<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 29 1997
REGISTRATION NO. 333-41633
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
MBIA INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CONNECTICUT 6399 06-1185706
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
113 KING STREET
ARMONK, NEW YORK 10504
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
LOUIS G. LENZI, ESQ.
MBIA INC.
113 KING STREET
ARMONK, NEW YORK 10504
(914) 273-4545
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
Copies to
ANDREW L. SOMMER, ESQ. RAM D. WERTHEIM, ESQ. ROBERT L. FRIEDMAN, ESQ.
DEBEVOISE & PLIMPTON 875 CAPMAC HOLDINGS INC. 885 SIMPSON THACHER &
THIRD AVENUE NEW YORK, THIRD AVENUE NEW YORK, BARTLETT 425 LEXINGTON
NEW YORK 10022 NEW YORK 10022 AVENUE NEW YORK, NEW
YORK 10017
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective and upon
consummation of the transactions described in the enclosed Proxy
Statement/Prospectus.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED DECEMBER 29, 1997
MBIA INC.
PROSPECTUS
-----------
CAPMAC HOLDINGS INC.
PROXY STATEMENT
-----------
This Proxy Statement and Prospectus (the "Proxy Statement/Prospectus")
relates to the proposed merger (the "Merger") of CMA Acquisition Corporation
("Merger Sub"), a Delaware corporation and wholly owned subsidiary of MBIA
Inc., a Connecticut corporation ("MBIA"), with and into CapMAC Holdings Inc., a
Delaware corporation ("CapMAC"), pursuant to an Agreement and Plan of Merger,
dated as of November 13, 1997 (the "Merger Agreement"), by and among MBIA,
CapMAC and Merger Sub. In the Merger, Merger Sub will be merged with and into
CapMAC, which will continue in existence as a wholly owned subsidiary of MBIA.
As a result of the Merger, each issued and outstanding share of the common
stock of CapMAC, par value $.01 per share ("CapMAC Common Stock") (other than
shares held by CapMAC as treasury stock or owned by MBIA or Merger Sub or any
other direct or indirect subsidiary of MBIA or CapMAC, all of which will be
canceled), will be converted into the right to receive that number of shares of
MBIA common stock, par value $1.00 per share ("Merger Consideration," and such
stock, the "MBIA Common Stock"), equal to the quotient (the "Exchange Ratio")
determined by dividing $35.00 by the average of the closing sales prices of
MBIA Common Stock as reported on the New York Stock Exchange Composite
Transactions Tape ("NYSE Composite Tape") on each of the fifteen consecutive
trading days immediately preceding the third trading day prior to the effective
time of the Merger (the "MBIA Common Stock Price"), rounded to the nearest
1/10,000th, provided that the Exchange Ratio will be .6604 if the MBIA Common
Stock Price is less than $53.00 and .5 if the MBIA Common Stock Price is more
than $70.00. CapMAC stockholders will receive cash in lieu of any fractional
shares which would otherwise be issued in the Merger.
On December 26, 1997, the most recent practicable date prior to the printing
of this Proxy Statement/Prospectus, the closing price of MBIA Common Stock as
reported on the NYSE Composite Tape was $64 per share, and the closing price of
CapMAC Common Stock as reported on the NYSE Composite Tape was $34 5/16 per
share.
This Proxy Statement/Prospectus constitutes (i) the proxy statement of CapMAC
relating to the solicitation of proxies by its Board of Directors for use at a
special meeting of CapMAC stockholders to be held at the offices of Simpson
Thacher & Bartlett, 425 Lexington Avenue, New York, New York at 10:00 a.m.,
local time, on February 3, 1998 to approve and adopt the Merger Agreement (the
"Special Meeting") and (ii) the prospectus of MBIA included as part of a
Registration Statement filed with the Securities and Exchange Commission (the
"Commission") with respect to the issuance (the "Share Issuance") of a minimum
of approximately 9,979,561 to a maximum of approximately 13,181,004 shares of
MBIA Common Stock as consideration in the Merger, such number of shares of MBIA
Common Stock being referred to as the "Merger Shares," to holders of CapMAC
Common Stock.
This Proxy Statement/Prospectus and the accompanying form of proxy are first
being sent to CapMAC stockholders on or about December 31, 1997.
IN REVIEWING THIS PROXY STATEMENT/PROSPECTUS, CAPMAC STOCKHOLDERS SHOULD
CAREFULLY CONSIDER THE MATTERS DESCRIBED UNDER THE HEADING "RISK FACTORS"
BEGINNING ON PAGE 20.
-----------
THE SHARES OF MBIA COMMON STOCK TO BE ISSUED IN CONNECTION WITH THE MERGER
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY STATE INSURANCE
DEPARTMENT, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE
SECURITIES COMMISSION OR ANY STATE INSURANCE DEPARTMENT PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS DECEMBER , 1997.
<PAGE>
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN
THIS PROXY STATEMENT/PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY MBIA OR
CAPMAC. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS
PROXY STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A PROXY IN ANY JURISDICTION
TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER,
SOLICITATION OF AN OFFER OR PROXY SOLICITATION IN SUCH JURISDICTION. NEITHER
THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF
SECURITIES PURSUANT TO THIS PROXY STATEMENT/PROSPECTUS SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF MBIA OR CAPMAC SINCE THE
DATE OF THIS PROXY STATEMENT/PROSPECTUS. HOWEVER, IF ANY MATERIAL CHANGE
OCCURS DURING THE PERIOD THAT THIS PROXY STATEMENT/PROSPECTUS IS REQUIRED TO
BE DELIVERED, THIS PROXY STATEMENT/PROSPECTUS WILL BE AMENDED AND SUPPLEMENTED
ACCORDINGLY. EXCEPT AS OTHERWISE DESCRIBED HEREIN, ALL INFORMATION REGARDING
MBIA AND ITS SUBSIDIARIES IN THIS PROXY STATEMENT/PROSPECTUS HAS BEEN SUPPLIED
BY MBIA, AND ALL INFORMATION REGARDING CAPMAC AND ITS SUBSIDIARIES IN THIS
PROXY STATEMENT/PROSPECTUS HAS BEEN SUPPLIED BY CAPMAC.
THE NEW YORK INSURANCE LAW PROVIDES THAT NO PERSON, OTHER THAN AN AUTHORIZED
INSURER, MAY ACQUIRE CONTROL OF MBIA, UNLESS IT HAS GIVEN PRIOR WRITTEN NOTICE
TO CAPITAL MARKETS ASSURANCE CORPORATION AND RECEIVED THE PRIOR APPROVAL OF
THE SUPERINTENDENT OF INSURANCE OF THE STATE OF NEW YORK. ANY PURCHASER OF 10%
OR MORE OF THE OUTSTANDING SHARES OF THE COMMON STOCK OF MBIA WOULD BE
PRESUMED TO HAVE ACQUIRED SUCH CONTROL UNLESS THE SUPERINTENDENT OF INSURANCE,
UPON APPLICATION, DETERMINES OTHERWISE.
FOR NORTH CAROLINA INVESTORS: THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE COMMISSIONER OF INSURANCE FOR THE STATE OF NORTH CAROLINA,
NOR HAS THE COMMISSIONER RULED UPON THE ACCURACY OR THE ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS.
2
<PAGE>
AVAILABLE INFORMATION
Each of MBIA and CapMAC 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 Commission. Copies of such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the following Regional Offices of the
Commission: Seven World Trade Center, 13th Floor, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can be obtained at prescribed rates from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549. The Commission also maintains a Web Site at http://www.sec.gov which
contains reports and other information regarding registrants that file
electronically with the Commission. In addition, materials filed by MBIA and
CapMAC may be inspected at the offices of the New York Stock Exchange, Inc.
(the "NYSE"), 20 Broad Street, New York, New York 10005.
MBIA has filed with the Commission a Registration Statement on Form S-4
(together with any amendments or supplements thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the shares of MBIA Common Stock to be issued pursuant
to the Merger Agreement. This Proxy Statement/Prospectus does not contain all
the information set forth in the Registration Statement, certain portions of
which have been omitted pursuant to the rules and regulations of the
Commission. Such additional information may be obtained from the Commission's
principal office in Washington, D.C. Statements contained in this Proxy
Statement/Prospectus as to the contents of any contract or other document
referred to herein are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by MBIA (File No. 1-9583)
pursuant to the Exchange Act are incorporated by reference in this Proxy
Statement/Prospectus:
(1) Quarterly Reports on Form 10-Q for the periods ended March 31, 1997,
June 30, 1997 and September 30, 1997.
(2) Annual Report on Form 10-K for the fiscal year ended December 31,
1996 (the "MBIA 10-K").
(3) Proxy Statement relating to MBIA's 1997 annual meeting of
shareholders.
(4) Current Reports on Form 8-K dated July 10, 1997, July 14, 1997,
September 18, 1997 and November 19, 1997.
(5) The description of the Common Stock of MBIA contained in MBIA's
Registration Statement on Form 8-A filed with the Commission on June 15,
1987, as amended by the Form 8-A filed with the Commission on December 31,
1991 and by the Form 8-A filed with the Commission on October 27, 1994.
(6) All documents subsequently filed by MBIA pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the Effective Time.
The following documents filed with the Commission by CapMAC (File No. 1-
14096) pursuant to the Exchange Act are incorporated by reference in this
Proxy Statement/Prospectus:
(1) Quarterly Reports on Form 10-Q for the periods ended March 31, 1997,
June 30, 1997 and September 30, 1997.
(2) Annual Report on Form 10-K for the fiscal year ended December 31,
1996 (the "CapMAC 10-K") (which incorporates by reference certain
information from CapMAC's Proxy Statement relating to the 1997 Annual
Meeting of Stockholders of CapMAC).
3
<PAGE>
(3) Current Report on Form 8-K dated November 19, 1997.
(4) All documents subsequently filed by CapMAC pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the final adjournment of
the CapMAC Special Meeting.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement/Prospectus to the extent that a statement
contained herein or in any other subsequently filed document, which also is or
is deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Proxy
Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS RELATING
TO MBIA AND CAPMAC THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE
DOCUMENTS (NOT INCLUDING EXHIBITS TO SUCH DOCUMENTS OTHER THAN EXHIBITS
SPECIFICALLY INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS) ARE AVAILABLE
WITHOUT CHARGE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS
PROXY STATEMENT/PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST OF SUCH
PERSON. REQUESTS FOR SUCH DOCUMENTS RELATING TO MBIA SHOULD BE DIRECTED TO
MBIA INC., 113 KING STREET, ARMONK, NEW YORK 10504, ATTENTION: INVESTOR
RELATIONS, TELEPHONE NUMBER (914) 273-4545; AND DOCUMENTS RELATING TO CAPMAC
SHOULD BE DIRECTED TO CAPMAC HOLDINGS INC., 885 THIRD AVENUE, NEW YORK, NEW
YORK 10022, ATTENTION: INVESTOR RELATIONS, TELEPHONE NUMBER (212) 755-1155. TO
ASSURE TIMELY DELIVERY OF SUCH DOCUMENTS, REQUESTS FOR SUCH DOCUMENTS SHOULD
BE MADE NO LATER THAN JANUARY 27, 1998.
4
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION................. 3
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE............................ 3
SUMMARY OF PROXY STATEMENT/PROSPECTUS. 6
The Companies........................ 6
The CapMAC Special Meeting........... 7
The Proposed Merger.................. 8
SUMMARY HISTORICAL FINANCIAL DATA OF
MBIA................................. 17
SUMMARY HISTORICAL FINANCIAL DATA OF
CAPMAC............................... 18
SUMMARY PRO FORMA PER SHARE AND OTHER
DATA................................. 19
RISK FACTORS.......................... 20
Determination of Exchange Ratio...... 20
Uncertainties in Integrating
Operations and Achieving Cost
Savings............................. 20
Information Concerning Forward-
Looking Statements.................. 20
CERTAIN INFORMATION CONCERNING MBIA... 22
</TABLE>
<TABLE>
<S> <C>
CERTAIN INFORMATION CONCERNING CAPMAC. 23
</TABLE>
<TABLE>
<S> <C>
SELECTED HISTORICAL FINANCIAL DATA OF
MBIA................................. 24
SELECTED HISTORICAL FINANCIAL DATA OF
CAPMAC............................... 25
SELECTED PRO FORMA FINANCIAL
DATA................................. 26
SPECIAL MEETING OF CAPMAC
STOCKHOLDERS......................... 27
General.............................. 27
Record Date.......................... 27
Quorum............................... 27
Votes Required; Voting Rights........ 27
Solicitation of Proxies.............. 28
THE PROPOSED MERGER................... 29
General.............................. 29
Closing; Effective Time.............. 29
Conversion of Shares................. 29
Fractional Interests................. 30
Exchange of Certificates............. 30
Background of the Merger............. 31
CapMAC's Reasons for the Merger;
Recommendation of the CapMAC Board.. 36
Opinion of CapMAC's Financial Advi-
sor................................. 38
MBIA's Reasons for the Merger........ 44
Interests of Certain Persons in the
Merger.............................. 45
Plans for CapMAC After the Merger.... 46
The Merger Agreement................. 46
The Merger.......................... 46
Charter and Bylaws.................. 47
Directors and Officers.............. 47
</TABLE>
<TABLE>
<S> <C>
Representations and Warranties...... 47
Conduct of Business Pending the
Merger............................. 47
Access to Information; Confidential-
ity................................ 48
Filings and Other Actions........... 49
Other Acquisition Proposals......... 50
Fees and Expenses................... 51
Indemnification and Insurance....... 51
Additional Agreements............... 52
Conditions to the Merger............ 53
Termination......................... 54
Accounting Treatment................. 55
Regulatory Filings and Approvals..... 55
Filings and Approval by Insurance
Regulators......................... 55
Antitrust........................... 55
State Anti-Takeover Statutes......... 56
Certain Federal Income Tax Conse-
quences of the Merger............... 56
Restrictions on Sales of Shares by
Affiliates.......................... 57
Stock Exchange Listing............... 57
Appraisal Rights..................... 58
MARKET PRICE DATA AND DIVIDENDS....... 59
COMPARISON OF SHAREHOLDER RIGHTS...... 60
Authorized Capital Stock............. 60
Voting Rights........................ 60
Election of Directors................ 60
Removal of Directors................. 61
Newly-Created Directorships and Va-
cancies............................. 61
Nomination of Directors.............. 61
Approval of Certain Transactions..... 61
Amendment to Charter or By-Laws...... 62
Special Meetings; Action Without
Meeting............................. 63
Business Combination Statutes........ 63
Quorum Requirements.................. 64
Dividends............................ 64
Preemptive Rights.................... 64
Rights Plan.......................... 64
Limitation of Directors' Liability... 65
Interested Director Transactions..... 65
Indemnification of Directors and Of-
ficers.............................. 66
Dissenters' Rights of Appraisal...... 66
Duration of Proxies.................. 67
Loans to Officers.................... 67
Classification of the Board of Direc-
tors................................ 67
SECURITY OWNERSHIP.................... 68
Security Ownership of Certain
Beneficial Owners of MBIA Common
Stock............................... 68
Security Ownership of Certain
Beneficial Owners of CapMAC Common
Stock............................... 69
LEGAL MATTERS......................... 70
EXPERTS............................... 70
MANAGEMENT AND ADDITIONAL INFORMATION. 70
STOCKHOLDER PROPOSALS................. 70
ANNEX A--Agreement and Plan of Merger,
dated as of November 13, 1997
ANNEX B--Opinion of Salomon Brothers
Inc
</TABLE>
5
<PAGE>
SUMMARY OF PROXY STATEMENT/PROSPECTUS
The following is a summary of certain information contained elsewhere in this
Proxy Statement/Prospectus and the Annexes hereto. It is not, and is not
intended to be, complete in itself. Reference is made to, and this summary is
qualified in its entirety by, the more detailed information contained elsewhere
in this Proxy Statement/Prospectus, including the Annexes hereto which are a
part of this Proxy Statement/Prospectus, or incorporated by reference herein.
Stockholders are encouraged to read carefully all of the information contained
in this Proxy Statement/Prospectus.
CAPMAC STOCKHOLDERS SHOULD CONSIDER CAREFULLY THE INFORMATION SET FORTH
HEREIN UNDER THE HEADING "RISK FACTORS" IN ADDITION TO THE OTHER INFORMATION
PRESENTED HEREIN.
THE COMPANIES
MBIA Inc. ...................... MBIA insures municipal bonds, asset-backed
securities and other non-municipal bonds
through its wholly-owned subsidiary, MBIA
Insurance Corporation ("MBIA Corp."). MBIA
had assets of $9.38 billion and shareholders'
equity of $2.91 billion as of September 30,
1997. Headquartered in Armonk, New York, MBIA
was incorporated under the laws of the State
of Connecticut in 1986. The principal
executive offices of MBIA are located at 113
King Street, Armonk, New York 10504, and its
telephone number is (914) 273-4545. See
"CERTAIN INFORMATION CONCERNING MBIA."
CapMAC Holdings Inc. ........... CapMAC is a holding company which through
various wholly owned subsidiaries provides
financial guaranty insurance principally of
asset-backed obligations, and advisory and
structuring services primarily in connection
with transactions in which its subsidiary
issues guarantees. CapMAC is also the parent
of a money management subsidiary that
sponsors and manages specialized investment
funds to be marketed to institutional
investors and high-net worth individuals in
the United States and abroad. CapMAC had
assets of $514 million and stockholders'
equity of $341 million as of September 30,
1997. CapMAC was incorporated under the laws
of the State of Delaware in 1992. The
principal executive offices of CapMAC are
located at 885 Third Avenue, New York, New
York 10022, and its telephone number is (212)
755-1155. See "CERTAIN INFORMATION CONCERNING
CAPMAC."
CMA Acquisition Corporation..... CMA Acquisition Corporation, a Delaware
corporation and a wholly owned subsidiary of
MBIA ("Merger Sub") was incorporated in
November 1997 for purposes of the
transactions contemplated by the Merger
Agreement. Merger Sub engages in no other
business. The mailing address of Merger Sub's
principal executive offices is c/o MBIA Inc.
at 113 King Street, Armonk, New York 10504,
and its telephone number is (914) 273-4545.
Trading Markets and Market Shares of CapMAC Common Stock are listed and
Price Data...................... traded on the NYSE, under the symbol "KAP."
Shares of MBIA Common Stock are listed and
traded on the NYSE under the
6
<PAGE>
symbol "MBI." The closing price of CapMAC
Common Stock on November 13, 1997, the last
full trading day prior to the public
announcement of the Merger, as reported by
the NYSE Composite Tape, was $29 3/4 per
share. The closing price of MBIA Common Stock
on November 13, 1997, the last full trading
day prior to the public announcement of the
Merger, as reported by the NYSE Composite
Tape, was $60 5/16 per share. On December 26,
1997, the most recent practicable date prior
to the printing of this Proxy
Statement/Prospectus, the closing price of
CapMAC Common Stock, as reported by the NYSE
Composite Tape, was $34 5/16 per share, and
the closing price of MBIA Common Stock, as
reported by the NYSE Composite Tape, was $64
per share. See "MARKET PRICE DATA AND
DIVIDENDS."
THE CAPMAC SPECIAL MEETING
The Special Meeting; Time,
Place and Date.................. The Special Meeting will be held at the
offices of Simpson Thacher & Bartlett, 425
Lexington Avenue, New York, New York at 10:00
a.m., local time, on February 3, 1998
(including any adjournments or postponements
thereof, the "Special Meeting").
Purpose of the Special Meeting.. At the Special Meeting, holders of CapMAC
Common Stock will consider and vote upon a
proposal (the "Merger Proposal") to approve
and adopt the Merger Agreement providing for
the Merger of Merger Sub with and into
CapMAC. Holders of CapMAC Common Stock may
also consider and vote upon all other matters
as may properly be brought before the Special
Meeting.
Record Date.....................
The Record Date for the Special Meeting is
the close of business on December 19, 1997,
(the "Record Date"). See "SPECIAL MEETING OF
CAPMAC STOCKHOLDERS--Record Date."
Vote Required; Security
Ownership of CapMAC's
Management.....................
The Merger Proposal will require the
affirmative vote of the holders of a majority
of the outstanding shares of CapMAC Common
Stock entitled to vote thereon (the "CapMAC
Stockholder Approval"). Holders of CapMAC
Common Stock are entitled to one vote per
share. As of the Record Date, the directors
and executive officers of CapMAC (26 persons)
were beneficial owners of an aggregate of
2,833,962 shares (including options vesting
at the Effective Time) (approximately 16.35%)
of the outstanding shares of CapMAC Common
Stock. Such directors and executive officers
have indicated to CapMAC that they presently
intend to vote all such shares in favor of
the Merger Proposal.
Revocability of Proxy........... Any CapMAC stockholder who executes and
returns a proxy may revoke such proxy at any
time before it is voted by (i)
7
<PAGE>
notifying in writing the Corporate Secretary
of CapMAC at 885 Third Avenue, New York, New
York 10022, (ii) granting a subsequent proxy,
or (iii) appearing in person and voting at
the Special Meeting. Attendance at the
Special Meeting will not in and of itself
constitute revocation of a proxy.
THE PROPOSED MERGER
General......................... At the Effective Time (as defined below),
pursuant to the Merger Agreement, Merger Sub
will be merged with and into CapMAC, in
accordance with the applicable provisions of
the General Corporation Law of the State of
Delaware ("DGCL"). CapMAC will continue in
existence as a wholly owned subsidiary of
MBIA.
Closing; Effective Time......... The Merger will become effective when an
appropriate Certificate of Merger is
executed, verified and delivered to the
Secretary of State of the State of Delaware
in accordance with Section 251 of the DGCL,
or at such later time as may be designated by
the parties in such Certificate of Merger as
the effective time of the Merger (the
"Effective Time"). Such filing will be made
as soon as practicable after the date of the
closing of the Merger (the "Closing" or the
"Closing Date"). The Closing will take place
on the date of or as soon as practicable
following the approval of the Merger
Agreement by CapMAC stockholders and the
satisfaction or waiver of the other
conditions to each party's obligation to
consummate the Merger. See "THE PROPOSED
MERGER--Closing; Effective Time."
Conversion of Shares............
As a result of the Merger, each share of
CapMAC Common Stock (other than shares held
by CapMAC as treasury stock or owned by MBIA
or Merger Sub or any other direct or indirect
subsidiary of MBIA or CapMAC, all of which
will be canceled), will be converted into the
right to receive that number of shares of
MBIA Common Stock (which includes the
associated Right (as defined herein)), equal
to the Exchange Ratio, provided that the
Exchange Ratio will be .6604 if the MBIA
Common Stock Price is less than $53.00 and .5
if the MBIA Common Stock Price is more than
$70.00. Based on an MBIA Common Stock Price
of $64, the MBIA Common Stock Price on the
most recent practicable date prior to the
printing of this Proxy Statement/Prospectus,
stockholders of CapMAC would receive .5469
shares of MBIA Common Stock in exchange for
each of their shares of CapMAC Common Stock.
Because the Exchange Ratio will not be
determined until the end of the third trading
day prior to the Effective Time, the actual
number of shares (or fraction of a share) of
MBIA Common Stock exchangeable in the Merger
for each share of CapMAC Common Stock may
differ from the number of shares of MBIA
Common Stock indicated
8
<PAGE>
in the preceding example. For an illustration
of what the Exchange Ratio would be at an
MBIA Common Stock Price of $53.00, $55.00,
$66.00 and $70.00, the potential number of
shares of MBIA Common Stock exchangeable at
such Exchange Ratios and the percentage of
MBIA Common Stock outstanding after the
Merger represented by such shares, see "THE
PROPOSED MERGER--Conversion of Shares."
CAPMAC STOCKHOLDERS SHOULD NOT SEND IN THEIR
STOCK CERTIFICATES UNTIL INSTRUCTED TO DO SO
AFTER THE MERGER IS FINAL.
Fractional Interests............ Fractional shares of MBIA Common Stock will
not be issued in the Merger. Holders of
CapMAC Common Stock will be paid cash in lieu
of such fractional shares. See "THE PROPOSED
MERGER--Fractional Interests."
Recommendation of the CapMAC
Board and CapMAC's Reasons for
the Merger.....................
THE BOARD OF DIRECTORS OF CAPMAC (THE "CAPMAC
BOARD") BELIEVES THAT THE MERGER IS FAIR TO
AND IN THE BEST INTERESTS OF CAPMAC AND ITS
STOCKHOLDERS AND RECOMMENDS THAT CAPMAC
STOCKHOLDERS VOTE FOR THE APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT. At a
meeting held on November 13, 1997, the CapMAC
Board, by a unanimous vote of all directors
present, approved the Merger and resolved to
recommend that CapMAC stockholders vote for
approval and adoption of the Merger
Agreement. The CapMAC Board's recommendation
is based upon a number of factors described
in this Proxy Statement/ Prospectus. See "THE
PROPOSED MERGER--CapMAC's Reasons for the
Merger; Recommendation of the CapMAC Board."
Opinion of CapMAC's Financial
Advisor......................... Salomon Brothers Inc ("Salomon Brothers") has
delivered its written opinion dated November
13, 1997 to the CapMAC Board that, based upon
and subject to the considerations set forth
in such opinion, as of the date of such
opinion, the Merger Consideration was fair to
the holders of shares of CapMAC Common Stock
from a financial point of view. Salomon
Brothers updated its opinion on the date of
this Proxy Statement/Prospectus.
Salomon Brothers' opinions were provided for
the information and assistance of the CapMAC
Board in connection with its consideration of
the transaction contemplated by the Merger
Agreement, and such opinions do not
constitute a recommendation as to how any
holder of shares of CapMAC Common Stock
should vote with respect to such transaction.
The full text of the written opinion of
Salomon Brothers dated the date of this Proxy
Statement/Prospectus, which sets forth
assumptions made, matters considered and
limitations on the
9
<PAGE>
review undertaken in connection with the
opinion, is attached hereto as Annex B and is
incorporated herein by reference. HOLDERS OF
SHARES OF CAPMAC COMMON STOCK ARE URGED TO,
AND SHOULD, READ SUCH OPINION IN ITS
ENTIRETY. See "THE PROPOSED MERGER--Opinion
of CapMAC's Financial Advisor."
Interests of Certain Persons in In considering the recommendation of the
the Merger...................... CapMAC Board with respect to the Merger
Agreement, stockholders should be aware that
certain members of CapMAC's management and
the CapMAC Board have interests in the Merger
that are in addition to the interests of
stockholders of CapMAC generally. See "THE
PROPOSED MERGER--Interests of Certain Persons
in the Merger."
Conditions to the Merger........
The respective obligations of CapMAC, Merger
Sub and MBIA to effect the Merger are subject
to the satisfaction or waiver of a number of
conditions, including, among others: (i) the
obtaining of CapMAC Stockholder Approval;
(ii) the absence of any statute, injunction
or other governmental order which prohibits,
restrains, enjoins or restricts the
consummation of the Merger; (iii) the
termination or expiration of any waiting
period applicable to the Merger under the
Hart-Scott-Rodino Antitrust Improvements Act
of 1976 ("HSR Act"); (iv) the obtaining of
all orders, approvals and consents of the New
York Insurance Department and other Material
Insurance Regulatory Approvals (as defined in
"THE PROPOSED MERGER--The Merger Agreement--
Conditions to the Merger") required in
connection with the Merger; (v) the Form S-4
having become effective and not being the
subject of any stop order or proceedings
seeking a stop order; (vi) the compliance
with any material "blue sky" and other state
securities laws applicable to the
registration and qualification of the MBIA
Common Stock issuable or required to be
reserved for issuance pursuant to the Merger
Agreement; (vii) the authorization for
listing on the NYSE of the shares of MBIA
Common Stock issuable to CapMAC stockholders
pursuant to the Merger Agreement and such
other shares of MBIA Common Stock required to
be reserved for issuance in connection with
the Merger; (viii) the receipt by MBIA from
Coopers & Lybrand L.L.P., and by CapMAC from
KPMG Peat Marwick LLP, of letters to the
effect that the Merger qualifies for "pooling
of interests" accounting treatment if
consummated in accordance with the Merger
Agreement and the non-withdrawal of such
letters; (ix) the absence of any action, or
of any enactment, entering into, enforcement
or application to the Merger of any statute,
rule, regulation or order, which imposes a
Material Condition (as defined in "THE
PROPOSED MERGER--The Merger Agreement,
Filings and Other Actions") on any party; (x)
the
10
<PAGE>
performance or compliance with the agreements
and covenants in the Merger Agreement by the
other party, and the truth and correctness of
the representations and warranties by the
other party contained in the Merger Agreement
(except where the failure to be true and
correct shall not constitute a Material
Adverse Effect (defined below) on the other
party) and the receipt of a certificate from
the other party to such effect; (xi) receipt
by CapMAC from Salomon Brothers of a letter
on the date of this Proxy
Statement/Prospectus to the effect that the
consideration to be received by CapMAC
stockholders pursuant to the Merger is fair
to such stockholders from a financial point
of view (which condition has been satisfied);
(xii) the receipt by each of CapMAC and MBIA
from their respective special counsel to the
effect that the Merger will constitute a
reorganization for Federal income tax
purposes within the meaning of section 368(a)
of the Internal Revenue Code of 1986 (the
"Code"); and (xiii) the receipt by MBIA of
written agreements from CapMAC "affiliates"
in which, among other things, they agree to
certain restrictions on sales of MBIA Common
Stock received in the Merger, including not
to sell shares of MBIA or CapMAC for 30 days
before the closing of the Merger and,
following the closing of the Merger, until
combined financial results of MBIA and CapMAC
covering a 30 day period have been published
by MBIA. "Material Adverse Effect" means any
adverse change or effect that is materially
adverse to the financial condition, results
of operations, assets, liabilities or
business of a person or on the ability of
such person to perform its obligations under
the Merger Agreement (excluding any change or
effect resulting from any occurrence or
condition generally affecting the industry in
which such person and its subsidiaries
operate (including without limitation any
change or proposed change in insurance laws
or regulations in any jurisdiction or
official interpretation thereof) and any
occurrence or condition arising out of the
transactions contemplated by the Merger
Agreement or the public announcement
thereof). See "THE PROPOSED MERGER--The
Merger Agreement--Conditions to the Merger."
Other Acquisition Proposals..... The Merger Agreement provides that CapMAC (i)
will, and will cause its subsidiaries to, and
will use its best efforts to cause any
officers, directors, employees,
representatives and agents of CapMAC and its
subsidiaries to, immediately cease any
existing discussions or negotiations with any
parties with respect to an Acquisition
Proposal (defined below); (ii) will not, and
will not permit any of its subsidiaries to,
and will cause the officers, directors,
employees, representatives or agents of
CapMAC or its subsidiaries not to, directly
or indirectly, encourage, solicit,
participate in or initiate discussions or
negotiations with, or furnish any information
or
11
<PAGE>
access to, any corporation, partnership,
person or other entity or group (other than
MBIA and Merger Sub or any of their
affiliates, associates or designees)
concerning, or agree to or endorse any
Acquisition Proposal. "Acquisition Proposal"
means (i) any inquiry, proposal or offer from
or to any person relating to any merger,
consolidation, share exchange, business
combination or other similar transaction
involving CapMAC or any of its subsidiaries;
(ii) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition of 15%
or more of the assets of CapMAC and its
subsidiaries, taken as a whole, in a single
transaction or in a series of transactions;
(iii) any tender offer or exchange offer for
15% or more of the outstanding shares of
capital stock of CapMAC or any of its
subsidiaries, or the filing of a registration
statement under the Securities Act in
connection therewith; (iv) any person or
group having acquired beneficial ownership of
15% or more of the outstanding shares of
capital stock of CapMAC or any of its
subsidiaries; or (v) any proposal, plan, or
intention to do any of the foregoing, either
publicly announced or otherwise communicated
to CapMAC, or any agreement to engage in any
of the foregoing. Notwithstanding the
foregoing, CapMAC may, directly or
indirectly, furnish information and access,
in each case only in response to a written
request for such information or access made
after the date of the Merger Agreement by any
person which was not encouraged, solicited or
initiated by CapMAC or any of its officers,
directors, employees, representatives or
agents after the date of the Merger
Agreement, and participate in discussions and
negotiate with such person concerning any
Acquisition Proposal, if, and only to the
extent that (i) such person has submitted a
bona fide definitive written Acquisition
Proposal to the CapMAC Board, (ii) the CapMAC
Board, after consultation with its
independent financial advisors, determines
that (x) the person making such Acquisition
Proposal is reasonably capable of completing
such Acquisition Proposal, taking into
account the legal, financial, regulatory and
other aspects of such Acquisition Proposal
and the person making such Acquisition
Proposal and (y) such Acquisition Proposal
involves consideration to CapMAC's
stockholders and other terms and conditions
that, taken as a whole, are superior to the
Merger (a proposal described in this clause
(ii), a "Superior Proposal"), and (iii) the
CapMAC Board determines in good faith, based
upon the advice of outside counsel to CapMAC,
that taking any such action is necessary for
the CapMAC Board to comply with its fiduciary
duty to stockholders under applicable law.
The CapMAC Board will not (i) withdraw or
modify, or propose publicly to withdraw or
modify, in a manner adverse to MBIA or Merger
Sub, its approval or recommendation of
12
<PAGE>
the Merger Agreement or the Merger, (ii)
approve or recommend, or propose publicly to
approve or recommend, any Acquisition
Proposal, or (iii) enter into any definitive
agreement with respect to any Acquisition
Proposal unless, in the case of each of the
foregoing clauses (i), (ii) and (iii), (A)
CapMAC receives a bona fide definitive
written Acquisition Proposal which is a
Superior Proposal and was not solicited after
the date hereof, (B) CapMAC's Board
determines in good faith, based upon the
advice of outside counsel to CapMAC, that it
is necessary to comply with its fiduciary
duties to stockholders under applicable law
for the Board of Directors to approve or
recommend such Acquisition Proposal and (C)
MBIA does not make within 5 business days of
receipt of CapMAC's written notification of
its intention to enter into a definitive
agreement with respect to a Superior Proposal
an offer that the CapMAC Board determines in
good faith, after consultation with its
independent financial advisors, involves
consideration to CapMAC's stockholders and
other terms and conditions that, taken as a
whole, are at least as favorable, from a
financial point of view, to the stockholders
of CapMAC as the Superior Proposal. If the
CapMAC Board has withdrawn or modified its
approval or recommendation of the Merger
Agreement or the Merger and/or approved or
recommended an Acquisition Proposal, then
CapMAC and MBIA may terminate the Merger
Agreement. See "THE PROPOSED MERGER--The
Merger Agreement--Other Acquisition
Proposals."
Termination..................... The Merger Agreement may be terminated and
the Merger may be abandoned at any time prior
to the Effective Time, whether before or
after CapMAC Stockholder Approval: (i) by
mutual written consent of MBIA, Merger Sub
and CapMAC; (ii) by MBIA or CapMAC: (a) if a
governmental entity has issued a final order,
injunction, decree, judgment or ruling or
taken any other final action restraining,
enjoining or otherwise prohibiting the Merger
and such order, injunction, decree, judgment,
ruling or other action is or shall have
become final and nonappealable, provided,
however, that the right to terminate the
Merger Agreement pursuant to this clause (a)
will not be available to any party who has
not used its reasonable best efforts to cause
such order to be lifted; (b) if the Merger
has not been consummated on or before May 31,
1998 (other than due to the failure of the
party seeking to terminate the Merger
Agreement to perform its obligations under
the Merger Agreement required to be performed
at or prior to the Effective Time); or (c) if
upon a vote at a duly held meeting of the
holders of CapMAC Common Stock for the
purpose of voting to approve and adopt the
Merger Agreement and the transactions
contemplated thereby (the "CapMAC
Stockholders Meeting") or any adjournment
thereof at which
13
<PAGE>
CapMAC Stockholder Approval has been voted
upon, CapMAC Stockholder Approval has not
been obtained; (iii) by MBIA if prior to the
Closing Date the CapMAC Board has withdrawn,
or modified in a manner adverse to MBIA, its
approval or recommendation of the Merger
Agreement or the Merger or has recommended an
Acquisition Proposal, or has resolved to
effect any of the foregoing; (iv) by CapMAC
in connection with the exercise of its rights
described in the second paragraph under "--
Other Acquisition Proposals," provided that
such termination under this clause (iv) shall
not be effective until CapMAC has made
payment of the Termination Fee (defined
below); or (v) by either party if (a) there
has been a breach by the other party of any
representation or warranty contained in the
Merger Agreement which has a Material Adverse
Effect on the other party and its
subsidiaries, taken as a whole, or (b) there
has been a material breach of any of the
covenants or agreements set forth in the
Merger Agreement by the other party, which
breach in the case of either clause (a) or
clause (b) is not curable or, if curable, is
not cured within 30 days after written notice
of such breach has been given by the non-
breaching party to the other party.
In the event of the termination of the Merger
Agreement, the Merger Agreement shall
forthwith become void and there shall be no
liability on the part of any party hereto
except as relating to provisions in the
Merger Agreement concerning the Termination
Fee, confidentiality, public announcements,
and various general provisions of the Merger
Agreement including governing law, provided,
however, that no party will be relieved from
liability for any wilful breach of the Merger
Agreement. See "THE PROPOSED MERGER--The
Merger Agreement--Termination."
Termination Fee.................
