2,817 $ 7,432
========== ===========
1997
Fixed maturities $ 127 $ 7,468
Equity securities (363) (18)
---------- -----------
$ (236) $ 7,450
========== ===========
1996
Fixed maturities $ (50) $ (4,739)
Equity securities 23,421 (12,418)
---------- -----------
$ 23,371 $ (17,157)
========== ===========
Gross unrealized gains and (losses) relating to investments in equity
securities were $831 and $(53) at December 31, 1998.
Proceeds from sales of investments in fixed maturities, net of calls or
maturities during 1998, 1997 and 1996 were $76,054, $58,360 and
$67,425, respectively. Gross gains of $2,865, $265 and $502 in 1998,
1997 and 1996, respectively, and gross losses of $48, $138 and $552 in
1998, 1997 and 1996, respectively, were realized on those sales.
Proceeds from sales of investments in equity securities during 1998,
1997 and 1996 were $0, $43 and $100,533, respectively. Gross gains of
$0, $47 and $25,857 in 1998, 1997 and 1996, respectively, and gross
losses of $0, $410 and $2,436 in 1998, 1997 and 1996, respectively,
were realized on those sales.
4. POLICY AND CONTRACT CLAIMS
The Company's estimate of net costs to settle reported claims and
claims incurred but not reported has not been discounted at December
31, 1998, 1997 and 1996.
F-15
<PAGE>
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In thousands of dollars except per common share amounts)
4. POLICY AND CONTRACT CLAIMS (Continued)
Activity in the liability for unpaid claims and claim adjustment
expenses is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Balance at January 1 $ 202,477 $ 196,285 $ 193,791
Acquired reserves from
acquisition of subsidiaries 276,112 - -
Incurred related to:
Current year 114,833 38,301 28,930
Prior years (21,270) (4,552) 281
------------ ----------- -----------
Total incurred 93,563 33,749 29,211
------------ ----------- -----------
Paid related to:
Current year 4,155 3,216 1,549
Prior year 46,103 24,341 25,168
------------ ----------- -----------
Total Paid 50,258 27,557 26,717
------------ ----------- -----------
Balance at December 31 $ 521,894 $ 202,477 $ 196,285
============ =========== ===========
</TABLE>
The balance at January 1, 1996 is reported on a discounted basis. The
balances at January 1, 1997 and 1998 and the balances at December 31,
1996, 1997 and 1998 are reported on an undiscounted basis. Losses
incurred in 1996 include the effects of the accounting changes
discussed in Note 2.
The favorable development on 1997 and prior year loss reserves during
1998 was attributable to lower than expected payment levels on recent
issue years which included a high proportion of refinance business.
5. REINSURANCE
The Company cedes and assumes title policy risks to and from other
insurance companies in order to limit and diversify its risk. The
Company cedes insurance on risks in excess of certain underwriting
limits which provides for recovery of a portion of losses. The Company
remains contingently liable to the extent that reinsuring companies
cannot meet their obligations under reinsurance agreements.
F-16
<PAGE>
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In thousands of dollars except per common share amounts)
5. REINSURANCE (Continued)
The Company has not paid or recovered any reinsured losses during the
three years ended December 31, 1998. The total amount of premiums for
assumed and ceded risks was less than 1.0% of title premiums in each of
the last three years.
6. SHAREHOLDERS' EQUITY
Rights Agreement
The Company has issued one preferred share purchase right (a "Right")
for each outstanding share of common stock. Each Right entitles the
holder to purchase one one-hundredth of a share of Series A Junior
Participating Preferred Stock ("Junior Preferred Stock") at an exercise
price of $85, subject to adjustment. Generally, the Rights will become
exercisable if a person or group acquires or announces a tender offer
for 20% or more of the outstanding common stock. Under certain
circumstances, the Board of Directors may reduce this threshold
percentage to not less than 10%. If a person or group acquires the
threshold percentage of common stock, each Right will entitle the
holder, other than such acquiring person or group, to buy shares of
common stock or Junior Preferred Stock having a total market value of
twice the exercise price. If the Company is acquired in a merger or
other business combination, each Right will entitle the holder, other
than such acquiring person or group, to purchase securities of the
surviving company having a total market value equal to twice the
exercise price of the Rights. The Rights will expire on August 20,
2007, and may be redeemed by the Company at a price of one cent per
Right at any time before they become exercisable. Until the Rights
become exercisable, they are evidenced by the common stock certificates
and are transferred with and only with such certificates.
Stock Options
The Company has elected to follow Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees ("APB 25"), and
related Interpretations in accounting for its employee stock options
because, as discussed below, the alternative fair value accounting
provided under FASB Statement No. 123, Accounting for Stock-Based
Compensation ("Statement 123"), requires use of option valuation models
that were not developed for use in valuing employee stock options.
Under APB 25, because the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
Under the Company's 1991 Stock Incentive Plan, as amended (the
"Incentive Plan"), officers, directors and key employees of the Company
and its subsidiaries may receive grants and/or awards of common stock,
restricted stock, phantom stock, incentive stock options, non-qualified
stock options and stock appreciation rights. As amended in 1995,
commencing January 1, 1996, the maximum number of shares of common
stock available
F-17
<PAGE>
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In thousands of dollars except per common share amounts)
6. SHAREHOLDERS' EQUITY (Continued)
for grants and awards under the Incentive Plan in each calendar year is
equal to 1.5% of the shares of common stock outstanding as of the first
business day of that year, plus the number of shares available for
grants and awards in prior years but not covered by grants and awards
in those years and any shares of common stock as to which grants and
awards have been terminated or forfeited.
Pursuant to the 1992 Stock Option Plan for Non-Employee Directors (the
"Directors' Plan"), each non-employee director was granted an option to
purchase 1,500 shares of common stock of the Company on the first
business day following the annual meeting of shareholders. Up to 60,000
shares of the Company's common stock may be issued under the Directors'
Plan, and as of May 21, 1997, the Company had granted options covering
all 60,000 shares. Subsequent stock option grants to non-employee
directors are made under the Incentive Plan. Beginning on June 17,
1998, annual stock option grants to non-employee (and non-Reliance)
directors were increased from 1,500 to 2,000 shares of common stock of
the Company.
All options which have been granted under the Incentive Plan and the
Directors' Plan are non-qualified stock options with an exercise price
equal to the fair market value of a share of the Company's common stock
on the date of grant. Options granted in 1992 under the Incentive Plan
and all options granted under the Directors' Plan expire ten years from
the date of grant. All other options which have been granted under the
Incentive Plan expire seven years from the date of grant. Options
generally vest ratably over a four-year period. At December 31, 1998,
there were 23,976 shares available for future grant under the Incentive
Plan.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company
had accounted for its employee stock options under the fair value
method of that Statement. The fair value of these options was estimated
at the date of grant using the Black-Scholes option pricing model with
the following weighted-average assumptions for 1998: risk-free interest
rate of 5.58%, dividend yield of 0.44%, volatility factor of the
expected market price of the Company's common stock of .328 and a
weighted-average expected life of the options of approximately 5 years.
The effects of applying Statement 123 on a pro forma basis for 1998,
1997 and 1996 options are not likely to be representative of the
effects on reported pro forma net income in future years.
The Black-Scholes option valuation method was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions, including
the expected stock price volatility. Because the Company's employee
stock options have characteristics significantly different from those
of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock
options.
F-18
<PAGE>
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In thousands of dollars except per common share amounts)
6. SHAREHOLDERS' EQUITY (Continued)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Pro forma net income $ 92,258 $ 25,700 $ 36,187
Pro forma net income available to
common shareholders 85,756 25,700 36,187
Pro forma net income per common
share 6.07 2.88 4.07
Pro forma net income per common
share assuming dilution 5.01 2.79 3.98
</TABLE>
A summary of the Company's stock option activity and related
information for the years ended December 31 follows:
<TABLE>
<CAPTION>
Weighted Weighted
Number Average Average
of Shares Exercise Price Fair Value
--------- -------------- ----------
<S> <C> <C> <C>
Options outstanding, December 31,
1995 (278,651 exercisable) 523,576 $ 11
Granted 178,000 19 $ 7.38
Exercised 3,800 10
Forfeited 6,050 16
Options outstanding, December 31,
1996 (380,231 exercisable) 691,726 13
Granted 117,000 21 $ 7.45
Exercised 57,342 11
Forfeited 2,000 20
Options outstanding, December 31,
1997 (452,534 exercisable) 749,384 15
Granted 88,000 45 $ 15.51
Exercised 146,408 13
Forfeited 9,789 26
Options outstanding, December 31,
1998 (458,762 exercisable) 681,187 $ 19
</TABLE>
F-19
<PAGE>
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In thousands of dollars except per common share amounts)
6. SHAREHOLDERS' EQUITY (Continued)
The following table summarizes information about stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Range of Number Average Average Number Average
Exercise Outstanding Remaining Exercise Exercisable Exercise
Prices at 12/31/98 Life Price at 12/31/98 Price
------ ----------- ---- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
$ 3 - $10 153,612 1.9 $ 7 153,612 $ 7
$11 - $14 92,975 3.6 11 73,800 11
$17 - $22 349,600 4.1 19 213,350 19
$44 - $54 85,000 6.8 46 18,000 53
------- -------
$ 3 - $54 681,187 3.8 $19 458,762 $15
======= =======
</TABLE>
Savings and Stock Ownership Plan
The Company has registered 1,500,000 shares of common stock for use in
connection with the LandAmerica Financial Group, Inc. Savings and Stock
Ownership Plan. Substantially all of the employees of the Company are
eligible to participate in the Plan. On July 1, 1992, the Company
issued 323,400 shares of such stock to the Plan in exchange for a
$2,156 promissory note bearing interest at 8.0%. These shares were used
for matching contributions for plan participants through June of 1996
and were allocated to participants quarterly in the same proportion
that the quarterly principal and interest payments on the note bore to
the total principal and interest payments over the life of the note.
Subsequent to June 1996, the Plan Trustee purchased shares on the open
market to use in matching employee contributions. The level of
contributions to the Plan is discretionary and set by the Board of
Directors annually. In 1996, 38,997 shares were allocated to
participants at a cost of $143 to the Company. Additionally, 168,909
and 125,095 shares were purchased at a cost of $8,598 and $3,432 and
allocated to employees in 1998 and 1997, respectively.
Series B Preferred Stock
On February 27, 1998, the Company issued 2,200,000 shares of its 7%
Series B Cumulative Convertible Preferred Stock (the "Series B
Preferred Stock") to Reliance Insurance Company ("RIC") in connection
with the acquisition of Commonwealth Land Title Insurance Company and
Transnation Title Insurance Company (the "Acquisition"). The Series B
Preferred Stock provides for the payment of quarterly cumulative cash
dividends at an annual rate of 7% of the stated value of $50 per share,
or $3.50 per share. At December 31, 1998, there were no Series B
Preferred Stock dividends in arrears.
F-20
<PAGE>
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In thousands of dollars except per common share amounts)
6. SHAREHOLDERS' EQUITY (Continued)
The Series B Preferred Stock is redeemable by the Company at any time
on or after February 27, 2003 at a redemption price equal to the stated
value of $50.00 per share, plus a redemption premium of 4% commencing
on February 27, 2003 that declines by 1% per year over the next five
years until February 27, 2007, at which time the Series B Preferred
Stock may be redeemed at its stated value of $50.00 per share. The
Series B Preferred Stock contains no sinking fund provisions and places
no limits on the source of funds to be used for any redemption of the
Series B Preferred Stock.
The Series B Preferred Stock generally is convertible at the option of
the holder into shares of common stock at a conversion price of $22.80
per share of common stock (equivalent to a conversion ratio of
approximately 2.193 shares of common stock for each share of Series B
Preferred Stock or 4,824,561 shares of common stock in the aggregate),
subject to adjustment as described in the Series B Preferred Stock. The
Series B Preferred Stock is not convertible into shares of common stock
by RIC and its affiliates until such time as RIC and its affiliates
have sold, conveyed or transferred all of the 4,039,473 shares of
common stock received by RIC from the Company in connection with the
Acquisition. However, RIC and its affiliates shall not be subject to
such restriction in the event, among other things, that (i) the Company
calls for the redemption of the Series B Preferred Stock held by RIC or
(ii) either the Company declares a regular quarterly dividend on the
common stock of $.40 or more during any calendar year, or the Company
declares one or more non-regular dividends on the common stock during
any calendar year in an aggregate amount of $.50 or more, or the
Company declares dividends on the common stock, whether regular or
non-regular, in an aggregate amount of $1.60 or more during any
calendar year. If the Company calls for redemption less than all of the
Series B Preferred Stock held by RIC and its affiliates, then RIC and
its affiliates are entitled to convert into shares of common stock only
that number of the Series B Preferred Stock that have been so called
for redemption.
In the event of any voluntary or involuntary dissolution, liquidation,
or winding up of the Company, the holders of shares of Series B
Preferred Stock are entitled to be paid, out of the assets of the
Company available for distribution to its shareholders, before any
payment is made in respect of the common stock or any other class of
stock of the Company ranking junior to the Series B Preferred Stock, a
liquidation preference equal to $50.00 per share plus accrued and
unpaid dividends to the date of such payment. If, upon such
dissolution, liquidation or winding up, the amounts payable as the
liquidation preference to holders of Series B Preferred Stock and any
other shares of stock ranking as to such distribution on a parity with
the Series B Preferred Stock are not paid in full, the
F-21
<PAGE>
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In thousands of dollars except per common share amounts)
6. SHAREHOLDERS' EQUITY (Continued)
holders of Series B Preferred Stock and of such other shares will share
ratably in any such distribution of assets in proportion to the
liquidation preference that each holder is entitled to receive.
The holders of Series B Preferred Stock are not entitled to vote at any
meeting of the Company's shareholders, except as required by the
Virginia Stock Corporation Act or as set forth in the Series B
Preferred Stock. The Series B Preferred Stock permits the holders of
shares of Series B Preferred Stock to vote for the election of two
additional directors of the Company at an annual or special meeting of
shareholders whenever dividends on the Series B Preferred Stock are in
arrears for six or more quarterly periods, whether or not consecutive.
The holders of Series B Preferred Stock are entitled to one vote per
share on matters subject to a vote by such holders.
7. STATUTORY FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The accompanying consolidated financial statements have been prepared
in conformity with GAAP which differ in some respects from statutory
accounting practices prescribed or permitted in the preparation of
financial statements for submission to insurance regulatory
authorities. Unconsolidated statutory equity of the Company's insurance
subsidiaries was $385,566 and $164,376 at December 31, 1998 and 1997,
respectively. The difference between statutory equity and equity
determined on the basis of GAAP is primarily due to differences between
the provision for policy and contract claims included in the
accompanying financial statements and the statutory unearned premium
reserve, which is calculated in accordance with statutory requirements,
and statutory regulations that preclude the recognition of certain
assets including goodwill and deferred income tax assets.
Unconsolidated statutory net income of the Company's primary insurance
subsidiaries was $104,160, $19,999, and $38,473 for the years ended
December 31, 1998, 1997 and 1996, respectively.
In a number of states, the Company's insurance subsidiaries are subject
to regulations which require minimum amounts of statutory equity and
which require that the payment of any extraordinary dividends receive
prior approval of the Insurance Commissioners of these states. An
extraordinary dividend is generally defined by various statutes in the
state of domicile of the subsidiary insurer. Under such statutory
regulations, net assets of consolidated subsidiaries aggregating
$64,289 is available for dividends, loans or advances to the Company
during 1999.
In addition, the credit agreement with Bank of America (see Note 12)
contains certain covenants which would limit future dividend payments
by the Company. Management does not believe, however, that these
restrictions will, in the foreseeable future, adversely affect the
Company's ability to pay cash dividends at the current dividend rate.
F-22
<PAGE>
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In thousands of dollars except per common share amounts)
8. INCOME TAXES
The Company files a consolidated federal income tax return with its
subsidiaries. Significant components of the Company's deferred tax
assets and liabilities at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Policy and contract claims $ 74,572 $ 23,754
Pension liability 8,256 712
Employee benefit plans 10,476 5,983
Other intangible assets - 210
Other 3,280 1,411
--------- ----------
96,584 32,070
--------- ----------
Deferred tax liabilities:
Title plant basis differences 5,937 4,961
Unrealized gains 6,659 4,058
Other intangible assets 2,869 -
Other 562 1,441
--------- ----------
16,027 10,460
--------- ----------
Net deferred tax asset $ 80,557 $ 21,610
========= ==========
</TABLE>
The Company is required to establish a "valuation allowance" for any
portion of the deferred tax asset that management believes will not be
realized. In the opinion of management, it is more likely than not that
the Company will realize the benefit of the net deferred tax asset,
and, therefore, no such valuation allowance has been established at
December 31, 1998 and 1997.
The provision for income tax differs from the amount of income tax
determined by applying the applicable U.S. statutory income tax rate
(35%) to pre-tax income as a result of the following:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Computed expected expense at statutory rate $ 51,206 $ 14,164 $ 19,439
Non-taxable interest (1,743) (1,638) (1,090)
Dividend deductions (856) (1) (146)
Company-owned life insurance 290 (574) (575)
Meals and entertainment 2,121 948 709
State income taxes, net of federal benefit 1,275 898 -
Other 981 515 684
--------- -------- ---------
Income tax expense $ 53,274 $ 14,312 $ 19,021
========= ======== =========
</TABLE>
Taxes paid were $48,902 in 1998, $23,301 in 1997, and $14,542 in 1996.
F-23
<PAGE>
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In thousands of dollars except per common share amounts)
9. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Numerator:
Net income - numerator for diluted
earnings per share $ 93,028 $26,157 $ 36,519
Less preferred dividends (6,502) - -
---------- ------- --------
Numerator for basic earnings per share $ 86,526 $26,157 $ 36,519
========== ======= ========
Denominator:
Weighted average shares - denominator
for basic earnings per
share 14,120 8,924 8,888
Effect of dilutive securities:
Assumed weighted average conversion of
preferred stock 4,020 - -
Employee stock options 281 300 214
---------- -------- --------
Denominator for diluted earnings per
share 18,421 9,224 9,102
Basic earnings per common share $6.13 $2.93 $4.11
===== ===== =====
Diluted earnings per common share $5.05 $2.84 $4.01
===== ===== =====
</TABLE>
10. PENSIONS AND OTHER POSTRETIREMENT BENEFITS
The Company has two noncontributory defined benefit retirement plans
that cover substantially all employees. In addition, the Company
sponsors two postretirement benefit plans that provide postretirement
health care and life insurance benefits to eligible employees.
