SCHEDULE 14A
(Rule 14a-101)
Information Required in Proxy Statement
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. 1)
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, For Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
FIRSTMARK CORP.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: Common
Stock, par value $5.00 per share, of Investors Southern
Corporation
(2) Aggregate number of securities to which transaction applies: 499
shares of Common Stock of Investors Southern
Corporation
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): $6,750,000,
representing the cash payment to be received by the Registrant for all
shares of Common Stock of Investors Southern
Corporation
(4) Proposed maximum aggregate value of transaction:
$6,750,000
(5) Total fee paid:
$1,350
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
..............................................................
(2) Form, Schedule or Registration Statement no.:
..............................................................
(3) Filing Party:
..............................................................
(4) Date Filed:
..............................................................
FIRSTMARK CORP.
P.O. Box 1398
Richmond, Virginia 23218
(804) 648-9048
SPECIAL MEETING OF SHAREHOLDERS
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders
of Firstmark Corp. (the "Company") to be held at the office of Southern Title
Insurance Corporation, One James Center, 901 East Cary Street, 17th Floor,
Richmond, Virginia 23219, on Wednesday, February 17, 1999 at 9:00 a.m.
At the Special Meeting, you will be asked to elect three directors for
terms of one year each. In addition, you will be asked to consider and vote to
approve the Stock Purchase Agreement by and among the Company, Southern Capital
Acquisition Corporation, a Virginia corporation ("SCAC"), Investors Southern
Corporation, a Virginia corporation ("ISC"), and Southern Title Insurance
Corporation, a Virginia insurance company, and Old Guard Group, Inc., a
Pennsylvania corporation ("Old Guard"), dated as of December 2, 1998 (the "Stock
Purchase Agreement"), pursuant to which the Company and SCAC will sell to Old
Guard, and Old Guard will buy from the Company and SCAC, all of ISC's
outstanding capital stock in exchange for cash and contingent consideration (the
"Transaction"), all on the terms and conditions set forth in the Stock Purchase
Agreement. Enclosed with this letter is a formal notice of the Special Meeting,
a Proxy Statement, which describes the Transaction in further detail, and a form
of proxy.
The Board of Directors of the Company unanimously approved the
Transaction and recommends that all of the shareholders of the Company vote for
the Transaction.
Whether or not you plan to attend the Special Meeting, it is important
that your shares be represented and voted. Please complete, sign, date and
return the enclosed proxy promptly using the enclosed postage-paid envelope. The
enclosed proxy, when returned properly executed, will be voted in the manner
directed in the proxy.
We hope that you will participate in the Special Meeting, either in
person or by proxy.
Sincerely,
Donald V. Cruickshanks
President and Chief Executive Officer
Richmond, Virginia
January 28, 1999
FIRSTMARK CORP.
P.O. Box 1398
Richmond, Virginia 23218
-------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
-------------------
A Special Meeting of Shareholders (the "Special Meeting") of Firstmark
Corp. (the "Company") will be held on Wednesday, February 17, 1999 at 9:00 a.m.
at the office of Southern Title Insurance Corporation, One James Center, 901
East Cary Street, 17th Floor, Richmond, Virginia, for the following purposes:
1. To elect three directors to serve for terms of one year each
expiring at the 1999 annual meeting of shareholders.
2. To consider and vote to approve the Stock Purchase Agreement
by and among the Company, Southern Capital Acquisition
Corporation, a Virginia corporation ("SCAC"), Investors
Southern Corporation, a Virginia corporation ("ISC"), and
Southern Title Insurance Corporation, a Virginia insurance
company, and Old Guard Group, Inc., a Pennsylvania
corporation ("Old Guard"), dated as of December 2, 1998 (the
"Stock Purchase Agreement"), pursuant to which the Company
and SCAC will sell to Old Guard, and Old Guard will buy from
the Company and SCAC, all of ISC's outstanding capital stock
in exchange for cash and contingent consideration, all on
the terms and conditions set forth in the Stock Purchase
Agreement (the "Transaction"). A copy of the Stock Purchase
Agreement is enclosed with the accompanying Proxy Statement
as Appendix A.
3. To act upon such other matters as may properly come before
the Special Meeting.
SHAREHOLDERS ARE ENTITLED TO ASSERT DISSENTERS' RIGHTS UNDER SECTION
909 OF THE MAINE BUSINESS CORPORATION ACT, A COPY OF WHICH IS ATTACHED TO THE
PROXY STATEMENT AS APPENDIX C. SHAREHOLDERS DISSENTING TO THE PROPOSED
TRANSACTION ARE ENTITLED, UPON COMPLIANCE WITH SECTION 909, TO BE PAID THE FAIR
VALUE OF THEIR SHARES OF COMMON STOCK.
Only holders of shares of Common Stock of record at the close of
business on January 22, 1999, the record date fixed by the Board of Directors of
the Company, are entitled to notice of, and to vote at, the Special Meeting.
By Order of The Board of Directors
Ronald C. Britt
Secretary
January 28, 1999
YOU ARE CORDIALLY INVITED TO ATTEND THIS MEETING. IT IS IMPORTANT THAT YOUR
SHARES BE REPRESENTED REGARDLESS OF THE NUMBER YOU OWN. EVEN IF YOU PLAN TO BE
PRESENT, YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY
PROMPTLY IN THE ENVELOPE PROVIDED. IF YOU ATTEND THIS MEETING, YOU MAY VOTE
EITHER IN PERSON OR BY YOUR PROXY. ANY PROXY GIVEN MAY BE REVOKED BY YOU IN
WRITING OR IN PERSON AT ANY TIME PRIOR TO THE EXERCISE THEREOF.
FIRSTMARK CORP.
P.O. Box 1398
Richmond, Virginia 23218
PROXY STATEMENT
This Proxy Statement is furnished to holders of the common stock, par
value $0.20 per share (the "Common Stock"), of Firstmark Corp. (the "Company"),
in connection with the solicitation of proxies by the Board of Directors of the
Company to be used at a Special Meeting of Shareholders (the "Special Meeting")
to be held Wednesday, February 17, 1999 at 9:00 a.m. at the office of Southern
Title Insurance Corporation, One James Center, 901 East Cary Street, 17th Floor,
Richmond, Virginia, and any duly reconvened meeting after adjournment thereof.
At the Special Meeting, the holders of Common Stock will be asked to
elect three directors for terms of one year each. In addition, holders of Common
Stock will be asked to consider and vote to approve the Stock Purchase Agreement
by and among the Company, Southern Capital Acquisition Corporation, a Virginia
corporation ("SCAC"), Investors Southern Corporation, a Virginia corporation
("ISC"), and Southern Title Insurance Corporation, a Virginia insurance company
("STIC"), and Old Guard Group, Inc., a Pennsylvania corporation ("Old Guard"),
dated as of December 2, 1998 (the "Stock Purchase Agreement"). Pursuant to the
Stock Purchase Agreement, the Company and SCAC will sell to Old Guard and Old
Guard will buy from the Company and SCAC all of ISC's outstanding capital stock
in exchange for cash and contingent consideration, all on the terms and
conditions set forth in the Stock Purchase Agreement (the "Transaction"). ISC
owns all of the capital stock of STIC, the Company's primary operating
subsidiary and, following the consummation of the Transaction, ISC and STIC will
become subsidiaries of Old Guard.
The purchase price payable to the Company by Old Guard upon
consummation of the Transaction is $6.75 million. In addition, SCAC will also be
entitled to receive additional cash payments based on the pre-tax net income of
ISC and its subsidiaries, including STIC, for each of the fiscal years ending
December 31, 1999, 2000 and 2001. See "The Transaction." A copy of the Stock
Purchase Agreement is attached to this Proxy Statement as Appendix A. The
summary of the Stock Purchase Agreement set forth in this Proxy Statement does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, the text of the Stock Purchase Agreement. See "The Stock
Purchase Agreement."
Shareholders are entitled to assert dissenters' rights with respect to
the Transaction under Section 909 of the Maine Business Corporation Act (the
"MBCA"). In order for a shareholder to perfect dissenters' rights, a notice must
be sent to the Company before the vote is taken on the Stock Purchase Agreement
at the Special Meeting, and the shareholder must not vote in favor of the
Transaction by proxy or otherwise. See "The Transaction - Rights of Dissenting
Shareholders."
The Company's Board of Directors has approved the nominees for election
to the board and the Stock Purchase Agreement and has determined that the
election and the Transaction are in the best interests of the Company and its
shareholders and recommends that the shareholders vote "FOR" approval of these
proposals at the Special Meeting.
This proxy statement is being mailed to registered holders of Common
Stock on or about January 28, 1999.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549-1004, and
at the following Regional Offices of the Commission: New York Regional Office, 7
World Trade Center, Suite 1300, New York, New York 10048 and Chicago Regional
Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such materials can also be obtained by mail from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549-1004, at prescribed rates. The Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy statements and other
information regarding registrants, such as the Company, that file electronically
with the Commission.
No person is authorized to give any information or to make any
representation not contained or incorporated by reference in this Proxy
Statement, and, if given or made, such information or representation should not
be relied upon as having been authorized by the Company. The delivery of this
Proxy Statement shall not, under any circumstances, create an implication that
there has been no change in the affairs of the Company or the information set
forth herein since the date of this Proxy Statement.
FORWARD-LOOKING STATEMENTS
Certain statements in this Proxy Statement may constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Among other things, these statements relate to
the financial conditions, results of operations and businesses of the Company
and STIC. Although the Company believes that its expectations with respect to
certain forward-looking statements are based upon reasonable assumptions within
the bounds of its and STIC's business and operations, there can be no assurance
that actual results, performance or achievements of the Company will not differ
materially from any future results, performance or achievements expressed or
implied by such forward-looking statements.
In connection with the Transaction, factors that may cause actual
results to differ materially from those contemplated by such forward-looking
statements include the following: (i) revenues of STIC following the Transaction
are lower than expected; (ii) competitive pressure in the title insurance
industry increases significantly; (iii) general economic conditions, either
nationally or in one or more of the states in which STIC will conduct business,
are less favorable than expected; or (iv) legislation or regulatory changes
adversely affect the businesses conducted by the Company.
In connection with the title insurance industry in general, factors
that may cause actual results to differ materially from those contemplated by
such forward-looking statements include the following: (i) the costs of
producing title evidence are relatively high, whereas premium revenues are
subject to regulatory and competitive restraints; (ii) the amount of title
insurance business available is influenced by housing starts, housing resales
and commercial real estate transactions; (iii) real estate activity levels have
historically been cyclical and are influenced by such factors as interest rates
and the condition of the overall economy; (iv) the value of the Company's
investment portfolio is subject to fluctuation based on similar factors; (v) the
title insurance industry may be exposed to substantial claims by large classes
of claimants; and (vi) the industry is regulated by state laws that require the
maintenance of minimum levels of capital
-2-
and surplus and that restrict the amount of dividends that may be paid by the
Company's insurance subsidiaries without prior regulatory approval.
The Company cautions that the foregoing lists of important factors are
not exclusive. The Company does not undertake to update any forward-looking
statement that may be made from time to time by or on behalf of the Company.
-3-
TABLE OF CONTENTS
Page
----
Available Information...............................................................2
Forward-Looking Statements..........................................................2
Voting Rights.......................................................................6
PROPOSAL ONE: ELECTION OF DIRECTORS
Election of Directors...............................................................7
Nominees for Election..........................................................7
Executive Officers Who Are Not Directors.......................................8
Security Ownership of Management and Certain Beneficial Owners.................9
Committees of the Board of Directors...........................................9
Director Compensation.........................................................10
Executive Compensation........................................................10
Stock Options.................................................................10
Employment Agreements.........................................................10
Transactions with Management..................................................11
PROPOSAL TWO: APPROVAL OF STOCK PURCHASE AGREEMENT
The Transaction....................................................................12
Description of the Transaction................................................12
Old Guard.....................................................................12
Background to the Transaction.................................................13
Reasons for the Transaction...................................................15
Effect of the Transaction on the Company's Shareholders.......................17
Comparative Per Share Data....................................................17
Opinion of the Company's Financial Advisor....................................18
Interests of Certain Persons in the Transaction...............................20
Regulatory Approvals..........................................................21
Certain Federal Income Tax Consequences.......................................22
Accounting Treatment..........................................................22
Rights of Dissenting Shareholders.............................................22
The Stock Purchase Agreement.......................................................26
Acquisition and Purchase Price................................................26
Closing Date..................................................................26
Representations and Warranties................................................26
Certain Covenants of the Parties..............................................27
Conditions to Closing.........................................................27
Amendment, Waiver and Termination.............................................28
Indemnification...............................................................29
Firstmark Corp.....................................................................30
General.......................................................................30
Legal Proceedings.............................................................30
-4-
Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................................31
Market for Common Equity and Related Shareholder Matters......................33
Pro Forma Financial Information (Unaudited)........................................35
Pro Forma Balance Sheet.......................................................36
Pro Forma Statements of Income................................................37
Independent Public Accountants.....................................................39
Proposals for 1999 Annual Meeting..................................................39
Other Matters......................................................................39
Appendix A: Stock Purchase Agreement by and among Firstmark Corp.,
Southern Capital Acquisition Corporation, a Virginia
corporation, Investors Southern Corporation, a Virginia
corporation, and Southern Title Insurance Corporation, a
Virginia insurance company, and Old Guard Group, Inc., a
Pennsylvania corporation, dated as of December 2, 1998
Appendix B: Opinion of Ferris, Baker Watts, Incorporated
Appendix C: Section 909 of the Maine Business Corporation Act
Appendix D: Interim Financial Statements for the period ended September
30, 1998
-5-
VOTING RIGHTS
The Board of Directors has fixed the close of business on January 22,
1999 as the record date (the "Record Date") for the determination of the
Company's shareholders entitled to notice of and to vote at the Special Meeting,
or any adjournment or postponement thereof. On the Record Date, there were
5,319,876 shares of Common Stock issued and outstanding. Each outstanding share
of Common Stock is entitled to one vote on all matters to be acted upon at the
Special Meeting. A majority of the shares of the Common Stock entitled to vote,
represented in person or by proxy, constitutes a quorum for the transaction of
business at the Special Meeting.
Approval of the Transaction requires the affirmative vote of the
holders of at least a majority of the outstanding shares of Common Stock. As of
the Record Date, directors and executive officers of the Company and their
affiliates owned beneficially 1,088,595 shares of Common Stock, or approximately
20.5% of the shares of Common Stock outstanding on such date. The directors and
executive officers of the Company have indicated their intention to vote their
shares of Common Stock in favor of the Transaction.
The cost of soliciting proxies for the Special Meeting will be borne by
the Company. The Company does not intend to solicit proxies otherwise than by
use of the mails, but certain officers and regular employees of the Company or
its subsidiaries, without additional compensation, may use their personal
efforts, by telephone or otherwise, to obtain proxies. The Company may also
reimburse banks, brokerage firms and other custodians, nominees and fiduciaries
for their reasonable out-of-pocket expenses in forwarding proxy materials to the
beneficial owners of shares of Common Stock.
Any shareholder who executes a proxy has the power to revoke it at any
time by written notice to the Secretary of the Company, by executing a proxy
dated as of a later date, or by voting in person at the Special Meeting. It is
expected that this Proxy Statement and the enclosed proxy card will be mailed on
or about January 28, 1999 to all shareholders entitled to vote at the Special
Meeting.
A shareholder may abstain or (only with respect to the election of
directors) withhold his vote (collectively, "Abstentions") with respect to each
item submitted for shareholder approval. Abstentions will be counted for
purposes of determining the existence of a quorum. Abstentions will not be
counted as voting in favor of the relevant item.
A broker who holds shares in "street name" has the authority to vote on
certain items when it has not received instructions from the beneficial owner.
Except for certain items for which brokers are prohibited from exercising their
discretion, a broker is entitled to vote on matters put to shareholders without
instructions from the beneficial owner. Where brokers do not have or do not
exercise such discretion, the inability or failure to vote is referred to as a
"broker nonvote." Under the circumstances where the broker is not permitted to,
or does not, exercise its discretion, assuming proper disclosure to the Company
of such inability to vote, broker nonvotes will not be counted for purposes of
determining the existence of a quorum, and also will not be counted as not
voting in favor of the particular matter.
The Board of Directors is not aware of any matters other than those
described in the Proxy Statement that may be presented for action at the Special
Meeting. However, if other matters do properly come before the Special Meeting,
the persons named in the enclosed proxy card possess discretionary authority to
vote in accordance with their best judgment with respect to such other matters.
-6-
PROPOSAL ONE
ELECTION OF DIRECTORS
Nominees for Election
The Board of Directors consists of three directors, all of whom are
nominated for election as directors at the Special Meeting.
The election of each nominee for director requires the affirmative vote
of the holders of a plurality of the shares of Common Stock cast in the election
of directors. If the proxy is executed in such manner as not to withhold
authority for the election of any or all of the nominees for directors, then the
persons named in the proxy will vote the shares represented by the proxy for the
election of the three nominees named below. If the proxy indicates that the
shareholder wishes to withhold a vote from one or more nominees for director,
such instructions will be followed by the persons named in the proxy.
Each nominee has consented to being named in this Proxy Statement and
has agreed to serve if elected. The Board of Directors has no reason to believe
that any of the nominees will be unable or unwilling to serve. If, at the time
of the Special Meeting, any nominee is unable or unwilling to serve as a
director, votes will be cast, pursuant to the enclosed proxy, for such
substitute nominee as may be nominated by the Board of Directors. There are no
current arrangements between any nominee and any other person pursuant to which
a nominee was selected. No family relationships exist among any of the directors
or between any of the directors and executive officers of the Company.
The biographical information that follows discloses each nominee's age,
business experience and the year each individual was first elected to the Board
of Directors. George H. Morison and Steven P. Settlage are being presented to
shareholders as nominees for the first time.
Donald V. Cruickshanks, 41, has been President and Chief Executive Officer of
the Company since January 24, 1997 and has been a Director since June
1996.
Mr. Cruickshanks served as President of Southern Capital Corp. ("SCC")
from 1992 through 1996, and has served as President and Chief Executive
Officer of STIC since 1984. Mr. Cruickshanks is also Chairman of STIC.
Mr. Cruickshanks is also President of Southern Abstractors Corporation,
Southern Title Agency Corporation, Glasgow Enterprises Corp. and
Southern Title Services, Inc., all of which are subsidiaries of ISC. He
received his undergraduate degree from Randolph Macon College in 1979.
George H. Morison, 54, has been a director since November 1998.
Mr. Morison has served as President and Chief Operating Officer of
Patient First Corporation, a provider of primary medical care based in
Richmond, Virginia, since 1986. Mr. Morison received his undergraduate
degree from the University of Virginia in 1968 and his M.A. from
Virginia Polytechnic Institute & State University in 1977.
Steven P. Settlage, 47, has been a director since May 1998.
Mr. Settlage has served as President and Director of Rowe Development
Company, a commercial real estate development company in Richmond,
Virginia, since 1988, as President and Director of Phoenix Ventures,
Ltd., a real estate investment and consulting firm in Richmond,
Virginia, since 1992, and as President and Director of Tascon Group,
Inc., a residential real estate development
-7-
company in Richmond, Virginia, since 1996. From 1995 to 1997, he also
served as Chairman of Zone Management, Inc., an entertainment company
in Richmond, Virginia. Mr. Settlage received his undergraduate degree
from Vanderbilt University and his J.D. degree from Washington and Lee
University.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE NOMINEES
SET FORTH ABOVE.
Executive Officers Who Are Not Directors
Ronald C. Britt, 46, has been Chief Financial Officer and Treasurer of
the Company since May 1997. Prior to his engagement by the Company, Mr. Britt
was self-employed as an accounting and business consultant. He is a certified
public accountant and has over 15 years experience in public accounting. Mr.
Britt is a 1974 graduate of the University of Virginia.
-8-
Security Ownership of Management and Certain Beneficial Owners
The following table sets forth certain information regarding the
beneficial ownership of Common Stock as of January 22, 1999 by (i) each person
who is known to the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock, (ii) each nominee and director of the
Company, and (iii) all of the directors and executive officers of the Company as
a group. For the purposes of the following table, beneficial ownership has been
determined in accordance with the provisions of Rule 13d-3 under the Exchange
Act, under which, in general, a person is deemed to be a beneficial owner of a
security if he or she has or shares the power to vote or direct the voting of
the security or the power to dispose or direct disposition of the security, or
if he or she has the right to acquire beneficial ownership of the security
within 60 days. Except as otherwise indicated (i) each stockholder identified in
the table possesses sole voting and investment power with respect to his shares,
and (ii) the mailing address of each individual is Firstmark Corp., P.O. Box
1398, Richmond, Virginia 23218.
Name Common Stock Percent
- ---- ------------ -------
Donald V. Cruickshanks 1,065,995 20.1%
George Morison 10,000 0.2%
Steven P. Settlage 12,600 0.2%
All Directors and executive officers as a
group (4 persons) 1,088,595 20.5%
The H. William Coogan Irrevocable Trust 1,162,903 21.9%
Susan C. Coogan (1)
c/o Davenport & Company LLC
P.O. Box 85678
Richmond, Virginia 23285
H. William Coogan, Jr. 1,001,389 18.9%
1251 Avenue of the Americas, 51st Floor
New York, New York 10020
- ----------
(1) Ms. Coogan is sole trustee of The H. William Coogan Irrevocable Trust.
Committees of the Board of Directors
There were four meetings of the Board of Directors in 1998. Each
director attended greater than 75% of the aggregate number of meetings of the
Board of Directors and meetings of committees of which the director was a member
in 1998.
The Audit Committee of the Board of Directors was created on February
20, 1998 and currently consists of Messrs. Cruickshanks, Morison and Settlage
and is responsible for reviewing the scope and results of the annual audit of
the Company, reviewing the internal accounting and control systems and reviewing
and recommending the auditors to be appointed by the Board of Directors. The
Company does not have a standing nominating or compensation committee.
-9-
Director Compensation
Messrs. Morison and Settlage will receive a fee of $500 for each
meeting of the Board of Directors that they attend, including travel expenses.
Messrs. Morison and Settlage also received grants of 10,000 shares of Common
Stock each for their service as directors and as consultants to the Company
prior to their respective appointments to the Board of Directors. Mr.
Cruickshanks does not receive any compensation for his service on the Board of
Directors.
Executive Compensation
The following table summarizes the compensation paid or accrued to the
Chief Executive Officer of the Company for the last three fiscal years in all
capacities in which he served the Company and its subsidiaries.
Summary Compensation Table
Annual Compensation
-------------------
Name and Other Annual
Principal Position Year Salary ($) Bonus ($) Compensation
- ------------------ ---- ---------- --------- ------------
Donald V. Cruickshanks, President 1998 140,000 61,637 (4)
and Chief Executive Officer (1) 1997 135,000 6,436 (4)
1996 (2) 68,282 - (4)
1996 (3) 126,975 - (4)
- ----------
(1) Mr. Cruickshanks was elected President and Chief Executive Officer on
January 24, 1997. Prior to January 24, 1997, he served as President of
SCC. SCC merged with and into a subsidiary of the Company on June 7,
1996. Mr. Cruickshanks also serves as President and Chief Executive
Officer of STIC.
(2) Six months ended December 31, 1996.
(3) Fiscal year ended June 30, 1996.
(4) The value of perquisites and other personal benefits did not exceed the
lesser of $50,000 or 10% of the total annual salary and bonus shown in
the table.
The executive officers of the Company participate in other benefit
plans provided to all full-time employees of the Company who meet eligibility
requirements, including group life insurance, hospitalization and major medical
insurance.
Stock Options
There were no stock options granted to or exercised by the executive
officer named in the "Summary Compensation Table" above during the year ended
December 31, 1998.
Employment Agreements
STIC and Donald V. Cruickshanks, the President and Chief Executive
Officer and a Director of the Company, are parties to an employment agreement
for a term commencing January 2, 1998, and terminating December 31, 2000. The
agreement provides for his employment as President and Chief Executive Officer
of STIC. Under the agreement, Mr. Cruickshanks is entitled to base compensation
of $140,000 per year, with an increase in compensation of $5,000 per year. Mr.
Cruickshanks is entitled
-10-
further to receive additional compensation in an amount up to 10% of the annual
after-tax profits of STIC. Mr. Cruickshanks may terminate his employment at any
time by giving STIC 30 days' notice of such termination.
As a condition to the obligations of the Company and Old Guard under
the Stock Purchase Agreement, Mr. Cruickshanks must enter into a new employment
agreement with STIC and Old Guard for the period from January 1, 1999 through
December 31, 2001. Such employment agreement will supercede Mr. Cruickshanks'
current employment agreement with STIC upon the consummation of the Transaction.
See "The Transaction - Interests of Certain Persons in the Transaction."
Transactions with Management
The Company obtains certain related party receivables and payables in
the normal course of business and through advances for accommodation. In
addition, the Company has certain loans receivable from related parties at terms
consistent with those provided to other customers. The loans are substantially
secured by real estate mortgages. The balances at September 30, 1998 that
reflected advances and loans to former employees of Firstmark Financial Services
(formerly Financial Capital Corp.), a subsidiary of the Company until January
24, 1997, amounted to $37,304.
Prior to January 24, 1997, the Company leased its executive and
administrative offices, consisting of approximately 4,000 square feet of
commercial space, from the Pinnacle Investment Group ("Pinnacle"), a group
consisting of four individuals, one of whom was an officer of the Company at the
time that the lease was signed. This facility was leased from Pinnacle under a
fifteen year lease terminating on December 31, 2003. The lease was renewable and
negotiable after five years. Effective January 24, 1997, Firstmark Financial
Services (formerly Financial Capital Corp.), a former subsidiary of the Company,
assumed the lease obligation. The Company owned the parcel of land on which its
administrative offices were located. On January 27, 1997, Pinnacle purchased the
land for $55,000.
-11-
PROPOSAL TWO
APPROVAL OF STOCK PURCHASE AGREEMENT
THE TRANSACTION
The following information relating to the Transaction is qualified in
its entirety by reference to the other information contained elsewhere in this
Proxy Statement, including the Appendices hereto, and the documents incorporated
herein by reference. A copy of the Stock Purchase Agreement is attached as
Appendix A to this Proxy Statement and reference is made thereto for the
complete terms of the transaction. Shareholders are urged to read the Stock
Purchase Agreement and each of the other Appendices hereto carefully.