The Merger Agreement requires CapMAC to pay,
or cause to be paid, in same day funds to
MBIA a fee of $19.4 million (the "Termination
Fee") under the circumstances and at the
times set forth as follows: (i) if MBIA
terminates the Merger Agreement following the
CapMAC Board's withdrawal or modification in
a manner adverse to MBIA of its approval or
recommendation of the Merger Agreement or
Merger, recommendation of an Acquisition
Proposal or resolution to do any of the
foregoing, CapMAC shall pay the Termination
Fee upon demand; (ii) if CapMAC terminates
the Merger Agreement in accordance with
provisions relating to Acquisition Proposals,
CapMAC shall pay the Termination Fee
concurrently therewith; or (iii) if (1) MBIA
terminates the Merger Agreement because the
CapMAC Stockholder Approval is not obtained
at the Special Meeting or there has occurred
(a) a breach by CapMAC of any representation
or
14
<PAGE>
warranty contained in the Merger Agreement
which has a Material Adverse Effect on CapMAC
and its subsidiaries, taken as a whole, or
(b) a material breach of any covenants or
agreements in the Merger Agreement by CapMAC,
which breach in the case of either clause (a)
or (b) is not curable or, if curable, has not
been cured within 30 days after written
notice by MBIA, (2) prior to such termination
an Acquisition Proposal has been publicly
announced (other than an Acquisition Proposal
made prior to the date of the Merger
Agreement) and (3) within six months
thereafter, (A) CapMAC enters into a
definitive agreement with respect to an
Acquisition Proposal or consummates an
Acquisition Proposal involving any party (x)
with whom CapMAC had any discussions with
respect to an Acquisition Proposal, (y) to
whom CapMAC furnished information with
respect to or with a view to an Acquisition
Proposal or (z) who had submitted a proposal
or expressed any interest publicly in an
Acquisition Proposal, in each case, prior to
termination of the Merger Agreement, or (B)
CapMAC enters into a definitive agreement
with respect to a Superior Proposal or
consummates a Superior Proposal, then CapMAC
shall pay the Termination Fee upon the
earlier of the execution of such agreement or
upon consummation of such Acquisition
Proposal or Superior Proposal. See "THE
PROPOSED MERGER--The Merger Agreement--Fees
and Expenses."
Accounting Treatment............ Consummation of the Merger is conditioned
upon the receipt by MBIA and CapMAC of
letters from their respective independent
public accountants stating that the Merger
will qualify as a transaction to be accounted
for in accordance with the "pooling of
interests" method of accounting. See "THE
PROPOSED MERGER--Accounting Treatment."
Certain Federal Income Tax
Consequences of the Merger.....
Consummation of the Merger is conditioned
upon the receipt of opinions from Debevoise &
Plimpton, special counsel to MBIA, and from
Simpson Thacher & Bartlett, special counsel
to CapMAC, to the effect that the Merger will
qualify as a reorganization within the
meaning of Section 368(a) of the Code. As a
result, for federal income tax purposes the
Merger will not result in the recognition of
gain or loss by MBIA, Merger Sub, CapMAC or,
except to the extent they receive cash in
lieu of fractional shares, the stockholders
of CapMAC. Such opinions will be based upon
facts, representations and assumptions set
forth in such opinions. No ruling has been or
will be requested from the Internal Revenue
Service with respect to any tax matters
relating to the Merger and the opinions of
counsel will not be binding upon the Internal
Revenue Service or any court. Stockholders
are urged to consult their tax advisors as to
the tax consequences of the Merger to them
under federal, state, local or any other
15
<PAGE>
applicable law. See "THE PROPOSED MERGER--
Certain Federal Income Tax Consequences of
the Merger."
Appraisal Rights................ Holders of CapMAC Common Stock are not
entitled to appraisal rights under the
Merger. See "THE PROPOSED MERGER--Appraisal
Rights."
Comparison of Shareholder The rights of CapMAC stockholders are
Rights.......................... currently governed by the DGCL, the CapMAC
Restated Certificate of Incorporation (the
"CapMAC Charter") and the CapMAC By-laws.
Upon consummation of the Merger, CapMAC
stockholders will become shareholders of
MBIA, and their rights will be governed by
the Connecticut Business Corporation Act
("CBCA"), the MBIA Restated Certificate of
Incorporation (the "MBIA Charter") and the
MBIA By-laws. For a summary of the material
differences between the rights of CapMAC
stockholders and the rights of MBIA
shareholders, see "COMPARISON OF SHAREHOLDER
RIGHTS."
Certain Considerations.......... In addition to the other information
contained in this Proxy Statement/Prospectus,
the stockholders of CapMAC should consider
the factors set forth under "RISK FACTORS" in
deciding whether to approve the Merger.
16
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA OF MBIA
The following table presents summary historical financial data of MBIA and
its consolidated subsidiaries for the periods indicated. The historical
financial data as of and for the five years ended December 31, 1996 was derived
from MBIA's audited consolidated financial statements. The financial data as of
and for the nine months ended September 30, 1997 and 1996 was derived from
MBIA's unaudited quarterly financial statements, which, in the opinion of
MBIA's management, reflect all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of such data. The data for the nine
months ended September 30, 1997 and 1996 are not necessarily indicative of
results of operations for the entire year. The data should be read in
conjunction with the consolidated financial statements, related notes and other
financial information of MBIA included or incorporated by reference in this
Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
----------------------------------------------------------- ----------------------
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Insurance:
Gross premiums written. $ 368.7 $ 479.3 $ 360.8 $ 348.5 $ 460.7 $ 334.5 $ 381.1
Net premiums written... 336.1 431.8 311.6 303.4 405.8 298.8 336.1
Premiums earned........ 162.9 231.3 218.3 215.1 251.7 187.0 218.8
Net investment income.. 150.5 178.9 193.9 219.9 247.6 183.6 205.8
Net realized gains..... 9.8 9.7 10.3 11.3 11.7 9.7 13.0
Investment management
services:
Income................. 2.3 4.7 16.2 19.9 26.7 19.5 20.1
Net realized gains
(losses).............. -- 0.1 (0.7) (6.1) 2.6 2.5 2.0
Income before income
taxes................. 244.3 324.0 329.4 345.0 408.1 304.7 349.3
Net income............. 188.7 259.0 260.2 271.4 322.2 240.7 276.5
PER SHARE DATA:(1)
Earnings............... $ 2.31 $ 3.05 $ 3.09 $ 3.22 $ 3.72 $ 2.78 $ 3.13
Dividends:
Declared............... 0.38 0.47 0.57 0.66 0.73 0.54 0.58
Paid................... 0.36 0.45 0.55 0.64 0.71 0.52 0.57
Book value............. 16.50 19.09 20.48 26.60 28.64 27.35 32.53
BALANCE SHEET DATA:
Investments............ $ 2,528.7 $ 3,544.3 $ 4,866.8 $ 6,607.3 $ 7,633.9 $ 7,186.2 $ 8,167.6
Total assets........... 3,049.2 4,106.3 5,456.4 7,267.5 8,562.0 7,942.0 9,383.8
Deferred premium
revenue............... 1,196.2 1,402.8 1,512.2 1,616.3 1,785.9 1,733.9 1,913.6
Loss and loss
adjustment expense
reserve............... 25.5 33.7 40.1 42.5 59.3 51.6 73.2
Long-term debt......... 298.6 298.7 298.8 373.9 374.0 374.0 473.8
Shareholders' equity... 1,382.1 1,596.4 1,704.7 2,234.3 2,479.7 2,362.2 2,907.2
SELECTED FINANCIAL
RATIOS:
GAAP Basis(2)(4):
Loss ratio............. 3.4% 3.4% 3.7% 4.9% 6.1% 5.5% 6.0%
Expense ratio.......... 32.0% 27.4% 28.8% 29.3% 28.3% 28.3% 26.2%
Combined ratio......... 35.4% 30.8% 32.5% 34.2% 34.4% 33.8% 32.2%
SAP Basis(3)(4):
Loss ratio............. 2.4% (3.5%) 9.8% 0.4% 2.0% 2.2% (0.3%)
Expense ratio.......... 18.3% 17.6% 22.9% 20.6% 17.6% 17.7% 17.0%
Combined ratio......... 20.7% 14.1% 32.7% 21.0% 19.6% 19.9% 16.7%
OTHER FINANCIAL DATA-NET
INSURANCE IN FORCE:
Net par amount
outstanding........... $112,483.0 $141,386.8 $164,317.9 $188,635.9 $233,244.1 $218,226.4 $267,776.4
Net debt service
outstanding........... 223,056.1 266,784.3 304,501.6 344,037.2 411,106.1 387,734.4 466,475.4
</TABLE>
- --------
(1) Per share amounts have been adjusted to reflect a 2-for-1 stock split in
October 1997.
(2) The GAAP loss ratio is the provision for losses and loss adjustment
expenses divided by net premiums earned, and the GAAP expense ratio is
underwriting expenses (adjusted for deferred policy acquisition costs) and
operating expenses (excluding interest expense) divided by net premiums
earned, in each case calculated in accordance with generally accepted
accounting principles. The combined ratio is the total of the loss and
expense ratios (see Note 2 to the Consolidated Financial Statements of MBIA
Inc. and Subsidiaries included in the MBIA 10-K).
(3) The SAP loss ratio is the provision for losses and loss adjustment expenses
divided by net premiums earned, and the SAP expense ratio is underwriting
expenses divided by net premiums written, in each case calculated in
accordance with statutory accounting practices. The combined ratio is the
total of the loss and expense ratios.
(4) For a discussion of the principal differences between GAAP and SAP
accounting, see Note 3 to the Consolidated Financial Statements of MBIA
Inc. and Subsidiaries included in the MBIA 10-K.
17
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA OF CAPMAC
The following table presents summary historical financial data of CapMAC and
its consolidated subsidiaries for the periods indicated. The historical
financial data as of and for the four years ended December 31, 1996 was derived
from CapMAC's audited consolidated financial statements. The pro forma
information for the year ended December 31, 1992 and the financial data as of
and for the nine months ended September 30, 1997 and 1996 are unaudited. The
data for the nine months ended September 30, 1997 and 1996 are not necessarily
indicative of results of operations for the entire year. The data should be
read in conjunction with the consolidated financial statements, related notes
and other financial information of CapMAC included or incorporated by reference
in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
-------------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
-------------- -------- --------- --------- --------- --------- ---------
(PRO FORMA)(1) (DOLLARS IN MILLIONS, EXCEPT PER SHARE (UNAUDITED)
(UNAUDITED) DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Gross premiums written. $ 17.6 $ 24.9 $ 44.7 $ 57.5 $ 72.8 $ 51.0 $ 58.7
Net premiums written... 13.4 21.3 33.6 41.5 57.7 39.9 40.6
Premiums earned........ 12.2 17.5 23.1 29.2 40.6 28.9 37.7
Advisory and other
fees.................. 1.1 4.9 11.3 17.0 27.1 21.3 17.9
Net investment income.. 10.0 10.2 10.3 12.8 17.9 12.4 15.6
Net realized gains
(losses).............. 0.2 1.5 (0.1) 1.4 (1.8) 0.1 (1.2)
Income before income
taxes and minority
interest.............. 10.1 18.0 24.9 34.7 47.9 38.2 35.8
Net income............. 7.9 12.5 17.1 23.5 33.6 26.5 24.1
PER SHARE DATA:
Earnings:
Primary................ $ 0.62(2) $ 0.96 $ 1.23 $ 1.73 $ 1.92 $ 1.51 $ 1.34
Fully diluted.......... 0.62(2) 0.96 1.23 1.65 1.89 1.47 1.34
Dividends:
Declared & paid........ -- -- -- -- 0.08 0.06 0.06
Book value............. 13.34 14.72 15.38 17.86 19.38 19.04 20.08
BALANCE SHEET DATA:
Investments............ $ 172.5 $ 190.4 $ 202.6 $ 329.8 $ 374.1 $ 363.2 $ 411.0
Total assets........... 184.7 213.0 244.4 391.3 457.2 440.4 513.9
Deferred premium reve-
nue................... 6.0 10.1 25.9 45.8 68.3 61.4 76.0
Loss and loss
adjustment expense
reserves.............. 2.9 3.8 5.2 6.5 11.0 9.6 15.4
Long-term debt......... 15.0 15.0 15.0 15.0 15.0 15.0 15.0
Stockholders' equity... 154.7 171.4 180.7 276.5 310.4 298.6 341.2
SELECTED FINANCIAL RA-
TIOS:
GAAP Basis(3):
Loss ratio............. 7.2% 5.2% 6.2% 10.7% 11.9% 11.9% 11.7%
Expense ratio.......... 96.1% 80.8% 70.8% 71.9% 55.3% 60.3% 55.0%
Combined ratio......... 103.3% 86.0% 77.0% 82.6% 67.2% 72.2% 66.7%
SAP Basis(4):
Loss ratio............. 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Expense ratio.......... 141.9% 112.2% 81.8% 77.1% 56.6% 61.6% 64.9%
Combined ratio......... 141.9% 112.2% 81.8% 77.1% 56.6% 61.6% 64.9%
OTHER FINANCIAL DATA-NET
INSURANCE IN FORCE:
Net par amount out-
standing.............. $3,651.0 $5,606.0 $ 9,397.0 $12,628.0 $19,655.0 $16,859.0 $23,226.0
Net debt service out-
standing.............. 4,933.0 6,846.0 10,838.0 15,138.0 23,311.0 20,618.0 27,168.0
</TABLE>
- --------
(1) The 1992 pro forma information assumes that the Acquisition (as defined in
"CERTAIN INFORMATION CONCERNING CAPMAC") had occurred on January 1, 1992.
The pro forma information reflects adjustments relating to (a) lower
investment income due to the reduction in the investment portfolio as a
result of the special distribution made to CapMAC (the "Distribution") in
connection with the Acquisition; (b) higher benefits expense due to
establishment of CapMAC Employee Stock Ownership Plan (the "ESOP"); (c)
lower policy acquisition costs due to the assumed write-off of deferred
acquisition costs at January 1, 1992 and (d) lower interest expense due to
recapitalization. The pro forma information does not purport to represent
what the results of operations would actually have been if the Acquisition
had occurred on January 1, 1992 or to be indicative of the future results
of the operations of CapMAC.
(2) Earnings per share are for the six-month period ending December 31, 1992.
(3) The GAAP loss ratio is the provision and loss adjustment expenses divided
by net premiums earned, and the GAAP expense ratio is underwriting expenses
(adjusted for deferred policy acquisition costs) and operating expenses
(excluding interest expense) divided by net premiums earned, in each case
calculated in accordance with generally accepted accounting principles. The
combined ratio is the total of the loss and expense ratios.
(4) The SAP loss ratio is the provision for losses and loss adjustment expenses
divided by net premiums earned, and the SAP expense ratio is underwriting
expenses divided by net premiums written, in each case calculated in
accordance with statutory accounting practices. The combined ratio is the
total of the loss and expense ratios.
18
<PAGE>
SUMMARY PRO FORMA PER SHARE AND OTHER DATA
The following table presents the net income, dividends, and book value per
share of MBIA and CapMAC, on a pro forma basis for MBIA and an equivalent pro
forma basis for CapMAC. Pro forma data for MBIA was derived by combining the
historical financial statements of MBIA with CapMAC's historical financial
information, giving effect to the Merger using the "pooling of interests"
method of accounting. Equivalent pro forma information for CapMAC is presented
on an equivalent share basis, which reflects MBIA's pro forma amounts
multiplied by an assumed Exchange Ratio of 0.5567 shares of MBIA Common Stock
per share of CapMAC Common Stock, based on the MBIA Common Stock Price of $62
7/8.
Pro forma income statement-related per share amounts have been prepared as
if the Merger had occurred at the beginning of the earliest period presented.
These amounts do not include non-recurring items directly attributable to the
Merger, including change in control costs and fees for investment bankers,
accountants, and attorneys, or to MBIA's estimate of the expected annual
operating expense savings from the Merger. Pro forma book value per share
amounts have been prepared as if the Merger had occurred at the beginning of
the earliest period presented and do not include the effect of additional
shares that may be issued as a result of the exercise of CapMAC stock options.
The information set forth below should be read in conjunction with the
respective audited and unaudited consolidated financial statements and notes
thereto of MBIA and CapMAC, which are incorporated herein by reference. Pro
forma balance sheets and income statement are not presented herein since
CapMAC does not fall within the definition of a "significant business" as
defined in Rule 11-01(b) of Regulation S-X.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if the Merger had been consummated on the date indicated,
nor is it necessarily indicative of future operating results or financial
position.
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER ENDED
31, SEPTEMBER 30,
-------------------- -------------
1994 1995 1996 1996 1997
------ ------ ------ ------ ------
(DOLLARS IN (UNAUDITED)
MILLIONS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C> <C> <C>
MBIA COMMON STOCK
Net income per share:
Historical................................ $ 3.09 $ 3.22 $ 3.72 $ 2.78 $ 3.13
Pro forma (1)............................. 3.02 3.20 3.69 2.78 3.06
Dividends per share
Historical................................ $ 0.57 $ 0.66 $ 0.73 $ 0.54 $ 0.58
Pro forma (1)(2).......................... 0.57 0.66 0.73 0.54 0.58
Book value per share (at end of period)
Historical................................ $20.48 $26.60 $28.64 $27.35 $32.53
Pro forma (1)............................. 21.00 27.11 29.21 27.98 32.87
CAPMAC COMMON STOCK
Net income per share:
Historical--primary $ 1.23 $ 1.73 $ 1.92 $ 1.51 $ 1.34
Historical--fully diluted................. 1.23 1.65 1.89 1.47 1.34
Equivalent pro forma...................... 1.68 1.78 2.05 1.55 1.70
Dividends per share:
Historical................................ $ -- $ -- $ 0.08 $ 0.06 $ 0.06
Equivalent pro forma...................... 0.32 0.37 0.41 0.30 0.32
</TABLE>
- --------
(1) Assumes an MBIA Common Stock Price of $62 7/8, the closing price on
November 28, 1997.
(2) The pro forma dividends per share are assumed to be the same as the
historical MBIA dividends per common share.
19
<PAGE>
RISK FACTORS
In addition to the other information contained in this Proxy
Statement/Prospectus, the stockholders of CapMAC should consider the following
factors in deciding whether to approve the Merger.
DETERMINATION OF EXCHANGE RATIO
The Exchange Ratio will be determined based on an average of the closing
prices of MBIA Common Stock as reported on the NYSE Composite Tape on each of
the fifteen consecutive trading days immediately preceding the third trading
day prior to the Effective Time. Therefore, no assurance can be given that at
the Effective Time the product of the Exchange Ratio and the market value of a
share of MBIA Common Stock will not be higher or lower than $35.00.
In addition, because under the terms of the Merger Agreement the MBIA Common
Stock Price used to calculate the Exchange Ratio cannot be less than $53.00
per share, the Exchange Ratio is in effect subject to a maximum of 0.6604
shares of MBIA Common Stock for each share of CapMAC Common Stock received in
the Merger. If the MBIA Common Stock Price is less than $53.00, the Merger
Consideration could be worth less than $35.00 per share of CapMAC Common
Stock. Conversely, however, because under the terms of the Merger Agreement,
the MBIA Common Stock Price used to calculate the Exchange Ratio cannot be
greater than $70.00 per share, the Exchange Ratio is in effect subject to a
minimum of 0.50 shares of MBIA Common Stock for each share of CapMAC Common
Stock received in the Merger. If the MBIA Common Stock Price is greater than
$70.00, the Merger Consideration could be worth more than $35.00 per share of
CapMAC Common Stock.
UNCERTAINTIES IN INTEGRATING OPERATIONS AND ACHIEVING COST SAVINGS
The success of any merger, including the Merger, is in part dependent on the
ability following the merger to consolidate operations, integrate departments,
systems and procedures and thereby obtain business synergies and related cost
savings. While the management of MBIA, with the assistance of the management
of CapMAC, intends to work diligently to integrate effectively and rationalize
the operations of the two companies following the Merger, there can be no
assurance as to the timing or extent to which cost savings and efficiencies
will be achieved. In addition to the operational issues that may arise in
combining the two companies, MBIA anticipates that it will incur a cost in
respect of non-recurring items directly attributable to the Merger of
approximately $20 million, including change in control costs and fees for
investment bankers, accountants, and attorneys.
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
Certain of the statements contained in this Proxy Statement/Prospectus and
in documents incorporated herein by reference may be considered forward-
looking statements within the meaning of Section 27A of the Securities Act and
Section 21E of the Exchange Act, including, without limitation, (i) the
statements in "THE PROPOSED MERGER--CapMAC's Reasons for the Merger;
Recommendation of the CapMAC Board", "--Opinion of CapMAC's Financial Advisor"
and "--Plans for CapMAC After the Merger" concerning, among other things, (a)
prospective considerations that the CapMAC Board took into account in arriving
at its respective recommendation in favor of the Merger, (b) MBIA management's
belief with respect to the geographic and strategic fit of CapMAC with MBIA's
existing business and (c) MBIA's plans for consolidating CapMAC's operations
and MBIA management's expectation concerning the time to complete such
consolidation, and (ii) variations in the foregoing statements whenever they
appear in this Proxy Statement/Prospectus and the documents incorporated
herein by reference. Forward-looking statements are made based upon either
MBIA or CapMAC management's current expectations and beliefs concerning future
developments and their potential effects upon MBIA or CapMAC, respectively.
There can be no assurance that future developments affecting either MBIA or
CapMAC will be those anticipated by their respective managements. Actual
results may differ materially from those included in the forward-looking
statements. These forward-looking statements involve risks and uncertainties
including, but not limited to, the following: changes
20
<PAGE>
in general economic conditions, including the performance of financial markets
and interest rates; competitive, regulatory, or tax changes that affect the
cost of or demand for MBIA's or CapMAC's products; the uncertainty inherent in
establishing appropriate levels of loss reserves by CapMAC, the potential
reduction in the total estimated present value of future revenues actually
realized by CapMAC by factors such as early termination of insurance
contracts, accelerated prepayments of underlying obligations or lower than
anticipated utilization of insured structured programs, such as commercial
paper conduits; MBIA's failure to achieve anticipated levels of earnings or
operational efficiencies related to recently acquired companies, as well as
other cost-saving initiatives; and difficulties in combining the operations of
MBIA with the operations of CapMAC, and the potential loss of key personnel in
connection with the Merger.
While CapMAC and MBIA each reassess material trends and uncertainties
affecting each company's financial condition and results of operations, in
connection with its preparation of management's discussion and analysis of
financial condition and results of operations contained in each company's
quarterly and annual reports, neither CapMAC nor MBIA intends to review or
revise in light of future events any particular forward-looking statement
referenced in this Proxy Statement/Prospectus or incorporated herein by
reference.
The information referred to above should be considered by CapMAC
stockholders when reviewing any forward-looking statements contained in this
Proxy Statement/Prospectus, in any documents incorporated herein by reference,
in any of CapMAC's or MBIA's public filings or press releases or in any oral
statements made by either CapMAC or MBIA or any of their respective officers
or other persons acting on their behalf. By means of this cautionary note,
each of CapMAC and MBIA intends to avail itself of the safe harbor from
liability with respect to forward-looking statements that is provided by
Section 27A and Section 21E referred to above.
21
<PAGE>
CERTAIN INFORMATION CONCERNING MBIA
MBIA insures municipal bonds, asset-backed securities and other non-
municipal bonds through its wholly-owned subsidiary, MBIA Corp. MBIA Corp.'s
primary business is enhancing the efficiency of public finance by guaranteeing
the timely payment of principal and interest on municipal bonds sold in the
new issue market, traded in the secondary market and held in unit investment
trusts and mutual funds. MBIA Corp. is the market leader with over 40% market
share of the insured new issue municipal business. MBIA Corp. also provides
financial guarantees for structured finance transactions (principally
mortgage-backed and asset-backed securities), investor-owned utility debt and
obligations of high-quality financial institutions. For the nine months ended
September 30, 1997, MBIA Corp. insured $34.7 billion par value of new issue
and secondary market municipal bonds and $19.1 billion par value of domestic
structured finance business. As of September 30, 1997, the total net par
amount of outstanding bonds insured by MBIA Corp. was $267.8 billion and the
aggregate net insurance in force was $466.5 billion.
Financial guarantee insurance provides an unconditional and irrevocable
guarantee of the payment of the principal of and interest on insured
obligations when due. MBIA Corp. primarily insures obligations sold in the new
issue and secondary markets, including those held in unit investment trusts
and by mutual funds. It also provides surety bonds for debt service reserve
funds. The principal economic value of financial guarantee insurance to the
entity offering the obligations is the saving in interest costs resulting from
the difference in the market yield between an insured obligation and the same
obligation on an uninsured basis. In addition, for complex financings and for
obligations of issuers that are not well known by investors, insured
obligations receive greater market acceptance than uninsured obligations. All
obligations insured by MBIA Corp. are rated AAA by both Standard & Poor's
Ratings Services, a division of The McGraw-Hill Companies, Inc. and Fitch
Investors Service, L.P. and Aaa by Moody's Investors Service, Inc.
(collectively, the "MBIA Rating Agencies"), the highest ratings assigned by
these rating agencies. Following disclosure of CapMAC and MBIA entering into
possible merger discussions, each of the MBIA Rating Agencies has affirmed
MBIA's claims-paying ratings.
MBIA's insurance subsidiaries derive their income from insurance premiums
earned over the life of the insured obligations and from investment income
earned on assets representing capital, retained earnings, and deferred premium
revenues. As of September 30, 1997, MBIA's deferred premium revenues were
$1,914 million, its shareholders' equity was $2,907 million, and its total
investments were $7,892 million and $8,168 million at book value and market
value, respectively. As of September 30, 1997, MBIA Corp.'s investment
portfolio was $4,737 million and $4,949 million at book value and market
value, respectively, and was primarily comprised of high quality fixed income
securities with intermediate maturities.
Since 1990, a French company, MBIA Assurance S.A. ("MBIA Assurance"), has
written financial guarantee insurance in the countries of the European Union.
MBIA Assurance, which is a subsidiary of MBIA Corp., writes policies insuring
public infrastructure financings, asset-backed transactions and certain
obligations of financial institutions.
Over the last seven years, MBIA has undertaken the development of investment
management services which capitalize on its capabilities, reputation and
marketplace relationships. MBIA is delivering these services through a group
of subsidiary companies. For the nine months ended September 30, 1997, in the
aggregate, these investment management ventures contributed $22.2 million to
revenues.
The financial guarantee industry is subject to the direct and indirect
effects of governmental regulation, including changes in tax laws affecting
the municipal and asset-backed debt markets. No assurance can be given that
future legislation or regulatory changes might not adversely affect the
results of operations and financial condition of MBIA.
The principal executive offices of MBIA are located at 113 King Street,
Armonk, New York 10504. The telephone number is (914) 273-4545.
22
<PAGE>
CERTAIN INFORMATION CONCERNING CAPMAC
CapMAC is a holding company which provides financial guaranty insurance,
principally of asset-backed obligations, through its wholly owned subsidiary,
Capital Markets Assurance Corporation ("CapMAC Assurance"), and advisory and
structuring services through its wholly owned subsidiaries, CapMAC Financial
Services, Inc. and CapMAC Financial Services (Europe) Ltd., primarily in
connection with transactions in which CapMAC Assurance issues guarantees.
CapMAC is also the parent of CapMAC Investment Management, Inc. ("CIM"), a
money management subsidiary incorporated in 1996 to sponsor and manage
specialized investment funds to be marketed to institutional investors and
high-net worth individuals in the United States and abroad.
CapMAC Assurance's claims-paying ability is rated AAA by Moody's Investors
Service, Inc., Standard & Poor's Ratings Services, a division of The McGraw-
Hill Companies, Inc., Duff & Phelps Credit Rating Co. and Nippon Investors
Service, Inc., a Japanese rating agency (collectively, the "CapMAC Rating
Agencies"). CapMAC Assurance focuses on the asset-backed market while
participating on a limited basis in selected transactions in the primary
municipal market. As of December 31, 1996, obligations backed by consumer,
trade and corporate receivables and other taxable obligations constituted
approximately 96% of CapMAC Assurance's portfolio of insured obligations while
municipal and government obligations constituted approximately 4%. Following
disclosure of CapMAC and MBIA entering into possible merger discussions, each
of the CapMAC Rating Agencies has affirmed CapMAC's claims-paying ratings.
Citicorp established the predecessor to CapMAC in 1987 to focus primarily on
the taxable structured asset-backed market. CapMAC was acquired by a group of
institutional investors together with CapMAC's management and certain
employees in June 1992 (the "Acquisition"). In December 1995, CapMAC completed
an initial public offering of its common stock.
CapMAC is organized into five separate business units--Credit Enhancement,
Financial Engineering, Latin America, Project Finance and Specialized Funds
Management, reflecting both CapMAC's current business operations and the
anticipated focus of future business growth. CapMAC's specialized funds
management business is conducted through its wholly owned subsidiary, CIM. In
addition, CapMAC has combined its overall marketing efforts under a global
marketing unit, which is part of CapMAC Financial Services, Inc. To support
its business and marketing efforts, CapMAC has four support units--
Finance/Distribution, Research and Development, Risk Management and
Legal/Administration.
Financial guaranty insurance written by CapMAC Assurance generally
guarantees to the holder of the guaranteed obligation the timely payment of
principal and interest in accordance with the obligation's original payment
schedule. In the case of a default on the insured obligation, payment under
the insurance policy generally may not be accelerated by the holder without
the consent of CapMAC Assurance, even though the underlying obligation may be
accelerated.
The structured asset-backed transactions guaranteed by CapMAC Assurance
include securities backed by trade and lease receivables, automobile loans,
credit card receivables, home equity loans, assets securing guaranteed
investment contracts issued by insurance companies, health care receivables,
residential mortgages and real estate tax lien receivables. CapMAC Assurance
has also insured securitizations backed by senior bank loans, sovereign and
corporate bonds of emerging market countries, premium receivables of
property/casualty insurance companies, and obligations of counterparties under
hedging contracts such as interest rate swaps and obligations of special
purpose derivative product subsidiaries of financial institutions.
The principal executive offices of CapMAC are located at 885 Third Avenue,
New York, New York 10022, and its telephone number is (212) 755-1155.
23
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF MBIA
The following table presents selected historical financial data of MBIA and
its consolidated subsidiaries for the periods indicated. The historical
financial data as of and for the five years ended December 31, 1996 was
derived from MBIA's audited consolidated financial statements. The financial
data as of and for the nine months ended September 30, 1997 and 1996 was
derived from MBIA's unaudited quarterly financial statements, which, in the
opinion of MBIA's management, reflect all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation of such data. The data
for the nine months ended September 30, 1997 and 1996 are not necessarily
indicative of results of operations for the entire year. The data should be
read in conjunction with the consolidated financial statements, related notes
and other financial information of MBIA included or incorporated by reference
in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------------- ----------------------
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Insurance:
Gross premiums written. $ 368.7 $ 479.3 $ 360.8 $ 348.5 $ 460.7 $ 334.5 $ 381.1
Net premiums written... 336.1 431.8 311.6 303.4 405.8 298.8 336.1
Premiums earned........ 162.9 231.3 218.3 215.1 251.7 187.0 218.8
Net investment income.. 150.5 178.9 193.9 219.9 247.6 183.6 205.8
Net realized gains..... 9.8 9.7 10.3 11.3 11.7 9.7 13.0
Investment management
services:
Income................. 2.3 4.7 16.2 19.9 26.7 19.5 20.1
Net realized gains
(losses).............. -- 0.1 (0.7) (6.1) 2.6 2.5 2.0
Income before income
taxes................. 244.3 324.0 329.4 345.0 408.1 304.7 349.3
Net income............. 188.7 259.0 260.2 271.4 322.2 240.7 276.5
PER SHARE DATA:(1)
Earnings............... $ 2.31 $ 3.05 $ 3.09 $ 3.22 $ 3.72 $ 2.78 $ 3.13
Dividends:
Declared............... 0.38 0.47 0.57 0.66 0.73 0.54 0.58
Paid................... 0.36 0.45 0.55 0.64 0.71 0.52 0.57
Book value............. 16.50 19.09 20.48 26.60 28.64 27.35 32.53
BALANCE SHEET DATA:
Investments............ $ 2,528.7 $ 3,544.3 $ 4,866.8 $ 6,607.3 $ 7,633.9 $ 7,186.2 $ 8,167.6
Total assets........... 3,049.2 4,106.3 5,456.4 7,267.5 8,562.0 7,942.0 9,383.8
Deferred premium
revenue............... 1,196.2 1,402.8 1,512.2 1,616.3 1,785.9 1,733.9 1,913.6
Loss and loss
adjustment expense
reserve............... 25.5 33.7 40.1 42.5 59.3 51.6 73.2
Long-term debt......... 298.6 298.7 298.8 373.9 374.0 374.0 473.8
Shareholders' equity... 1,382.1 1,596.4 1,704.7 2,234.3 2,479.7 2,362.2 2,907.2
SELECTED FINANCIAL
RATIOS:
GAAP Basis(2)(4):
Loss ratio............. 3.4% 3.4% 3.7% 4.9% 6.1% 5.5% 6.0%
Expense ratio.......... 32.0% 27.4% 28.8% 29.3% 28.3% 28.3% 26.2%
Combined ratio......... 35.4% 30.8% 32.5% 34.2% 34.4% 33.8% 32.2%
SAP Basis(3)(4):
Loss ratio............. 2.4% (3.5%) 9.8% 0.4% 2.0% 2.2% (0.3%)
Expense ratio.......... 18.3% 17.6% 22.9% 20.6% 17.6% 17.7% 17.0%
Combined ratio......... 20.7% 14.1% 32.7% 21.0% 19.6% 19.9% 16.7%
OTHER FINANCIAL DATA-NET
INSURANCE IN FORCE:
Net par amount
outstanding........... $112,483.0 $141,386.8 $164,317.9 $188,635.9 $233,244.1 $218,226.4 $267,776.4
Net debt service
outstanding........... 223,056.1 266,784.3 304,501.6 344,037.2 411,106.1 387,734.4 466,475.4
</TABLE>
- -------
(1) Per share amounts have been adjusted to reflect a 2-for-1 stock split in
October 1997.
(2) The GAAP loss ratio is the provision for losses and loss adjustment
expenses divided by net premiums earned, and the GAAP expense ratio is
underwriting expenses (adjusted for deferred policy acquisition costs) and
operating expenses (excluding interest expense) divided by net premiums
earned, in each case calculated in accordance with generally accepted
accounting principles. The combined ratio is the total of the loss and
expense ratios (see Note 2 to the Consolidated Financial Statements of
MBIA Inc. and Subsidiaries included in the MBIA 10-K).
(3) The SAP loss ratio is the provision for losses and loss adjustment
expenses divided by net premiums earned, and the SAP expense ratio is
underwriting expenses divided by net premiums written, in each case
calculated in accordance with statutory accounting practices. The combined
ratio is the total of the loss and expense ratios.
(4) For a discussion of the principal differences between GAAP and SAP
accounting, see Note 3 to the Consolidated Financial Statements of MBIA
Inc. and Subsidiaries included in the MBIA 10-K.
24
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF CAPMAC
The following table presents selected historical financial data of CapMAC
and its consolidated subsidiaries for the periods indicated. The historical
financial data as of and for the four years ended December 31, 1996 was
derived from CapMAC's audited consolidated financial statements. The pro forma
information for the year ended December 31, 1992 and the financial data as of
and for the nine months ended September 30, 1997 and 1996 are unaudited. The
data for the nine months ended September 30, 1997 and 1996 are not necessarily
indicative of results of operations for the entire year. The data should be
read in conjunction with the consolidated financial statements, related notes
and other financial information of CapMAC included or incorporated by
reference in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
-------------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
-------------- -------- --------- --------- --------- --------- ---------
(PRO FORMA)(1) (DOLLARS IN MILLIONS, EXCEPT PER SHARE (UNAUDITED)
(UNAUDITED) DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Gross premiums written. $ 17.6 $ 24.9 $ 44.7 $ 57.5 $ 72.8 $ 51.0 $ 58.7
Net premiums written... 13.4 21.3 33.6 41.5 57.7 39.9 40.6
Premiums earned........ 12.2 17.5 23.1 29.2 40.6 28.9 37.7
Advisory and other
fees.................. 1.1 4.9 11.3 17.0 27.1 21.3 17.9
Net investment income.. 10.0 10.2 10.3 12.8 17.9 12.4 15.6
Net realized gains
(losses).............. 0.2 1.5 (0.1) 1.4 (1.8) 0.1 (1.2)
Income before income
taxes and minority
interest.............. 10.1 18.0 24.9 34.7 47.9 38.2 35.8
Net income............. 7.9 12.5 17.1 23.5 33.6 26.5 24.1
PER SHARE DATA:
Earnings:
Primary................ $ 0.62(2) $ 0.96 $ 1.23 $ 1.73 $ 1.92 $ 1.51 $ 1.34
Fully diluted.......... 0.62(2) 0.96 1.23 1.65 1.89 1.47 1.34
Dividends:
Declared & paid........ -- -- -- -- 0.08 0.06 0.06
Book value............. 13.34 14.72 15.38 17.86 19.38 19.04 20.08
BALANCE SHEET DATA:
Investments............ $ 172.5 $ 190.4 $ 202.6 $ 329.8 $ 374.1 $ 363.2 $ 411.0
Total assets........... 184.7 213.0 244.4 391.3 457.2 440.4 513.9
Deferred premium reve-
nue................... 6.0 10.1 25.9 45.8 68.3 61.4 76.0
Loss and loss
adjustment expense
reserves.............. 2.9 3.8 5.2 6.5 11.0 9.6 15.4
Long-term debt......... 15.0 15.0 15.0 15.0 15.0 15.0 15.0
Stockholders' equity... 154.7 171.4 180.7 276.5 310.4 298.6 341.2
SELECTED FINANCIAL RA-
TIOS:
GAAP Basis(3):
Loss ratio............. 7.2% 5.2% 6.2% 10.7% 11.9% 11.9% 11.7%
Expense ratio.......... 96.1% 80.8% 70.8% 71.9% 55.3% 60.3% 55.0%
Combined ratio......... 103.3% 86.0% 77.0% 82.6% 67.2% 72.2% 66.7%
SAP Basis(4):
Loss ratio............. 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Expense ratio.......... 141.9% 112.2% 81.8% 77.1% 56.6% 61.6% 64.9%
Combined ratio......... 141.9% 112.2% 81.8% 77.1% 56.6% 61.6% 64.9%
OTHER FINANCIAL DATA-NET
INSURANCE IN FORCE:
Net par amount out-
standing.............. $3,651.0 $5,606.0 $ 9,397.0 $12,628.0 $19,655.0 $16,859.0 $23,226.0
Net debt service out-
standing.............. 4,933.0 6,846.0 10,838.0 15,138.0 23,311.0 20,618.0 27,168.0
</TABLE>
- --------
(1) The 1992 pro forma information assumes that the Acquisition (as defined in
"CERTAIN INFORMATION CONCERNING CAPMAC") had occurred on January 1, 1992.