F-24
<PAGE>
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In thousands of dollars except per common share amounts)
10. PENSIONS AND OTHER POSTRETIREMENT BENEFITS (Continued)
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
---------------- --------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning
of year $ 127,249 $ 115,606 $ 26,494 $ 25,139
Service cost 7,603 3,254 1,042 753
Interest cost 13,675 8,722 2,508 1,891
Plan participants' contributions - - 267 250
Actuarial losses (gains) 17,568 5,509 5,038 (335)
Acquisitions 74,962 - 9,997 -
Benefits paid (7,523) (5,842) (3,126) (1,204)
--------- --------- -------- --------
Benefit obligation at end of year 233,534 127,249 42,220 26,494
--------- --------- -------- --------
Change in plan assets:
Fair value of plan assets at
beginning of year 131,526 112,684 2,252 2,244
Actual return on plan assets 2,886 24,684 (370) (262)
Acquisitions 53,329 - - -
Company contributions 3,386 - 138 270
Benefits paid (7,523) (5,842) - -
--------- --------- -------- --------
Fair value of plan assets at end 183,604 131,526 2,020 2,252
of year --------- --------- -------- --------
Funded status of the plan
(underfunded) (49,930) 4,277 (40,200) (24,242)
Unrecognized net actuarial (gains)
losses 27,089 (4,293) 1,708 (4,089)
Unrecognized transition (asset)
obligation (52) (73) 16,430 17,603
Unrecognized prior service cost 26 99 - -
--------- --------- -------- --------
Prepaid (accrued) benefit cost $ (22,867) $ 10 $(22,062) $(10,728)
========= ========= ======== ========
</TABLE>
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
---------------- --------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average assumptions as of
December 31
Discount rate 6.75% 7.50% 6.75% 7.50%
Expected return on plan assets 8.50% 9.25% 6.00% 6.00%
Rate of compensation increase 4.00% 4.30% 4.00% 4.30%
</TABLE>
F-25
<PAGE>
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In thousands of dollars except per common share amounts)
10. PENSIONS AND OTHER POSTRETIREMENT BENEFITS (Continued)
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
---------------- --------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Components of net
periodic pension
cost:
Service cost $7,603 $3,254 $3,124 $1,042 $ 753 $ 702
Interest cost 13,675 8,722 7,834 2,508 1,891 1,786
Expected return on
plan assets (14,798) (8,936) (8,432) (135) (196) (200)
Amortization of
unrecognized
transition
obligation or (asset) (21) (89) (1,820) 1,174 1,174 1,174
Prior service cost
recognized 73 73 73 - - -
Recognized (gains) or
losses 61 209 9 (256) (167) (204)
------ ------ ------ ------ ------ ------
Net periodic
benefit cost $6,593 $3,233 $ 788 $4,333 $3,455 $3,258
====== ====== ====== ====== ====== ======
</TABLE>
The assumed health care cost trend rate used to measure the expected
cost of covered health care benefits for one of the Company's plans was
9.5% for 1998, 9.0% for 1999 and is assumed to decrease 0.5% per year
until 2007 and remain level at 5.5% thereafter. For the other Company
plan, the assumed health care cost trend rate was 9.5% for 1998, 9.0%
for 1999, 8.5% for 2000 and is assumed to decrease .25% per year until
2012 and remain level at 5.5% thereafter.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plan. A one-percentage-point
change in assumed health care cost trend rates would have the following
effects:
<TABLE>
<CAPTION>
One Percentage One Percentage
Point Increase Point Decrease
-------------- --------------
<S> <C> <C>
Effect on total of service and interest
cost components in 1998 $ 127 $ (111)
Effect on postretirement benefit
obligation as of 1998 $ 1,566 $ (1,380)
</TABLE>
The Company's two defined benefit retirement plans were merged
effective December 31, 1998 and effective January 1, 1999, the merged
plan was amended to change the pension benefit formula to a cash
balance formula from the existing benefit calculation based on years of
service and average earnings. Under the amended plan, each
participant's account is credited annually with an amount equal to 2-5%
of the participant's annual compensation based on the participant's age
plus years of credited service.
Additionally,
F-26
<PAGE>
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In thousands of dollars except per common share amounts)
10. PENSIONS AND OTHER POSTRETIREMENT BENEFITS (Continued)
each participant's account balance will be credited with interest based
on the 10-year treasury bond rate published in November preceding the
applicable plan year. Those participants in the plans on December 31,
1998, who meet the requirements for early retirement on that date, may
elect to receive their retirement benefits under their applicable prior
plans' formulas.
11. LEASE COMMITMENTS
The Company conducts a major portion of its operations from leased
office facilities under operating leases that expire over the next 10
years. Additionally, the Company leases data processing and other
equipment under operating leases expiring over the next five years.
Following is a schedule of future minimum rental payments required
under operating leases that have initial or remaining non-cancelable
lease terms in excess of one year as of December 31, 1998.
1999 $ 29,558
2000 20,765
2001 13,806
2002 8,861
2003 5,813
2004 and subsequent 2,306
----------
$ 81,109
==========
Rent expense was $53,255, $23,961 and $22,551 for the years ended
December 31, 1998, 1997 and 1996, respectively.
12. CREDIT ARRANGEMENTS
On November 7, 1997, the Company entered into a credit agreement with
Bank of America, individually and as administrative agent for a
syndicate of eleven other banks, pursuant to which a credit facility,
in an aggregate principal amount of up to $237.5 million, was
established. The credit facility is a five-year senior unsecured
revolving credit facility which will terminate with all outstanding
amounts being due and payable November 7, 2002, unless extended as
provided in the credit agreement. At December 31, 1998, the amount due
under the credit agreement was $207.5 million.
Interest accrues on the outstanding principal balance of the loans, at
the Company's option, based upon (i) IBOR (reserve adjusted) for
thirty, sixty or ninety days plus a margin determined by the Company's
debt to capitalization ratio, or (ii) Bank of America's Base Rate as
defined in the credit agreement. In the event of any default, interest
on the outstanding principal balance of the loans will accrue at a rate
equal to Bank of America's Base Rate plus two percent (2.0%) per annum.
F-27
<PAGE>
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In thousands of dollars except per common share amounts)
12. CREDIT ARRANGEMENTS (Continued)
Interest paid was $10,285, $461, and $270 in 1998, 1997 and 1996,
respectively.
13. PENDING LEGAL PROCEEDINGS
Commonwealth and certain of its current or former employees are
defendants in suits filed by Norwest Mortgage, Inc. and Norwest
Funding, Inc. (together, "Norwest") and Fleet Mortgage Corp. ("Fleet")
in the Superior Court for the county of Los Angeles, California. The
plaintiffs seek to recover damages in excess of $41 million, plus
punitive damages and attorneys' fees. The Norwest and Fleet suits are
based on allegations of a common factual pattern underlying a mortgage
loan fraud scheme allegedly perpetuated in 1996 and 1997 against the
plaintiffs by Allstate Mortgage Company and various individuals. The
complaints also contain allegations that the defendants were involved
in the fraud scheme.
Commonwealth is challenging the legal sufficiency of the complaints of
Norwest and Fleet and is continuing to investigate the factual
allegations. Management is, therefore, unable to make a meaningful
estimate of the amount or range of loss that could result from an
unfavorable outcome of the suits or determine the amount of any
potential offsetting recoveries that may be available. Commonwealth
intends to vigorously defend the suits and any attempt to shift to it
mortgage lending business risks or responsibilities outside the scope
of the title insurance policy.
14. ACQUISITIONS
On February 27, 1998, the Company acquired all of the issued and
outstanding shares of capital stock of Commonwealth Land Title
Insurance Company and Transnation Title Insurance Company
("Commonwealth and Transnation") from Reliance Insurance Company, a
subsidiary of Reliance Group Holdings, Inc. (the "Acquisition"). The
shares were acquired in exchange for 4,039,473 shares of the Company's
common stock (book value, net of offering costs - $130,728); 2,200,000
shares of the Company's 7% Series B Cumulative Convertible Preferred
Stock, which are the equivalent of 4,824,561 shares of common stock
(book value - $175,700); the net proceeds of an offering of 1,750,000
shares of common stock ($65,921); and cash financed with bank debt
($200,681). The Acquisition has been accounted for by the Company using
the "purchase" method of accounting. The assets and liabilities of
Commonwealth and Transnation have been substantially revalued to their
respective fair market values. The financial statements of the Company
reflect the combined operations of the Company and Commonwealth and
Transnation from the closing date of the Acquisition.
Pursuant to EITF 94-3, the Company has recorded assimilation costs of
approximately $11.5 million on a pre-tax basis related to exit and
termination costs incurred in connection with the acquisition of
Commonwealth and Transnation. Costs incurred to exit certain leases and
to dispose of certain title plants comprised $9.4 million of this
amount. The remaining $2.1 million primarily relates to the termination
of employees for which employee severance benefits have been accrued.
Exit and termination costs of Commonwealth and
F-28
<PAGE>
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In thousands of dollars except per common share amounts)
14. ACQUISITIONS (Continued)
Transnation leases and employees necessary to assimilate the operations
of Commonwealth and Transnation with the Company have been capitalized
as part of the purchase price.
Assimilation costs paid in 1998 were $7.5 million.
The following unaudited pro forma results of operations of the Company
give effect to the acquisition of Commonwealth and Transnation as
though the transaction had occurred on January 1, 1997. These operating
results exclude the effect of assimilation charges.
<TABLE>
<CAPTION>
Years Ended
December 31,
1998 1997
---- ----
<S> <C> <C>
Gross revenues $ 1,993,583 $ 1,535,431
Operating revenues 1,938,666 1,486,527
Investment income 54,917 48,904
Net income 105,720 55,802
Less preferred dividends (7,700) (7,700)
-------------- --------------
Net income available to common
shareholders 98,020 48,102
Net income per common share $ 6.48 $ 3.21
Net income per common share assuming
dilution $ 5.22 $ 2.79
Weighted average number of
common shares 15,128 14,976
Weighted average number of
common shares assuming dilution 20,234 19,995
</TABLE>
F-29
<PAGE>
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In thousands of dollars except per common share amounts)
15. UNAUDITED QUARTERLY FINANCIAL DATA
Selected quarterly financial information follows:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
1998 ------- ------- ------- -------
-----
<S> <C> <C> <C> <C>
Premiums, title search,
escrow and other $249,579 $492,686 $498,987 $558,282
Net investment income 7,409 12,947 16,262 12,718
Income before income taxes 7,250 44,246 48,483 46,323
Net income 4,752 28,731 30,639 28,906
Net income per common
share $0.36 $1.78 $1.89 $1.78
Net income per common
share - assuming dilution $0.35 $1.42 $1.51 $1.42
1997
----
Premiums, title search,
escrow and other $127,170 $152,018 $160,356 $183,237
Net investment income 4,136 4,247 4,036 3,899
Income before income taxes 1,084 12,394 13,041 13,950
Net income 847 8,011 8,441 8,858
Net income per common
share $ .10 $ .90 $ .95 $ .99
Net income per common
share - assuming dilution $ .09 $ .88 $ .91 $ .95
</TABLE>
In the first quarter of 1998, the Company acquired all of the issued
and outstanding shares of capital stock of Commonwealth and Transnation
(see Note 14).
F-30
<PAGE>
Schedule I
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
SUMMARY OF INVESTMENTS
DECEMBER 31, 1998
(In thousands of dollars)
<TABLE>
<CAPTION>
Column A Column B Column C Column D
-------- -------- -------- --------
Amount at
which
shown in
Fair the balance
Type of investment Cost Value sheet
- ------------------ ---- ----- -----
<S> <C> <C> <C>
Fixed maturities:
Available-for-sale:
Bonds:
United States Government
and government agencies
and authorities $ 100,137 $ 106,128 $ 106,128
States, municipalities and
political subdivisions 132,772 137,338 137,338
Foreign government 13,027 13,291 13,291
Public utilities 206,217 212,196 212,196
All other corporate bonds 177,211 181,836 181,836
Mortgage-backed securities 63,251 63,610 63,610
Preferred stock 63,993 60,457 60,457
------------- ------------- -------------
Total fixed maturities $ 756,608 $ 774,856 $ 774,856
============= ============= =============
Equity securities:
Common stocks:
Industrial, miscellaneous and all
other $ 3,426 $ 4,204 $ 4,204
------------- ------------- -------------
Total equity securities $ 3,426 $ 4,204 $ 4,204
============= ============= =============
Mortgage loans on real estate $ 11,613 XXX $ 11,613
============= === =============
Deposits with banks:
Invested cash $ 104,792 XXX $ 104,792
============= === =============
Total investments $ 876,439 XXX $ 895,465
============= === =============
</TABLE>
F-31
<PAGE>
Schedule II
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PARENT COMPANY BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(In thousands of dollars)
<TABLE>
<CAPTION>
1998 1997
---- ----
ASSETS
<S> <C> <C>
Cash $ 37,137 $ 165
Stock of subsidiaries at equity 935,573 291,109
Notes receivable from affiliate 775 4,305
Income tax recoverable 8,229 -
Other assets 1,872 3,359
------------- -----------
Total assets $ 983,586 $ 298,938
============= ===========
LIABILITIES
Due to subsidiaries $ 3,764 $ 2,129
Note payable 207,500 4,000
Other liabilities 1,133 405
------------- -----------
Total liabilities 212,397 6,534
SHAREHOLDERS' EQUITY
Preferred stock, no par value, authorized 5,000,000
shares, no shares of Series A Junior Participating
Preferred Stock issued or outstanding; 2,200,000
shares of 7% Series B Cumulative Convertible
Preferred Stock issued and outstanding in 1998 175,700 -
Common stock, no par value, 45,000,000 shares
authorized, shares issued and outstanding: 1998 -
15,294,572; 1997 - 8,964,633 382,828 168,066
Accumulated other comprehensive income 12,367 7,536
Retained earnings 200,294 116,802
------------- -----------
Total shareholders' equity 771,189 292,404
------------- -----------
$ 983,586 $ 298,938
============= ===========
</TABLE>
F-32
<PAGE>
Schedule II
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PARENT COMPANY STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In thousands of dollars)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
REVENUES
<S> <C> <C> <C>
Dividends received from consolidated
subsidiaries $ 43,239 $ 3,387 $ 2,526
Management fee from consolidated
subsidiaries 1,111 1,793 1,153
Other income 1,678 - -
---------- ---------- -----------
46,028 5,180 3,679
EXPENSES
Interest expense 10,593 179 124
Administrative expenses 8,311 1,614 1,029
---------- ---------- ----------
18,904 1,793 1,153
INCOME BEFORE EQUITY IN
UNDISTRIBUTED INCOME OF
SUBSIDIARIES 27,124 3,387 2,526
FEDERAL INCOME TAX BENEFIT (5,694) - -
EQUITY IN UNDISTRIBUTED
INCOME OF CONSOLIDATED SUBSIDIARIES 60,210 22,770 33,993
---------- ---------- ----------
NET INCOME $ 93,028 $ 26,157 $ 36,519
========== ========== ==========
</TABLE>
F-33
<PAGE>
Schedule II
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PARENT COMPANY STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In thousands of dollars)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 93,028 $ 26,157 $ 36,519
Undistributed net income of subsidiaries (60,210) (22,770) (33,993)
Note receivable from subsidiaries 3,530 (3,944) -
Income taxes (8,229) - -
Accounts payable 1,635 2,129 -
Other 4,455 (1,600) 589
----------- ---------- ----------
Net cash provided by (used in) operating
activities 34,209 (28) 3,115
----------- ---------- ----------
Cash flows from investing activities:
Additional investment in subsidiaries (273,034) (1,022) (2,358)
------------ ---------- ----------
Net cash used in investing activities (273,034) (1,022) (2,358)
------------ ---------- ----------
Cash flows from financing activities:
Common shares issued 81,833 - -
Proceeds from note payable 203,500 3,000 1,000
Dividends paid (9,536) (1,785) (1,778)
----------- ---------- ----------
Net cash provided by (used in) financing
activities 275,797 1,215 (778)
----------- ---------- ----------
Net increase (decrease) in cash 36,972 165 (21)
Cash at beginning of year 165 - 21
----------- ---------- ----------
Cash at end of year $ 37,137 $ 165 $ -
=========== ========== ==========
</TABLE>
F-34
<PAGE>
Schedule II
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO PARENT COMPANY FINANCIAL STATEMENTS
NOTE 1 - ACCOUNTING POLICIES
Basis of presentation - The accompanying parent company financial statements
should be read in conjunction with the Company's Consolidated Financial
Statements.
Expenses - Upon completion of the Acquisition in 1998, the parent company began
incurring interest expense on the $207,500 debt associated with that
transaction.
F-35
<PAGE>
ITEM 14(a)(3)
INDEX TO EXHIBITS
Exhibit Number
and Applicable
Section of Item 601 of
Regulation S-K Document
- -------------- --------
2.1 Amended and Restated Stock Purchase Agreement, dated December
11, 1997, by and among the Registrant, Lawyers Insurance
Corporation, Reliance Insurance Company and Reliance Group
Holdings, Inc., incorporated by reference to Appendix A to
the Registrant's definitive Proxy Statement for its Special
Meeting of Shareholders held on February 27, 1998, filed with
the Commission on January 29, 1998.
3.1 Articles of Incorporation, incorporated by reference to
Exhibit 3A of the Registrant's Form 10 Registration
Statement, as amended, File No. 0-19408.
3.2 Articles of Amendment of the Articles of Incorporation of the
Registrant, incorporated by reference to Exhibit 4.2 of the
Registrant's Form 8-A Registration Statement, filed February
27, 1998, File No. 1-13990.
3.3 Bylaws, incorporated by reference to Exhibit 3B of the
Registrant's Form 10 Registration Statement, as amended, File
No. 0-19408.
4.1 Amended and Restated Rights Agreement, dated as of August 20,
1997, between the Registrant and Wachovia Bank, N.A., as
Rights Agent, which Amended and Restated Rights Agreement
includes an amended Form of Rights Certificate, incorporated
by reference to Exhibit 4.1 of the Registrant's Current
Report on Form 8-K, dated August 20, 1997, File No. 1-13990.
4.2 First Amendment to Amended and Restated Rights Agreement,
dated as of December 11, 1997, between the Registrant and
Wachovia Bank, N.A., as Rights Agent, incorporated by
reference to Exhibit 4.1 of the Registrant's Current Report
on Form 8-K, dated December 11, 1997, File No. 1-13990..
4.3 Form of Common Stock Certificate, incorporated by reference
to Exhibit 4.6 of the Registrant's Form 8-A Registration
Statement, filed February 27, 1998, File No. 1-13990.
4.4 Form of 7% Series B Cumulative Convertible Preferred Stock
certificate, incorporated by reference to Exhibit 4.7 of the
Registrant's Form 8-A Registration Statement, filed February
27, 1998, File No. 1-13990.
10.1 Lawyers Title Insurance Corporation Deferred Income Plan,
incorporated by reference to Exhibit 10C of the Registrant's
Form 10 Registration Statement, as amended, File No. 0-19408.
10.2 Lawyers Title Insurance Corporation Benefit Replacement Plan,
incorporated by reference to Exhibit 10M of the Registrant's
Form 10 Registration Statement, as amended, File No. 0-19408.
<PAGE>
Exhibit Number
and Applicable
Section of Item 601 of
Regulation S-K Document
- -------------- --------
10.3 Lawyers Title Insurance Corporation Supplemental Pension
Plan, incorporated by reference to Exhibit 10B of the
Registrant's Form 10 Registration Statement, as amended, File
No. 0-19408.
10.4 Lawyers Title Corporation 1992 Stock Option Plan for
Non-Employee Directors, as amended May 21, 1996, incorporated
by reference to Exhibit 10.5 of the Registrant's Form 10-Q
for the quarter ended June 30, 1996, File No. 1-13990.
10.5 Lawyers Title Insurance Corporation Senior Executive
Severance Agreement, incorporated by reference to Exhibit 10G
of the Registrant's Form 10 Registration Statement, as
amended, File No. 0-19408.
10.6 Lawyers Title Corporation Change of Control Employment
Agreement, incorporated by reference to Exhibit 10.12 of the
Registrant's Form 10-K for the year ended December 31, 1994,
File No. 0-19408.
10.7 Lawyers Title Insurance Corporation Change of Control
Employment Agreement, incorporated by reference to Exhibit
10.13 of the Registrant's Form 10-K for the year ended
December 31, 1994, File No. 0-19408.
10.8 Form of Lawyers Title Corporation Non-Qualified Stock Option
Agreement, dated October 29, 1991, with Schedule of Optionees
and amounts of options granted, incorporated by reference to
Exhibit 10.17 of the Registrant's Form 10-K for the year
ended December 31, 1991, File No. 0-19408.
10.9 Form of Lawyers Title Corporation Employee Non-Qualified
Stock Option Agreement, dated January 8, 1992, with Schedule
of Optionees and amounts of options granted, incorporated by
reference to Exhibit 10.18 of the Registrant's Form 10-K for
the year ended December 31, 1991, File No. 0-19408.
10.10 Form of Lawyers Title Corporation Employee Non-Qualified
Stock Option Agreement, dated January 4, 1993, with Schedule
of Optionees and amounts of options granted, incorporated by
reference to Exhibit 10.21 of the Registrant's Form 10-K for
the year ended December 31, 1992, File No. 0-19408.
10.11 Form of Lawyers Title Corporation Non-Employee Director
Non-Qualified Stock Option Agreement, incorporated by
reference to Exhibit 10.18 of the Registrant's Form 10-K for
the year ended December 31, 1994, File No. 0-19408.
10.12 Form of Lawyers Title Corporation Employee Non-Qualified
Stock Option Agreement, dated January 4, 1994, with schedule
of optionees and amounts of options granted, incorporated by
reference to Exhibit 10.27 of the Registrant's Form 10-K for
the year ended December 31, 1993, File No. 0-19408.