Description of the Transaction
The Company is the parent company of SCAC, which owns all of the
outstanding shares of the capital stock of ISC. ISC is a holding company and
owns all of the outstanding shares of the capital stock of STIC, a title
insurance company, as well as several other entities conducting activities
related to the title insurance and settlement business. Pursuant to the terms of
the Stock Purchase Agreement, Old Guard will purchase all of the outstanding
shares of ISC's capital stock held by SCAC in exchange for cash. As a result,
ISC and STIC, the Company's principal operating subsidiary, will become wholly
owned subsidiaries of Old Guard.
The purchase price to be paid by Old Guard consists of two components:
cash paid upon the consummation of the Transaction and a three year earn-out to
be paid, if earned, in cash in 2000, 2001 and 2002. Upon the consummation of the
Transaction, Old Guard will pay to SCAC $6.75 million by wire transfer of
immediately available funds. In addition, in 2000, 2001 and 2002, SCAC will
receive additional cash payments based on the pre-tax net income of ISC and its
subsidiaries, including STIC, for each of the fiscal years ending December 31,
1999, 2000 and 2001. Such earn-out payments will be paid in cash within 90 days
following the end of each such fiscal year and will be in an amount equal to 25%
of (i) the pre-tax net income of ISC and its subsidiaries, including STIC, for
such fiscal year less (ii) the cumulative net loss of ISC and its subsidiaries
during all such prior fiscal years.
Pursuant to the Stock Purchase Agreement, Old Guard has agreed to
continue to operate ISC and its subsidiaries in a manner that is consistent with
past practice. In addition, Old Guard has agreed that, when determining ISC's
pre-tax net income, it will not allocate against the revenues of ISC and its
subsidiaries any liabilities or expenses that did not arise in the ordinary
course of business. Finally, Old Guard has agreed that it will not transfer any
of the business operations of ISC and its subsidiaries to itself or one of its
own subsidiaries or sell, assign or otherwise transfer the business of ISC and
its subsidiaries to a third party, whether by sale of assets or stock, merger or
otherwise.
The MBCA entitles any of the Company's shareholders to exercise his or
her dissenters' rights with respect to the Transaction. See "- Rights of
Dissenting Shareholders."
Old Guard
Old Guard was incorporated under the laws of the Commonwealth of
Pennsylvania in May 1996 for the purpose of serving as a holding company for Old
Guard Insurance Company, Old Guard Fire Insurance Company, and First Patriot
Insurance Company (collectively, the "Insurance Companies"). On
-12-
February 11, 1997, Old Guard became a holding company for the Insurance
Companies upon the completion of their conversion from Pennsylvania mutual
insurance companies to Pennsylvania stock insurance companies and the
simultaneous acquisition of the capital stock of each of the Insurance Companies
by Old Guard pursuant to a Joint Plan of Conversion adopted by the Boards of
Directors of Old Guard and the Insurance Companies on May 31, 1996, as amended
and restated on July 19, 1996 and January 10, 1997.
Old Guard's executive offices are located at 2929 Lititz Pike,
Lancaster, Pennsylvania 17601, and its main telephone number is (717) 569-5361.
Background to the Transaction
Through STIC, the Company is principally engaged in the business of
issuing title insurance. STIC, through affiliate companies, also holds joint
venture interests in title insurance agencies that operate in STIC's primary
markets. The Company makes venture capital and real estate investments either in
the form of pure equity investments or in the form of loans with an equity
participation feature. Until January 24, 1997, former subsidiaries of the
Company traded public stocks and bonds and provided financial consulting
services to individuals and institutions.
In June 1996, the Company acquired STIC through the merger of Southern
Capital Corp. ("SCC"), the parent company of ISC, with and into SCAC, a
subsidiary created by the Company to effect the merger. The Company's
acquisition of STIC quadrupled its revenues and doubled its assets, as the
Company sought to grow by acquisition. The primary goal of the shareholders of
SCC was to diversify their holders out of the title insurance business. In
addition, they sought to create public ownership of STIC, whereby it could
obtain additional resources to promote growth and expansion. The shareholders of
SCC, which included Mr. Cruickshanks, received shares of the Company's Series A
Preferred Stock, which were convertible into shares of Common Stock, in
connection with the merger and became directors of the Company.
Following the acquisition of SCC and STIC, the Company's management and
new directors began a close examination of the Company's operations and
investments to determine resources available to promote the Company's continued
growth and to map out a plan to maximize shareholders' equity. Management
reviewed the Company's significant venture capital and real estate investments,
as well as the equity and other investments in micro-cap stocks and start-up
companies. The result of the review was the realization that the quality of many
of these assets were questionable and that they were not easily liquidated so
that the funds could be put to other use, as needed. The value of a number of
the Company's venture capital investments and loans to several start-up
companies, where the future value and collectibility of such amounts were
uncertain, had to be written down or completely written off. In addition, in
December 1996 and January 1997, the Company closed or transferred several of its
operations and subsidiaries that were operating unprofitably. The remaining
assets of the Company were venture capital and real estate investments, which
were not liquid, and STIC, as the primary operating unit.
Although STIC was profitable for the year ended December 31, 1997 and
the nine months ended September 30, 1998, the Company was unable, for regulatory
reasons, to access the capital resources that were available at the subsidiary
level to improve the liquidity of the Company. As a title insurance company
domiciled in Virginia, STIC is subject to regulations that require it to
maintain minimum statutory capital and surplus. Additionally, STIC is required
by state statute to maintain assets of a statutorily defined quality in an
amount equal to its total liabilities, determined on a statutory basis, plus an
additional amount equal to 50% of statutory equity. State regulations also limit
the types of investments
-13-
that STIC can make to relatively secure investments, which traditionally have
low yields. Such regulatory mandates make the payment of a dividend to the
Company or the use of available funds to promote the Company's growth difficult.
In August 1997, the Board of Directors instructed Donald V.
Cruickshanks, President and Chief Executive Officer, to retain a financial
advisor to explore strategic business and financial alternatives for STIC. On
September 2, 1997 the Company engaged Ferris, Baker Watts, Incorporated ("FBW")
to advise and assist the Company in this task. FBW contacted potential acquirers
by phone and formally sent an executive summary or a discussion memorandum to
certain acquirers to initiate a sale transaction for STIC. These potential
acquirers included national and regional title insurance companies, property and
casualty insurance companies, financial institutions, real estate developers and
brokers, other synergistic acquirers and financial buyers. During FBW's
preliminary discussions with interested acquirers, it became clear that Old
Guard was willing to offer the best price and terms for the purchase of STIC.
As a result of FBW's effort, Old Guard became interested in
investigating the acquisition of STIC in early 1998. As described above, Old
Guard was not engaged in the title insurance business and was interested in
adding profitable operations in other areas to offset the vulnerability to
certain risks inherent in the property and casualty lines of insurance,
including the size and frequency of claims, escalating damage awards and natural
disasters. From early 1998 through August 1998, the managements of the Company
and Old Guard worked together to discuss and examine all aspects of the
potential acquisition of STIC. During this time, the managements focused on the
potential integration of the operations of Old Guard and STIC and the resulting
economic effects, the performance of due diligence reviews and the basic terms
of a proposed transaction. The investigation of these matters resulted in a
formal offer for the acquisition of STIC, which was negotiated over the period
beginning on September 23, 1998 until its execution. During this time,
representatives of the Company and Old Guard, together with their respective
legal and financial advisors, consulted frequently to identify and resolve open
issues and to negotiate the final terms of the Stock Purchase Agreement.
A meeting of the Board of Directors of the Company was held on December
1, 1998 to consider the Stock Purchase Agreement and the transactions
contemplated thereby. At this meeting, presentations on the Transaction were
made to the Company's Board of Directors by members of the senior management of
the Company; the Company's legal advisors reviewed the terms of the Stock
Purchase Agreement and advised the Board of Directors of required corporate and
governmental approvals; and FBW made a presentation regarding its financial
analysis of the transaction and delivered its written opinion to the Company's
Board of Directors that, as of the date of such opinion and based upon and
subject to the matters stated therein, the consideration to be paid to the
Company pursuant to the Stock Purchase Agreement was fair, from a financial
point of view, to the holders of Common Stock. After discussion and
consideration of the terms of the Stock Purchase Agreement and transactions
contemplated thereby, the Company's Board of Directors approved the terms of the
Stock Purchase Agreement and authorized the execution of the Stock Purchase
Agreement.
The parties then proceeded, following approval by the Board of
Directors of Old Guard and finalization of the documents, to execute the Stock
Purchase Agreement on December 2, 1998, subject to shareholder and regulatory
approvals and satisfaction of all conditions set forth in the Stock Purchase
Agreement. Thereafter, on December 3, 1998, the Company and Old Guard publicly
announced that they had agreed to the acquisition by Old Guard of ISC and STIC.
-14-
Reasons for the Transaction
The primary reasons that the Board of Directors approved the
Transaction are the availability of new capital resources to the Company and the
resulting flexibility to the Company with respect to future strategic planning.
The Board of Directors also considered other factors in determining to approve
the Transaction, which factors are described in further detail below.
Prior to the merger of SCC and SCAC in June 1996, the Company's
previous management had made several investments in start-up companies that
resulted in losses to the Company. As a result, the Company experienced
unprofitable operations. While STIC has shown recent profitability, the Company
was unable to improve its liquidity position with capital resources that may be
available from STIC. As described above, insurance regulations limit the amount
of capital that the Company is able to access from STIC. As a result, such
limitations limit further the ability of the Company's management to execute any
future strategic planning, other than to deal with its current assets as
efficiently as possible. While STIC's profitability may provide accessible
resources to the Company in the future, such profitability can be cyclical due
to the nature of title insurance operations.
In addition, on March 1, 1999, $485,000 of the Company's 9.0%
convertible notes (the "Convertible Notes") will become due. While the Company
currently has an available line of credit in an amount of up to $500,000, the
Company has borrowed from time to time against this line of credit, and the
available balance thereunder is not likely to be sufficient to satisfy the
payments that will be required to be made to the holders of such Convertible
Notes. In addition, even if the available balance were sufficient to satisfy
such payments, the Company would have to obtain written approval from its lender
prior to using any amounts to satisfy term debt, which would include the
Convertible Notes. There is currently no expectation that the payment terms of
the Convertible Notes can be restructured prior to the required payments. See
"Firstmark Corp. - Management's Discussion and Analysis of Financial Condition
and Results of Operations."
As a result of the Transaction, additional capital resources will be
available to the Company. Following the consummation of the Transaction, the
Company will receive $6.75 million in cash (minus transaction and other costs
estimated to total $565,000), with additional earn-out payments possible for
each of the next three fiscal years. In addition, this additional capital will
allow the Board of Directors to examine its plans for 1999 and beyond, without
regulatory limitations on the use of its capital resources.
The Board of Directors will use a certain amount of the capital to pay
off $485,000 of the Convertible Notes that will be due March 1, 1999. While the
Board of Directors has not given formal consideration to any additional plans,
the Board of Directors expects that such consideration will include new and
different venture capital or other investments, the pursuit of strategic
alliances or acquisitions of new operating subsidiaries, or the liquidation of
the Company. Until such time as the Company makes a final determination as to
the use of the consideration, it expects to invest the proceeds of the
Transaction in short-term certificates of deposit, money market funds or other
short-term, investment-grade, interest-bearing investments.
The Company's Board of Directors also considered the material factors
described below in reaching its determination to approve the Transaction and the
Stock Purchase Agreement, and the transactions contemplated thereby. Due to the
variety of factors that the Board of Directors considered in connection with its
evaluation of the Transaction and the Stock Purchase Agreement, the Board of
Directors did not consider it practicable to, nor did it attempt to, quantify or
otherwise assign relative weights to these material factors. After it examined
all of the following factors both individually and taken
-15-
together, the Board of Directors determined that the Transaction and the Stock
Purchase Agreement were in the best interests of the Company and its
shareholders.
o The Board of Directors reviewed the historical and current financial
condition, results of operations, prospects, and business of the
Company as well as the future prospects of the Company absent a
transaction such as the Transaction.
o The Board of Directors considered the Company's potential for
development of new opportunities, the risk that such opportunities
might not materialize, the fact that the Company could be required to
increase substantially its borrowings and to seek new infusions of
capital in order to benefit from such opportunities, and the increased
risk associated with financing and developing any such opportunity.
o Representatives of FBW made a presentation to the Board of Directors at
its December 1, 1998, meeting and delivered the FBW Opinion that, as of
December 1, 1998, and based upon and subject to the assumptions,
limitations, and qualifications set forth in such opinion, the
consideration to be paid to the Company in connection with the
Transaction is fair to the Company's shareholders from a financial
point of view. See "- Opinion of the Company's Financial Advisor."
o The Board of Directors considered current market conditions in the
title insurance industry, historical market prices, and trading
information for shares of Common Stock.
o There was a general perception in the market, which the Company's
management confirmed in discussions with various investment bankers,
that the environment for insurance company mergers and acquisitions was
particularly strong in 1998.
o Based on the analysis of the Company, the insurance industry, and the
market generally by the Company's management, the Company's financial
advisor contacted potential buyers directly and had preliminary
discussions with certain buyers, resulting in the proposal from Old
Guard, who was willing to offer the best price and terms for the
purchase of STIC.
o The Stock Purchase Agreement is the result of arm's-length negotiations
with Old Guard and includes Old Guard's agreement to pay approximately
$6.75 million dollars in cash to the Company, plus 25% of ISC's pre-tax
net income for the next three fiscal years, as consideration for the
Transaction.
o The Stock Purchase Agreement limits the Company's ability to consider
other proposals, which could be more attractive.
o The Transaction is subject to regulatory approvals, including the
approval of the Virginia Bureau of Insurance. Any delays in obtaining
such approvals could prevent the timely consummation of the Transaction
and result in additional expenditures by the Company. See "--
Regulatory Approvals."
o The Board of Directors concluded that the various matters described
under "Interests of Certain Persons in the Transaction" do not outweigh
or materially detract from the benefits of the Transaction to the
Company.
-16-
o The Transaction will benefit the Company's other constituencies,
including its employees and customers, since STIC will be purchased
intact by Old Guard, which is a larger company with greater financial
resources. Old Guard by agreement will provide an additional $750,000
to STIC's capital and surplus after the Transaction is closed.
Based on the foregoing, the Board of Directors believes that the
Transaction is in the best interests of the Company and its shareholders and
recommends that the shareholders vote "FOR" approval of the Stock Purchase
Agreement and the transactions contemplated thereby.
Effect of the Transaction on the Company's Shareholders
If the Transaction is consummated, the Company's shareholders will
retain their equity interest in the Company, and the Transaction will not result
in any changes in the rights of the Company's shareholders.
Comparative Per Share Data
The following table sets forth income, cash dividends and book value
per share of Common Stock on a historical basis and on a pro forma basis. Pro
forma information gives effect to the Transaction and reflects certain
assumptions described in the notes to the unaudited Pro Forma Financial
Information. The data set forth below should be read in conjunction with the
audited and unaudited consolidated historical financial statements of the
Company, including the notes thereto, which are contained in the Company's
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1997 (the
"Annual Report"), which was filed with the Commission on April 20, 1998, and
attached to this Proxy Statement as Appendix D, and the unaudited Pro Forma
Financial Information, including the notes thereto, appearing elsewhere in this
Proxy Statement. See "Pro Forma Financial Information (Unaudited)." A copy of
the Annual Report, including financial statements, is being mailed to the
Company's shareholders with this Proxy Statement. The financial information
contained in the Annual Report is incorporated by reference into this Proxy
Statement.
Nine Months Ended Year Ended
September 30, 1998 December 31, 1997
------------------ -----------------
(Per Common Share)
Income (Loss):
Historical per common share and common share
equivalent - basic and diluted................ $ 0.03 $ (0.26)
Pro forma per common share and common share
equivalent - basic and diluted (1)............ (0.06) (0.23)
Dividends:
Historical...................................... 0.00 0.00
Pro forma (1)................................... 0.00 0.00
Book Value (at end of period):
Historical...................................... 1.68
Pro forma (1)................................... 1.09
- ----------
(1) See "Pro Forma Financial Information (Unaudited)."
-17-
Opinion of the Company's Financial Advisor
The Company retained Ferris, Baker Watts, Incorporated ("FBW") to act
as its financial advisor in connection with the Transaction. FBW was also
retained to render a written opinion to the Company's Board of Directors as to
the fairness, from a financial point of view, to the holders of the Common Stock
of the consideration to be paid to the Company and SCAC by Old Guard under the
Stock Purchase Agreement.
On December 1, 1998, FBW delivered to the Company's Board of Directors
its opinion, to the effect that, as of the date of such opinion and based upon
and subject to certain matters stated therein, the sale of the capital stock of
ISC for $6.75 million, plus 25% of STIC's pre-tax net income for each of the
three years ending December 31, 2001, to Old Guard is fair to the Company's
shareholders from a financial point of view. On January 28, 1999, the date of
this Proxy Statement, FBW delivered to the Company's Board of Directors an
updated opinion to the effect that the terms of the Transaction are fair to the
Company's shareholders from a financial point of view (the "FBW Opinion"). In
rendering the FBW Opinion, FBW did not undertake to update its analysis or take
into consideration facts or events occurring after December 1, 1998.
The full text of the FBW Opinion, which sets forth certain assumptions
made, matters considered and limitations on review undertaken is attached as
Appendix B to this Proxy Statement, is incorporated herein by reference and
should be read in its entirety in connection with this Proxy Statement. The
summary of the FBW Opinion set forth in this Proxy Statement is qualified in its
entirety by reference to the full text of the FBW Opinion. The FBW Opinion is
directed only to the fairness, from a financial point of view, to the holders of
the Common Stock of the consideration to be paid to the Company and SCAC by the
Old Guard and does not constitute a recommendation to any shareholder of the
Company as to how such shareholder should vote on any and all matters related to
the Transaction.
In arriving at its written opinion, FBW reviewed the Stock Purchase
Agreement, selected audited public and unaudited internal financial information
of the Company and STIC, and financial projections prepared by the Company's
management. FBW also held discussions with the management of STIC regarding the
past and current business operations and financial condition, as well as the
future prospects, of STIC. In general, these discussions centered on (i) STIC's
market position, competitive position, business plan and historical and
projected financial performance; (ii) the Company's market position, competitive
position and business plan; and (iii) the history of similar transactions in the
title industry and the opportunities available to the Company in relation to
STIC. FBW reviewed specific data regarding the valuation of companies in STIC's
industry and utilized its own expertise in merger, acquisition and divestiture
transactions and valuations.
In rendering the FBW Opinion, FBW assumed and relied upon the accuracy
and completeness of all financial and other information that it reviewed,
whether publicly available or provided to FBW by the Company and STIC. FBW did
not assume any responsibility for independent verification of such information.
FBW further expressed no opinion as to the value to be received by holders of
interests who may exercise their dissenters' rights under the MBCA.
FBW considered several valuation methods to evaluate the effect of the
Transaction on shareholders of the Company and STIC including: (i) the
discounted future free cash flows of STIC; (ii) the earnings and multiple
comparisons to publicly traded companies engaged in similar businesses as STIC;
(iii) the merger and acquisition activity of companies engaged in similar
businesses; and (iv) the control premiums paid by acquirers over the market
price of target companies prior to the takeover announcement
-18-
date. FBW relied most heavily upon the discounted future free cash flows method
due to the fact that, of the methods used, it is the only method that derives
value from the cash flows that should be generated from the business or assets
under consideration. The conclusion reached by FBW regarding the transaction
price using the discounted future free cash flow valuation method is supported
by the other valuation methods.
The discounted future free cash flows methodology is premised on the
assumption that a buyer purchases a time series of free cash flows that are
generated by the assets of a business. This analysis separates and ascribes
value only to the cash flows that can ultimately be taken out of the business.
Cash that is generated but used to sustain the business (such as increases in
working capital and capital expenditures) creates no incremental value to the
buyer. These free cash flows are then discounted to the present at the firm's
weighted average cost of capital. The weighted average cost of capital can be
described as the average price that a company must pay to attract both debt and
equity to properly capitalize the firm's growth. It is this series of free cash
flows that, when discounted to the present, and after subtracting claims by debt
holders and others, represents the economic value of a company to its
shareholders.
The accuracy of this method of valuation depends largely on the quality
of the projections prepared in connection with the analysis of the Transaction.
STIC incurred operating and net losses in 1995 and 1996. Due to better overall
market conditions and improvement measures implemented by management, STIC
incurred slight operating and net profits in 1997. As a result of these
measures, STIC's operating income for the nine months ended September 30, 1998
was $630,000.
FBW also compared the purchase price in the Transaction to the value
paid for publicly-traded title insurance companies in recent acquisitions. This
analysis found that these companies, which were significantly larger than STIC
at the time of the acquisition, were acquired for a premium relative to the book
value of the particular company's capital stock. FBW concluded that this
analysis was not instructive due primarily to the facts that STIC is
significantly smaller than any of the comparison companies and has a more
limited geographical market and that there was an absence of interested buyers
at a price equal to or above STIC's book value.
Relying on projections as the basis of the discounted cash flow
analysis, FBW determined that the intrinsic equity value for STIC was $6.7
million. The total transaction value negotiated in the Transaction is $7.84
million, representing $6.75 million in cash and $1.09 million in future earn-out
payments. This negotiated value is a 17.06% premium over the intrinsic value of
STIC.
If STIC does not meet the projections relied upon for the discounted
cash flow analysis, the earn-out payments will be less than set forth above, or
they may not be payable. In the event that STIC receives no earn-out payment,
the intrinsic value of STIC would be substantially less than $6.7 million. In
such a circumstance, a premium to the Company would be generated, as the cash
portion received by the Company in the Transaction would exceed the recalculated
intrinsic value.
During its engagement, FBW contacted potential acquirers to initiate a
transaction for the sale of STIC. Additionally, FBW sent an executive summary or
an information memorandum to certain of these potential acquirers. As a result,
the transaction value for STIC's securities was market-tested, which provides
the most credible support for the fairness from a financial point of view, of
the consideration to be paid to the Company by Old Guard in relation to the
purchase of STIC.
-19-
Following its analysis, FBW concluded:
1. The fact that the total transaction value exceeds the
intrinsic value of STIC's cash flows based on the discounted
cash flow analysis supports the fairness, from a financial
point of view, of the consideration to be paid to the Company
in relation to the sale of STIC; and
2. The transaction value paid by Old Guard for the purchase of
STIC represents a 154.67% premium over the Company's market
capitalization as of December 1, 1998, based on the closing
bid price of shares of Common Stock for the preceding 60-day
period.
The Company engaged FBW as its financial advisor on September 2, 1997.
FBW will receive a fee of approximately $215,000, which is conditioned upon
consummation of the Transaction and is partly based on the achievement of
certain earn-out assumptions. The payment of these fees is not contingent upon
FBW rendering a favorable opinion with respect to the Transaction. The Company
has agreed to reimburse FBW for its out-of-pocket expenses incurred in
connection with the activities contemplated by its engagement, regardless of
whether the Transaction is consummated. The Company has further agreed to
indemnify FBW against certain liabilities, including liabilities under the
federal securities laws.
FBW is a nationally recognized investment banking firm and was selected
by the Company based on FBW's experience and expertise. FBW regularly engages in
the valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes.
Interests of Certain Persons in the Transaction
In considering the recommendation of the Board of Directors of the
Company with respect to the Transaction, shareholders should be aware that
certain members of the Company's management have certain interests in the
Transaction that are in addition to the interest of the Company's shareholders
generally. The Company's Board of Directors was aware of these interests and
considered them, among other factors, in approving the Transaction. These
interests are described below.
Employment Agreement with President and Chief Executive Officer. STIC
and Donald V. Cruickshanks, the President and Chief Executive Officer and a
director of the Company, are parties to an employment agreement for a term
commencing January 2, 1998, and terminating December 31, 2000. The agreement
provides for his employment as President and Chief Executive Officer of STIC.
Under the agreement, Mr. Cruickshanks is entitled to base compensation of
$140,000 per year, with an increase in compensation of $5,000 per year. Mr.
Cruickshanks is entitled further to receive additional compensation in an amount
up to 10% of the annual after-tax profits of STIC. Mr. Cruickshanks may
terminate his employment at any time by giving STIC 30 days' notice of such
termination. This agreement does not require STIC to make any severance payments
to Mr. Cruickshanks in the event that he is terminated.
Following the consummation of the Transaction, Mr. Cruickshanks'
current employment agreement will be terminated, and Mr. Cruickshanks will be
required to enter into a new employment agreement (the "Employment Agreement")
with STIC and Old Guard for a three-year period beginning at the closing of the
Transaction. Pursuant to the Employment Agreement, Mr. Cruickshanks will serve
as President and Chief Executive Officer of STIC. STIC will pay Mr. Cruickshanks
an annual base compensation of $145,000, with an increase of at least 4% per
year. In addition, with respect to each of the fiscal years ending December 31,
1999, 2000 and 2001, Mr. Cruickshanks will receive incentive compensation in an
amount equal to 10% of the annual after-tax profits of STIC. Such
-20-
incentive compensation, however, may not exceed 50% of Mr. Cruickshanks' annual
base salary unless STIC's after-tax net income for each such fiscal year,
inclusive of such incentive compensation, equals or exceeds certain
pre-determined levels. Mr. Cruickshanks will also be entitled to receive certain
severance benefits upon the termination of the Employment Agreement, including
due to a change-in-control of Old Guard or STIC. Each year, the term of the
Employment Agreement will automatically be extended by one year, unless STIC or
Mr. Cruickshanks gives notice 90 days prior to the anniversary date of the
Employment Agreement.
In addition, Old Guard will issue to Mr. Cruickshanks 1,000 shares of
its common stock following the execution of the Employment Agreement and,
thereafter, on each of the first four anniversaries of the Employment Agreement.
While not a director or executive officer of the Company, Gerald W.
Sklar, Executive Vice President and General Counsel of STIC, will also be
required to enter into an employment agreement with STIC and Old Guard following
the consummation of the Transaction. Mr. Sklar's employment agreement contains
terms and provisions similar to those in the Employment Agreement.
Payment to President and Chief Executive Officer. The Company's Board
of Directors has determined that, upon the consummation of the Transaction, Mr.
Cruickshanks will receive a cash payment in the amount of $75,000 from the
Company. Since his appointment in January 1997, Mr. Cruickshanks has served
uncompensated for his services as the Company's President and Chief Executive
Officer. This payment represents compensation for the services that Mr.
Cruickshanks rendered as President and Chief Executive Officer and in connection
with the execution of a strategic plan for the sale of the Company.
Following the consummation of the Transaction, Mr. Cruickshanks will
continue as President and Chief Executive Officer of the Company. He will
receive $2,000 per month as long as he remains in these positions.