The pro forma information reflects adjustments relating to (a) lower
investment income due to the reduction in the investment portfolio as a
result of the special distribution made to CapMAC (the "Distribution") in
connection with the Acquisition; (b) higher benefits expense due to
establishment of CapMAC Employee Stock Ownership Plan (the "ESOP"); (c)
lower policy acquisition costs due to the assumed write-off of deferred
acquisition costs at January 1, 1992 and (d) lower interest expense due to
recapitalization. The proforma information does not purport to represent
what the results of operations would actually have been if the Acquisition
had occurred on January 1, 1992 or to be indicative of the future results
of the operations of CapMAC.
(2) Earnings per share are for the six-month period ending December 31, 1992.
(3) The GAAP loss ratio is the provision and loss adjustment expenses divided
by net premiums earned, and the GAAP expense ratio is underwriting
expenses (adjusted for deferred policy acquisition costs) and operating
expenses (excluding interest expense) divided by net premiums earned, in
each case calculated in accordance with generally accepted accounting
principles. The combined ratio is the total of the loss and expense
ratios.
(4) The SAP loss ratio is the provision for losses and loss adjustment
expenses divided by net premiums earned, and the SAP expense ratio is
underwriting expenses divided by net premiums written, in each case
calculated in accordance with statutory accounting practices. The combined
ratio is the total of the loss and expense ratios.
25
<PAGE>
SELECTED PRO FORMA FINANCIAL DATA
The following table presents selected financial data of MBIA and CapMAC, on
a pro forma basis. Pro forma data was derived by combining the historical
financial statements of MBIA with CapMAC's historical financial information,
giving effect to the Merger using the "pooling of interests" method of
accounting.
Pro forma income statement-related per share amounts have been prepared as
if the Merger had occurred at the beginning of the earliest period presented.
These amounts do not include non-recurring items directly attributable to the
Merger, including change in control costs and fees for investment bankers,
accountants, and attorneys, or to MBIA's estimate of the expected annual
operating expense savings from the Merger. Pro forma book value per share
amounts have been prepared as if the Merger had occurred at the beginning of
the earliest period presented and do not include the effect of additional
shares that may be issued as a result of the exercise of CapMAC stock options.
The information set forth below should be read in conjunction with the
respective audited and unaudited consolidated financial statements and notes
thereto of MBIA and CapMAC, which are incorporated herein by reference. Pro
forma balance sheets and income statement are not presented herein since
CapMAC does not fall within the definition of a "significant business" as
defined in Rule 11-01(b) of Regulation S-X.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if the Merger had been consummated on the date indicated,
nor is it necessarily indicative of future operating results or financial
position.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------------- ----------------------
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Insurance:
Gross premiums
written.............. $ 386.3 $ 504.2 $ 405.5 $ 406.0 $ 533.5 $ 385.5 $ 439.8
Net premiums written.. 349.5 453.1 345.2 344.9 463.5 338.7 376.7
Premiums earned....... 175.1 248.8 241.4 244.3 292.3 215.9 256.5
Advisory fees and
other income......... 1.1 4.9 11.3 17.0 27.1 21.3 17.9
Net investment income. 160.5 189.1 204.2 232.7 265.5 196.0 221.4
Net realized gains.... 10.0 11.2 10.2 12.7 9.9 9.8 11.8
Income before income
taxes and minority
interest.............. 254.4 342.0 354.3 379.7 456.0 342.9 385.1
Net income............. 196.6 271.5 277.3 294.9 355.8 267.2 300.6
PER SHARE DATA(1):
Earnings(2)............ $ 2.21 $ 2.94 $ 3.02 $ 3.20 $ 3.69 $ 2.78 $ 3.06
Dividends declared..... 0.38 0.47 0.57 0.66 0.73 0.54 0.58
Book value(2).......... 17.03 19.71 21.00 27.11 29.21 27.98 32.87
BALANCE SHEET DATA:
Investments............ $ 2,701.2 $ 3,734.7 $ 5,069.4 $ 6,937.1 $ 8,008.0 $ 7,549.4 $ 8,578.6
Total assets........... 3,233.9 4,319.3 5,700.8 7,658.8 9,019.2 8,382.4 9,897.7
Deferred premium
revenue............... 1,202.2 1,412.9 1,538.1 1,662.1 1,854.2 1,795.3 1,989.6
Loss and loss
adjustment expense
reserve............... 28.4 37.5 45.3 49.0 70.3 61.2 88.6
Long-term debt......... 313.6 313.7 313.8 388.9 389.0 389.0 488.8
Shareholders' equity... 1,536.8 1,767.8 1,885.4 2,510.8 2,790.1 2,660.8 3,248.4
SELECTED FINANCIAL
RATIOS:
GAAP Basis(3)(5):
Loss ratio............ 3.7% 3.5 % 3.9% 5.6% 6.9% 6.4% 6.8 %
Expense ratio......... 36.5% 31.2 % 32.8% 34.4% 32.1% 32.6% 30.5 %
Combined ratio........ 40.2% 34.7 % 36.7% 40.0% 39.0% 39.0% 37.3 %
SAP Basis(4)(5):
Loss ratio............ 2.2% (3.3)% 8.7% 0.4% 1.7% 1.9% (0.2)%
Expense ratio......... 23.0% 22.0 % 28.3% 27.2% 22.6% 23.0% 22.1 %
Combined ratio........ 25.2% 18.7 % 37.0% 27.6% 24.3% 24.9% 21.9 %
OTHER FINANCIAL DATA--
NET INSURANCE IN FORCE:
Net par amount
outstanding........... $116,134.0 $146,992.8 $173,714.9 $201,263.9 $252,899.1 $235.085.4 $291,002.4
Net debt service
outstanding........... 227,989.1 273,630.3 315,339.6 359,175.2 434,417.1 408,352.4 493,643.4
</TABLE>
- -------
(1) Per share amounts have been restated to reflect MBIA's 2-for-1 stock split
in October 1997.
(2) Assumes an MBIA Common Stock Price of $62 7/8, the closing price on
November 28, 1997.
(3) The GAAP loss ratio is the provision for losses and loss adjustment
expenses divided by net premiums earned, and the GAAP expense ratio is
underwriting expenses (adjusted for deferred policy acquisition costs) and
operating expenses (excluding interest expense) divided by net premiums
earned, in each case calculated in accordance with generally accepted
accounting principles. The combined ratio is the total of the loss and
expense ratios (see Note 2 to the Consolidated Financial Statements of
MBIA Inc. and Subsidiaries included in the Company's Annual Report on Form
10-K for the year ended December 31, 1996 (the "1996 Form 10-K") which is
incorporated herein by reference).
(4) The SAP loss ratio is the provision for losses and loss adjustment
expenses divided by net premiums earned, and the SAP expense ratio is
underwriting expenses divided by net premiums written, in each case
calculated in accordance with statutory accounting practices. The combined
ratio is the total of the loss and expense ratios.
(5) For a discussion of the principal differences between GAAP and SAP
accounting, see Note 3 to the Consolidated Financial Statements of MBIA
Inc. and Subsidiaries included in the 1996 Form 10-K.
26
<PAGE>
SPECIAL MEETING OF CAPMAC STOCKHOLDERS
GENERAL
This Proxy Statement/Prospectus is being furnished to holders of CapMAC
Common Stock in connection with the solicitation of proxies by the CapMAC
Board for use at the Special Meeting to be held at the offices of Simpson
Thacher & Bartlett, 425 Lexington Avenue, New York, New York at 10:00 a.m.,
local time, on February 3, 1998, and any adjournment or postponement thereof.
At the Special Meeting, the stockholders of CapMAC will be asked to consider
and vote upon the Merger Proposal. If the Merger is approved by the
stockholders of CapMAC, Merger Sub will merge with and into CapMAC, with
CapMAC continuing as the surviving corporation (the "Surviving Corporation")
of the Merger. In the Merger, (i) CapMAC will become a wholly owned subsidiary
of MBIA and (ii) each outstanding share of CapMAC Common Stock (other than
shares held by CapMAC as treasury stock or owned by MBIA or Merger Sub or any
other direct or indirect subsidiary of MBIA or CapMAC, all of which will be
canceled) will be converted into the right to receive that number of shares of
MBIA Common Stock (which includes the associated Right), equal to the Exchange
Ratio provided that the Exchange Ratio will be .6604 if the MBIA Common Stock
Price is less than $53.00 and .5 if the MBIA Common Stock Price is more than
$70.00. Holders of CapMAC Common Stock may also consider and vote upon all
other matters as may properly be brought before the Special Meeting.
THE CAPMAC BOARD HAS APPROVED THE MERGER AND THE MERGER AGREEMENT AND
RECOMMENDS A VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. SEE "THE
PROPOSED MERGER--BACKGROUND OF THE MERGER," "--CAPMAC'S REASONS FOR THE
MERGER; RECOMMENDATION OF THE CAPMAC BOARD" AND "--INTERESTS OF CERTAIN
PERSONS IN THE MERGER."
RECORD DATE
The CapMAC Board has fixed the close of business on December 19, 1997 as the
record date for the determination of holders of CapMAC Common Stock entitled
to receive notice of and to vote at the Special Meeting. Only holders of
CapMAC Common Stock as of the Record Date will be entitled to vote at the
Special Meeting. On the Record Date, there were 17,331,104 shares outstanding
of CapMAC Common Stock, each of which is entitled to one vote.
QUORUM
The presence, in person or by proxy, at the Special Meeting of holders of at
least a majority of the outstanding shares of CapMAC Common Stock entitled to
vote at the Special Meeting is necessary to constitute a quorum for the
transaction of business. Abstentions and broker non-votes will be counted as
present for the purposes of determining whether a quorum is present.
VOTES REQUIRED; VOTING RIGHTS
The approval and adoption of the Merger Agreement will require the
affirmative vote of the holders of a majority of the outstanding shares of
CapMAC Common Stock entitled to vote thereon.
In accordance with NYSE rules, brokers and nominees are precluded from
exercising their voting discretion with respect to the approval of the Merger
Proposal and thus, absent specific instructions from the beneficial owner of
such shares, are not empowered to vote such shares with respect to such
proposal. Because the affirmative vote of at least a majority of the shares of
CapMAC Common Stock outstanding on the Record Date is required to approve the
Merger Proposal, "broker non-votes" will have the effect of a vote against
such proposal. Abstentions from voting with respect to the Merger Proposal
will also have the effect of a vote against the Merger Proposal.
As of the Record Date, directors and executive officers of CapMAC were
beneficial owners of an aggregate of 2,833,962 shares (including options
vesting at the Effective Time) (approximately 16.35%) of the outstanding
shares of CapMAC Common Stock. Such directors and executive officers have
indicated to CapMAC that they intend to vote all such shares in favor of the
adoption of the Merger Proposal.
27
<PAGE>
Shares of CapMAC Common Stock that are entitled to vote and are represented
by a proxy properly signed and received at or prior to the Special Meeting,
unless subsequently properly revoked, will be voted in accordance with the
instructions indicated thereon. If a stockholder does not return a signed
proxy or vote in person at the Special Meeting, his or her shares will not be
voted. If a proxy is signed and returned without indicating any voting
instructions, shares of CapMAC Common Stock represented by such proxy will be
voted FOR the Merger Proposal.
The CapMAC Board is not currently aware of any business to be acted upon at
the Special Meeting other than as described herein. If, however, other matters
are properly brought before the Special Meeting or any adjournments or
postponements thereof, the persons appointed as proxies will have the
discretion to vote or act thereon in accordance with their best judgment,
unless authority to do so is withheld in the proxy. The persons appointed as
proxies may not exercise their discretionary voting authority to vote any such
proxy in favor of any adjournments or postponements of the Special Meeting if
instruction is given to vote against the adoption of the Merger Agreement and
the other proposals. At any subsequent reconvening of the Special Meeting, all
proxies will be voted in the same manner as such proxies would have been voted
at the original convening of the Special Meeting, except for proxies that have
been effectively revoked or withdrawn prior to such reconvened meeting.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before the shares represented by such proxy are voted at
the Special Meeting by (i) attending and voting in person at the Special
Meeting, (ii) giving notice of revocation of the proxy at the Special Meeting,
or (iii) delivering to the Secretary of CapMAC (a) a written notice of
revocation or (b) a duly executed proxy relating to the same shares and
matters to be considered at the Special Meeting, bearing a date later than the
proxy previously executed. Attendance at the Special Meeting will not in and
of itself constitute a revocation of a proxy. All written notices of
revocation and other communications with respect to revocation of proxies
should be addressed as follows: CapMAC Holdings Inc., 885 Third Avenue, New
York, New York 10022 Attention: Secretary, and must be received before the
taking of the votes at the Special Meeting.
SOLICITATION OF PROXIES
CapMAC will bear the cost of the solicitation of proxies. In addition to
solicitation by mail, the directors, officers and employees of CapMAC may
solicit proxies from stockholders of CapMAC by telephone, telegram or by
personal interview. Such directors, officers and employees will not be
additionally compensated for any such solicitation but may be reimbursed for
reasonable out-of-pocket expenses in connection therewith. Arrangements will
also be made with brokerage houses and other custodians, nominees and
fiduciaries for the forwarding of solicitation material to the beneficial
owners of shares held of record by such persons and CapMAC will reimburse such
custodians, nominees and fiduciaries for their reasonable out-of-pocket
expenses in connection therewith. Mackenzie Partners, Inc. will assist in the
solicitation of proxies by CapMAC for an estimated fee of $6,500, plus
reasonable out-of-pocket expenses.
STOCKHOLDERS SHOULD NOT SEND IN ANY STOCK CERTIFICATES WITH THEIR PROXY
CARDS. A TRANSMITTAL FORM WITH INSTRUCTIONS FOR THE SURRENDER OF STOCK
CERTIFICATES FOR CAPMAC COMMON STOCK WILL BE MAILED TO FORMER STOCKHOLDERS OF
CAPMAC AS SOON AS PRACTICABLE AFTER THE CONSUMMATION OF THE MERGER.
28
<PAGE>
THE PROPOSED MERGER
GENERAL
The following is a brief summary of certain aspects of the Merger. This
summary does not purport to be complete and is qualified in its entirety by
reference to the Merger Agreement, a copy of which is included in this Proxy
Statement/Prospectus as Annex A and is incorporated herein by reference. A
description of the relative rights, privileges and preferences of CapMAC
Common Stock on the one hand, and MBIA Common Stock, on the other, including
certain material differences between the rights of holders of such stock, is
set forth under "COMPARISON OF SHAREHOLDER RIGHTS." The closing price of
CapMAC Common Stock and MBIA Common Stock on November 13, 1997, the last full
trading day prior to the public announcement of the Merger, as reported by the
NYSE Composite Tape, was $29 3/4 and $60 5/16 per share, respectively. The
closing prices of CapMAC Common Stock and MBIA Common Stock on December 26,
1997, the most recent practicable date prior to the printing of this Proxy
Statement/Prospectus, as reported on the NYSE Composite Tape, were $34 5/16
and $64 per share, respectively.
Based on approximately 19,959,121 million shares of CapMAC Common Stock
outstanding as of December 19, 1997 (on a fully diluted basis) and using an
Exchange Ratio of .5469 based on the MBIA Common Stock Price of $64, the most
recent practicable price prior to printing this Proxy Statement/Prospectus,
the value of the aggregate consideration that will be issued to CapMAC
stockholders in the Merger would be approximately $698.6 million. The actual
value of the consideration issued to the CapMAC stockholders in the Merger
will depend on the Exchange Ratio and the MBIA Common Stock Price at the
Effective Time. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR
MBIA COMMON STOCK.
CLOSING; EFFECTIVE TIME
The Closing will take place on, or as promptly as practicable following, the
date of the approval and adoption of the Merger Agreement by the CapMAC
stockholders at the CapMAC Special Meeting and the satisfaction or waiver of
the other conditions to each party's obligation to consummate the Merger. The
Merger will become effective upon the filing of the Certificate of Merger with
the Secretary of State of the State of Delaware in accordance with the DGCL,
or at such later time as may be designated in such Certificate of Merger as
the Effective Time. Such filings will be made as soon as practicable after the
Closing.
CONVERSION OF SHARES
Each issued and outstanding share of the CapMAC Common Stock, par value $.01
per share (other than shares held by CapMAC as treasury stock or owned by MBIA
or Merger Sub or any other direct or indirect subsidiary of MBIA or CapMAC,
all of which will be canceled), will be converted into the right to receive
that number of shares of MBIA Common Stock, par value $1.00 per share, equal
to the Exchange Ratio provided that the Exchange Ratio will be .6604 if the
MBIA Common Stock Price is less than $53.00 and .5 if the MBIA Common Stock
Price is more than $70.00.
The table below illustrates what the Exchange Ratio would be at an MBIA
Common Stock Price of $53.00, $55.00, $66.00 and $70.00, the potential number
of shares of MBIA Common Stock exchangeable at such Exchange Ratios and the
percentage of MBIA Common Stock outstanding after the Merger represented by
such shares. As illustrated in the table, as the MBIA Common Stock Price
increases, the number of shares (or fraction of a share) of MBIA Common Stock
that would be exchangeable for each share of CapMAC Common Stock decreases,
subject to the limit set forth in the table. BECAUSE THE CALCULATION OF THE
EXCHANGE RATIO DEPENDS ON THE EFFECTIVE TIME OF THE MERGER, THE ACTUAL NUMBER
OF SHARES OF MBIA COMMON STOCK EXCHANGEABLE IN THE MERGER FOR EACH SHARE OF
CAPMAC COMMON STOCK MAY DIFFER FROM THE EXAMPLES PROVIDED IN THE TABLE.
STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR MBIA COMMON
STOCK.
29
<PAGE>
ILLUSTRATION OF POTENTIAL EXCHANGE RATIOS AND EFFECT ON SHARES OF
MBIA COMMON STOCK EXCHANGEABLE IN THE MERGER
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING
SHARES OF MBIA SHARES OF MBIA
EXCHANGE COMMON STOCK COMMON STOCK
TRADING AVERAGE RATIO EXCHANGEABLE(1) POST-MERGER(2)
- --------------- -------- --------------- --------------
<S> <C> <C> <C>
$53.00 (or below)....................... .6604 13,181,004 12.9%
$55.00.................................. .6364 12,701,985 12.4%
$66.00.................................. .5303 10,584,322 10.6%
$70.00 (or above)....................... .5000 9,979,561 10.0%
</TABLE>
- --------
(1) Based on 19,959,121 shares of CapMAC Common Stock outstanding on October
31, 1997, including options vesting at the Effective Time.
(2) Based on 89,366,104 shares of MBIA Common Stock outstanding as of October
31, 1997 plus additional shares from the respective rows of column 3.
Based on the closing price as reported on the NYSE Composite Tape on
December 26, 1997 for the MBIA Common Stock of $64 per share, stockholders of
CapMAC would receive .5469 shares of MBIA Common Stock in exchange for each of
their shares of CapMAC Common Stock. Because the Exchange Ratio is determined
by dividing $35.00 by the MBIA Common Stock Price, the calculation of which
price depends on the Effective Time of the Merger, the actual number of shares
(or fraction of a share) of MBIA Common Stock exchangeable in the Merger for
each share of CapMAC Common Stock may differ from the number of shares of MBIA
Common Stock indicated in the preceding example.
FRACTIONAL INTERESTS
No certificates or scrip representing fractional shares of MBIA Common Stock
will be issued in connection with the Merger, and such fractional interests
will not entitle the owner thereof to any rights of a stockholder of MBIA. In
lieu of any such fractional interests, each holder of shares of CapMAC Common
Stock exchanged under the Merger Agreement who would otherwise have been
entitled to receive a fraction of a share of MBIA Common Stock (after taking
into account all shares of CapMAC Common Stock then held of record by such
holder) will receive cash (without interest) in an amount equal to the product
of such fractional part of a share of MBIA Common Stock multiplied by the MBIA
Common Stock Price, rounded down to the nearest cent.
EXCHANGE OF CERTIFICATES
CAPMAC STOCKHOLDERS SHOULD NOT SUBMIT THEIR STOCK CERTIFICATES EVIDENCING
SHARES OF CAPMAC COMMON STOCK FOR EXCHANGE UNLESS AND UNTIL THE TRANSMITTAL
INSTRUCTIONS AND A FORM OF LETTER OF TRANSMITTAL ARE RECEIVED OR OBTAINED FROM
THE EXCHANGE AGENT (AS DEFINED BELOW).
As of or as soon as reasonably practicable after the Effective Time, Merger
Sub will designate a bank or trust company who shall be reasonably
satisfactory to CapMAC to act as agent for the holders of shares of CapMAC
Common Stock in connection with the Merger (the "Exchange Agent") to receive
the shares of MBIA Common Stock (and any cash payable in lieu of any
fractional shares of MBIA Common Stock) to which holders of shares of CapMAC
Common Stock become entitled. As soon as reasonably practicable as of or after
the Effective Time, MBIA or Merger Sub will make available to the Exchange
Agent sufficient shares of MBIA Common Stock and cash to make all exchanges.
Promptly after the Effective Time, the Surviving Corporation shall cause to
be mailed to former CapMAC stockholders a form of letter of transmittal and
instructions for use in surrendering certificates representing CapMAC Common
Stock (the "Certificates") in exchange for certificates representing shares of
MBIA Common Stock. Upon surrender to the Exchange Agent of a Certificate,
together with a letter of transmittal, the Exchange Agent will give the holder
of such Certificate, (i) a certificate representing the number of whole shares
of MBIA Common Stock which the holder has the right to receive and (ii) cash
in lieu of any fractional shares of MBIA
30
<PAGE>
Common Stock to which the holder is entitled, after giving effect to any
required tax withholdings, and such Certificate will thereafter be canceled.
If the exchange of certificates representing shares of MBIA Common Stock is to
be made to a person other than the person in whose name the surrendered
Certificate is registered, the Certificate so surrendered must be properly
endorsed or must be otherwise in proper form for transfer and the person
requesting such payment must have paid any applicable transfer and other taxes
or must have established to the satisfaction of the Surviving Corporation that
such tax either has been paid or is not applicable.
At any time following one year after the Effective Time, the Surviving
Corporation is entitled to require the Exchange Agent to deliver to it any
shares of MBIA Common Stock (and any cash payable in lieu of any fractional
shares of MBIA Common Stock) which were made available to the Exchange Agent
and which were not disbursed to holders of Certificates, and thereafter such
holders are entitled to look to the Surviving Corporation (subject to
abandoned property, escheat or other similar laws) only as general creditors
with respect to the shares of MBIA Common Stock (and any cash payable in lieu
of any fractional shares of MBIA Common Stock) payable upon surrender of their
Certificates. Notwithstanding the foregoing, neither the Surviving Corporation
nor the Exchange Agent will be liable to any holder of a Certificate for
shares of MBIA Common Stock (and any cash payable in lieu of any fractional
shares of MBIA Common Stock) delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law, subject, however, to
the Surviving Corporation's obligation to pay any dividends or make any other
distributions with a record date prior to the Effective Time which may have
been declared or made by CapMAC on such shares of CapMAC Common Stock in
accordance with the terms of the Merger Agreement or prior to the date of the
Merger Agreement and which remain unpaid at the Effective Time.
After the Effective Time, the stock transfer books of CapMAC will be closed
and thereafter there will be no further registration of transfers of shares of
CapMAC Common Stock on the records of CapMAC. From and after the Effective
Time, the holders of Certificates evidencing ownership of shares of CapMAC
Common Stock outstanding immediately prior to the Effective Time will cease to
have any rights with respect to such shares of CapMAC Common Stock, subject,
however, to the Surviving Corporation's obligation to pay any dividends or
make any other distributions with a record date prior to the Effective Time
which may have been declared or made by CapMAC on such shares of CapMAC Common
Stock in accordance with the terms of the Merger Agreement or prior to the
date of the Merger Agreement and which remain unpaid at the Effective Time.
No dividends or other distributions declared or made after the Effective
Time with respect to shares of MBIA Common Stock will be paid to the holder of
any unsurrendered Certificate with respect to the shares of MBIA Common Stock
it is entitled to receive and no cash payment in lieu of fractional interests
will be paid until the holder surrenders such Certificate. Upon such
surrender, the person to whom such shares of MBIA Common Stock will be issued
will be paid any dividends or distributions (without interest thereon) with
respect to such shares of MBIA Common Stock which have a record date after the
Effective Time and have become payable between the Effective Time and the time
of such surrender.
If between the date of the Merger Agreement and the Effective Time, the
outstanding shares of CapMAC Common Stock or MBIA Common Stock are changed
into a different number of shares by reason of any reclassification,
recapitalization, split-up, combination or exchange of shares, or any dividend
payable in stock or other securities is declared thereon with a record date
within such period, the Exchange Ratio will be adjusted accordingly to provide
to the holders of CapMAC Common Stock and MBIA Common Stock the same economic
effect as contemplated by the Merger Agreement prior to such reclassification,
recapitalization, split-up, combination, exchange or dividend.
BACKGROUND OF THE MERGER
The terms of the Merger Agreement are the result of arm's-length
negotiations between representatives, legal advisors and financial advisors of
MBIA and CapMAC. The following is a brief discussion of the background of
those negotiations.
31
<PAGE>
During the fall of 1996, the management of CapMAC decided to consider a
possible acquisition of another financial guaranty insurance company as a
potential means of achieving faster growth in its earnings base and capital.
At the request of CapMAC, Salomon Brothers, who was familiar with the
financial guaranty industry, contacted a company ("Company A") to discuss its
interest in selling its financial guaranty business to CapMAC. Over the next
several months, Salomon Brothers had several discussions with Company A
regarding the structure of a potential transaction. In April 1997, the chief
executive officer of Company A met with John B. Caouette, Chairman of the
Board, President and Chief Executive Officer of CapMAC, and informed him that
Company A was not interested in selling its financial guaranty business to
CapMAC but was instead interested in pursuing an acquisition of CapMAC.
On March 20, 1997, CapMAC issued a press release stating that its first
quarter earnings would not meet analysts' expectations, and CapMAC's stock
price declined. As a result of that decline, it became more unlikely that
CapMAC would be able to acquire another company. Also in April 1997 CapMAC
formally retained Salomon Brothers and SBC Warburg Dillon, Read Inc. to advise
and represent CapMAC in any potential transaction involving either an
acquisition by CapMAC or the sale of all or part of CapMAC.
During late April and early May 1997, CapMAC's senior management met several
times in order to discuss CapMAC's long-term strategic plans and its expected
need for additional capital. As a result of those meetings, CapMAC's senior
management concluded that CapMAC would require a significant amount of
additional capital in order to achieve its strategic plans and that given
CapMAC's relatively small capital base and the volatility of its earnings it
was unlikely that CapMAC could generate sufficient capital through its
business activities or raise sufficient capital in the capital markets.
CapMAC's management concluded that this additional capital could best be
obtained either through a strategic investment by a large financial
institution or through a sale of CapMAC in its entirety to a larger company
that had the willingness and ability to support CapMAC's business and growth
plans. At a meeting of CapMAC's Board held on May 7, 1997, Mr. Caouette
advised the Board of management's recommendation and the Board authorized
management to pursue each of these alternatives.
In early May 1997, Mr. Caouette met with the chief executive officer of a
company ("Company B") which had expressed interest in establishing a strategic
relationship with CapMAC. The chief executive officer indicated an interest in
acquiring up to 9.9% of CapMAC's outstanding stock. During the period from
January through July 1997, CapMAC also continued to have discussions with a
financial institution that had approached CapMAC about making an investment in
CapMAC and, at the suggestion of Salomon Brothers, met another financial
institution about a similar investment. In July 1997, Company B purchased 1
million shares of CapMAC Common Stock from certain stockholders of CapMAC in a
private placement transaction.
During June and July 1997, Mr. Caouette and other members of CapMAC's
management team had several meetings with representatives of Company A to
discuss overall business and organizational issues in the context of a
potential business combination. In late July, after preliminary analysis of
information provided by CapMAC, the chief executive officer of Company A
indicated that Company A was interested in pursuing an acquisition of CapMAC
and was seeking to obtain internal approvals.
On August 9, 1997, in order to examine possible alternatives to an
acquisition by Company A, Mr. Caouette contacted David H. Elliott, Chairman of
MBIA, and thereafter met with Mr. Elliott and Richard Weill, President of
MBIA, to discuss the possibility of a business combination. Following that
meeting, Mr. Elliott informed Mr. Caouette that he was interested in pursuing
further discussions but needed to meet with senior management of MBIA and
conduct further analysis prior to proceeding.
In late August 1997, Mr. Elliott telephoned Mr. Caouette to inform him that
MBIA was interested in continuing discussions regarding a possible business
combination. On September 9th and 10th, Messrs. Elliott, Weill and Caouette
met to discuss the potential benefits of such a transaction and related
issues, such as the organizational structure of the combined company following
the Merger. As a result of these discussions, the managements of both CapMAC
and MBIA concluded that they would be interested in pursuing more detailed
discussions concerning a potential merger between CapMAC and MBIA.
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On September 18, 1997, at a regularly scheduled meeting of the MBIA Board of
Directors (the "MBIA Board"), Mr. Elliott reviewed with the MBIA Board the
discussions held to date between the management of MBIA and CapMAC concerning
a merger transaction and the MBIA Board discussed generally the benefits of an
acquisition of CapMAC by MBIA.
On September 19, 1997, Mr. Elliott telephoned Mr. Caouette and informed him
that MBIA desired to pursue a business combination with CapMAC and that,
subject to the completion of satisfactory due diligence by MBIA, confirmation
from both MBIA's and CapMAC's accountants that any transaction could be
accounted for as a "pooling of interests" and the approval of the MBIA Board,
MBIA was prepared to offer .285 shares of MBIA Common Stock for each share of
CapMAC Common Stock. Based on an average of recent closing prices of MBIA
Common Stock on September 19, 1997, such exchange ratio was equivalent to
approximately $35 per share for each share of CapMAC Common Stock.
On September 29, 1997, the chief executive officer of Company A met with Mr.
Caouette and indicated that Company A was interested in pursuing, at CapMAC's
option, either the acquisition of a 20 to 25% equity interest in CapMAC or the
acquisition of 100% of CapMAC for cash in a merger transaction, subject to
CapMAC's agreement to negotiate exclusively with Company A for a period of two
to three weeks. Company A did not discuss price at that time.
On October 1, 1997, the CapMAC Board met to discuss the foregoing
developments. They were briefed on the discussions to date with MBIA and
Company A and received a presentation by Salomon Brothers on the possible
combination with MBIA, including a detailed discussion of the relative
advantages and disadvantages of accepting a number of shares of MBIA Common
Stock based on a fixed exchange ratio versus a fixed market value. Following a
lengthy discussion regarding the merits of a sale of CapMAC, exchange ratio
mechanics and the structure of CapMAC following a combination with MBIA or
with Company A, the CapMAC Board concluded that Mr. Caouette should continue
discussions with MBIA, but that he should pursue a transaction offering MBIA
shares having a fixed market value with a sufficiently wide collar to maintain
the value to be received by CapMAC stockholders in the event of a decrease in
the price of the MBIA Common Stock. In addition, the CapMAC Board authorized
Mr. Caouette to inform Company A that CapMAC would be interested in pursuing
the acquisition of CapMAC by Company A in a cash merger transaction.
Later that afternoon, Mr. Caouette informed Company A that CapMAC would
prefer to pursue a 100% acquisition of CapMAC rather than the investment
option. On October 10, 1997, a representative from Company A telephoned Mr.
Caouette to inform him that after further consideration, it preferred to make
the equity investment and was not prepared to pursue an acquisition of 100% of
CapMAC.
During the period between October 4 and October 8, 1997 representatives of
MBIA met with representatives of CapMAC to conduct financial and legal due
diligence reviews, and a draft Merger Agreement was distributed to MBIA and
its legal counsel by CapMAC.
On October 11, 1997, Mr. Elliott informed Mr. Caouette that, as a result of
certain issues raised by MBIA's due diligence investigation, MBIA wanted to
revise the financial terms of its merger proposal to lower the market value of
the number of shares of MBIA Common Stock being offered for each share of
CapMAC Common Stock to $33. Mr. Caouette indicated to Mr. Elliott that it was
unlikely that the reduced offer would be acceptable to CapMAC's Board. Mr.
Caouette and Mr. Elliott agreed that representatives of their two companies
should meet to discuss in detail MBIA's concerns arising out of its due
diligence investigation and to give CapMAC an opportunity to provide
additional information that might address those areas of concern. Mr. Caouette
also authorized Salomon Brothers to contact four other potential purchasers of
CapMAC, none of whom made a proposal to acquire CapMAC. On October 13, 1997,
representatives of CapMAC and Salomon Brothers met with representatives of
MBIA and Lehman Brothers Inc. ("Lehman Brothers"), MBIA's financial advisor,
to discuss the reasons for MBIA's reduction in the proposed merger
consideration.
On October 14, 1997, Mr. Elliott called Mr. Caouette and indicated that, in
light of the information and analysis provided to MBIA and its advisors at the
October 13 meeting, MBIA would revise its proposal so that
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the market value of the number of shares of MBIA Common Stock being offered
for each share of CapMAC Common Stock would be equal to a fixed price of $35,
but that any such proposal continued to be subject to MBIA Board approval, the
negotiation and execution of a mutually satisfactory merger agreement and
confirmation by MBIA's and CapMAC's independent accountants that a merger
would qualify for "pooling of interests" accounting treatment. Mr. Elliott
indicated that a technical accounting question had arisen and that before MBIA
was prepared to make a formal offer, that question would need to be resolved.
On October 15, 1997, a representative of another insurance company ("Company
C") contacted Mr. Caouette and asked whether CapMAC would be interested in
pursuing a possible business combination with Company C. That inquiry was
followed by a letter to Mr. Caouette on October 16, 1997 asking him to meet
with Company C to discuss such a business combination with Company C prior to
proceeding with an alternative transaction.
Representatives of CapMAC, MBIA and their respective accountants, legal
counsel and financial advisors met on October 16, 1997. At that meeting, MBIA
stated that it was not willing to proceed with the transaction unless the
Merger could be accounted for as a pooling of interests. Since a technical
accounting question had been raised, CapMAC and MBIA decided to delay further
discussions concerning the terms of the transaction until that question had
been resolved. At that meeting representatives of MBIA requested that CapMAC
sign a letter agreeing not to solicit other bids and to notify MBIA if CapMAC
were to receive a competing bid which the CapMAC Board wanted to accept, such
letter to have a 60-day term.
On October 17, 1997, there was a telephonic meeting of the CapMAC Board. At
that meeting, the CapMAC Board was updated on the recent discussions and
concluded that, in light of the letter received from Company C, Mr. Caouette
should meet with Company C. The CapMAC Board also authorized management to
negotiate a no-solicitation letter agreement with MBIA along the lines that
MBIA had requested on October 16.
On the afternoon of October 17, 1997, Mr. Caouette met with the chief
executive officer of Company C to discuss Company C's interest in a possible
business combination. Mr. Caouette informed the chief executive officer that
CapMAC was already in advanced discussions with another company regarding a
potential business combination. On that same day, Salomon Brothers provided to
Company C certain financial information concerning CapMAC. A few days later,
Paul V. Palmer, Managing Director and Chief Financial Officer of CapMAC, met
with the chief financial officer of Company C to discuss the financial
information provided by Salomon Brothers. On October 21, 1997, Company C
informed CapMAC that, in light of CapMAC's pending discussions with another
company, Company C was not prepared at that time to make an offer for CapMAC.
At a special meeting of the MBIA Board held on October 18, 1997, at which
MBIA's financial advisors were present, Mr. Elliott advised the MBIA Board of
the status of negotiations with CapMAC, and Lehman Brothers provided a
financial presentation concerning the proposed transaction.
On October 22, 1997, CapMAC and MBIA entered into a letter agreement in
which CapMAC agreed (a) to discontinue any negotiations with other parties
relating to an acquisition or similar transaction, (b) not to encourage,
solicit or initiate discussions or negotiations with any person or entity
(other than MBIA) with respect to any acquisition bids or proposals for
similar transactions, and (c) not to furnish information to or initiate
discussions or negotiations with any person or entity (other than MBIA)
concerning an unsolicited, bona fide, definitive written proposal relating to
an acquisition of all or a substantial amount of the stock or assets of CapMAC
(a "Definitive Proposal") unless (i) the CapMAC Board determined in good
faith, based upon the advice of outside counsel, that such action was
necessary to comply with its fiduciary duties, (ii) such proposal was not
subject to material conditions and (iii) the CapMAC Board, after consultation
with its financial advisors, reasonably believed that such person or entity
had the financial wherewithal to consummate such transaction.
CapMAC could terminate the letter agreement if (a) it gave MBIA notice of
the receipt of a Definitive Proposal which was not subject to any due
diligence condition, (b) the CapMAC Board determined in good faith, based upon
the advice of outside counsel, that recommendation of such proposal was
necessary for the CapMAC
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Board to comply with its fiduciary duties under applicable law and (c) MBIA
did not make a bona fide definitive written proposal within five business days
after the receipt of such notice or, if MBIA made such a proposal, the CapMAC
Board determined, in its good faith reasonable judgment, that such third party
proposal was superior to MBIA's proposal. The letter agreement expired on
December 24, 1997. On October 29, 1997, CapMAC and MBIA issued a joint press
release announcing that they were engaged in discussions regarding a possible
merger of CapMAC and MBIA. During the next week, CapMAC and MBIA continued to
take steps to resolve the technical accounting question.
