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Exhibit 10.6(e)
[Letterhead of Chicago Title and Trust Company]
June 16, 1998
Xx. Xxxx Xxxxx, Xx.
Chicago Title and Trust Company
000 Xxxxx Xxxxx Xxxxxx
XXX 00XX
Xxxxxxx, XX 00000
Dear Xxxx:
This letter agreement (the "1995 Plan Award Agreement") is to set forth
our agreement regarding the disposition of the 1,100 performance units for the
1995-1998 cycle (the "First Cycle Units") and the 1,100 performance units for
the 1997-2000 cycle (the "Second Cycle Units") previously awarded to you
pursuant to Chicago Title and Trust Company's 1995 Performance Unit Plan (the
"1995 Plan"). As you know, Alleghany Corporation ("Alleghany") intends to
transfer all of the issued and outstanding common stock of Chicago Title and
Trust Company ("CT&T") to Chicago Title Corporation, a newly formed holding
company for CT&T ("Chicago Title"), and, thereafter, to distribute all of the
outstanding common stock of Chicago Title ("Chicago Title Common Stock"), other
than shares of restricted stock issued to senior management and non-employee
directors, to the stockholders of Alleghany (the "Distribution"). Prior to the
transfer of CT&T to Chicago Title, CT&T will distribute all of the outstanding
stock of CT&T's subsidiary Alleghany Asset Management, Inc. ("AAM"), to
Alleghany. The Distribution will be effective on June 17, 1998 as determined by
the Board of Directors of Alleghany and set forth in its declaration of the
Distribution (the "Distribution Date").
A. Additional Incentive Awards
1. On the Distribution Date, Chicago Title will grant to you an award of
30,000 restricted shares of Chicago Title Common Stock pursuant to Chicago
Title's 1998 Long-Term Incentive Plan, which will vest as to 50% on the second
anniversary of the Distribution Date and 50% on the third anniversary of the
Distribution Date. The terms of such award will be governed by a restricted
stock agreement to be entered into by you and Chicago Title (the "Restricted
Stock Agreement") under the 1998 Long-Term Incentive Plan. In connection with
such restricted stock award, on the Distribution Date you will make an election
under Section 83(b) of the Internal Revenue Code, and Chicago Title will make a
tax gross-up payment to you in cash, or on your behalf through withholding
payments, to cover your Federal, state and local income taxes
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(including the Medicaid portion of F.I.C.A.) on the restricted stock award and
the gross-up payment.
2. On the day after the Distribution Date, the Compensation Committee of
the Chicago Title Board will be asked to consider a recommendation that you be
awarded non-qualified stock options to purchase 30,000 shares of Chicago Title
Common Stock pursuant to Chicago Title's 1998 Long-Term Incentive Plan, the
terms of which stock options will be governed by a stock option agreement to be
entered into by you and Chicago Title (the "Stock Option Agreement") under the
1998 Long-Term Incentive Plan. It is expressly understood that any such grant,
and the terms thereof, shall be at the sole discretion of the Compensation
Committee.
3. Effective on the Distribution Date, you will only have such rights in
respect of the First Cycle Units and the Second Cycle Units as are set forth in
this 1995 Plan Award Agreement. You expressly represent and warrant that you
have elected to enter into this 1995 Plan Award Agreement in consideration of
the grant of restricted stock provided for in Paragraph A.1. above and other
valuable consideration provided hereunder and that you were advised that you had
the right (i) to forego said restricted stock and other consideration and (ii)
to continue your First Cycle Units and Second Cycle Units in accordance with
their terms. Accordingly, you agree that your entering into this 1995 Plan Award
Agreement shall not be deemed to constitute a termination of the 1995 Plan.
B. First Cycle Units and Second Cycle Units
1. The values of both your First Cycle Units and your Second Cycle Units
will be fixed at year-end 1998. In computing benefits payable both in respect of
your First Cycle Units and in respect of your Second Cycle Units, subject to
paragraph D.1. hereof, benefits will be calculated in the manner set forth in
Sections 6 and 13 of the 1995 Plan, except that, for 1998, benefits will be
calculated on the assumption that AAM had remained a subsidiary of CT&T
throughout 1998 and that AAM had achieved 100% of its post-separation planned
results for 1998 (as included in Alleghany's Plan for 1998-2002) (i.e., benefits
will take into account (x) actual CT&T (or Chicago Title, after it becomes the
parent of CT&T) results through December 31, 1998 and (y) to the extent that AAM
results are not included in subparagraph (x) above, AAM planned results for such
portions of 1998 during which AAM is not a subsidiary of CT&T). No values will
be calculated and no benefits will be accrued for periods subsequent to December
31, 1998.