Satisfaction of Obligation to H. William Coogan, Jr. STIC and H.
William Coogan, Jr., formerly a director of the Company, are parties to an
agreement dated January 2, 1998, (the "Coogan Agreement"). Pursuant to the
Coogan Agreement, Mr. Coogan agreed to terminate his employment contract with
STIC as of December 31, 1997 and forego a lump sum payment of $270,000 payable
upon such termination in return for STIC's agreement to pay Mr. Coogan $311,000
over a three-year period commencing January 2, 1998. Such payments take the form
of monthly payments of $8,639, less applicable withholdings, a portion of which
may be applied to health insurance, disability coverage and a leased automobile.
STIC's obligation to make such monthly payments terminates on December 31, 2000.
As a condition to the consummation of the Transaction, the Company must satisfy
STIC's remaining obligations under the Coogan Agreement or provide security for
the payment of the monthly benefits otherwise due to Mr. Coogan under the Coogan
Agreement.
Regulatory Approvals
The Transaction is subject to the receipt of necessary approvals from
the Bureau of Insurance of the Commonwealth of Virginia (the "Bureau"). On
December 14, 1998, Old Guard filed an Application for Approval of Acquisition of
Control of or Merger with a Domestic Insurer (Form A) with the Bureau, the only
state where such filing was required. The insurance laws and regulations of
Virginia do not require a hearing by the Bureau before deciding whether to grant
approval of an acquisition described in a Form A filing, but Old Guard would be
entitled to such a hearing in the event that the Bureau proposed not to grant
the approval. Approval by the Bureau was obtained on January 26, 1999.
-21-
Certain Federal Income Tax Consequences
The consummation of the Transaction will not be a taxable event for
federal income tax purposes for the shareholders of the Company.
The consummation of the Transaction will be a taxable event for federal
income tax purposes for the Company. Pursuant to the Stock Purchase Agreement,
the Company and SCAC agreed to join with Old Guard in the filing of an election
under Section 338(h)(10) of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"), and any comparable election under state, local or
foreign tax law. These elections will result in the Transaction being deemed to
be a sale of ISC's assets for income tax purposes with ISC being deemed to have
sold their assets while still a member of the Company's "affiliated group" (as
defined in the Internal Revenue Code). Accordingly, the Company will recognize
gain in the amount that the purchase price received exceeds the tax basis of the
assets held by ISC and its subsidiaries. This gain will be offset by any
available net operating losses of the Company prior to the determination of any
tax liability. Based on financial information currently available, the Company
estimates that no tax liability will be incurred under the Section 338(h)(10)
election after offsetting net operating losses incurred to date.
The discussion set forth above as to the material federal income tax
consequences of the Transaction is based upon the provisions of the Internal
Revenue Code, applicable Treasury Regulations thereunder, judicial decisions and
current administrative rulings, any of which may be changed at any time with
retroactive effect. The discussion does not address any aspect of state, local
or foreign taxation. No rulings have been or will be requested from the Internal
Revenue Service with respect to any of the matters discussed herein. There can
be no assurance that future legislation, regulations, administrative rulings or
court decisions would not alter the tax consequences set forth above.
Accounting Treatment
The Transaction will be accounted for by the Company as a sale of
assets and a transfer of certain liabilities. The Company expects to record a
loss upon the consummation of the Transaction. Such loss will be reduced by any
payments of contingent consideration that the Company may receive in connection
with the Transaction following its closing.
Rights of Dissenting Shareholders
Shareholders of the Company are entitled to appraisal rights in
connection with the Transaction under Section 909 of the Maine Business
Corporation Act (the "MBCA"). Section 909 is reprinted in its entirety in
Appendix C to this Proxy Statement. The following discussion is not a complete
statement of the law relating to statutory appraisal rights and is qualified in
its entirety by reference to the full text of Section 909, which is incorporated
herein by reference. Any holder who wishes to exercise statutory appraisal
rights, or who wishes to preserve the right to do so, should review the
following discussion and Appendix C carefully.
IN VIEW OF THE COMPLEXITY OF SECTION 909 OF THE MBCA, SHAREHOLDERS OF
THE COMPANY WHO ARE CONSIDERING DISSENTING FROM THE TRANSACTION SHOULD CONSULT
THEIR LEGAL ADVISORS. FAILURE TO TIMELY AND PROPERLY COMPLY WITH THE PROCEDURES
SPECIFIED WILL RESULT IN THE LOSS OF DISSENTERS' APPRAISAL RIGHTS UNDER THE
MBCA AND WILL BIND THE SHAREHOLDER TO THE TERMS OF THE TRANSACTION.
-22-
Pursuant to the Stock Purchase Agreement, the obligation of the Company
to consummate the Transaction is conditioned upon, among other things, no more
than 15% of the outstanding shares of Common Stock being the subject of
appraisal rights pursuant to Section 909 of the MBCA. See "The Stock Purchase
Agreement - Conditions to Closing."
A person having a beneficial interest in shares of Common Stock that
are held of record in the name of another person, such as a broker or nominee,
must act promptly to cause the record holder to follow the steps summarized
below properly and in a timely manner to perfect whatever appraisal rights the
beneficial owner may wish to exercise.
Shareholders who desire to exercise their appraisal rights under
Section 909 must (i) deliver a written objection to the proposed Transaction to
the Company prior to or at the Special Meeting (at P.O. Box 1398, Richmond,
Virginia 23218, attention: Ronald C. Britt, Secretary; or at the Special Meeting
at the One James Center, 901 East Cary Street, 17th floor, Richmond, Virginia
23219, attention: Ronald C. Britt, Secretary) and (ii) not vote in favor of the
adoption of the Stock Purchase Agreement. The written objection must be in
addition to and separate from any abstention or vote against the approval of the
Stock Purchase Agreement. Voting against, abstaining from voting or failing to
vote on the approval of the Stock Purchase Agreement will not constitute an
objection to the Transaction within the meaning of Section 909. (Shareholders
who timely file such written objection and who do not vote their shares in favor
of the Transaction are referred to hereinafter as "Dissenting Shareholders".)
In addition, if the Transaction is approved by the required vote,
within 15 days after the date on which the vote of shareholders was taken (the
"Shareholder Demand Date"), Dissenting Shareholders must make written demand on
the Company for payment of the fair value of their shares of Common Stock. Such
written demand must be delivered in person or by registered or certified mail to
the Company (at its principal place of business at P.O. Box 1398, Richmond,
Virginia 23218, attention: Ronald C. Britt, Secretary or at its registered
office at 44 Elm Street, P.O. Box 708, Waterville, Maine 04901, attention:
William P. Dubord) and must specify the Dissenting Shareholder's current
address. Dissenting Shareholders who fail to make such a written demand within
such period in the prescribed form and manner lose their appraisal rights under
Section 909.
A written demand for payment of the fair value of a Dissenting
Shareholder's shares of Common Stock may not be withdrawn without the Company's
consent. Any shareholder making an objection or demand pursuant to Section 909
will thereafter be entitled only to payment as provided therein and will not be
entitled to vote or to exercise any other rights of a shareholder.
At the time of filing with the Company the written demand for payment
or within 20 days thereafter, Dissenting Shareholders must submit the
certificate(s) representing their shares to the Company or its transfer agent
for notation thereon that such demand had been made. Such certificate(s) will
promptly be returned after entry thereon of such notation. A Dissenting
Shareholder's failure to submit shares for notation shall, at the option of the
Company, terminate such shareholder's rights under Section 909 unless a court of
competent jurisdiction, for good and sufficient cause shown, shall otherwise
direct.
Section 909 requires the Company to give each Dissenting Shareholder
who has made a demand as provided therein written notice that the Transaction
has been effected and a written offer stating the price the Company deems to be
the fair value of its shares of Common Stock, together with a balance sheet and
profit and loss statement of the Company, as of the latest available date, for
the 12-month period ended as
-23-
of the date of the balance sheet. Such written notice, offer and financial
statements must be provided within the later of 10 days after the closing of the
Transaction or 10 days after the Shareholder Demand Date (the "Company Offer
Date").
If the Company and the Dissenting Shareholder agree on the fair value
of the Dissenting Shareholder's shares within 20 days after the Company Offer
Date, the Company must pay such fair value to the Dissenting Shareholder within
90 days after the closing of the Transaction upon surrender of the
certificate(s) representing the shares(s) of Common Stock.
If during the 20-day period following the Company Offer Date, the
Dissenting Shareholder and the Company fail to agree on the fair value of the
Dissenting Shareholder's shares of Common Stock and the Company receives a
written demand for suit from any such Dissenting Shareholder within 60 days
after the closing of the Transaction, the Company must file an action in the
Superior Court of Kennebec County, Maine within 30 days of receipt of such
written demand for a determination of the fair value of the shares. In the
absence of such demand for suit, the Company may on its own accord bring an
action in such court within 60 days after the closing of the Transaction. If the
Company fails to file an action in such 60-day period, any remaining Dissenting
Shareholder may do so in the Company's name. No such action may be brought by
either the Company or any Dissenting Shareholder more than six months after the
closing of the Transaction.
The jurisdiction of the court in any such action to determine fair
value is plenary and exclusive. All Dissenting Shareholders (other than those
who have agreed upon the price to be paid for their shares) are parties to the
proceedings and must be served with a copy of the complaint. All Dissenting
Shareholders who are parties to the proceeding shall be entitled to judgment
against the Company for the fair value of their shares, as fixed by the court.
In any such proceedings, the court may appoint one or more persons as
appraisers to recommend a decision on the question of fair value. The fair value
of the shares shall be determined by the court as of the day prior to the date
of the Special Meeting, excluding any appreciation or depreciation of shares in
anticipation of the Transaction. The Maine Supreme Judicial Court, which is the
highest court in the state, in a previous case determined the "fair value" of
shares of the acquired company by reference to the shares' stock market price,
net asset value and investment value as appropriately weighted. In that case,
the court held that the "fair value" of shares as determined under Section 909
does not include any payment for a tender offer premium nor any consideration of
the psychological injuries that may result from loss of ownership of shares. The
methods used in that case, while not exclusive, suggest the types of factors
likely to be considered by a Maine court in determining the "fair value" of the
shares of Common Stock.
Fair value, as determined by the court, is payable to each Dissenting
Shareholder only upon and concurrently with the surrender to the Company of the
certificates representing such Dissenting Shareholder's shares. Upon such
payment, the Dissenting Shareholder ceases to have any interest in such shares.
The judgment shall include an allowance for interest at such rate as the court
may find to be fair and equitable under the circumstances, from the date of the
Special Meeting to the date of payment (unless the court finds that the refusal
of the shareholder to accept the Company's offer for payment was arbitrary,
vexatious or not in good faith).
The costs and expenses of any such proceeding shall be determined by
the court and will be assessed against the Company, but all or any part of such
costs and expenses may be apportioned and assessed as the court may deem
equitable against any or all of the Dissenting Shareholders who are parties to
the proceeding to whom the Company shall have made an offer to pay for the
shares if the court finds
-24-
that the action of such Dissenting Shareholders in failing to accept the
Company's offer was arbitrary, vexatious or not in good faith. Such expenses
shall include reasonable compensation for and reasonable expenses of the
appraisers, but shall exclude the fees and expenses of counsel or experts
employed by any party unless the court otherwise orders for good cause. If,
however, the fair value of the shares as determined by the court materially
exceeds the amount which the Company offered to pay therefor, or if no offer was
made, the court in its discretion may award to any Dissenting Shareholder who is
a party to the proceeding such sum as the court may determine to be reasonable
compensation to any expert employed by such Dissenting Shareholder and may award
such Dissenting Shareholder all or part of his or her attorney's fees and
expenses.
The foregoing description of Section 909 is not complete and is
qualified in its entirety by reference to Appendix C hereto, which sets forth a
complete copy of its provisions and which is incorporated herein by reference.
Pursuant to the Stock Purchase Agreement, the obligation of the Company
to consummate the Transaction is conditioned upon, among other things, no more
than 15% of the outstanding shares of Common Stock being the subject of
appraisal rights pursuant to Section 909 of the MBCA. See "The Stock Purchase
Agreement - Conditions to Closing."
Failure to follow the steps required by Section 909 of the MBCA for
perfecting appraisal rights may result in the loss of such rights. In view of
the complexity of Section 909 of the MBCA, shareholders of the Company who are
considering dissenting from the Transaction should consult their legal advisors.
-25-
THE STOCK PURCHASE AGREEMENT
The following is a summary of the material provisions of the Stock
Purchase Agreement, a copy of which is attached hereto as Appendix A and
incorporated herein by reference. The following summary is qualified in its
entirety by reference to the complete text of the Stock Purchase Agreement.
Acquisition and Purchase Price
Pursuant to the terms of the Stock Purchase Agreement, Old Guard will
purchase all of the outstanding shares of ISC's capital stock held by SCAC in
exchange for cash. Upon the consummation of the Transaction, Old Guard will pay
to SCAC $6.75 million in cash. In addition, within 90 days following the end of
each of the fiscal years ending December 31, 1999, 2000 and 2001, Old Guard will
pay SCAC a cash amount equal to (i) 25% of the pre-tax net income of ISC and its
subsidiaries, including STIC, for such fiscal year less (ii) the cumulative net
loss of ISC and its subsidiaries during all such prior fiscal years.
In connection with this future earn-out obligation, Old Guard has
agreed to continue to operate ISC and its subsidiaries in a manner that is
consistent with past practice. In addition, when Old Guard makes a determination
of the amount to be paid, it will not allocate against the revenues of ISC and
its subsidiaries any liabilities or expenses that did not arise in the ordinary
course of business. Finally, Old Guard has agreed to neither transfer any of the
business operations of ISC and its subsidiaries to itself or one of its own
subsidiaries nor sell, assign or otherwise transfer the business of ISC and its
subsidiaries to a third party, whether by sale of assets or stock, merger or
otherwise.
Closing Date
Subject to the conditions set forth in the Stock Purchase Agreement,
the consummation of the Transaction will take place on such date as is mutually
agreed by the parties, provided that all conditions to the consummation of the
Transaction have been satisfied or waived. See "- Conditions to Closing."
The Company currently expects that the closing of the Transaction will
be in February 1999, but there can be no assurances as to whether or when the
Transaction will occur.
Representations and Warranties
The Stock Purchase Agreement contains customary representations and
warranties by each of the Company and SCAC as to, among other things, (a)
organization, good standing and similar corporate matters; (b) the due
authorization, adoption and enforceability of the Stock Purchase Agreement; (c)
the absence of litigation seeking to enjoin the execution and delivery of the
Stock Purchase Agreement or the consummation of the transactions contemplated
thereby; and (d) ownership of subsidiaries. In addition, Old Guard makes
representations and warranties regarding (a) organization, good standing and
similar corporate matters; (b) the due authorization, adoption and
enforceability of the Stock Purchase Agreement; (c) capital structure; and (d)
financial condition.
The Stock Purchase Agreement also contains representations and
warranties of the Company and SCAC relating to ISC, STIC and their subsidiaries,
including, among other things, (a) organization, good standing and similar
corporate matters; (b) capital structure and ownership of subsidiaries; (c) the
accuracy of certain financial information that has been previously provided by
the Company to Old Guard; (d) certain tax matters; (e) business affairs and the
absence of any material adverse change thereto or other
-26-
information not previously disclosed to Old Guard; (f) material contracts; (g)
litigation proceedings; (h) outstanding loans; (i) required licenses, filings
and approvals; (j) reinsurance policies and agreements; and (k) certain
unresolved legal claims.
Certain Covenants of the Parties
The Stock Purchase Agreement contains customary covenants applicable to
transactions like the Transaction, including covenants relating to (a) the
confidentiality of information obtained in connection with the Transaction, (b)
the preparation and filing of proxy materials relating to approval of the
Transaction by the Company's shareholders, and (c) the filing of an election
under Section 338(h)(10) of the Internal Revenue Code, and any comparable
election under state, local or foreign tax law, and other tax matters.
Furthermore, the Company, SCAC, ISC and STIC jointly covenant and agree
that ISC will, and will cause each subsidiary of ISC to, carry on its business
in the usual and ordinary course and use its best efforts to preserve its
business organizations intact and conserve the goodwill and relationships of its
customers and others having business relations with it. These parties have also
agreed to: (a) refrain from declaring any dividends or make any other
distributions in respect of the capital stock of ISC; (b) each use its best
efforts to assist in obtaining certain regulatory approvals and deliver related
documents; (c) file all reports or returns required to be filed with any
governmental agency consistent with past practices and promptly pay when due all
taxes, assessments and governmental charges, including interest and penalties
levied or assess, unless diligently contested in good faith by appropriate
proceedings; (d) cease and terminate all efforts to offer, sell or solicit
offers or respond to offers to purchase the stock or assets of ISC or STIC and
any related discussion; and (e) pay to Old Guard an amount equal to the lesser
of (i) 115% of Old Guard's identifiable out-of-pocket expenses or (ii) $100,000
in the event that the Stock Purchase Agreement is terminated by the Company in
the event that holders of more than 15% of the outstanding shares of Common
Stock exercise their dissenter's rights. The Company, SCAC, ISC and STIC have
also agreed to pay $400,000 to Old Guard in the event that they enter into an
agreement with any third party with respect to any merger, sale of stock or sale
of all or substantially all of the assets of ISC or STIC.
Old Guard has covenanted and agreed that it will, and will cause each
of its subsidiaries to, carry on its business in the usual and ordinary course,
and use its best efforts to preserve its business organizations intact and
conserve the goodwill and relationships of its customers and others having
business relations with it. In addition, Old Guard has agreed to do the
following: (a) use its best efforts to assist in obtaining certain regulatory
approvals and deliver related documents; (b) file all reports or returns
required to be filed with any governmental agency consistent with past practices
and promptly pay when due all taxes, assessments and governmental charges,
including interest and penalties levied or assess, unless diligently contested
in good faith by appropriate proceedings; (c) contribute $750,000 of additional
capital in the form of equity to STIC promptly after the closing of the
Transaction; (d) cause STIC to calculate its after-tax profits without regard to
the requirements of a certain provision in the Stock Purchase Agreement
regarding liabilities incurred but not reported in calculating the bonus payable
to Donald V. Cruickshanks and Gerald W. Sklar, STIC's Executive Vice President
and General Counsel, for calendar year 1998 pursuant to their employment
agreements.
Conditions to Closing
The obligation of the Company to close the Transaction is subject to
various conditions that include the following: (a) all representations and
warranties in the Stock Purchase Agreement of the Old Guard shall be true and
correct in all material respects as of the closing of the Transaction; (b) Old
Guard
-27-
shall have complied in all materials respects with all covenants in the Stock
Purchase Agreement (c) no pending litigation or administrative proceeding that
would enjoin or otherwise delay or prevent the Transaction shall exist; (d) the
Company or SCAC shall have delivered to Old Guard a wire transfer of $6.75
million and an opinion from Old Guard's counsel reasonably acceptable to the
Company; (e) the Company's shareholders shall have approved the Stock Purchase
Agreement and the transactions contemplated thereby; (f) holders of more than
15% of the issued and outstanding shares of Common Stock shall not have
exercised dissenters' rights under the MBCA; (g) the Transaction shall have been
approved by the Virginia Bureau of Insurance and other regulatory authorities
whose approval is required to consummate the Transaction; and (h) the Company
shall have received a written opinion from its financial advisor that the terms
of the Transaction are fair from a financial point of view to the Company's
shareholders.
The obligation of Old Guard to close the Transaction is subject to
various conditions that include the following: (a) all representations and
warranties in the Stock Purchase Agreement of the Company shall be true and
correct in all material respects as of the closing of the Transaction; (b) the
Company shall have complied in all materials respects with all covenants in the
Stock Purchase Agreement; (c) Old Guard shall have received approvals of, or
grants or confirmations of exemptions from certain state insurance departments
with respect to the acquisition by Old Guard of ISC capital stock; (d) no
threatened or pending litigation or administrative proceeding that would enjoin
or otherwise delay or prevent the Transaction or impair the ability to operate
ISC or STIC shall exist; (e) no material adverse change, as defined in the Stock
Purchase Agreement, has occurred with respect to STIC; (f) the Company or SCAC
shall have delivered to Old Guard ISC's capital stock registered in the name of
Old Guard, copies of certificates of STIC's good standing from applicable
states, revisions or supplements to information previously disclosed to Old
Guard, interim financial statements for STIC, and an opinion from the Company's
counsel reasonably acceptable to Old Guard; (g) Donald V. Cruickshanks and
Gerald W. Sklar shall have executed employment agreements with Old Guard and
STIC; (h) Old Guard shall have received a opinion from its financial advisor
that the Transaction is fair from a financial perspective to Old Guard's
shareholders; (i) the Company and SCAC shall have paid in full to ISC or STIC
all debts, obligations, liabilities or other intercompany balances and shall
provide Old Guard with evidence of such payment; (j) the Company or SCAC shall
have purchased from STIC all shares of common stock of Champion Broadcasting
Corporation owned by STIC at their book value; (k) the Company shall satisfy the
remaining obligation of STIC to H. William Coogan, Jr. under the Coogan
Agreement (see "The Transaction - Interests of Certain Persons in the
Transaction"); (l) STIC shall carry a reserve for liabilities incurred but not
reported in an amount as determined in the Stock Purchase Agreement; and (m) Old
Guard shall have received certain assurances with respect to the termination of
the liability of ISC, STIC and their subsidiaries pursuant to any tax sharing
arrangement or agreement.
No assurances can be provided as to when or if all of the conditions
precedent to the Transaction can or will be satisfied or waived by the
appropriate party. As of the date of this Proxy Statement, the Company has no
reason to believe that any of the conditions set forth above will not be
satisfied.
Amendment, Waiver and Termination
Amendment and Waiver. The Stock Purchase Agreement may be amended, and
provisions of the Stock Purchase Agreement may be waived, but only if such
amendment or waiver is in writing and is signed by the party against which such
amendment or waiver is asserted. As of the date of this Proxy Statement, the
Company does not anticipate any such amendment or waiver, whether before or
after shareholder approval.
-28-
Termination. The Stock Purchase Agreement may be terminated by either
party by written notice to the other party if (i) Old Guard has been advised by
any of certain insurance departments that a required approval will not be
granted, (ii) any litigation not initiated or instigated on behalf of the
Company, SCAC or Old Guard seeking to enjoin the transactions contemplated by
the Stock Purchase Agreement is finally determined on appeal in favor of the
individual or entity seeking such injunction, or (iii) the closing of the
Transaction has not occurred on or before March 31, 1999.
The Stock Purchase Agreement may be terminated by Old Guard by written
notice to the Company (i) upon the occurrence of a material adverse change with
respect to ISC; (ii) if the Company's conditions to closing have not been met or
waived by Old Guard; or (iii) if, on or before December 31, 1998, Old Guard in
its reasonable discretion is not satisfied with the results of the due diligence
investigation of ISC and its subsidiaries. As of the date of this Proxy
Statement, the Company is not aware of any reason for termination of the Stock
Purchase Agreement by Old Guard as described above.
The Stock Purchase Agreement may be terminated by the Company by
written notice to Old Guard if (i) Old Guard's conditions to closing have not
been met or waived by the Company; or (ii) prior to the closing of the
Transaction, Old Guard shall enter into any agreement or letter of intent
providing for the direct or indirect acquisition of substantially all of the
assets and liabilities or voting stock of Old Guard.
Indemnification
Under the Stock Purchase Agreement, the Company and SCAC have agreed to
indemnify, defend and hold harmless Old Guard, and Old Guard has agreed to
indemnify the Company and SCAC, against and with respect to any portion of any
claim, liability, obligation, loss and other expenses arising out of or
attributable to any material (i) breach of any representation or warranty, (ii)
breach of any covenant, (iii) breach of any agreement of the indemnifying party
contained in the Stock Purchase Agreement or in the information previously
disclosed by the indemnifying party to the indemnified party and/or (iv) any
other claims otherwise directly or indirectly relating to the Stock Purchase
Agreement or the transactions contemplated thereby.
Except for losses or claims relating solely to, or arising solely from,
any taxes or tax matters described or contemplated in the Stock Purchase
Agreement, the indemnifying party will not have any obligation to indemnify the
other party or parties with respect to any claim, proceeding or other matter to
the extent that such claim or claims do not exceed $25,000 in the aggregate. In
the event that any such claim or claims exceed $25,000 in the aggregate, the
indemnifying party will be liable for the amount in excess of $25,000. Losses or
claims relating solely to, or arising solely from, any taxes or tax matters
described or contemplated in the Stock Purchase Agreement are not subject to any
such minimum amount and are indemnifiable in their entire amount.
Under the Stock Purchase Agreement, each party entitled to
indemnification shall notify the indemnifying party in a timely manner and in
writing of any matters as to which such party is entitled to receive
indemnification and shall set forth the details regarding the specific facts and
circumstances of which such party is aware.
-29-
FIRSTMARK CORP.
General
The Company was incorporated in Maine in January 1982. Through STIC,
the Company is principally engaged in the business of issuing title insurance.
The Company also makes venture capital and real estate investments either in the
form of pure equity investments or in the form of loans with an equity
participation feature and makes control investments in situations where the
Company's management actually operates the business. Currently, the Company has
numerous minority interest investments and one control investment in title
insurance. Until January 24, 1997, the Company, through former subsidiaries,
also actively traded public stocks and bonds and provided financial consulting
services to a select number of individuals and institutions.
A complete discussion of the Company's business and other related
information is contained in the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1997. A copy of the Annual Report, including
financial statements, is being mailed to the Company's shareholders with this
Proxy Statement. The business and other related information contained in the
Annual Report is incorporated by reference into this Proxy Statement.
Legal Proceedings
The Company is involved in litigation from time to time in the ordinary
course of business. Except as noted below, as of December 31, 1998, the Company
was not involved in any litigation outside the ordinary course of business.
Lake Anna Litigation. On August 7, 1996, Lake Anna Development, L.C.
("Lake Anna") filed a Motion for Judgment against STIC in the Circuit Court of
Louisa County in the Commonwealth of Virginia. The Motion for Judgment alleged
that STIC breached a contractual obligation under a title insurance policy that
contained affirmative mechanics' lien coverage when STIC denied liability under
the exclusions of the title insurance policy. STIC issued the title insurance
policy at issue to the lender, a federal savings bank, in connection with the
development of certain real estate. Lake Anna alleged that it had succeeded to
the position of the lender. The Motion for Judgment sought relief in the amount
of $1,342,374.38 plus interest from May 6, 1996.