On October 31, 1997, CapMAC received a letter from Company A offering to
acquire CapMAC for $35 in cash, subject to due diligence, Company A board
approval and execution of a definitive merger agreement. Mr. Caouette informed
a representative of Company A that, under the terms of a letter agreement that
CapMAC had executed with MBIA, CapMAC could not provide due diligence access
to Company A until Company A had removed the condition of Company A board
approval from its proposal. On November 7, 1997, the Company A representative
informed Mr. Caouette that it was not prepared to eliminate the condition from
its letter and that it was not interested in pursuing discussions with CapMAC
unless CapMAC was willing to enter into exclusive discussions with Company A.
When Mr. Caouette responded that CapMAC was unable to do that, the Company A
representative informed Mr. Caouette that it was terminating discussions with
CapMAC.
On November 7, 1997, having satisfactorily resolved the technical accounting
question, CapMAC and MBIA resumed discussions concerning MBIA's merger
proposal. During the next week, representatives of CapMAC, MBIA and their
respective legal counsel and financial advisors met to negotiate the terms of
the Merger Agreement, including the specific terms of the exchange ratio and
the collar.
On November 10, 1997 a representative of Salomon Brothers called a
representative of Lehman Brothers and proposed a transaction structure whereby
CapMAC's stockholders would receive MBIA Common Stock having a market value of
$35 for each share of CapMAC Common Stock subject to a "collar" arrangement
whereby the exchange ratio would become fixed if MBIA's stock price were to
rise above $69.30, representing a 15% increase from the MBIA closing stock
price of November 7, 1997. The Lehman Brothers representative rejected this
proposal.
On November 12, 1997, Mr. Elliott called Mr. Caouette and offered to
exchange MBIA Common Stock having a market value of $35 for each share of
CapMAC Common Stock, and also proposed that the exchange ratio would be fixed
at .614 MBIA shares for each CapMAC share if the MBIA Common Stock price fell
below $57, which represented a 7.8% decline from $61.8125, MBIA's closing
price on November 10. There was no discussion of a countervailing "collar" if
the market value of MBIA Common Stock significantly appreciated. On the
morning of November 13, 1997, a representative of Salomon Brothers telephoned
a representative of Lehman Brothers to request a symmetrical collar and to
inform Lehman Brothers that MBIA would have to change the collar arrangements
of its offer if it wanted CapMAC's Board to approve the MBIA proposal.
On the morning of November 13, 1997, the MBIA Board held a special meeting
to review, with the advice and assistance of MBIA's financial and legal
advisors, the proposed Merger Agreement with CapMAC and the terms of the
Merger. At the special meeting, Mr. Elliott reviewed the negotiations between
MBIA and CapMAC and MBIA's legal counsel described the material terms of the
Merger Agreement and addressed the Board's fiduciary duties to the
stockholders of MBIA in the context of the proposed transaction. At the
request of Mr. Elliott, Lehman Brothers then provided its financial analysis
of the proposed transaction and described certain aspects of the negotiations
with CapMAC, including the telephone call described above.
Following extended discussion of the proposed transaction and various
alternative collar arrangements, it was determined that MBIA should offer
CapMAC revised collar arrangements, the effect of which would be to provide
CapMAC stockholders with shares of MBIA Common Stock having a market value of
$35.00 for each share of CapMAC Common Stock unless the MBIA stock price fell
below $53.00 per share or rose above $70.00 per share, representing a decline
or increase in the MBIA Common Stock Price of 13.8% from $61.50, the average
closing price of the MBIA Common Stock for the 15 consecutive trading days
ending on November 13,
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1997, in which cases the exchange ratio would become fixed at .6604 shares and
.5 shares of MBIA Common Stock, respectively. Lehman Brothers rendered its
oral opinion, subsequently confirmed in writing, that as of the date of the
MBIA Board meeting, the consideration to be paid by MBIA in the Merger was
fair to MBIA from a financial point of view. The MBIA Board (with 2 directors
absent) then unanimously approved the Merger and the Merger Agreement,
including such revised collar arrangements.
On the afternoon of November 13, 1997, the Board of Directors of CapMAC met
to consider the proposed Merger. Immediately prior to that meeting, Mr.
Elliott telephoned Mr. Caouette and told him that MBIA's Board had approved
the Merger, including the revised collar arrangement described above. Lehman
Brothers simultaneously informed a CapMAC representative of the new proposal
and also indicated that MBIA's new proposal would expire on November 13 if not
accepted by CapMAC's Board that day and if it was not accepted that day, MBIA
would issue a press release the following morning that it had terminated
discussions with CapMAC.
At the Board meeting, members of CapMAC's senior management, CapMAC's legal
advisors and its financial advisor made presentations and reviewed the matters
set forth under "--CapMAC's Reasons for the Merger; Recommendation of the
CapMAC Board." The terms of the Merger Agreement were reviewed with the
directors, including the terms of the collar proposed by MBIA that afternoon.
Salomon Brothers rendered its oral opinion, confirmed by a subsequent written
opinion dated November 13, 1997, that as of that date, the consideration to be
received by the holders of CapMAC Common Stock in the Merger was fair from a
financial point of view to such stockholders. After discussion and
consideration, the CapMAC Board voted unanimously (with one director not
present) to approve the Merger and the Merger Agreement.
The Merger Agreement was executed by the parties on the evening of November
13, 1997 and on November 14, 1997 it was publicly announced.
CAPMAC'S REASONS FOR THE MERGER; RECOMMENDATION OF THE CAPMAC BOARD
At its November 13, 1997 meeting, the CapMAC Board determined that the
Merger was fair to and in the best interests of CapMAC and its stockholders.
Accordingly, at such meeting, the CapMAC Board approved the Merger Agreement
and directed that the Merger Agreement be submitted to the holders of shares
of CapMAC Common Stock for approval and adoption.
The determination of the CapMAC Board to approve the Merger was based upon
consideration of a number of factors. The following list includes all material
factors considered by the CapMAC Board in its evaluation of the Merger and the
Merger Agreement:
(1) The CapMAC Board's belief that the combined company would have
greater resources which would provide a broader platform for the combined
company to capitalize on available opportunities in the rapidly growing
financial services market;
(2) The proposed organizational structure of MBIA following the Merger,
and its ability to make more efficient use of capital and to compete more
effectively in the market for financial guaranty insurance;
(3) The opportunity of CapMAC's stockholders to participate as holders of
MBIA Common Stock in a substantially stronger and more diversified company,
of which CapMAC would be a significant part, and to participate in the
value that may be generated through the combination of the two companies
through their status as stockholders of MBIA;
(4) The Exchange Ratio negotiated with MBIA which was designed to ensure
that the Merger Consideration at the Effective Time equals $35.00 per share
of CapMAC Common Stock so long as the MBIA Common Stock Price is between
$53.00 and $70.00, and the implied premium over the recent market price of
CapMAC Common Stock;
(5) The fact that prior to the public announcement of the discussions
between CapMAC and MBIA, representatives of CapMAC had been in contact with
several other companies with respect to their possible
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interest in an acquisition of CapMAC and that none of those companies had
made a proposal for such a transaction at a price level comparable to the
Merger Consideration proposed to be paid in the Merger by MBIA;
(6) The fact that, following the public announcement of the discussions
between CapMAC and MBIA, only one other company had expressed an interest
in engaging in a business combination or other strategic transaction with
CapMAC and the terms proposed by that company were not, in the Board's
judgment (based, among other things, on the advice of Salomon Brothers),
superior to the terms of the Merger proposed by MBIA;
(7) The limited number of companies that, in the CapMAC Board's judgment
(based, among other things, on the advice of Salomon Brothers), would be
likely to be interested in an acquisition of CapMAC at a price level
comparable to the Merger Consideration proposed to be paid in the Merger by
MBIA, and the fact that CapMAC representatives had been in contact with
most of those companies and none had presented an acquisition proposal that
compared favorably with the terms of the Merger as proposed by MBIA;
(8) The strategic and financial alternatives available to CapMAC,
including remaining an independent company;
(9) The fact that, to the extent necessary to comply with the fiduciary
duties of the CapMAC Board, as determined in good faith by the CapMAC Board
based upon the advice of outside counsel to CapMAC, the CapMAC Board may,
under certain circumstances, (a) furnish information to and participate in
discussions or negotiations with any person or other entity concerning an
unsolicited, bona fide, definitive written proposal relating to an
acquisition of all or a substantial amount of assets of CapMAC and (b)
withdraw its recommendation of the Merger, terminate the Merger Agreement
and enter into a definitive merger agreement with another party, subject to
the payment of a termination fee;
(10) The CapMAC Board's receipt of the written opinion of Salomon
Brothers that, as of November 13, 1997 and based upon and subject to
certain matters stated therein, the consideration to be received by the
holders of CapMAC Common Stock was fair, from a financial point of view, to
such holders;
(11) The fact that the Merger is designed to be tax-free to CapMAC's
stockholders and is expected to be treated as a pooling of interests for
accounting purposes;
(12) The CapMAC Board's review of presentations by, and discussions of
the terms and conditions of the Merger Agreement with senior executive
officers of CapMAC, representatives of its legal counsel and
representatives of Salomon Brothers;
(13) Certain publicly available information with respect to the financial
condition and results of operations of MBIA as well as presentations made
by Salomon Brothers regarding the business, financial condition and
prospects for MBIA;
(14) Current market conditions, historical market prices and trading
information with respect to CapMAC Common Stock and the MBIA Common Stock;
(15) The anticipated cost and operating efficiencies through the
integration of CapMAC and MBIA in the Merger and the opportunity for CapMAC
stockholders to share in such cost savings through their ownership of MBIA
Common Stock following the Merger; and
(16) The likelihood of regulatory approval for the Merger.
In view of the wide variety of material factors considered in connection
with its evaluation of the Merger, the CapMAC Board did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching its determination. In
making its determination, the CapMAC Board also considered the risks and
likelihood of achieving the results described above.
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THE CAPMAC BOARD RECOMMENDS THAT THE HOLDERS OF CAPMAC COMMON STOCK VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
The full text of the opinion of Salomon Brothers, which sets forth the
assumptions made, general procedures followed, matters considered and limits
on the review undertaken, is attached hereto as Annex B, and is incorporated
herein by reference. STOCKHOLDERS ARE URGED TO, AND SHOULD, READ THE OPINION
IN ITS ENTIRETY. See also "--Opinion of CapMAC's Financial Advisor" below.
OPINION OF CAPMAC'S FINANCIAL ADVISOR
Salomon Brothers was retained by CapMAC pursuant to a letter agreement dated
April 3, 1997 (the "Engagement Letter") to act as financial advisor to CapMAC
in connection with, among other things, a potential acquisition of CapMAC by a
third party. Pursuant to the Engagement Letter, Salomon Brothers rendered an
opinion to the CapMAC Board on November 13, 1997 to the effect that, based
upon and subject to the considerations set forth in such opinion, as of such
date, the consideration to be received by the holders of CapMAC Common Stock
in the Merger was fair to such holders from a financial point of view. Salomon
Brothers has confirmed its opinion dated November 13, 1997 by delivery of a
written opinion dated the date of this Proxy Statement/Prospectus. In
connection with its opinion dated the date of this Proxy Statement/Prospectus,
Salomon Brothers updated certain of the analyses performed in connection with
its opinion delivered on November 13, 1997 and reviewed the assumptions on
which such analyses were based and the factors considered in connection
therewith.
The full text of Salomon Brothers' fairness opinion dated the date of this
Proxy Statement/Prospectus, which sets forth the assumptions made, general
procedures followed, matters considered and limits on the review undertaken,
is attached hereto as Annex B to this Proxy Statement/Prospectus. The summary
of Salomon Brothers' opinion set forth below is qualified in its entirety by
reference to the full text of such opinion. No limitations were imposed by
CapMAC or the CapMAC Board with respect to the investigations made or
procedures followed by Salomon Brothers in rendering its opinion. STOCKHOLDERS
ARE URGED TO, AND SHOULD, READ THE OPINION IN ITS ENTIRETY.
In connection with rendering its opinion, Salomon Brothers reviewed and
analyzed, among other things, the following: (1) the Merger Agreement,
including the Exhibits and Schedules thereto; (2) certain publicly available
information concerning CapMAC, including the Annual Reports on Form 10-K of
CapMAC for each of the years in the two year period ended December 31, 1996,
the Quarterly Reports on Form 10-Q of CapMAC for each of the quarters from
March 31, 1996 through September 30, 1997; (3) certain internal information,
primarily financial in nature, including projections, concerning the business
and operations of CapMAC furnished to Salomon Brothers by CapMAC for purposes
of its analysis; (4) statutory financial information of CapMAC's insurance
subsidiaries for the years ended December 31, 1995 and December 31, 1996 and
for the three month periods ended March 31, 1997, June 30, 1997 and September
30, 1997; (5) certain publicly available information concerning the trading
of, and the trading market for, CapMAC Common Stock; (6) certain publicly
available information concerning MBIA, including the Annual Reports on Form
10-K of MBIA for each of the years in the three year period ended December 31,
1996, the Quarterly Reports on Form 10-Q of MBIA for each of the quarters in
the two year period ended September 30, 1997; (7) certain other internal
information, primarily financial in nature, including projections, concerning
the business and operations of MBIA furnished to Salomon Brothers by MBIA for
purposes of its analysis; (8) certain publicly available information
concerning the trading of, and the trading market for, the MBIA Common Stock;
(9) statutory information of MBIA's insurance subsidiaries for the years ended
December 31, 1995 and 1996 and for the three month periods ended March 31,
1997, June 30, 1997, and September 30, 1997; (10) certain publicly available
information with respect to certain other companies that Salomon Brothers
believed to be comparable to CapMAC and MBIA, and the trading markets for
certain of such other companies' securities; and (11) certain publicly
available information concerning the nature and terms of certain other
transactions that Salomon Brothers considered relevant to its inquiry. Salomon
Brothers also considered such other information, financial studies, analyses,
investigations and financial, economic and market criteria that it deemed
relevant. Salomon Brothers also met with certain officers
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and employees of CapMAC and MBIA to discuss the foregoing as well as other
matters Salomon Brothers believed relevant to its inquiry.
In its review and analysis and in arriving at its opinion, Salomon Brothers
assumed and relied upon the accuracy and completeness of all of the financial
and other information provided to it or publicly available and neither
attempted independently to verify nor assumed any responsibility for verifying
any of such information and further relied on assurances of management of
CapMAC that they are not aware of facts that would make any of such
information inaccurate or misleading. Salomon Brothers did not conduct a
physical inspection of any of the properties or facilities of CapMAC or MBIA,
nor did it make or obtain or assume any responsibility for making or obtaining
any independent evaluations or appraisals of any of such properties or
facilities. With respect to projections, Salomon Brothers assumed that they
had been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the managements of CapMAC and MBIA, respectively.
Salomon Brothers expressed no view with respect to such projections or the
assumptions on which they were based. Salomon Brothers further assumed that
the conditions precedent to the Merger contained in the Merger Agreement will
be satisfied and that the Merger will be consummated in accordance with the
terms of the Merger Agreement.
In conducting its analysis and arriving at its opinion, Salomon Brothers
considered such financial and other factors as it deemed appropriate under the
circumstances including, among others, the following: (1) the historical and
current financial position and results of operations of CapMAC and MBIA; (2)
the business prospects of CapMAC and MBIA; (3) the historical and current
market for CapMAC Common Stock, MBIA Common Stock and the equity securities of
certain other companies that Salomon Brothers believes to be comparable to
CapMAC or MBIA; and (4) the nature and terms of certain other acquisition
transactions that Salomon Brothers believes to be relevant. Salomon Brothers
also took into account its assessment of general economic, market and
financial conditions as well as its experience in connection with similar
transactions and securities valuation generally. Salomon Brothers' opinion
necessarily was based on conditions as they existed and could be evaluated on
the date thereof and Salomon Brothers assumed no responsibility to update or
revise its opinion based upon circumstances or events occurring after such
date. Salomon Brothers' opinion does not constitute an opinion or imply any
conclusions as to the likely trading range for MBIA Common Stock following
consummation of the Merger. Salomon Brothers' opinion was for the sole benefit
of the CapMAC Board in its consideration of the Merger and was, in any event,
limited to the fairness, from a financial point of view, of the consideration
to be received by holders of CapMAC Common Stock in the Merger and did not
address CapMAC's underlying business decision to effect the Merger or
constitute a recommendation to any holder of CapMAC Common Stock as to how
such holder should vote with respect to the Merger.
Salomon Brothers has advised the CapMAC Board that, based on an express
disclaimer in the Engagement Letter, Salomon Brothers does not believe that
any person (including a stockholder of CapMAC), other than CapMAC or the
CapMAC Board, has a legal right to rely upon its fairness opinion to support
any claims against Salomon Brothers arising under applicable state law and
that, should any such claims be brought against Salomon Brothers by any such
person, this assertion will be raised as a defense. In the absence of
applicable state law authority, the availability of such a defense will be
resolved by a court of competent jurisdiction. Resolution of the question of
the availability of such a defense, however, will have no effect on the rights
and responsibilities of the CapMAC Board under applicable state law. Nor would
the availability of such a state law defense to Salomon Brothers have any
effect on the rights and responsibilities of either Salomon Brothers or the
CapMAC Board under the federal securities laws.
In connection with its opinion dated November 13, 1997, Salomon Brothers
made a presentation to the CapMAC Board on November 13, 1997, with respect to
certain analyses performed by Salomon Brothers in evaluating the consideration
to be received in the Merger by holders of CapMAC Common Stock. The following
is a summary of such Salomon Brothers presentation. The following quantitative
information, to the extent it is based on market data, is based on market data
as it existed at November 12, 1997 and is not necessarily indicative of
current market conditions.
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Overview of MBIA and Historical Trading Analysis. Salomon Brothers reviewed
certain aspects of the business and historical financial performance of MBIA,
including, among other things, total assets, total equity, gross premiums
written, net premiums earned, net income, operating earnings, loss ratios,
expense ratios and combined ratios for fiscal years 1992 through 1996 and for
the nine months ended September 30, 1996 and 1997. Salomon Brothers compared
certain of this information with similar financial data for other publicly-
traded companies in the financial guaranty industry (both reinsurers and
primary bond insurers). In addition, Salomon Brothers reviewed with the CapMAC
Board certain information concerning the trading prices and volume of MBIA
Common Stock from January 2, 1996 through November 12, 1997. Salomon Brothers
noted that the trading price of the MBIA Common Stock had generally tracked
the performance of an index of selected peer companies and the S&P 500
Composite Average over such period, with the index of selected peer companies
slightly outperforming the MBIA Common Stock and the S&P 500 Composite
Average.
Comparable Market Statistics--MBIA. Salomon Brothers compared, for the
twelve months ended September 30, 1997, selected financial data of MBIA with
certain financial data from five other publicly-traded financial guaranty
companies (AMBAC Financial Group, Inc., Capital Re Corp, CapMAC, Enhance
Financial Services Group Inc. and Financial Security Assurance Holdings Ltd.
(the "MBIA Comparable Companies")). Salomon Brothers considered the MBIA
Comparable Companies to be reasonably similar to MBIA insofar as they
participate in business segments similar to MBIA's business segments, but none
of these companies has the same management, makeup, size and combination of
businesses as MBIA. For MBIA and each of the MBIA Comparable Companies,
Salomon Brothers reviewed, among other things, (1) latest twelve months
("LTM") return on average equity (13.2% for MBIA compared with a range of
10.4% to 12.6% and a median of 12.1% for the MBIA Comparable Companies); (2)
LTM return on beginning equity (14.7% for MBIA compared with a range of 10.8%
to 13.7% and a median of 13.1% for the MBIA Comparable Companies); and (3)
expected five year earnings per share ("EPS") growth (based upon Institutional
Brokers Estimate Systems ("IBES") reports) (13.0% for MBIA compared with a
range of 11.0% to 20.0% and a median of 14.0% for the MBIA Comparable
Companies).
For purposes of comparison, Salomon Brothers then established multiples of
closing stock price on November 12, 1997 to (a) LTM operating earnings (15.5x
for MBIA compared with a range of 14.3x to 16.6x and a median of 14.6x for the
MBIA Comparable Companies); (b) estimated 1997 EPS (15.0x for MBIA compared
with a range of 13.8x to 15.8x and a median of 14.2x for the MBIA Comparable
Companies); (c) estimated 1998 EPS (13.5x for MBIA compared with a range of
12.2x to 13.5x and a median of 12.7x for the MBIA Comparable Companies), (d)
book value (1.88x for MBIA compared with a range of 1.47x to 1.86x and a
median of 1.62x for the MBIA Comparable Companies); (e) reported adjusted book
value (1.32x for MBIA compared with a range of 1.06x to 1.52x and a median of
1.21 for the MBIA Comparable Companies) and (f) fully-diluted book value
(1.86x for MBIA compared with a range of 1.47x to 1.92x and a median of 1.64
for the MBIA Comparable Companies). Salomon Brothers also established
multiples of firm value (equity market capitalization plus total debt) to (x)
earnings before interest and taxes ("EBIT") (12.6x for MBIA compared with a
range of 10.8x to 12.1x and a median of 11.2x for the MBIA Comparable
Companies) and (y) book value plus debt (1.75x for MBIA compared with a range
of 1.41x to 1.70x and a median of 1.50x for the MBIA Comparable Companies).
Estimated 1997 EPS and 1998 EPS were based upon mean First Call estimates as
of November 11, 1997.
Dividend Discount Valuation--MBIA. Salomon Brothers also performed a
dividend discount analysis pursuant to which the value of MBIA Common Stock
was estimated by adding (1) the estimated net present value of MBIA's future
stream of dividend payments to MBIA's stockholders for the years 1998 through
2002, plus (2) the estimated net present value of the terminal value of MBIA
at the end of the year 2002, based upon certain operating and financial
assumptions, forecasts and other information provided to Salomon Brothers by
the management of MBIA. For purposes of such analysis, Salomon Brothers
utilized discount rates of 12.0%, 13.0%, 14.0%, 15.0%, 16.0%, 17.0% and 18.0%
(with particular focus on discount rates of 14.0%, 15.0% and 16.0%), and
terminal values based on multiples of 12.0x, 13.0x, 14.0x, 15.0x and 16.0x
projected GAAP earnings for the year 2003 and multiples of 1.80x, 1.90x,
2.00x, 2.10x and 2.20x projected GAAP book value at
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the end of the year 2002 (with particular focus on multiples of 13.0x to 15.0x
GAAP earnings and 1.90x to 2.10x GAAP book value). From these analyses,
focusing on discount rates of 14.0% to 16.0%, Salomon Brothers used the ranges
calculated for terminal value multiples of 13.0x to 15.0x year 2003 GAAP
earnings and 1.90x to 2.10x year 2002 projected GAAP book value to derive
reference ranges for the implied value of the shares of MBIA Common Stock of
$59.58 to $74.31 and $56.38 to $67.47, respectively. Salomon Brothers noted
that MBIA's closing stock price of $61.06 on November 12, 1997 was within the
range of values suggested by this analysis.
Review of CapMAC Historical Trading Analysis. Salomon Brothers reviewed
certain information concerning trading prices and volume of CapMAC Common
Stock from December 19, 1995 (the date of the initial public offering of the
CapMAC Common Stock) through November 12, 1997. Salomon Brothers noted that
from January 2, 1997 through November 12, 1997, both the S&P 500 Composite
Average and an index of selected peer companies (the "CapMAC Comparable
Index") had significantly outperformed the CapMAC Common Stock (although the
CapMAC Common Stock had generally outperformed both the S&P 500 Composite
Average and the CapMAC Comparable Index for the period from December 1995
through March 1997).
Comparable Company Analysis--CapMAC. Salomon Brothers reviewed certain
publicly available financial, operating and stock market information for
CapMAC, and five other publicly-traded financial guaranty companies (AMBAC
Financial Group, Inc., Capital Re Corp, Enhance Financial Services Group Inc.,
Financial Security Assurance Holdings Ltd. and MBIA (the "CapMAC Comparable
Companies")). Salomon Brothers considered the CapMAC Comparable Companies to
be reasonably similar to CapMAC insofar as they participate in business
segments similar to the CapMAC's business segments, but none of these
companies has the same management, makeup, size and combination of businesses
as CapMAC. Accordingly, the analysis described below is not purely
mathematical. Rather it involves complex considerations and judgments
concerning differences in historical and projected financial and operating
characteristics of CapMAC and the CapMAC Comparable Companies and other
factors that could affect public trading value.
For CapMAC and each of the CapMAC Comparable Companies, Salomon Brothers
compared, for the twelve months ended September 30, 1997, (1) LTM return on
average equity (10.4% for CapMAC compared with a range of 10.6% to 13.2% and a
median of 12.4% for the CapMAC Comparable Companies); (2) LTM return on
beginning equity (10.8% for CapMAC compared with a range of 11.4% to 14.7% and
a median of 13.4% for the CapMAC Comparable Companies); and (3) expected five
year EPS growth (based upon IBES reports) (20.0% for CapMAC compared with a
range of 11.0% to 16.0% and a median of 13.0% for the CapMAC Comparable
Companies). For purposes of comparison, Salomon Brothers then established
multiples of closing stock price on November 12, 1997 to (a) LTM operating
earnings (16.2x for CapMAC compared with a range of 14.3x to 16.6x and a
median of 14.6x for the CapMAC Comparable Companies); (b) estimated 1997 EPS
(15.0x for CapMAC compared with a range of 13.8x to 15.8x and a median of
14.2x for the CapMAC Comparable Companies); (c) estimated 1998 EPS (12.7x for
CapMAC compared with a range of 12.2x to 13.5x and a median of 12.8x for the
CapMAC Comparable Companies), (d) book value (1.50x for CapMAC compared with a
range of 1.47x to 1.88x and a median of 1.67x for the CapMAC Comparable
Companies); (e) reported adjusted book value (1.06x for CapMAC compared with a
range of 1.14x to 1.52x and a median of 1.26 for the CapMAC Comparable
Companies) and (f) fully-diluted book value (1.51x for CapMAC compared with a
range of 1.47x to 1.92x and a median of 1.70 for the CapMAC Comparable
Companies). Salomon Brothers also established multiples of firm value to (x)
EBIT (10.8x for CapMAC compared with a range of 10.8x to 12.6x and a median of
11.4x for the CapMAC Comparable Companies) and (y) book value plus debt (1.50x
for CapMAC compared with a range of 1.41x to 1.75x and a median of 1.55x for
the CapMAC Comparable Companies). Estimated 1997 EPS and 1998 EPS were based
upon mean First Call estimates as of November 11, 1997.
Using the multiples described above, Salomon Brothers derived a reference
range (based on the median values resulting from application of those
multiples) for the implied value of the shares of CapMAC Common Stock of
$27.07 to $38.46, resulting in an implied premium/(discount) of 29.3% to
(9.0%) based on the $35.00 per share Merger Consideration.
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Dividend Discount Valuation--CapMAC. Salomon Brothers also performed a
dividend discount analysis pursuant to which the value of CapMAC Common Stock
was estimated by adding (1) the estimated net present value of CapMAC's future
stream of dividend payments to CapMAC's stockholders for the years 1998
through 2002, plus (2) the estimated net present value of the terminal value
of CapMAC at the end of the year 2002, based upon certain operating and
financial assumptions, forecasts and other information provided to Salomon
Brothers by the management of CapMAC. Salomon Brothers performed this analysis
(a) based on management EPS estimates for 1998 through 2002 (the "Base Case"),
which resulted in a compound annual growth rate ("CAGR") of 20.0%, and (b)
based on management EPS estimates for 1998 and assuming a CAGR of 15.0%
thereafter (the "Lower-growth Case"). For purposes of such analysis, Salomon
Brothers utilized discount rates of 12.0%, 13.0%, 14.0%, 15.0%, 16.0%, 17.0%
and 18.0% (with particular focus on discount rates of 14.0%, 15.0% and 16.0%),
and terminal values based on multiples of 9.0x, 10.0x, 12.0x, 14.0x and 15.0x
projected GAAP earnings for the year 2003 and multiples of 1.25x, 1.50x,
1.75x, 2.00x and 2.25x projected GAAP book value at the end of the year 2002
(with particular focus on multiples of 10.0x to 14.0x GAAP earnings and 1.50x
to 2.00x GAAP book value). From these analyses, Salomon Brothers used the
ranges calculated for discount rates of 14% to 16% and for terminal value
multiples of 10.0x to 14.0x year 2003 GAAP earnings to derive reference ranges
for the implied value of the shares of CapMAC Common Stock of $28.95 to
$44.08, with a median of $36.21 (Base Case), and $23.44 to $35.67, with a
median of $29.31 (Lower-growth Case). Salomon Brothers also used the ranges
calculated for discount rates of 14% to 16% and for terminal value multiples
of 1.50x to 2.00x year 2002 projected GAAP book value to derive reference
ranges for the implied value of the shares of CapMAC Common Stock of $27.53 to
$39.94, with a median of $33.49 (Base Case), and $26.05 to $37.78, with a
median of $31.68 (Lower-growth Case).
Liquidation Analysis--CapMAC. Salomon Brothers also performed a liquidation
analysis pursuant to which the value of CapMAC Common Stock was estimated by
adding (1) the estimated net present value of CapMAC's future free cash flow
available to stockholders if CapMAC were to "run-off" its existing book of
business, plus (2) the estimated net present value of the terminal value of
CapMAC at the end of the year 2002, based upon certain operating and financial
assumptions, forecasts and other information provided to Salomon Brothers by
the management of CapMAC. Free cash flow to stockholders represents the amount
of cash generated and available for dividend payments after providing for
ongoing business operations and taking into account the maximum allowable
dividend of CapMAC's insurance subsidiaries. For purposes of such analysis,
Salomon Brothers utilized discount rates of 12.0%, 13.0%, 14.0%, 15.0%, 16.0%,
17.0% and 18.0% (with particular focus on discount rates of 14.0%, 15.0% and
16.0%), and terminal values based on multiples of 1.00x, 1.10x, 1.20x, 1.30x
and 1.40x projected GAAP book value at the end of the year 2002 (with
particular focus on multiples 1.10x to 1.30x GAAP book value). From these
analyses, Salomon Brothers used the ranges calculated for discount rates of
14% to 16% and for terminal value multiples of 1.10x to 1.30x year 2002
projected GAAP book value to derive a reference range for the implied value of
the shares of CapMAC Common Stock of $13.92 to $17.55, with a median of
$15.67.
Analysis of Selected Insurance Company Acquisitions. Salomon Brothers also
analyzed certain publicly available financial, operating and stock market
information for six selected merger or acquisition transactions in the
financial guaranty industry since 1988 (the "Financial Guaranty
Transactions"); for sixteen selected merger or acquisition transactions in the
property and casualty insurance industry announced since 1994 (the "P&C
Transactions"); and for eighteen selected merger or acquisition transactions
in the life insurance industry announced since 1995 (the "Life Insurance
Transactions"). The Financial Guaranty Transactions reviewed were: AMBAC
Financial Group, Inc./Construction Loan Insurance Corporation, Financial
Security Assurance Holdings Ltd./Capital Guaranty Corporation, Saratoga
Partners II, L.P./CapMAC, U S West Inc./Financial Security Assurance Holdings
Ltd., MBIA/Bond Investors Group, Inc. and General Electric Capital Corp./FGIC
Corp. The P&C Transactions were: Hartford Financial Services Group Inc./Omni
Insurance Group Inc., USF&G Corporation/Titan Holdings Inc., General Electric
Capital Corp./Colonial Penn Insurance Co., MMI Companies Inc./Unionamerica
Holdings plc, Fairfax Financial Holdings Limited/Sphere Drake Holdings Ltd.,
General Motors Acceptance Corp./Integon Corp., SAFECO Corporation/American
States Financial Corp., EXEL Limited/GCR Holdings Limited, Vesta Insurance
Group, Inc./Anthem Casualty Ins. Group, Inc., Fireman's Fund
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Insurance Company/Crop Growers Corporation, HCC Insurance Holdings,
Inc./AVEMCO Corporation, Zurich Insurance Group/Zurich Reinsurance Centre
Holdings Inc., Munich Reinsurance Company/American Re Corp., Berkshire
Hathaway Inc./GEICO Corporation, Zurich Reinsurance Centre Holdings, Inc./RE
Capital Corporation and USF&G Corporation/Victoria Financial Corp. The Life
Insurance Transactions were: Conseco Inc./Washington National Corporation,
AmerUS Life Holdings, Inc./AmVestors Financial Corporation, American General
Corporation/Western National Corp., ING Groep N.V./Equitable of Iowa
Companies, Unitrin, Inc./Reliable Life Insurance Co., Conseco Inc./Colonial
Penn Life Insurance Co., Jefferson-Pilot Corp./Chubb Life Insurance Company of
America, American General Corporation/USLIFE Corp., AEGON N.V./Providian
Corp., American General Corporation/Home Beneficial Corp., Conseco
Inc./Pioneer Financial Services, Inc., Conseco Inc./Transport Holdings, Inc.,
Conseco Inc./Capitol American Financial Corp., Conseco Inc./American
Travellers Corp., General Electric Capital Corp./First Colony Corp., Conseco
Inc./Life Partners Group, Inc., American Annuity Group, Inc./Laurentian
Capital Corp. and Zurich Insurance Group/Kemper Corporation. Salomon Brothers
considered the precedent mergers and acquisition transactions to be reasonably
similar to the Merger, but none of these precedents is identical to the
Merger. For each transaction reviewed, Salomon Brothers established, among
other things, the premium to market price one month prior to the public
announcement of the transaction and the multiples of transaction price to LTM
GAAP operating income and to GAAP book value and, in the case of the P&C
Transactions and the Life Insurance Transactions, the multiple of transaction
price to the estimate of EPS for the calendar year following the announcement
date, based upon median IBES estimates as of the announcement date. Based on
the foregoing analyses, Salomon Brothers calculated high, low and median
multiples.
Using the multiples described above, Salomon Brothers derived reference
ranges (based on the median values resulting from application of those
multiples) for the implied value of the shares of CapMAC Common Stock of
$21.30 to $37.61, $31.94 to $42.75 and of $29.12 to $42.95, based upon the
Financial Guaranty Transactions, the P&C Transactions and the Life Insurance
Transactions, respectively.
The foregoing summary does not purport to be a complete description of the
analyses performed by Salomon Brothers or of its presentations to the CapMAC
Board. The preparation of financial analyses and fairness opinions is a
complex process involving subjective judgments and is not necessarily
susceptible to partial analysis or summary description. Salomon Brothers made
no attempt to assign specific weights to particular analyses or factors
considered, but rather made qualitative judgments as to the significance and
relevance of the analyses and factors considered. Accordingly, Salomon
Brothers believes that its analyses (and the summary set forth above) must be
considered as a whole, and that selecting portions of such analyses and of the
factors considered by Salomon Brothers, without considering all of such
analyses and factors, could create a misleading or incomplete view of the
processes underlying the analyses conducted by Salomon Brothers and its
opinion. With regard to the comparable public company analysis and the
comparable transaction analysis summarized above, Salomon Brothers selected
comparable public companies on the basis of various factors, including the
size of the public company and similarity of the line of business; however, no
public company or transaction utilized as a comparison is identical to CapMAC
or MBIA, any business segment of CapMAC or MBIA or the Merger. Accordingly, an
analysis of the foregoing is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the Comparable Companies and other factors that could
affect the transaction or public trading value of the Comparable Companies and
transactions to which CapMAC and MBIA, the business segments of CapMAC and
MBIA and the Merger are being compared. In its analyses, Salomon Brothers made
numerous assumptions with respect to CapMAC, MBIA, industry performance,
general business, economic, market and financial conditions and other matters,
many of which are beyond the control of CapMAC and MBIA. Any estimates
contained in Salomon Brothers' analyses are not necessarily indicative of
actual values or predictive of future results or values, which may be
significantly more or less favorable than those suggested by such analyses.
Estimates of values of companies do not purport to be appraisals or
necessarily to reflect the prices at which companies may actually be sold.
Because such estimates are inherently subject to uncertainty, none of CapMAC,
MBIA, the CapMAC Board, Salomon Brothers or any other person assumes
responsibility if future results or actual values differ materially from the
estimates. Salomon Brothers' analyses were prepared solely as part of Salomon
Brothers' analysis of the fairness
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of the consideration to be received by the holders of CapMAC Common Stock in
the Merger and were provided to the CapMAC Board in that connection. The
opinion of Salomon Brothers dated November 13, 1997 was one of the factors
taken into consideration by the CapMAC Board in making its determination to
approve the Merger Agreement and the Merger.
Salomon Brothers is an internationally recognized investment banking firm
engaged, among other things, in the valuation of businesses and their
securities in connection with mergers and acquisitions, restructurings,
leveraged buyouts, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. CapMAC selected Salomon
Brothers to act as its financial advisor on the basis of Salomon Brothers'
international reputation and Salomon Brothers' familiarity with CapMAC.
Salomon Brothers had previously rendered investment banking and financial
advisory services to CapMAC and MBIA, for which Salomon Brothers received
customary compensation. In addition, in the ordinary course of its business,
Salomon Brothers may trade the debt and equity securities of both CapMAC and
MBIA for its own account and for the accounts of customers and, accordingly,
may at any time hold a long or short position in such securities.
Pursuant to the Engagement Letter, CapMAC will pay Salomon Brothers the
following fees: (a) $100,000, payable upon CapMAC's execution of the
Engagement Letter (which has been paid); plus (b) an additional fee, payable
upon consummation of the Merger (the "Additional Fee"), of .88% of the sum of
(1) the total market value of the MBIA Common Stock paid to holders of CapMAC
Common Stock in connection with the Merger, plus (2) the value of any long-
term liabilities repaid or retired in connection with or anticipation of the
Merger or existing on CapMAC's balance sheet at the time of the Merger. Up to
30% of the Additional Fee is payable to SBC Warburg Dillon Read Inc. as co-
advisor in accordance with the Engagement Letter. CapMAC has also agreed to
reimburse Salomon Brothers for its reasonable travel and other out-of-pocket
expenses incurred in connection with its engagement (including the reasonable
fees and disbursements of its counsel) and to indemnify Salomon Brothers
against certain liabilities and expenses relating to or arising out of its
engagement, including certain liabilities under the federal securities laws.