<PAGE>
Exhibit Number
and Applicable
Section of Item 601 of
Regulation S-K Document
- -------------- --------
10.13 Form of Lawyers Title Corporation Employee Non-Qualified
Stock Option Agreement, dated January 5, 1995, with schedule
of optionees and amounts of options granted, incorporated by
reference to Exhibit 10.22 of the Registrant's Form 10-K for
the year ended December 31, 1994, File No. 0-19408.
10.14 Lawyers Title Insurance Corporation 1995 Benefit Restoration
Plan, incorporated by reference to Exhibit 10.23 of the
Registrant's Form 10-K for the year ended December 31, 1994,
File No. 0-19408.
10.15 Lawyers Title Corporation Outside Directors Deferral Plan,
incorporated by reference to Exhibit 10.24 of the
Registrant's Form 10-K for the year ended December 31, 1994,
File No. 0-19408.
10.16 Form of Lawyers Title Insurance Corporation Split-Dollar Life
Insurance Agreement and Collateral Assignment, incorporated
by reference to Exhibit 10.25 of the Registrant's Form 10-K
for the year ended December 31, 1994, File No. 0-19408.
10.17 Form of Lawyers Title Corporation Employee Non-Qualified
Stock Option Agreement, dated January 3, 1996, with Schedule
of Optionees and amounts of options granted, incorporated by
reference to Exhibit 10.26 of the Registrant's Form 10-K for
the year ended December 31, 1995, File No. 1-13990.
10.18 Form of Lawyers Title Corporation Employee Non-Qualified
Stock Option Agreement, dated January 7, 1997, with Schedule
of Optionees and amounts of options granted, incorporated by
reference to Exhibit 10.23 of the Registrant's Form 10-K for
the year ended December 31, 1996, File No. 1-13990.
10.19 Form of LandAmerica Financial Group, Inc. Employee
Non-Qualified Stock Option Agreement, dated March 5, 1998,
with Schedule of Optionees and amounts of options granted,
incorporated by reference to Exhibit 10.24 of the
Registrant's Form 10-K for the year ended December 31, 1997,
File No. 1-13990.
10.20 Form of LandAmerica Financial Group, Inc. 1998 Restricted
Stock Agreement, with Schedule of Grantees and number of
shares granted, incorporated by reference to Exhibit 10.25 of
the Registrant's Form 10-K for the year ended December 31,
1997, File No. 1-13990.
10.21 Voting and Standstill Agreement, dated February 27, 1998, by
and among the Registrant, Reliance Group Holdings, Inc. and
Reliance Insurance Company, incorporated by reference to
Exhibit 10.26 of the Registrant's Form 10-K for the year
ended December 31, 1997, File No. 1-13990.
<PAGE>
Exhibit Number
and Applicable
Section of Item 601 of
Regulation S-K Document
- -------------- --------
10.22 Registration Rights Agreement, dated February 27, 1998, by
and among the Registrant and Reliance Insurance Company,
incorporated by reference to Exhibit 10.27 of the
Registrant's Form 10-K for the year ended December 31, 1997,
File No. 1-13990.
10.23 Revolving Credit Agreement, dated November 7, 1997, between
the Registrant and Bank of America National Trust and Savings
Association, individually and as Administrative Agent for a
syndicate of 11 other financial institutions, incorporated by
reference to Exhibit 99 of the Registrant's Current Report on
Form 8-K, dated November 7, 1997, File No. 1-13990.
10.24 Agreement Containing Consent Order, dated February 6, 1998,
by and between the Registrant and the Federal Trade
Commission, incorporated by reference to Exhibit 10.29 of the
Registrant's Form 10-K for the year ended December 31, 1997,
File No. 1-13990.
10.25 Employment Agreement, dated March 1, 1998, between the
Registrant and Charles H. Foster, Jr., incorporated by
reference to Exhibit 10.3 of the Registrant's Form 10-Q for
the quarter ended June 30, 1998, File No. 1-13990.
10.26 Employment Agreement, dated March 1, 1998, between the
Registrant and Herbert Wender, incorporated by reference to
Exhibit 10.4 of the Registrant's Form 10-Q for the quarter
ended June 30, 1998, File No. 1-13990.
10.27 Employment Agreement, dated March 1, 1998, between the
Registrant and Janet A. Alpert, incorporated by reference to
Exhibit 10.5 of the Registrant's Form 10-Q for the quarter
ended June 30, 1998, File No. 1-13990.
10.28 LandAmerica Financial Group, Inc. 1991 Stock Incentive Plan,
as amended May 16, 1995, May 21, 1996, November 1, 1996 and
June 16, 1998, incorporated by reference to Exhibit 4.7 of
the Registrant's Form S-8 Registration Statement, filed July
14, 1998 (Registration No. 333-59055).
10.29 Form of LandAmerica Financial Group, Inc. Employee
Non-Qualified Stock Option Agreement, dated February 16,
1999, with Schedule of Optionees and Options Awarded.*
10.30 LandAmerica Financial Group, Inc. Outside Directors Deferral
Plan, as amended and restated December 1, 1998 and February
17, 1999.*
10.31 LandAmerica Financial Group, Inc. Executive Voluntary
Deferral Plan, as amended and restated December 30, 1998.*
10.32 Form of LandAmerica Financial Group, Inc. Change of Control
Employment Agreement, with Schedule of Officers and
Multiplier.*
<PAGE>
Exhibit Number
and Applicable
Section of Item 601 of
Regulation S-K Document
- -------------- --------
11 Statement re: Computation of Earnings Per Share.*
21 Subsidiaries of the Registrant.*
23 Consent of Ernst & Young LLP. *
27 Financial Data Schedule.* (electronic copy only)
* Filed Herewith
Exhibit 10.29
LANDAMERICA FINANCIAL GROUP, INC.
EMPLOYEE
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT dated as of the 16th day of February, 1999, between
LandAmerica Financial Group, Inc., a Virginia corporation (the "Company"), and
__________________ ("Optionee"), is made pursuant and subject to the provisions
of the Company's 1991 Stock Incentive Plan (the "Plan"), a copy of which is
attached. All terms used herein that are defined in the Plan shall have the same
meaning given them in the Plan.
1. Grant of Option. Pursuant to the terms of the Plan, the Company,
on February 16, 1999, granted to Optionee, subject to the terms and conditions
of the Plan and subject further to the terms and conditions herein set forth,
the right and option to purchase from the Company all or any part of an
aggregate of _________ shares of the common stock of the Company (the "Common
Stock") at the option price of $ 44.00 per share. Such option is to be
exercisable as hereinafter provided.
2. Terms and Conditions. This option is subject to the following
terms and conditions:
(a) Expiration Date. The Expiration Date of this option is
February 16, 2006.
(b) Exercise of Option. Except as provided in paragraphs 3,
4, 5 and 6 below, this option shall become exercisable with respect to
twenty-five percent (25%) of the total number of shares covered by this option,
as set forth in paragraph 1 above, for each full 12 month period, up to a total
of four (4) such periods, that the Optionee continues to be employed by the
Company after the date of the granting of this option. Once this option has
become exercisable
<PAGE>
with respect to a particular number of shares in accordance with the preceding
sentence, it shall continue to be exercisable with respect to such shares until
the earlier of the termination of Optionee's rights hereunder pursuant to
paragraph 3, 4, 5 or 6, or the Expiration Date. A partial exercise of this
option shall not affect Optionee's right to exercise this option subsequently
with respect to the remaining shares that are exercisable subject to the
conditions of the Plan and this Agreement.
(c) Method of Exercising and Payment for Shares. This option
may be exercised only by written notice delivered to the attention of the
Company's Secretary at the Company's principal office in Richmond, Virginia. The
written notice shall specify the number of shares being acquired pursuant to the
exercise of the option when such option is being exercised in part in accordance
with subparagraph 2(b) hereof. The exercise date shall be the date upon which
such notice is received by the Company. Such notice shall be accompanied by
payment of the option price in full for each share either in cash in United
States Dollars, or by the surrender of shares of Common Stock, or by cash
equivalent acceptable to the Company or any combination thereof having an
aggregate fair market value equal to the option price.
(d) Cashless Exercise. To the extent permitted by applicable
laws and regulations, at the request of the Optionee, the Company will cooperate
in a "cashless exercise" in accordance with Section 8.05 of the Plan.
(e) Nontransferability. This option is nontransferable
except, in the event of the Optionee's death, by will or by the laws of descent
and distribution subject to the terms hereof. During Optionee's lifetime, this
option may be exercised only by Optionee.
3. Exercise in the Event of Death. This option shall become
exercisable in full in the event that Optionee dies while employed by the
Company or an Affiliate and prior to the
2
<PAGE>
Expiration Date of this option. In that event, this option may be exercised by
Optionee's estate, or the person or persons to whom his rights under this option
shall pass by will or the laws of descent and distribution. Optionee's estate or
such persons must exercise this option, if at all, within two years of the date
of Optionee's death or during the remainder of the period preceding the
Expiration Date, whichever is shorter, but in no event may the option be
exercised prior to the expiration of six (6) months from the date of the grant
of the option.
4. Exercise in the Event of Permanent and Total Disability. This
option shall be exercisable in full if Optionee becomes permanently and totally
disabled (within the meaning of Section 22(e)(3) of the Code) while employed by
the Company or an Affiliate and prior to the Expiration Date of this option. In
such event, Optionee must exercise this option, if at all, within two years of
the date on which he terminates employment with the Company due to permanent and
total disability or during the remainder of the period preceding the Expiration
Date, whichever is shorter, but in no event may the option be exercised prior to
the expiration of six (6) months from the date of the grant of the option.
5. Exercise After Retirement At or After Age 65 or Other Approved
Circumstance. In the event that Optionee retires from employment with the
Company at or after age 65 or in any other circumstance approved by the
Committee in its sole discretion, this option shall become exercisable in full
but must be exercised by Optionee, if at all, within two years following his
retirement date, in the event of his retirement at or after age 65, or within
the period prescribed by the Committee, in an approved circumstance, or during
the remainder of the period preceding the Expiration Date, whichever is shorter,
but in no event may the option be exercised prior to the expiration of six (6)
months from the date of the grant of the option.
3
<PAGE>
6. Exercise After Termination of Employment. In all events, other
than those events addressed in paragraphs 3, 4 and 5, in which the Optionee
ceases to be employed by the Company or an Affiliate other than for cause, the
Optionee may exercise this option, in whole or in part, with respect to that
number of shares which are exercisable under Paragraph 2 b. above at the time of
the termination of his employment; provided that this option must be exercised,
if at all, within ninety (90) days following the date upon which he ceases to be
employed by the Company or during the remainder of the period preceding the
Expiration Date, whichever is shorter, but in no event may the option be
exercised prior to the expiration of six (6) months from the date of the grant
of the option. If Optionee's employment is terminated for cause, his right to
exercise this option shall terminate immediately. For the purposes of this
Agreement, "cause" shall mean conduct that is unprofessional, unethical, immoral
or fraudulent as determined in the sole discretion of the Compensation
Committee.
7. Fractional Shares. Fractional shares shall not be issuable
hereunder, and when any provision hereof may entitle Optionee to a fractional
share such fraction shall be disregarded.
8. No Right to Continued Employment. This option does not confer
upon Optionee any right with respect to continuance of employment by the Company
or an Affiliate, nor shall it interfere in any way with the right of the Company
or an Affiliate to terminate Optionee's employment at any time.
9. Investment Representation. Optionee agrees that, unless such
shares shall previously have been registered under the Securities Act of 1933,
(a) any shares purchased by him hereunder will be purchased for investment and
not with a view to distribution or resale, and (b) until such registration,
certificates representing such shares may bear an appropriate legend to
4
<PAGE>
assure compliance with such Act. This investment representation shall terminate
when such shares have been registered under the Securities Act of 1933.
10. Change in Control or Capital Structure. Subject to any required
action by the shareholders of the Company, the number of shares of Common Stock
covered by this option, and the price per share thereof, shall be
proportionately adjusted and its terms shall be adjusted as the Committee shall
determine to be equitably required for any increase or decrease in the number of
issued and outstanding shares of Common Stock of the Company resulting from any
stock dividend (but only on the Common Stock), stock split, subdivision,
combination, reclassification, recapitalization or general issuance to holders
of Common Stock of rights to purchase Common Stock at substantially below its
then fair market value or any change in the number of such shares outstanding
effected without receipt of cash or property or labor or services by the Company
or for any spin-off, spin-out, split-up, split-off or other distribution of
assets to shareholders.
In the event of a Change in Control, the provisions of Section 13.03 of
the Plan shall apply to this option. In the event of a change in the Common
Stock of the Company as presently constituted, which is limited to a change of
all of its authorized shares with par value into the same number of shares with
a different par value or without par value, the shares resulting from any such
change shall be deemed to be the Common Stock within the meaning of the Plan.
The grant of this option pursuant to the Plan shall not affect in any
way the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or sell, or transfer all or any part of
its business or assets.
5
<PAGE>
11. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the Commonwealth of Virginia, except
to the extent that federal law shall be deemed to apply.
12. Conflicts. In the event of any conflict between the provisions
of the Plan as in effect on the date hereof and the provisions of this
Agreement, the provisions of the Plan shall govern. All references herein to the
Plan shall mean the Plan as in effect on the date hereof.
13. Optionee Bound by Plan. Optionee hereby acknowledges receipt of
a copy of the Plan and agrees to be bound by all the terms and provisions
thereof.
14. Binding Effect. Subject to the limitations stated above and in
the Plan, this Agreement shall be binding upon and insure to the benefit of the
legatees, distributees, and personal representatives of Optionee and the
successors of the Company.
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed
by a duly authorized officer, and Optionee has affixed his signature hereto, as
of the date and year first above written.
OPTIONEE: LANDAMERICA FINANCIAL GROUP,
INC.
___________________________ By:_______________________________
Title:____________________________
6
<PAGE>
LANDAMERICA FINANCIAL GROUP, INC.
Schedule to Non-Qualified Stock Option Agreement
Optionees Options Awarded
- --------- ---------------
Foster 40,000
Alpert 20,000
Tischler 12,000
Evans 12,000
Carter 10,000
Vaughan 12,000
Jordan 4,000
Farmer 3,000
Rapp 4,000
Reams 4,000
Palmer 4,000
Blanchard 4,000
Rosali 4,000
Reynolds 4,000
Weigel 7,000
Obzud 7,000
Astheimer 7,000
Koshork 7,000
Veltri 7,000
Selby 7,000
Mitzner 2,000
Exhibit 10.30
LandAmerica Financial Group, Inc.
Outside Directors Deferral Plan
Effective
April 1, 1998
Amended and Restated
December 1, 1998
February 17, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I - Definition of Terms...................................................................1
1.1 Account..............................................................................1
1.2 Administrator........................................................................1
1.3 Affiliate............................................................................1
1.4 Beneficiary..........................................................................1
1.5 Benefit Commencement Date............................................................1
1.6 Board................................................................................2
1.7 Code ................................................................................2
1.8 Compensation.........................................................................2
1.9 Corporation..........................................................................2
1.11 Deferral Amount.....................................................................2
1.12 Deferral Benefit....................................................................2
1.13 Deferral Contributions..............................................................2
1.14 Deferral Year.......................................................................2
1.15 Deferral Election...................................................................2
1.16 Deferred Cash Account...............................................................2
1.17 Deferred Stock Unit.................................................................3
1.18 Deferred Stock Unit Account.........................................................3
1.19 Director............................................................................3
1.20 Effective Date......................................................................3
1.21 Eligible Director...................................................................3
1.23 Participant.........................................................................3
1.24 Plan................................................................................3
1.25 Plan Year...........................................................................3
1.26 Rate of Return......................................................................3
1.27 Short Plan Year.....................................................................3
ARTICLE II Eligibility and Participation..........................................................4
2.1 Eligibility..........................................................................4
2.2 Notice and Election Regarding Active Participation...................................4
2.3 Commencement of Active Participation.................................................4
2.4 Length of Participation..............................................................4
ARTICLE III - Determination of Deferral...........................................................4
3.1 Deferral Benefit.....................................................................4
3.2 Transition Credits...................................................................4
3.3 Deferral Election....................................................................5
3.4 Subtractions from Deferred Cash Account and Deferred Stock Unit Account..............6
3.5 Crediting of Interest to Deferred Cash Account.......................................6
3.6 Equitable Adjustment in Case of Error or Omission....................................6
3.7 Statement of Benefits................................................................6
-i-
<PAGE>
ARTICLE IV Accounts and Investments...............................................................6
4.1 Accounts.............................................................................6
4.2 Deferred Stock Units................................................................7
4.3 Hypothetical Nature of Accounts and Investments......................................8
ARTICLE V Vesting.................................................................................8
5.1 Vesting..............................................................................8
ARTICLE VI Death Benefits.........................................................................8
6.1 Pre-Benefit Commencement Date Death Benefit..........................................8
6.2 Post-Benefit Commencement Date Death Benefit.........................................8
ARTICLE VII Payment of Benefits...................................................................8
7.1 Payment of Deferral Benefit..........................................................8
7.2 Payment of Death Benefit.............................................................9
7.3 Form of Payment of Deferral Benefit..................................................9
7.4 Benefit Determination and Payment Procedure..........................................9
7.5 Payments to Minors and Incompetents..................................................9
7.6 Distribution of Benefit When Distributee Cannot Be Located...........................9
ARTICLE VIII - Beneficiary Designation............................................................9
8.1 Beneficiary Designation..............................................................9
ARTICLE IX - Withdrawals.........................................................................10
9.1 No Withdrawals Permitted............................................................10
9.2 Hardship Exemption..................................................................10
ARTICLE X - Funding..............................................................................10
10.1 Funding............................................................................10
ARTICLE XI Change of Control.....................................................................11
11.1 Change of Control..................................................................11
11.2 Effect of Change of Control........................................................12
ARTICLE XII - Plan Administration................................................................13
12.1 Appointment of Administrator.......................................................13
12.2 Duties and Responsibilities of Plan Administrator..................................13
-ii-
<PAGE>
ARTICLE XIII - Amendment or Termination of Plan..................................................13
13.1 Amendment or Termination of the Plan...............................................13
ARTICLE XIV Miscellaneous........................................................................14
14.1 Non-assignability..................................................................14
14.2 Notices and Elections..............................................................14
14.3 Delegation of Authority............................................................14
14.4 Service of Process.................................................................14
14.5 Governing Law......................................................................14
14.6 Binding Effect.....................................................................14
14.7 Severability.......................................................................14
14.8 Gender and Number..................................................................14
14.9 Titles and Captions...............................................................14
</TABLE>
-iii-
<PAGE>
LandAmerica Financial Group, Inc.
Outside Directors Deferral Plan
Effective January 1, 1995, the Board of Directors of Lawyers Title
Corporation adopted the Outside Directors Deferral Plan, under which
non-employee directors of Lawyers Title Corporation had the opportunity to defer
receipt of certain compensation until retirement or departure from the Board.
The Board of Directors determined it to be in the best interests of the
Corporation to allow non-employee directors of the Corporation to continue to
have the opportunity to defer receipt of certain compensation until retirement
or departure from the Board provided that the deferred amounts are aligned with
the interests of the Corporation by being tied to the performance of the
Corporation's common stock. Therefore, effective April 1, 1998, the Board of
Directors adopted the LandAmerica Financial Group, Inc. Outside Directors
Deferral Plan. The Board of Directors has now determined it to be in the best
interest of the Corporation to make certain amendments to the Outside Directors
Deferral Plan adopted April 1, 1998 to align the benefits available to
non-employee directors under the Outside Directors Deferral Plan with the
benefits provided to participants in Corporation's Executive Voluntary Deferral
Plan.
Pursuant to action taken by the Board of Directors, the following
LandAmerica Financial Group, Inc. Outside Directors Deferral Plan (the "Plan")
is hereby amended and restated as follows:
ARTICLE I
Definition of Terms
The following words and terms as used in this Plan shall have the
meaning set forth below, unless a different meaning is clearly required by the
context:
1.1 "Account": A bookkeeping account established for a Participant
under Article IV hereof.
1.2 "Administrator": The Compensation Committee of the Board is the
Plan Administrator unless responsibility is delegated as provided for in Article
XII hereof.