On May 22, 1998, a jury returned a verdict in favor of STIC. On August
5, 1998, following several post-verdict motions by Lake Anna, the court issued a
Final Order entering judgment on the verdict in favor of STIC. Lake Anna noted
its appeal and, on November 5, 1998, filed a Petition for Appeal with the
Virginia Supreme Court, which raises the same issues that were raised by Lake
Anna in its post-verdict motions. STIC subsequently filed a response stating
that there was no error, and counsel for STIC has advised that it is their
opinion that the trial court verdict should be affirmed.
Investigation by the Securities and Exchange Commission. As the Company
has previously disclosed in its filings with the SEC, the SEC is currently
investigating possible violations of the federal securities laws by Firstmark
Investment Corp. ("FIC"), Firstmark Capital Corp. ("FCC") and the Company. The
private investigation focuses on events that have occurred from, in or before
January 1994 to the present. The Company transferred FIC and FCC to Ivy L.
Gilbert, a former director, officer and employee of the Company, in January
1997.
-30-
The Company believes that any events at issue in the SEC's
investigation relate to the Company's prior management, all of whom have
resigned from all of their positions with the Company. Current management of the
Company does not have specific knowledge of the events at issue and is uncertain
as to the matters under investigation by the Commission. The private
investigation remains in its initial stages of discovery, and the Company
continues to cooperate fully with the Commission.
The Company's current management has also been advised by counsel for
the Company's prior management that the Company may be in the future the subject
of civil litigation claims that have been threatened by certain individuals who
are or may have been shareholders of the Company or customers of FIC, FCC or the
Company. The Company believes that any basis for such actions would arise from
the conduct of prior management, but it has insufficient information to assess
whether any such claims, if asserted, would have any merit. The Company has
engaged counsel to make an assessment of these threatened claims, but has not
received the results of any such assessment as of the date of this Proxy
Statement. The Company will vigorously defend any such claims that may be
asserted against it.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion provides certain information about the major
components of the results of operations and financial condition, liquidity and
capital resources of the Company. This discussion and analysis should be read in
conjunction with the Company's Interim Financial Statements and Notes to Interim
Financial Statements, which are attached to this Proxy Statement as Appendix D.
Discussion on information relating to the fiscal years ended December 31, 1997
and December 31, 1996 is set forth in the Annual Report.
Results of Operations -- Nine Months ended September 30, 1998 compared
to Nine Months ended September 30, 1997. Total revenues for the nine months
ended September 30, 1998 increased to approximately $10,105,000, an increase of
approximately $1,570,000 or 18% compared to total revenues of approximately
$8,534,000 in the comparable nine-month period of the prior year. The increase
is primarily attributable to increased title insurance revenues due to a
favorable interest rate environment and expansion in the Company's title
insurance operations. Investment gains amounted to approximately $29,000 for the
nine months ended September 30, 1998 compared to net gains of $361,000 in the
prior year period. The net gains in the prior year period were primarily the
result of a gain (approximately $479,000) recognized on the receipt and sale of
shares of Intercel, Inc. stock, which was partially offset by losses on the
sales of certain investments, principally small cap stocks. Interest and
dividends revenue decreased approximately $63,000 to $244,000 for the nine
months ended September 30, 1998 as compared to $307,000 for the comparable
period of the prior year. The decrease is primarily the result of a one-time
dividend of approximately $94,000 received in the prior year period.
Operating expenses and general and administrative expenses increased by
approximately $1,036,000 during the current nine-month period compared to the
comparable period of the prior year. This increase is primarily the result of
(i) higher personnel costs related to increasing volumes and expansion of the
title insurance operations, (ii) an increase in the provision for policy claims
primarily attributable to legal expenses relating to a STIC lawsuit, which
received a favorable jury verdict in May 1998, and (iii) legal expenses relating
to a Company lawsuit, which was resolved in June 1998 through mediation with an
immaterial financial impact on the Company, and a private investigation brought
by the Commission. See "- Legal Proceedings."
Results of Operations -- Three Months ended September 30, 1998 compared
to Three Months ended September 30, 1997. Total revenues for the three months
ended September 30, 1998 increased to
-31-
approximately $3,933,000, an increase of approximately $674,000 or 21% compared
to total revenues of approximately $3,259,000 in the comparable quarter of the
prior year. The increase is primarily attributable to increased title insurance
revenues due to a favorable interest rate environment and expansion in the
Company's title insurance operations. Investment gains amounted to approximately
$5,000 for the quarter ended September 30, 1998 compared to a gain of $113,000
in the prior year quarter. The gain in the prior year quarter was primarily the
result of a gain recognized on the sale of shares of Intercel, Inc. stock.
Interest and dividends revenue increased approximately $1,000 to $86,000 for the
quarter ended September 30, 1998 as compared to $85,000 for the comparable
quarter of the prior year.
Operating expenses and general and administrative expenses increased by
approximately $662,000 during the current quarter compared to the comparable
quarter of the prior year. This increase is primarily the result of (i) higher
personnel costs related to increasing volumes and expansion of the title
insurance operations, (ii) an increase in the provision for policy claims and
(iii) legal expenses relating to a Company lawsuit, which was resolved in June
1998 through mediation with an immaterial financial impact on the Company, and a
private investigation brought by the SEC.
Liquidity and Capital Resources. The Company's cash and cash
equivalents were approximately $3,022,000 at September 30, 1998 as compared to
$2,293,000 at December 31, 1997. However a significant portion of the cash and
cash equivalents (approximately $2,029,000 at September 30, 1998 and $1,707,000
at December 31, 1997) was held by a subsidiary, STIC, and is subject to certain
regulatory requirements as to use.
During the first three quarters of 1998, the Company was able to
satisfy its obligations through cash on hand, sales of marketable securities and
other assets and payments received on loans receivable. The Company's available
and expected sources of cash were sufficient for the Company to satisfy its
obligations as they came due. Additionally, the Company has an available line of
credit of $500,000, for which no borrowings were outstanding as of September 30,
1998.
On March 1, 1999, $485,000 of the Convertible Notes will become due.
Since September 30, 1998, the Company has borrowed from time to time against its
line of credit, and the available balance thereunder is not likely to be
sufficient to satisfy the payments that will be required to be made to the
holders of such Convertible Notes. In addition, even if the available balance
were sufficient to satisfy such payments, the Company would have to obtain
written approval from its lender prior to using any amounts to satisfy term
debt, which would include the Convertible Notes. There is currently no
expectation that the payment terms of the Convertible Notes can be restructured
prior to the required payments.
Year 2000 Issues. Year 2000 issues relate primarily to the inability of
certain computerized devices (hardware, software and equipment) to process
year-dates properly after 1999. Many existing computer programs have been
written using only two digits to define an applicable year rather than four
digits. Accordingly, on January 1, 2000, many date-sensitive programs and
devices may recognize a date using the two digits "00" as the year 1900 rather
than the year 2000. This situation could result in inaccurate processing of
data, erroneous results or other system failures.
The Company continues to address the Year 2000 issues relating to its
operations with the intent that it (i) identify areas of potential exposure,
both internal and external to its organization, (ii) assess the risks and costs
associated with eliminating or reducing that exposure, (iii) develop a plan to
take necessary actions before the year 2000 and (iv) consider the need for a
contingency plan to handle the most reasonably likely worst case scenarios.
-32-
To date, the Company has primarily focused on the identification and
assessment of its Year 2000 issues. The Company has completed an initial
assessment of its accounting and operational software and discussed the payroll
and human resources software with its third party service provider. Management
believes, based on discussions with software vendors and initial tests of the
accounting and operational software, that such software is currently Year 2000
compliant and that the Company's risks in these areas are minimal. The payroll
and human resources software used by the Company's third party service provider
is not currently Year 2000 compliant. However, management has been told that the
next version of that software to be released (currently scheduled for the end of
1998) will be Year 2000 compliant. Once the new version of the software is
available, the Company plans to perform its own tests and evaluation to assess
any potential problems.
Costs associated with remediation of Year 2000 issues are not expected
to be material to the Company's financial position, results of operations or
cash flows. To date, such costs have totaled less than $5,000, and the Company
expects that future costs will not exceed $15,000. These costs would include
primarily minimal additional data processing consulting costs, purchases of new
personal computers to replace computers that cannot be modified to handle
date-sensitive data correctly and potentially the costs to purchase upgrades to
certain accounting software programs.
No contingency plan has been developed to date since the potential
impact of the Year 2000 issues facing the Company is currently considered to be
minimal. However, management will continue to assess the need for a contingency
plan if additional risks are identified in the further testing of existing,
updated or new hardware and software or if it becomes aware of other concerns
not presently contemplated in the evaluation of the Company's ability to be Year
2000 compliant.
Market for Common Equity and Related Shareholder Matters
The shares of Common Stock are currently listed on the Nasdaq SmallCap
Market under the symbol of "FIRM." Effective February 1998, the Nasdaq SmallCap
Market's continued listing requirements require, among others things, that
shares listed on the Nasdaq SmallCap Market maintain a minimum bid price of
$1.00 per share. The shares of Common Stock did not maintain this minimum bid
price standard on a consistent basis in 1998 and, on September 29, 1998, the
Nasdaq SmallCap Market notified the Company that the shares of Common Stock
would be subject to delisting proceedings if the Company was unable to
demonstrate compliance with this standard. On December 30, 1998, the Company
requested a hearing to stay a delisting. In the event that the shares of Common
Stock are delisted, trading of the shares of Common Stock would be conducted in
the over-the-counter trading markets, such as the OTC Bulletin Board.
The Company is currently awaiting notification of a hearing date and,
since January 13, 1999, the shares of Common Stock have been in compliance with
the minimum bid price standard. The Company expects to take all steps necessary
to maintain the listing of the shares of Common Stock on the Nasdaq SmallCap
Market.
-33-
The following table sets forth the high and low bid information for the
shares of Common Stock on the Nasdaq SmallCap Market for the quarters indicated.
Bid Information
High ($) Low ($)
-------- -------
Fiscal Year Ended December 31, 1997
1st quarter.................................. 3.50 2.00
2nd quarter.................................. 2.25 1.38
3rd quarter.................................. 1.81 1.50
4th quarter.................................. 1.56 0.75
Fiscal Year Ended December 31, 1998
1st quarter.................................. 0.81 0.25
2nd quarter.................................. 2.75 0.63
3rd quarter.................................. 2.13 0.56
4th quarter.................................. 1.06 0.38
Fiscal Year Ended December 31, 1999
1st quarter (through January 26, 1999)....... 1.38 0.63
On December 2, 1998, the day preceding the Company's announcement that
it had entered into the Stock Purchase Agreement, the high and low bid prices
per share of Common Stock were $0.50 and $0.50. On the Record Date, the high and
low bid prices per share of Common Stock were $1.38 and $1.00. As of the Record
Date, there were approximately 317 shareholders of Common Stock.
The Company has never declared any cash dividends on the Common Stock,
and any future payment of dividends is solely in the discretion of the Board of
Directors and is dependent upon the earnings and financial condition of the
Company and such other factors as the Board of Directors from time to time may
deem relevant.
-34-
PRO FORMA FINANCIAL INFORMATION
The Pro Forma Condensed Consolidated Balance Sheet of the Company as of
September 30, 1998 reflects the financial position of the Company after giving
effect to the Transaction and assumes that the Transaction took place on
September 30, 1998. The Pro Forma Condensed Consolidated Statements of
Operations for the year ended December 31, 1997 and the nine months ended
September 30, 1998 assume that the Transaction occurred on January 1, 1997 and
reflects the investment of the net proceeds from the Transaction for those
periods and the retirement of certain debt. The pro forma financial statements
presented herein use only the proceeds of $6.75 million that the Company will
receive at the closing of the Transaction as the basis for calculating the
amount of net proceeds available for investment at September 30, 1998. None of
the additional cash payments that are based on the pre-tax net income of ISC and
its subsidiaries for each of the fiscal years ending December 31, 1999, 2000 and
2001 were considered as they are contingent on operating results in future
years. The pro forma financial statements assume that transaction costs
(professional fees and other required or anticipated payments) will approximate
$565,000. Such pro forma financial statements also reflect the assumption that
the Convertible Notes payable due March 1, 1999 were retired as of the assumed
dates of the Transaction, as indicated above, and the net proceeds from the
Transaction were invested for the respective periods at 5.5%. The statements,
however, do not reflect the interest income that would have been realized by the
Company assuming that the net proceeds from the Transaction had been invested
since January 1, 1997.
The unaudited pro forma condensed consolidated financial statements
have been prepared by the Company based upon assumptions deemed proper by it.
The unaudited pro forma condensed consolidated financial statements presented
herein are shown for illustrative purposes only and are not necessarily
indicative of the future financial position or future results of operations of
the Company, or of the financial position or results of operations of the
Company that would have actually occurred had the Transaction been in effect as
of the date or for the periods presented. In addition, it should be noted that
the Company's financial statements will reflect the Transaction only from the
date of the closing of the Transaction.
The unaudited pro forma condensed consolidated financial statements
should be read in conjunction with the historical financial statements and
related notes of the Company, which are contained in the Annual Report and
attached to this Proxy Statement as Appendix D. A copy of the Annual Report,
including financial statements, is being mailed to the Company's shareholders
with this Proxy Statement. The financial information contained in the Annual
Report is incorporated by reference into this Proxy Statement.
-35-
FIRSTMARK CORP.
PRO FORMA BALANCE SHEET
As of September 30, 1998
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------
Pro Forma Adjustments
---------------------
Historical ISC (a) Other Pro Forma
---------- ------- ----- ---------
(Dollars in thousands)
Cash and Cash Equivalents $3,021 $(2,936) $85
Accounts and Notes Receivable 1,337 (1,187) 150
Marketable Securities 1,824 (1,732) $5,700 (b) 5,792
Venture Capital Investments, Net 1,111 (5) 1,106
Real Estate and Other Investments 817 817
Title Plant 3,563 (3,563) -
Property, Plant and Equipment, Net 738 (725) 13
Excess of Cost over Fair Value 926 (926) (d) -
Deferred Tax Asset 935 (345) 590
Other Assets 199 (160) 39
--- ----- --
Total Assets $14,471 $(10,653) $4,774 $8,592
------- -------- ------ ------
Accounts Payable and Other Liabilities $531 $(481) $50
Borrowed Funds 919 (400) $ (485) (c) 34
Reserve for Title Policy Claims 1,036 (1,036) -
Deferred Tax Liability 920 (362) 558
--- ----- ---
Total Liabilities 3,406 (2,279) (485) 642
----- ------- ----- ---
Total Stockholders' Equity 11,065 (8,374) 5,259 7,950
------ ------ ----- -----
Total Liabilities and Stockholders' Equity
$14,471 $(10,653) $4,774 $8,592
======= ======== ====== ======
- ---------------
(a) To eliminate the assets and liabilities of ISC and its subsidiaries
included in the balance sheet as of September 30, 1998.
(b) To reflect the estimated net proceeds from the Transaction ($6.75 million
less approximately $565,000 in transaction and other costs) less the
retirement of debt in (c) below.
(c) To reflect the retirement of $485,000 of 9% convertible notes payable due
March 1, 1999.
(d) To eliminate goodwill that resulted from the acquisition of SCC by the
Company.
-36-
FIRSTMARK CORP.
PRO FORMA STATEMENT OF INCOME
Nine Months Ended September 30, 1998
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------
Pro Forma Adjustments
---------------------
Historical ISC (b) Other Pro Forma
---------- ------- ----- ---------
(Dollars in thousands)
Revenues:
Title Insurance $9,568 $(9,568) $ -
Investment Gains 29 (7) 22
Interest and Dividends 244 (194) $ - (a) 50
Other Revenues 264 (264)
--- ---- ---
Total Revenues 10,105 (10,033) - 72
------ ------- ---- ---
Expenses:
Employee Compensation and Benefits 3,960 (3,878) (64) (e) 18
Commissions and Fee Expense 2,944 (2,944) -
General and Administrative 2,606 (2,227) (33) (d) 346
Interest Expense 77 (39) (38) (c) -
Minority Interest 353 (353)
--- ---- ---- ---
Total Expenses 9,940 (9,441) (135) 364
----- ------ ---- ---
Earnings before Income Taxes 165 (592) 135 (292)
Income Tax Expense (Benefit)
--- --- ---- ----
Net Earnings (Loss) (Exclusive of
Preferred Stock Dividend) $165 $(592) $135 (292)
==== ===== ==== ====
Earnings (Loss) Per Common Share
(Exclusive of Preferred Stock
Dividend) - Basic and Diluted $0.03 $(0.06)
===== ======
Weighted-average Number of Shares
Outstanding 5,300 5,300
===== =====
- ----------
(a) Does not reflect interest income that would have been realized assuming
that the net proceeds from the Transaction less the retirement of debt in
(c) below had been invested for the entire period.
(b) To eliminate the net earnings of ISC and its subsidiaries included in the
statement of operations for the nine months ended September 30, 1998.
(c) To eliminate the interest expense on the $585,000 in 9.0% convertible
notes payable due March 1, 1999 assumed retired for the entire period.
(d) To eliminate the amortization of goodwill that resulted from the
acquisition of SCC by the Company.
(e) To reflect changes in executive compensation upon consummation of the
Transaction. See "The Transaction - Interests of Certain Persons in the
Transaction."
-37-
FIRSTMARK CORP.
PRO FORMA STATEMENT OF INCOME
Year Ended December 31, 1997
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------
Pro Forma Adjustments
---------------------
Historical ISC (b) Other Pro Forma
---------- ------- ----- ---------
(Dollars in thousands)
Revenues:
Title Insurance $10,842 $(10,842) $ -
Investment Gains 641 (380) 261
Interest and Dividends 139 $ - (a) 139
Other Revenues 574 (570) 4
--- ---- ---- ---
Total Revenues 12,196 (11,792) - 404
------ ------- ---- ---
Expenses:
Employee Compensation and Benefits 4,612 (4,325) (111) (e) 176
Write-offs of Loans and Investments 655 (39) 616
Commissions and Fee Expense 3,972 (3,972) -
General and Administrative 3,599 (2,986) (56) (d) 557
Interest Expense 108 (44) (63) (c) 1
Minority Interest 369 (369)
--- ---- ---- ----
Total Expenses 13,315 (11,735) (230) 1,350
------ ------- ---- -----
Loss from Continuing Operations before Income
Taxes (1,119) (57) 230 (946)
Income Tax Expense (Benefit) 113 113
--- --- ---- ---
Net Loss from Continuing Operations (Exclusive of
Preferred Stock Dividend) $ (1,232) $(57) $230 $(1,059)
======== ==== ==== ========
Net Loss from Continuing Operations Per
Common Share (Exclusive of Preferred
Stock Dividend) - Basic and Diluted $ (0.26) $(0.23)
======= ======
Weighted-average Number of Shares
Outstanding 4,676 4,676
===== =====
- ----------
(a) Does not reflect interest income that would have been realized assuming
that the net proceeds from the Transaction less the retirement of debt in
(c) below had been invested for the entire period.
(b) To eliminate the net earnings of ISC and its subsidiaries included in the
statement of operations for the year ended December 31, 1997.
(c) To eliminate the interest expense on the $585,000 in 9.0% convertible
notes payable due March 1, 1999 assumed retired for the entire year.
(d) To eliminate the amortization of goodwill that resulted from the
acquisition of SCC by the Company.
(e) To reflect changes in executive compensation upon consummation of the
Transaction. See "The Transaction - Interests of Certain Persons in the
Transaction."
-38-
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed the firm of Deloitte & Touche, LLP
as independent public accountants to audit the consolidated financial statements
of the Company for the fiscal year ending December 31, 1998. Representatives of
Deloitte & Touche, LLP are expected to be present at the Special Meeting, will
have an opportunity to make a statement, if they desire to do so, and will be
available to respond to appropriate questions.
PROPOSALS FOR 1999 ANNUAL MEETING
Under the regulations of the Securities and Exchange Commission, any
shareholder desiring to make a proposal to be acted upon at the 1999 annual
meeting of shareholders must cause such proposal to be received, in proper form,
at the Company's principal executive offices at Firstmark Corp., P.O. Box 1398,
Richmond, Virginia 23218, a reasonable time (approximately 120 days) before the
Company begins to print and mail its proxy materials, in order for the proposal
to be considered for inclusion in the Company's Proxy Statement for that
meeting. The Company presently anticipates holding the 1999 annual meeting of
shareholders on June 16, 1999.
In addition, the Company's Bylaws prescribe certain procedures for
shareholders who wish to present any business or any nominations of persons for
election to the Board of Directors for consideration at an annual meeting of the
Company's shareholders. With respect to shareholder business, such notice must
include a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting. With respect to nominations, such notice must set forth the name, age,
business address, residence address and principal occupation or employment of
each person whom the shareholder proposes to nominate for election as a
director. All notices must be delivered to or mailed and received at the
principal executive offices of the Company not less than 10 days prior to the
date of such annual meeting as scheduled by the Board of Directors, regardless
of any postponements, deferrals, or adjournments of that meeting to a later
date.
OTHER MATTERS
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1997, INCLUDING FINANCIAL STATEMENTS, IS BEING MAILED TO
SHAREHOLDERS WITH THIS PROXY STATEMENT.
-39-
APPENDIX A
STOCK PURCHASE AGREEMENT
among
FIRSTMARK CORPORATION
SOUTHERN CAPITAL ACQUISITION CORPORATION
INVESTORS SOUTHERN CORPORATION
and
SOUTHERN TITLE INSURANCE CORPORATION
and
OLD GUARD GROUP, INC.
Dated December _____, 1998
TABLE OF CONTENTS
Page No.
--------
1. Definitions ............................................................... 1
2. Stock Purchase; Closing; Payment of Purchase Price ........................ 6
2.1. Transfer of ISC Capital Stock .................................... 6
2.2. Closing .......................................................... 6
2.3. Payment of Purchase Price ........................................ 6
2.4. Allocation of Consideration ...................................... 7
3. Conditions to Stock Exchange and Closing .................................. 8
3.1. Old Guard's Conditions to Closing ................................ 8
3.2. Firstmark's Conditions to Closing ................................ 10
4. Firstmark Representations and Warranties .................................. 11
4.1. Representations and Warranties Regarding Firstmark and SCAC ..... 11
4.2. Representations and Warranties of Firstmark and SCAC Regarding
ISC, ISC Subsidiaries and STIC Subsidiaries ...................... 12
4.3. Dates of and Survival of Firstmark and SCAC Representations and
Warranties ....................................................... 20
5. Old Guard Representations and Warranties .................................. 20
5.1. Old Guard Representations and Warranties ......................... 20
5.2. Dates of and Survival of Old Guard Representations and Warranties 21
6. Joint Covenants ........................................................... 22
6.1. Confidentiality .................................................. 22
6.2. Proxy Statement and Shareholder Approval ......................... 22
6.3. Tax Matters ...................................................... 23
7. Covenants of Firstmark, SCAC, ISC and STIC Through the Closing Date ...... 30
7.1. Conduct of Business .............................................. 30
7.2. No Dividends ..................................................... 31
7.3. Regulatory Approvals; Delivery of Documents ...................... 31
7.4. Reports .......................................................... 31
7.5. No Solicitation .................................................. 31
7.6. Dissenters Rights ................................................ 31
8. Covenants of Old Guard .................................................... 32
8.1. Conduct of Business .............................................. 32
8.2. Regulatory Approvals; Delivery of Documents ...................... 32
8.3. Reports .......................................................... 32
8.4. Post Closing Contribution ........................................ 32
8.5. Bonus Payments ................................................... 32
9. Indemnification; Arbitration; Injunctive Relief ........................... 32
9.1. Firstmark Indemnification ........................................... 32
9.2. Old Guard Indemnification ........................................... 34
9.3. Tax Indemnification; Apportionment of Taxes ......................... 35
10. Delivery of the Disclosure Packages; Termination .......................... 36
10.1. Delivery of the Disclosure Packages ................................ 36
10.2. Termination ........................................................ 36
10.3. Agreement Void ..................................................... 37
11. Miscellaneous ............................................................. 37
11.1. Brokers ............................................................ 37
11.2. Entire Agreement ................................................... 38
11.3. Binding Agreement .................................................. 38
11.4. Announcements ...................................................... 38
11.5. Counterparts ....................................................... 38
11.6. Costs .............................................................. 38
11.7. Notices ............................................................ 38
11.8. Applicable Law ..................................................... 39
11.9. Separable Provisions ............................................... 39
STOCK PURCHASE AGREEMENT
THIS AGREEMENT, dated as of _____________, 1998, is by and
among FIRSTMARK CORPORATION, a Maine corporation ("Firstmark"), SOUTHERN CAPITAL
ACQUISITION CORPORATION, a Virginia corporation ("SCAC"), INVESTORS SOUTHERN
CORPORATION, a Virginia corporation, and SOUTHERN TITLE INSURANCE CORPORATION, a
Virginia insurance company ("STIC"), and OLD GUARD GROUP, INC., a Pennsylvania
corporation ("Old Guard").
Background
Firstmark is the owner of five thousand (5,000) shares of
common stock, no par value, of SCAC, representing 100% of the issued and
outstanding capital stock of SCAC. SCAC is the owner of 499 shares of common
stock, par value $5.00 per share, of Investors Southern Corporation, a Virginia
corporation ("ISC"), representing 100% of the outstanding capital stock of ISC.
ISC is the owner of 210,320 shares of common stock, par value $4.76 per share,
of Southern Title Insurance Corporation, a Virginia corporation ("STIC"),
representing 100% of the outstanding capital stock of STIC. Firstmark and SCAC
have determined to sell to Old Guard and Old Guard has determined to buy from
Firstmark and SCAC all of ISC's outstanding capital stock in exchange for cash,
all on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises set
forth herein, and intending to be legally bound hereby, the parties hereto agree
as follows:
1. Definitions. The following terms shall have the meanings
set forth in this Section 1 when capitalized in this Agreement:
"Affiliate" means, with respect to any Person, (i)
any Person directly or indirectly controlling, controlled by or under common
control with such Person, (ii) any Person owning or controlling 10% or more of
the outstanding voting interests of such Person, (iii) any officer, director, or
general partner of such Person, or (iv) any Person who is an officer, director,
general partner, trustee, or holder of 10% or more of the voting interests of
any Person described in clauses (i) through (iii) of this sentence. For purposes
of this definition, the term "controls," "is controlled by" or "is under common
control with" shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person or
entity, whether through the ownership of voting securities, by contract or
otherwise.