As noted under the caption "THE PROPOSED MERGER--CapMAC's Reasons for the
Merger; Recommendation of the CapMAC Board" the fairness opinion of Salomon
Brothers dated November 13, 1997 was only one of several factors considered by
the CapMAC Board in determining to approve the Merger Agreement and the
Merger. The amount of consideration payable in the Transaction was determined
by arms'-length negotiations between MBIA and CapMAC, in consultation with
their respective financial advisors and other representatives, and was not
established by such financial advisors.
MBIA'S REASONS FOR THE MERGER
The MBIA Board, having received the opinion of Lehman Brothers that, from a
financial point of view, the consideration to be paid by MBIA in the Merger is
fair to MBIA, unanimously approved the Merger Agreement and the Share Issuance
in connection with the Merger. The Merger does not require the approval of the
shareholders of MBIA.
In reaching its conclusion to approve the Merger and the Share Issuance, the
MBIA Board considered a variety of factors, although it did not assign any
relative or specific weight to the factors considered. The MBIA Board
considered the following principal factors:
(1) that the products and markets of the two companies are complementary;
(2) that the combined company should enjoy economies of scale in such
areas as the management of its investment portfolio, new product
development, technology and back-office functions;
(3) that the size of the combined company should increase its flexibility
to take advantage of opportunities for growth in the future;
(4) that MBIA expects the Merger to be non-dilutive to MBIA, excluding
non-recurring costs attributable to the Merger;
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(5) information concerning the historical financial position, results of
operation and stock prices of CapMAC, as well as the prospective financial
performance of the combined companies;
(6) the opinion of Lehman Brothers delivered to the MBIA Board at its
November 13, 1997 special meeting that, as of the date of such opinion, the
Exchange Ratio is fair, from a financial point of view, to MBIA, as well as
the underlying financial analyses of Lehman Brothers presented to the MBIA
Board in connection therewith;
(7) the risks associated with combining two large companies;
(8) a review of the terms of the Merger Agreement, including the
circumstances under which either MBIA or CapMAC may terminate the Merger
Agreement (and the fees triggered thereby), the conditions to closing
contained therein and the impact of non-recurring costs directly
attributable to the Merger, including change of control costs and fees to
investment bankers, accountants and attorneys;
(9) that the Merger was structured as a tax-free reorganization for
federal income tax purposes (see "--Certain Federal Income Tax Consequences
of the Merger"); and
(10) that the Merger will be accounted for as a "pooling of interests"
transaction, thereby avoiding potential negative accounting consequences to
the earnings of the combined company following the closing of the Merger.
After careful consideration of the foregoing factors and consultation with
its outside financial and legal advisors, the MBIA Board concluded that the
Merger and the Share Issuance furthered the strategic and financial objectives
of MBIA.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the CapMAC Board with respect to the
Merger Agreement and the transactions contemplated thereby, CapMAC
stockholders should be aware that certain members of CapMAC management and the
CapMAC Board may be deemed to have certain interests in the Merger in addition
to their interests generally as stockholders of CapMAC which may present them
with potential conflicts of interest in connection with their recommendation
of the approval of the Merger Agreement to CapMAC's stockholders.
Mr. Caouette is a party to an employment agreement dated as of June 25, 1992
(the "Employment Agreement") with CapMAC which, among other provisions,
provides that Mr. Caouette may terminate his employment following a Change of
Control (as defined in the Employment Agreement) and be entitled to certain
severance. The severance payable to Mr. Caouette pursuant to his Employment
Agreement by CapMAC consists of a payment of an amount equal to the higher of
(x) his base salary payable for the period commencing on the termination date
and ending on (and including) the last day of the employment period, (y) 200%
of his base salary and (z) the amount payable under CapMAC's then-applicable
severance policy. Mr. Caouette will also be entitled to continuation for 12
months of any health or disability coverage provided by CapMAC to him prior to
such termination of employment and an amount equal to the pro rata portion of
the bonus determined using his target annual bonus. The Merger will constitute
a Change of Control as defined in the Employment Agreement.
The Merger Agreement permits CapMAC to adopt a severance policy for its
employees, subject to the consent of MBIA, which consent shall not be
unreasonably withheld. CapMAC and MBIA have also had discussions regarding
severance benefits for CapMAC's employees who, under certain circumstances,
may not continue to be employed by MBIA following the Merger. Such severance
would consist of continuation of base pay for up to two years for the most
senior CapMAC officers and be payable in the discretion of Mr. Caouette.
At the Effective Time, each outstanding stock option and any related stock
appreciation right with respect to CapMAC Common Stock, whether or not then
exercisable, shall be deemed assumed by MBIA and deemed to constitute an
option to acquire, on the same terms and conditions as were applicable under
such option prior to the Effective Time, the number (rounded to the nearest
whole number) of shares of MBIA Common Stock as the holder of such option
would have been entitled to receive pursuant to the Merger had such holder
exercised
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such option in full immediately prior to the Effective Time (not taking into
account whether or not such option was in fact exercisable).
The Merger Agreement provides that for six years after the Effective Time,
MBIA will and it will cause the Surviving Corporation to indemnify and hold
harmless each present and former director and officer of CapMAC, determined as
of the Effective Time, against any costs or expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims, damages or liabilities
(collectively, "Costs") (but only to the extent such Costs are not otherwise
covered by insurance and paid) incurred in connection with any claim, action,
suit, proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to matters existing or occurring
at or prior to the Effective Time, whether asserted or claimed prior to, at or
after the Effective Time, to which such person was or is a party or is
threatened to be made a party by reason of the fact that he was or is a
director or officer of CapMAC, to the fullest extent permitted under
applicable law (and MBIA shall, or shall cause the Surviving Corporation to,
also advance expenses as incurred to the fullest extent permitted under
applicable law provided the person to whom expenses are advanced provides an
undertaking to repay such advances if it is ultimately determined that such
person is not entitled to indemnification). The Merger Agreement provides that
the By-Laws of the Surviving Corporation will contain provisions no less
favorable with respect to indemnification than are set forth in the By-laws of
CapMAC, and that such provisions will not be amended, repealed or otherwise
modified for a period of six years from the Effective Time in any manner that
would adversely affect the rights thereunder of individuals who at the
Effective Time were directors, officers or employees of CapMAC. The Merger
Agreement further provides that MBIA will cause to be maintained in effect for
six years from the Effective Time the current policies of the directors' and
officers' liability insurance maintained by CapMAC (provided that MBIA may
substitute therefor policies of at least the same coverage containing terms
and conditions which are not materially less advantageous) with respect to
matters occurring prior to the Effective Time to the extent available or, if
such coverage is not available, the best available coverage; provided,
however, that in no event will MBIA or CapMAC be required to expend more than
an amount per year equal to 200% of current annual premiums paid by CapMAC to
maintain or procure insurance coverage pursuant to the Merger Agreement, but
in such case will purchase as much coverage as possible for such amount.
PLANS FOR CAPMAC AFTER THE MERGER
Following the Merger MBIA intends to combine the businesses and operations
of MBIA and CapMAC and to eliminate certain redundant operations. CapMAC's
operations are expected to remain in New York City. MBIA and the management of
CapMAC will continue to evaluate CapMAC's business and operations after the
consummation of the Merger and make such changes as are deemed appropriate.
Except as otherwise indicated in this Proxy Statement/Prospectus, MBIA does
not have any plans or proposals subsequent to the Merger that relate to or
would result in an extraordinary corporate transaction, such as a merger,
reorganization or liquidation involving CapMAC, a sale or transfer of a
material amount of the assets of CapMAC or any material change in CapMAC's
corporate structure.
THE MERGER AGREEMENT
The following is a summary of certain material provisions of the Merger
Agreement not summarized elsewhere in this Proxy Statement/Prospectus. A copy
of the Merger Agreement is attached as Annex A to this Proxy
Statement/Prospectus and is incorporated herein by reference. The following
summary does not purport to be complete and is qualified in its entirety by
reference to the Merger Agreement.
The Merger
The Merger Agreement provides that, as soon as practicable following the
satisfaction or waiver of various conditions to each party's obligation to
consummate the Merger including the approval of the Merger Agreement by
CapMAC's stockholders, Merger Sub will be merged with and into CapMAC in
accordance with the DGCL,
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the separate corporate existence of Merger Sub will cease, and CapMAC will
continue as the Surviving Corporation in the Merger.
Charter and Bylaws
At the Effective Time, the CapMAC Charter, as in effect immediately prior to
the Effective Time, shall be the certificate of incorporation of the Surviving
Corporation and the by-laws of Merger Sub shall be the by-laws of the
Surviving Corporation.
Directors and Officers
Pursuant to the Merger Agreement, the directors of Merger Sub immediately
prior to the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the certificate of
incorporation and by-laws of the Surviving Corporation, and the officers of
CapMAC immediately prior to the Effective Time shall be the initial officers
of the Surviving Corporation, in each case until their respective successors
are duly elected or appointed (as the case may be) and qualified.
Representations and Warranties
The Merger Agreement contains various customary representations and
warranties by CapMAC, MBIA and Merger Sub concerning (i) organization,
standing and corporate power, (ii) capitalization and ownership of
subsidiaries' stock, (iii) licensing of insurance subsidiaries, (iv)
authorization of the Merger Agreement, the Merger and related transactions,
(v) consents and approvals and absence of contravention of any organizational
documents and agreements of, and any orders or regulations against, CapMAC,
MBIA and Merger Sub and their respective subsidiaries, (vi) compliance with
applicable federal securities law requirements and absence of material
misstatements or omissions in documents and reports filed with the Commission,
(vii) financial statements, including statutory financial statements, (viii)
the absence of certain changes, (ix) the absence of undisclosed liabilities,
(x) the accuracy of the information provided for inclusion in this Proxy
Statement/Prospectus, (xi) compliance with governmental approvals, filings and
permits; (xii) the absence of undisclosed violations of or defaults under any
organizational document or any material agreement, order, statute, rule or
regulation, governmental authorization, consent or approval, (xiii) the
Investment Company Act of 1940 and the Investment Advisers Act of 1940, (xiv)
the absence of undisclosed material litigation, (xv) taxes, (xvi) the receipt
of opinions of their respective financial advisors, (xvii) qualification of
the Merger for "pooling of interests" accounting treatment, (xvii)
qualification of the Merger as a reorganization under the Code, and (xx) no
brokers being entitled to fees in connection with the Merger.
MBIA also made representations and warranties concerning the ownership by
MBIA and its subsidiaries of CapMAC Common Stock.
CapMAC also made representations and warranties concerning the ownership by
CapMAC and its subsidiaries of MBIA Common Stock, and its employee benefit
plans, compliance with ERISA and labor matters.
The respective representations and warranties of each of CapMAC, MBIA and
Merger Sub will terminate at the Effective Time or upon termination of the
Merger Agreement in accordance with its provisions.
Conduct of Business Pending the Merger
Pursuant to the Merger Agreement, CapMAC and MBIA have agreed that, during
the period from the date of the Merger Agreement until the Effective Time,
except as contemplated by the Merger Agreement or provided in the disclosure
schedules thereto or as mutually consented to in writing, each of CapMAC and
MBIA and each of their respective subsidiaries will conduct its business in
the ordinary course consistent with past practice, and will use all reasonable
best efforts to preserve intact its respective business organization, keep
available the services of present key officers and employees, and preserve
relationships and goodwill with persons with which it has significant business
relations.
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In addition, except as set forth in the disclosure schedules to the Merger
Agreement, CapMAC has agreed not to, without prior written consent of MBIA:
(i) amend its Charter, bylaws or equivalent organizational documents, (ii)
issue, sell, pledge, dispose of or encumber, or authorize any shares of
capital stock or other securities (subject to certain exceptions described in
the Merger Agreement) or any material assets except in the ordinary course of
business or to pay claims arising under insurance policies, (iii) declare, set
aside or pay any dividends or other distributions (except for regular
quarterly dividends), (iv) reclassify, combine, split, subdivide or redeem,
purchase or otherwise acquire any shares of its capital stock, (v) acquire (by
merger, consolidation, or acquisition of stock or assets) any business
organization or division thereof, or incur any indebtedness except in the
ordinary course of business pursuant to existing credit agreements or
arrangements, (vi) except in the ordinary course of business consistent with
past practice or as otherwise permitted by the Merger Agreement and schedules
thereto, increase any compensation or fringe benefits payable to any director,
officer or employee, grant any severance or termination pay not required to be
paid under existing severance plans, or enter into any employment, consulting
or severance agreement or arrangement or establish, adopt, amend or terminate
any collective bargaining agreement or other employee benefit plan, (vii) make
any change in any accounting practice, except in specified circumstances,
(viii) make any material tax election, amend any tax return or settle or
compromise any material tax liability, (ix) settle or compromise any pending
or threatened suit, action or claim which is material or which relates to the
transactions contemplated thereby, (x) pay, discharge or satisfy any claims,
liabilities or obligations, other than those reflected or reserved against in
the financial statements of CapMAC or incurred in the ordinary course of
business and consistent with past practice, or those required to be paid,
discharged or satisfied pursuant to the terms of any contract in existence on
the date of the Merger Agreement (including, without limitation, outstanding
insurance policies), (xi) take any action that would reasonably be expected to
result in, or omit to take any action that would reasonably be expected to
prevent, any of its representations or warranties set forth in the Merger
Agreement being or becoming untrue in any material respect, (xii) take any
action that would reasonably be expected to result in any of the conditions of
the Merger set forth in the Merger Agreement not being satisfied, or (xiii)
take or agree to take, in writing or otherwise, any of the actions described
above.
MBIA also has agreed not to, except as set forth in the disclosure schedules
to the Merger Agreement, without prior written consent of CapMAC: (i) amend
its Charter, bylaws or other organizational documents, (ii) issue, sell,
pledge, dispose of or encumber, or authorize, any shares of capital stock or
other securities (subject to certain exceptions described in the Merger
Agreement) or any material assets except in the ordinary course of business or
to pay claims arising under insurance policies, (iii) declare, set aside or
pay any dividends or other distributions (except for regular quarterly
dividends), (iv) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire any shares of its capital stock, (v) take any action that
would reasonably be expected to result in, or omit to take any action that
would reasonably be expected to prevent, any of its representations or
warranties set forth in the Merger Agreement being or becoming untrue in any
material respect, (vi) take any action that would reasonably be expected to
result in any of the conditions of the Merger set forth in the Merger
Agreement not being satisfied, or (vii) take, or agree to take, in writing or
otherwise, any of the actions described above.
Each of the parties also has agreed not to take any action that to its
knowledge could reasonably be expected to adversely affect (i) the ability of
MBIA to treat the Merger as a "pooling of interests" for accounting purposes
or (ii) the ability of the Merger to qualify as a "reorganization" under
section 368(a) of the Code.
Access to Information; Confidentiality
The Merger Agreement provides that until the Effective Time, upon reasonable
notice and subject to the confidentiality agreement entered into with MBIA,
CapMAC will (and will cause its subsidiaries, employees and agents to) afford
the employees and other agents of MBIA reasonable access, consistent with
applicable law, at all reasonable times to its officers, employees, agents,
properties, and offices, and to all books and records, and will furnish MBIA
with all financial, operating and other data and information, as MBIA, through
its officers, employees or agents, may from time to time reasonably request.
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Filings and Other Actions
Upon the terms and subject to the conditions of the Merger Agreement, each
of the parties shall use its reasonable best efforts to take, or cause to be
taken, all reasonably appropriate action, and to do or cause to be done, all
things reasonably necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
the Merger Agreement as soon as practicable, including but not limited to (i)
cooperation in the preparation and filing of the Proxy Statement, any required
filings under the HSR Act, filings with the New York Superintendent of
Insurance (the "New York Superintendent") or other state or foreign insurance
commissions or regulations and any amendments to any thereof, (ii) using its
reasonable best efforts to promptly make all required regulatory filings and
applications including, without limitation, responding promptly to requests
for further information and to obtain all licenses, permits, consents,
approvals, authorizations, qualifications and orders of governmental
authorities and parties to contracts with CapMAC and its subsidiaries as are
necessary for the consummation of the transactions contemplated by the Merger
Agreement and to fulfill the conditions to the Merger, (iii) taking all
actions which may be reasonably necessary to prevent any court, or other
governmental or other regulatory authority, commission or agency (a
"Governmental Entity") from taking steps to obtain, or from issuing, any
order, injunction, decree, judgment or ruling or the taking of any other
action restraining, enjoining or otherwise prohibiting the Merger, including,
without limitation, agreeing to effect such divestitures of assets or
businesses of CapMAC or MBIA, or agreeing to such limitations on CapMAC's or
MBIA's future operations, as may be necessary to forestall such order, decree,
ruling or action, (iv) CapMAC and MBIA each agreeing to take all actions which
may be reasonably necessary to contest and resist any action seeking to have
imposed any order, decree, judgment, injunction, ruling or other order
(whether temporary, preliminary or permanent) (an "Order") that would delay,
restrain, enjoin or otherwise prohibit consummation of the Merger and in the
event that any such temporary or preliminary Order is entered in any
proceeding that would make consummation of the Merger in accordance with the
terms of the Merger Agreement unlawful or that would prevent or delay
consummation of the Merger or the other transactions contemplated by the
Merger Agreement, to use its reasonable best efforts to take promptly any and
all steps (including the appeal thereof, the posting of a bond or the taking
of the steps contemplated by clause (i) of this paragraph) reasonably
necessary to vacate, modify or suspend such Order so as to permit such
consummation as promptly as practicable after the date hereof, and (v)
cooperation in connection with obtaining the opinions of special counsel,
dated as of the Effective Time, to the effect that the Merger will constitute
a reorganization for Federal income tax purposes within the meaning of section
368(a) of the Code, including, without limitation, providing to special
counsel and, if required by counsel as necessary for purposes of such
opinions, using reasonable efforts to cause each person who beneficially owns
five percent or more of the outstanding shares of CapMAC Common Stock to
provide to special counsel, such representation letters as are reasonably
required by special counsel to enable them to render such opinions.
Notwithstanding the foregoing, neither party will be obligated to take any
action pursuant to the foregoing if the taking of such action or such
compliance or the obtaining of such consent, authorization, order, approval or
exemption is likely, in such party's reasonable opinion, (x) to have a
Material Adverse Effect on such party and its subsidiaries, taken as a whole,
or to impact in a materially adverse manner the economic or business benefits
of the transactions contemplated by the Merger Agreement so as to render
inadvisable the consummation of the Merger or (y) to impose on MBIA or its
subsidiaries or on CapMAC or its subsidiaries a requirement to dispose of any
assets which individually or in the aggregate would be deemed to constitute a
significant amount of assets, as the case may be, to MBIA and its
subsidiaries, taken as a whole, or to CapMAC and its subsidiaries, taken as a
whole, under Instruction 4 of Item 2 of Form 8-K (any condition referred to in
subsections (x) and (y) above, a "Material Condition"). In case at any time
after the Effective Time any further action is necessary or desirable to carry
out the purposes of the Merger Agreement, the proper officers and directors of
each party to the Merger Agreement will use their reasonable best efforts to
take all such necessary action.
CapMAC and MBIA each will keep the other apprised of the status of matters
relating to completion of the transactions contemplated hereby, including
promptly furnishing the other with copies of notices or other communications
received by MBIA or CapMAC, as the case may be, or any of their subsidiaries,
from any Governmental Entity with respect to the Merger or any of the other
transactions contemplated by the Merger
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Agreement. The parties thereto will consult and cooperate with one another,
and consider in good faith the views of one another in connection with any
analyses, appearances, presentations, memoranda, briefs, arguments, opinions
and proposals made or submitted by or on behalf of any party thereto in
connection with proceedings under or relating to the HSR Act or any other
antitrust law.
Other Acquisition Proposals
The Merger Agreement provides that CapMAC (i) will, and will cause its
subsidiaries to, and will direct and use its best efforts to cause any
officers, directors, employees, representatives and agents of CapMAC and its
subsidiaries to, immediately cease any existing discussions or negotiations
with any parties conducted theretofore with respect to any Acquisition
Proposal; (ii) will not, and will not permit any of its subsidiaries to, and
will direct and cause the officers, directors, employees, representatives or
agents of CapMAC or its subsidiaries not to, directly or indirectly,
encourage, solicit, participate in or initiate discussions or negotiations
with, or furnish any information or access to, any corporation, partnership,
person or other entity or group (other than MBIA and Merger Sub or any of
their affiliates, associates or designees) concerning, or agree to or endorse
any Acquisition Proposal.
Notwithstanding the foregoing, CapMAC may, directly or indirectly, furnish
information and access, in each case only in response to a written request for
such information or access made after the date of the Merger Agreement by any
person which was not encouraged, solicited or initiated by CapMAC or any of
its officers, directors, employees, representatives or agents after the date
of the Merger Agreement, and participate in discussions and negotiate with
such person concerning any Acquisition Proposal, if, and only to the extent
that (i) such person has submitted a bona fide definitive written Acquisition
Proposal to the CapMAC Board, (ii) the CapMAC Board, after consultation with
its independent financial advisors, determines that (x) the person making such
Acquisition Proposal is reasonably capable of completing such Acquisition
Proposal, taking into account the legal, financial, regulatory and other
aspects of such Acquisition Proposal and the person making such Acquisition
Proposal and (y) such Acquisition Proposal involves consideration to CapMAC's
stockholders and other terms and conditions that, taken as a whole, are
superior to the Merger, and (iii) the CapMAC Board determines in good faith,
based on the advice of outside counsel to CapMAC, that taking any such action
is necessary for the CapMAC Board to comply with its fiduciary duty to
stockholders under applicable law.
The CapMAC Board has agreed that it will not (i) withdraw or modify, or
propose publicly to withdraw or modify, in a manner adverse to MBIA or Merger
Sub, its approval or recommendation of the Merger Agreement or Merger, (ii)
approve or recommend, or propose publicly to approve or recommend, any
Acquisition Proposal, or (iii) enter into any definitive agreement with
respect to any Acquisition Proposal, unless, in each case, (A) CapMAC receives
a bona fide, definitive, written Superior Proposal that was not solicited
after the date of the Merger Agreement, (B) the CapMAC Board determines in
good faith, based on the advice of outside counsel, that it is necessary for
the CapMAC Board to approve or recommend such Acquisition Proposal in order to
comply with its fiduciary duties to the CapMAC stockholders under applicable
law, and (C) MBIA does not make, within 5 business days of receipt of CapMAC's
written notification of its intention to enter into a definitive agreement
with respect to a Superior Proposal, an offer that the CapMAC Board determines
in good faith, after consultation with its independent financial advisors,
involves consideration to CapMAC's stockholders and other terms and conditions
that, taken as a whole, are at least as favorable, from a financial point of
view, to the stockholders of CapMAC as the Superior Proposal. If the CapMAC
Board has withdrawn or modified its approval or recommendation of the Merger
Agreement or the Merger and/or approved or recommended an Acquisition
Proposal, in each case in conformity with the preceding provisions, then
CapMAC and MBIA may terminate the Merger Agreement, and in the case of CapMAC
upon payment of the Termination Fee.
Nothing contained in the provisions in this section titled "Other
Acquisition Proposals" shall prevent the CapMAC Board from taking, and
disclosing to CapMAC's stockholders, a position contemplated by Rules 14d-9
and 14e-2 promulgated under the Exchange Act with regard to any tender offer
or from making any disclosure to CapMAC's stockholders if, in the good faith
judgment of the CapMAC Board, based upon the advice of
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outside counsel to CapMAC, such disclosure is required under applicable law;
provided that, except as otherwise permitted in the provisions in this section
titled "Other Acquisition Proposals", CapMAC does not approve or recommend, or
propose to approve or recommend, an Acquisition Proposal.
Nothing contained in the Merger Agreement or the Confidentiality Agreement
shall be construed to prohibit MBIA from making a competing proposal in
response to any Acquisition Proposal.
Pursuant to the Merger Agreement, CapMAC has agreed not to release any
third party from, or waive any provisions of, any confidentiality or
standstill agreement to which CapMAC is a party, unless the CapMAC Board shall
have determined in good faith, based upon the advise of outside counsel, that
releasing such third party or waiving such provisions is necessary to comply
with the CapMAC Board's fiduciary duties to the stockholders of CapMAC under
applicable law. Notwithstanding anything contained in the Merger Agreement to
the contrary, any action by the CapMAC Board permitted by the provisions in
this section titled "Other Acquisition Proposals" shall not constitute a
breach of the Merger Agreement by CapMAC.
Fees and Expenses
The Merger Agreement provides that each party will bear its own expenses in
connection with the Merger Agreement and the transactions contemplated, except
that CapMAC shall pay, or cause to be paid, in same day funds to MBIA the
Termination Fee under the circumstances and at the times set forth as follows:
(i) if MBIA terminates the Merger Agreement following the CapMAC Board's
withdrawal or modification in a manner adverse to MBIA of its approval or
recommendation of the Merger Agreement or Merger, recommendation of an
Acquisition Proposal or resolution to do any of the foregoing, CapMAC shall
pay the Termination Fee upon demand; (ii) if CapMAC terminates the Merger
Agreement in connection with the exercise of its rights described in the third
paragraph under "--Other Acquisition Proposals", CapMAC shall pay the
Termination Fee concurrently therewith; (iii) if (1) MBIA terminates the
Merger Agreement because the CapMAC Stockholder Approval is not obtained at
the Special Meeting or there has occurred (a) a breach by CapMAC of any
representation or warranty contained in the Merger Agreement which has a
Material Adverse Effect on CapMAC and its subsidiaries, taken as a whole, or
(b) a material breach of any covenants or agreements in the Merger Agreement
by CapMAC, which breach in the case of either clause (a) or (b) is not curable
or, if curable, has not been cured within 30 days after written notice by
MBIA, (2) prior to such termination an Acquisition Proposal has been publicly
announced (other than an Acquisition Proposal made prior to the date of the
Merger Agreement) and (3) within six months thereafter, (A) CapMAC enters into
a definitive agreement with respect to an Acquisition Proposal or consummates
an Acquisition Proposal involving any party, (x) with whom CapMAC had any
discussions with respect to an Acquisition Proposal, (y) to whom CapMAC
furnished information with respect to or with a view to an Acquisition
Proposal or (z) who had submitted a proposal or expressed any interest
publicly in an Acquisition Proposal, in each case, prior to termination, or
(B) CapMAC enters into a definitive agreement with respect to a Superior
Proposal or consummates a Superior Proposal, then CapMAC shall pay the
Termination Fee upon the earlier of the execution of such agreement or upon
consummation of such Acquisition Proposal or Superior Proposal.
Indemnification and Insurance
The Merger Agreement provides that the By-Laws of the Surviving Corporation
will contain provisions no less favorable with respect to indemnification than
are set forth in the By-Laws of CapMAC, which provisions must not be amended,
repealed or otherwise modified for a period of six years from the Effective
Time in any manner that would adversely affect the rights thereunder of
individuals who at the Effective Time were directors, officers or employees of
CapMAC.
MBIA will cause to be maintained in effect for six years from the Effective
Time the current policies of the directors' and officers' liability insurance
maintained by CapMAC (provided that MBIA may substitute therefor policies of
at least the same coverage containing terms and conditions which are not
materially less advantageous) with respect to matters occurring prior to the
Effective Time to the extent available or, if such
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coverage is not available, the best available coverage; provided, however,
that in no event will MBIA or CapMAC be required to expend more than an amount
per year equal to 200% of current annual premiums paid by CapMAC to maintain
or procure such insurance coverage but in such case will purchase as much
coverage as possible for such amount.
For six years after the Effective Time, MBIA agrees that it will and it will
cause the Surviving Corporation to indemnify and hold harmless each present
and former director and officer of CapMAC, determined as of the Effective
Time, against any Costs (but only to the extent such Costs are not otherwise
covered by insurance and paid) incurred in connection with any claim, action,
suit, proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to matters existing or occurring
at or prior to the Effective Time, whether asserted or claimed prior to, at or
after the Effective Time, to which such person was or is a party or is
threatened to be made a party by reason of the fact that he was or is a
director or officer of CapMAC, to the fullest extent permitted under
applicable law (and MBIA will, or will cause the Surviving Corporation to,
also advance expenses as incurred to the fullest extent permitted under
applicable law provided the person to whom expenses are advanced provides an
undertaking to repay such advances if it is ultimately determined that such
person is not entitled to indemnification).
Additional Agreements
Affiliates. The Merger Agreement provides that, prior to the Closing Date,
CapMac shall deliver to MBIA a letter identifying all persons who are, at the
time the Merger Agreement is submitted for approval to the stockholders of
CapMAC, "affiliates" of CapMAC for purposes of Rule 145 under the Securities
Act or for purposes of qualifying the Merger for "pooling of interests"
accounting treatment under Opinion 16 of the Accounting Principles Board and
applicable SEC rules and regulations. CapMAC will use reasonable best efforts
to cause its affiliates to deliver to MBIA on or prior to the Closing Date a
written agreement (a form of which is attached as Exhibit A to the Merger
Agreement ("Exhibit A")) in which they agree not to sell shares of MBIA or
CapMAC for 30 days before the Effective Time and, following the Effective
Time, until combined financial results of MBIA and CapMAC covering a 30 day
period have been published by MBIA. CapMAC affiliates are advised in Exhibit A
that they may only transfer shares of the MBIA common stock they receive in
the Merger in accordance with Rule 145(d) under the Securities Act. Under the
Merger Agreement, prior to the Closing Date, MBIA agrees to deliver to CapMAC
a letter identifying all persons who are, at the time the Merger Agreement is
submitted for approval to the stockholders of CapMAC, "affiliates" for
purposes of qualifying the Merger for "pooling of interests" accounting
treatment under Opinion 16 of the Accounting Principles Board and applicable
SEC rules and regulations. MBIA agrees to use its reasonable best efforts to
cause such "affiliates" to comply with paragraph 1 of Exhibit A, as
applicable. In Exhibit A, MBIA agrees (i) to use its reasonable best efforts
to publish financial results covering at least 30 days of combined operations
as soon as practicable after the Effective Time and in no event later than 45
days after the end of the first fiscal quarter which includes at least 30 days
of such combined operations after the Effective Time if such 30 days is
included in any of the first three fiscal quarters of MBIA, and in no event
later than 60 days after the end of the first fiscal quarter which includes at
least 30 days of combined operations of MBIA and CapMAC if such 30 days is
included in the fourth fiscal quarter of MBIA; and (ii) promptly after such
publication, to terminate or remove stop transfer instructions and legends
placed by MBIA on securities received by CapMAC affiliates in the Merger. See
"--Restrictions on Sales of Shares by Affiliates."
Employee Benefits. The Merger Agreement provides that during the period from
the Effective Time until the end of the twelfth month following the Effective
Time, MBIA will maintain or cause to be maintained base salaries, bonus
opportunities, employee pension and welfare plans for the benefit of employees
and former employees of CapMAC or its subsidiaries, which are equal to or
greater than those base salaries, bonus opportunities and other benefits
provided under CapMAC employee benefit plans set forth in documents filed with
the SEC by CapMAC or on CapMAC's disclosure schedules to the Merger Agreement
that are in effect on the date thereof. Prior to the Effective Time, MBIA and
CapMAC will cooperate to facilitate a smooth transition with respect to the
continued employment of CapMAC employees and CapMAC will permit MBIA
reasonable access to its employees to enable MBIA to effect such transition.
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MBIA will, or will cause the Surviving Corporation to, (i) waive all
limitations as to preexisting conditions, exclusions and waiting periods with
respect to participation and coverage requirements applicable to the employees
of CapMAC under any welfare plan that such employees may be eligible to
participate in after the Effective Time, (ii) provide each employee of CapMAC
with credit for any co-payments and deductibles paid prior to the Effective
Time in satisfying any applicable deductible or out-of-pocket requirements
under any welfare plans that such employees are eligible to participate in
after the Effective Time, and (iii) provide each employee of CapMAC with
credit for all service with CapMAC and its affiliates under each employee
benefit plan, program, or arrangement of Merger Sub or its affiliates in which
such employees are eligible to participate; provided, however, that in no
event shall the employees be entitled to any credit to the extent that it
would result in a duplication of benefits with respect to the same period of
service. See "THE PROPOSED MERGER--Interests of Certain Persons in the
Merger."
Conditions to the Merger
The Merger Agreement provides that the respective obligations of CapMAC,
Merger Sub and MBIA to effect the Merger are subject to the satisfaction at or
prior to the Effective Time of the following conditions: (i) CapMAC
Stockholder Approval shall have been obtained; (ii) no statute, injunction or
other order (whether temporary, preliminary or permanent) shall have been
promulgated or issued by any Governmental Entity of competent jurisdiction
which prohibits, restrains, enjoins or restricts the consummation of the
Merger, provided, however, that each of the parties shall have used its
reasonable best efforts to prevent the entry of any such order and to appeal
as promptly as possible any injunction or other order that may be entered;
(iii) any waiting period applicable to the Merger under the HSR Act shall have
terminated or expired; (iv) all orders, approvals and consents of (a) the New
York Insurance Department and (b) all other Material Insurance Regulatory
Approvals which are required in connection with the Merger shall have been
obtained, provided, however, that such orders, approvals and consents may be
subject to conditions other than Material Conditions. The term "Material
Insurance Regulatory Approvals" means the approvals of the state insurance
regulatory department or authority of each state or country other than those
states that the failure to obtain would not be reasonably expected to have a
Material Adverse Effect on CapMAC and its subsidiaries, taken as a whole, or
MBIA and its subsidiaries, taken as a whole; (v) the Form S-4 shall have
become effective under the Securities Act and shall not be the subject of any
stop order or proceedings seeking a stop order, and any material "blue sky"
and other state securities laws applicable to the registration and
qualification of the MBIA Common Stock issuable or required to be reserved for
issuance pursuant to the Merger Agreement shall have been complied with; (vi)
the shares of MBIA Common Stock issuable to CapMAC stockholders pursuant to
the Merger Agreement and such other shares of MBIA Common Stock required to be
reserved for issuance in connection with the Merger shall have been authorized
for listing on the NYSE subject to official notice of issuance; (vii) MBIA
shall have received a letter from Coopers & Lybrand L.L.P. to the effect that
the Merger qualifies for "pooling of interests" accounting treatment if
consummated in accordance with the Merger Agreement and such letter shall not
have been withdrawn, and CapMAC shall have received a letter from KPMG Peat
Marwick LLP to the effect that CapMAC is eligible to be acquired in a
transaction to be accounted for using "pooling of interests" accounting
treatment and such letter shall not have been withdrawn; and (viii) there
shall not be any action taken, nor any statute, rule, regulation or order
enacted, entered, enforced or deemed applicable to the Merger which imposes a
Material Condition on any party.
The obligation of CapMAC to effect the Merger is also subject to the
satisfaction at or prior to the Effective Time of the following additional
conditions: (i) MBIA and Merger Sub shall have performed or complied with in
all material respects their agreements and covenants contained in the Merger
Agreement required to be performed or complied with at or prior to the Closing
Date and the representations and warranties of MBIA and Merger Sub contained
in the Merger Agreement shall be true and correct in all respects on and as of
the Closing Date with the same force and effect as if made on and as of such
date (except to the extent such representations and warranties speak as of an
earlier date), except where the failure to be true and correct shall not
constitute a Material Adverse Effect on MBIA and its subsidiaries, taken as a
whole, and CapMAC shall have received a certificate signed on behalf of MBIA
by the chief executive officer and chief financial officer of MBIA and
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Merger Sub to such effect; (ii) on the date of the Proxy Statement, CapMAC
shall have received from Salomon Brothers a letter, dated such date,
confirming the opinion of Salomon Brothers that the consideration to be
received by the stockholders of CapMAC pursuant to the Merger is fair to such
stockholders from a financial point of view (which condition has been
satisfied); (iii) CapMAC shall have received an opinion of Simpson Thacher &
Bartlett, special counsel to CapMAC, dated as of the Effective Time, to the
effect that, on the basis of certain facts, representations and assumptions
set forth in such opinion, the Merger will constitute a reorganization for
federal income tax purposes within the meaning of section 368(a) of the Code.
The obligations of MBIA and Merger Sub to effect the Merger are subject to
the satisfaction at or prior to the Closing Date of the following additional
conditions: (i) CapMAC shall have performed or complied with in all material
respects its agreements and covenants contained in the Merger Agreement
required to be performed or complied with at or prior to the Closing Date and
the representations and warranties of CapMAC contained in the Merger Agreement
shall be true and correct in all respects on and as of the Closing Date with
the same force and effect as if made on and as of such date (except to the
extent such representations and warranties speak as of an earlier date),
except where the failure to be true and correct shall not constitute a
Material Adverse Effect on CapMAC and its subsidiaries, taken as a whole, and
MBIA shall have received a certificate signed on behalf of CapMAC by the chief
executive officer and chief financial officer of CapMAC to such effect; (ii)
MBIA shall have received a letter in the form of Exhibit A from each person
identified as an "affiliate" of CapMAC as described above under "--Additional
Agreements--Affiliates"; (iii) MBIA and Merger Sub shall have received an
opinion of Debevoise & Plimpton, special counsel to MBIA and Merger Sub dated
as of the Effective Time, to the effect that, on the basis of certain facts,
representations and assumptions set forth in such opinion, the Merger will
constitute a reorganization for federal income tax purposes within the meaning
of section 368(a) of the Code.