X. Xxxxxx of Payment
1. All payouts in respect of your First Cycle Units and in respect of your
Second Cycle Units will be made in the form of cash.
2. In determining the amounts of your payouts in respect of your First
Cycle Units and in respect of your Second Cycle Units, you shall be entitled to
the excess of the value on the Distribution Date of the shares of common stock
of Alleghany ("Alleghany Common Stock") that you were required to purchase, or
that you elected to purchase, in accordance with the terms of the 1995 Plan over
the purchase price therefor as provided in the 1995 Plan. Such value on the
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Distribution Date will be based upon the average of the daily averages of the
high and low sales prices of Alleghany Common Stock as reported on the New York
Stock Exchange Composite Tape for the five trading days preceding the
Distribution Date (or, in the event that there is no trading of Alleghany Common
Stock on any day during such five-trading-day period, for such lesser number of
days within such five-trading-day period that Alleghany Common Stock is traded).
For purposes of the valuation of Alleghany Common Stock in the manner described
in the preceding sentence, regular way prices (i.e., with due bills for the
shares of Chicago Title Common Stock to be distributed in respect of a share of
Alleghany Common Stock) shall be used or, in the absence of such regular way
trading on any day during such five-trading-day period, the valuation of
Alleghany Common Stock on such day shall be an amount equal to the sum of (a)
the average of the high and low ex-distribution or when-issued sales prices of
Alleghany Common Stock as reported on the New York Stock Exchange Composite Tape
on such date, plus (b) the average of the high and low when-issued or regular
way sales prices of Chicago Title Common Stock as reported on the New York Stock
Exchange Composite Tape on such date.
3. Distribution of payouts in respect of your First Cycle Units will be
made during the first calendar quarter of 1999 as soon as reasonably practicable
after completion of 1998 audited financial statements of Chicago Title, and
distribution of payouts in respect of your Second Cycle Units will be made
during the first calendar quarter of 2000. As a condition to your right to
receive any such payout, you must be an employee of Chicago Title or one of its
subsidiaries on the date of the payout; provided, however, that (a) with respect
to your First Cycle Units, in the event of death, Total Disability (as defined
in the Chicago Title and Trust Company Pension Plan, as amended from time to
time), or normal retirement after age 55 (each a "Termination Event") prior to
the date of the payout, you shall be entitled to a payout of an amount
determined by multiplying the payout to which you would have been entitled
hereunder absent a Termination Event by a fraction the numerator of which is the
number of whole months between January 1, 1995 and the Termination Event (but
not more than 48) and the denominator of which is 48; and (b) with respect to
your Second Cycle Units, in the event of a Termination Event prior to the date
of payout, you shall be entitled to a payout of an amount determined by
multiplying the payout to which you would have been entitled hereunder absent a
Termination Event by a fraction the numerator of which is the number of whole
months between January 1, 1997 and the Termination Event (but not more than 24)
and the denominator of which is 24.
4. Examples of the valuation of your First Cycle Units and Second Cycle
Units and the fulfillment of the options pursuant thereto are set forth in
Exhibit A attached hereto.
D. Other
1. For purposes of computation of benefits, references in the 1995 Plan to
"dividends paid to Alleghany" shall be deemed to include cash dividends paid by
Chicago Title to its stockholders as well as cash dividends paid to Alleghany by
CT&T or Chicago Title prior to the Distribution, and references to "approval by
Alleghany" shall be deemed to mean approval by Alleghany or by the Compensation
Committee of the Board of Directors of Chicago Title.
2. References in the 1995 Plan to administration by "the Company" shall be
deemed replaced by reference to the Compensation Committee of the Board of
Directors of Chicago Title
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and references in the 1995 Plan to administration by "the Vice Chairman of the
Company" shall be deemed replaced by references to the Chief Executive Officer
of Chicago Title.
3. Except for Sections 1 through 6, Sections 7.E., 7.F. and 7.G., Sections
8 through 11, and Sections 13 and 14, the terms of which shall remain in effect
as modified by the provisions set forth in this 1995 Plan Award Agreement, the
provisions of the 1995 Plan are of no further force and effect with respect to
the First Cycle Units and the Second Cycle Units previously awarded to you.
4. All payments made to you pursuant hereto, including payments made
pursuant to agreements referred to herein, shall be subject to any applicable
tax withholding.