"Alternative Accountants" shall mean an accounting firm of
recognized national standing, other than an accounting firm that regularly
audits the annual financial statements of any of the parties to this Agreement,
or any of its or their Affiliates, which is mutually designated or consented to
in writing by Old Guard and Firstmark within three (3) business days following
the receipt by either Old Guard or Firstmark of the written request of the other
party to designate or consent to the designation of an Alterative Accountant;
or, in default of such mutual designation or consent within the time allowed, an
accounting firm of recognized national standing, other than an accounting firm
that regularly audits the annual financial statements of any of the parties to
this Agreement, or any of its or their Affiliates, chosen by Old Guard and
Firstmark by lot.
"Champion" shall mean Champion Broadcasting Company, a
corporation in which STIC owns a minority interest in the corporation's issued
and outstanding nonvoting shares.
"Claims Reserve" shall mean as of any date the amount recorded
as a liability on the consolidated balance sheet of STIC representing the sum
specifically reserved by STIC to pay incurred and reported claims with respect
to title insurance policies issued by STIC.
"Closing" shall mean the transfer by Firstmark and SCAC to Old
Guard of the ISC Capital Stock in exchange for cash pursuant to Sections 2.2
hereof.
"Closing Date" shall mean the date on which the Closing
occurs, which shall be on or before January 31, 1999 (unless accelerated or
deferred pursuant to Section 2.2 hereof).
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Consolidated Group" shall mean the consolidated group for
federal income tax purposes of which Firstmark is the parent.
"Consolidated Returns" shall have the meaning set forth in
Section 6.3(a) hereof.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
"Firstmark Disclosure Package" shall mean the schedules of
Firstmark relating to the representations and warranties made under Article 4
hereof, delivered as a separate document on the date hereof.
"Firstmark Group Members" shall have the meaning set forth in
Section 6.3(a).
"Form 8023" shall mean Department of Treasury Form 8023,
revised September 1997.
"Generally Accepted Accounting Principles" shall mean, at any
particular time, generally accepted accounting principles, consistently applied
on a going concern basis without regard to the pendency of the sale contemplated
hereby and using audit scope and materiality standards used in the past and,
with respect to interim financial statements, subject to normal year-end
adjustments.
"Governmental Body" shall mean any federal, state, local,
municipal, foreign or other governmental or quasi-governmental entity or
authority of any nature.
"IBNR Reserve" shall mean as of any date the amount recorded
as a liability on the consolidated balance sheet of STIC representing the sum
reserved by STIC to pay incurred but not reported claims and relating to title
insurance policies issued by STIC.
"Interim Period" shall have the meaning set forth in Section
9.3(b).
"ISC Capital Stock" shall mean the ISC Common Stock.
"ISC Common Stock" shall mean ISC's Common Stock, par value
$5.00 per share, of which 499 shares are authorized, issued and outstanding and
held by SCAC.
"ISC Subsidiary" shall mean STIC and any other entity which is
50% or more owned by ISC or STIC.
"June 30, 1998 Financial Statements" shall have the meaning
set forth in Section 6.3(d)(1)(A).
"Legal Requirement" - any United States federal, state or
local law, ordinance, principle of common law, regulation or statute as in
effect on the Closing Date.
"Liabilities" shall mean, collectively, any debt, obligation,
or liability.
"Licenses" shall mean any licenses, permits or approvals
required for any Person for the issuance of title insurance policies in those
jurisdictions in which such Person issues title insurance policies as of the
date in question, or which are otherwise material at such time to the lawful
conduct of the business of such Person.
"Material Adverse Change" shall mean, with respect to STIC (i)
STIC's consolidated net worth as set forth on the Balance Sheet delivered at the
Closing pursuant to Section 4.2(e) hereof, is 95% or less than as set forth on
STIC's consolidated balance sheet as of June 30, 1998 delivered pursuant to
Section 4.2(e) hereof, or (ii) there shall have been filed against STIC a claim
or claims under or in connection with a title policy or policies which is not
disclosed in the Firstmark Disclosure Package and which, in the reasonable
judgment of Old Guard, is probable of success on the merits and could reasonably
result in a claims payment in excess of $100,000, net of previously established
reserves in connection therewith and any existing reinsurance or fidelity
coverage. Notwithstanding the foregoing, the contribution to the IBNR Reserve
required by Section 3.1(m) shall not constitute a Material Adverse Change.
"1934 Act" shall mean the Securities Exchange Act of 1934, as
amended.
"1933 Act" shall mean the Securities Act of 1933, as amended.
"Old Guard Disclosure Package" shall mean the schedules of Old
Guard relating to the representations and warranties made under Article 5
hereof, delivered as a separate document on the date hereof.
"Old Guard Insurance Subsidiaries" shall mean Old Guard
Insurance Company, Old Guard Fire Insurance Company, First Patriot Insurance
Company, First Delaware Insurance Company and New Castle Insurance Company.
"Old Guard Licensed States" shall mean those jurisdictions in
which any Old Guard Insurance subsidiary is licensed.
"Old Guard SEC Filings" shall mean all filings made or
required to be made by Old Guard under the 1933 Act or the 1934 Act, including,
without limitation, registration statements, prospectuses, annual reports to
shareholders, proxy statements, annual reports on Form 10-K, quarterly reports
on Form 10-Q, and current reports on Forms 8-K, and all amendments or
supplements thereto.
"Operating Period" shall mean (i) the period commencing on
January 1, 1999 and ending on December 31, 1999, and (ii) each and every fiscal
year of ISC thereafter through and including the fiscal year ending on December
31, 2001.
"Person" shall mean an individual, a corporation, a
partnership, a limited liability company, a joint venture, a trust or
unincorporated organization, a joint stock company or other similar
organization, a government or any political subdivision thereof, or any other
legal entity.
"Post-June 30, 1998 Tax Period" shall mean, with respect to
any Tax, (a) any taxable period that begins on or after July 1, 1998, and (b)
that portion beginning on July 1, 1998 of any taxable period that includes but
does not end on June 30, 1998.
"Pre-Closing Tax Period" shall mean, with respect to any Tax,
(a) any taxable period ending on or before the Closing Date, and (b) that
portion ending on the Closing Date of any taxable period that includes but does
not end on the Closing Date.
"Pre-Tax Net Income" shall mean the pre-tax net income of ISC
and the ISC Subsidiaries determined in accordance with GAAP.
"SCAC" shall mean Southern Capital Acquisition Corporation, a
Virginia corporation.
"Section 338(h)(10) Election" shall mean a timely election by
Firstmark and Old Guard for the taxable period ending on or as of the end of the
day on the Closing Date, under or pursuant to (a) Section 338(h)(10) of the Code
and Section 1.338(h)(10)-1 of the Treasury Regulations promulgated pursuant to
the Code, and (b) any corresponding elections that are required under any
applicable state or local Tax law or regulation.
"Section 338(h)(10) Taxes" shall mean any and all Taxes
attributable to any Section 338(h)(10) Election, computed in any manner
consistent with the tax accounting methods, principles and tax sharing
arrangement or agreement used by the taxable entity in its immediately preceding
taxable period to report its or their income to the relevant taxing authority,
less the amount of any reduction in premium taxes actually realized by ISC or
any ISC Subsidiary, for any taxable period that includes the Closing Date, as a
result of a Section 338(h)(10) Election.
"Short Period" shall have the meaning set forth Section
9.3(b).
"STIC" shall mean Southern Title Insurance Corporation, a
Virginia title insurance corporation.
"STIC Licensed States" shall mean those jurisdictions listed
on Exhibit "A" attached hereto in which STIC is licensed to issue policies of
title insurance.
"STIC Subsidiary" shall mean Southern Title Services, Inc.,
and any other entity which is 50% or more owned by STIC. A STIC Subsidiary may
also be an ISC Subsidiary.
"Tax" shall mean any tax, levy, assessment, tariff or duty
imposed, assessed or collected by or under the authority of any Governmental
Body.
"Tax Return" shall mean any return, report, form or other
document or information filed with or submitted to, or required to be filed with
or submitted to, any Governmental Body in connection with the determination,
assessment, collection, or payment of any Tax, including any amendments thereto.
2. Stock Purchase; Closing; Payment of Purchase Price.
2.1. Transfer of ISC Capital Stock. On the Closing
Date, Firstmark, in reliance upon the representations and warranties of Old
Guard set forth herein and subject to the terms and conditions hereof, shall
cause SCAC to transfer the ISC Capital Stock held by SCAC to Old Guard in
exchange for cash and on the Closing Date, Old Guard, in reliance upon the
representations and warranties of Firstmark set forth herein and subject to the
terms and conditions hereof, shall deliver cash to SCAC in exchange for the ISC
Capital Stock held by SCAC, all as set forth in Section 2.3 below.
2.2. Closing.
(a) The Closing shall take place on the Closing Date
at the offices of Stevens & Lee, One Penn Square, Lancaster,
Pennsylvania 17608 at 9:00 a.m Eastern Standard Time provided
that Firstmark and Old Guard by mutual agreement may
accelerate or defer the Closing Date to such date as they may
select.
2.3. Payment of Purchase Price.
(a) Provided that all conditions to the Closing set
forth in Section 3.1 below have been satisfied or waived, at
the Closing, Old Guard shall pay to SCAC by wire transfer in
immediately available funds an amount equal to $6,750,000.
(b) Within the ninety (90) day period immediately
following the end of each Operating Period (each such ninety
(90) day period to be referred to herein as a "Determination
Period") Old Guard shall deliver to Firstmark and SCAC a
statement (the "Statement") prepared by Old Guard certifying
the Pre-Tax Net Income for the previous Operating Period
together with a check payable to SCAC in an amount equal to
25% of (i) Pre-Tax Net Income for the most recent Operating
Period less (ii) the cumulative net loss of ISC and the ISC
Subsidiaries during all prior Operating Periods. From the date
hereof through December 31, 2001, Old Guard covenants and
agrees (a) that it will continue to operate ISC and the ISC
Subsidiaries in a manner that is consistent with past
practice, (b) that in determining the Pre-Tax Net Income it
will not allocate against the revenues of ISC or the ISC
Subsidiaries any liabilities or expenses which did not arise
in the ordinary course of business of ISC and the ISC
Subsidiaries, including but not limited to any liabilities and
expenses of Old Guard and the Old Guard Subsidiaries, (c) that
it will not transfer any of the business operations of ISC and
the ISC Subsidiaries to Old Guard or an Old Guard Subsidiary,
and (d) that it will not sell, assign or otherwise transfer
the business of ISC and the ISC Subsidiaries to a third party,
whether by sale of assets or stock, merger or otherwise.
(c) Firstmark, SCAC and their accountants, shall have
the right, for a period of thirty (30) days following their
receipt of the Statement, to review such Statement and any
related work papers to determine whether the Pre-Tax Net
Income for such Operating Period was determined in accordance
with the provisions hereof. If, following such review,
Firstmark and SCAC determine that the Pre-Tax Net Income was
not calculated by Old Guard in accordance with the provisions
hereof, Firstmark and SCAC shall so notify Old Guard, which
notice shall contain a detailed statement showing their
computation of the Pre-Tax Net Income. For a period of thirty
(30) days following the receipt of such notice, Old Guard and
Firstmark and SCAC shall attempt to resolve any such dispute
with respect to the calculation of Pre-Tax Net Income. If, at
the expiration of such thirty (30) day period, Old Guard and
Firstmark and SCAC are unable to resolve such dispute, Old
Guard and Firstmark and SCAC shall promptly submit the
disputed financial statements and the statements setting forth
the determination of Pre-Tax Net Income to a firm of
independent certified public accountants agreed to by Old
Guard and Firstmark and SCAC, which firm shall resolve all
matters in dispute with respect to the determination of
Pre-Tax Net Income within the forty-five (45) day period
immediately following such submission and whose determination
shall be final, binding and conclusive upon Old Guard and
Firstmark and SCAC. The fees of any such independent certified
public accounting firm shall be borne by the parties whose
determination of Pre-Tax Net Income is the most inaccurate.
2.4. Allocation of Consideration. In connection with
the Section 338(h)(10) Election, Old Guard and Firstmark shall cooperate as
provided herein in determining the modified aggregate deemed sales price
("MADSP") (as such term is defined in Treasury Regulations Section
1.338(h)(10)-1) of the assets and the allocation of the MADSP on a company by
company basis for purposes of Section 338(a)(1) of the Code in accordance with
all applicable Treasury Regulations promulgated under Section 338 of the Code.
Old Guard initially shall determine such MADSP and allocation of the MADSP on a
company by company basis and shall notify Firstmark in writing of the price and
allocation so determined ("Old Guard's Deemed Sales Price Notice") within ninety
(90) days after the Closing Date. Firstmark shall be deemed to have accepted
such determination unless, within forty-five (45) days after receipt of Old
Guard's Deemed Sales Price Notice, Firstmark notices Old Guard in writing of (i)
the amount that Firstmark proposes as the MADSP (if it differs from that
proposed by Old Guard), (ii) the allocation of the MADSP proposed by Firstmark
and (iii) the reasons for Firstmark's allocations. If Firstmark provides such
notice to Old Guard, the parties shall proceed in good faith to determine
mutually the matters in dispute and, if they are unable to do so within thirty
(30) days, the matter shall be referred to the Alternative Accountants, if the
disagreement relates to the determination of the MADSP, or an appraisal firm
chosen by and mutually acceptable to both Old Guard and Firstmark (the
"Appraiser"), if the disagreement relates to the allocation of the MADSP, who
shall within sixty (60) days decide the matter. The decision of the Alternative
Accountants or Appraiser shall be final and binding on both parties. The
Alterative Accountants' or Appraiser's fees shall be shared equally by Old Guard
and Firstmark. Neither Old Guard nor Firstmark shall take, nor shall they permit
any Affiliated corporation to take, any position for Tax purposes relating to
the Section 338(h)(10) Election that is inconsistent with the MADSP and
allocation thereof as finally determined hereunder unless such position would be
inconsistent with a final non-appealable (except to the United States Supreme
Court) judgment which has been rendered in any judicial proceeding governing
such position; provided, however, that the deemed purchase price of the assets
shall differ from MADSP to the extent necessary to reflect the inclusion in the
total deemed purchase price of items (for example, Old Guard's capitalized
acquisition costs in addition to the consideration paid hereunder) not included
in the MADSP.
3. Conditions to Stock Exchange and Closing.
3.1. Old Guard's Conditions to Closing. All
obligations of Old Guard to deliver cash to SCAC on the Closing Date in exchange
for ISC Capital Stock are subject to the fulfillment, at or prior to the Closing
Date, of each of the following conditions:
(a) All representations and warranties of Firstmark
set forth in Article 4 hereof shall be true and correct in all
material respects as of the Closing Date;
(b) Firstmark shall have complied in all material
respects with all of the covenants set forth herein;
(c) Old Guard shall have received the approvals of,
or grants or confirmations of exemptions from the Virginia
Bureau of Insurance and, to the extent required, the
Pennsylvania Department of Insurance and Ohio Department of
Insurance, each with respect to the acquisition by Old Guard
of the ISC Capital Stock.
(d) There shall be no threatened or pending
litigation or any threatened or pending administrative
proceeding (i) for the purpose of enjoining or otherwise
delaying or preventing any of the transactions contemplated by
this Agreement, or (ii) which in the reasonable judgment of
Old Guard is probable of success on the merits and would
fundamentally impair the ability to operate ISC or STIC,
provided, however, that the existence of such litigation or
proceeding shall not be a condition of Old Guard's obligation
to close if such litigation or proceeding is initiated or
instigated by or on behalf of Old Guard;
(e) No Material Adverse Change has occurred with
respect to STIC;
(f) Firstmark or SCAC, as applicable, shall have
delivered to Old Guard the following documents:
(i) The ISC Capital Stock registered in the
name of Old Guard;
(ii) Copies of good standing certificates
and Licenses for STIC from each applicable STIC
Licensed State;
(iii) Any revisions or supplements to the
Firstmark Disclosure Package permitted pursuant to
Section 9.1 hereof;
(iv) The interim financial statements
required by the second sentence of Section 4.2(e);
and
(v) An opinion of Firstmark's counsel
reasonably acceptable to Old Guard and its counsel;
(g) Donald V. Cruickshanks shall have executed the
employment agreement attached hereto as Exhibit "B";
(h) Gerald W. Sklar shall have executed the
employment agreement attached hereto as Exhibit "C";
(i) Old Guard shall have received an opinion from its
financial advisor that the transaction is fair from a
financial perspective to Old Guard shareholders;
(j) Firstmark and SCAC shall have paid in full to ISC
or STIC all debts, obligations, liabilities, or other
intercompany balances, whether matured or unmatured, and shall
provide Old Guard with satisfactory evidence of such payment;
(k) Firstmark or SCAC shall have purchased from STIC
all Champion Broadcasting Corporation common stock owned by
STIC at the book value of such asset on the financial
accounting records of STIC; and
(l) Firstmark shall satisfy in full any remaining
obligation of STIC to H. William Coogan, Jr., pursuant to that
certain Severance Agreement dated January 1, 1998, or shall
have purchased and delivered to Mr. Coogan an annuity in a
face amount sufficient to pay the monthly amounts otherwise
due Mr. Coogan under the Severance Agreement.
(m) As of the Closing Date, STIC shall carry an IBNR
Reserve equal to the lesser of (i) $400,000 in excess of the
minimum of the actuarially determined IBNR Reserve range for
STIC as of December 31, 1998, or (ii) the maximum of such
range. At Closing Firstmark will provide Old Guard with
satisfactory evidence of such additional contribution.
Notwithstanding the foregoing, if the actuarially determined
IBNR Reserve range for STIC as of December 31, 1998 is not
known as of the Closing Date, the parties agree that any
additions to the IBNR Reserve that would have been required to
satisfy this condition as of the Closing Date had such IBNR
Reserve range been known will be made after Closing and
reflected on the consolidated financial statements of
Firstmark at and for the period ended December 31, 1998.
(n) Old Guard shall have received such documents and
written assurances which, in the reasonable judgment of Old
Guard, confirm or establish that the liability of each
Firstmark Group Member pursuant to any tax sharing arrangement
or agreement shall terminate on the Closing Date to the extent
provided in Section 6.3(d)(3) hereof.
3.2. Firstmark's Conditions to Closing. All obligations of
Firstmark to cause SCAC to transfer the ISC Capital Stock to Old Guard in
exchange for cash are subject to the fulfillment, at or prior to the Closing, of
each of the following conditions:
(a) All representations and warranties of Old Guard
set forth in Section 5 hereof shall be true and correct in all
material respects as of the Closing Date;
(b) Old Guard shall have complied in all material
respects with all of the covenants set forth in this
Agreement;
(c) There shall be no pending litigation or
administrative proceeding for the purpose of enjoining or
otherwise delaying or preventing any of the transactions
contemplated by this Agreement;
(d) Old Guard shall have delivered to Firstmark or
SCAC, as applicable, the following documents or performed the
following acts (but only to the extent necessary to acquire
title to the ISC Capital Stock held by SCAC):
(i) A wire transfer of $6,750,000; and
(ii) An opinion of Old Guard's counsel
(which may be in-house counsel) reasonably acceptable
to Firstmark and its counsel;
(e) The shareholders of Firstmark shall have approved
all matters relating to this Agreement and the transactions
contemplated hereby in accordance with Firstmark's articles of
incorporation and bylaws and applicable provisions of Maine
law;
(f) Holders of more than fifteen percent (15%) of the
issued and outstanding shares of Firstmark common stock shall
not have exercised their right to dissent from the transaction
contemplated hereby in accordance with the provisions of the
Maine Business Corporation Act.
(g) The transactions contemplated by this Agreement
shall have been approved by Virginia's Bureau of Insurance and
any other regulatory authority whose approval is required for
consummation of the transactions contemplated hereby; and
(h) Firstmark shall have received a written opinion
dated the date the Proxy Materials are mailed to shareholders
of Firstmark and in form and substance satisfactory to
Firstmark from Ferris Baker Watts, Firstmark's financial
advisor, to the effect that the terms of the transaction
contemplated hereby are fair from a financial point of view to
Firstmark shareholders. Firstmark represents and warrants
that, as of the date the Board of Directors approved this
Agreement, it has received a written opinion from Ferris Baker
Watts that the terms of the transaction are fair from a
financial point of view to Firstmark shareholders.
4. Firstmark Representations and Warranties.
4.1. Representations and Warranties Regarding
Firstmark and SCAC. Firstmark and SCAC hereby represent and warrant to Old Guard
as follows:
(a) Firstmark is a corporation duly organized,
validly existing and in good standing under the laws of Maine
and has full power and authority to own its properties and to
carry on its business as now conducted in its state of
incorporation and is in good standing and duly qualified to
conduct business as a foreign corporation in each of the
jurisdictions in which the conduct of its business requires
such qualification.
(b) SCAC is a corporation duly organized, validly
existing and in good standing under the laws of Virginia and
has full power and authority to own its properties and to
carry on its business as now conducted in its state of
incorporation and is in good standing and duly qualified to
conduct business as a foreign corporation in each of the
jurisdictions in which the conduct of its business requires
such qualification.
(c) Except for approval by the Firstmark
shareholders, all corporate actions of Firstmark required to
authorize the execution of this Agreement and the transactions
contemplated hereby have been duly authorized and adopted in
accordance with applicable law and its bylaws and articles of
incorporation and are appropriately reflected in Firstmark's
minute books. Upon the approval of the Firstmark shareholders,
this Agreement shall be a valid obligation of Firstmark,
legally binding upon it and enforceable in accordance with its
terms, except as enforceability may be limited by bankruptcy,
insolvency or other laws of general application relating to or
affecting the enforcement of creditors' rights.
(d) There is no claim, action, suit or proceeding
(including, without limitation, current investigations by
governmental agencies known to Firstmark) pending against
Firstmark or SCAC nor, to the knowledge of Firstmark and SCAC,
is there any basis for any such claim, action, suit or
proceeding seeking to enjoin the execution and delivery of
this Agreement or consummation of the transactions
contemplated hereby.
(e) Firstmark owns one hundred percent (100%) of the
issued and outstanding shares of SCAC. SCAC has good and
marketable title to the ISC Capital Stock and will transfer
the ISC Capital Stock to Old Guard free and clear of all liens
and encumbrances.
4.2. Representations and Warranties of Firstmark and SCAC
Regarding ISC, ISC Subsidiaries and STIC Subsidiaries. Firstmark and SCAC hereby
represent and warrant to Old Guard as follows:
(a) ISC is a corporation duly organized, validly
existing and in good standing under the laws of Virginia. STIC
is a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Virginia.
(b) Except as set forth in the Firstmark Disclosure
Package, ISC and STIC each has full power and authority to own
its properties and to carry on its business as now conducted
in its state of incorporation. ISC and STIC each is in good
standing and duly qualified to conduct business as a foreign
corporation in each STIC Licensed State or any other
jurisdiction in which the conduct of its business requires
such qualification. Included in the Firstmark Disclosure
Package is a copy of each of the most recent Annual Reports on
Form 9, or similar form, as filed by STIC with the appropriate
authorities of each STIC Licensed State. STIC has timely filed
all quarterly and annual reports required by the Virginia
Bureau of Insurance and such reports are accurate in all
material respects.
(c) Prior to the Closing, all corporate actions of
ISC and STIC required in connection with the transactions
contemplated hereby will have been duly authorized and adopted
in accordance with applicable law and their respective bylaws
and articles of incorporation.
(d) ISC's authorized capitalization consists of 5,000
shares of common stock, par value $5.00 per share, of which
499 shares of the common stock are issued, outstanding and
validly owned by SCAC free and clear of all liens,
encumbrances and claims. STIC's authorized capitalization
consists of 250,000 shares of common stock, par value $4.76
per share, of which 210,320 shares are issued and outstanding,
and validly owned by ISC free and clear of all liens,
encumbrances and claims and 10,000 shares of preferred stock,
par value $1.00 per share, of which none are issued and
outstanding. The Firstmark Disclosure Package lists for each
ISC Subsidiary its authorized capital stock, outstanding
capital stock, and par value of such outstanding capital
stock. All of the outstanding shares of capital stock of the
ISC Subsidiaries are directly or indirectly owned of record or
beneficially by ISC, are duly authorized, validly issued and
fully paid and ISC is and at the Closing shall be, the record
and beneficial owner of such shares, free and clear of liens,
encumbrances or claims except as noted in the Firstmark
Disclosure Package. Except as set forth in the Firstmark
Disclosure Package, no rights, options, warrants, conversion
rights, preemptive rights or agreements for the purchase or
acquisition from, or sale or issuance by, ISC, STIC or any
other ISC Subsidiary of any shares of their respective capital
stock are outstanding and no authorizations therefor are in
effect nor are there any proxies outstanding or voting
agreements with respect to any shares of their respective
capital stock.
(e)(i) Included in the Firstmark Disclosure
Package are true and correct copies of (A) STIC's
audited consolidated balance sheet as of December 31,
1997, and the related statements of income,
shareholders' equity, cash flows and notes for, the
twelve months ended December 31, 1997, (B) ISC's
internally prepared year end and interim consolidated
balance sheets as of, and related statements of
income and shareholders' equity for, the year ended
December 31, 1997 and the six (6) month period ended
June 30, 1998, (C) STIC's internally prepared interim
consolidated balance sheets as of, and related
statements of income and shareholders' equity for,
the six (6) month period ended June 30, 1998, and (D)
as to the fiscal year-end information of STIC, the
report prepared in connection therewith by Deloitte &
Touche. At Closing, Firstmark shall deliver to Old
Guard for inclusion in the Firstmark Disclosure
Package copies of ISC's interim unaudited
consolidated balance sheets as of the end of a month
no more than 60 days prior to the Closing Date,
together with related statements of income,
shareholders' equity and cash flows for the
then-current fiscal year through the date of such
balance sheets (the balance sheets, statements and
related notes now or hereafter included in the
Firstmark Disclosure Package are referred to
collectively as the "Financial Statements"). The
Financial Statements:
(A) do or will fairly present ISC's
and STIC's respective consolidated financial
position and results of operations of ISC
and STIC as of the respective dates and for
the respective periods stated above;
(B) have been or will be prepared
pursuant to and in accordance with Generally
Accepted Accounting Principles; and
(ii) Except as set forth in the Firstmark
Disclosure Package and except for any obligation,
absolute, contingent or otherwise, relating to the
issuance of or coverage under any insurance policy,
ISC and STIC had, and will have had, no material
uninsured liability or obligation required to be
reflected or disclosed in the Financial Statements
under Generally Accepted Accounting Principles which
is not so reflected or disclosed, and ISC and STIC
had and will have had no material liability or
obligation as of the respective dates of the
Financial Statements not required to be reflected or
disclosed in the Financial Statements.