Termination
The Merger Agreement provides that the Merger Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective Time,
whether before or after CapMAC Stockholder Approval: (i) by mutual written
consent of MBIA, Merger Sub and CapMAC; (ii) by MBIA or CapMAC: (a) if any
Governmental Entity located or having jurisdiction within the United States
shall have issued a final order, injunction, decree, judgment or ruling or
taken any other final action restraining, enjoining or otherwise prohibiting
the Merger and such order, injunction, decree, judgment, ruling or other
action is or shall have become final and nonappealable, provided, however,
that the right to terminate the Merger Agreement pursuant to this clause (a)
will not be available to any party who has not used its reasonable best
efforts to cause such order to be lifted; (b) if the Merger shall not have
been consummated on or before May 31, 1998 (other than due to the failure of
the party seeking to terminate the Merger Agreement to perform its obligations
under the Merger Agreement required to be performed at or prior to the
Effective Time); or (c) if upon a vote at a duly held CapMAC Stockholders
Meeting or any adjournment thereof at which CapMAC Stockholder Approval shall
have been voted upon, CapMAC Stockholder Approval shall not have been
obtained; (iii) by MBIA if prior to the Closing Date the CapMAC Board shall
have withdrawn, or modified in a manner adverse to MBIA, its approval or
recommendation of the Merger Agreement or the Merger or shall have recommended
an Acquisition Proposal, or shall have resolved to effect any of the
foregoing; (iv) by CapMAC in connection with the exercise of its rights
described in the third paragraph under "--Other Acquisition Proposals,"
provided that such termination under this clause (iv) shall not be effective
until CapMAC has made payment of the Termination Fee; (v) by MBIA if (a) there
has been a breach by CapMAC of any representation or warranty contained in the
Merger Agreement which has a Material Adverse Effect on CapMAC and its
subsidiaries, taken as a whole, or (b) there has been a material breach of any
of the covenants or agreements set forth in the Merger Agreement on the part
of CapMAC, which breach in the case of either clause (a) or clause (b) is not
curable or, if curable, is not cured within thirty days after written notice
of such breach has been given by the MBIA to CapMAC; (vi) by CapMAC if (a)
there has been a breach by MBIA or Merger Sub of any representation or
warranty contained in the Merger Agreement which has a Material Adverse Effect
on MBIA and its subsidiaries, taken as a whole, or (b) there has been a
material breach of any of the covenants or agreements set forth in the Merger
Agreement on the part of
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MBIA, which breach in the case of either clause (a) or clause (b) is not
curable or, if curable is not cured within thirty days after written notice of
such breach has been given by CapMAC to MBIA.
In the event of the termination of the Merger Agreement pursuant to the
above provisions, the Merger Agreement shall forthwith become void and there
shall be no liability on the part of any party thereto except as relating to
provisions in the Merger Agreement concerning the Termination Fee,
confidentiality, public announcements, and various general provisions in the
Merger Agreement including governing law, provided, however, that no party
will be relieved from liability for any wilful breach of the Merger Agreement.
ACCOUNTING TREATMENT
It is intended that the Merger will qualify as a "pooling of interests" for
accounting and financial reporting purposes. Under this method of accounting,
the recorded assets and liabilities of CapMAC will be carried forward, at
their recorded amounts, to the consolidated financial statements of MBIA; net
income of MBIA will include net income of CapMAC for the entire year in which
the Merger occurs; and the reported net income of MBIA and CapMAC for prior
periods will be combined and restated as net income of MBIA. The receipt by
MBIA and CapMAC of a letter from their respective independent public
accountants, stating that the Merger will qualify as a "pooling of interests",
is a condition precedent to the consummation of the Merger by the parties
thereto. This condition may be waived, but the parties presently have no
intention to do so. See "--The Merger Agreement--Conditions to the Merger."
REGULATORY FILINGS AND APPROVALS
The regulatory filings and approvals described below must be made before the
Merger can be effected and certain of such approvals may take a significant
period of time to obtain. Although CapMAC and MBIA believe that such approvals
will be obtained, there can be no assurance that this will be the case or that
such approvals will be obtained in a timely manner or that such approvals will
not be conditioned temporarily or otherwise encumbered.
Filings and Approval by Insurance Regulators
Before the Merger can be effected, the prior approval of the New York
Insurance Department and the Commission de Controle des Assurances de France
("Commission des Assurances") must be obtained. MBIA has made the necessary
filings with the aforementioned insurance regulatory authorities to obtain
such approvals and is prepared to make any additional filings where necessary.
Notification of approval is expected to be received from the New York
Insurance Department and the Commission des Assurances prior to the Closing
Date. In addition, notice filings have been made with other state insurance
regulators and could provide a basis for such regulators to review and object
to the proposed Merger. Additional notice filings must be made with certain
state insurance regulators prior to and subsequent to the Effective Time. See
"--The Merger Agreement--Conditions to the Merger."
Antitrust
The Merger is subject to the expiration or termination of the 30-day waiting
period under the HSR Act and to no action having been instituted by the
Department of Justice ("DOJ") or the Federal Trade Commission ("FTC") which is
not withdrawn or terminated prior to the Effective Time. The HSR Act, and the
rules and regulations thereunder, provide that certain merger transactions
(including the Merger) may not be consummated until required information and
materials have been furnished to the DOJ and the FTC and certain waiting
periods have expired or been terminated. CapMAC and MBIA made their respective
filings with the DOJ and the FTC on November 26, 1997, and received oral
notice of early termination of the waiting period on December 11, 1997.
The DOJ and the FTC frequently scrutinize the legality under the antitrust
laws of transactions such as the Merger. Notwithstanding the expiration of the
HSR waiting period, any time before or after the Effective Time, the FTC, the
DOJ or others can take action under the antitrust laws, including seeking to
enjoin the
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consummation of the Merger, or seeking the divestiture by MBIA of all or any
part of the stock or assets of CapMAC. There can be no assurances that a
challenge to the Merger on antitrust grounds will not be made, or if such a
challenge is made, that it would not be successful.
Certain of the insurance regulatory filings described above will also
provide regulators with an opportunity to consider the competitive effects of
the proposed Merger.
STATE ANTI-TAKEOVER STATUTES
Section 203 of the DGCL, in general, prohibits a Delaware corporation such
as the CapMAC from engaging in a "Business Combination" (defined as a variety
of transactions, including mergers, as set forth below) with an "Interested
Stockholder" (defined generally as a person that is the beneficial owner of
15% or more of a corporation's outstanding voting stock) for a period of three
years following the date that such person became an Interested Stockholder
unless, among other things, prior to the date such person became an Interested
Stockholder, the board of directors of the corporation approved either the
Business Combination or the transaction that resulted in the stockholder
becoming an Interested Stockholder. CapMAC's Board of Directors has approved
the Merger Agreement. Therefore, Section 203 of the DGCL is inapplicable to
the Merger. See "COMPARISON OF SHAREHOLDER RIGHTS--Anti-Takeover Statutes."
CapMAC and MBIA, directly or through their subsidiaries, conduct business in
a number of other states throughout the United States, some of which have also
enacted anti-takeover laws. CapMAC and MBIA do not know whether any of these
laws, by their terms, apply to the Merger and have not attempted to comply
with any such laws. Should any person seek to apply any such state anti-
takeover laws, CapMAC and MBIA will take such action as then appears
appropriate, which may include challenging the validity or applicability of
any such statute in appropriate court proceedings. In the event it is asserted
that one or more state anti-takeover statutes is applicable to the Merger, and
an appropriate court does not determine that it is inapplicable or invalid as
applied to the Merger, CapMAC and MBIA might be required to file certain
information with, or receive approvals from, the relevant state authorities.
In addition, if enjoined, CapMAC and MBIA might be delayed in, or prevented
from, consummating the Merger.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a discussion of the material federal income tax
consequences of the Merger under existing federal income tax law, which is
subject to change, possibly retroactively. This discussion assumes that
stockholders hold CapMAC Common Stock as a capital asset as of the Effective
Time of the Merger. This discussion does not discuss all aspects of federal
income taxation which may be relevant to particular stockholders in light of
their personal circumstances, such as stockholders whose stock was acquired
pursuant to the exercise of an employee stock option or otherwise as
compensation or stockholders who are subject to special treatment under the
federal income tax laws (for example, financial institutions, insurance
companies, tax-exempt organizations, broker-dealers and foreign persons). This
discussion also does not address any aspects of state, local or foreign tax
law. No ruling has been or will be sought from the Internal Revenue Service
with respect to any tax matters relating to the Merger and the opinions of
counsel will not be binding upon the Internal Revenue Service or any court.
EACH STOCKHOLDER IS ADVISED TO CONSULT HIS OR HER OWN TAX ADVISORS AS TO THE
FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX CONSEQUENCES OF THE
MERGER.
The obligation of CapMAC to consummate the Merger is conditioned upon the
receipt by CapMAC of an opinion from Simpson Thacher & Bartlett, and the
obligation of MBIA to consummate the Merger is conditioned upon the receipt by
MBIA of an opinion from Debevoise & Plimpton, in each case to the effect that,
on the basis of certain facts, representations and assumptions set forth in
such opinions, the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code. The opinions
of counsel will be based in part upon representations made as of the Effective
Time by CapMAC and MBIA which counsel will assume to be true, correct and
complete. If the representations are inaccurate, the opinions of counsel could
be adversely affected. Assuming that the Merger does qualify for such
treatment, in the opinion of Simpson
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Thacher & Bartlett, special counsel to CapMAC, and Debevoise & Plimpton,
special counsel to MBIA, subject to the assumptions and limitations described
in the preceding paragraph, the following discussion, to the extent it
describes matters of law and legal conclusions, is an accurate summary of the
material federal income tax consequences of the Merger to the stockholders
under the law in effect as of the date hereof.
A stockholder who receives MBIA Common Stock in exchange for CapMAC Common
Stock will not recognize gain or loss upon such exchange (except as described
below with respect to cash that is received in lieu of fractional shares).
Accordingly, (i) the aggregate tax basis of the MBIA Common Stock received by
the stockholder will be the same as the aggregate tax basis of the CapMAC
Common Stock surrendered in exchange therefor pursuant to the Merger (adjusted
with respect to fractional shares) and (ii) the holding period of the MBIA
Common Stock will include the holding period of the CapMAC Common Stock
surrendered in exchange therefor pursuant to the Merger.
A stockholder who receives cash in lieu of fractional shares will be treated
as having received such fractional shares pursuant to the Merger and then as
having exchanged such fractional shares for cash in a redemption by MBIA. The
amount of any capital gain or loss attributable to such deemed redemption of
fractional shares will be equal to the difference between the cash received in
lieu of fractional shares and the ratable portion of the tax basis of the
CapMAC Common Stock surrendered that is allocated to such fractional shares.
Such gain or loss will constitute long-term capital gain or loss if, at the
Effective Time of the Merger, such stockholder has held such CapMAC Common
Stock for more than one year. In the case of a stockholder who is an
individual, the rate of tax applicable to any such gain will be lower at the
time the Merger is consummated if the holding period for such CapMAC Common
Stock is more than 18 months.
No gain or loss will be recognized by CapMAC, MBIA or Merger Sub as a result
of the Merger.
Each CapMAC stockholder will be required to retain records and file with
such holder's U.S. federal income tax return a statement setting forth certain
facts relating to the Merger.
EACH STOCKHOLDER IS STRONGLY ADVISED TO CONSULT HIS OR HER OWN TAX ADVISORS
AS TO PARTICULAR FACTS AND CIRCUMSTANCES WHICH MAY BE UNIQUE TO SUCH
STOCKHOLDER AND ALSO AS TO ANY ESTATE, GIFT, STATE, LOCAL OR FOREIGN TAX
CONSEQUENCES ARISING OUT OF THE MERGER.
RESTRICTIONS ON SALES OF SHARES BY AFFILIATES
The shares of MBIA Common Stock issuable in connection with the Merger have
been registered under the Securities Act. Such shares will be freely
transferable under the Securities Act, except for shares issued to any person
who may be deemed to be an affiliate, as such term is defined under the
Securities Act for purposes of Rule 145 (an "Affiliate"), of CapMAC at the
time of the Special Meeting. Affiliates may not sell their shares of MBIA
Common Stock acquired in connection with the Merger except pursuant to (i) an
effective Registration Statement under the Securities Act covering the resale
of such shares, (ii) the conditions contemplated by paragraph (d) of Rule 145,
or (iii) any other applicable exemption from the registration requirements of
the Securities Act. Persons who may be deemed to be Affiliates of CapMAC
generally include individuals or entities that may be deemed to control, be
controlled by or be under common control with CapMAC or MBIA, and may include
officers, directors and principal shareholders of CapMAC or MBIA.
STOCK EXCHANGE LISTING
The obligations of the parties to the Merger Agreement to consummate the
Merger are subject to the shares of MBIA Common Stock to be issued in
connection with the Merger being authorized for listing on the NYSE. The
approval by the NYSE for listing the shares is expected to be obtained prior
to the Closing Date, subject to official notice of issuance. See "THE PROPOSED
MERGER--The Merger Agreement--Conditions to the Merger."
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APPRAISAL RIGHTS
Holders of CapMAC Common Stock, regardless of whether or not they vote for
the Merger, will not be entitled to appraisal rights under Delaware law if the
Merger is approved. The DGCL generally entitles a stockholder to exercise its
appraisal rights upon a merger or consolidation of the corporation effected
pursuant to the DGCL if the holder complies with the requirements of Section
262 thereof. Appraisal rights are available under Section 262 of the DGCL if
holders of shares in a constituent company, which shares are listed on a
national securities exchange (as the CapMAC Common Stock is), are required by
the terms of the merger to accept consideration other than shares of stock of
the surviving corporation, shares of stock of any corporation listed on a
national securities exchange, designated as a national market system security
by the National Association of Securities Dealers, Inc. or held of record by
more than 2,000 stockholders, or cash in lieu of fractional shares. As holders
of CapMAC Common Stock are entitled to receive only MBIA Common Stock, which
is listed on the NYSE, and cash in lieu of fractional shares under the terms
of the Merger Agreement, they are not entitled to appraisal rights under the
DGCL.
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MARKET PRICE DATA AND DIVIDENDS
MBIA Common Stock is listed and traded on the NYSE under the symbol "MBI."
CapMAC Common Stock is listed and traded on the NYSE "KAP." The table below
sets forth, for the quarters indicated, (i) the quarterly per share cash
dividends paid (a) to holders of MBIA Common Stock and (b) to holders of
CapMAC Common Stock, (ii) the high and low sales prices of MBIA Common Stock
as reported by the NYSE Composite Tape and (iii) the high and low sales prices
of CapMAC Common Stock, as reported by the NYSE Composite Tape.
<TABLE>
<CAPTION>
DIVIDEND DIVIDEND
PRICE OF MBIA DECLARED PRICE OF CAPMAC DECLARED
COMMON STOCK(1) PER MBIA COMMON STOCK(2) PER CAPMAC
----------------- COMMON --------------- COMMON
HIGH LOW SHARE(1) HIGH LOW SHARE(2)
-------- -------- -------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31,
1995
First Quarter.......... 32 5/16 27 11/16 $0.15500
Second Quarter......... 34 5/8 29 13/16 0.15500
Third Quarter.......... 36 3/16 31 5/8 0.17250
Fourth Quarter......... 38 3/4 34 5/8 0.17250 25 1/8 21 3/8 --
Year ended December 31,
1996
First Quarter.......... 39 11/16 35 $0.17250 $25 3/8 $22 1/4 $0.02000
Second Quarter......... 40 7/16 35 1/16 0.17250 29 7/8 23 5/8 0.02000
Third Quarter.......... 43 5/16 36 1/2 0.19000 33 1/8 26 3/4 0.02000
Fourth Quarter......... 52 5/16 42 13/16 0.19000 36 5/8 30 5/8 0.02000
Year ended December 31,
1997
First Quarter.......... 50 13/16 46 1/4 $0.19000 $36 $24 1/2 $0.02000
Second Quarter......... 61 45 7/16 0.19000 35 3/8 22 1/2 0.02000
Third Quarter.......... 64 17/32 55 3/4 0.19500 33 3/8 25 0.02000
Fourth Quarter (through
December 26, 1997).... 67 1/4 56 3/4 -- 34 5/8 29 0.02000
</TABLE>
- --------
(1) All amounts adjusted to reflect a 2-for-1 stock split in October 1997.
(2) CapMAC completed the initial public offering of its stock in December
1995. See "CERTAIN INFORMATION CONCERNING CAPMAC."
The following table sets forth the closing prices of MBIA Common Stock and
CapMAC Common Stock as reported on the NYSE Composite Tape on November 13,
1997, the last full trading day prior to the public announcement of the
Merger, and on December 26, 1997, the most recent practicable date prior to
the printing of this Proxy Statement/Prospectus and the equivalent per share
prices (as explained below) of CapMAC Common Stock on such dates.
<TABLE>
<CAPTION>
MBIA CAPMAC EQUIVALENT PER
COMMON STOCK COMMON STOCK SHARE PRICE
------------ ------------ --------------
<S> <C> <C> <C>
November 13, 1997...................... $60 5/16 $29 3/4 $35
December 26, 1997...................... $64 $34 5/16 $35
</TABLE>
The equivalent per share price of a share of CapMAC Common Stock represents
the closing price of a share of MBIA Common Stock on such date multiplied by
the Exchange Ratio computed as of such date.
Because the market price of MBIA Common Stock that holders of CapMAC Common
Stock will receive in the Merger may increase or decrease prior to the Merger,
stockholders are urged to obtain current market quotations.
MBIA paid common stock dividends of $0.7075 per share (adjusted for a 2-for-
1 stock split in October 1997) in 1996. In 1997, MBIA paid common stock
dividends of $0.765 per share (adjusted for a 2-for-1 stock split in October
1997). Future payment of dividends on the MBIA Common Stock will depend on
earnings, financial condition, capital requirements and other relevant
factors.
CapMAC paid common stock dividends of $0.08 per share in 1996 and 1997.
Future payment of dividends on the CapMAC Common Stock, in the event that the
Merger is not consummated, will depend on earnings, financial condition,
capital requirements and other relevant factors.
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COMPARISON OF SHAREHOLDER RIGHTS
The rights of stockholders of CapMAC are currently governed by the DGCL, the
CapMAC Charter and the CapMAC By-Laws. Upon consummation of the Merger, CapMAC
stockholders will become shareholders of MBIA and their rights will be
governed by the CBCA, the MBIA Charter and the MBIA By-Laws, which differ in
certain material respects from the DGCL, the CapMAC Charter and the CapMAC By-
Laws. The following is a summary of certain differences between the rights of
CapMAC stockholders and those of MBIA shareholders.
The CBCA became effective on January 1, 1997 and replaced the Connecticut
Stock Corporation Act ("CSCA"). As indicated in certain instances below,
pursuant to the CBCA, corporations such as MBIA which were incorporated prior
to January 1, 1997 will, in certain respects and subject to affirmative action
by such corporations to the contrary, be treated in the same manner as they
had formerly been treated under the CSCA and, accordingly, differently from
Connecticut corporations incorporated after the effective date of the CBCA.
The following summary, which does not purport to be a complete statement of
the differences between the rights of the shareholders of MBIA and the
stockholders of CapMAC, sets forth certain differences between the MBIA
Charter and the CapMAC Charter, the MBIA By-Laws and the CapMAC By-Laws and
Connecticut and Delaware law. The identification of specific differences is
not meant to indicate that other differences do not exist. This summary is
qualified in its entirety by reference to the full text of each of such
documents and the applicable state statutes. For information as to how
material concerning MBIA and CapMAC may be obtained, see "AVAILABLE
INFORMATION."
AUTHORIZED CAPITAL STOCK
The authorized capital stock of CapMAC consists of 50,000,000 shares of
CapMAC Common Stock and 20,000,000 shares of preferred stock, par value $.01
per share. As of October 31, 1997, (i) 17,331,104 shares of CapMAC Common
Stock were issued and outstanding, (ii) 85 shares of CapMAC Common Stock were
held in the treasury of CapMAC, (iii) options to acquire an aggregate of
2,628,017 shares of CapMAC Common Stock were outstanding and (iv) no shares of
preferred stock were issued and outstanding.
The authorized capital stock of MBIA consists of 200,000,000 shares of MBIA
Common Stock and 10,000,000 shares of preferred stock, par value $1.00 per
share. As of October 31, 1997, (i) 89,366,104 shares of MBIA Common Stock were
issued and outstanding, (ii) no shares of MBIA Common Stock were held in the
treasury of MBIA, (iii) options to acquire an aggregate of 2,457,536 shares of
MBIA Common Stock were outstanding and (iv) no shares of preferred stock were
issued and outstanding.
VOTING RIGHTS
Each shareholder of record of MBIA Common Stock is entitled to one vote per
share upon all matters.
Each stockholder of record of CapMAC Common Stock is entitled to one vote
per share upon all matters.
ELECTION OF DIRECTORS
The CapMAC By-Laws provide that the number of directors will be fixed from
time to time by a resolution adopted by the Board of Directors. The number of
directors of CapMAC is currently fixed at 18. Directors are elected by a
majority of the votes cast by the shares entitled to vote in the election at a
meeting at which a quorum is present. The CapMAC By-Laws provide that the
election of directors will take place at the annual meeting of stockholders.
CapMAC's Board is divided into three classes with staggered terms of office.
The MBIA By-Laws provide that the number of directors will be not less than
3 and not more than 15. Within this range, the number of directors may be
fixed by shareholder resolution or by resolution adopted by a 66 2/3% vote of
the MBIA Board. The number of directors of MBIA is presently fixed at 12.
Under the CBCA,
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directors are elected by a plurality of the votes cast by the shares entitled
to vote in the election at a meeting at which a quorum is present. The MBIA
By-Laws provide that the election of directors will take place at the annual
meeting of shareholders.
REMOVAL OF DIRECTORS
Under the DGCL, any director or the entire board of directors may be removed
with or without cause, except that in the case of a corporation whose board is
classified, stockholders may effect such removal only for cause.
Any or all of the directors of CapMAC may be removed by the holders of a
majority of the shares of CapMAC Common Stock then entitled to vote at an
election of directors, but only for cause.
The CBCA provides that stockholders may remove one or more directors with or
without cause unless the certificate of incorporation provides that directors
may be removed only for cause.
Shareholders of MBIA may remove a director with or without cause, at any
time at a special meeting of shareholders called for the purpose of removing
such director if the votes to remove him exceed the votes not to remove him.
The CBCA also enables a corporation or 10% of its shareholders to seek removal
of a director through court action in cases of fraud, dishonesty or gross
abuse of power or discretion if removal is in the interest of the corporation.
NEWLY-CREATED DIRECTORSHIPS AND VACANCIES
Under the DGCL, the CapMAC Charter and the CapMAC By-Laws, any vacancies in
the CapMAC Board for any reason and any newly created directorships resulting
by reason of any increase in the number of directors may be filled by the
CapMAC Board, acting by a majority of the remaining directors then in office,
although less than a quorum, or by a sole remaining director, and any
directors so appointed shall hold office until the next election of the class
for which such directors have been chosen, and until their successors are
elected and qualified. No decrease in the number of authorized directors
constituting the CapMAC Board shall shorten the term of any incumbent
director.
Under the CBCA, unless the certificate of incorporation provides otherwise,
if a vacancy occurs on the board of directors, including a vacancy resulting
from an increase in the number of directors: (i) the shareholders may fill the
vacancy, (ii) the board of directors may fill the vacancy or (iii) if the
directors remaining in office constitute fewer than a quorum of the board of
directors, they may fill the vacancy by the affirmative vote of a majority of
all the directors remaining in office. Under the MBIA By-Laws, any newly
created directorships resulting from any increase in the number of directors
and any vacancies occurring on the MBIA Board for any other reason shall be
filled for the unexpired term by a vote of 66 2/3% of the MBIA Board
(measuring the percentage of the directorships on the MBIA Board, in the case
of any vacancy occurring by reason of an increase in the number of
directorships, by the percentage prior to the vote on the increase).
NOMINATION OF DIRECTORS
Under the CapMAC By-Laws, nominations of persons for election to the CapMAC
Board may be made at a meeting of stockholders (i) in a notice of a meeting of
stockholders prepared by CapMAC, (ii) by or at the direction of the CapMAC
Board or (iii) by any stockholder who is entitled to vote at such meeting, and
who complies with the notice procedures set forth in the CapMAC By-Laws for
annual and special meetings of stockholders.
Under the MBIA By-Laws, the shareholders may nominate persons for elections
as directors only if such intention is given by timely notice thereof in
proper written form to the Secretary of MBIA.
APPROVAL OF CERTAIN TRANSACTIONS
CapMAC stockholders of record are entitled to one vote for every share of
stock, and, except as otherwise provided by law, the CapMAC Charter or the
CapMAC By-Laws, all matters submitted to stockholders for
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voting shall be authorized by the affirmative vote of the holders of a
majority of the issued and outstanding shares of CapMAC Common Stock entitled
to vote thereon. The CapMAC By-Laws require the affirmative vote of two-thirds
of all outstanding shares entitled to vote thereon to effect any plan of
merger or consolidation with or into another person that is not approved by
CapMAC's Board and is brought before any meeting of shareholders. The Merger
has been approved by CapMAC's Board, and therefore requires the affirmative
vote of a majority, rather than two-thirds of all outstanding shares entitled
to vote thereon.
MBIA shareholders of record are entitled to one vote for every share of
stock, and, except as otherwise provided by the CBCA (which, among other
things, provides for the election of directors by a plurality vote) or the
MBIA Charter any corporate action to be taken by a vote of such shareholders,
shall be authorized by a majority of the votes cast at a meeting of the
shareholders present in person or by proxy and entitled to vote thereon.
Except as may otherwise be provided by law, the MBIA Charter or the MBIA
Board, any action to be taken by a vote of the shareholders of MBIA on a plan
of merger or share exchange or a sale of all or substantially all of MBIA's
assets shall be authorized by the affirmative vote of a majority of the voting
power of the shares of MBIA Common Stock entitled to vote thereon, voted at a
meeting of shareholders duly held and at which a quorum is present. If MBIA is
to be the surviving corporation in a merger, shareholders are not required to
be given a vote on the plan of merger unless the shares to be issued in the
merger represent 20% or more of the issued and outstanding shares of MBIA.
AMENDMENT TO CHARTER OR BY-LAWS
According to the DGCL, an amendment to the CapMAC Charter may be authorized
by the vote of the CapMAC Board, followed by the vote of the holders of a
majority of all outstanding shares entitled to vote thereon at a meeting of
stockholders.
Pursuant to the DGCL and the CapMAC Charter, the CapMAC By-Laws may be
adopted, amended or repealed by the affirmative vote of the holders of a
majority of all outstanding shares entitled to vote thereon. CapMAC By-Laws
may also be adopted, amended or repealed by the CapMAC Board, by a vote of not
less than a majority of the entire CapMAC Board, provided, however, that any
By-Law adopted by the CapMAC Board may be amended or repealed by the CapMAC
Board or the stockholders having voting power with respect thereto.
Under the CBCA, a proposed amendment to the MBIA Charter must be recommended
by the MBIA Board, unless the MBIA Board determines that because of conflicts
of interest or other special circumstances it should make no recommendation,
followed by, in most circumstances, the approval by (i) a majority of the
votes entitled to be cast on the amendment by any voting group with respect to
which the amendment would create dissenters' rights and (ii) a majority of the
votes cast by every other voting group entitled to vote on the amendments,
unless a greater vote is required by law, the MBIA Charter or the MBIA Board.
An amendment to the MBIA By-Laws that adds, changes or deletes a greater
quorum or voting requirement must meet the same quorum requirement and be
adopted by the same vote required to take action under the quorum and voting
requirements then in effect or proposed to be adopted, whichever is greater.
The MBIA By-Laws may be amended by the affirmative vote of the holders of
not less than 80% of the voting power of shares entitled to vote at any annual
or special meeting of shareholders or by the affirmative vote of Directors
holding a majority of the directorships at any regular or special meeting of
Directors, provided, however, that sections regarding special meetings of
shareholders, the number of Directors, quorum and voting requirements for
Directors, removal of Directors, vacancies and newly created directorships,
committees and their members and amendments to the MBIA By-Laws may be
amended, altered, or repealed only by the affirmative vote of either (i) the
holders of not less than 80% of the voting power of shares entitled to vote at
any annual or special meeting of shareholders or (ii) by a vote of 66 2/3% of
the MBIA Board at any regular or special meeting of Directors.
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SPECIAL MEETINGS; ACTION WITHOUT MEETING
Pursuant to the DGCL, unless otherwise provided in the certificate of
incorporation, any action required or permitted to be taken by stockholders of
a Delaware corporation may be taken without a meeting and without a
stockholder vote, if a written consent setting forth the action to be taken is
signed by the holders of shares of outstanding stock having the requisite
number of votes that would be necessary to authorize such action at a meeting
of stockholders. Under the CapMAC Charter, any action required or permitted to
be taken by the stockholders of CapMAC must be effected at a duly called
annual or special meeting of such holders and may not be effected by any
consent in writing. Under the DGCL and the CapMAC Charter and By-Laws, a
special meeting of stockholders of CapMAC may be called only by the Chairman
of the CapMAC Board, if there be one, or the President, such meetings to be
called at the written request of the CapMAC Board stating the purpose or
purposes of the proposed meeting.
The shareholders of MBIA may not take any action without a meeting of
shareholders except by a unanimous written consent, unless the MBIA Charter
were amended to permit a lesser number of shareholders to act by written
consent.
Under the CBCA, special meetings of MBIA's shareholders may be called by the
MBIA Board or by such other persons as are authorized to do so by the MBIA
Charter or By-Laws or upon the written request and delivery to the corporate
secretary from the holders of at least 10% of the shares entitled to vote on a
particular issue. The MBIA By-Laws provide that if such a meeting is not
called within 15 days of the receipt of such request, any shareholder
executing such request may call such meeting.
BUSINESS COMBINATION STATUTES
Section 203 of the DGCL, in general, prohibits a Delaware corporation such
as CapMAC from engaging in a business combination (defined as a variety of
transactions, including mergers, as set forth below) with an interested
stockholder (defined generally as a person that is the beneficial owner of 15%
or more of a corporation's outstanding voting stock) for a period of three
years following the date that such person became an interested stockholder
unless, among other things, prior to the date such person became an interested
stockholder, the board of directors of the corporation approved either the
business combination or the transaction that resulted in the stockholder
becoming an interested stockholder or at or subsequent to such time the
business combination is approved by the board of directors and authorized at
an annual or special meeting of stockholders (not by written consent) by the
affirmative vote of a least 66 2/3% of the outstanding voting stock which is
not owned by the interested stockholder.
The CBCA generally prohibits MBIA, as a resident domestic corporation, from
engaging in certain business combinations (as defined by the statute to
include certain mergers and consolidations, dispositions of assets and
issuances of securities, as well as certain other transactions) with an
interested shareholder (as defined by the statute generally to include holders
of 10% or more of the outstanding stock of the corporation) for a period of
five years following the date that such shareholder became an interested
shareholder, (i) unless the business combination or the purchase of stock is
approved by the MBIA Board and by a majority of the non-employee directors of
which there must be at least two, prior to the date such shareholder became an
interested shareholder or (ii) unless the interested shareholder was an
interested shareholder on February 1, 1988, unless subsequent to June 7, 1988,
such interested shareholder increased its proportionate share of the voting
power of the outstanding voting stock of MBIA (excluding any increase approved
by the MBIA Board before such increase occurs). The CBCA also generally
requires business combinations with an interested shareholder to be approved
by the board of directors and then by the affirmative vote of at least (1) the
holders of 80% of the voting power of the outstanding shares of voting stock
and (2) the holders of 66 2/3% of such voting power excluding the voting stock
held by the interested shareholder, unless the consideration to be received by
the shareholders of the corporation meet certain price and other requirements
set forth in the statute or unless the board of directors of the corporation
has by resolution determined to exempt business combinations with such
interested shareholder prior to the time that such shareholder became an
interested shareholder. The MBIA Charter also provides that the
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board when evaluating merger proposals and other such offers, may give
consideration to (i) the interests of MBIA shareholders, (ii) issues of
violation of federal or state laws, (iii) the form and amount of consideration
being offered, and (iv) the social, legal, environmental and economic effects
on (1) employees and policy holders, (2) the communities in which MBIA
operates and is located and (3) any of MBIA's business and properties.
QUORUM REQUIREMENTS
The CapMAC By-Laws provide that, except as otherwise provided by law, or by
the CapMAC Charter, at all meetings of stockholders the holders of a majority
of the shares of CapMAC entitled to vote generally in the election of
directors must be present in person or by proxy in order to constitute a
quorum for the transaction of business. The DGCL provides that a majority of
the shares entitled to vote, present in person or represented by proxy, shall
constitute a quorum at a meeting of stockholders.
The CBCA and the MBIA By-Laws provide that a majority of the shares of MBIA
Common Stock entitled to vote, present in person or by proxy, constitutes a
quorum at a meeting of shareholders.
DIVIDENDS
Under the DGCL, CapMAC's Board may from time to time declare and pay
dividends out of its capital surplus or out of its net profits for the fiscal
year in which the dividend is declared and/or the preceding fiscal year.
Under the CBCA, MBIA may make a distribution to shareholders, including a
dividend or stock repurchase, with respect to their shares unless, after
giving effect to such distribution, (i) MBIA would not be able to pay its
debts as they become due in the usual course of business or (ii) MBIA's total
assets would not be less than the sum of its total liabilities plus the amount
that would be needed, if MBIA were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to those receiving the
distribution.
PREEMPTIVE RIGHTS
Neither CapMAC's nor MBIA's shareholders have any preemptive rights with
respect to shares owned by such shareholders.
RIGHTS PLAN
In December 1991, the MBIA Board declared a dividend distribution (the
"Rights Plan") of one preferred share purchase right (a "Right") for each
outstanding share of MBIA Common Stock. Each Right entitles its holders to
purchase from MBIA one one-hundredth of a share of MBIA's Junior Participating
Cumulative Preferred Shares at a price of $160, subject to certain
adjustments. Initially, the Rights are attached to the common stock and will
not be transferable separately nor become exercisable until the earlier to
occur of (i) ten business days following the date of the public announcement
by MBIA (the "Shares Acquisition Date") that a person or group of persons has
acquired or obtained the right to acquire beneficial ownership of 10% or more
of the outstanding shares of MBIA Common Stock and (ii) ten business days (or
later as may be determined by the MBIA Board) after the announcement or
commencement of a tender offer or exchange offer which, if successful, would
result in the bidder owning 10% or more of the outstanding shares of MBIA
Common Stock. However, no person shall be deemed to have acquired or obtained
the right to acquire the beneficial ownership of 10% or more of the
outstanding shares of MBIA Common Stock if the MBIA Board determines that such
acquisition is inadvertent, and such person promptly divests itself of a
sufficient number of shares to be below the 10% ownership threshold.
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If the acquiring person or group acquires beneficial ownership of 10% or
more of MBIA Common Stock (except pursuant to a tender or exchange offer for
all outstanding common stock of MBIA, determined by MBIA's independent
directors to be at a fair price and in the best interests of MBIA and its
shareholders), each holder of a Right (other than the acquirer) shall be
entitled to purchase, for $160, that number of shares of common stock of MBIA
having a fair value of $320. Similarly, if after an acquiring person or group
so acquires 10% or more of MBIA Common Stock, MBIA is acquired in a merger or
other business combination and is not the surviving entity, or its common
stock is changed or exchanged in whole or in part, or 50% or more of MBIA's
assets, cash flow or earning power is sold, each holder of a Right (other than
the acquirer) will be entitled to purchase, for $160, that number of shares of
common stock of the acquiring company having a fair value of $320. The MBIA
Board may redeem the Rights in whole at $.01 per Right at any time prior to
ten business days following the Shares Acquisition Date. Further, at any time
after a person or group acquires 10% or more, but less than 50%, of MBIA
Common Stock, the MBIA Board may exchange the Rights (other than those held by
the acquirer) in whole or in part, at an exchange ratio of one share of common
stock per Right. The MBIA Board may also amend the Rights at any time prior to
the Shares Acquisition Date. The Rights will expire on December 12, 2001,
unless earlier redeemed or exchanged.
CapMAC does not maintain any plan or arrangement similar to the Rights Plan,
and there are not outstanding or issuable to the holders of CapMAC Common
Stock any rights similar to the Rights.
LIMITATION OF DIRECTORS' LIABILITY
Delaware law authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of directors' fiduciary duty of care. The CapMAC Charter
limits the liability of CapMAC's directors to CapMAC or its stockholders (in
their capacity as directors but not in their capacity as officers) to the
fullest extent permitted by Delaware law. As a result, CapMAC directors are
not personally liable for monetary damages for breach of a director's
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the CapMAC or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for unlawful payments of dividends or unlawful
stock repurchases or redemptions or (iv) for any transaction from which the
director derived an improper personal benefit.
The CBCA authorizes MBIA to limit the personal liability of a director to
MBIA and its subsidiaries for monetary damages for breach of duty as a
director. The MBIA Charter provides that no director will be personally liable
to MBIA or its shareholders for monetary damages for breach of duty as a
director in an amount that exceeds the compensation received by the director
for serving MBIA during the year of the violation if such breach did not (a)
involve a knowing and culpable violation of law by the director, (b) enable
the director or an associate, as defined in the CBCA, to receive improper
personal economic gain, (c) show a lack of good faith and a conscious
disregard for the duty of the director, (d) constitute a sustained and
unexcused pattern of inattention that amounted to an abdication of the
director's duty to MBIA or (e) create liability of the director for an
unlawful distribution.
INTERESTED DIRECTOR TRANSACTIONS
Under the DGCL, no transaction between CapMAC and one or more of its
directors or an entity in which one or more of its directors are directors or
officers or have a financial interest will be void or voidable solely for that
reason and no such transaction will be void or voidable solely because the
director is present at or votes at the meeting of the CapMAC Board or
committee which authorizes the transaction, if, after the material facts of
the director's are disclosed to or known by the CapMAC Board or the committee,
the transaction is (i) in good faith authorized by the disinterested directors
or committee of disinterested directors by a vote sufficient for such purpose,
(ii) is approved by a vote of the stockholders or (iii) the transaction is
fair to CapMAC as of the time it is authorized by the CapMAC Board, committee
or stockholders.