If the foregoing is consistent with your understanding, please countersign
the enclosed copy of this letter and return it to me.
CHICAGO TITLE CORPORATION
By /s/ Xxxx Xxx
--------------------------
CHICAGO TITLE AND TRUST COMPANY
By /s/ S. La Xxxxx Xxxxxxxxx
--------------------------
Accepted and agreed to
this 10th day of
June, 1998
/s/ Xxxx Xxxxx, Xx.
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Xxxx Xxxxx, Xx.
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EXHIBIT A
1995 PLAN AWARD AGREEMENT - EXECUTIVES
Participant: X. Xxxxx, Xx. Page 1 of 4
1) If you accept the terms specified in the 1995 Plan Award Agreement:
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Plan Information Units Issued in:
---------------- ----------------------
1995 1997
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**Estimated Unit Value: $397.22 $330.33
Stock Dividend Issued 1995: 2.00% --
Stock Dividend Issued 1996: 2.00% --
Stock Dividend Issued 1997: 2.00% 2.00%
Total Stock Dividend Adjustment Factor: 1.061206 1.020000
Employee Purchase Price of Stock Per Plan: $152.06 $207.23
Purchase Price Adjusted for Stock Dividends: $143.29 $203.17
Est. Market Price of Alleghany Stock on Dist. Date: $350.00 $350.00
Estimated Stock Appreciation Per Share:
1995 = $350.00 - $143.29 $206.71
1997 = $350.00 - $203.17 $146.83
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Estimated Participant Value Units Issued in:
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1995 1997
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Number of Units Issued: 1,100.00 1,100.00
Estimated Value of Units (Unit Value x# of Units): $436,942.00 $363,363.00
Estimated 25% Mandatory Stock Dollars: $109,235.50 $90,840.75
Early Stock Election Made in Year of Unit Award: 0.00% 15.00%
Estimated Available Dollars for Early Stock Election: $0.00 $54,504.45
Estimated Total Dollars for Stock
(Mandatory + Early Stock Election): $109,235.50 $145,345.20
Mandatory/Early Election # of Shares Available: 762.34 715.39
Estimated Stock Appreciation on # of Shares Available: $157,583.30 $105,040.71
Estimated Total Cash Payment
(Estimated Value of Units + Est. Stock Apprec.): $594,525.30 $468,403.71
Plus:
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Stock Option Award
------------------ 1998 Award
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Non-Qualified Stock Options to Purchase # of
Shares of Chicago Title Corporation Common Stock: 30,000
Estimated Range of Values of Each Stock Option
Assuming a Stock Price of $35 on the Grant Date: $6.00 - $7.00
Estimated Range of the Total Value
of your Stock Option Award: $180,000.00 $210,000.00
Plus:
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Restricted Stock Award
---------------------- 1998 Award
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# of Restricted Shares of
Chicago Title Corporation Common Stock: 30,000
Estimated Market Value of Each Share: $35.00
Estimated Market Value of Restricted Stock Award: $1,050,000.00
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EXHIBIT A
1995 PLAN AWARD AGREEMENT - EXECUTIVES
1) If you accept the terms specified in the 1995 Plan Award Agreement
Page 2 of 4
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Calculation of Unit Values:
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The Estimated Unit Values of units issued in 1995 ("First Cycle Units") and in
1997 ("Second Cycle Units") as shown in the illustration of the calculation of
your "Estimated Participant Value" on Page 1 of 4 of this Exhibit A were
calculated based on the assumption that the Distribution Date of Chicago Title
Common Stock had occurred as of April 30, 1998 (the assumed separation date).
Actual Unit Values used to determine cash payouts under the Plan, in accordance
with the "1995 Plan Award Agreement", will be calculated using actual financial
results of CT&T through the actual separation date, as follows:
First Cycle Units and Second Cycle Units
The values of both your First Cycle Units and your Second Cycle Units will be
fixed at year-end 1998, and benefits will be calculated in the manner set forth
in Sections 6 and 13 of the 1995 Plan, except that, for 1998, benefits will be
calculated on the assumption that AAM had remained a subsidiary of CT&T
throughout 1998 and that AAM had achieved 100% of its post-separation planned
results for 1998 (as included in Alleghany's Plan for 1998-2002) (i.e., benefits
will take into account (x) actual CT&T (or Chicago Title, after it becomes the
parent of CT&T) results through December 31, 1998, and (y) to the extent that
AAM results are not included in subparagraph (x) above, AAM planned results for
such portions of 1998 during which AAM is not a subsidiary of CT&T). No values
will be calculated and no benefits will be accrued for periods subsequent to
December 31, 1998.