(iii) STIC has heretofore maintained and
currently maintains a Claims Reserve and an IBNR
Reserve that, in each case, is in an amount which is
equal to or greater than the minimum Claims Reserve
and IBNR Reserve required to be maintained under
Generally Accepted Accounting Principles. Such Claims
Reserve and IBNR Reserve are equal to or greater than
the minimum amount of reserves suggested by the
latest independent actuarial study of STIC's Claims
Reserve and IBNR Reserve and neither is discounted to
reflect the time value of money.
(f)(i) Except as set forth in the Firstmark
Disclosure Package, (A) Firstmark, SCAC, ISC, and
each ISC Subsidiary and each STIC Subsidiary have
filed or caused to be filed all Tax Returns that are
or were required to be filed by it, them, or any one
or more of them (taking into account any valid
extensions of time for filing) pursuant to applicable
Legal Requirements, and (B) Firstmark, SCAC, ISC, and
each ISC Subsidiary and each STIC Subsidiary have
paid, or made provision in the Financial Statements
for the payment of, all Taxes that have become due
and payable by it, them, or any one or more of them,
or by any consolidated, combined, unitary or other
group, or any member of any such group of which
Firstmark, SCAC, ISC, each ISC Subsidiary and each
STIC Subsidiary, or any one or more of them is or at
any time has been a member, regardless of whether or
not shown on such Tax Returns, except such Taxes, if
any, as are listed in the Firstmark Disclosure
Package.
(ii) All Tax Returns filed by Firstmark,
SCAC, ISC, each ISC Subsidiary and each STIC
Subsidiary (A) were prepared in good faith and in a
manner reasonably believed, by management of
Firstmark, SCAC, ISC and STIC, respectively, to be in
accordance with tenable interpretations and
applications of the Code and any other applicable
Legal Requirement and (B) are true and correct in all
material respects.
(iii) For the period beginning June 8, 1996,
through the Closing Date, for federal income Tax
purposes, Firstmark, SCAC, ISC, each ISC Subsidiary
and each STIC Subsidiary that is taxable as a
corporation (A) have been and will continue to be
members of an "affiliated group" and a "consolidated
group" as defined in Section 1504(a) and Section
1.1502-1(h) of the Code and the treasury regulations
promulgated thereunder, respectively, and (B) have
joined or been included in the filing of consolidated
returns in which Firstmark is the parent of the
affiliated group. For the period beginning August 11,
1992, and ending June 7, 1996, for federal income Tax
purposes, ISC, each ISC Subsidiary and each STIC
Subsidiary that is taxable as a corporation were,
together with Southern Capital Corporation, the sole
members of an "affiliated group" and a "consolidated
group," as defined hereinabove, and filed
consolidated income Tax Returns in which Southern
Capital Corporation was the parent of the affiliated
group. The Firstmark Disclosure Package identifies
each state and local jurisdiction or Governmental
Body in or with which ISC, each ISC Subsidiary and
each STIC Subsidiary, or any one or more of them, is
required to file any Tax Returns, whether on a
consolidated, combined, unitary or other group or
separate return basis, and the Tax Returns that are
required to be filed in each such jurisdiction.
(iv) Except as set forth in the Firstmark
Disclosure Package, during the five (5) year period
immediately preceding the date hereof, there has been
no audit commenced or conducted by any Governmental
Body against Firstmark, SCAC, Southern Capital
Corporation, ISC, any ISC Subsidiary or any STIC
Subsidiary regarding Taxes.
(v) No Tax is required to be withheld
pursuant to ss.1445 of the Code as a result of any of
the transfers contemplated by this Agreement.
(vi) ISC, STIC, each ISC Subsidiary and each
STIC Subsidiary have withheld from its and their
employees, policyholders and vendors (and timely paid
to the appropriate Governmental Body) proper and
accurate amounts for all periods through the Closing
Date in compliance with all Tax withholding
provisions of applicable Legal Requirements
(including, without limitation, income, social
security and employment Tax withholding for all types
of compensation).
(vii) None of ISC, STIC, any ISC Subsidiary
or any STIC Subsidiary has waived or extended, or is
bound by or subject to any waiver or extension by
Firstmark, Southern Capital Corporation or any other
Person, of any statute of limitation that applies to
any Tax or any Tax Return for any taxable period.
(viii) No payment or series or combination
of payments or transactions to or with any Person
that arise out of any of the transactions
contemplated by this Agreement will constitute an
"excess parachute payment" as defined in Section
280G(b) of the Code, and none of ISC, STIC, any ISC
Subsidiary or any STIC Subsidiary will incur any
liability or obligation to withhold any Tax with
respect to any "excess parachute payment" under
Sections 3401 or 4999 of the Code.
(ix) Except as set forth in the Firstmark
Disclosure Package, none of the limited liability
companies in which ISC or any ISC Subsidiary or any
STIC Subsidiary has an interest is classified or
taxable as a corporation by any Governmental Body for
income tax purposes.
(g) Except as set forth in the Firstmark Disclosure
Package, (i) since December 31, 1997, there have not been any
material adverse changes in the aggregate, in the general
affairs, condition, business, properties, prospects, assets,
financial position, results of operations or net worth of ISC
or the ISC Subsidiaries; (ii) the business affairs of ISC and
the ISC Subsidiaries have since such date been conducted in
the usual and ordinary course of business, and (iii) after the
close of business on such date, no transaction has taken place
or material contract entered into other than in the usual and
ordinary course of business as heretofore conducted.
(h) Except as set forth in the Firstmark Disclosure
Package, and since December 31, 1997, there has not been:
(i) any destruction, physical damage to,
physical loss of, or casualty with respect to, the
title plant of STIC which materially and adversely
affects the financial condition or operations of ISC,
or any ISC Subsidiary;
(ii) any actions by ISC or any ISC
Subsidiary pursuant to which ISC or any ISC
Subsidiary has issued, sold or otherwise disposed of
or agreed to issue, sell or otherwise dispose of any
capital stock or any other security of ISC or any ISC
Subsidiary, or agreed to grant any option, warrant or
other right to subscribe for or to purchase any
capital stock or other security of ISC or any ISC
Subsidiary;
(iii) any payment of, or agreement to pay,
any dividends on or any distribution (whether in
cash, property or stock) in respect of the ISC
Capital Stock nor any issuance, purchase or
redemption of, or agreement to issue, purchase or
redeem, any of the ISC Capital Stock;
(iv) any loans by ISC or any ISC Subsidiary
to any person or entity or any guaranty by ISC or any
ISC Subsidiary of any loan to any person or entity
other than loans to, or guarantees in favor of,
agents of ISC or any ISC Subsidiary made in a manner
consistent with past practices;
(v) any issuance of evidence of indebtedness
by ISC or any ISC Subsidiary except in the ordinary
course of business;
(vi) the incurrence or payment by ISC or any
ISC Subsidiary of any obligations for borrowed
monies, absolute, contingent or otherwise, or failure
to pay or discharge any material liabilities for
borrowed monies when due; except the incurrence or
payment of liabilities for borrowed monies in the
ordinary course of their respective businesses
consistent with past practice and which have not been
and will not be adverse to the general affairs,
business, prospects or the properties, financial
position, results of operations or net worth of ISC
or any ISC Subsidiary;
(vii) any material intercompany transfer by
ISC or any ISC Subsidiary of liquid assets to
Firstmark, SCAC or another Affiliate of Firstmark;
(viii) any capital expenditures in excess of
$25,000;
(ix) any agreements by ISC, STIC or any
other ISC Subsidiary to do any of the things
described in the preceding clauses (i) through
(viii).
(i) Except as set forth in the Firstmark Disclosure
Package, neither ISC nor any ISC Subsidiary is a party to any
written or oral (i) contract with any labor union, (ii)
employment or consulting contract or other material contract
for services (except legal services and other services related
to claims administration and all litigation) where ISC or any
ISC subsidiary is obligated to make payments after the Closing
Date, (iii) loan agreement or instrument relating to any debt,
(iv) letter of credit or guarantee, except in the ordinary
course of business, (v) contract or agreement which has not
expired restricting the ability of any person from freely
engaging in any business or competing in the world, (vi)
contract not made in the ordinary course of business, (vii)
power of attorney except in the ordinary course of business,
(viii) operating real property leases, (ix) partnership
agreements or (x) other material contract, except
insubstantial contracts which can be terminated without
liability upon the giving of no more than thirty (30) days'
notice. Each contract or other agreement listed in the
Firstmark Disclosure Package is in full force and effect and
is valid and enforceable by ISC or the applicable ISC
Subsidiary in accordance with its terms. Neither ISC nor any
ISC Subsidiary is in default in the observance or the
performance of any material term or obligation to be performed
by it under any contract listed in the Firstmark Disclosure
Package.
(j) All of the material transactions of ISC and the
ISC Subsidiaries with unrelated Persons have been conducted on
terms generally available in transactions between unrelated
Persons in freely negotiated transactions.
(k) Except as set forth in the Firstmark Disclosure
Package, as of the date hereof, (i) no investigation,
governmental or administrative proceeding or other material
litigation of any kind or nature to which ISC or any ISC
Subsidiary may be a party is pending or threatened, and (ii)
to the knowledge of senior management of ISC or any ISC
Subsidiary, no material claim which has not ripened into
litigation or other proceeding has been made or threatened
against any of them which would materially and adversely
affect ISC or any ISC Subsidiary, or the ability of Firstmark
or SCAC to consummate the transactions contemplated by this
Agreement.
(l) The Firstmark Disclosure Package sets forth a
list and description of (i) all outstanding loans made by ISC
or any ISC Subsidiary to any of their Affiliates, (ii) all
outstanding loans made by any of their Affiliates to ISC or
any ISC Subsidiary, and (iii) all other transactions either
between or among ISC, any ISC Subsidiary and any of their
Affiliates.
(m) STIC holds all required Licenses for the STIC
Licensed States. All the Licenses are in full force and effect
and no suspension, revocation or non-renewal of any thereof,
and, to the knowledge of Firstmark, no event which (whether
with notice or lapse of time or both) might result in a
suspension, revocation or failure to renew any thereof, has
occurred except as set forth in the Firstmark Disclosure
Package.
(n) STIC has posted all deposits of securities and
cash required by regulatory authorities having jurisdiction
over STIC. The Firstmark Disclosure Package contains a list of
such deposits and the locations thereof.
(o) The Firstmark Disclosure Package contains a true
and complete list of all reinsurance policies and agreements,
and all excess loss and fidelity insurance policies, of STIC
and shows the limits, the reinsurer or insurer, and any
pending material claims against such reinsurer or insurer
thereunder. Such policies and agreements are in full force and
effect, subject to no breach by STIC which shall give rise to
a right in the reinsurer or insurer to deny any claim by STIC.
STIC has not committed any, nor has it received notice of any,
breach under reinsurance agreements and policies or excess
loss and fidelity insurance policies listed in the Firstmark
Disclosure Package. STIC has notified each such reinsurer or
insurer of all claims, known to STIC as to which STIC is
required to provide notice in accordance with the terms of
such reinsurance and insurance policies and agreements.
(p) Set forth in the Firstmark Disclosure Package is
a list of claims which have been made but not resolved or
otherwise settled as of June 30, 1998 in which (i) the amount
claimed exceeds $250,000 (including legal fees) or (ii) STIC
reasonably believes will result in payments (including legal
fees) in excess of $10,000.
4.3. Dates of and Survival of Firstmark and SCAC
Representations and Warranties.
(a) Except as to any representation that specifically
relates to an earlier date, the representations and warranties
set forth in this Agreement shall be deemed to be made again
by Firstmark and SCAC as of the Closing Date. The Firstmark
Disclosure Package shall be deemed to be delivered again by
Firstmark at the Closing, subject to Firstmark's right to
supplement or amend the Firstmark Disclosure Package as
provided in Section 9.1(b) at such date; provided, however,
that no supplement of the Firstmark Disclosure Package shall
cure any failure of the condition to closing contained in
paragraph 3.1(a) which would have resulted absent such
supplement.
(b) The representations and warranties made by
Firstmark and SCAC shall survive for a period of twelve (12)
months after the Closing Date except that the representations
and warranties made by Firstmark (i) in paragraph 4.2(e), and
(ii) concerning Tax matters shall survive until the expiration
of the applicable statute of limitations.
5. Old Guard Representations and Warranties.
5.1. Old Guard Representations and Warranties. Old
Guard hereby represents and warrants as follows:
(a) Old Guard is a corporation duly organized,
validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania and each Old Guard Subsidiary is
a corporation duly organized and validly existing and in good
standing under the laws of the applicable jurisdiction.
(b) Old Guard and each Old Guard Subsidiary has full
power and authority to own its properties and to carry on its
business as now conducted in its state of incorporation and is
in good standing and duly qualified to conduct business as a
foreign corporation in each of the jurisdictions in which the
conduct of its business requires such qualification.
(c) All corporate actions of Old Guard required to
authorize the execution of this Agreement and the transactions
contemplated hereby have been duly authorized and adopted in
accordance with applicable law and its bylaws and articles of
incorporation and are appropriately reflected in Old Guard's
minute books.
(d) This Agreement constitutes valid and binding
obligations of Old Guard enforceable in accordance with its
terms, except as such enforceability may be limited by
bankruptcy, insolvency or other laws of general application
relating to or affecting the rights of creditors generally.
(e) Old Guard's authorized capitalization consists of
15,000,000 shares of Common Stock, no par value per share, of
which 3,968,785 shares are issued and outstanding as of
September 30, 1998, and 5,000,000 shares of Preferred Stock,
of which no shares are issued and outstanding. All outstanding
shares of Old Guard's common stock are validly issued, fully
paid and nonassessable. There are no options, calls, warrants,
or any other securities, rights or common share equivalents
outstanding, which are convertible into, exercisable for, or
relate to, any shares of capital stock of Old Guard except as
described in Old Guard's proxy statement dated April 15, 1998.
(f) Old Guard has filed with the Securities and
Exchange Commission its annual report on Form 10-K for the
fiscal year ended December 31, 1997, and its quarterly report
on Form 10-Q for the nine months ended September 30, 1998. All
financial statements of Old Guard contained in such filings,
or so delivered to Firstmark, shall be deemed delivered to
Firstmark as part of the Old Guard Disclosure Package, and
shall be referred to collectively as the "Old Guard Financial
Statements." The Old Guard Financial Statements:
(i) do or will fairly present Old Guard's
financial position and results of operations of Old
Guard and the Old Guard Subsidiaries as of the
respective dates and for the respective periods
stated above; and
(ii) have been or will be prepared pursuant
to and in accordance with Generally Accepted
Accounting Principles.
Except as set forth in the Old Guard Disclosure Package, and
except for any obligation, absolute, contingent or otherwise,
relating to the issuance of or coverage under any insurance
policy, Old Guard and the Old Guard Subsidiaries had, and will
have had, as of the respective dates of the Old Guard
Financial Statements, no material uninsured liability or
obligation required to be reflected or disclosed in the Old
Guard Financial Statements under Generally Accepted Accounting
Principles which is not so reflected or disclosed, and Old
Guard had no material liability or obligation as of the
respective dates of the Old Guard Financial Statements not
required to be reflected or disclosed in the Old Guard
Financial Statements.
5.2. Dates of and Survival of Old Guard
Representations and Warranties. The representations and warranties made by Old
Guard set forth in this Agreement shall be deemed to be made again by Old Guard
as of the Closing Date and shall survive the Closing for a period of twelve (12)
months or, in the case of representations and warranties concerning Tax matters,
until the expiration of the applicable statute of limitations. The Old Guard
Disclosure Package shall be deemed to be delivered again by Old Guard at the
Closing Date.
6. Joint Covenants.
6.1. Confidentiality. Between the date of this
Agreement and the Closing Date, Firstmark and Old Guard each will maintain in
confidence, and cause its directors, officers, employees, agents and advisors to
maintain in confidence, and not use to the detriment of the other party, any
written, oral or other information obtained in confidence from the other party
or a third party in connection with this Agreement or the transactions
contemplated hereby unless such information is already known to such party or
others not bound by a duty of confidentiality or unless such information becomes
publicly available through no fault of such party, unless use of such
information is necessary or appropriate in making any filing or obtaining any
consent or approval required for the consummation of the transactions
contemplated hereby or unless the furnishing or use of such information is
required by or necessary or appropriate in connection with legal proceedings. If
the contemplated transaction is not consummated, each party will return or
destroy as much of such written information as may be reasonably requested.
6.2. Proxy Statement and Shareholder Approval. The
Board of Directors of Firstmark will duly call and will hold a meeting of its
shareholders as soon as practicable for the purpose of approving the Agreement
and the transactions contemplated thereby (the "Firstmark Shareholders Meeting")
and shall prepare and file with the Securities Exchange Commission and mail to
its shareholders appropriate proxy materials (the "Proxy Materials"), including
a notice of a special meeting of shareholders of Firstmark, a proxy statement
and a form of proxy that comply as to form, in all material respects with the
Exchange Act and the rules and regulations promulgated thereunder. In connection
with the Proxy Materials, Firstmark shall recommend to its shareholders that
this Agreement and all of the transactions contemplated hereby be approved by
such shareholders unless Firstmark shall have received a written opinion of
counsel that to do so would constitute a breach of the fiduciary duty of the
Board of Directors of Firstmark.
6.3. Tax Matters.
(a) For all Pre-Closing Tax Periods, Firstmark shall
include ISC, each ISC Subsidiary and each STIC Subsidiary that
is taxable as a corporation (hereinafter, collectively, the
"Firstmark Group Members") as an includable corporation,
component or other group member, as the case may be, in its
federal consolidated income Tax Returns and any state
consolidated, combined or unitary Tax Returns with respect to
which Firstmark is required to include any such one or more
Firstmark Group Members as an includible corporation,
component, unitary or other group member (hereinafter, all
such Tax Returns are referred to as "Consolidated Returns").
Firstmark shall (i) prepare all such Consolidated Returns in a
manner that is consistent with the Tax accounting methods and
principles that Firstmark or any Firstmark Group Member used
in its immediately preceding Tax year to report its or their
income or other Tax items to each relevant taxing authority,
except as otherwise expressly provided in this Agreement, and
(ii) allocate or apportion the liability for any Tax on any
such Consolidated Return in a manner that is consistent with
any Tax sharing arrangement or agreement used or in effect by
the relevant includible corporation or group members in its or
their immediately preceding taxable year, except as otherwise
expressly provided in this Agreement.
(b) To facilitate the filing of the Consolidated
Returns for the period ending on the Closing Date, Old Guard
shall cause each Firstmark Group Member that is includable in
any such Consolidated Return to prepare a pro-forma Tax Return
for each applicable Tax and each taxable period for which
Firstmark will file a Consolidated Return, no less than sixty
(60) days prior to the due date (including any extended due
date) for the relevant Tax Return, provided: (i) Firstmark
provides Old Guard with at least one hundred and twenty (120)
days written notice of the due date of the Consolidated Return
for which Old Guard is required to prepare a pro-forma return;
and (ii) Firstmark complies with any reasonable request by Old
Guard and provides Old Guard with such information or
documentation that is within Firstmark's knowledge, possession
or control that Old Guard may reasonably request to prepare
any such pro-forma return. Notwithstanding the foregoing,
Firstmark agrees to apply for an extension of time to file a
Consolidated Return if Old Guard is unable to provide
Firstmark with any pro-forma return requested by Firstmark
within the time allowed by the next preceding sentence. Old
Guard shall prepare all such pro-forma Tax Returns in a manner
that is consistent with the Tax accounting methods and
principles that Firstmark or any Firstmark Group Member used
in its immediately preceding Tax year to report its or their
income or other Tax items to the relevant taxing authority,
except as otherwise expressly provided in this Agreement.
(c) Old Guard shall prepare or cause to be prepared
and shall file on or before the due date (including any
extended due date) all Tax Returns (other than the
Consolidated Returns) of the Firstmark Group Members that are
due (taking into account extensions of due dates) after the
Closing. Firstmark shall provide Old Guard with written notice
either (i) in the Firstmark Disclosure Package, or (ii) at the
Closing, of all Tax Returns due after Closing for which
Firstmark has obtained an extension of the due date, the
extended due date and the amount of Tax paid in connection
with any extension of any due date.
(d) At or prior to the filing of each Consolidated
Return, Firstmark shall remit to the relevant taxing authority
the full amount of all Taxes, interest and penalties, if any,
that are due and payable with respect to such Consolidated
Return. Firstmark shall allocate or apportion the liability
for such Tax (exclusive of interest and penalties, if any) in
a manner that is consistent with any Tax sharing arrangement
or agreement used or in effect by the relevant includible
corporations or group members in its or their immediately
preceding taxable year, except as otherwise expressly provided
herein. With respect to a Consolidated Return for any
Pre-Closing Tax Period:
(1) Old Guard shall be liable to reimburse
Firstmark for the amount of Tax (but not interest or
penalties) properly allocated or apportioned to any
Firstmark Group Member, but only to the extent of the
following amounts:
(A) For any Tax relating to a
taxable period that ends on or before June
30, 1998, the lesser of (i) the amount
accrued for such Tax for such period on the
June 30, 1998 Financial Statements included
in the Firstmark Disclosure Package
(hereinafter, the "June 30, 1998 Financial
Statements"), and (ii) the amount of such
Tax that is properly allocated or
apportioned to the relevant Firstmark Group
Member.
(B) For any Tax relating to a
taxable period that begins before and ends
after June 30, 1998, the sum of (i) the
lesser of (x) the amount accrued for such
Tax on the June 30, 1998 Financial
Statements for that portion of such period
that ends on June 30, 1998, and (y) the
amount of such Tax that is properly
allocated or apportioned to that portion of
such period pursuant to the allocation or
apportionment methods and procedures set
forth in the last sentence of Section 9.3(b)
hereof, applied as if (I) such taxable
period is an "Interim Period," and (II) June
30, 1998 is substituted for the Closing
Date, plus (ii) the amount of such Tax that
is properly allocated or apportioned to the
conduct of the business of the relevant
Firstmark Group Member in the ordinary
course, as provided in Section 7.1 hereof,
for the period that begins on July 1, 1998,
plus (iii) the amount of such Tax that is
properly attributable to any "extraordinary
transactions" that are attributable to the
relevant Firstmark Group Members during the
taxable period but occur after the Closing.
For this purpose, "extraordinary
transaction" shall mean any relevant
transaction that is not in the ordinary
course of business, but shall not include
(y) the sale of Champion on or before the
Closing Date, or (z) any Section 338(h)(10)
Election.
(C) For any Tax relating to a
taxable period that begins on or after July
1, 1998, all of such Tax other than (y) any
portion of such Tax that is attributable to
an "extraordinary transaction" that occurs
before the Closing, and (z) any Section
338(h)(10) Taxes. For this purpose, the term
"extraordinary transaction" shall have the
meaning provided in Section 6.3(d)(1)(B)
above, except that such term shall include
the sale of Champion on or before the
Closing Date.
(2) Firstmark shall be liable for all Taxes
with respect to all Consolidated Returns for any
Pre-Closing Tax Period that are not payable by Old
Guard pursuant to Section 6.3(d)(1)(A), (B) and (C)
above, including, without limitation, all Taxes
attributable to the sale of Champion on or before the
Closing Date and all Section 338(h)(10) Taxes, and
all interest and penalties with respect to any
Consolidated Returns.
(3) Notwithstanding the other provisions of
this Agreement, (a) Old Guard's obligation under this
Section 6.3(d) to pay (or reimburse Firstmark for)
andy Tax pursuant to Section 6.3(d)(1)(A), (B) or (C)
above, including (without limitation) any amount
accrued on the June 30, 1998 Financial Statements,
shall be satisfied and discharged to the extent that,
at any time after June 30, 1998, Old Guard, ISC, any
ISC Subsidiary or any STIC Subsidiary either pays
such Tax or reimburses Firstmark or SCAC, or any of
its or their Affiliates (other than any Firstmark
Group Member), for such Tax, and (b) the liability of
each Firstmark Group Member pursuant to any tax
sharing arrangement or agreement shall terminate on
the Closing Date to the extent that any such
arrangement or agreement would otherwise result in
Old Guard, or any of its Affiliates, or any Firstmark
Group Member, incurring any loss, liability, damage
or expense, including, without limitation, any
liability for any Tax, interest or penalty thereon,
for any taxable period, except as expressly provided
in Section 6.3(d)(1)(A), (B) and (C) above.
(e) At or prior to the filing of each Tax Return to
be prepared and filed by Old Guard pursuant to Section 6.3(c)
above, Old Guard shall remit to the relevant taxing authority
the full amount of all Taxes, interest and penalties, if any,
that are due and payable with respect to each such Tax Return.
With respect to any Tax Return other than a Consolidated
Return for any Pre-Closing Tax Period.
(1) Firstmark shall be liable to reimburse
Old Guard for the amount of Tax (but, except as set
forth below, not interest or penalties), but only to
the extent of the following amounts:
(A) For any Tax relating to a
taxable period that ends on June 30, 1998,
the excess of (i) the amount of such Tax,
over (ii) the amount accrued for such Tax on
the June 30, 1998 Financial Statements. For
any Tax relating to a taxable period that
ends before June 30, 1998, all of such Tax
and all associated interest and penalties
thereon, other than any portion of such Tax,
interest and penalties that is accrued on
the June 30, 1998 Financial Statements.
(B) For any Tax relating to a
taxable period that begins before and ends
after June 30, 1998, the sum of (i) the
excess of (x) the amount of such Tax that is
properly apportioned to that portion of such
period that ends on June 30, 1998, pursuant
to the allocation or apportionment methods
and procedures set forth in the last
sentence of Section 9.3(b) hereof, applied
as if (y) such taxable period is an "Interim
Period," and (z) June 30, 1998 is
substituted for the Closing Date, over (y)
the amount accrued for such Tax on the June
30, 1998 Financial Statements for that
portion of such period that ends on June 30,
1998, plus (ii) the amount of such Tax that
is properly attributable to any
"extraordinary transaction" that occurs on
or after July 1, 1998 and before the
Closing, plus (iii) all Section 338(h)(10)
Taxes. For this purpose, the term
"extraordinary transaction" shall have the
meaning provided in Section 6.3(d)(1)(B)
above, except that such term shall include
the sale of Champion on or before the
Closing Date.