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Under the CBCA, no transaction effected or proposed to be effected by MBIA,
its subsidiaries or any other entity in which MBIA has a controlling interest
may be enjoined, set aside, or give rise to an award of damages or other
sanctions merely because a director of MBIA, or any person with whom or which
he has a personal, economic or other association, has an interest in the
transaction which is not a director's conflicting interest transaction as
defined in the CBCA. A director's conflicting interest transaction will not be
enjoined, set aside, or give rise to damages or other sanctions if (i) the
transaction received the affirmative vote of a majority, but no fewer than
two, of the disinterested directors on the MBIA Board or on a duly empowered
committee of the board who voted on the transaction after adequate disclosure
to them, (ii) the transaction received a majority of the votes entitled to be
cast by the holders of all shares not beneficially owned by the director with
the conflict and/or by any persons related to the director or (iii) the
transaction, judged according to the circumstances at the time of the
commitment, is established to have been fair to MBIA.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The CapMAC Charter provides that each person who is or has agreed to become
a director or officer of CapMAC, and each such person who is or was serving or
had agreed to serve at the request of the CapMAC Board or an officer of CapMAC
as an employee or agent of CapMAC or as a director, officer, employee or agent
of another entity shall be indemnified to the full extent permitted from time
to time by the DGCL. Under the DGCL, CapMAC may generally indemnify its
directors, officers, employees or agents for acts performed in good faith and
in a manner such person reasonably believed to be in or not opposed to the
best interest of CapMAC, and with respect to any criminal action or
proceeding, had reasonable cause to believe that such person's act was lawful.
Under the CapMAC Charter, CapMAC agrees to indemnify and reimburse directors
of the corporation to the fullest extent permitted under Delaware law.
Under the CBCA unless the MBIA Charter provides otherwise, MBIA must
indemnify a director, officer, and any other employee or agent of the
corporation who was wholly successful, on the merits or otherwise, in the
defense of any proceeding to which he was a party because he is or was a
director, officer or other employee or agent of the corporation against
reasonable expenses incurred by him in connection with the proceeding.
Additionally, MBIA must indemnify the director, officer or other employee or
agent of the corporation made party to a proceeding if (i) he conducted
himself in good faith and (ii) he reasonably believed (A) in the case of
conduct in his official capacity with the corporation, that his conduct was in
its best interests and (B) in all other cases, that his conduct was at least
not opposed to its best interests and (iii) in the case of any criminal
proceeding, he had no reasonable cause to believe his conduct was unlawful.
Unless a court orders otherwise, the CBCA forbids indemnification (i) in
connection with a proceeding by or in the right of the corporation except for
reasonable expenses if it is determined that the director, officer or other
employee or agent has met the relevant standard of conduct or (ii) in
connection with any other proceeding in which he was adjudged liable on the
basis that a financial benefit was received by him. Indemnification under the
CBCA in connection with a proceeding by or in the right of the corporation in
which the director was adjudged liable is limited to reasonable expenses
incurred in connection with the proceeding. The indemnification requirements
under the CBCA remain limited by the provision in the CBCA that requires that
such indemnification be authorized in the specific case after a determination
that indemnification is permissible in the circumstances because the director,
officer or other employee or agent has met the standard of conduct set forth
by the CBCA.
DISSENTERS' RIGHTS OF APPRAISAL
The DGCL generally entitles a stockholder to exercise appraisal rights upon
a merger or consolidation of the corporation effected pursuant to the DGCL if
the holder complies with the requirements of Section 262 thereof. Appraisal
rights are available under Section 262 of the DGCL if holders of shares in a
constituent company, which shares are listed on a national securities exchange
(as the CapMAC Common Stock is), are required by the terms of the merger to
accept consideration other than shares of stock of the surviving corporation,
shares of stock of any corporation listed on a national securities exchange,
designated as a national market system security by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000 stockholders, or
cash in lieu of fractional shares. As holders of CapMAC Common Stock are
entitled to
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receive only MBIA Common Stock, which is listed on the NYSE, and cash in lieu
of fractional shares under the terms of the Merger Agreement, they are not
entitled to appraisal rights under the DGCL. See "THE PROPOSED MERGER--
Appraisal Rights".
The CBCA provides dissenters' rights to obtain payment of the fair value of
shares to objecting MBIA shareholders (i) entitled to vote on a merger or
share exchange, (ii) in a short form merger of a subsidiary into its parent
corporation, (iii) on the sale of all or substantially all of the assets of a
corporation other than in the usual or regular course of business (except when
done pursuant to court order or a liquidation plan resulting in distributions
to shareholders within one year after the date of sale), (iv) on an amendment
to the MBIA Charter that materially and adversely affects rights in respect of
dissenters' shares and (v) in any corporate action taken pursuant to a
shareholder vote to the extent the MBIA Charter, the MBIA By-Laws or a
directors' resolution provides that voting or non-voting shareholders are
entitled to dissent and obtain payment for their shares. Under the CBCA, the
dissenter's right of appraisal and payment under the statute is the
dissenter's exclusive remedy.
DURATION OF PROXIES
Under the DGCL, a proxy is not valid after 3 years from the date of such
proxy unless the proxy provides for a longer period. A proxy may be made
irrevocable if it states that it is irrevocable and if, and only as long as,
it is coupled with an interest sufficient in law to support an irrevocable
power. A proxy may be made irrevocable regardless of whether the interest with
which it is coupled is an interest in the stock itself or an interests in the
corporation generally.
Under the CBCA and the MBIA Charter, a proxy is not to be voted or acted
upon after the expiration of 11 months from the date of such proxy, unless it
specifies the length of time for which it is to continue in force or limits
its use to a particular meeting not yet held. The CBCA provides that an
appointment of a proxy is revocable unless the appointment form conspicuously
states that it is irrevocable and the appointment is coupled with an interest
which includes proxies created for (i) a pledgee, (ii) a person who has
purchased or agreed to purchase the shares, (iii) a creditor of MBIA who
extends credit in consideration of the proxy, (iv) an employee of MBIA whose
employee contract requires the proxy and (v) a person designated under a
voting agreement.
LOANS TO OFFICERS
Under the DGCL, CapMAC can lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of CapMAC, including any
officer or employee who is director of CapMAC, whenever in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit CapMAC.
The CBCA does not have a corresponding provision.
CLASSIFICATION OF THE BOARD OF DIRECTORS
The DGCL permits a Delaware corporation to classify its board of directors
into 1, 2, or 3 classes. The CapMAC charter divides CapMAC's Board into 3
classes, each class consisting, as nearly as possible, of one-third of the
total number of directors constituting the entire CapMAC Board and the term of
office of one class expiring each year. At each annual meeting, the successors
to the class of directors whose term is then expiring will be elected to hold
office for a term of three years. The DGCL provides that in the case of a
corporation whose board is classified, shareholders can only remove directors
for cause, unless the charter provides otherwise. The CapMAC charter allows
the removal of directors only for cause.
The CBCA permits a Connecticut corporation to provide for the staggering of
the terms of its directors by dividing the total number of directors into up
to 5 groups, with each group containing approximately the same percentage of
the total, as nearly as may be. MBIA's Board consists of a single class.
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SECURITY OWNERSHIP
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF MBIA COMMON STOCK
MBIA does not know of any person that owns more than five percent of the
MBIA Common Stock, except for those listed below. The percentage ownership has
been calculated based on the number of issued and outstanding shares of MBIA
Common Stock as of September 30, 1997.
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK BENEFICIALLY PERCENT
NAME AND ADDRESS OF 5% SHAREHOLDER OWNED OF CLASS
- ---------------------------------- ------------------ --------
<S> <C> <C>
FMR Corp./1/....................................... 8,636,000 9.7%
82 Devonshire Street
Boston, MA 02109
Sanford C. Bernstein & Company, Inc./2/............ 5,028,000 5.6%
767 Fifth Avenue
New York, New York 10153
</TABLE>
- --------
1. Information as to the beneficial ownership of shares of MBIA Common Stock
is based on the September, 1997 Schedule 13F filed by FMR Corp. with the
Commission as reported by Technimetrics, Inc.
2. Information as to the beneficial ownership of shares of MBIA Common Stock
is based on the September, 1997 Schedule 13F filed by Sanford C. Bernstein
& Company, Inc. with the Commission as reported by Technimetrics, Inc.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF CAPMAC COMMON STOCK
CapMAC does not know of any person that owns more than five percent of the
CapMAC Common Stock, except for those listed below. The percentage ownership
has been calculated based on the number of issued and outstanding shares of
CapMAC Common Stock as of October 31, 1997.
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK
BENEFICIALLY PERCENT
NAME AND ADDRESS OF 5% SHAREHOLDER OWNED OF CLASS
- ---------------------------------- ---------------- --------
<S> <C> <C>
A I M Management Group Inc./1/........................ 1,368,000 7.90%
11 Greenway Plaza
Houston, TX 77046
Fidelity Management & Research Company/2/............. 1,174,000 6.77%
82 Devonshire Street
Boston, MA 02109-3605
Swiss Reinsurance Company............................. 1,000,000 5.77%
Mythenqual 50/60
CH-8022 Zurich, Switzerland
SBC Warburg Dillon, Read Inc./3/...................... 906,628 5.23%
535 Madison Avenue
New York, NY 10022
</TABLE>
- --------
1. The number of shares owned is based upon information set forth in a Form
13F report of A I M Management Group Inc. with a filing date of June, 1997
as reported by Technimetrics, Inc.
2. The number of shares owned is based upon information set forth in a Form
13F filed with respect to Fidelity Management & Research Company with a
filing date of September, 1997 as reported by Technimetrics, Inc.
3. The number of shares owned is based on a Schedule 13D dated July 24, 1997
filed with the Commission by SBC Warburg Dillon, Read Inc.
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LEGAL MATTERS
The legality of the MBIA Common Stock to be issued in the Merger will be
passed upon for MBIA by Day, Berry & Howard, special Connecticut counsel to
MBIA. Debevoise & Plimpton, special counsel to MBIA, and Simpson Thacher &
Bartlett (a partnership which includes professional corporations), special
counsel to CapMAC, will each render opinions with respect to certain federal
income tax consequences of the Merger. See "THE PROPOSED MERGER--Certain
Federal Income Tax Consequences of the Merger."
EXPERTS
The consolidated financial statements and financial statement schedules of
MBIA Inc. and Subsidiaries as of December 31, 1996, 1995, and 1994, and for
each of the years in the three-year period ended December 31, 1996,
incorporated by reference in the Proxy Statement of MBIA Inc., which is
referred to and made a part of this Prospectus and Registration Statement,
have been audited by Coopers & Lybrand L.L.P, independent auditors, as set
forth in their reports incorporated by reference herein, and are incorporated
by reference herein in reliance upon such reports given upon the authority of
such firm as experts in accounting and auditing.
The consolidated financial statements and financial statement schedules of
CapMAC Holdings Inc. and its subsidiaries as of December 31, 1996 and 1995,
and for each of the years in the three-year period ended December 31, 1996,
incorporated by reference in the Proxy Statement of CapMAC Holdings Inc.,
which is referred to and made a part of this Prospectus and Registration
Statement, have been audited by KPMG Peat Marwick LLP, independent certified
public accountants, as set forth in their reports incorporated by reference
herein, and are incorporated by reference herein in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
MANAGEMENT AND ADDITIONAL INFORMATION
Certain information relating to the management, executive compensation,
various benefit plans (including stock plans), voting securities and the
principal holders thereof, certain relationships and related transactions and
other related matters as to MBIA and CapMAC may be set forth, in the case of
MBIA, in the MBIA 10-K, and in the case of CapMAC, in the CapMAC 10-K, which
are incorporated by reference in this Proxy Statement/Prospectus. All
documents filed by MBIA pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act after the date hereof and prior to the date of the final
adjournment of the CapMAC Special Meeting shall be deemed to be incorporated
herein by reference, and to be a part hereof from the date of filing of such
documents. All documents filed by CapMAC pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date hereof and prior to the date of
the final adjournment of the CapMAC Special Meeting shall be deemed to be
incorporated herein by reference, and to be a part hereof from the date of
filing of such documents. See "Incorporation of Certain Documents by
Reference." Any person, including any beneficial owner to whom this Proxy
Statement/Prospectus is delivered, who wishes to obtain copies of these
documents may contact MBIA or CapMAC, as applicable, at its address and
telephone number set forth under "Incorporation of Certain Documents by
Reference."
STOCKHOLDER PROPOSALS
Any stockholder who wishes to submit a proposal for presentation to CapMAC's
1998 Annual Meeting of Stockholders (if the Merger has not been consummated
prior to the date the meeting is to be held) must have submitted the proposal
to CapMAC Holdings Inc., 885 Third Avenue, New York, New York 10022, Attn:
Secretary and General Counsel, in advance of December 8, 1997 for inclusion,
if appropriate, in CapMAC's Proxy Statement and the form of proxy relating to
the 1998 Annual Meeting.
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ANNEX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
MBIA INC.
CMA ACQUISITION CORPORATION
AND
CAPMAC HOLDINGS INC.
DATED AS OF NOVEMBER 13, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE I
THE MERGER
SECTION 1.1 The Merger................................................. A-1
SECTION 1.2 Effective Time............................................. A-1
SECTION 1.3 Effects of the Merger...................................... A-1
SECTION 1.4 Certificate of Incorporation; By-Laws...................... A-1
SECTION 1.5 Directors and Officers..................................... A-2
SECTION 1.6 Conversion of Securities................................... A-2
SECTION 1.7 Treatment of Options....................................... A-2
SECTION 1.8 Fractional Interests....................................... A-3
SECTION 1.9 Surrender of Shares; Stock Transfer Books.................. A-3
SECTION 1.10 Closing and Closing Date................................... A-4
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 2.1 Organization............................................... A-5
SECTION 2.2 Capitalization............................................. A-5
SECTION 2.3 Company Subsidiaries....................................... A-6
Corporate Authorization; Validity of Agreement; Company
SECTION 2.4 Action..................................................... A-6
SECTION 2.5 Consents and Approvals; No Violations...................... A-6
SECTION 2.6 SEC Reports and Financial Statements....................... A-7
SECTION 2.7 Absence of Certain Changes................................. A-8
SECTION 2.8 Absence of Undisclosed Liabilities......................... A-8
SECTION 2.9 Information Supplied....................................... A-8
SECTION 2.10 Employee Benefit Plans..................................... A-9
SECTION 2.11 Compliance................................................. A-9
SECTION 2.12 No Default................................................. A-9
SECTION 2.13 Investment Advisor; Investment Company..................... A-10
SECTION 2.14 Absence of Litigation...................................... A-10
SECTION 2.15 Taxes...................................................... A-10
SECTION 2.16 Opinion of Financial Advisors.............................. A-11
SECTION 2.17 Accounting Matters......................................... A-11
SECTION 2.18 Tax Matters................................................ A-11
SECTION 2.19 Brokers.................................................... A-11
SECTION 2.20 Ownership of Parent Common Stock........................... A-11
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
SECTION 3.1 Organization............................................... A-11
SECTION 3.2 Capitalization............................................. A-11
SECTION 3.3 Parent Subsidiaries........................................ A-12
Corporate Authorization; Validity of Agreement; Necessary
SECTION 3.4 Action..................................................... A-12
SECTION 3.5 Consents and Approvals; No Violations...................... A-13
SECTION 3.6 SEC Reports and Financial Statements....................... A-13
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
SECTION 3.7 Absence of Certain Changes................................. A-14
SECTION 3.8 Absence of Undisclosed Liabilities......................... A-14
SECTION 3.9 Information Supplied....................................... A-14
SECTION 3.10 Compliance................................................. A-14
SECTION 3.11 No Default................................................. A-15
SECTION 3.12 Investment Advisor; Investment Company..................... A-15
SECTION 3.13 Absence of Litigation...................................... A-15
SECTION 3.14 Taxes...................................................... A-15
SECTION 3.15 Opinion of Financial Advisors.............................. A-16
SECTION 3.16 Ownership of Company Common Stock.......................... A-16
SECTION 3.17 Accounting Matters......................................... A-16
SECTION 3.18 Tax Matters................................................ A-16
SECTION 3.19 Brokers.................................................... A-16
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 4.1 Conduct of Business of the Company Pending the Merger...... A-16
SECTION 4.2 Conduct of Business of Parent Pending the Merger........... A-18
SECTION 4.3 Pooling and Tax-Free Reorganization Treatment.............. A-18
ARTICLE V
ADDITIONAL AGREEMENTS
Preparation of Form S-4 and the Proxy Statement;
SECTION 5.1 Stockholder Meetings....................................... A-19
SECTION 5.2 Accountants' Letters....................................... A-19
SECTION 5.3 Access to Information; Confidentiality..................... A-20
SECTION 5.4 No Solicitation of Transactions............................ A-20
SECTION 5.5 Employee Benefits Matters.................................. A-21
SECTION 5.6 Directors' and Officers' Indemnification and Insurance..... A-22
SECTION 5.7 Further Action; Reasonable Best Efforts.................... A-22
SECTION 5.8 Public Announcements....................................... A-23
SECTION 5.9 Stock Exchange Listing..................................... A-23
SECTION 5.10 Affiliates................................................. A-23
ARTICLE VI
CONDITIONS OF MERGER
Conditions to Obligation of Each Party to Effect the
SECTION 6.1 Merger..................................................... A-24
Conditions to Obligations of the Company to Effect the
SECTION 6.2 Merger..................................................... A-24
Conditions to Obligations of Parent and Sub to Effect the
SECTION 6.3 Merger..................................................... A-25
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1 Termination................................................ A-25
SECTION 7.2 Effect of Termination...................................... A-26
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<C> <S> <C>
SECTION 7.3 Fees and Expenses............................................ A-26
SECTION 7.4 Amendment.................................................... A-27
SECTION 7.5 Waiver....................................................... A-27
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1 Non-Survival of Representations, Warranties and Agreements... A-27
SECTION 8.2 Notices...................................................... A-27
SECTION 8.3 Certain Definitions.......................................... A-28
SECTION 8.4 Severability................................................. A-28
SECTION 8.5 Entire Agreement; Assignment................................. A-28
SECTION 8.6 Parties in Interest.......................................... A-29
SECTION 8.7 Governing Law................................................ A-29
SECTION 8.8 Headings..................................................... A-29
SECTION 8.9 Counterparts................................................. A-29
</TABLE>
Exhibit A--Form of Affiliate Letter
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of November 13, 1997 (the
"Agreement''), among MBIA INC., a Connecticut corporation ("Parent''), CMA
ACQUISITION CORPORATION, a Delaware corporation and a wholly owned subsidiary
of Parent ("Sub''), and CAPMAC HOLDINGS INC., a Delaware corporation (the
"Company'').
WHEREAS, the Board of Directors of the Company has determined that it is in
the best interests of the Company and the stockholders of the Company to enter
into this Agreement with Parent and Sub, providing for the merger (the
"Merger'') of Sub with the Company in accordance with the General Corporation
Law of the State of Delaware ("DGCL''), upon the terms and subject to the
conditions set forth herein;
WHEREAS, the Board of Directors of Parent and Sub has each approved the
Merger of Sub with and into the Company in accordance with the DGCL upon the
terms and subject to the conditions set forth herein;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization under the provisions of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code''); and
WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a "pooling of interests".
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Parent, Sub and the Company hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions of this
Agreement and in accordance with the DGCL, at the Effective Time (as defined
in Section 1.2), Sub shall be merged with and into the Company. As a result of
the Merger, the separate corporate existence of Sub shall cease and the
Company shall continue as the surviving corporation of the Merger (the
"Surviving Corporation''). At Parent's election, any direct wholly-owned
subsidiary of Parent other than Sub may be merged with and into the Company
instead of Sub. In the event of such an election, the parties agree to execute
an appropriate amendment to this Agreement in order to reflect such election.
SECTION 1.2 Effective Time. As soon as practicable after the satisfaction or
waiver of the conditions set forth in Article VI, the parties hereto shall
cause the Merger to be consummated by filing this Agreement or a certificate
of merger or a certificate of ownership and merger (the "Certificate of
Merger'') with the Secretary of State of the State of Delaware, in such form
as required by and executed in accordance with the relevant provisions of the
DGCL (the date and time of the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware (or such later time as is
specified in the Certificate of Merger) being the "Effective Time'').
SECTION 1.3 Effects of the Merger. The Merger shall have the effects set
forth in the applicable provisions of the DGCL. Without limiting the
generality of the foregoing and subject thereto, at the Effective Time all the
property, rights, privileges, immunities, powers and franchises of the Company
and Sub shall vest in the Surviving Corporation, and all debts, liabilities
and duties of the Company and Sub shall become the debts, liabilities and
duties of the Surviving Corporation.
SECTION 1.4 Certificate of Incorporation; By-Laws. (a) At the Effective Time
and without any further action on the part of the Company and Sub, the
Restated Certificate of Incorporation of the Company (as amended, the
"Certificate of Incorporation''), as in effect immediately prior to the
Effective Time, shall be the certificate of incorporation of the Surviving
Corporation until thereafter and further amended as provided therein and under
the DGCL.
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(b) At the Effective Time and without any further action on the part of the
Company and Sub, the By-Laws of Sub shall be the By-Laws of the Surviving
Corporation and thereafter may be amended or repealed in accordance with their
terms or the Certificate of Incorporation of the Surviving Corporation and as
provided by law.
SECTION 1.5 Directors and Officers. The directors of Sub immediately prior
to the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-Laws of the Surviving Corporation, and the officers of
the Company immediately prior to the Effective Time shall be the initial
officers of the Surviving Corporation, in each case until their respective
successors are duly elected or appointed (as the case may be) and qualified.
SECTION 1.6 Conversion of Securities. At the Effective Time, by virtue of
the Merger and without any action on the part of Sub, the Company or the
holders of any of the following securities:
(a) Subject to Section 1.8, each share of common stock, par value $.01
per share, of the Company (the "Company Common Stock'') issued and
outstanding immediately prior to the Effective Time (other than any shares
of Company Common Stock to be cancelled pursuant to Section 1.6(b)) shall
be converted into the right to receive a fraction equal to the Exchange
Ratio (as defined below) of a share of common stock, par value $1.00 per
share, of Parent (the "Parent Common Stock'') (the amount of Parent Common
Stock into which each such share of Company Common Stock is converted being
referred to herein as the "Merger Consideration''). For purposes of this
Agreement, "Exchange Ratio'' means $35.00 divided by the Parent Common
Stock Price (as defined below), rounded to the nearest 1/10,000, provided
that (i) if the Parent Common Stock Price is less than $53.00, the Exchange
Ratio shall be equal to .6604 and (ii) if the Parent Common Stock Price is
more than $70.00, the Exchange Ratio shall be equal to .5. "Parent Common
Stock Price'' means the average of the closing sales prices of Parent
Common Stock on the New York Stock Exchange ("NYSE'') Composite
Transactions Tape as reported by The Wall Street Journal (or if not
reported thereby, any other authoritative source) on each of the 15
consecutive trading days immediately preceding the third trading day prior
to the Effective Time. As of the Effective Time, all such shares of Company
Common Stock shall no longer be outstanding and shall automatically be
cancelled and retired and shall cease to exist, and each holder of a
certificate representing any such shares of Company Common Stock shall
cease to have any rights with respect thereto, except the right to receive
the Merger Consideration and any cash in lieu of fractional shares of
Parent Common Stock to be issued or paid in consideration therefor upon
surrender of such certificate in accordance with Section 1.9, without
interest.
(b) Each share of Company Common Stock held in the treasury of the
Company and each share of Company Common Stock owned by Parent, Sub or any
other direct or indirect subsidiary of Parent or of the Company, in each
case immediately prior to the Effective Time, shall be cancelled and
retired without any conversion thereof and no payment or distribution shall
be made with respect thereto.
(c) Each share of common, preferred or other capital stock of Sub issued
and outstanding immediately prior to the Effective Time shall be converted
into and become one validly issued, fully paid and nonassessable share of
identical common, preferred or other capital stock of the Surviving
Corporation.
SECTION 1.7 Treatment of Options. (a) At the Effective Time, each
outstanding stock option and any related stock appreciation right granted to
employees and non-employee directors of the Company and its subsidiaries with
respect to Company Common Stock (together, an "Option''), whether or not then
exercisable, shall be deemed assumed by Parent and deemed to constitute an
option to acquire, on the same terms and conditions as were applicable under
such Option prior to the Effective Time, the number (rounded to the nearest
whole number) of shares of Parent Common Stock as the holder of such Option
would have been entitled to receive pursuant to the Merger had such holder
exercised such Option in full immediately prior to the Effective Time (not
taking into account whether or not such Option was in fact exercisable), at a
price per share equal to (x) the aggregate price for Company Common Stock
otherwise purchasable pursuant to such Option divided by (y) the number of
shares of Parent Common Stock deemed purchasable pursuant to such Option.
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(b) As soon as practicable after the Effective Time, Parent shall deliver to
each holder of an outstanding Option an appropriate notice setting forth such
holder's rights pursuant thereto, and such Option shall continue in effect on
the same terms and conditions (including antidilution provisions).
(c) Parent shall take all corporation action necessary to reserve for
issuance a sufficient number of shares of Parent Common Stock for delivery
pursuant to the terms set forth in this Section 1.7.
(d) Subject to any applicable limitations under the Securities Act of 1933,
as amended (the "Securities Act''), Parent shall either (i) file a
registration statement on Form S-8 (or any successor form), effective as of
the Effective Time, with respect to the shares of Parent Common Stock issuable
upon exercise of the Options, or (ii) file any necessary amendments to the
Company's previously filed registration statements on Form S-8 in order that
Parent will be deemed a "successor registrant" thereunder, and in either event
Parent shall use all reasonable efforts to maintain the effectiveness of such
registration statement(s) (and maintain the current status of the prospectus
or prospectuses relating thereto) for so long as such Options remain
outstanding.
SECTION 1.8 Fractional Interests. No certificates or scrip representing
fractional shares of Parent Common Stock shall be issued in connection with
the Merger, and such fractional interests will not entitle the owner thereof
to any rights of a stockholder of Parent. In lieu of any such fractional
interests, each holder of shares of Company Common Stock exchanged pursuant to
Section 1.6(a) who would otherwise have been entitled to receive a fraction of
a share of Parent Common Stock (after taking into account all shares of
Company Common Stock then held of record by such holder) shall receive cash
(without interest) in an amount equal to the product of such fractional part
of a share of Parent Common Stock multiplied by the Parent Common Stock Price,
rounded down to the nearest cent.
SECTION 1.9 Surrender of Shares; Stock Transfer Books. (a) As of or as soon
as reasonably practicable after the Effective Time, Sub shall designate a bank
or trust company who shall be reasonably satisfactory to the Company to act as
agent for the holders of shares of Company Common Stock in connection with the
Merger (the "Exchange Agent'') to receive the shares of Parent Common Stock
(and any cash payable in lieu of any fractional shares of Parent Common Stock)
to which holders of shares of Company Common Stock shall become entitled
pursuant to Sections 1.6(a) and 1.8. As soon as reasonably practicable as of
or after the Effective Time, Parent or Sub will make available to the Exchange
Agent sufficient shares of Parent Common Stock and cash to make all exchanges
pursuant to Section 1.9(b).
(b) Promptly after the Effective Time, the Surviving Corporation shall cause
to be mailed to each record holder, as of the Effective Time, of an
outstanding certificate or certificates which immediately prior to the
Effective Time represented shares of Company Common Stock (the
"Certificates''), a form of letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of the Certificates to the Exchange
Agent) and instructions for use in effecting the surrender of the Certificates
in exchange for certificates representing shares of Parent Common Stock
therefor. Upon surrender to the Exchange Agent of a Certificate, together with
such letter of transmittal, duly completed and validly executed in accordance
with the instructions thereto, and such other documents as may be required
pursuant to such instructions, the holder of such Certificate shall be
entitled to receive in exchange therefor, (i) a certificate representing that
number of whole shares of Parent Common Stock which such holder has the right
to receive pursuant to the provisions of Section 1.6(a) and (ii) cash in lieu
of any fractional shares of Parent Common Stock to which such holder is
entitled pursuant to Section 1.8, after giving effect to any required tax
withholdings, and the Certificate so surrendered shall forthwith be cancelled.
If the exchange of certificates representing shares of Parent Common Stock is
to be made to a person other than the person in whose name the surrendered
Certificate is registered, it shall be a condition of payment that the
Certificate so surrendered shall be properly endorsed or shall be otherwise in
proper form for transfer and that the person requesting such payment shall
have paid any transfer and other taxes required by reason of the exchange of
certificates representing shares of Parent Common Stock to a person other than
the registered holder of the Certificate surrendered or shall have established
to the satisfaction of the Surviving Corporation that such tax either has been
paid or is not applicable.
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<PAGE>
(c) At any time following one year after the Effective Time, the Surviving
Corporation shall be entitled to require the Exchange Agent to deliver to it
any shares of Parent Common Stock (and any cash payable in lieu of any
fractional shares of Parent Common Stock) which had been made available to the
Exchange Agent and which have not been disbursed to holders of Certificates,
and thereafter such holders shall be entitled to look to the Surviving
Corporation (subject to abandoned property, escheat or other similar laws)
only as general creditors thereof with respect to the shares of Parent Common
Stock (and any cash payable in lieu of any fractional shares of Parent Common
Stock) payable upon due surrender of their Certificates. Notwithstanding the
foregoing, neither the Surviving Corporation nor the Exchange Agent shall be
liable to any holder of a Certificate for shares of Parent Common Stock (and
any cash payable in lieu of any fractional shares of Parent Common Stock)
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law, subject, however, to the Surviving Corporation's
obligation to pay any dividends or make any other distributions with a record
date prior to the Effective Time which may have been declared or made by the
Company on such shares of Company Common Stock in accordance with the terms of
this Agreement or prior to the date of this Agreement and which remain unpaid
at the Effective Time.
(d) At the Effective Time, the stock transfer books of the Company shall be
closed and thereafter there shall be no further registration of transfers of
shares of Company Common Stock on the records of the Company. From and after
the Effective Time, the holders of Certificates evidencing ownership of shares
of Company Common Stock outstanding immediately prior to the Effective Time
shall cease to have any rights with respect to such shares of Company Common
Stock except as otherwise provided for herein or by applicable law, subject,
however, to the Surviving Corporation's obligation to pay any dividends or
make any other distributions with a record date prior to the Effective Time
which may have been declared or made by the Company Common Stock in accordance
with the terms of this Agreement or prior to the date of this Agreement and
which remain unpaid at the Effective Time.
(e) No dividends or other distributions declared or made after the Effective
Time with respect to shares of Parent Common Stock shall be paid to the holder
of any unsurrendered Certificate with respect to the shares of Parent Common
Stock it is entitled to receive and no cash payment in lieu of fractional
interests shall be paid pursuant to Section 1.8 until the holder of such
Certificate shall surrender such Certificate in accordance with the provisions
of this Agreement. Upon such surrender, there shall be paid to the person in
whose name the certificates representing such shares of Parent Common Stock
shall be issued, any dividends or distributions with respect to such shares of
Parent Common Stock which have a record date after the Effective Time and
shall have become payable between the Effective Time and the time of such
surrender. In no event shall the person entitled to receive such dividends or
distributions be entitled to receive interest thereon.
(f) If between the date hereof and the Effective Time, the outstanding
shares of Company Common Stock or Parent Common Stock shall be changed into a
different number of shares by reason of any reclassification,
recapitalization, split-up, combination or exchange of shares, or any dividend
payable in stock or other securities shall be declared thereon with a record
date within such period, the Exchange Ratio shall be adjusted accordingly to
provide to the holders of Company Common Stock and Parent Common Stock the
same economic effect as contemplated by this Agreement prior to such
reclassification, recapitalization, split-up, combination, exchange or
dividend.
SECTION 1.10 Closing and Closing Date. Unless this Agreement shall have been
terminated and the transactions herein contemplated shall have been abandoned
pursuant to the provisions of Section 7.1, the closing (the "Closing'') of
this Agreement shall take place (a) at 10:00 a.m. (New York City time) on the
second business day after all of the conditions to the respective obligations
of the parties set forth in Article VI hereof shall have been satisfied or
waived or (b) at such other time and date as Parent and the Company shall
agree (such date and time on and at which the Closing occurs being referred to
herein as the "Closing Date''). The Closing shall take place at such location
as Parent and the Company shall agree.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as follows:
SECTION 2.1 Organization. Each of the Company and its Significant
Subsidiaries (as defined in Section 8.3) is a corporation, partnership or
other entity duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or organization, and has all
requisite corporate or other power and authority and all necessary
governmental approvals to own, lease and operate its properties and to carry
on its business as now being conducted, except where the failure to be so
organized, existing and in good standing or to have such power, authority and
governmental approvals would not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect (as defined below) on the
Company and its subsidiaries, taken as a whole. Each of the Company and its
Significant Subsidiaries is duly qualified or licensed to do business and in
good standing in each jurisdiction in which the property owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification or licensing necessary, except where the failure to be so duly
qualified or licensed and in good standing would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on the
Company and its subsidiaries, taken as a whole. The Company has heretofore
furnished to Parent a complete and correct copy of the Certificate of
Incorporation and Amended and Restated By-Laws of the Company as currently in
effect.
As used in this Agreement, "Material Adverse Effect'' means any adverse
change or effect that is materially adverse to the financial condition,
results of operations, assets, liabilities or business of a person or on the
ability of such person to perform its obligations hereunder, but shall exclude
any change or effect resulting from any occurrence or condition generally
affecting the industry in which such person and its subsidiaries operate
(including without limitation any change or proposed change in insurance laws
or regulations in any jurisdiction or official interpretations thereof) and
any occurrence or condition arising out of the transactions contemplated by
this Agreement or the public announcement thereof.
SECTION 2.2 Capitalization. (a) The authorized capital stock of the Company
consists of 50,000,000 shares of Company Common Stock and 20,000,000 shares of
preferred stock, par value $.01 per share. As of October 31, 1997, (i)
17,331,104 shares of Company Common Stock were issued and outstanding, (ii) 85
shares of Company Common Stock were held in the treasury of the Company, (iii)
options to acquire an aggregate of 2,628,017 shares of Company Common Stock
were outstanding pursuant to Options and (iv) no shares of preferred stock
were issued and outstanding. All the outstanding shares of the Company's
capital stock are duly authorized, validly issued, fully paid and non-
assessable and not subject to preemptive rights. There are no bonds,
debentures, notes or other indebtedness having voting rights (or convertible
into securities having such rights) ("Voting Debt'') of the Company or any of
its subsidiaries issued and outstanding. Except as set forth above, as set
forth in Section 2.2(a) of the disclosure schedule delivered by the Company to
Parent on or prior to the date hereof (the "Company Disclosure Schedule'') and
for the transactions contemplated by this Agreement, (i) there are no shares
of capital stock of the Company authorized, issued or outstanding and (ii)
there are no existing options, warrants, calls, preemptive rights,
subscriptions or other rights, proxies, convertible securities, agreements,
arrangements or commitments of any character, relating to the issued or
unissued capital stock of the Company or any of its subsidiaries, obligating
the Company or any of its subsidiaries to issue, redeem, purchase, transfer or
sell or cause to be issued, transferred or sold any shares of capital stock or
Voting Debt of, or other equity interest in, the Company or any of its
subsidiaries or securities convertible into or exchangeable for such shares or
equity interests or obligations of the Company or any of its subsidiaries to
grant, extend or enter into any such option, warrant, call, subscription or
other right, convertible security, agreement, arrangement or commitment.
(b) Except as set forth in Section 2.2(b) of the Company Disclosure
Schedule, all of the outstanding shares of capital stock of each of the
Company's subsidiaries are beneficially owned by the Company, directly or
A-5
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indirectly, and all such shares have been validly issued and are fully paid
and nonassessable and are owned by either the Company or one of its
subsidiaries free and clear of all liens, charges, security interests,
options, claims or encumbrances of any nature whatsoever (collectively,
"Liens'').
SECTION 2.3 Company Subsidiaries. (a) Section 2.3(a) of the Company
Disclosure Schedule sets forth the name of each of the Company's subsidiaries
that is an insurance company (collectively, the "Company Insurance
Subsidiaries''). Each of the Company Insurance Subsidiaries is (i) duly
licensed or authorized as an insurance company in its jurisdiction of
incorporation and (ii) duly licensed or authorized as an insurance company in
each other jurisdiction where it is required to be so licensed or authorized,
except where the failure to be so licensed or authorized would not,
individually or in the aggregate, be reasonably expected to have a Material
Adverse Effect on the Company and its subsidiaries, taken as a whole.
(b) Except for the Company's subsidiaries and except as set forth on Section
2.3(b) of the Company Disclosure Schedule, the Company does not directly or
indirectly own any equity or similar interest in, or any interest convertible
into or exchangeable or exercisable for any equity or similar interest in, any
corporation, partnership, joint venture or other business association or
entity that directly or indirectly conducts any activity which is material to
the Company.
SECTION 2.4 Corporate Authorization; Validity of Agreement; Company
Action. (a) The Company has full corporate power and authority to execute and
deliver this Agreement and, subject to obtaining, with respect to the Merger,
the approval of this Agreement by the holders of a majority of the outstanding
shares of Company Common Stock (the "Company Stockholder Approval''), to
consummate the transactions contemplated hereby. The execution, delivery and
performance by the Company of this Agreement, and the consummation by it of
the transactions contemplated hereby, have been duly and validly authorized by
its Board of Directors and, except for obtaining the Company Stockholder
Approval and the filing of the Certificate of Merger as required by the DGCL,
no other corporate action or proceedings on the part of the Company are
necessary to authorize the execution and delivery by the Company of this
Agreement, and the consummation by it of the transactions contemplated hereby.
This Agreement has been duly executed and delivered by the Company and,
assuming this Agreement constitutes a valid and binding obligation of Parent
and Sub, constitutes a valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except that such enforcement
(i) may be subject to applicable bankruptcy, insolvency or other similar laws,
now or hereafter in effect, affecting creditors' rights generally, and (ii) is
subject to general principles of equity.
(b) The Board of Directors of the Company has duly and validly approved and
taken all corporate action required to be taken by the Board of Directors for
the consummation of the transactions contemplated by this Agreement,
including, but not limited to, all actions necessary to render the provisions
of Section 203 of the DGCL inapplicable to this Agreement.