1.3 "Affiliate": Any subsidiary, parent, affiliate, or other related
business entity to the Corporation.
1.4 "Beneficiary": The person or persons designated by a Participant
or otherwise entitled pursuant to Section 8.1 to receive benefits under the Plan
attributable to such Participant after the death of such Participant.
1.5 "Benefit Commencement Date": The date irrevocably elected by the
Participant pursuant to Section 3.3, which date may not be later than the
Participant's 70th birthday. The same Benefit Commencement Date shall be
required for all Deferral Contributions made and Deferral Benefits attributable
to a Deferral Year.
-1-
<PAGE>
1.6 "Board": The present and any succeeding Board of Directors of
the Corporation, unless such term is used with respect to a particular Affiliate
and its Directors, in which event it shall mean the present and any succeeding
Board of Directors of that Affiliate.
1.7 "Code": The Internal Revenue Code of 1986, as the same may be
amended from time to time.
1.8 "Compensation": Fees payable to a Participant for service as a
member of the Board, including (i) annual retainer fee ("Retainer") and (ii)
meeting or committee fees (collectively referred to as "Additional Fees") paid
by the Corporation to an Eligible Director, but excluding any such compensation
deferred from a prior period, expense reimbursement and allowances and benefits
not normally paid in cash to the Participant.
1.9 "Corporation": LandAmerica Financial Group, Inc., or any
successor thereto.
1.10 "Death Benefit": The benefit with respect to a Participant due a
Participant's Beneficiary, determined in accordance with Article VI hereof.
1.11 "Deferral Amount": With respect to each Plan Year, the sum of
the Deferral Contributions of a Participant with respect to his Retainer and/or
his Additional Fees to be paid during the Plan Year.
1.12 "Deferral Benefit": The balance in a Participant's Deferred Cash
Account and Deferred Stock Unit Account.
1.13 "Deferral Contributions": That portion of a Participant's
Compensation which is deferred under the Plan or which has been deferred under
the Former Plan.
1.14 "Deferral Year": The Plan Year with respect to which a Deferral
Contribution is made. For purposes hereof, a Deferral Contribution is considered
made with respect to the Plan Year in which the amount would otherwise have been
paid to the Participant.
1.15 "Deferral Election": An irrevocable election of a Deferral
Amount in writing executed by the Eligible Director or Participant and timely
filed with the Administrator.
1.16 "Deferred Cash Account": An unfunded, bookkeeping account
maintained on the books of the Corporation for a Participant which reflects his
interest in amounts attributable to his Deferred Contributions under the Former
Plan. The Deferred Cash Account of a Participant consists of his Deferral
Contributions made under the Former Plan with respect to Compensation earned
after December 31, 1994 and before April 1, 1998. Separate subdivisions of the
Deferred Cash Account shall continue to be maintained to reflect Deferral
Contributions made and Deferral Benefits attributable with respect to each
Deferral Year and within each Deferral Year, the Deferral Contributions and
Deferral Benefits attributable to Deferral Contributions of Retainer and
Deferral Contributions of Additional Fees.
-2-
<PAGE>
1.17 "Deferred Stock Unit": A hypothetical share of the Corporation's
common stock.
1.18 "Deferred Stock Unit Account": An unfunded, bookkeeping account
maintained on the books of the Corporation for a Participant which reflects his
interest in amounts attributable to his Deferred Contributions under the Plan.
The Deferred Stock Unit Account of a Participant consists of his Deferral
Contributions made under the Plan with respect to Compensation earned after
April 1, 1998. Separate subdivisions of the Deferred Stock Unit Account shall be
maintained to reflect Deferral Contributions made and Deferral Benefits
attributable with respect to each Deferral Year and within each Deferral Year,
the Deferral Contributions and Deferral Benefits attributable to Deferral
Contributions of Retainer and Deferral Contributions of Additional Fees.
1.19 "Director": An individual who serves as a member of the Board.
1.20 "Effective Date": The Effective Date of the Plan is April 1,
1998.
1.21 "Eligible Director": A Director who is not an employee of the
Corporation and who has not reached the age of 65 before the Deferral Year.
1.22 "Former Plan": The Lawyers Title Corporation Outside Directors
Deferral Plan effective January 1, 1995.
1.23 "Participant": An Eligible Director who elects to participate in
the Plan, and further differentiated as follows:
(i) "Active Participant": A Participant who has an election
to make Deferral Contributions to the Plan in effect at the time in
question.
(ii) "Inactive Participant": A Participant who does not have
an election to make Deferral Contributions to the Plan in effect at the
time in question.
1.24 "Plan": This document, as contained herein or duly amended,
which shall be known as the "LandAmerica Financial Group, Inc. Outside Directors
Deferral Plan".
1.25 "Plan Year": The calendar year or any Short Plan Year.
1.26 "Rate of Return": Nine percent (9%) for the 1995 through 1999
Deferral Years, and nine percent (9%) for Deferral Years after 1999 until, if
ever, increased by the Compensation Committee.
1.27 "Short Plan Year": The remaining portion of the calendar year
after the Effective Date of this Plan.
-3-
<PAGE>
ARTICLE II
Eligibility and Participation
2.1 Eligibility. Each Eligible Director shall be eligible to
participate in the Plan and to defer Compensation hereunder for such Plan Year.
2.2 Notice and Election Regarding Active Participation.
(a) The Administrator shall notify each Eligible Director within a
reasonable period of time prior to the beginning of each Plan Year.
(b) In order to become an Active Participant and to make Deferral
Contributions with respect to a Plan Year, an Eligible Director must file with
the Administrator a Deferral Election, as provided in Section 3.3 which is
effective as of the first day of the Plan Year, such election must be filed by
the date established by the Administrator, which date shall be no later than the
December 31 preceding such Plan Year or the last day before the commencement of
a Short Plan Year, whichever is applicable.
(c) By executing and filing such election with the Administrator, an
Eligible Director consents and agrees to the following:
(i) To execute such applications and take such physical
examinations and to supply truthfully and completely such information
as may be requested by any health questionnaire provided by the
Administrator;
(ii) To be bound by all terms and conditions of the Former
Plan, the Plan and all amendments thereto.
2.3 Commencement of Active Participation. An Eligible Director shall
become an Active Participant with respect to a Plan Year only if he is expected
to have Compensation during such Plan Year, and he timely files and has in
effect a Deferral Election for such Plan Year.
2.4 Length of Participation. An individual who is or becomes a
Participant shall be or remain an Active Participant as long as he has a
Deferral Election in effect; and he shall be or remain an Inactive Participant
as long as he is entitled to future benefits under the terms of the Plan and is
not considered an Active Participant.
ARTICLE III
Determination of Deferral
3.1 Deferral Benefit. For purposes hereof, a Participant's Deferral
Benefit shall be the balance in his Deferred Cash Account and his Deferred Stock
Unit Account at the time in question.
3.2 Transition Credits. Each Participant who has a balance standing
to his credit in the Former Plan as of April 1, 1998, shall be permitted a
one-time election, on or before April 1, 1998, to
-4-
<PAGE>
convert all or a portion of the balance standing to his credit in the Former
Plan to Deferred Stock Units as of April 1, 1998. A Participant who elects to
convert all or a portion of his Deferral Account (as defined in the Former Plan)
in the Former Plan to Deferred Stock Units shall be credited with the number of
Deferred Stock Units determined by dividing the portion of his Deferred Cash
Account under the Former Plan on April 1, 1998 for which such election is made,
by the Closing Price of the common stock of the Corporation on the date of the
Participant's election. If the formula produces a fractional Deferred Stock
Unit, then the fractional Deferred Stock shall be rounded off to the nearest
thousandth and credited to the Participant. Once a Participant has made an
election under this Section 3.2 to convert some or all of his Deferred Cash
Account to Deferred Stock Units of the Corporation, the Corporation's rights and
obligations, if any, with respect to the Deferred Stock Units will be governed
by this Plan.
3.3 Deferral Election.
(a) Subject to the restrictions and conditions hereinafter provided,
a Participant may irrevocably elect, as a Deferral Contribution with respect to
a Plan Year, to receive an amount of his Compensation which is specified by his
Deferral Election for such Plan Year in the form of Deferred Stock Units. Any
such election must be filed with the Administrator at the time required under
Section 2.2(b).
(b) The following conditions apply:
(i) The maximum Deferral Contribution of Retainer with
respect to any Participant for a Plan Year shall be one hundred percent
(100%) of his Retainer for such Plan Year and such election shall be
made in whole dollar amounts. A Participant who elects to receive his
Retainer in Deferred Stock Units shall have credited to his Deferred
Stock Unit Account as of the first day of each calendar quarter the
number of Deferred Stock Units determined by dividing that portion of
his accrued, deferred Retainer for the quarter (determined by dividing
the amount of such Retainer previously selected by the Participant to
be applied to the purchase of Deferred Stock Units by four) by the
Closing Price as of the first day of such calendar quarter.
(ii) The maximum Deferral Contribution of Additional Fees
with respect to any Participant for a Plan Year shall be one hundred
percent (100%) of his Additional Fees for such Plan Year and such
election shall be made in twenty-five percent (25%) increments. A
Participant who elects to receive his Additional Fees in Deferred Stock
Units shall have credited to his Deferred Stock Unit Account as of the
day on which the Additional Fees are accrued the number of Deferred
Stock Units determined by multiplying his accrued Additional Fees on
said day by the percentage of such Additional Fees previously selected
by the Participant to be applied to the purchase of Deferred Stock
Units, and dividing the product thereof by the Closing Price as of the
day on which the Additional Fees are accrued.
(iii) A Participant who elects to defer one hundred percent
(100%) of his Compensation shall receive additional Deferred Stock
Units equal to twenty percent (20%) of said Participant's Compensation
for the Plan Year. Such Deferred Stock Units shall be credited to the
Participant in addition to the Deferred Stock Units received as
-5-
<PAGE>
a result of the election to defer the Retainer and Additional Fees in
the manner provided by subsections (i) and (ii) above.
(iv) A separate Deferral Election must be filed for each Plan
Year.
(v) Each Deferral Election shall be made on a form provided
by the Administrator and shall specify the Deferral Amount and source
of deferrals and such additional information as the Administrator may
require.
(vi) A Deferral Election must specify the period of payment.
A Participant may elect to receive a lump sum payment or installment
payments over periods of five, ten or fifteen years beginning on the
January 1 after age 55, 60 or 65.
(vii) A Participant shall have the option of postponing the
elected Benefit Commencement Date of a Deferral Benefit specified in
3.3 (b) (vi) above by making an irrevocable election to roll over such
Deferral Benefit at least one year before such Deferral Benefit is
payable, provided that the Participant may not change his previous
allocation of amounts to his Deferred Cash Account and Deferred Stock
Unit Account at such time and provided that the Participant may not
postpone the elected Benefit Commencement Date past the January 1
following the Participant's 70th birthday. A Participant shall make
such election on a form designated by the Administrator.
3.4 Subtractions from Deferred Cash Account and Deferred Stock Unit
Account. All distributions from a Participant's Deferred Cash Account and
Deferred Stock Unit Account shall be subtracted when such distributions are
made.
3.5 Crediting of Interest to Deferred Cash Account. There shall be
credited to each Participant's Deferred Cash Account an amount representing
interest on the balance of such account. Under the Former Plan, the interest was
credited as of the first day of the Deferral Year. Under this Plan, interest
shall be credited as earned. Such interest shall be based on the applicable Rate
of Return for the Deferral Year.
3.6 Equitable Adjustment in Case of Error or Omission. If an error
or omission is discovered in the Deferred Cash Account and Deferred Stock Unit
Account of a Participant, the Administrator shall make such equitable adjustment
as the Administrator deems appropriate.
3.7 Statement of Benefits. Within a reasonable time after the end of
the Plan Year and at the date a Participant's Deferral Benefit or Death Benefit
becomes payable under the Plan, the Administrator shall provide to each
Participant (or, if deceased, to his Beneficiary) a statement of the benefit
under the Plan.
ARTICLE IV
Accounts and Investments
4.1 Accounts. A separate Account under the Plan shall be established
for each Participant. Such Account shall be (a) credited with the amounts
credited in accordance with
-6-
<PAGE>
Sections 3.2 and 3.3, (b) credited (or charged, as the case may be) with the
investment results determined in accordance with Sections 4.2 and 4.3, and (c)
charged with the amounts paid by the Plan to or on behalf of the Participant in
accordance with Article VII. With each Participant's Account, separate
subaccounts (including, as necessary, a Deferred Stock Unit Account and a
Deferred Cash Account) shall be maintained to the extent that the Board
determines them necessary or useful in the administration of the Plan.
4.2 Deferred Stock Units. Except as provided below, a Participant's
Deferred Stock Unit Account shall be treated as if it were invested in Deferred
Stock Units that are equivalent in value to the fair market value of the shares
of the Corporation's common stock in accordance with the following rules:
(a) Before the Benefit Commencement Date, the number of Deferred
Stock Units credited to a Participant's Deferred Stock Unit Account shall be
increased on each date on which a dividend is paid on the Corporation's common
stock. The number of additional Deferred Stock Units credited to a Participant's
Deferred Stock Unit Account as a result of such increase shall be determined by
(i) multiplying the total number of Deferred Stock Units (with fractional
Deferred Stock Units rounded off to the nearest thousandth) credited to the
Participant's Deferred Stock Unit Account immediately before such increase by
the amount of the dividend paid per share of the Corporation's common stock on
the dividend payment date, and (ii) dividing the product so determined by the
Closing Price on the dividend payment date.
(b) The dollar value of the Deferred Stock Units credited to a
Participant's Deferred Stock Unit Account on any date shall be determined by
multiplying the number of Deferred Stock Units (including fractional Deferred
Stock Units) credited to the Participant's Deferred Stock Unit Account by the
Closing Price on that date.
(c) In the event of a transaction or event described in this
subsection (c), the number of Deferred Stock Units credited to a Participant's
Deferred Stock Unit Account shall be adjusted in such manner as the Board, in
its sole discretion, deems equitable. A transaction or event is described in
this subsection (c) if (i) it is a dividend (other than regular quarterly
dividends) or other distribution (whether in the form of cash, shares, other
securities, or other property), extraordinary cash dividend, recapitalization,
stock split, reverse stock split, reorganization, merger, consolidation,
split-up, spin-off, repurchase, or exchange of shares or other securities, the
issuance or exercisability of stock purchase rights, the issuance of warrants or
other rights to purchase shares or other securities, or other similar corporate
transaction or event and (ii) the Board determines that such transaction or
event affects the shares of the Corporation's common stock, such that an
adjustment pursuant to this paragraph (c) is appropriate to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Plan.
(d) A Participant who elects to receive distribution of his Accounts
in quarterly installments will not have his or her Deferred Stock Unit Account
credited with Deferred Stock Units on or after the Benefit Commencement Date.
(e) On the Benefit Commencement Date, the Deferred Stock Unit
Account of a Participant who has elected to receive his Deferral Benefit in
quarterly installments shall be converted to a Deferred Cash Account which shall
accrue annual interest at the Rate of Return.
-7-
<PAGE>
4.3 Hypothetical Nature of Accounts and Investments. Each Account
established under this Article IV shall be maintained for bookkeeping purposes
only. Neither the Plan nor any of the Accounts established under the Plan shall
hold any actual funds or assets. The Deferred Stock Units established hereunder
shall be used solely to determine the amounts to be paid hereunder, shall not
represent an equity security of the Corporation, shall not be convertible into
or otherwise entitle a Participant to acquire an equity security of the
Corporation and shall not carry any voting or dividend rights.
ARTICLE V
Vesting
5.1 Vesting. A Participant's Deferred Cash Account and Deferred
Stock Unit Account shall be fully vested and non-forfeitable at all times.
ARTICLE VI
Death Benefits
6.1 Pre-Benefit Commencement Date Death Benefit. In the event that a
Participant dies prior to his Benefit Commencement Date, then the Participant's
Deferred Stock Unit Account shall be converted to a Deferred Cash Account as of
the first of January following the Participant's date of death, which Deferred
Cash Account shall accrue annual interest thereafter at the Rate of Return to
the extent not paid out in a lump sum pursuant to the Participant's election
form. The Beneficiary of such Participant shall be entitled to receive as a
Death Benefit an amount equal to the Deferral Benefit as of the Benefit
Commencement Date that the Participant would have received had the Participant
lived to received the full Deferral Benefit. This Death Benefit shall be paid
pursuant to the Participant's election form except that the payment shall be
made, or begin, on the first of January after the Participant's date of death.
6.2 Post-Benefit Commencement Date Death Benefit. In the event that
a Participant dies after his Benefit Commencement Date, then the Beneficiary of
such participant shall be entitled to receive as a Death Benefit a continuation
of the payment of the Deferral Benefit in the same manner and in the same amount
that the Participant would have received had the Participant lived to receive
the Deferral Benefit.
ARTICLE VII
Payment of Benefits
7.1 Payment of Deferral Benefit. A Participant's Deferral Benefit,
if any, shall become payable to the Participant as of the Benefit Commencement
Date specified in his Deferral Election or as soon thereafter as is
administratively practical. If the Participant has elected to receive the
Deferral Benefit in quarterly installments, each of the Participant's quarterly
installment payments shall be comprised of accrued interest, if any, and that
portion of the Participant's Deferral Benefit equal to the balance in the
Participant's Deferred Cash Account divided by the number of remaining
installment payments to be made to the Participant.
-8-
<PAGE>
7.2 Payment of Death Benefit. A Participant's pre-commencement Death
Benefit shall be payable to his Beneficiary as set forth in Article VI. A
Participant's post-commencement Death Benefit shall be paid in installments
payable quarterly over the period irrevocably elected by the Participant
pursuant to his Deferral Election.
7.3 Form of Payment of Deferral Benefit. A Participant shall be paid
his Deferral Benefit beginning at the Benefit Commencement Date in a lump sum or
in periodic installment payments payable quarterly over a period of five, ten,
or fifteen years as irrevocably elected by the Participant pursuant to Section
3.3.
7.4 Benefit Determination and Payment Procedure. The Administrator
shall make all determinations concerning eligibility for benefits under the
Plan, the time or terms of payment, and the form or manner of payment to the
Participant or the Participant's Beneficiary, in the event of the death of the
Participant. The Administrator shall promptly notify the Corporation of each
such determination that benefit payments are due and provide to the Corporation
all other information necessary to allow the Corporation to carry out said
determination, whereupon the Corporation shall pay such benefits in accordance
with the Administrator's determination.
7.5 Payments to Minors and Incompetents. If a Participant or
Beneficiary entitled to receive any benefits hereunder is a minor or is adjudged
to be legally incapable of giving valid receipt and discharge for such benefits,
or is deemed so by the Administrator, benefits will be paid to such person as
the Administrator may designate for the benefit of such Participant or
Beneficiary. Such payments shall be considered a payment to such Participant or
Beneficiary and shall, to the extent made, be deemed a complete discharge of any
liability for such payments under the Plan.
7.6 Distribution of Benefit When Distributee Cannot Be Located. The
Administrator shall make all reasonable attempts to determine the identity
and/or whereabouts of a Participant or a Participant's Beneficiary entitled to
benefits under the Plan, including the mailing by certified mail of a notice to
the last known address shown on the Corporation's or the Administrator's
records. If the Administrator is unable to locate such a person entitled to
benefits hereunder, or if there has been no claim made for such benefits, the
Corporation shall continue to hold the benefit due such person, subject to any
applicable statute of escheats.
ARTICLE VIII
Beneficiary Designation
8.1 Beneficiary Designation.
(a) A Participant may designate a Beneficiary as part of his
Deferral Election. Any Beneficiary designation made hereunder shall be effective
only if properly signed and dated by the Participant and delivered to the
Administrator prior to the time of the Participant's death. Any Beneficiary
designation hereunder shall remain effective until changed or revoked hereunder.
-9-
<PAGE>
(b) A Beneficiary designation may be changed by the Participant at
any time, or from time to time, by filing a new designation in writing with the
Administrator.
(c) If the Participant dies without having designated a Beneficiary,
or if the Beneficiary so designated has predeceased him, then his estate shall
be deemed to be his Beneficiary.