(C) For any Tax relating to a
taxable period that begins on or after July
1, 1998, the amount of such Tax that is
properly attributable to any "extraordinary
transaction" that occurs on or after July 1,
1998 and before the Closing, and all Section
338(h)(10) Taxes. For this purpose, the term
"extraordinary transaction" shall have the
meaning provided in Section 6.3(d)(1)(B)
above, except that such term shall include
the sale of Champion on or before the
Closing Date.
(2) Old Guard shall be liable for all Taxes
with respect to all Tax Returns (other than
Consolidated Returns) for any Pre-Closing Tax Period
that are not payable by Firstmark pursuant to Section
6.3(e)(1)(A), (B) and (C) above, excluding all Taxes
attributable to the sale of Champion on or before the
Closing Date and all Section 338(h)(10) Taxes, which
shall be the sole liability and obligation of
Firstmark.
(3) Notwithstanding the other provisions of
this Agreement, (a) Old Guard's obligation under this
Section 6.3(e) to pay (or reimburse Firstmark for)
any Tax pursuant to Section 6.3(e)(2) above,
including (without limitation) any amount accrued on
the June 30, 1998 Financial Statements, shall be
satisfied and discharged to the extent that, at any
time after June 30, 1998, Old Guard, ISC, any ISC
Subsidiary or any STIC Subsidiary either pays such
Tax or reimburses Firstmark or SCAC, or any of its or
their Affiliates (other than any Firstmark Group
Member), for such Tax, and (b) Firstmark's obligation
under this Section 6.3(e) to pay (or reimburse Old
Guard for) any Tax pursuant to Section 6.3(e)(1)(A),
(B) or (C) above, shall be satisfied and discharged
to the extent that, at any time after June 30, 1998,
Firstmark pays an amount in respect of such Tax to
(i) Old Guard, ISC, any ISC Subsidiary or any STIC
Subsidiary, as appropriate or approved by Old Guard,
or (ii) the relevant taxing authority.
(f) Any Consolidated Tax Return prepared by Firstmark
pursuant to Section 6.3(a) above for which Firstmark intends
to seek reimbursement from Old Guard pursuant to Section
6.3(d) above, or any Tax Return prepared by or at the
direction of Old Guard pursuant to Section 6.3(c) above for
which Old Guard intends to seek reimbursement from Firstmark
pursuant to Section 6.3(e) above, shall be submitted to the
other party, Firstmark or Old Guard, as the case may be,
together with a written request setting forth the amount and
calculation of any reimbursement that is requested, in
sufficient time to permit a reasonable review prior to the due
date (including extensions) of such Tax Return. Old Guard or
Firstmark, as the case may be, shall have the right to review
all work papers and procedures used to prepare any such Tax
Return or compute any such reimbursement request. If Old Guard
or Firstmark, as the case may be, within twenty (20) days
after delivery of any such Tax Return notifies the other party
in writing that it objects to any items in such Tax Return or
reimbursement request and provides a reasonable description of
the basis for such objection, the parties shall proceed in
good faith to resolve the dispute and, if they are unable to
do so within twenty (20) days, the disputed item shall be
resolved by the Alternative Accountants in accordance with any
applicable provisions of this Agreement. Upon resolution of
all disputed items, the relevant Tax Returns and reimbursement
request shall be adjusted to reflect such resolution and shall
be binding upon the parties without further adjustment. If the
Tax Return with respect to which an adjustment has been made
has been filed, the party who filed such Tax Return shall, at
its own cost and expense, prepare and file an amended Tax
Return to reflect all such adjustments. The amount of the
reimbursement requested with respect to any Tax Return shall
be paid upon the filing of such Tax Return; or, if later,
within twenty (20) days after the party obligated to make
reimbursement receives the written request therefor; or, if
later, upon the resolution of any disputed item by the parties
or the Alternative Accountants. The costs, fees and expenses
of the Alternative Accountants shall be borne equally by Old
Guard and Firstmark.
(g) Firstmark and Old Guard shall promptly notify the
other party in writing upon receipt by Firstmark or Old Guard,
or by any of their then-current Affiliates, respectively, of
notice of any pending or threatened Tax audits of or
assessments against Firstmark or Old Guard, or any of such
party's then-current or former Affiliates, as the case may be,
for any taxable period with respect to which the other party,
or any of its then-current or former Affiliates, may have any
liability, whether at law or pursuant to this Agreement.
Firstmark and Old Guard agree to cooperate, and to cause their
respective Affiliates to cooperate, in each case at their own
expense, in the conduct of any such audit, examination or
determination by any taxing authority or other Governmental
Body, in the preparation and filing of any claim for refund or
amended return arising out of any such audit, examination or
determination, or in any contest of any assessment, notice of
deficiency or other adjustment or proposed adjustment of any
Taxes for any such taxable period. In the event of any dispute
or disagreement as to any such matters, the parties shall
proceed in good faith to resolve the dispute and, if they are
unable to do so within twenty (20) days of the receipt by
either party of written notice from the other of a reasonable
description of and the basis for such dispute, the disputed
item or matter shall be resolved by the Alternative
Accountants in accordance with any applicable provisions of
this Agreement. The costs, fees and expenses of the
Alternative Accountants shall be borne equally by Old Guard
and Firstmark.
(h) Each of Firstmark and Old Guard, upon the request
of the other party, will, at any time and from time to time,
upon execution of a mutually acceptable form of
confidentiality agreement, afford to the other party, or any
other representatives of the other party, full and complete
access to such books and records (including all accounting,
financial and tax records) as shall be necessary to permit the
parties hereto to effectuate the provisions of this Section
and, in connection therewith, will make available, or cause to
be made available, such qualified personnel as the other party
shall reasonably request to assist in the compilation of the
information necessary to prepare and file the Tax Returns
referred to in this Section 6.3 as well as may be necessary to
respond to any audit that may be conducted from time to time
with respect to such Tax Returns or any other relevant Tax
Returns. Firstmark and Old Guard agree that ISC, each ISC
Subsidiary and each STIC Subsidiary shall retain all books and
records of each such entity as may be material to any Tax
matters contemplated by this Agreement, and that Firstmark and
Old Guard shall each retain such of their books and records,
and the books and records of their respective Affiliates, as
may be material to any Tax matters contemplated by this
Agreement, until the applicable period for assessment under
applicable law (giving effect to any and all extensions and
waivers) has expired, and to abide or cause its Affiliates to
abide with all record retention agreements entered into with
any taxing authority, provided such Affiliate is a party to or
has in its records a true and correct copy of any such
agreement. Firstmark and Old Guard may at any time terminate
its or their obligations under the next preceding sentence by
affording the other party an opportunity, at its own expense,
to copy and retain such books and records.
(i) Firstmark and Old Guard shall make a timely
election under ss.338(h)(10) of the Code andss.1.338(h)(10)-1
of the Treasury Regulations promulgated pursuant to the Code,
and any corresponding elections that may be required under any
applicable state or local Tax law, for each Firstmark Group
Member that is acquired, directly or indirectly, by Old Guard
at the Closing on the Closing Date. Firstmark and Old Guard
shall (i) take, and cooperate with each other to take, all
actions necessary and appropriate (including, without
limitation, the preparation, completion and timely joint
filing by Firstmark and Old Guard of Form 8023, and the
preparation, completion and timely filing of such other forms,
returns, elections, schedules and other documents and
instruments) to effect, perfect and preserve a
timelyss.338(h)(10) election in accordance withss.338(h)(10)
of the Code andss.1.338(h)(10)-1 of the Treasury Regulations
promulgated pursuant to the Code, and (ii) report the purchase
and sale of the ISC Capital Stock, consistent with the
election pursuant toss.338(h)(10) referred to in this Section
and shall take no position contrary thereto or inconsistent
therewith in any Tax Return, or in any discussion with or any
proceeding before any taxing authority or other Governmental
Body or otherwise.
(j) Any Tax refunds received by Firstmark or any of
its Affiliates, or by Old Guard or any of its Affiliates, with
respect to any taxable period (including, without limitation,
any Short, Interim or other period as determined under Section
9.3(b) hereof) that ends or is treated as ending on or before
or as of the Closing Date, shall be apportioned between and
paid by Firstmark to Old Guard, or by Old Guard to Firstmark,
as the case may be, within thirty (30) days of receipt of such
Tax Refund by the other party, based upon the portion of the
Tax that is refunded that was paid by the parties pursuant to
the principles and procedures set forth in this Agreement. In
the event of any dispute or disagreement as to the allocation
or apportionment of any such Tax Refund, the parties shall
proceed in good faith to resolve the dispute and, if they are
unable to do so within twenty (20) days of the receipt by
either party of written notice from the other of a reasonable
description of and basis for such dispute, the disputed item
or matter shall be resolved by the Alternative Accountants in
accordance with any applicable provisions of this Agreement.
The costs, fees and expenses of the Alternative Accountants
shall be borne equally by Old Guard and Firstmark.
7. Covenants of Firstmark, SCAC, ISC and STIC Through the
Closing Date. Firstmark, SCAC, ISC and STIC each jointly covenant and agree that
from the date hereof until the Closing Date or earlier termination of this
Agreement pursuant to Section 10.2:
7.1. Conduct of Business. ISC will, and will cause
each ISC Subsidiary to (a) carry on its business in the usual and ordinary
course, and (b) use its best efforts to preserve its business organizations
intact and conserve the goodwill and relationships of its customers and others
having business relations with it.
7.2. No Dividends. No dividend or other distribution
of any nature will be declared, made, set aside or paid on or in respect of any
of the ISC Capital Stock, nor will ISC directly or indirectly, issue, redeem,
retire, purchase or otherwise acquire any share of ISC Capital Stock.
7.3. Regulatory Approvals; Delivery of Documents.
Each shall use its best efforts to assist in obtaining those regulatory
approvals described in Section 3.1(c). On the Closing Date, Firstmark shall
deliver those documents set forth in Section 3.1(c).
7.4. Reports. ISC shall, and shall cause each ISC
Subsidiary to duly and timely file all reports or returns required to be filed
with any governmental agency to which such filings have previously been made in
the ordinary course of business and promptly pay when due all taxes, assessments
and governmental charges including interest and penalties levied or assessed,
unless diligently contested in good faith by appropriate proceedings.
7.5. No Solicitation. Firstmark, SCAC, ISC, and STIC
and their agents and representatives shall cease and terminate all efforts to
offer, sell or solicit offers or respond to offers, to purchase the stock or
assets of ISC or STIC and any discussions in connection therewith.
Notwithstanding the foregoing, Firstmark, SCAC, ISC and STIC may respond to an
unsolicited offer, if they receive a written opinion of counsel that the
directors of Firstmark, in the exercise of their fiduciary duty, are required to
respond to such offer. In the event that Firstmark, ISC or STIC do respond to
any such unsolicited offer, they shall immediately notify Old Guard and provide
Old Guard with a copy of the written opinion of counsel, whereupon Old Guard
shall have the right to terminate this Agreement. In the event that Firstmark,
ISC or STIC enter into an agreement with any party other than Old Guard with
respect to any merger of ISC or STIC, sale of stock of ISC or STIC or sale of
all or substantially all of the assets of ISC or STIC, then Firstmark, ISC and
STIC shall be jointly and severally liable to Old Guard in the amount of
$400,000 and such amount shall be promptly paid to Old Guard within two (2)
business days of the date of execution of such agreement.
7.6. Dissenters Rights. In the event that this
Agreement is terminated by Firstmark pursuant to Section 10.2(c)(ii) because of
failure to satisfy the condition set forth in Section 3.2(f) regarding the
exercise of dissenters rights, Firstmark shall pay to Old Guard, concurrently
with such termination, an amount equal to the lesser of (i) 115% of Old Guard's
identifiable out-of-pocket expenses, or (ii) $100,000.
8. Covenants of Old Guard. Old Guard covenants and agrees that
(unless the content clearly requires otherwise) from the date hereof until the
Closing Date or earlier termination of this Agreement pursuant to Section 10.2
below:
8.1. Conduct of Business. Old Guard will, and will
cause each Old Guard Subsidiary to (a) carry on its business in the usual and
ordinary course, and (b) use its best efforts to preserve its business
organizations intact and conserve the goodwill and relationships of its
customers and others having business relations with it.
8.2. Regulatory Approvals; Delivery of Documents. Old
Guard will make application for, and use its best efforts to expeditiously
obtain, those regulatory approvals set forth in Section 3.1(c), Closing Date,
Old Guard shall deliver those documents set forth in Section 3.2(c).
8.3. Reports. Old Guard shall, and shall cause each
Old Guard Subsidiary to duly and timely file all reports or returns required to
be filed with any governmental agency to which such filings have previously been
made in the ordinary course of business and promptly pay when due all taxes,
assessments and governmental charges including interest and penalties levied or
assessed, unless diligently contested in good faith by appropriate proceedings.
8.4. Post Closing Contribution. Old Guard shall
contribute $750,000 of additional capital to STIC promptly after Closing. Such
capital shall be in the form of equity and for the purposes of calculating
Pre-Tax Net Income or any other reason, there shall be no fee or charge assessed
on or against such additional capital.
8.5. Bonus Payments. Old Guard and STIC agree that in
calculating the bonus payable to Donald Cruickshanks and Gerald Sklar for
calendar year 1998 pursuant to their current employment agreements, STIC shall
calculate its "after-tax profits" without regard to the requirements of Section
3.1(m). Instead, such "after-tax profits" shall be determined as if the addition
to the IBNR Reserve for the year ended December 31, 1998 was an amount
sufficient to make the IBNR Reserve equal to the minimum of the actuarially
determined IBNR Reserve range as of December 31, 1998.
9. Indemnification; Arbitration; Injunctive Relief.
9.1. Firstmark Indemnification.
(a) Firstmark and SCAC shall indemnify, defend and
hold harmless Old Guard against and with respect to that
portion of any claim, liability, obligation, loss, damage,
assessment, judgment, cost, expense (including, without
limitation, reasonable attorney's fees and costs and expenses
reasonably incurred in investigating, preparing, defending
against or prosecuting any litigation or claim, action, suit,
proceeding or demand), of any kind or character, arising out
of or in any manner incident, relating or attributable to (but
after taking into account any tax benefit to Old Guard
therefrom but without regard to any benefits resulting from
the Section 338(h)(10) Election) any material (i) breach of
any representation or warranty to the extent specified above,
(ii) breach of any covenant to the extent specified above,
and/or (iii) breach of any agreement of Firstmark contained in
this Agreement or the Firstmark Disclosure Package, and/or
(iv) any other claims otherwise directly or indirectly
relating to this Agreement or the transactions contemplated
hereby (whether arising under contract, tort or otherwise),
subject however, to the following limitations and conditions:
(i) Except for losses or claims relating
solely to, or arising solely from, any Taxes or Tax
Matters described or contemplated in Sections 4.2(f),
6.3 or 9.3 hereof, no amount shall be due from
Firstmark or SCAC to Old Guard under this Section 9.1
or otherwise with respect to any claim, proceeding or
other matter to the extent that such claim or claims
do not exceed $25,000 in the aggregate. In the event
that any such claim or claims exceed $25,000 in the
aggregate, Firstmark and SCAC shall be liable for
such excess amount.
(b) Old Guard shall notify Firstmark and SCAC in a
timely manner and in writing of any matters as to which Old
Guard is entitled to receive indemnification under this
Section 9.1, and shall set forth in such notice reasonable
detail regarding specific facts and circumstances then known
by Old Guard that pertain to such matters. To the extent that
any such matters may entail litigation with parties other than
Firstmark or SCAC, Firstmark and SCAC shall have the right, at
its expense, to appoint single counsel to advise Old Guard in
any contest of a claim with such other parties. Old Guard
shall have final authority to determine all matters in
connection with any such litigation or prospective litigation.
Old Guard may not act in a manner inconsistent with the
written advice of such counsel unless the determination to so
act by Old Guard is made in good faith and considers the
extent to which Old Guard's failure to follow such advice may
increase the risk of obtaining, or the liability with respect
to, an adverse judgment. Notwithstanding the foregoing,
Firstmark and SCAC may, upon the giving of prompt written
notice, elect to defend, at its own expense, any matter that
may entail litigation as described above. Such notice shall
include an admission of liability by Firstmark and SCAC with
respect to the underlying indemnity claim.
9.2. Old Guard Indemnification.
(a) Old Guard shall indemnify, defend and hold
harmless Firstmark and SCAC against and with respect to that
portion of any claim, liability, obligation, loss, damage,
assessment, judgment, cost, expense (including, without
limitation, reasonable attorney's fees and costs and expenses
reasonably incurred in investigating, preparing, defending
against or prosecuting any litigation or claim, action, suit,
proceeding or demand), of any kind or character, arising out
of or in any manner incident, relating or attributable to (but
after taking into account any tax benefit to Firstmark or SCAC
therefrom but without regard to any benefits resulting from
the Section 338(h)(10) Election) any material (i) breach of
any representation or warranty, (ii) breach of any covenant,
(iii) breach of any agreement of Old Guard contained in this
Agreement or the Old Guard Disclosure Package and/or (iv) any
other claims otherwise directly or indirectly relating to this
Agreement or the transactions contemplated hereby (whether
arising under contract, tort or otherwise), subject however,
to the following limitations and condition that no amount
shall be due from Old Guard to Firstmark or SCAC under this
Section 9.2 or otherwise with respect to any claim, proceeding
or other matter to the extent that such claim or claims do not
exceed $25,000 in the aggregate. In the event that any such
claim or claims exceed $25,000 in the aggregate, Old Guard
shall be liable for such excess amount.
(b) Firstmark and SCAC shall notify Old Guard in a
timely manner and in writing of any matters as to which
Firstmark and SCAC is entitled to receive indemnification
under this Section 9.2, and shall set forth in such notice
reasonable detail regarding specific facts and circumstances
then known by Firstmark and SCAC that pertain to such matters.
To the extent any such matters may entail litigation with
parties other than Old Guard, Old Guard shall have the right,
at its expense, to appoint single counsel to advise Firstmark
and SCAC in any contest of a claim with such other parties.
Firstmark and SCAC shall have final authority to determine all
matters in connection with any such litigation or prospective
litigation. Firstmark and SCAC may not act in a manner
inconsistent with the written advice of such counsel unless
the determination to so act by Firstmark and SCAC is made in
good faith and considers the extent to which Firstmark's and
SCAC's failure to follow such advice may increase the risk of
obtaining, or the liability with respect to, an adverse
judgment. Notwithstanding the foregoing, Old Guard may upon
the giving of prompt written notice, elect to defend, at its
own expense, any matter that may entail litigation as
described above. Such notice shall include an admission of
liability by Old Guard with respect to the underlying
indemnity claim.
9.3. Tax Indemnification; Apportionment of Taxes.
(a)(i) In furtherance and without limiting the
generality of Section 9.1 hereof, Firstmark and SCAC will,
jointly and severally, indemnify, defend and hold harmless Old
Guard, ISC, each ISC Subsidiary and each STIC Subsidiary from
any and all Taxes imposed on Firstmark, SCAC, ISC, any ISC
Subsidiary or any STIC Subsidiary, or on any other member of
any "affiliated group" or "consolidated group" (as defined in
Section 1504(a) and Section 1.1502-1(h) of the Code and the
treasury regulations promulgated thereunder, respectively) of
which ISC, any ISC Subsidiary or any STIC Subsidiary, were
members for any period ending prior to or on the Closing Date,
in respect of its or their income, business, property or
operations or for which Old Guard, ISC, any ISC Subsidiary or
any STIC Subsidiary, may otherwise be liable (A) for any
period ending prior to or on the Closing Date, including any
Short Period or Interim Period, including, without limitation,
any Tax arising as a result of any election under Section
338(h)(10) of the Code (but excluding Taxes to be paid (or
reimbursed to Firstmark) by Old Guard, ISC, any ISC Subsidiary
or any STIC Subsidiary under Section 6.3 hereof), (B) arising
out of a breach of the representations and warranties
contained in Section 4.2(f) hereof, (C) arising out of the
breach of any covenant or agreement under Section 6.3 hereof,
or (D) for any reasonable costs or expenses incurred by Old
Guard, ISC, any ISC Subsidiary or any STIC Subsidiary, with
respect to any Taxes for which Old Guard, ISC, any ISC
Subsidiary or any STIC Subsidiary, is indemnified by Firstmark
and SCAC pursuant to this Section 9.3(a).
(ii) In furtherance and without limiting the
generality of Section 9.2 hereof, Old Guard will indemnify,
defend and hold harmless Firstmark and SCAC from any and all
Taxes imposed on Firstmark or SCAC (A) required to be paid (or
reimbursed to Firstmark or SCAC) by Old Guard, ISC, any ISC
Subsidiary or any STIC Subsidiary under Section 6.3 hereof,
(B) arising out of a breach of any covenant or agreement under
Section 6.3 hereof, or (C) for any reasonable costs or
expenses incurred by Firstmark or SCAC with respect to any
Taxes for which Firstmark is indemnified by Old Guard, ISC,
any ISC Subsidiary or any STIC Subsidiary pursuant to this
Section 9.3(a).
(b) In order to appropriately apportion any Taxes
relating to any taxable period that includes the Closing Date,
the parties hereto will, to the extent permitted by applicable
law, elect with the relevant taxing authority to treat for all
purposes the Closing Date as the last day of a taxable period
of ISC, any ISC Subsidiary or any STIC Subsidiary (a "Short
Period"), and such period shall be treated as a Short Period
and a period ending prior to or on the Closing Date for
purposes of this Agreement. In any case where applicable Legal
Requirements do not permit ISC, any ISC Subsidiary or any STIC
Subsidiary, to treat the Closing Date as the last day of a
Short Period, then for purposes of this Agreement, the portion
of each Tax that is attributable to the operations of ISC, any
ISC Subsidiary or any STIC Subsidiary, for such interim period
(the "Interim Period") shall be (i) in the case of a Tax that
is not based on or related to income, sales gross receipts,
premiums, wages, capital expenditures or expense, the total
amount of such Tax for the period in question multiplied by a
fraction, the numerator of which is the number of days in the
Interim Period, and the denominator of which is the total
number of days in such period, and (ii) in the case of a Tax
that is based on or related to income, sales gross receipts,
premiums, wages, capital expenditures or expense, the Tax that
would be due with respect to the Interim Period if such
Interim Period were a Short Period determined based upon an
interim closing of the books of ISC, any ISC Subsidiary or any
STIC Subsidiary, as the case may be.
10. Delivery of the Disclosure Packages; Termination.
10.1. Delivery of the Disclosure Packages.
(a) The parties hereto acknowledge and agree that the
Firstmark Disclosure Package and the Old Guard Disclosure
Package delivered on the date of execution of this Agreement
are a part of this Agreement and the representations and
warranties of the parties hereto.
(b) On or before the Closing Date, Firstmark shall
deliver to Old Guard such supplements or amendments to the
Firstmark Disclosure Package as are required to make the
Firstmark Disclosure Package complete and accurate as of such
date.
10.2. Termination.
(a) This Agreement may be terminated by either party
by written notice to the other party and the transactions
contemplated hereby abandoned:
(i) if Old Guard has been advised by the
Pennsylvania Insurance Department, the Virginia
Bureau of Insurance or the Ohio Department of
Insurance that an approval required hereunder will
not be granted;
(ii) if any litigation not initiated or
instigated by or on behalf of Firstmark, SCAC or Old
Guard seeking to enjoin the transactions contemplated
by this Agreement is finally determined on appeal in
favor of the individual or entity seeking such
injunction; or
(iii) if the Closing has not occurred on or
before March 31, 1999.
(b) This Agreement may be terminated by Old Guard by
written notice to Firstmark and the transactions contemplated
hereby abandoned:
(i) upon the occurrence of a Material
Adverse Change with respect to ISC; or
(ii) if the conditions set forth in Section
3.1 have not been met or waived by Old Guard; or
(iii) on or before December 31, 1998 if Old
Guard, in its reasonable discretion, is not satisfied
with the results of the due diligence investigation
of ISC and the ISC Subsidiaries.
(c) This Agreement may be terminated by Firstmark by
written notice to Old Guard and the transactions contemplated
hereby abandoned if (i) the conditions set forth in Section
3.2 have not been met or waived by Firstmark, or (ii) prior to
the Closing Date, Old Guard shall enter into any agreement or
letter of intent providing for the direct or indirect
acquisition of substantially all of the assets and liabilities
or voting stock of Old Guard.
10.3. Agreement Void. If this Agreement shall be
terminated under Section 10.2 it shall thenceforth be void without any further
action by the parties hereto, and such termination shall be without liability of
any party or any of its respective shareholders, directors or officers to any
other party, or its respective shareholders, directors or officers.
11. Miscellaneous.
11.1. Brokers. Firstmark represents and warrants to
Old Guard and Old Guard represents and warrants to Firstmark that, except for
Ferris Baker Watts Incorporated retained by Firstmark, and Legg Mason Wood
Walker Incorporated retained by Old Guard, the services of a financial advisor,
broker or finder have not been used in connection with any of the matters
pertaining to this transaction and that no broker's or finder's fee will become
payable by reason of the execution of this Agreement or the consummation of the
transactions contemplated herein. The parties shall pay all amounts due to their
respective financial advisors and shall hold harmless and indemnify the other
parties from and against any claim for broker's, finder's or financial advisor's
fees, including any cost or expense incurred in connection with the defense of
any suit claiming such fees, or in any other manner pertaining to claims for
such fees, which may become payable by reason of the acts or omission of
Firstmark.
11.2. Entire Agreement. This Agreement (including the
Exhibits and the Disclosure Packages referred to herein) constitutes the entire
agreement among the parties pertaining to the subject matter hereof. No
amendment, supplement, modification, waiver or termination of this Agreement
shall be implied or be binding (including, without limitation, any alleged
waiver based on a party's knowledge of any inaccuracy in any representation or
warranty contained herein) unless in writing and signed by the party against
which such amendment, supplement, modification, waiver or termination is
asserted. No waiver of any of the provisions of this Agreement shall be deemed
or shall constitute a waiver of any other provision hereof (whether or not
similar), nor shall such waiver constitute a continuing waiver unless otherwise
expressly therein provided.
11.3. Binding Agreement. All of the terms and
provisions of this Agreement by or for the benefit of the parties shall be
binding upon and inure to the benefit of their successors, assigns, heirs and
personal representatives. Except as expressly provided herein nothing herein is
intended to confer upon any person other than the parties and their successors,
any rights or remedies under or by reason of this Agreement.