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Value of Stock Options:
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The fair value of a stock option award can be estimated using an option-pricing
model that considers certain variables and assumptions. Over the years, a number
of mathematical models for estimating the fair value of options have been
developed. Among the most commonly used methodologies is the Black-Sholes model.
This model says the expected value of an option depends on six factors: (1) the
market price of the underlying stock at the grant date; (2) the exercise price
of the option; (3) the dividend yield of the underlying stock; (4) the length of
the option term; (5) volatility of the underlying stock; and, (6) the
"risk-free" interest rate.
The Estimated Range of Values of Each Stock Option shown on Page 1 of 4 of this
Exhibit A was determined using the Black-Sholes model, incorporating assumptions
about the six factors referred to above as they relate to Chicago Title
Corporation. Among the assumptions used were a $35 market price for a share of
Chicago Title Corporation stock on the grant date and an average option duration
of 6 years. Changes in any of the six assumptions will result in a different
estimated value. The Black-Sholes model produced an estimated option value equal
to 20% - 23% of the estimated market value of Chicago Title Corporation stock as
of the spin-off.
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EXHBIT A
1995 PLAN AWARD AGREEMENT - EXECUTIVES
Participant: X. Xxxxx, Xx. Page 3 of 4
2) If you do not accept the terms specified in the 1995 Plan Award Agreement:
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Plan Information Units Issued in:
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1995 1997
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**Estimated Unit Value: $360.97 $308.82
Stock Dividend Issued 1995: 2.00% --
Stock Dividend Issued 1996: 2.00% --
Stock Dividend Issued 1997: 2.00% 2.00%
Total Stock Dividend Adjustment Factor: 1.061208 1.020000
Employee Purchase Price of Stock Per Plan: $152.06 $207.23
Purchase Price Adjusted for Stock Dividends: $143.29 $203.17
Estimated Market Price of Alleghany Stock
on Distribution Date: $350.00 $350.00
Estimated Stock Appreciation Per Share:
1995 = $350.00 - $143.29 $206.71
1997 = $350.00 - $203.17 $146.83
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Estimated Participant Value Units Issued in:
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1995 1997
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Number of Units Issued: 1,100.00 1,100.00
Estimated Value of Units (Unit Value x# of Units): $397,067.00 $339,702.00
Estimated 25% Mandatory Stock Dollars: $99,266.75 $84,925.50
Early Stock Election Made in Year of Unit Award: 0.00% 15.00%
Estimated Available Dollars for Early Stock Election: $0.00 $50,955.30
Estimated Total Dollars for Stock
(Mandatory + Early Stock Election): $99,266.75 $135,880.80
Mandatory/Early Election # of Shares Available: 692.77 668.80
Estimated Stock Appreciation on # of Shares Available: $143,202.49 $98,199.90
Estimated Total Cash Payment
(Estimated Value of Units + Est. Stock Apprec.): $540,269.49 $437,901.90
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EXHIBIT A
1995 PLAN AWARD AGREEMENT - EXECUTIVES
2) If you do not accept the terms specified in the 1995 Plan Award Agreement
Page 4 of 4
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Calculation of Unit Values:
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The Estimated Unit Values of units issued in 1995 ("First Cycle Units") and in
1997 ("Second Cycle Units") as shown in the illustration of the calculation of
your "Estimated Participant Value" on Page 3 of 4 of this Exhibit A were
calculated based on the assumption that the Distribution Date of Chicago Title
Common Stock had occurred as of April 30, 1998 (the assumed separation date).
Actual Unit Values used to determine cash payouts under the Plan, in the event
that you do not accept the terms specified in the "1995 Plan Award Agreement",
will be calculated using actual financial results of CT&T through the actual
separation date, as follows:
First Cycle Units
The values of First Cycle Units will be calculated in the manner set forth in
Sections 6 and 13 of the 1995 Plan, except that, for 1998, benefits will be
calculated excluding AAM results after the separation date. That is, actual
Chicago Title (excluding AAM) results will be used in the calculation for the
post-separation portion of 1998.
Second Cycle Units
The values of your Second Cycle Units will be calculated in the manner set forth
in Sections 6 and 13 of the 1995 Plan, except that, for 1998, 1999 and 2000,
benefits will be calculated excluding AAM results after the separation date.
That is, actual Chicago Title (excluding AAM) results will be used in the
calculation for the post-separation portion of 1998 and calendar years 1999 and
2000.