(d) If a Beneficiary of the Participant shall survive the
Participant but shall die before the Participant's entire benefit under the Plan
has been distributed, then the unpaid balance thereof shall be distributed to
any other beneficiary named by the deceased Beneficiary to receive his interest
or, if none, to the estate of the deceased Beneficiary.
ARTICLE IX
Withdrawals
9.1 No Withdrawals Permitted. No withdrawals or other distributions
shall be permitted from the Deferred Cash Account and Deferred Stock Unit
Account except as provided in Article VII.
9.2 Hardship Exemption.
(a) A distribution of a portion of the Participant's Deferral
Account because of an Unforeseeable Emergency will be permitted only to the
extent required by the Participant to satisfy the emergency need. Whether an
Unforeseeable Emergency has occurred will be determined solely by the
Administrator. Distributions in the event of an Unforeseeable Emergency may be
made by and with the approval of the Administrator upon written request by a
Participant.
(b) An "Unforeseeable Emergency" is defined as a severe financial
hardship to the Participant resulting from a sudden and unexpected illness or
accident of the Participant or of a dependent of the Participant, loss of the
Participant's property due to casualty, or other similar extraordinary and
unforeseeable circumstances arising as a result of events beyond the
Participant's control. The circumstances that will constitute an Unforeseeable
Emergency will depend upon the facts of each case, but, in any event, any
distribution under this Section 9.2 shall not exceed the remaining amount
required by the Participant to resolve the hardship after (i) reimbursement or
compensation through insurance or otherwise, (ii) obtaining liquidation of the
Participant's assets, to the extent such liquidation would not itself cause a
severe financial hardship, or (iii) suspension of deferrals under the Plan.
ARTICLE X
Funding
10.1 Funding.
(a) All Plan Participants and Beneficiaries are general unsecured
creditors of the Corporation with respect to the benefits due hereunder and the
Plan constitutes a mere promise by the Corporation to make benefit payments in
the future. It is the intention of the Corporation that the Plan be considered
unfunded for tax purposes.
-10-
<PAGE>
(b) The Corporation may, but is not required to, purchase life
insurance in amounts sufficient to provide some or all of the benefits provided
under this Plan or may otherwise segregate assets for such purpose.
(c) The Corporation may, but is not required to, establish a grantor
trust which may be used to hold assets of the Corporation which are maintained
as reserves against the Corporation's unfunded, unsecured obligations hereunder.
Such reserves shall at all times be subject to the claims of the Corporation's
creditors. To the extent such trust or other vehicle is established, and assets
contributed, for the purpose of fulfilling the Corporation's obligation
hereunder, then such obligation of the Corporation shall be reduced to the
extent such assets are utilized to meet its obligations hereunder. Any such
trust and the assets held thereunder are intended to conform in substance to the
terms of the model trust described in Revenue Procedure 92-64.
ARTICLE XI
Change of Control
11.1 Change of Control.
A "Change of Control" shall mean
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the Corporation (the
"Outstanding Corporation Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Corporation entitled to vote generally
in the election of directors (the "Outstanding Corporation Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Corporation, (ii) any acquisition by the Corporation, (iii)
any acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Corporation or any corporation controlled by the Corporation
or (iv) any acquisition by any corporation pursuant to a transaction which
complies with clauses (i), (ii) and (iii) of subsection (c) of this Section; or
(b) Individuals who, as of the date hereof, constitute the Board
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Corporation's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Corporation (a "Business Combination"), in
-11-
<PAGE>
each case, unless, following such Business Combination, (i) all or substantially
all of the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Corporation Common Stock and Outstanding
Corporation Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50% of, respectively, the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation a corporation which as a result of
such transaction owns the Corporation or all or substantially all of the
Corporation's assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior to such
Business Combination of the Outstanding Corporation Common Stock and Outstanding
Corporation Voting Securities, as the case may be, (ii) no Person (excluding any
corporation resulting from such Business Combination or any employee benefit
plan (or related trust) of the Corporation or such corporation resulting from
such Business Combination) beneficially owns, directly or indirectly, 20% or
more of, respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined voting
power of the then outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Business Combination and
(iii) at least a majority of the members of the board of directors of the
corporation resulting from such Business Combination were members of the
Incumbent Board at the time of the execution of the initial agreement, or of the
action of the Board, providing for such Business Combination; or
(d) Approval by the shareholders of the Corporation of a complete
liquidation or dissolution of the Corporation.
Notwithstanding the foregoing, for purposes of subsection (a) of this
Section, a Change of Control shall not be deemed to have taken place if, as a
result of an acquisition by the Corporation which reduces the Outstanding
Corporation Common Stock or the Outstanding Corporation Voting Securities, the
beneficial ownership of a Person increases to 20% or more of the Outstanding
Corporation Common Stock or the Outstanding Corporation Voting Securities;
provided, however, that if a Person shall become the beneficial owner of 20% or
more of the Outstanding Corporation Common Stock or the Outstanding Corporation
Voting Securities by reason of share purchases by the Corporation and, after
such share purchases by the Corporation, such Person becomes the beneficial
owner of any additional shares of the Outstanding Corporation Common Stock or
the Outstanding Corporation Voting Stock, for purposes of subsection (a) of this
Section, a Change of Control shall be deemed to have taken place.
11.2 Effect of Change of Control. Notwithstanding any other provision
in any other Article of this Plan to the contrary, (i) the value of all amounts
deferred by a Participant which have not yet been credited to the Participant's
Account and (ii) the value of such Participant's Account shall be paid to such
Participant in each case in a lump-sum cash payment on the occurrence of a
Change of Control or as soon thereafter as practicable, but in no event later
than five days after the Change of Control. The amount of cash credited to each
Participant's Account prior to determining the amount of cash to be paid from
the Account shall be determined by the Board (which, for this purpose, shall be
comprised of employee members of the Board prior to the Change of Control) so as
to reflect fairly and equitably appropriate interest and dividends and
circumstances as the Board deems appropriate, including, without limitation, the
recent price of shares of the Corporation's common stock. For purposes of
payments under this Article XI, the value of a Deferred Stock Unit shall be
computed as the greater of (1) the Closing Price on or
-12-
<PAGE>
nearest the date on which the Change of Control is deemed to occur, or (2) the
highest per share price for shares of the Corporation's common stock actually
paid in connection with the Change of Control.
ARTICLE XII
Plan Administrator
12.1 Appointment of Administrator. Compensation Committee may appoint
one or more persons to serve as the Plan Administrator (the "Administrator") for
the purpose of administering the Plan. In the event more than one person is
appointed, the persons shall form a committee for the purpose of functioning as
the Administrator of the Plan. The person or committeemen serving as
Administrator shall serve for indefinite terms at the pleasure of the
Compensation Committee, and may, by thirty (30) days prior written notice to the
Compensation Committee, terminate such appointment.
12.2 Duties and Responsibilities of Plan Administrator.
(a) The Administrator shall maintain and retain necessary records
regarding its administration of the Plan.
(b) The Administrator is empowered to settle claims against the Plan
and to make such equitable adjustments in a Participant's or Beneficiary's
rights or entitlements under the Plan as it deems appropriate in the event an
error or omission is discovered or claimed in the operation or administration of
the Plan.
(c) The Administrator may construe the Plan, correct defects, supply
omissions or reconcile inconsistencies to the extent necessary to effectuate the
Plan, and such action shall be conclusive.
ARTICLE XIII
Amendment or Termination of Plan
13.1 Amendment or Termination of the Plan. The Plan may be terminated
or amended at any time by the Board, effective as of any date specified. Any
such action taken by the Board shall be evidenced by a resolution and shall be
communicated to Participants and Beneficiaries prior to the effective date
thereof. No amendment or termination shall decrease a Participant's Deferral
Benefit accrued prior to the effective date of the amendment or termination. The
Board reserves the right to unilaterally shorten the deferral period of any
Participant hereunder in its sole discretion if, in its sole discretion, it
determines that to do so will be fair and equitable to the Participant.
-13-
<PAGE>
ARTICLE XIV
Miscellaneous
14.1 Non-assignability. The interests of each Participant under the
Plan are not subject to claims of the Participant's creditors; and neither the
Participant nor his Beneficiary shall have any right to sell, assign, transfer
or otherwise convey the right to receive any payments hereunder or any interest
under the Plan, which payments and interest are expressly declared to be non-
assignable and non-transferable.
14.2 Notices and Elections. All notices required to be given in
writing and all elections required to be made in writing under any provision of
the Plan shall be invalid unless made on such forms as may be provided or
approved by the Administrator and, in the case of a notice or election by a
Participant or Beneficiary, unless executed by the Participant or Beneficiary
giving such notice or making such election. Notices and elections shall be
deemed given or made when received by any member of the committee that serves as
Administrator.
14.3 Delegation of Authority. Whenever the Corporation is permitted
or required to perform any act, such act may be performed by its Chief Executive
Officer or President or other person duly authorized by its Chief Executive
Officer or President or its Board.
14.4 Service of Process. The Administrator shall be the agent for
service of process on the Plan.
14.5 Governing Law. The Plan shall be construed, enforced and
administered in accordance with the laws of the Commonwealth of Virginia.
14.6 Binding Effect. The Plan shall be binding upon and inure to the
benefit of the Corporation, its successors and assigns, and the Participant and
his heirs, executors, administrators and legal representatives.
14.7 Severability. If any provision of the Plan should for any reason
be declared invalid or unenforceable by a court of competent jurisdiction, the
remaining provisions shall nevertheless remain in full force and effect.
14.8 Gender and Number. In the construction of the Plan, the
masculine shall include the feminine or neuter and the singular shall include
the plural and vice-versa in all cases where such meanings would be appropriate.
14.9 Titles and Captions. Titles and captions and headings herein
have been inserted for convenience of reference only and are to be ignored in
any construction of the provisions hereof.
-14-
<PAGE>
IN WITNESS WHEREOF, the Corporation caused the Plan to be signed on its
behalf by its duly authorized officer on the 1st day of April, 1998 and amended
and restated as of December 1, 1998 and February 17, 1999.
LandAmerica Financial Group, Inc.
By: /s/ Charles H. Foster, Jr.
---------------------------------
Its Chief Executive Officer
---------------------------------
-15-
Exhibit 10.31
LandAmerica Financial Group, Inc.
Executive Voluntary Deferral Plan
Effective
December 1, 1998
Amended and Restated
December 30, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I Definition of Terms...................................................................1
1.1 Account................................................................................1
1.2 Administrator..........................................................................1
1.3 Affiliate..............................................................................1
1.4 Annual Bonus Date......................................................................1
1.5 Beneficiary............................................................................1
1.6 Benefit Commencement Date..............................................................1
1.7 Board..................................................................................1
1.8 Bonus..................................................................................1
1.9 Code...................................................................................1
1.10 Committee.............................................................................1
1.11 Corporation...........................................................................2
1.12 Death Benefit.........................................................................2
1.13 Deferral Amount.......................................................................2
1.14 Deferral Benefit......................................................................2
1.15 Deferral Contribution.................................................................2
1.16 Deferral Contribution.................................................................2
1.17 Deferral Election.....................................................................2
1.18 Deferral Premium......................................................................2
1.19 Deferred Cash Account.................................................................2
1.20 Deferred Stock Unit...................................................................2
1.21 Deferred Stock Unit Account...........................................................2
1.22 Disabled and Disability...............................................................2
1.23 Effective Date........................................................................2
1.24 Eligible Executive....................................................................3
1.25 First Plan Year.......................................................................3
1.26 Participant...........................................................................3
1.27 Plan..................................................................................3
1.28 Plan Year.............................................................................3
1.29 Rate of Return........................................................................3
1.30 Retirement............................................................................3
ARTICLE II Eligibility and Participation........................................................3
2.1 Eligibility............................................................................3
2.2 Participation..........................................................................3
2.3 Commencement of Active Participation...................................................4
2.4 Length of Participation................................................................4
ARTICLE III Determination of Deferral...........................................................4
3.1 Deferral Benefit.......................................................................4
3.2 Deferral Election......................................................................4
3.3 Subtractions from Deferred Cash Account and Deferred Stock Unit Account................6
3.4 Crediting of Interest to Deferred Cash Account.........................................6
3.5 Equitable Adjustment in Case of Error or Omission......................................6
3.6 Statement of Benefits..................................................................6
-ii-
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE IV Accounts and Investments.............................................................6
4.1 Accounts...............................................................................6
4.2 Deferred Stock Units..................................................................6
4.3 Hypothetical Nature of Accounts and Investments........................................7
ARTICLE V Vesting...............................................................................7
ARTICLE VI Death Benefits.......................................................................7
6.1 Pre-Benefit Commencement Date Death Benefit............................................7
6.2 Post-Benefit Commencement Date Death Benefit...........................................8
ARTICLE VII Payment of Benefits.................................................................8
7.1 Payment of Deferral Benefit............................................................8
7.2 Payment of Death Benefit...............................................................8
7.3 Form of Payment of Deferral Benefit....................................................8
7.4 Benefit Determination and Payment Procedure............................................8
7.5 Payments to Minors and Incompetents....................................................8
7.6 Distribution of Benefit When Distributee Cannot Be Located.............................8
7.7 Deferral Benefit Upon Disability or Retirement.........................................9
ARTICLE VIII Beneficiary Designation............................................................9
8.1 Beneficiary Designation................................................................9
ARTICLE IX Withdrawals..........................................................................9
9.1 No Withdrawals Permitted...............................................................9
9.2 Hardship Exemption....................................................................10
ARTICLE X Funding..............................................................................10
10.1 Funding..............................................................................10
ARTICLE XI Change of Control...................................................................10
11.1 Change of Control....................................................................10
11.2 Effect of Change of Control..........................................................12
ARTICLE XII Plan Adminstrator..................................................................12
12.1 Appointment of Administrator.........................................................12
12.2 Duties and Responsibilities of Plan Administrator....................................12
12.3 Claims Procedures....................................................................13
ARTICLE XIII Amendment or Termination of Plan..................................................14
13.1 Amendment or Termination of the Plan.................................................14
-iii-
<PAGE>
ARTICLE XIV Miscellaneous......................................................................14
14.1 Non-assignability....................................................................14
14.2 Notices and Elections................................................................14
14.3 Delegation of Authority..............................................................14
14.4 Service of Process...................................................................14
14.5 Governing Law........................................................................14
14.6 Binding Effect.......................................................................14
14.7 Severability.........................................................................14
14.8 Gender and Number....................................................................15
14.9 Titles and Captions.................................................................15
</TABLE>
-iv-
<PAGE>
LandAmerica Financial Group, Inc.
Executive Voluntary Deferral Plan
The Board of Directors is of the opinion that it is in the best
interests of LandAmerica Financial Group, Inc. (the "Corporation") to provide
certain key executives an opportunity to defer receipt of bonus payments as well
as an opportunity for such key executives to align their interests with the
Corporation by being tied to the performance of the Corporation's common stock.
Pursuant to action taken by the Board of Directors, the following
LandAmerica Financial Group, Inc. Executive Voluntary Deferral Plan (the "Plan")
is hereby adopted.
ARTICLE I
Definition of Terms
The following words and terms as used in this Plan shall have the
meaning set forth below, unless a different meaning is clearly required by the
context:
1.1 "Account": A bookkeeping account established for a Participant
under Article IV hereof.
1.2 "Administrator": The Committee or its designee is the Plan
Administrator.
1.3 "Affiliate": Any subsidiary, parent, affiliate, or other related
business entity to the Corporation.
1.4 "Annual Bonus Date:" The date in a particular year on which the
Bonus awarded to those Participants who receive solely one Bonus award per year
becomes payable or would otherwise become payable, but for a Participant's
Deferral Election.
1.5 "Beneficiary": The person or persons designated by a Participant
or otherwise entitled pursuant to Section 8.1 to receive benefits under the Plan
attributable to such Participant after the death of such Participant.
1.6 "Benefit Commencement Date": The date irrevocably elected by the
Participant pursuant to Section 3.2, which date may not be later than the
Participant's 70th birthday. The same Benefit Commencement Date shall be
required for all Deferral Contributions made and Deferral Benefits attributable
to a Plan Year.
1.7 "Board": The present and any succeeding Board of Directors of
the Corporation, unless such term is used with respect to a particular Affiliate
and its Directors, in which event it shall mean the present and any succeeding
Board of Directors of that Affiliate.
1.8 "Bonus": Compensation paid to a Participant for services
rendered to the Corporation, which is designated as a "bonus" by the Committee
and which shall include without limitation any pre-tax or sub-goal bonuses.
1.9 "Code": The Internal Revenue Code of 1986, as the same may be
amended from time to time.
1.10 "Committee": The Compensation Committee of the Board.
<PAGE>
1.11 "Corporation": LandAmerica Financial Group, Inc., or any
successor thereto.
1.12 "Death Benefit": The benefit with respect to a Participant due a
Participant's Beneficiary, determined in accordance with Article VI hereof.
1.13 "Deferral Amount": With respect to each Plan Year, the sum of
the Deferral Contributions of a Participant with respect to his Bonus to be paid
during the Plan Year.
1.14 "Deferral Benefit": The balance in a Participant's Deferred Cash
Account and Deferred Stock Unit Account.
1.15 "Deferral Contribution": The portion of a Participant's Bonus,
which is deferred under the Plan.
1.16 "Deferral Contribution Date": The Annual Bonus Date on which a
Deferral Contribution is credited to a Participant's Deferred Cash Account or
Deferred Stock Unit Account in accordance with Section 3.2.
1.17 "Deferral Election": An irrevocable election of a Deferral
Amount in writing executed by the Eligible Executive or Participant and timely
filed with the Administrator.
1.18 "Deferral Premium": Additional Deferred Stock Units awarded to a
Participant who elects to defer his Bonus into the Deferred Stock Unit Account
equal to twenty percent (20%) of the Participant's Deferral Contribution into
the Deferred Stock Unit Account for a given Plan Year.
1.19 "Deferred Cash Account": An unfunded, bookkeeping account
maintained on the books of the Corporation for a Participant, which reflects the
Participant's Deferral Contributions made under the Plan. Separate subdivisions
of the Deferred Cash Account shall continue to be maintained to reflect Deferral
Contributions made and Deferral Benefits attributable with respect to each Plan
Year.
1.20 "Deferred Stock Unit": A hypothetical share of the Corporation's
common stock.
1.21 "Deferred Stock Unit Account": An unfunded, bookkeeping account
maintained on the books of the Corporation for a Participant, which reflects his
interest in amounts attributable to his Deferred Contributions under the Plan.
Separate subdivisions of the Deferred Stock Unit Account shall be maintained to
reflect Deferral Contributions made and Deferral Benefits attributable with
respect to each Plan Year and within each Plan Year, the Deferral Contributions
and Deferral Benefits attributable to Deferral Contributions of Bonus and
Deferral Premiums.
1.22 "Disabled" and "Disability" shall have the meanings assigned to
such terms in the Company's Long-Term Disability Plan.
1.23 "Effective Date": The Effective Date of the Plan is December 1,
1998.
-2-
<PAGE>
1.24 "Eligible Executive": An executive who has the rank of Senior
Vice-President of the Company, or higher.
1.25 "First Plan Year": The Plan Year commencing January 1, 1998.
1.26 "Participant": An Eligible Executive who elects to participate
in the Plan, and further differentiated as follows:
(i) "Active Participant": A Participant who has an election
to make Deferral Contributions to the Plan in effect at the time in
question.
(ii) "Inactive Participant": A Participant who does not have
an election to make Deferral Contributions to the Plan in effect at the
time in question.
1.27 "Plan": This document, as contained herein or duly amended,
which shall be known as the "LandAmerica Financial Group, Inc. Executive
Voluntary Deferral Plan".
1.28 "Plan Year": The calendar year during which a Participant's
Bonus is earned.
1.29 "Rate of Return": Eight percent (8%) for the First Plan Year,
and eight percent (8%) for subsequent Plan Years until, if ever, increased by
the Compensation Committee.
1.30 "Retirement": A Participant's termination of employment with the
Company at or after age 65.
ARTICLE II
Eligibility and Participation
2.1 Eligibility. Each Eligible Executive shall be eligible to
participate in the Plan and to defer Bonus for such Plan Year as provided in
this Plan. Any questions as to whether an executive of the Company is employed
at the level of Senior Vice-President of the Company, or higher, shall be
determined by the Administrator, in its sole discretion, in accordance with
Company policy, if any, on such matters.