11.4. Announcements. Firstmark and Old Guard shall
agree with each other as to the time of issuance, form and substance of any
press release or other public announcement or disclosure related to this
Agreement and the transactions contemplated hereby; provided that nothing
contained herein shall prohibit either party, following written notification to
the other, from making any disclosure which in the opinion of counsel is
required by law.
11.5. Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same Agreement.
11.6. Costs. Each party hereto assumes the payment of
its own costs (including any legal and/or accounting fees) resulting from this
Agreement and the transactions contemplated hereby.
11.7. Notices. All notices, requests, demands and
other communications hereunder shall be in writing and shall be deemed to have
been duly given (except as may otherwise be specifically provided herein to the
contrary) if delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed or mailed by certified or
registered mail with postage prepaid:
(a) If to Firstmark or SCAC to:
Donald V. Cruickshanks, President
Firstmark Corporation
901 East Cary Street
17th Floor
Richmond, Virginia 23219
With a copy to:
R. Brian Ball, Esquire
Williams Mullen Christian & Dobbins
P.O. Box 1320 (23218-1320)
1021 East Cary Street, 16th Floor
Richmond, Virginia 23219
(b) If to Old Guard:
David E. Hosler, Chairman
Old Guard Group, Inc.
P.O. Box 3010
2929 Lititz Pike
Lancaster, PA 17604
With a copy to:
Jeffrey P. Waldron, Esquire
Stevens & Lee, P.C.
One Glenhardie Corporate Center
Suite 202
1275 Drummers Lane
P.O. Box 236
Wayne, Pennsylvania 19087-0236
11.8. Applicable Law. This Agreement shall be
construed and governed under the domestic, internal law (but not the conflicts
of law) of the Commonwealth of Pennsylvania.
11.9. Separable Provisions. Should any clause,
section or part of this Agreement be held or declared to be void or illegal for
any reason, all other clauses, sections or parts of this Agreement which can be
effective without such illegal clause, section or part shall, nevertheless,
remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date and year first above written.
OLD GUARD GROUP, INC.
By_________________________________
David E. Hosler, Chairman
FIRSTMARK CORP.
By________________________________
Donald V. Cruickshanks,
President
SOUTHERN CAPITAL ACQUISITION CORPORATION
By________________________________
Donald V. Cruickshanks,
President
INVESTORS SOUTHERN CORPORATION
By________________________________
Donald V. Cruickshanks,
President
SOUTHERN TITLE INSURANCE CORPORATION
By________________________________
Donald V. Cruickshanks,
President
Exhibit "A"
District of Columbia
Florida*
Maryland
North Carolina
Ohio
Pennsylvania
Virginia
* STIC is approved for license, but license has not been activated. To activate
the license, STIC must place a statutory deposit with the State of Florida.
Appendix B
[FERRIS, BAKER WATTS LETTERHEAD]
January 28, 1999
Board of Directors
Firstmark Corp.
P.O. Box 1398
Richmond, Virginia 23218
Gentlemen:
Firstmark Corp. ("Firstmark" or the "Company") has requested a review
of the proposed transaction (the "Transaction") involving the sale of the issued
and outstanding common stock of its subsidiary, Investors Southern Corporation
("Investors"), the owner of 210,320 shares of common stock of Southern Title
Insurance Corporation ("Southern"), representing 100% of the outstanding capital
stock of Southern, to Old Guard Group, Inc. (the "Purchaser" or "Old Guard").
Specifically, you have requested a review as to whether the Transaction is fair
to Firstmark shareholders from a financial point of view. The Transaction is
described in the proposed Stock Purchase Agreement (the "Agreement") dated
December 2, 1998 between the Purchaser and Firstmark. The Board of Directors
retained us to initiate the Transaction and we commenced our engagement and
investigation on September 2, 1997.
In connection with the engagement, which resulted in the Transaction,
we contacted approximately 100 potential acquirers by phone and formally sent an
executive summary or a discussion memorandum to 33 potential acquirers to
initiate a sale transaction for Southern. These potential acquirers included a
mix of national and regional title insurance companies, property and casualty
insurance companies, financial institutions, real estate developers and brokers,
other synergistic acquirers and financial buyers. Our efforts resulted in the
Transaction as set forth in the Agreement.
Pursuant to the Agreement, the Purchaser will pay a total sum of $6.75
million in cash plus 25% of Southern's net income before taxes for the three
fiscal years ending December 31, 2001 to Firstmark for the purchase of
Investors' and Southern's common stock. Based on management's estimate the
portion of the consideration which is based on the future financial performance
of Southern is estimated at $1.093 million.
In connection with the opinion, we have reviewed, among other
things, i) the Agreement between the Purchaser and the Company, ii) selected
audited public and unaudited internal financial information of the Company and
Southern, and, iii) management's financial projection for Southern. We have held
discussions with the members of the management of Southern regarding the past
and current business operations and financial condition as well as the future
prospects of Southern. We have reviewed specific data regarding the valuation of
companies in Southern's industry and utilized our own expertise in merger,
acquisition and divestiture transactions and valuations.
In rendering our opinion, we have assumed and relied upon the accuracy
and completeness of all financial and other information reviewed by us for
purposes of this opinion whether publicly available or provided to us by
Firstmark and Southern, and we have not assumed any responsibility for
independent verification of such information. We express no opinion as to the
value to be received by holders of interests who may perfect dissenters'
statutory fair appraisal remedies. Based upon the foregoing and based upon such
other matters that we consider relevant, it is our opinion that as of the date
hereof the sale of Investors' and Southern's common stock for $6.75 million cash
plus 25% of Southern's net income before taxes for the three years ending
December 31, 2001 to the Purchaser is fair to Firstmark shareholders from a
financial point of view.
Our opinion is necessarily based upon economic, market and other
conditions as in effect on, and the information made available to us as of
December 2, 1998. Our opinion is directed to the Board of Directors of Firstmark
and does not constitute a recommendation as to how shareholders should vote on
matters associated with the Agreement. It is understood that subsequent
developments may affect the conclusions reached in this opinion and that we do
not have any obligation to update, revise or reaffirm this opinion.
Very truly yours,
/s/ FERRIS, BAKER WATTS, INC.
FERRIS, BAKER WATTS, INC.
Appendix C
Maine Revised Statutes Annotated
Title 13-A. Maine Business Corporation Act
Chapter 9. Mergers And Consolidations
ss. 909. Right of dissenting shareholders to payment for shares
1. A shareholder having a right under any provision of this Act to
dissent to proposed corporate action shall, by complying with the procedure in
this section, be paid the fair value of his shares, if the corporate action to
which he dissented is effected. The fair value of shares shall be determined as
of the day prior to the date on which the vote of the shareholders, or of the
directors in case a vote of the shareholders was not necessary, was taken
approving the proposed corporate action, excluding any appreciation or
depreciation of shares in anticipation of such corporate action.
2. The shareholder, whether or not entitled to vote, shall file with
the corporation, prior to or at the meeting of shareholders at which such
proposed corporate action is submitted to a vote, a written objection to the
proposed corporate action. No such objection shall be required from any
shareholder to whom the corporation failed to send notice of such meeting in
accordance with this Act.
3. If the proposed corporate action is approved by the required vote
and the dissenting shareholder did not vote in favor thereof, the dissenting
shareholder shall file a written demand for payment of the fair value of his
shares. Such demand
A. Shall be filed with the corporation or, in the case of a
merger or consolidation, with the surviving or new corporation; and
B. Shall be filed by personally delivering it, or by mailing
it via certified or registered mail, to such corporation at its
registered office within this State or to its principal place of
business or to the address given to the Secretary of State pursuant to
section 906, subsection 4, paragraph B; it shall be so delivered or
mailed within 15 days after the date on which the vote of shareholders
was taken, or the date on which notice of a plan of merger of a
subsidiary into a parent corporation without vote of shareholders was
mailed to shareholders of the subsidiary; and
C. Shall specify the shareholder's current address; and
D. May not be withdrawn without the corporation's consent.
4. Any shareholder failing either to object as required by subsection 2
or to make demand in the time and manner provided in subsection 3 shall be bound
by the terms of the proposed corporate action. Any shareholder making such
objection and demand shall thereafter be entitled only to payment as in this
section provided and shall not be entitled to vote or to exercise any other
rights of a shareholder.
5. The right of a shareholder otherwise entitled to be paid for the
fair value of his shares shall cease, and his status as a shareholder shall be
restored, without prejudice to any corporate proceedings which may have been
taken during the interim,
A. If his demand shall be withdrawn upon consent, or
B. If the proposed corporate action shall be abandoned or
rescinded, or the shareholders shall revoke the authority to effect
such action, or
C. If, in the case of a merger, on the date of the filing of
the articles of merger the surviving corporation is the owner of all
the outstanding shares of the other corporations, domestic and foreign,
that are parties to the merger, or
D. If no action for the determination of fair value by a court
shall have been filed within the time provided in this section, or
E. If a court of competent jurisdiction shall determine that
such shareholder is not entitled to the relief provided by this
section.
6. At the time of filing his demand for payment for his shares, or
within 20 days thereafter, each shareholder demanding payment shall submit the
certificate or certificates representing his shares to the corporation or its
transfer agent for notation thereon that such demand has been made; such
certificates shall promptly be returned after entry thereon of such notation. A
shareholder's failure to do so shall, at the option of the corporation,
terminate his rights under this section, unless a court of competent
jurisdiction, for good and sufficient cause shown, shall otherwise direct. If
shares represented by a certificate on which notation has been so made shall be
transferred, each new certificate issued therefor shall bear a similar notation,
together with the name of the original dissenting holder of such shares, and a
transferee of such shares shall acquire by such transfer no rights in the
corporation other than those which the original dissenting shareholder had after
making demand for payment of the fair value thereof.
7. Within the time prescribed by this subsection, the corporation, or,
in the case of a merger or consolidation, the surviving or new corporation,
domestic or foreign, shall give written notice to each dissenting shareholder
who has made objection and demand as herein provided that the corporate action
dissented to has been effected, and shall make a written offer to each such
dissenting shareholder to pay for such shares at a specified price deemed by
such corporation to be the fair value thereof. Such offer shall be made at the
same price per share to all dissenting shareholders of the same class. The
notice and offer shall be accompanied by a balance sheet of the corporation the
shares of which the dissenting shareholder holds, as of the latest available
date and not more than 12 months prior to the making of such offer, and a profit
and loss statement of such corporation for the 12 months' period ended on the
date of such balance sheet. The offer shall be made within the later of 10 days
after the expiration of the period provided in subsection 3, paragraph B, for
making demand, or 10 days after the corporate action is effected; corporate
action shall be deemed effected on a sale of assets when the sale is
consummated, and in a merger or consolidation when the articles of merger or
consolidation are filed or upon which later effective date as is specified in
the articles of merger or consolidation as permitted by this Act.
8. If within 20 days after the date by which the corporation is
required, by the terms of subsection 7, to make a written offer to each
dissenting shareholder to pay for his shares, the fair value of such shares is
agreed upon between any dissenting shareholder and the corporation, payment
therefor shall be made within 90 days after the date on which such corporate
action was effected, upon surrender of the certificate or certificates
representing such shares. Upon payment of the agreed value the dissenting
shareholder shall cease to have any interest in such shares.
9. If within the additional 20-day period prescribed by subsection 8,
one or more dissenting shareholders and the corporation have failed to agree as
to the fair value of the shares:
A. Then the corporation may, or shall, if it receives a demand
as provided in subparagraph (1), bring an action in the Superior Court
in the county in this State where the registered office of the
corporation is located praying that the fair value of such shares be
found and determined. If, in the case of a merger or consolidation, the
surviving or new corporation is a foreign corporation without a
registered office in this State, such action shall be brought in the
county where the registered office of the participating domestic
corporation was last located. Such action:
(1) Shall be brought by the corporation, if it
receives a written demand for suit from any dissenting
shareholder, which demand is made within 60 days after the
date on which the corporate action was effected; and if it
receives such demand for suit, the corporation shall bring the
action within 30 days after receipt of the written demand; or,
(2) In the absence of a demand for suit, may at the
corporation's election be brought by the corporation at any
time from the expiration of the additional 20-day period
prescribed by subsection 8 until the expiration of 60 days
after the date on which the corporate action was effected;
B. If the corporation fails to institute the action within the
period specified in paragraph A, any dissenting shareholder may
thereafter bring such an action in the name of the corporation;
C. No such action may be brought, either by the corporation or
by a dissenting shareholder, more than 6 months after the date on which
the corporate action was effected;
D. In any such action, whether initiated by the corporation or
by a dissenting shareholder, all dissenting shareholders, wherever
residing, except those who have agreed with the corporation upon the
price to be paid for their shares, shall be made parties to the
proceeding as an action against their shares quasi in rem. A copy of
the complaint shall be served on each dissenting shareholder who is a
resident of this State as in other civil actions, and shall be served
by registered or certified mail, or by personal service without the
State, on each dissenting shareholder who is a nonresident. The
jurisdiction of the court shall be plenary and exclusive;
E. The court shall determine whether each dissenting
shareholder, as to whom the corporation requests the court to make such
determination, has satisfied the requirements of this section and is
entitled to receive payment for his shares; as to any dissenting
shareholder with respect to whom the corporation makes such a request,
the burden is on the shareholder to prove that he is entitled to
receive payment. The court shall then proceed to fix the fair value of
the shares. The court may, if it so elects, appoint one or more persons
as appraisers to receive evidence and recommend a decision on the
question of fair value. The appraisers shall have such power and
authority as shall be specified in the order of their appointment or an
amendment thereof;
F. All shareholders who are parties to the proceeding shall be
entitled to judgment against the corporation for the amount of the fair
value of their shares, except for any shareholder whom the court shall
have determined not to be entitled to receive payment for his shares.
The judgment shall be payable only upon and concurrently with the
surrender to the corporation of the certificate or certificates
representing such shares. Upon payment of the judgment, the dissenting
shareholder shall cease to have any interest in such shares;
G. The judgment shall include an allowance for interest at
such rate as the court may find to be fair and equitable in all the
circumstances, from the date on which the vote was taken on the
proposed corporate action to the date of payment. If the court finds
that the refusal of any shareholder to accept the corporate offer of
payment for his shares was arbitrary, vexatious or not in good faith,
it may in its discretion refuse to allow interest to him;
H. The costs and expenses of any such proceeding shall be
determined by the court and shall be assessed against the corporation,
but all or any part of such costs and expenses may be apportioned and
assessed as the court may deem equitable against any or all of the
dissenting shareholders who are parties to the proceeding to whom the
corporation shall have made an offer to pay for the shares, if the
court shall find that the action of such shareholders in failing to
accept such offer was arbitrary or vexatious or not in good faith. Such
expenses shall include reasonable compensation for and reasonable
expenses of the appraisers, but shall exclude the fees and expenses of
counsel for any party and shall exclude the fees and expenses of
experts employed by any party, unless the court otherwise orders for
good cause. If the fair value of the shares as determined materially
exceeds the amount which the corporation offered to pay therefor, or if
no offer was made, the court in its discretion may award to any
shareholder who is a party to the proceeding such sum as the court may
determine to be reasonable compensation to any expert or experts
employed by the shareholder in the proceeding, and may, in its
discretion, award to any shareholder all or part of his attorney's fees
and expenses; and
I. At all times during the pendency of any such proceeding,
the court may make any and all orders which may be necessary to protect
the corporation or the dissenting shareholders, or which are otherwise
just and equitable. Such orders may include, without limitation,
orders:
(1) Requiring the corporation to pay into court, or
post security for, the amount of the judgment or its estimated
amount, either before final judgment or pending appeal;
(2) Requiring the deposit with the court of
certificates representing shares held by the dissenting
shareholders;
(3) Imposing a lien on the property of the
corporation to secure the payment of the judgment, which lien
may be given priority over liens and incumbrances contracted
after the vote authorizing the corporate action from which the
shareholders dissent;
(4) Staying the action pending the determination of
any similar action pending in another court having
jurisdiction.
10. Shares acquired by a corporation pursuant to payment of the agreed
value therefor or to payment of the judgment entered therefor, as in this
section provided, may be held and disposed of by such corporation as in the case
of other treasury shares, except that, in the case of a merger or consolidation,
they may be held and disposed of as the plan of merger or consolidation may
otherwise provide.
11. The objection required by subsection 2 and the demand required by
subsection 3 may, in the case of a shareholder who is a minor or otherwise
legally incapacitated, be made either by such shareholder, notwithstanding his
legal incapacity, or by his guardian, or by any person acting for him as next
friend. Such shareholder shall be bound by the time limitations set forth in
this section, notwithstanding his legal incapacity.
12. Appeals shall lie from judgments in actions brought under this
section as in other civil actions in which equitable relief is sought.
13. No action by a shareholder in the right of the corporation shall
abate or be barred by the fact that the shareholder has filed a demand for
payment of the fair value of his shares pursuant to this section.
Appendix D
FIRSTMARK CORP.
INTERIM FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
--------------------------------------------
Condensed Consolidated Balance Sheets
September 30, 1998 and December 31, 1997
Condensed Consolidated Statements of Operations
Nine Months and Three Months Ended
September 30, 1998 and 1997
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1998 and 1997
Notes to Condensed Consolidated Financial Statements
FIRSTMARK CORP. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
===============================================================================
ASSETS
September 30, 1998 December 31, 1997*
------------------ ------------------
(Unaudited)
Cash and cash equivalents $3,021,607 $ 2,293,136
Accounts and notes receivables - trade, net 1,198,510 1,287,453
Accounts and notes receivables - related parties 138,206 103,338
Income taxes receivable -- 248,776
Marketable securities:
Held for sale 252,790 348,454
Held to maturity 1,571,239 1,800,091
Venture capital investments, net 1,111,040 1,283,645
Real estate and other investments 817,358 809,668
Title plant 3,563,008 3,563,008
Property, plant and equipment, net 737,760 830,533
Excess of cost over fair value 926,075 961,272
Deferred tax asset 934,935 920,073
Other assets 198,925 168,234
------------- -------------
Total Assets $ 14,471,453 $ 14,617,681
============= =============
FIRSTMARK CORP. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
===============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, 1998 December 31, 1997*
------------------ ------------------
(Unaudited)
Liabilities:
Accounts payable and other liabilities $ 530,993 $ 575,463
Borrowed funds 919,412 1,060,465
Reserve for title policy claims 1,035,534 1,027,607
Deferred tax liability 920,073 920,073
---------------- ---------------
Total Liabilities 3,406,012 3,583,608
---------------- ---------------
Stockholders' Equity:
Preferred stock, Series A, $0.20 par value authorized 250,000 shares;
issued 57,000 shares
(liquidation preference $2,280,000) 11,400 11,400
Common stock, $0.20 par value - authorized
30,000,000 shares; issued 5,501,430 shares 1,100,286 1,100,286
Additional paid-in capital - preferred 2,162,889 2,162,889
Additional paid-in capital - common 11,498,331 11,498,331
Retained earnings (deficit) (2,662,579) (2,725,070)
Treasury stock, at cost - 201,554 shares (818,773) (818,773)
Net unrealized gain (loss) on marketable
equity securities held for sale, net of taxes (226,113) (194,990)
-------------- --------------
Total Stockholders' Equity 11,065,441 11,034,073
-------------- --------------
Total Liabilities and Stockholders' Equity $ 14,471,453 $ 14,617,681
============== =============
*Condensed from audited financial statements
The accompanying notes are an integral part of these condensed financial
statements.
FIRSTMARK CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
===============================================================================
Nine Months Ended Three Months Ended
September 30, September 30,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
Revenues
Title insurance $ 9,568,084 $ 7,662,828 $ 3,734,359 $ 2,961,204
Investment gains 28,922 361,143 4,916 112,582
Interest and dividends 243,971 307,017 86,089 85,062
Other revenues 263,711 203,277 107,777 99,687
----------- ----------- ----------- ------------
Total revenues 10,104,688 8,534,265 3,933,141 3,258,535
----------- ----------- ----------- ------------
Expenses
Employee compensation and
benefits 3,960,280 3,342,610 1,477,924 1,133,395
Commissions and fee expense 2,943,655 2,616,937 1,288,378 980,000
Write-offs of investments -- 100,000 -- --
General and administrative
expenses 2,683,000 2,591,075 986,337 976,762
Minority interest 352,661 267,149 102,207 141,578
----------- ----------- ----------- ------------
Total expenses 9,939,596 8,917,771 3,854,846 3,231,735
----------- ----------- ----------- ------------
Earnings (losses) before income
taxes 165,092 (383,506) 78,295 26,800
Income tax (benefit) expense -- (130,392) -- 9,112
----------- ----------- ----------- ------------
Net earnings (loss) 165,092 (253,114) 78,295 17,688
Preferred stock dividend 102,600 229,000 34,200 34,200
----------- ----------- ----------- ------------
Net earnings (loss) applicable to
common shares $ 62,492 $ (482,114) $ 44,095 $ (16,512)
=========== =========== =========== ===========
Earnings (loss) per common
share - basic and diluted $ .01 $ (.23) $ .01 $ (.01)
=========== =========== =========== ===========
Weighted - average number of
shares outstanding 5,299,876 2,069,590 5,299,876 2,069,590
=========== =========== =========== ===========
The accompanying notes are an integral part of these condensed financial
statements.
FIRSTMARK CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
===============================================================================
Nine Months Ended
September 30,
-------------
1998 1997
---- ----
Cash flows from Operating Activities
Net earnings (loss) $ 165,092 $ (253,114)
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation and amortization 173,536 175,751
Gain on receipt and sale of Intercel shares -- (479,465)
Write-down of investments -- 100,000
Collection of income taxes receivable 244,902 303,385
Marketable securities - trading account -- (58,944)
Changes in assets and liabilities 279,662 77,634
------------ -----------
Net cash provided (used) by operating activities 863,192 (134,753)
------------ -----------
Cash flows from Investing Activities
Decrease (increase) in real estate investments (9,900) 526,199
Decrease in notes receivable 41,044 122,984
Securities held for sale (18,278) 658,629
Securities held to maturity (28,528) 95,625
Decrease in venture capital investments 174,814 43,597
Purchase of property and equipment (50,220) (34,220)
------------ -----------
Net cash provided by investing activities 108,932 1,412,814
------------ -----------
Cash flows from Financing Activities
Preferred stock dividends (102,600) (229,000)
Proceeds from borrowings -- 150,000
Repayments of borrowed funds (141,053) (826,037)
------------ -----------
Net cash used by financing activities (243,653) (905,037)
------------ -----------
Net change in cash and cash equivalents 728,471 373,024
Cash and cash equivalents, beginning of period 2,293,136 1,832,681
------------ -----------
Cash and cash equivalents, end of period $ 3,021,607 $ 2,205,705
------------ -----------
Cash payments for interest $ 77,480 $ 83,707
============ ===========
The accompanying notes are an integral part of these condensed financial
statements.
FIRSTMARK CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
===============================================================================
BASIS OF PRESENTATION
1. The accompanying unaudited consolidated financial statements, which
are for interim periods, do not include all disclosures provided in the
annual consolidated financial statements. These unaudited consolidated
financial statements should be read in conjunction with the
consolidated financial statements and the footnotes thereto contained
in the Annual Report on Form 10-KSB for the year ended December 31,
1997 of Firstmark Corp. (the "Company"), as amended, as filed with the
Securities and Exchange Commission. The December 31, 1997 balance sheet
was derived from the audited consolidated financial statements, but
does not include all disclosures required by generally accepted
accounting principles.
2. In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (which are of a normal
recurring nature) necessary for a fair presentation of the financial
statements. The results of operations for the nine months ended
September 30, 1998 are not necessarily indicative of the results to be
expected for the full year.
3. Earnings (Loss) Per Share
The Company adopted the provisions of SFAS No. 128, "Earnings Per
Share," for the year ended December 31, 1997. SFAS No. 128 establishes
new standards for computing and presenting earnings per share ("EPS").
The statement replaces the presentation of primary EPS with basic EPS
and the presentation of fully diluted EPS with diluted EPS. Basic EPS
is computed by dividing net income, less required dividends on
redeemable preferred stock, by the weighted average number of common
shares outstanding during the year. Diluted EPS is computed using the
weighted average number of common shares outstanding during the year,
including the dilutive effect of all potential common shares.
4. Reclassifications
Certain reclassifications have been made in the accompanying statements
to permit comparison.
Firstmark Corp.
Proxy Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Donald V. Cruickshanks and Steven P.
Settlage, jointly and severally, as proxies, with full power to act alone, and
with full power of substitution, to represent the undersigned and to vote, as
designated below and upon any and all other matters that may properly be brought
before such meeting, all shares of Common Stock that the undersigned would be
entitled to vote at the Annual Meeting of the Shareholders of Firstmark Corp., a
Maine corporation (the "Company"), to be held at the offices of Southern Title
Insurance Corporation, One James Center, 901 East Cary Street, 17th Floor,
Richmond, Virginia, on Wednesday, February 17, 1999, commencing at 9:00 a.m.,
local time, or any adjournments thereof, for the following purposes:
1. To elect as directors the four persons listed as nominees below.
[ ] FOR nominees listed below [ ] WITHHOLD AUTHORITY to
(except as written on the line below) vote for all nominees listed below
Donald V. Cruickshanks
George H. Morison
Steven P. Settlage
(INSTRUCTION: To withhold authority to vote for any
individual nominee listed above, write that nominee's name on
the space provided below.)
--------------------------------------------------------------
2. To approve the Stock Purchase Agreement by and among the
Company, Southern Capital Acquisition Corporation, a Virginia
corporation ("SCAC"), Investors Southern Corporation, a
Virginia corporation ("ISC"), and Southern Title Insurance
Corporation, a Virginia insurance company, and Old Guard
Group, Inc., a Pennsylvania corporation ("Old Guard"), dated
as of December 2, 1998 (the "Stock Purchase Agreement"),
pursuant to which the Company and SCAC will sell to Old Guard,
and Old Guard will buy from the Company and SCAC, all of ISC's
outstanding capital stock in exchange for cash, all on the
terms and conditions set forth in the Stock Purchase
Agreement. The Stock Purchase Agreement is enclosed with the
accompanying Proxy Statement as Appendix A.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, the proxies are authorized to vote
upon any other business that may properly come before the
meeting, or any adjournment thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE SHAREHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED FOR ALL NOMINEES LISTED IN ITEM 1 AND FOR ITEM 2.
- -------------------------------- ---------------------------------------
Printed Name Signature
---------------------------------------
Signature
Dated: ___/___/99
(If signing as Attorney, Administrator,
Executor, Guardian or Trustee, please
add your title as such.)
PLEASE MARK, SIGN, DATE AND RETURN PROMPTLY