2.2 Participation.
(a) In order to become an Active Participant and to make Deferral
Contributions with respect to a Plan Year, an Eligible Executive must file with
the Administrator a Deferral Election, in accordance with the terms and
conditions set forth in Section 3.2. For the First Plan Year, such Deferral
Election must be filed no later than December 31, 1998. With respect to all Plan
Years other than the First Plan Year, such Deferral Election must be filed no
later than the December 31 preceding such Plan Year or at such earlier time as
may be set by the Committee in its sole discretion.
(b) By executing and filing such election with the Administrator, an
Eligible Executive consents and agrees to the following:
-3-
<PAGE>
(i) To execute such applications and take such physical
examinations and to supply truthfully and completely such information
as may be requested by any health questionnaire provided by the
Administrator;
(ii) To be bound by all terms and conditions of the Plan and
all amendments thereto.
2.3 Commencement of Active Participation. An Eligible Executive
shall become an Active Participant with respect to a Plan Year only if he is
expected to have Bonus during such Plan Year, and he timely files and has in
effect a Deferral Election for such Plan Year.
2.4 Length of Participation. An individual who is or becomes a
Participant shall be or remain an Active Participant as long as he has a
Deferral Election in effect; and he shall be or remain an Inactive Participant
as long as he is entitled to future benefits under the terms of the Plan and is
not considered an Active Participant.
ARTICLE III
Determination of Deferral
3.1 Deferral Benefit. For purposes hereof, a Participant's Deferral
Benefit shall be the balance in his Deferred Cash Account and his Deferred Stock
Unit Account at the time in question.
3.2 Deferral Election.
(a) Subject to the restrictions and conditions hereinafter provided,
a Participant may irrevocably elect, as a Deferral Contribution with respect to
a Plan Year, to defer part or all of the Participant's Bonus for a given Plan
Year, which is specified in his Deferral Election for such Plan Year in
accordance with the conditions set forth in this Section 3.2. Any such Deferral
Election must be filed with the Administrator at the time required under Section
2.2(a).
(b) The following conditions apply:
(i) The maximum Deferral Contribution with respect to any
Participant for a Plan Year shall be one hundred percent (100%) of his
Bonus for such Plan Year, and such election shall be expressed by the
Participant's indication of (x) the excess of a dollar level, (y) a
stated percentage, or (z) a stated percentage of the excess of a dollar
level of the Participant's Bonus for a given Plan Year.
(ii) On such election form, the Participant shall indicate
how the Deferral Contribution is to be allocated between the
Participant's Deferred Cash Account and the Participant's Deferred
Stock Unit Account. To the extent that a Participant elects to defer
amounts into his Deferred Cash Account, the Participant's Deferred Cash
Account shall be credited with the dollar amount of the Deferral
Contribution allocated to such Account either (i) as of the day on
which the Bonus would otherwise be paid to the Participant if such day
is an Annual Bonus Date; or (ii) if such day on which the Bonus would
otherwise be paid is not an Annual Bonus Date, then as of the next
occurring Annual Bonus Date. To the extent that a Participant elects to
defer amounts into his Deferred Stock Unit Account, the Participant's
Deferred Stock Unit Account shall be credited with that number of
Deferred Stock Units determined by dividing the dollar amount of the
-4-
<PAGE>
Participant's Deferral Contribution to the Deferred Stock Unit Account
by the Closing Price either (i) as of the day on which the Bonus would
otherwise be paid to the Participant if such day is an Annual Bonus
Date; or (ii) if such day on which the Bonus would otherwise be paid is
not an Annual Bonus Date, then as of the next occurring Annual Bonus
Date. The Annual Bonus Date on which a Participant's Deferred Cash
Account or Deferred Stock Unit Account is credited in accordance with
this Section 3.2 shall be referred to as the Deferral Contribution
Date.
(iii) A Participant who makes a Deferral Contribution for a
given Plan Year into the Participant's Deferred Stock Unit Account
shall receive a Deferral Premium of additional Deferred Stock Units
equal to twenty percent (20%) of the Participant's Deferral
Contribution to his Deferred Stock Unit Account for such Plan Year. The
Deferral Premium shall be credited to the Participant's Deferred Stock
Unit Account in addition to the Deferred Stock Units received as a
result of the election to defer the Participant's Bonus in the manner
provided in this Section 3.2, although such Deferral Premium shall be
subject to certain vesting requirements set forth in (ix) below.
(iv) A separate Deferral Election must be filed for each Plan
Year.
(v) Each Deferral Election shall be made on a form provided
by the Administrator and shall specify any such information as the
Administrator may require.
(vi) A Deferral Election must specify the manner of payment
and the period of payment. A Participant may elect to receive a lump
sum payment or quarterly installment payments over a term of years of
up to fifteen years.
(vii) A Deferral Election must specify the Benefit
Commencement Date. A Participant may elect to receive payments on a
date which is at least two (2) years from the Deferral Contribution
Date for such election but in no event later than the Participant's
70th birthday or on a date which is the later of two (2) years from the
Deferral Contribution Date for such election but in no event later than
the Participant's 70th birthday or the Participant's termination of
employment with the Corporation. The Benefit Commencement Date
specified in the Participant's Deferral Election may be accelerated
upon the Participant's death, Disability, Retirement or upon a Change
of Control as further provided in this Plan.
(viii) A Participant shall have the option of postponing the
elected Benefit Commencement Date of a Deferral Benefit whether from
the Participant's Deferred Cash Account or Deferred Stock Unit Account
by making an irrevocable election to roll over such Deferral Benefit at
least one year before such Deferral Benefit is payable, provided that
the Participant may not change his previous allocation of amounts to
his Deferred Cash Account and Deferred Stock Unit Account at such time
and provided that a Participant may not postpone the elected Benefit
Commencement Date past the Participant's 70th birthday. A Participant
shall make such election on a form designated by the Administrator.
(ix) The Participant shall forfeit a Deferral Premium (and
any dividends credited to the Participant's Deferred Stock Unit Account
as a result of such Deferral Premium) if the Participant separates from
service to Corporation for any reason other than on account of the
Participant's death, Disability, Retirement or a Change of Control
before the second anniversary on which the Deferral Premium was
awarded.
-5-
<PAGE>
3.3 Subtractions from Deferred Cash Account and Deferred Stock Unit
Account. All distributions from a Participant's Deferred Cash Account and
Deferred Stock Unit Account shall be subtracted when such distributions are
made.
3.4 Crediting of Interest to Deferred Cash Account. There shall be
credited to each Participant's Deferred Cash Account an amount representing
interest on the balance of such account. Interest shall be credited as earned.
Such interest shall be based on the applicable Rate of Return for the Plan Year.
3.5 Equitable Adjustment in Case of Error or Omission. If an error
or omission is discovered in the Deferred Cash Account and Deferred Stock Unit
Account of a Participant, the Administrator shall make such equitable
adjustments as the Administrator deems appropriate.
3.6 Statement of Benefits. Within a reasonable time after the end of
the Plan Year and at the date a Participant's Deferral Benefit or Death Benefit
becomes payable under the Plan, the Administrator shall provide to each
Participant (or, if deceased, to his Beneficiary) a statement of the benefit
under the Plan.
ARTICLE IV
Accounts and Investments
4.1 Accounts. A separate Account under the Plan shall be established
for each Participant. Such Account shall be (a) credited with the amounts
credited in accordance with Section 3.2, (b) credited (or charged, as the case
may be) with the investment results determined in accordance with Section 4.2,
and (c) charged with the amounts paid by the Plan to or on behalf of the
Participant in accordance with Article VII. With each Participant's Account,
separate subaccounts including a Deferred Stock Unit Account and a Deferred Cash
Account shall be maintained.
4.2 Deferred Stock Units. Except as provided below, a Participant's
Deferred Stock Unit Account shall be treated as if it were invested in Deferred
Stock Units that are equivalent in value to the fair market value of the shares
of the Corporation's common stock in accordance with the following rules:
(a) Before the Benefit Commencement Date, the number of Deferred
Stock Units credited to a Participant's Deferred Stock Unit Account shall be
increased on each date on which a dividend is paid on the Corporation's common
stock. The number of additional Deferred Stock Units credited to a Participant's
Deferred Stock Unit Account as a result of such increase shall be determined by
(i) multiplying the total number of Deferred Stock Units (with fractional
Deferred Stock Units rounded off to the nearest thousandth) credited to the
Participant's Deferred Stock Unit Account immediately before such increase by
the amount of the dividend paid per share of the Corporation's common stock on
the dividend payment date, and (ii) dividing the product so determined by the
Closing Price on the dividend payment date.
(b) The dollar value of the Deferred Stock Units credited to a
Participant's Deferred Stock Unit Account on any date shall be determined by
multiplying the number of Deferred Stock Units (including fractional Deferred
Stock Units) credited to the Participant's Deferred Stock Unit Account by the
Closing Price on that date.
-6-
<PAGE>
(c) In the event of a transaction or event described in this
subsection (c), the number of Deferred Stock Units credited to a Participant's
Deferred Stock Unit Account shall be adjusted in such manner as the Board, in
its sole discretion, deems equitable. A transaction or event is described in
this subsection (c) if (i) it is a dividend (other than regular quarterly
dividends) or other distribution (whether in the form of cash, shares, other
securities, or other property), extraordinary cash dividend, recapitalization,
stock split, reverse stock split, reorganization, merger, consolidation,
split-up, spin-off, repurchase, or exchange of shares or other securities, the
issuance or exercisability of stock purchase rights, the issuance of warrants or
other rights to purchase shares or other securities, or other similar corporate
transaction or event and (ii) the Board determines that such transaction or
event affects the shares of the Corporation's common stock, such that an
adjustment pursuant to this paragraph (c) is appropriate to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Plan.
(d) A Participant who elects to receive distribution of his Accounts
in quarterly installments will not have his or her Deferred Stock Unit Account
credited with Deferred Stock Units on or after the Benefit Commencement Date.
(e) On the Benefit Commencement Date, the Deferred Stock Unit
Account of a Participant who has elected to receive his Deferral Benefit in
quarterly installments shall be converted to a Deferred Cash Account which shall
be combined with the Participant's existing Deferred Cash Account. The Deferred
Cash Account shall continue to accrue interest at the Rate of Return.
4.3 Hypothetical Nature of Accounts and Investments. Each Account
established under this Article IV shall be maintained for bookkeeping purposes
only. Neither the Plan nor any of the Accounts established under the Plan shall
hold any actual funds or assets. The Deferred Stock Units established hereunder
shall be used solely to determine the amounts to be paid hereunder, shall not
represent an equity security of the Corporation, shall not be convertible into
or otherwise entitle a Participant to acquire an equity security of the
Corporation and shall not carry any voting or dividend rights.
ARTICLE V
Vesting
5.1 Vesting. A Participant's Deferred Cash Account and Deferred
Stock Unit Account shall be fully vested and non-forfeitable at all times,
except that Deferral Premiums and any dividends credited to the Participant's
Deferred Stock Unit Account as a result of such Deferral Premiums shall vest as
provided in Section 3.2 (ix).
ARTICLE VI
Death Benefits
6.1 Pre-Benefit Commencement Date Death Benefit. In the event that a
Participant dies prior to his Benefit Commencement Date, then the Participant's
Deferred Stock Unit Account shall be converted to a Deferred Cash Account as of
the first day of the month following the Participant's date of death, which
Deferred Cash Account shall accrue annual interest thereafter at the Rate of
Return to the extent not paid out in a lump sum pursuant to the Participant's
election form. The Beneficiary of such Participant shall be entitled to receive
as a Death Benefit an amount equal to the Deferral Benefit as of the Benefit
Commencement Date that
-7-
<PAGE>
the Participant would have received had the Participant lived to receive the
full Deferral Benefit. This Death Benefit shall be paid pursuant to the
Participant's election form except that the payment shall be made, or begin, no
more than ninety (90) days after the Participant's date of death.
6.2 Post-Benefit Commencement Date Death Benefit. In the event that
a Participant dies after his Benefit Commencement Date, then the Beneficiary of
such Participant shall be entitled to receive as a Death Benefit a continuation
of the payment of the Deferral Benefit in the same manner and in the same amount
that the Participant would have received had the Participant lived to receive
the Deferral Benefit.
ARTICLE VII
Payment of Benefits
7.1 Payment of Deferral Benefit. A Participant's Deferral Benefit,
if any, shall become payable to the Participant as of the Benefit Commencement
Date specified in his Deferral Election or as soon thereafter as is
administratively practical. If the Participant has elected to receive the
Deferral Benefit in quarterly installments, each of the Participant's
installment payments shall be comprised of accrued interest, if any, and that
portion of the Participant's Deferral Benefit equal to the balance in the
Participant's Deferred Cash Account divided by the number of remaining annual
installment payments to be made to the Participant.
7.2 Payment of Death Benefit. A Participant's Death Benefit shall be
payable to his Beneficiary as set forth in Article VI.
7.3 Form of Payment of Deferral Benefit. A Participant shall be paid
his Deferral Benefit beginning at the Benefit Commencement Date in a lump sum or
in periodic installment payments payable quarterly for the term of years as
irrevocably elected by the Participant pursuant to Section 3.2.
7.4 Benefit Determination and Payment Procedure. The Administrator
has the authority, in its sole discretion and judgment to make all
determinations concerning eligibility for benefits under the Plan, the time or
terms of payment, and the form or manner of payment to the Participant or the
Participant's Beneficiary, in the event of the death or Disability of the
Participant. The Administrator shall promptly notify the Corporation of each
such determination that benefit payments are due and provide to the Corporation
all other information necessary to allow the Corporation to carry out said
determination, whereupon the Corporation shall pay such benefits in accordance
with the Administrator's determination.
7.5 Payments to Minors and Incompetents. If a Participant or
Beneficiary entitled to receive any benefits hereunder is a minor or is adjudged
to be legally incapable of giving valid receipt and discharge for such benefits,
or is deemed so by the Administrator, benefits will be paid to such person as
the Administrator may designate for the benefit of such Participant or
Beneficiary. Such payments shall be considered a payment to such Participant or
Beneficiary and shall, to the extent made, be deemed a complete discharge of any
liability for such payments under the Plan.
7.6 Distribution of Benefit When Distributee Cannot Be Located. The
Administrator shall make all reasonable attempts to determine the identity
and/or whereabouts of
-8-
<PAGE>
a Participant or a Participant's Beneficiary entitled to benefits under the
Plan, including the mailing by certified mail of a notice to the last known
address shown on the Corporation's or the Administrator's records. If the
Administrator is unable to locate such a person entitled to benefits hereunder,
or if there has been no claim made for such benefits, the Corporation shall
continue to hold the benefit due such person, subject to any applicable statute
of escheats.
7.7 Deferral Benefit Upon Disability or Retirement. In the event of
the Participant's Disability or Retirement prior to his selected Benefit
Commencement Date, the Participant's Benefit Commencement Date shall be adjusted
to the first day of the month following the Participant's Retirement or
Disability. On such adjusted Benefit Commencement Date, the Deferred Stock Unit
Account of a Participant who has elected to receive his Deferral Benefit in
quarterly installments shall be converted to a Deferred Cash Account, which
shall be combined with the Participant's existing Deferred Cash Account. The
Deferred Cash Account shall continue to accrue interest at the Rate of Return.
The Participant's Deferral Benefit shall become payable on the first day of the
month following such event and shall be paid in the manner prescribed on the
Participant's election form, except with regard to the Participant's originally
selected Benefit Commencement Date.
ARTICLE VIII
Beneficiary Designation
8.1 Beneficiary Designation.
(a) A Participant may designate a Beneficiary and a contingent
Beneficiary as part of his Deferral Election. Any Beneficiary designation made
hereunder shall be effective only if properly signed and dated by the
Participant and delivered to the Administrator prior to the time of the
Participant's death. Any Beneficiary designation hereunder shall remain
effective until changed or revoked hereunder.
(b) A Beneficiary designation may be changed by the Participant at
any time, or from time to time, by filing a new designation in writing with the
Administrator.
(c) If the Participant dies without having designated a Beneficiary
or a contingent Beneficiary or if the Participant dies and the Beneficiary and
contingent Beneficiary so named by the Participant have both predeceased the
Participant, then the Participant's estate shall be deemed to be his
Beneficiary. In the event that the Participant dies and the Beneficiary so named
by the Participant has predeceased the Participant, then the surviving
contingent Beneficiary, if any, shall be the Beneficiary.
(d) If a Beneficiary of the Participant shall survive the
Participant but shall die before the Participant's entire benefit under the Plan
has been distributed, then the unpaid balance thereof shall be distributed to
any other beneficiary named by the deceased Beneficiary to receive his interest
or, if none, to the estate of the deceased Beneficiary.
ARTICLE IX
Withdrawals
9.1 No Withdrawals Permitted. No withdrawals or other distributions
shall be permitted from the Deferred Cash Account and Deferred Stock Unit
Account except as specifically provided in Articles VII and IX.
-9-
<PAGE>
9.2 Hardship Exemption.
(a) A distribution of a portion of the Participant's Deferral
Account because of an Unforeseeable Emergency will be permitted only to the
extent required by the Participant to satisfy the emergency need. Whether an
Unforeseeable Emergency has occurred will be determined solely by the
Administrator. Distributions in the event of an Unforeseeable Emergency may be
made by and with the approval of the Administrator upon written request by a
Participant.
(b) An "Unforeseeable Emergency" is defined as a severe financial
hardship to the Participant resulting from a sudden and unexpected illness or
accident of the Participant or of a dependent of the Participant, loss of the
Participant's property due to casualty, or other similar extraordinary and
unforeseeable circumstances arising as a result of events beyond the
Participant's control. The circumstances that will constitute an Unforeseeable
Emergency will depend upon the facts of each case, but, in any event, any
distribution under this Section 9.2 shall not exceed the remaining amount
required by the Participant to resolve the hardship after (i) reimbursement or
compensation through insurance or otherwise, (ii) obtaining liquidation of the
Participant's assets, to the extent such liquidation would not itself cause a
severe financial hardship, or (iii) suspension of deferrals under the Plan.
ARTICLE X
Funding
10.1 Funding.
(a) All Plan Participants and Beneficiaries are general unsecured
creditors of the Corporation with respect to the benefits due hereunder and the
Plan constitutes a mere promise by the Corporation to make benefit payments in
the future. It is the intention of the Corporation that the Plan be considered
unfunded for tax purposes.
(b) The Corporation may, but is not required to, purchase life
insurance in amounts sufficient to provide some or all of the benefits provided
under this Plan or may otherwise segregate assets for such purpose.
(c) The Corporation may, but is not required to, establish a grantor
trust which may be used to hold assets of the Corporation which are maintained
as reserves against the Corporation's unfunded, unsecured obligations hereunder.
Such reserves shall at all times be subject to the claims of the Corporation's
creditors. To the extent such trust or other vehicle is established, and assets
contributed, for the purpose of fulfilling the Corporation's obligation
hereunder, then such obligation of the Corporation shall be reduced to the
extent such assets are utilized to meet its obligations hereunder. Any such
trust and the assets held thereunder are intended to conform in substance to the
terms of the model trust described in Revenue Procedure 92-64.
ARTICLE XI
Change of Control
11.1 Change of Control.
A "Change of Control" shall mean:
-10-
<PAGE>
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the Corporation (the
"Outstanding Corporation Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Corporation entitled to vote generally
in the election of directors (the "Outstanding Corporation Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Corporation, (ii) any acquisition by the Corporation, (iii)
any acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Corporation or any corporation controlled by the Corporation
or (iv) any acquisition by any corporation pursuant to a transaction which
complies with clauses (i), (ii) and (iii) of subsection (c) of this Section; or
(b) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Corporation's shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Corporation (a "Business Combination"), in each case, unless, following such
Business Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Corporation Common Stock and Outstanding Corporation Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 50% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination (including,
without limitation a corporation which as a result of such transaction owns the
Corporation or all or substantially all of the Corporation's assets either
directly or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Business Combination
of the Outstanding Corporation Common Stock and Outstanding Corporation Voting
Securities, as the case may be, (ii) no Person (excluding any corporation
resulting from such Business Combination or any employee benefit plan (or
related trust) of the Corporation or such corporation resulting from such
Business Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(d) Approval by the shareholders of the Corporation of a complete
liquidation or dissolution of the Corporation.
-11-
<PAGE>
Notwithstanding the foregoing, for purposes of subsection (a) of this
Section, a Change of Control shall not be deemed to have taken place if, as a
result of an acquisition by the Corporation which reduces the Outstanding
Corporation Common Stock or the Outstanding Corporation Voting Securities, the
beneficial ownership of a Person increases to 20% or more of the Outstanding
Corporation Common Stock or the Outstanding Corporation Voting Securities;
provided, however, that if a Person shall become the beneficial owner of 20% or
more of the Outstanding Corporation Common Stock or the Outstanding Corporation
Voting Securities by reason of share purchases by the Corporation and, after
such share purchases by the Corporation, such Person becomes the beneficial
owner of any additional shares of the Outstanding Corporation Common Stock or
the Outstanding Corporation Voting Stock, for purposes of subsection (a) of this
Section, a Change of Control shall be deemed to have taken place.
11.2 Effect of Change of Control.
Notwithstanding any other provision in any other Article of this Plan
to the contrary, (i) the value of all amounts deferred by a Participant which
have not yet been credited to the Participant's Account and (ii) the value of
such Participant's Account shall be paid to such Participant in each case in a
lump-sum cash payment on the occurrence of a Change of Control or as soon
thereafter as practicable, but in no event later than five days after the Change
of Control. The amount of cash credited to each Participant's Account prior to
determining the amount of cash to be paid from the Account shall be determined
by the Board (which, for this purpose, shall be comprised of employee members of
the Board prior to the Change of Control) so as to reflect fairly and equitably
appropriate interest and dividends and circumstances as the Board deems
appropriate, including, without limitation, the recent price of shares of the
Corporation's common stock. For purposes of payments under this Article XI, the
value of a Deferred Stock Unit shall be computed as the greater of (1) the
Closing Price on or nearest the date on which the Change of Control is deemed to
occur, or (2) the highest per share price for shares of the Corporation's common
stock actually paid in connection with the Change of Control.
ARTICLE XII
Plan Administrator
12.1 Appointment of Administrator.
(a) The Committee shall serve as the Administrator unless the
Committee has appointed one or more persons to serve as the Plan Administrator
(the "Administrator") for the purpose of administering the Plan. In the event
more than one person is appointed, the persons shall form a committee for the
purpose of functioning as the Administrator of the Plan. If the Committee has so
appointed an Administrator, the person or committeemen serving as Administrator
shall serve for indefinite terms at the pleasure of the Committee, and may, by
thirty (30) days prior written notice to the Committee, terminate such
appointment.
12.2 Duties and Responsibilities of Plan Administrator.
(a) The Administrator shall maintain and retain necessary records
regarding its administration of the Plan.
(b) The Administrator is empowered to settle claims against the Plan
and to make such equitable adjustments in a Participant's or Beneficiary's
rights or entitlements under the Plan as it deems appropriate in the event an
error or omission is discovered or claimed in the operation or administration of
the Plan as provided in Section 12.3.
-12-
<PAGE>
(c) The Administrator has the authority in its sole judgment and
discretion to construe the Plan, correct defects, supply omissions or reconcile
inconsistencies to the extent necessary to effectuate the Plan, and such action
shall be conclusive and binding on all Participants.
12.3 Claims Procedures.
(a) Any claim by a Participant or his or her Beneficiary (hereafter
the "Claimant") for benefits shall be submitted in writing to the Administrator.
The Administrator shall be responsible for deciding whether such claim is
payable, or the claimed relief otherwise is allowable, under the provisions and
rules of the Plan (a "Covered Claim"). The Administrator otherwise shall be
responsible for providing a full review of the Administrator's decision with
regard to any claim, upon a written request.
(b) Each Claimant or other interested person shall file with the
Administrator such pertinent information as the Administrator may specify, and
in such manner and form as the Administrator may specify; and, such person shall
not have any rights or be entitled to any benefits, or further benefits,
hereunder, as the case may be, unless the required information is filed by the
Claimant or on behalf of the Claimant. Each Claimant shall supply, at such times
and in such manner as may be required, written proof that the benefit is covered
under the Plan. If it is determined that a Claimant has not incurred a Covered
Claim or if the Claimant shall fail to furnish such proof as is requested, no
benefits, or no further benefits, hereunder, as the case may be, shall be
payable to such Claimant.
(c) Notice of any decision by the Administrator with respect to a
Claim generally shall be furnished to the Claimant within ninety (90) days
following the receipt of the claim by the Administrator (or within ninety (90)
days following the expiration of the initial ninety (90) day period in any case
where there are special circumstances requiring extension of time for processing
the claim). If special circumstances require an extension of time for processing
the claim, written notice of the extension shall be furnished by the
Administrator to the Claimant.
(d) Commencement of benefit payments shall constitute notice of
approval of a claim to the extent of the amount of the approved benefit. If such
claim shall be wholly or partially denied, such notice shall be in writing. If
the Administrator fails to notify the Claimant of the decision regarding his or
her claim in accordance with the "Claims Procedure" provisions, the claim shall
be "deemed" denied; and, the Claimant then shall be permitted to proceed with
the claims review procedure provided for herein.
(e) Within sixty (60) days following receipt by the Claimant of
notice of the claim denial, or within sixty (60) days following the date of a
deemed denial, the Claimant may appeal denial of the claim by filing a written
application for review with the Administrator. Following such request for
review, the Administrator shall fully review the decision denying the claim. The
decision of the Administrator then shall be made within sixty (60) days
following receipt by the Administrator of a timely request for review (or within
one hundred and twenty (120) days after such receipt, in a case where there are
special circumstances requiring an extension of time for reviewing such denied
claim). The Administrator shall deliver its decision to the Claimant in writing.
If the decision on review is not furnished within the prescribed time, the claim
shall be deemed denied on review.
(f) For all purposes under the Plan, the decision with respect to a
claim (if no review is requested) and the decision with respect to a claims
review (if requested), shall be final, binding
-13-
<PAGE>
and conclusive on all Participants, Beneficiaries and other interested parties,
as to all matters relating to the Plan and Plan benefits. Further, each claims
determination under the Plan shall be made in the absolute and exclusive
discretion and authority of the Committee.
ARTICLE XIII
Amendment or Termination of Plan
13.1 Amendment or Termination of the Plan. The Plan may be terminated
or amended at any time by the Board, effective as of any date specified. Any
such action taken by the Board shall be evidenced by a resolution and shall be
communicated to Participants and Beneficiaries prior to the effective date
thereof. No amendment or termination shall decrease a Participant's Deferral
Benefit accrued prior to the effective date of the amendment or termination. The
Board reserves the right to unilaterally shorten the Deferral Period of any
Participant hereunder in its sole discretion if, in its sole discretion, it
determines that to do so will be fair and equitable to the Participant.
ARTICLE XIV
Miscellaneous
14.1 Non-assignability. The interests of each Participant under the
Plan are not subject to claims of the Participant's creditors; and neither the
Participant nor his Beneficiary shall have any right to sell, assign, transfer
or otherwise convey the right to receive any payments hereunder or any interest
under the Plan, which payments and interest are expressly declared to be
non-assignable and non-transferable.
14.2 Notices and Elections. All notices required to be given in
writing and all elections required to be made in writing under any provision of
the Plan shall be invalid unless made on such forms as may be provided or
approved by the Administrator and, in the case of a notice or election by a
Participant or Beneficiary, unless executed by the Participant or Beneficiary
giving such notice or making such election. Notices and elections shall be
deemed given or made when received by any member of the committee that serves as
Administrator.
14.3 Delegation of Authority. Whenever the Corporation is permitted
or required to perform any act, such act may be performed by its Chief Executive
Officer or President or other person duly authorized by its Chief Executive
Officer or President or its Board.
14.4 Service of Process. The Administrator shall be the agent for
service of process on the Plan.
14.5 Governing Law. The Plan shall be construed, enforced and
administered in accordance with the laws of the Commonwealth of Virginia.
14.6 Binding Effect. The Plan shall be binding upon and inure to the
benefit of the Corporation, its successors and assigns, and the Participant and
his heirs, executors, administrators and legal representatives.
14.7 Severability. If any provision of the Plan should for any reason
be declared invalid or unenforceable by a court of competent jurisdiction, the
remaining provisions shall nevertheless remain in full force and effect.
-14-
<PAGE>
14.8 Gender and Number. In the construction of the Plan, the
masculine shall include the feminine or neuter and the singular shall include
the plural and vice-versa in all cases where such meanings would be appropriate.
14.9 Titles and Captions. Titles and captions and headings herein
have been inserted for convenience of reference only and are to be ignored in
any construction of the provisions hereof.
-15-
Exhibit 10.32
CHANGE OF CONTROL EMPLOYMENT AGREEMENT
AGREEMENT by and between LandAmerica Financial Group, Inc., a Virginia
corporation (the "Company"), and ____________ (the "Executive"), dated as of the
17th day of February, 1999.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Company. The Board believes it is imperative to diminish
the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions.
(a) The "Effective Date" shall mean the first date during
the Change of Control Period (as defined in Section 1(b)) on which a Change of
Control (as defined in Section 2) occurs. Anything in this Agreement to the
contrary notwithstanding, if a Change of Control occurs and if the Executive's
employment with the Company is terminated prior to the date on which the Change
of Control occurs, and if it is reasonably demonstrated by the Executive that
such termination of employment (i) was at the request of a third party who has
taken steps reasonably calculated to effect a Change of Control or (ii)
otherwise arose in connection with or anticipation of a Change of Control, then
for all purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period
commencing on the date hereof and ending on the third anniversary of the date
hereof; provided, however, that commencing on the date one year after the date
hereof, and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate three years from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give notice
to the Executive that the Change of Control Period shall not be so extended.
(c) "Subsidiary" shall mean any corporation that is
directly, or indirectly though one or more intermediaries, controlled by the
Company.
<PAGE>
2. Change of Control. For the purpose of this Agreement, a "Change
of Control" shall mean:
(a) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 20% or more of either (i) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (ii) the combined voting
power of the then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this subsection (a), the
following acquisitions shall not constitute a Change of Control: (i) any
acquisition directly from the Company, (ii) any acquisition by the Company,
(iii) any acquisition by any employee benefit plan (or related trust) sponsored
or maintained by the Company or any corporation controlled by the Company or
(iv) any acquisition by any corporation pursuant to a transaction which complies
with clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or
(c) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of the
assets of the Company (a "Business Combination"), in each case, unless,
following such Business Combination, (i) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 50% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination (including,
without limitation a corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the Outstanding
Company Common Stock and Outstanding Company Voting Securities, as the case may
be, (ii) no Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of the Company or
such corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of
Page 2
<PAGE>
such corporation except to the extent that such ownership existed prior to the
Business Combination and (iii) at least a majority of the members of the board
of directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or
(d) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
Notwithstanding the foregoing, for purposes of subsection (a) of this
Section 2, a Change of Control shall not be deemed to have taken place if, as a
result of an acquisition by the Company which reduces the Outstanding Company
Common Stock or the Outstanding Company Voting Securities, the beneficial
ownership of a Person increases to 20% or more of the Outstanding Company Common
Stock or the Outstanding Company Voting Securities; provided, however, that if a
Person shall become the beneficial owner of 20% or more of the Outstanding
Company Common Stock or the Outstanding Company Voting Securities by reason of
share purchases by the Company and, after such share purchases by the Company,
such Person becomes the beneficial owner of any additional shares of the
Outstanding Company Common Stock or the Outstanding Company Voting Stock, for
purposes of subsection (a) of this Section 2, a Change of Control shall be
deemed to have taken place.
3. Employment Period. If the Executive is employed by the Company
and/or a Subsidiary on the Effective Date, the Company hereby agrees to continue
to employ and to cause such Subsidiary to continue to employ the Executive, and
the Executive hereby agrees to remain in the employ of the Company and/or such
Subsidiary, subject to the terms and conditions of this Agreement, for the
period commencing on the Effective Date and ending on the third anniversary of
such date (the "Employment Period"). For purposes of this Agreement, unless
expressly limited to LandAmerica Financial Group, Inc., "Company" hereinafter
shall mean each of LandAmerica Financial Group, Inc. and/or any of its
Subsidiaries or affiliated companies that employ the Executive. As used in this
Agreement, the term "affiliated companies" shall include any company controlled
by, controlling or under common control with the Company.
4. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the
Executive's position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall be at least
commensurate in all material respects with the most significant of those held,
exercised and assigned at any time during the 120-day period immediately
preceding the Effective Date and (B) the Executive's services shall be performed
at the location where the Executive was employed immediately preceding the
Effective Date or any office or location less than 35 miles from such location.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote
Page 3
<PAGE>
reasonable attention and time during normal business hours to the business and
affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation.
(i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to 12 times the highest monthly
base salary paid or payable, including any base salary which has been earned but
deferred, to the Executive by the Company in respect of the 12-month period
immediately preceding the month in which the Effective Date occurs. During the
Employment Period, the Annual Base Salary shall be reviewed no more than 12
months after the last salary increase awarded to the Executive prior to the
Effective Date and thereafter at least annually. Any increase in Annual Base
Salary shall not serve to limit or reduce any other obligation to the Executive
under this Agreement. Annual Base Salary shall not be reduced after any such
increase and the term Annual Base Salary as utilized in this Agreement shall
refer to Annual Base Salary as so increased.
(ii) Annual Bonus. In addition to Annual Base Salary,
the Executive shall be awarded, for each fiscal year ending during the
Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal
to the Executive's highest bonus under annual incentive plans of the Company or
any comparable bonus under any predecessor or successor plan, for the last three
full fiscal years prior to the Effective Date (annualized in the event that the
Executive was not employed by the Company for the whole of such fiscal year)
(the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than
the end of the third month of the fiscal year next following the fiscal year for
which the Annual Bonus is awarded, unless the Executive shall elect to defer the
receipt of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans. During
the Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company, but in no event
shall such plans, practices, policies and programs provide the Executive with
incentive opportunities (measured with respect to both regular and special
incentive opportunities, to the extent, if any, that such distinction is
applicable), savings opportunities and retirement benefit opportunities, in each
case, less favorable, in the aggregate,
Page 4
<PAGE>
than the most favorable of those provided by the Company and its affiliated
companies for the Executive under such plans, practices, policies and programs
as in effect at any time during the 120-day period immediately preceding the
Effective Date or if more favorable to the Executive, those provided generally
at any time after the Effective Date to other peer executives of the Company.
(iv) Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the case may be, shall
be eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company
(including, without limitation, medical, prescription, dental, disability,
employee life, group life, accidental death and travel accident insurance plans
and programs) to the extent applicable generally to other peer executives of the
Company, but in no event shall such plans, practices, policies and programs
provide the Executive with benefits which are less favorable, in the aggregate,
than the most favorable of such plans, practices, policies and programs in
effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, those
provided generally at any time after the Effective Date to other peer executives
of the Company.
(v) Expenses. During the Employment Period the
Executive shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive in accordance with the most favorable
policies, practices and procedures of the Company in effect for the Executive at
any time during the 120-day period immediately preceding the Effective Date or,
if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company.
(vi) Fringe Benefits. During the Employment Period,
the Executive shall be entitled to fringe benefits, including, without
limitation, tax and financial planning services, payment of club dues, and, if
applicable, use of an automobile and payment of related expenses, in accordance
with the most favorable plans, practices, programs and policies of the Company
and its affiliated companies in effect for the Executive at any time during the
120-day period immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company.
(vii) Office and Support Staff. During the Employment
Period, the Executive shall be entitled to an office or offices of a size and
with furnishings and other appointments, and to exclusive personal secretarial
and other assistance, at least equal to the most favorable of the foregoing
provided to the Executive by the Company and its affiliated companies at any
time during the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive, as provided generally at any time thereafter
with respect to other peer executives of the Company.
(viii) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the most
favorable plans, policies, programs and practices of the Company and its
affiliated companies as in effect for the Executive at any time during the
120-day period immediately preceding the Effective Date or, if more favorable to
the
Page 5
<PAGE>
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company.
5. Termination of Employment.
(a) Death or Disability. The Executive's employment shall
terminate automatically upon the Executive's death during the Employment Period.
If the Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 12(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean that the Executive is unable, by reason of physical or
mental incapacity, to perform his duties to the Company on a full-time basis for
a period longer than 3 consecutive months or more than 6 months in any
consecutive 12-month period. The existence of a Disability shall be determined
by the Board of Directors of the Company, based upon due consideration of the
opinion of the Executive's personal physician or physicians and of the opinion
of any physician or physicians selected by the Board of Directors for these
purposes. If the Executive's personal physician disagrees with the physician
retained by the Company, the Board of Directors will retain an impartial
physician selected by the Executive's personal physician and the Company's
physician and the opinion of the impartial physician shall be binding upon the
Company and the Executive. The Executive shall submit to examination by any
physician or physicians so selected by the Board of Directors, and shall
otherwise cooperate with the Board of Directors in making the determination
contemplated hereunder, such cooperation to include, without limitation,
consenting to the release of information by any such physician(s) to the Board
of Directors.
(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean:
(i) the willful and continued failure of the
Executive to perform substantially the Executive's duties with the Company
(other than any such failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is delivered to the
Executive by the Board or the Chief Executive Officer of the Company which
specifically identifies the manner in which the Board or Chief Executive Officer
believes that the Executive has not substantially performed the Executive's
duties, or
(ii) the willful engaging by the Executive in illegal
conduct or gross misconduct which is materially and demonstrably injurious to
the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
Page 6
<PAGE>
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters of the
entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(c) Good Reason; Window Period. The Executive's employment
may be terminated (i) during the Employment Period by the Executive for Good
Reason or (ii) during the Window Period by Executive without any reason. For
purposes of this Agreement, "Window Period" shall mean the 30-day period
immediately following the first anniversary of the Effective Date. For purposes
of this Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 4(a) of this Agreement, or any other
action by the Company which results in a diminution in such position, authority,
duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) any failure by the Company to comply with any of
the provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(iii) the Company's requiring the Executive to be
based at any office or location other than as provided in Section 4(a)(i)(B)
hereof or the Company's requiring the Executive to travel on Company business to
a substantially greater extent than required immediately prior to the Effective
Date;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this Agreement;
or
(v) any failure by the Company to comply with and
satisfy Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive.
Page 7
<PAGE>
(d) Notice of Termination. Any termination by the Company
for Cause, or by the Executive during the Window Period or for Good Reason,
shall be communicated by Notice of Termination to the other party hereto given
in accordance with Section 12(b) of this Agreement. For purposes of this
Agreement, a "Notice of Termination" means a written notice which (i) indicates
the specific termination provision in this Agreement relied upon, (ii) to the
extent applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated and (iii) if the Date of Termination (as defined
below) is other than the date of receipt of such notice, specifies the
termination date (which date shall be not more than thirty days after the giving
of such notice). The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason or Cause shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the Company, respectively,
from asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if
the Executive's employment is terminated by the Company for Cause, or by the
Executive during the Window Period or for Good Reason, the date of receipt of
the Notice of Termination or any later date specified therein, as the case may
be, (ii) if the Executive's employment is terminated by the Company other than
for Cause or Disability, the Date of Termination shall be the date on which the
Company notifies the Executive of such termination and (iii) if the Executive's
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
6. Obligations of the Company upon Termination.
(a) During the Window Period. If, during the Employment
Period, the Executive shall terminate employment without any reason during the
Window Period:
(i) the Company shall pay to the Executive in a lump
sum in cash within 30 days after the Date of Termination the sum of (1) the
Executive's Annual Base Salary through the Date of Termination to the extent not
theretofore paid and (2) the product of (x) the higher of (I) the Recent Annual
Bonus and (II) the Annual Bonus paid or payable, including any bonus or portion
thereof which has been earned but deferred (and annualized for any fiscal year
consisting of less than twelve full months or during which the Executive was
employed for less than 12 full months), for the most recently completed fiscal
year during the Employment Period, if any (such higher amount being referred to
as the "Highest Annual Bonus") and (y) a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of Termination, and
the denominator of which is 365, in each case to the extent not theretofore paid
(the sum of the amounts described in clauses (1) and (2) shall be hereinafter
referred to as the "Accrued Obligations"); and
(ii) the amount equal to the sum of (x) the
Executive's Annual Base Salary and (y) the Highest Annual Bonus; and
Page 8
<PAGE>
(iii) for three years after the Executive's Date of
Termination, or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company shall continue
benefits to the Executive and/or the Executive's family at least equal to those
which would have been provided to them in accordance with the plans, programs,
practices and policies described in Section 4(b)(iv) of this Agreement if the
Executive's employment had not been terminated or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies and their families,
provided, however, that if the Executive becomes reemployed with another
employer and is eligible to receive medical or other welfare benefits under
another employer provided plan, the medical and other welfare benefits described
herein shall be secondary to those provided under such other plan during such
applicable period of eligibility. For purposes of determining eligibility (but
not the time of commencement of benefits) of the Executive for retiree benefits
pursuant to such plans, practices, programs and policies, the Executive shall be
considered to have remained employed until 3 years after the Date of Termination
and to have retired on the last day of such period; and
(iv) to the extent not theretofore paid or provided,
the Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is eligible to
receive under any plan, program, policy or practice or contract or agreement of
the Company and its affiliated companies (such other amounts and benefits shall
be hereinafter referred to as the "Other Benefits").
(b) Good Reason; Other Than for Cause, Death or Disability.
If, during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause, Death or Disability or the Executive shall
terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump
sum in cash within 30 days after the Date of Termination the aggregate of the
following amounts:
A. the Accrued Obligations; and
B. the amount equal to the product of (1)
[two or three times, per attached Schedule] and (2) the sum of (x) the
Executive's Annual Base Salary and (y) the Highest Annual Bonus; and
C. an amount equal to the excess of (a) the
actuarial equivalent of the benefit under the qualified defined benefit
retirement plan of the Company or any of its affiliated companies (the
"Retirement Plan") (utilizing actuarial assumptions no less favorable to the
Executive than those in effect under the Retirement Plan immediately prior to
the Effective Date), and any excess or supplemental retirement plan of the
Company or any of its affiliated companies in which the Executive participates
(together, the "BRP") which the Executive would receive if the Executive's
employment continued for 3 years after the Date of Termination assuming for this
purpose that all accrued benefits are fully vested, and, assuming that the
Executive's compensation in each of the three years is that required by Section
4(b)(i) and Section
Page 9
<PAGE>
4(b)(ii), over (b) the actuarial equivalent of the Executive's actual benefit
(paid or payable), if any, under the Retirement Plan and the BRP as of the Date
of Termination;
(ii) for three years after the Executive's Date of
Termination, or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company shall continue
benefits to the Executive and/or the Executive's family at least equal to those
which would have been provided to them in accordance with the plans, programs,
practices and policies described in Section 4(b)(iv) of this Agreement if the
Executive's employment had not been terminated or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and their families, provided, however, that if
the Executive becomes reemployed with another employer and is eligible to
receive medical or other welfare benefits under another employer provided plan,
the medical and other welfare benefits described herein shall be secondary to
those provided under such other plan during such applicable period of
eligibility. For purposes of determining eligibility (but not the time of
commencement of benefits) of the Executive for retiree benefits pursuant to such
plans, practices, programs and policies, the Executive shall be considered to
have remained employed until 3 years after the Date of Termination and to have
retired on the last day of such period;
(iii) the Company shall, at its sole expense as
incurred, provide the Executive with outplacement services the scope and
provider of which shall be selected by the Executive in his sole discretion; and
(iv) to the extent not theretofore paid or provided,
the Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is eligible to
receive under any plan, program, policy or practice or contract or agreement of
the Company and its affiliated companies (such other amounts and benefits shall
be hereinafter referred to as the "Other Benefits").
(c) Death. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of Accrued
Obligations and the timely payment or provision of Other Benefits. Accrued
Obligations shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination.
With respect to the provision of Other Benefits, the term Other Benefits as
utilized in this Section 6(c) shall include, without limitation, and the
Executive's estate and/or beneficiaries shall be entitled to receive, benefits
at least equal to the most favorable benefits provided by the Company to the
estates and beneficiaries of peer executives of the Company under such plans,
programs, practices and policies relating to death benefits, if any, as in
effect with respect to other peer executives and their beneficiaries at any time
during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive's estate and/or the Executive's beneficiaries, as in
effect on the date of the Executive's death with respect to other peer
executives of the Company and their beneficiaries.
Page 10
<PAGE>
(d) Disability. If the Executive's employment is terminated
by reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days of the Date of Termination. With respect to the provision
of Other Benefits, the term Other Benefits as utilized in this Section 6(d)
shall include, and the Executive shall be entitled after the Disability
Effective Date to receive, disability and other benefits at least equal to the
most favorable of those generally provided by the Company to disabled executives
and/or their families in accordance with such plans, programs, practices and
policies relating to disability, if any, as in effect generally with respect to
other peer executives and their families at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the Executive
and/or the Executive's family, as in effect at any time thereafter generally
with respect to other peer executives of the Company and their families.
(e) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause during the Employment Period, this
Agreement shall terminate without further obligations to the Executive other
than the obligation to pay to the Executive (x) his Annual Base Salary through
the Date of Termination, (y) the amount of any compensation previously deferred
by the Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company and for which the Executive
may qualify, nor, subject to Section 12(f), shall anything herein limit or
otherwise affect such rights as the Executive may have under any contract or
agreement with the Company. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company at or subsequent to the
Date of Termination shall be payable in accordance with such plan, policy,
practice or program or contract or agreement except as explicitly modified by
this Agreement.
8. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) by the Company, the Executive or
others of the validity or enforceability of, or liability under, any provision
of this
Page 11
<PAGE>
Agreement or any guarantee of performance thereof (including as a result of any
contest by the Executive about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code
of 1986, as amended (the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding and except as set forth below, in the event it shall be
determined that any payment or distribution by the Company to or for the benefit
of the Executive (whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise, but determined without
regard to any additional payments required under this Section 9) (a "Payment")
would be subject to the excise tax imposed by Section 4999 of the Code or any
interest or penalties are incurred by the Executive with respect to such excise
tax (such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then the Executive
shall be entitled to receive an additional payment (a "Gross-Up Payment") in an
amount such that after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the Payments. Notwithstanding the foregoing provisions of this Section 9(a), if
it shall be determined that the Executive is entitled to a Gross-Up Payment, but
that the Payments do not exceed 110% of the greatest amount that could be paid
to the Executive such that the receipt of Payments would not give rise to any
Excise Tax (the "Reduced Amount"), then no Gross-Up Payment shall be made to the
Executive and the Payments, in the aggregate, shall be reduced to the Reduced
Amount.
(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by a nationally recognized certified public accounting firm as may be designated
by the Executive (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or group
effecting the Change of Control, the Executive shall appoint another nationally
recognized accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder). All
fees and expenses of the Accounting Firm shall be borne solely by the Company.
Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by
the Company to the Executive within 5 days of the receipt of the Accounting
Firm's determination. Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Gross-Up Payments which
will not have been made by the Company should have been made ("Underpayment"),
consistent with the calculations required to
Page 12
<PAGE>
be made hereunder. In the event that the Company exhausts its remedies pursuant
to Section 9(c) and the Executive thereafter is required to make a payment of
any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly paid
by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than 10 business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim; provided, however, that the Company shall
bear and pay directly all costs and expenses (including additional interest and
penalties),incurred in connection with such contest and shall indemnify and hold
the Executive harmless, on an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed as a result of
such representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 9(c), the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the Executive agrees
to prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance the
amount of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of the
Page 13
<PAGE>
statute of limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control of
the contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 9(c)) promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 9(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
10. Restrictive Covenants.
(a) Confidential Information. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company, and their respective
businesses, which shall have been obtained by the Executive during the
Executive's employment by the Company and which shall not be or become public
knowledge (other than by acts by the Executive or representatives of the
Executive in violation of this Agreement). After termination of the Executive's
employment with the Company, the Executive shall not, without the prior written
consent of the Company or as may otherwise be required by law or legal process,
communicate or divulge any such information, knowledge or data to anyone other
than the Company and those designated by it.
(b) Nonraiding of Employees. The Executive covenants that
during his employment hereunder and for a period of 2 years immediately
following the date of termination of Executive's employment, but only if said
termination is voluntary or for Cause, he will not solicit, induce or encourage
for the purposes of employing or offering employment to any individuals who, as
of the date of termination of the Executive's employment, are employees of the
Company, nor will he directly or indirectly solicit, induce or encourage any of
the Company's employees to seek employment with any other business, whether or
not the Executive is then affiliated with such business.
In no event shall an asserted violation of the provisions of this Section 10
constitute a basis for deferring or withholding any amounts otherwise payable to
the Executive under this Agreement.
Page 14
<PAGE>
11. Successors.
(a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place.
12. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Virginia without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be
in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive:
_____________________________
_____________________________
_____________________________
If to the Company:
LandAmerica Financial Group, Inc.
101 Gateway Centre Parkway
Gateway One
Richmond, Virginia 23235-5153
Attention: Russell W. Jordan, III, Esquire
Page 15
<PAGE>
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision of this Agreement or the failure to assert
any right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
(f) The Executive and the Company acknowledge that, except
as may otherwise be provided under any other written agreement between the
Executive and the Company, the employment of the Executive by the Company is "at
will" and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date, in which case
the Executive shall have no further rights under this Agreement. From and after
the Effective Date, this Agreement shall become effective, and shall replace and
supercede any existing Employment Agreement between the Company and the
Executive, to the extent its terms are more advantageous to the Executive,
except that any covenants contained in any prior agreement between Executive and
the Company restricting Executive's ability to compete with or to solicit the
employees, clients or customers of the Company, or to use or disclose any
Confidential Information (as that term is defined in any such agreement), shall
remain in full force and effect.
(g) If the Executive is a party to any of the following
agreements: the Senior Executive Severance Agreement dated June 24, 1991 with
the Company; the Change of Control Employment Agreement dated November 15, 1994
with the Company; the Change of Control Employment Agreement dated November 15,
1994 with Lawyers Title Insurance Corporation, a wholly-owned subsidiary of the
Company; the Change of Control Employment Agreement dated March 1, 1998 with the
Company (each, a "Former Agreement"), then the Executive hereby acknowledges and
agrees that this Agreement is intended to replace and supersede such Former
Agreement and that the Former Agreement is terminated as of the date hereof.
Page 16
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
LANDAMERICA FINANCIAL GROUP, INC.
By: ____________________________________
Charles H. Foster, Jr., Chairman and
Chief Executive Officer
________________________________________
______________________
Page 17
<PAGE>
LANDAMERICA FINANCIAL GROUP, INC.
Schedule
to
Change of Control Employment Agreement
Name Multiplier
- ---- ----------
Charles H. Foster, Jr. 3X
Herbert Wender N/A
Janet A. Alpert 3X
John M. Carter 3X
G. William Evans 3X
Jeffrey A. Tischler 3X
John R. Blanchard 2X
H. Randolph Farmer 2X
Russell W. Jordan, III 2X
Robert J. Palmer 2X
John P. Rapp 2X
Hugh D. Reams, Jr. 2X
Christopher L. Rosati 2X
Jeffrey C. Selby 2X
Keith Reynolds 2X
Kenneth Astheimer 2X
David W. Koshork 2X
Jeffrey D. Vaughan 3X
Stephen P. Veltri 2X
Donald C. Weigel, Jr. 2X
John Obzud 2X
Exhibit 11
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
Statement Re: Computation of Earnings Per Share
The information required by this Exhibit is contained in Note 9 of the
Consolidated Financial Statements of LandAmerica Financial Group, Inc. and its
subsidiaries as of December 31, 1998 and 1997 and for the three years in the
period ended December 31, 1998 on page F-24 of this report.
Exhibit 21
LIST OF SUBSIDIARIES OF LANDAMERICA FINANCIAL GROUP, INC.
AS OF FEBRUARY 5, 1999
<TABLE>
<CAPTION>
Subsidiaries State of Incorporation
------------ ----------------------
<S> <C>
Commonwealth Land Title Insurance Company Pennsylvania
Its Subsidiaries
Albuquerque Title Company, Inc. New Mexico
Atlantic Title & Abstract Company Delaware
Its Subsidiary
ATACO, Inc. Pennsylvania
Citrus Title Company, Inc. Florida
CLTIC-RELO, Inc. Delaware
Commercial Settlements, Inc. District of Columbia
Its Subsidiary
Commercial Intermediary, Inc. District of Columbia
Commonwealth Land Title Company California
Commonwealth Land Title Company of Austin Texas
Commonwealth Land Title Company of Dallas Texas
Commonwealth Land Title Company of El Paso Texas
Commonwealth Land Title Company of Fort Worth Texas
Commonwealth Land Title Company of Houston Texas
Commonwealth Land Title Company of San Antonio Texas
Commonwealth Land Title Company of Washington Washington
Commonwealth Land Title Corporation (Iowa) Iowa
Commonwealth Relocation Services, Inc. Pennsylvania
Commonwealth Title of Arizona Arizona
Crestview Lawyers Service New Jersey
CRS Financial Services, Inc. Pennsylvania
Day One, Inc. Pennsylvania
DelPenn Land Company Delaware
District-Realty Title Insurance Corporation Maryland
Edge Rock, Inc. Delaware
El Paso Abstract Co. Colorado
Golden State Title Company California
Goliath, Inc. Pennsylvania
Its Subsidiaries
Goliath One, L. P. Pennsylvania
Goliath Two, L. P. Pennsylvania
Goliath Three, L. P. Pennsylvania
Goliath Four, L. P. Pennsylvania
Goliath Five, L.P. Pennsylvania
Industrial Valley Title Insurance Company Pennsylvania
Its Subsidiary
Commonwealth Land Title Insurance Company of New Jersey New Jersey
LandAmerica Appraisal Services, Inc. Pennsylvania
Louisville Title Company Kentucky
Monumental Title Corporation Maryland
Osage Corporation Pennsylvania
<PAGE>
Subsidiaries State of Incorporation
------------ ----------------------
Plantco, Inc. District of Columbia
Property Services, Inc. Pennsylvania
Ranier Title Company Washington
State Title Insurance Company Pennsylvania
T & T Co. Holding Company Florida
Its Subsidiary
Title & Trust Company of Florida Florida
The National 1031 Exchange Corporation California
Title Guarantee Company of Rhode Island Rhode Island
Title Insurance Company Alabama
Title Services, Inc. Minnesota
Global Corporate Services, Inc. Michigan
LandAmerica Environmental Insurance Service Agency, Inc. Virginia
Its Subsidiaries:
LEISA of Arizona, Inc. Arizona
LEISA of California, Inc. California
LEISA of Colorado, Inc. Colorado
LEISA of Connecticut, Inc. Connecticut
LEISA of New York, Inc. New York
LEISA of Ohio, Inc. Ohio
LEISA of Pennsylvania, Inc. Pennsylvania
LEISA of Texas, Inc. Texas
LandAmerica Exchange Company Maryland
West End Real Estate Holding Company Virginia
LandAmerica OneStop, Inc. Virginia
Lawyers Title Insurance Corporation Virginia
Its Subsidiaries:
American Title Group, Inc. Texas
Its Subsidiaries:
ATCOD, Inc. d/b/a American Title Company Texas
American Title Company of Austin d/b/a Austin Title Company Texas
Commercial Abstract & Title Co. d/b/a Lawyers Title of Texas
San Antonio, Inc.
Texas Title Company Texas
William H. Tamm, Inc. Texas
Its Subsidiary:
Lawyers Title & Abstract Co. Texas
Atlanta Title Company Georgia
Builders Disbursement Services, Inc. Virginia
Building Exchange Company Virginia
Charter Title Company Virginia
Its Subsidiary:
Charter Title Company - Galveston, L.L.C. Texas
Commerce Title Guaranty Co. Tennessee
Continental Diversified Services Company California
Datatrace Information Services Company Virginia
Elliptus Technologies, Inc. Virginia
First Stable Properties, Inc. Virginia
Florida Southern Abstract & Title Co. Florida
<PAGE>
Subsidiaries State of Incorporation
------------ ----------------------
Guarantee Title Co., Inc. Kansas
Guaranty Abstract & Title Co., Amarillo, TX Texas
Land Title Abstract Co. Michigan
Land Title Dawson Abstract Co. Michigan
LandAm Construction Exchange Company Virginia
Lawyers Abstract Corporation South Carolina
Lawyers Acquisition Company, Inc. Virginia
Lawyers Holding Corporation Virginia
Its Subsidiaries:
Community Title, Inc. Maryland
Cumberland Title Company Maine
Louisville Title Agency of Central Ohio, Inc. Ohio
Oakton Title Ltd. Virginia
Universal Title of Baltimore, Inc. Maryland
Lawyers Title Agency, Inc. Virginia
Lawyers Title Company California
Its Subsidiaries:
LTC Exchange Company California
California Land Title Company California
Continental Land Title Company California
Continental Lawyers Company California
Lawyers Title of Arizona, Inc. Arizona
Lawyers Title of Nevada, Inc. Nevada
Lawyers Title of El Paso, Inc. Virginia
Its Subsidiary:
Database Access, Inc. Texas
Lawyers Title of North Carolina, Inc. Virginia
Lawyers Title of Pueblo, Inc. Colorado
Lawyers Title Realty Services, Inc. Virginia
Monroe County Abstract Co. Michigan
New Mexico Title Company New Mexico
Oregon Title Insurance Company Oregon
Portland Financial Services Corporation Oregon
Real Estate Title Company, Incorporated Maryland
Real Title Company, Inc. Virginia
RealServe Company, Inc. Virginia
Richmond Company, Inc. Michigan
Rio Rancho Title, Inc. New Mexico
St. Clair County Abstract Co. Michigan
Tamiami Abstract & Title Co. Florida
The Title Guarantee & Trust Company Ohio
Title Investors Group, Inc. Texas
Its Subsidiaries:
Land Title Insurance Company California
Title Insurance Company of America Tennessee
Its Subsidiaries:
Lawyers Title of Columbia, Inc. Tennessee
Mid-South Title Company of Central Arkansas, Inc. Arkansas
Mid-South Title Co. of Central Arkansas, Inc. Arkansas
Mid-South Title Corporation Tennessee
Rutherford County Title Insurance Co. Tennessee
<PAGE>
Subsidiaries State of Incorporation
------------ ----------------------
Transnation Title Insurance Company Arizona
Its Subsidiaries:
Transnation Title & Escrow, Inc. Delaware
Transnation Title Insurance Company of New York New York
Title Transfer Services, Inc. Colorado
Xenia Property Company Pennsylvania
</TABLE>
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the following registration
statements of LandAmerica Financial Group, Inc., Forms S-8 Nos. 333-59055,
333-02884, 33-49624, 33-43811, 33-42916 and S-3 Nos. 333-46211 and 333-46191 and
in the prospectus related to each, of our report dated February 23, 1999, with
respect to the consolidated financial statements and schedules of LandAmerica
Financial Group, Inc. included in the Annual Report (Form 10-K) for the year
ended December 31, 1998.
/s/ Ernst & Young LLP
Richmond, Virginia
March 23, 1999
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<DEBT-HELD-FOR-SALE> 774,856
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 4,204
<MORTGAGE> 11,613
<REAL-ESTATE> 0
<TOTAL-INVEST> 895,465
<CASH> 69,235
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 1,692,358
<POLICY-LOSSES> 521,894
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 207,792
0
175,700
<COMMON> 382,828
<OTHER-SE> 212,661
<TOTAL-LIABILITY-AND-EQUITY> 1,692,358
1,799,534
<INVESTMENT-INCOME> 49,336
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 0
<BENEFITS> 93,563
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 1,609,005
<INCOME-PRETAX> 146,302
<INCOME-TAX> 53,274
<INCOME-CONTINUING> 93,028
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 86,526
<EPS-PRIMARY> 6.13
<EPS-DILUTED> 5.05
<RESERVE-OPEN> 202,477
<PROVISION-CURRENT> 114,833
<PROVISION-PRIOR> (21,270)
<PAYMENTS-CURRENT> 4,155
<PAYMENTS-PRIOR> 46,103
<RESERVE-CLOSE> 521,894
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