(c) The affirmative vote of the holders of a majority of the outstanding
shares of Company Common Stock entitled to vote thereon is the only vote of
the holders of any class or series of the Company's capital stock necessary to
approve this Agreement, the Merger and the transactions contemplated hereby.
SECTION 2.5 Consents and Approvals; No Violations. Except as set forth in
Section 2.5 of the Company Disclosure Schedule and for all filings, permits,
authorizations, consents and approvals as may be required under, and other
applicable requirements of, the Exchange Act (as defined herein), the
Securities Act, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act''), state securities or "blue sky" laws, state takeover
laws, state insurance regulatory laws and commissions, and for the filing and
recordation of the Certificate of Merger as required by the DGCL and
appropriate documents with the relevant authorities of other states in which
the Company is qualified to do business, and except as may result from any
facts or circumstances relating solely to Parent or Sub or its affiliates,
neither the execution, delivery or performance of this Agreement nor the
consummation by the Company of the transactions contemplated hereby nor
compliance by the Company with any of the provisions hereof will (i) conflict
with or result in any breach of any provision of the Certificate of
Incorporation or Amended and Restated By-laws or similar organizational
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documents of the Company or of any of its subsidiaries, (ii) require any
filing with, or permit, authorization, consent or approval of, any court, or
other governmental or other regulatory authority, commission or agency (a
"Governmental Entity''), except where the failure to obtain such permits,
authorizations, consents or approvals or to make such filings would not
reasonably be expected to have a Material Adverse Effect on the Company and
its subsidiaries, taken as a whole, and would not materially impair the
ability of the Company to consummate the Merger or the other transactions
contemplated hereby, (iii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise
to any right of termination, cancellation, loss or acceleration) under, any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
guarantee, other evidence of indebtedness, lease, license, contract, agreement
or other similar instrument or obligation to which the Company or any of its
Significant Subsidiaries is a party or by which any of them or any of their
properties or assets may be bound, (iv) result in the creation or imposition
of any Lien on any asset of the Company or any of the Company's subsidiaries
or (v) violate any order, writ, injunction, decree, judgment, law, ordinance,
statute, rule or regulation applicable to the Company, any of its Significant
Subsidiaries or any of their properties or assets, except in the case of
clauses (iii), (iv) and (v) for violations, breaches, defaults, or rights of
termination, cancellation, loss or acceleration, or creations of Liens, which
would not reasonably be expected to have a Material Adverse Effect on the
Company and its subsidiaries, taken as a whole.
SECTION 2.6 SEC Reports and Financial Statements. (a) The Company has filed
with the SEC and has heretofore made available to Parent true and complete
copies of, all forms, reports, schedules, statements and other documents
required to be filed by it and its subsidiaries since January 1, 1996 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act''), and the
Securities Act (as such documents have been amended since the time of their
filing, together with all exhibits and schedules thereto collectively, the
"Company SEC Documents''). As of their respective dates or, if amended, as of
the date of the last such amendment, the Company SEC Documents (a) did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading and (b) complied as to form in all material respects with the
applicable requirements of the Exchange Act and the Securities Act, as the
case may be, and the applicable rules and regulations of the SEC thereunder.
Each of the consolidated financial statements (including any related notes and
schedules) included in the Company SEC Documents complies as to form in all
material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, has been
prepared in accordance with generally accepted accounting principles ("GAAP'')
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto and except, in the case of unaudited interim
financial statements, as permitted by Form 10-Q of the SEC) and fairly
presents in all material respects the consolidated financial position and the
consolidated results of operations and cash flows (and changes in financial
position, if any) of the Company and its consolidated subsidiaries as of the
dates thereof or for the periods presented therein (subject, in the case of
unaudited interim financial statements, to normal year-end adjustments). All
material agreements, contracts and other documents required to be filed as
exhibits to any of the Company SEC Documents have been so filed.
(b) The Annual Statement and Quarterly Statements of Capital Markets
Assurance Corporation, a New York domiciled stock insurance company and a
wholly owned subsidiary of the Company (the "Company Insurer''), as filed with
the New York Superintendent of Insurance (the "New York Superintendent'') for
the year ended December 31, 1996 (the "Company Annual Statutory Statement'')
and the quarters ended March 31, 1997 and June 30, 1997 (the "Company
Quarterly Statutory Statements''), respectively, together with all exhibits
and schedules thereto (the Company Annual Statutory Statement and Company
Quarterly Statutory Statements, together with all exhibits and schedules
thereto, are referred to as the "Company Statutory Financial Statements''),
have been prepared in all material respects in accordance with the accounting
practices prescribed or permitted by the National Association of Insurance
Commissioners (the "NAIC'') and the New York Insurance Department for purposes
of financial reporting to the state's insurance regulators ("New York
Statutory Accounting Principles''), and such accounting practices have been
applied on a basis consistent with New York Statutory Accounting Principles
throughout the periods involved, except as expressly set forth in the notes,
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exhibits or schedules thereto, and the Company Statutory Financial Statements
present fairly in all material respects the financial position and the results
of operations for the Company Insurer as of the dates and for the periods
therein in accordance with New York Statutory Accounting Principles. The
Company has heretofore made available to Parent true and complete copies of
the Company Statutory Financial Statements.
SECTION 2.7 Absence of Certain Changes. Except as disclosed in the Company
SEC Documents filed and publicly available prior to the date of this Agreement
(the "Company Filed SEC Documents'') or in Section 2.7 of the Company
Disclosure Schedule and except as otherwise provided in or contemplated by
this Agreement, since June 30, 1997, there has not occurred (i) any Material
Adverse Effect on the Company and its subsidiaries, taken as a whole, (ii) any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to the equity interests of
the Company or any of its subsidiaries, other than regular quarterly cash
dividends and dividends paid by wholly owned subsidiaries, (iii) (x) any
granting by the Company or any of its subsidiaries to any executive officer or
other employee of the Company or any of its subsidiaries of any increase in
compensation, except in the ordinary course of business consistent with past
practice or as was required under employment agreements in effect as of June
30, 1997, (y) any granting by the Company or any of its subsidiaries to any
such executive officer of any increase in severance or termination plans,
agreements or arrangements with any of their employees, except as part of a
standard employment package to any person promoted or hired, or as was
required under employment, severance or termination agreements in effect as of
June 30, 1997, or (z) except for employment agreements in the ordinary course
of business consistent with past practice with employees other than any
executive officer of the Company, any entry by the Company or any of its
subsidiaries into any employment, consulting, severance, termination or
indemnification agreement with any such employee or executive officer or (iv)
any change by the Company or any of its subsidiaries in accounting principles
or methods, except insofar as may be required by a change in GAAP or New York
Statutory Accounting Principles. Since July 1, 1997, the Company and its
subsidiaries have conducted their respective businesses in the ordinary course
consistent with past practice.
SECTION 2.8 Absence of Undisclosed Liabilities. Except as disclosed in the
Company SEC Documents filed prior to the date hereof or in Section 2.8 of the
Company Disclosure Schedule, neither the Company nor any of its subsidiaries
has incurred any liabilities or obligations (absolute, accrued, contingent or
otherwise) which would be required to be reflected on a balance sheet or in
the notes thereto prepared in accordance with GAAP applied on a consistent
basis, other than liabilities or obligations for surety bonds incurred in the
ordinary course of business and liabilities or obligations which would not,
individually or in the aggregate, have a Material Adverse Effect on the
Company and its subsidiaries, taken as a whole.
SECTION 2.9 Information Supplied. None of the information supplied by the
Company for inclusion or incorporation by reference in (i) the registration
statement on Form S-4 to be filed with the SEC by Parent in connection with
the issuance of shares of Parent Common Stock in the Merger, or any of the
amendments or supplements thereto (collectively, the "Form S-4'') will, at the
time the Form S-4 becomes effective under the Securities Act and at the
Effective Time, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) the proxy statement to be
distributed in connection with the Company's meeting of stockholders to vote
upon this Agreement or any of the amendments or supplements to such proxy
statement (collectively, the "Proxy Statement''), will, at the date it is
first mailed to the Company's stockholders and at the time of the meeting of
the Company's stockholders held to vote on approval of this Agreement, be
false or misleading with respect to any material fact, or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made,
not misleading or necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Company
Stockholders Meeting (as defined herein) which has become false or misleading,
except that no representation is made by the Company with respect to
statements made or incorporated by reference in the Form S-4 or the Proxy
Statement based on information supplied by Parent or Sub specifically for
inclusion or incorporation by reference in the Proxy Statement. The Proxy
Statement and the Form S-4 will comply as to form in all material respects
with the requirements of the Exchange Act and the rules and regulations
thereunder.
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SECTION 2.10 Employee Benefit Plans. (a) Except as set forth in the Company
SEC Documents or in Section 2.10 of the Company Disclosure Schedule (the plans
disclosed in such Section 2.10 or in the Company SEC Documents, being the
"Company Plans''), the Company has no material "employee benefit plan" (within
the meaning of section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA'')), severance, change-in-control or employment plan,
program or agreement, stock option, bonus plan, or incentive plan or program.
Copies of the Company Plans (or, where the Company Plan is not written, a
description thereof) have been or will be made available to Parent.
(b) Each Company Plan has been administered and is in compliance with the
terms of such Company Plan and all applicable laws, rules and regulations
except where any failure to comply, either individually or in the aggregate,
would result in liability that would not reasonably be expected to have a
Material Adverse Effect on the Company and its subsidiaries, taken as a whole.
(c) Except as set forth on Section 2.10(c) of the Company Disclosure
Schedule, each Company Plan intended to be qualified has received a favorable
determination from the Internal Revenue Service and to the Company's
knowledge, nothing has occurred since that would adversely affect such
qualification.
(d) Except as set forth on Section 2.10(d) of the Company Disclosure
Schedule: (i) no Company Plan is subject to Title IV of ERISA, and (ii) during
the past five (5) years, neither the Company nor any member of its "Controlled
Group" (defined as any organization which is a member of a controlled group of
organizations within the meaning of Code sections 414(b), (c), (m) or (o)) has
contributed to, or sponsored, any plan subject to Title IV of ERISA or
incurred any Title IV liability which remains unsatisfied.
(e) Except as set forth on Section 2.10(e) of the Company Disclosure
Schedule, no litigation or administrative or other proceeding involving any
Company Plans or other employment related matter is pending or, to the
Company's knowledge, is threatened, except where an adverse determination,
either individually or in the aggregate, would result in liability that would
not reasonably be expected to have a Material Adverse Effect on the Company
and its subsidiaries, taken as a whole.
SECTION 2.11 Compliance. (a) Each of the Company and its subsidiaries has in
effect all federal, state, local and foreign governmental approvals,
authorizations, certificates, filings, franchises, licenses, notices, permits
and rights ("Permits'') necessary for it to own, lease or operate its
properties and assets and to carry on its business as now conducted, and there
has occurred no default under any such Permit, except for the lack of Permits
or defaults under Permits which lack or default would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect of the
Company and its subsidiaries, taken as a whole. Except as disclosed in the
Company Filed SEC Documents, the Company and its subsidiaries are in
compliance with all applicable statutes, laws, ordinances, rules, orders,
decrees and regulations (including insurance laws and regulations) of any
Governmental Entity, and all notices, reports, documents and other information
required to be filed thereunder within the last three years were properly
filed and were in compliance with such laws, except for noncompliance which
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on the Company and its subsidiaries, taken as a whole.
The business of the Company and its subsidiaries has been and is being
conducted in compliance with the Permits, except where noncompliance would
not, individually or in the aggregate, have a Material Adverse Effect on the
Company and its subsidiaries, taken as a whole. Except as disclosed in the
Company Filed SEC Documents and except for routine examinations by state
Governmental Entities charged with supervision of insurance companies
("Insurance Regulators''), as of the date of this Agreement, to the knowledge
of the Company, no investigation by any Governmental Entity with respect to
the Company or any of its subsidiaries is pending or threatened.
SECTION 2.12 No Default. Except as set forth in the Company SEC Documents or
Section 2.12 of the Company Disclosure Schedule, neither the Company nor its
subsidiaries is in violation or breach of, or default under (and no event has
occurred which with notice or the lapse of time or both would constitute a
violation or breach of, or default under) any term, condition or provision of
(a) its organizational documents, (b) any note,
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bond, mortgage, deed of trust, security interest, indenture, license,
agreement, plan, contract, lease, commitment or other instrument or obligation
to which the Company or its subsidiaries is a party or by which they or any of
their properties or assets may be bound or affected, (c) any order, writ,
injunction, decree, statute, rule or regulation applicable to the Company or
its subsidiaries or any of their properties or assets, or (d) any permit,
license, governmental authorization, consent or approval necessary for the
Company or its subsidiaries to conduct their respective businesses as
currently conducted, except in the case of clauses (b), (c) and (d) above for
breaches, defaults or violations which would not individually or in the
aggregate have a Material Adverse Effect on the Company and its subsidiaries,
taken as a whole.
SECTION 2.13 Investment Advisor; Investment Company. Except as set forth in
the Company SEC Documents or Section 2.13 of the Company Disclosure Schedule,
neither the Company nor its subsidiaries conducts activities of an "investment
advisor" as such term is defined in Section (a)(20) of the Investment Company
Act of 1940, as amended (the "ICA"), whether or not registered under the
Investment Advisers Act of 1940, as amended. Neither the Company nor its
subsidiaries is an "investment company" as defined under the ICA, and neither
the Company nor its subsidiaries sponsors any person that is such an
investment company.
SECTION 2.14 Absence of Litigation. Except as disclosed in the Company Filed
SEC Documents, as of the date hereof, there is no suit, claim, action,
proceeding or investigation (excluding those in the ordinary course of
business relating to policies of insurance or reinsurance written by the
Company and its subsidiaries) pending or, to the knowledge of the Company,
threatened against the Company or any subsidiary, or any property or asset of
the Company or any subsidiary, before any court, arbitrator or administrative,
governmental or regulatory authority or body, domestic or foreign, which, if
adversely determined, would reasonably be expected to, individually or in the
aggregate, have a Material Adverse Effect on the Company and its subsidiaries,
taken as a whole. Except as disclosed in the Company Filed SEC Documents, as
of the date hereof, neither the Company nor any subsidiary nor any property or
asset of the Company or any subsidiary is subject to any order, writ,
judgment, injunction, decree, determination or award that would reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect
on the Company and its subsidiaries, taken as a whole.
SECTION 2.15 Taxes. The Company and each of its subsidiaries, and any
consolidated, combined, unitary or aggregate group for Tax purposes of which
the Company or any of its subsidiaries is or has been a member has timely
filed all material Tax Returns required to be filed by it, has paid all Taxes
shown thereon to be owing and has provided adequate reserves in its most
recent financial statements for any Taxes that have not been paid for the
periods covered by such financial statements. Except as disclosed in Section
2.15 of the Company Disclosure Schedule, none of the Company or its
subsidiaries has granted any extension or waiver of the statute of limitations
period applicable to any material Tax Return, which period (after giving
effect to such extension or waiver) has not expired. Except as disclosed in
Section 2.15 of the Company Disclosure Schedule, no audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Tax Return of the Company and its subsidiaries as to
which any taxing authority has asserted in writing any claim which, if
adversely determined, individually or in the aggregate would have a Material
Adverse Effect on the Company and its subsidiaries, taken as a whole. Except
as disclosed in Section 2.15 of the Company Disclosure Schedule, the Company
and its subsidiaries have not received any notice of deficiency or assessment
from any taxing authority with respect to liabilities for income and other
material Taxes which have not been fully paid or finally settled. There are no
liens with respect to Taxes upon any of the properties or assets of the
Company or its subsidiaries other than liens for Taxes not yet due and
payable. As used herein, "Taxes'' shall mean any taxes of any kind, including
but not limited to those on or measured by or referred to as income, gross
receipts, sales, use, ad valorem, franchise, profits, license, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, value
added, property or windfall profits taxes, customs, duties or similar fees,
assessments or charges of any kind whatsoever, together with any interest and
any penalties, additions to tax or additional amounts imposed by any
governmental authority, domestic or foreign. As used herein, "Tax Return''
shall mean any return, report or statement required to be filed with any
Governmental Entity with respect to Taxes.
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SECTION 2.16 Opinion of Financial Advisors. The Company has received an
opinion from Salomon Brothers Inc to the effect that the consideration to be
received by the stockholders of the Company pursuant to the Merger is fair to
such stockholders from a financial point of view.
SECTION 2.17 Accounting Matters. Neither the Company nor, to its knowledge,
any of its affiliates, has taken or agreed to take any action that (without
regard to any action taken or agreed to be taken by Parent or any of its
affiliates) would prevent Parent from accounting for the business combination
to be effected by the Merger as a "pooling of interests".
SECTION 2.18 Tax Matters. To the Company's knowledge, neither the Company
nor any of its affiliates has taken or agreed to take any action, or knows of
any circumstances, that (without regard to any action taken or agreed to be
taken by Parent or any of its affiliates) would prevent the Merger from
qualifying as a reorganization within the meaning of Section 368(a) of the
Code.
SECTION 2.19 Brokers. No broker, finder or investment banker (other than
Salomon Brothers Inc and SBC Warburg Dillon Read) is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company.
SECTION 2.20 Ownership of Parent Common Stock. As of the date hereof,
neither the Company nor, to its knowledge, any of its affiliates or associates
(as such terms are defined under the Exchange Act), (i) beneficially owns,
directly or indirectly, or (ii) is party to any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of,
in each case, shares of capital stock of Parent or any securities convertible
into or exercisable or exchangeable for capital stock of Parent, which in the
aggregate represent 5% or more of the outstanding shares of such capital
stock, after giving effect to the conversion, exercise or exchange of all such
securities beneficially owned by the Company and its affiliates or associates
which are convertible into or exercisable or exchangeable for capital stock of
Parent.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub represent and warrant to the Company as follows:
SECTION 3.1 Organization. Each of Parent, its Significant Subsidiaries and
Sub is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation, and has all requisite
corporate power and authority and all necessary governmental approvals to own,
lease and operate its properties and to carry on its business as now being
conducted, except where the failure to be so organized, existing and in good
standing or to have such power, authority and governmental approvals would
not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on Parent and its subsidiaries, taken as a whole. Each
of Parent, its Significant Subsidiaries and Sub is duly qualified or licensed
to do business and in good standing in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification or licensing necessary, except where the failure to
be so duly qualified or licensed and in good standing would not, individually
or in the aggregate reasonably be expected to have a Material Adverse Effect
on Parent and its subsidiaries, taken as a whole. Sub has not heretofore
conducted any business other than in connection with this Agreement and the
transactions contemplated hereby. Parent has heretofore furnished to the
Company a complete and correct copy of the Restated Certificate of
Incorporation and By-Laws of Parent and the Certificate of Incorporation and
By-Laws of Sub, each as currently in effect.
SECTION 3.2 Capitalization. (a) The authorized capital stock of Parent
consists of 200,000,000 shares of Parent Common Stock and 10,000,000 shares of
preferred stock, par value $1.00 per share. As of October 31,
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1997, (i) 89,366,104 shares of Parent Common Stock were issued and
outstanding, (ii) no shares of Parent Common Stock were held in the treasury
of Parent, (iii) options to acquire an aggregate of 2,457,536 shares of Parent
Common Stock were outstanding pursuant to Parent's stock option plans (the
"Parent Stock Plans'') and (iv) no shares of preferred stock were issued and
outstanding. All the outstanding shares of Parent's capital stock are duly
authorized, validly issued, fully paid and non-assessable. There is no Voting
Debt of Parent or any of its subsidiaries issued and outstanding. Except as
set forth above, as set forth in Section 3.2(a) of the disclosure schedule
delivered by Parent to the Company on or prior to the date hereof (the "Parent
Disclosure Schedule''), and for the transactions contemplated by this
Agreement, (i) there are no shares of capital stock of Parent authorized,
issued or outstanding and (ii) there are no existing options, warrants, calls,
preemptive rights, subscriptions or other rights, proxies, convertible
securities, agreements, arrangements or commitments of any character, relating
to the issued or unissued capital stock of Parent or any of its subsidiaries,
obligating Parent or any of its subsidiaries to issue, redeem, purchase,
transfer or sell or cause to be issued, transferred or sold any shares of
capital stock or Voting Debt of, or other equity interest in, Parent or any of
its subsidiaries or securities convertible into or exchangeable for such
shares or equity interests or obligations of Parent or any of its subsidiaries
to grant, extend or enter into any such option, warrant, call, subscription or
other right, convertible security, agreement, arrangement or commitment.
(b) Except as set forth in Section 3.2(b) of the Parent Disclosure Schedule,
all of the outstanding shares of capital stock of each of Parent's
subsidiaries are beneficially owned by Parent, directly or indirectly, and all
such shares have been validly issued and are fully paid and nonassessable and
are owned by either Parent or one of its subsidiaries free and clear of all
Liens, except where the failure to own such shares free and clear would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Parent and its subsidiaries, taken as a whole.
(c) The authorized capital stock of Sub consists of 1000 shares of common
stock, par value $.01 per share, all of which have been validly issued and are
fully paid and nonassessable and are owned by Parent, free and clear of all
Liens, and as of the Closing Date, all the issued and outstanding shares of
the common stock of Sub will be owned by Parent free and clear of all Liens.
SECTION 3.3 Parent Subsidiaries. Each of Parent's subsidiaries that is an
insurance company (collectively, the "Parent Insurance Subsidiaries'') is (i)
duly licensed or authorized as an insurance company in its jurisdiction of
incorporation and (ii) duly licensed or authorized as an insurance company in
each other jurisdiction where it is required to be so licensed or authorized,
except where the failure to be so licensed or authorized would not,
individually or in the aggregate, be reasonably expected to have a Material
Adverse Effect on Parent and its subsidiaries, taken as a whole.
SECTION 3.4 Corporate Authorization; Validity of Agreement; Necessary
Action. (a) Each of Parent and Sub has full corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance by each of Parent
and Sub of this Agreement and the consummation by each of Parent and Sub of
the transactions contemplated hereby have been duly and validly authorized by
its Board of Directors, and, except for the filing of the Certificate of
Merger as required by the DGCL, no other corporate action or proceedings on
the part of Parent and Sub are necessary to authorize the execution and
delivery by Parent and Sub of this Agreement, and the consummation by Parent
and Sub of the transactions contemplated hereby. This Agreement has been duly
executed and delivered by Parent and Sub, and, assuming this Agreement
constitutes a valid and binding obligation of the Company, constitutes a valid
and binding obligation of each of Parent and Sub, enforceable against each of
them in accordance with its terms, except that such enforcement (i) may be
subject to applicable bankruptcy, insolvency or other similar laws, now or
hereafter in effect, affecting creditors' rights generally, and (ii) is
subject to general principles of equity.
(b) This Agreement has been approved by Parent, as the sole stockholder of
Sub. No other vote of holders of any class or series of capital stock of
Parent or Sub is necessary to approve this Agreement, the Merger and the
transactions contemplated hereby.
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SECTION 3.5 Consents and Approvals; No Violations. Except for all filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Exchange Act, the Securities Act, the
DGCL, the HSR Act, state securities or "blue sky" laws, state takeover laws
and state insurance regulatory laws and commissions, and except as may result
from any facts or circumstances relating solely to the Company or its
affiliates, neither the execution, delivery or performance of this Agreement
by Parent and Sub nor the consummation by Parent and Sub of the transactions
contemplated hereby nor compliance by Parent and Sub with any of the
provisions hereof will (i) conflict with or result in any breach of any
provision of the certificate of incorporation or by-laws of Parent, any of its
subsidiaries or Sub, (ii) require any filing with, or permit, authorization,
consent or approval of, any Governmental Entity, except where the failure to
obtain such permits, authorizations, consents or approvals or to make such
filings would not reasonably be expected to have a Material Adverse Effect on
Parent and its subsidiaries taken as a whole and would not materially impair
the ability of Parent and Sub to consummate the Merger or the other
transactions contemplated hereby, (iii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation, loss or acceleration)
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, guarantee, other evidence of indebtedness, lease, license,
contract, agreement or other similar instrument or obligation to which Parent,
any of its subsidiaries or Sub is a party or by which any of them or any of
their properties or assets may be bound, (iv) result in the creation or
imposition of any Lien on any asset of Parent or its subsidiaries or (v)
violate any order, writ, injunction, decree, judgment, law, ordinance,
statute, rule or regulation applicable to Parent, any of its Significant
Subsidiaries or Sub or any of their properties or assets, except in the case
of clauses (iii), (iv) and (v) for violations, breaches, defaults, or rights
of termination, cancellation, loss or acceleration, or creations of Liens,
which would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect on Parent and its subsidiaries, taken as a
whole.
SECTION 3.6 SEC Reports and Financial Statements. (a) Parent has filed with
the SEC and has heretofore made available to the Company true and complete
copies of, all forms, reports, schedules, statements and other documents
required to be filed by it and its subsidiaries since January 1, 1996 under
the Exchange Act, and the Securities Act (as such documents have been amended
since the time of their filing, together with all exhibits and schedules
thereto collectively, the "Parent SEC Documents''). As of their respective
dates or, if amended, as of the date of the last such amendment, the Parent
SEC Documents (a) did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading and (b) complied as to form in all
material respects with the applicable requirements of the Exchange Act and the
Securities Act, as the case may be, and the applicable rules and regulations
of the SEC thereunder. Each of the consolidated financial statements
(including any related notes and schedules) included in the Parent SEC
Documents complies as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the
SEC with respect thereto, has been prepared in accordance with GAAP applied on
a consistent basis during the periods involved (except as may be indicated in
the notes thereto and except, in the case of unaudited interim financial
statements, as permitted by Form 10-Q of the SEC) and fairly presents in all
material respects the consolidated financial position and the consolidated
results of operations and cash flows (and changes in financial position, if
any) of Parent and its consolidated subsidiaries as at the dates thereof or
for the periods presented therein (subject, in the case of unaudited interim
financial statements, to normal year-end adjustments). All material
agreements, contracts and other documents required to be filed as exhibits to
any of the Parent SEC Documents have been so filed.
(b) The Annual Statement and Quarterly Statements of MBIA Insurance
Corporation, a New York domiciled stock insurance company and a wholly owned
subsidiary of Parent (the "Parent Insurer''), as filed with the New York
Superintendent for the year ended December 31, 1996 (the "Parent Annual
Statutory Statement'') and the quarters ended March 31, 1997 and June 30, 1997
(the "Parent Quarterly Statutory Statements''), respectively, together with
all exhibits and schedules thereto (the Parent Annual Statutory Statement and
Parent Quarterly Statutory Statements, together with all exhibits and
schedules thereto, are referred to as the "Parent Statutory Financial
Statements''), have been prepared in all material respects in
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accordance with the accounting practices prescribed or permitted by the NAIC
and the New York Statutory Accounting Principles, and such accounting
practices have been applied on a basis consistent with New York Statutory
Accounting Principles throughout the periods involved, except as expressly set
forth in the notes, exhibits or schedules thereto, and the Parent Statutory
Financial Statements present fairly in all material respects the financial
position and the results of operations for the Parent Insurer as of the dates
and for the periods therein in accordance with New York Statutory Accounting
Principles. Parent has heretofore made available to the Company true and
complete copies of the Parent Statutory Financial Statements.
SECTION 3.7 Absence of Certain Changes. Except as disclosed in the Parent
SEC Documents filed and publicly available prior to the date of this Agreement
(the "Parent Filed SEC Documents'') or in Section 3.7 of the Parent Disclosure
Schedule and except as otherwise provided in or contemplated by this
Agreement, since June 30, 1997, there has not occurred (i) any Material
Adverse Effect on Parent and its subsidiaries, taken as a whole, (ii) any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to the equity interests of
Parent or any of its subsidiaries, other than regular quarterly cash dividends
and dividends paid by wholly owned subsidiaries, (iii) (x) any granting by
Parent or any of its subsidiaries to any executive officer or other employee
of Parent or any of its subsidiaries of any increase in compensation, except
in the ordinary course of business consistent with past practice or as was
required under employment agreements in effect as of June 30, 1997, (y) any
granting by Parent or any of its subsidiaries to any such executive officer of
any increase in severance or termination plans, agreements or arrangements
with any of their employees, except as part of a standard employment package
to any person promoted or hired, or as was required under employment,
severance or termination agreements in effect as of June 30, 1997, or (z)
except for employment agreements in the ordinary course of business consistent
with past practice with employees other than any executive officer of Parent,
any entry by Parent or any of its subsidiaries into any employment,
consulting, severance, termination or indemnification agreement with any such
employee or executive officer or (iv) any change by Parent or any of its
subsidiaries in accounting principles or methods, except insofar as may be
required by a change in GAAP or New York Statutory Accounting Principles.
Since July 1, 1997, Parent and its subsidiaries have conducted their
respective businesses in the ordinary course consistent with past practice.
SECTION 3.8 Absence of Undisclosed Liabilities. Except as disclosed in the
Parent SEC Documents filed prior to the date hereof or in Section 3.8 of the
Parent Disclosure Schedule, neither Parent nor any of its subsidiaries has
incurred any liabilities or obligations (absolute, accrued, contingent or
otherwise) which would be required to be reflected on a balance sheet or in
the notes thereto prepared in accordance with GAAP applied on a consistent
basis, other than liabilities or obligations for surety bonds incurred in the
ordinary course of business and liabilities or obligations which would not,
individually or in the aggregate, have a Material Adverse Effect on Parent and
its subsidiaries, taken as a whole.
SECTION 3.9 Information Supplied. None of the information supplied by Parent
for inclusion or incorporation by reference in (i) the Form S-4 will, at the
time the Form S-4 becomes effective under the Securities Act and at the
Effective Time, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) the Proxy Statement will, at the
date it is first mailed to the Company's stockholders and at the time of the
Company Stockholders Meeting, be false or misleading with respect to any
material fact, or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading or necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the Company Stockholders Meeting which has become
false or misleading, except that no representation is made by Parent with
respect to statements made or incorporated by reference therein based on
information supplied by the Company specifically for inclusion or
incorporation by reference in the Proxy Statement. The Form S-4 will comply as
to form in all material respects with the requirements of the Exchange Act and
the rules and regulations thereunder.
SECTION 3.10 Compliance. Each of Parent and its subsidiaries has in effect
all federal, state, local and foreign governmental Permits necessary for it to
own, lease or operate its properties and assets and to carry on
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its business as now conducted, and there has occurred no default under any
such Permit, except for the lack of Permits or defaults under Permits which
lack or default would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect of Parent and its subsidiaries,
taken as a whole. Except as disclosed in the Parent Filed SEC Documents,
Parent and its subsidiaries are in compliance with all applicable statutes,
laws, ordinances, rules, orders, decrees and regulations (including insurance
laws and regulations) of any Governmental Entity, and all notices, reports,
documents and other information required to be filed thereunder within the
last three years were properly filed and were in compliance with such laws,
except for noncompliance which would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on Parent and its
subsidiaries, taken as a whole. The business of Parent and its subsidiaries
has been and is being conducted in compliance with the Permits, except where
noncompliance would not, individually or in the aggregate, have a Material
Adverse Effect on Parent and its subsidiaries, taken as a whole. Except as
disclosed in the Parent Filed SEC Documents and except for routine
examinations by Insurance Regulators, as of the date of this Agreement, to the
knowledge of Parent, no investigation by any Governmental Entity with respect
to Parent or any of its subsidiaries is pending or threatened.
SECTION 3.11 No Default. Except as set forth in the Parent SEC Documents or
Section 3.11 of the Parent Disclosure Schedule, neither Parent nor its
subsidiaries is in violation or breach of, or default under (and no event has
occurred which with notice or the lapse of time or both would constitute a
violation or breach of, or default under) any term, condition or provision of
(a) its organizational documents, (b) any note, bond, mortgage, deed of trust,
security interest, indenture, license, agreement, plan, contract, lease,
commitment or other instrument or obligation to which Parent or its
subsidiaries is a party or by which they or any of their properties or assets
may be bound or affected, (c) any order, writ, injunction, decree, statute,
rule or regulation applicable to Parent or its subsidiaries or any of their
properties or assets, or (d) any permit, license, governmental authorization,
consent or approval necessary for Parent or its subsidiaries to conduct their
respective businesses as currently conducted, except in the case of clauses
(b), (c) and (d) above for breaches, defaults or violations which would not
individually or in the aggregate have a Material Adverse Effect on Parent and
its subsidiaries, taken as a whole.
SECTION 3.12 Investment Advisor; Investment Company. Except as set forth in
the Parent SEC Documents or Section 3.12 of the Parent Disclosure Schedule,
neither Parent nor its subsidiaries conducts activities of an "investment
advisor" as such term is defined in Section (a)(20) of the Investment Company
Act of 1940, as amended (the "ICA"), whether or not registered under the
Investment Advisers Act of 1940, as amended. Neither Parent nor its
subsidiaries is an "investment company" as defined under the ICA, and neither
Parent nor its subsidiaries sponsors any person that is such an investment
company.
SECTION 3.13 Absence of Litigation. Except as disclosed in the Parent Filed
SEC Documents, as of the date hereof, there is no suit, claim, action,
proceeding or investigation (excluding those in the ordinary course of
business relating to policies of insurance or reinsurance written by Parent
and its subsidiaries) pending or, to the knowledge of Parent, threatened
against Parent or any subsidiary, or any property or asset of Parent or any
subsidiary, before any court, arbitrator or administrative, governmental or
regulatory authority or body, domestic or foreign, which, if adversely
determined, individually or in the aggregate, would reasonably be expected to
have a Material Adverse Effect on Parent and its subsidiaries, taken as a
whole. Except as disclosed in the Parent Filed SEC Documents, as of the date
hereof, neither Parent nor any subsidiary nor any property or asset of Parent
or any subsidiary is subject to any order, writ, judgment, injunction, decree,
determination or award that would reasonably be expected, individually or in
the aggregate, to have a Material Adverse Effect on Parent and its
subsidiaries, taken as a whole.
SECTION 3.14 Taxes. Parent and each of its subsidiaries, and any
consolidated, combined, unitary or aggregate group for Tax purposes of which
Parent or any of its subsidiaries is or has been a member has timely filed all
material Tax Returns required to be filed by it, has paid all Taxes shown
thereon to be owing and has provided adequate reserves in its most recent
financial statements for any Taxes that have not been paid for the periods
covered by such financial statements. Except as disclosed in Section 3.14 of
the Parent Disclosure
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Schedule, none of Parent or its subsidiaries has granted any extension or
waiver of the statute of limitations period applicable to any material Tax
Return, which period (after giving effect to such extension or waiver) has not
expired. Except as disclosed in Section 3.14 of the Parent Disclosure
Schedule, no audits or other administrative proceedings or court proceedings
are presently pending with regard to any Taxes or Tax Return of Parent and its
subsidiaries as to which any taxing authority has asserted in writing any
claim which, if adversely determined, individually or in the aggregate would
have a Material Adverse Effect on Parent and its subsidiaries, taken as a
whole. Except as disclosed in Section 3.14 of the Parent Disclosure Schedule,
Parent and its subsidiaries have not received any notice of deficiency or
assessment from any taxing authority with respect to liabilities for income
and other material Taxes which have not been fully paid or finally settled.
There are no liens with respect to Taxes upon any of the properties or assets
of Parent or its subsidiaries other than liens for Taxes not yet due and
payable.
SECTION 3.15 Opinion of Financial Advisors. Parent has received an opinion
from Lehman Brothers Inc. to the effect that the Merger Consideration is fair
to Parent from a financial point of view.
SECTION 3.16 Ownership of Company Common Stock. As of the date hereof,
neither Parent nor, to its knowledge, any of its affiliates or associates (as
such terms are defined under the Exchange Act), (i) beneficially owns,
directly or indirectly, or (ii) is party to any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of,
in each case, shares of capital stock of the Company or any securities
convertible into or exercisable or exchangeable for capital stock of the
Company, which in the aggregate represent 5% or more of the outstanding shares
of such capital stock, after giving effect to the conversion, exercise or
exchange of all such securities beneficially owned by Parent and its
affiliates or associates which are convertible into or exercisable or
exchangeable for capital stock of the Company.
SECTION 3.17 Accounting Matters. Neither Parent nor Sub, nor to Parent's
knowledge, any affiliate of Parent, has taken or agreed to take any action
that (without regard to any action taken or agreed to be taken by the Company
or any of its affiliates) would prevent Parent from accounting for the
business combination to be effected by the Merger as a "pooling of interests".
SECTION 3.18 Tax Matters. To Parent's knowledge, neither Parent nor Sub, nor
any affiliate of Parent, has taken or agreed to take any action, or knows of
any circumstances, that (without regard to any action taken or agreed to be
taken by the Company or any of its affiliates) would prevent the Merger from
qualifying as a reorganization within the meaning of Section 368(a) of the
Code.
SECTION 3.19 Brokers. No broker, finder or investment banker (other than
Lehman Brothers Inc.) is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Parent.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 4.1 Conduct of Business of the Company Pending the Merger. The
Company covenants and agrees that, during the period from the date hereof
until the Effective Time, unless Parent shall otherwise agree in writing,
except as contemplated by this Agreement, the businesses of the Company and
its subsidiaries shall be conducted only in, and the Company and its
subsidiaries shall not take any action except in, the ordinary course of
business and in a manner consistent with past practice; and the Company and
its subsidiaries shall each use its reasonable best efforts to preserve
substantially intact the business organization of the Company and its
subsidiaries, to keep available the services of the present key officers and
employees of the Company and its subsidiaries and to preserve the present
relationships and goodwill of the Company and its subsidiaries with those
persons with which the Company or any of its subsidiaries has significant
business relations. By way of
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amplification and not limitation, except as set forth in Section 4.1 of the
Company Disclosure Schedule, neither the Company nor any of its subsidiaries
shall, during such period, directly or indirectly do, or commit to do, any of
the following without the prior written consent of Parent:
(a) Amend or otherwise change its certificate of incorporation or by-laws
or equivalent organizational documents;
(b) Issue, sell, pledge, dispose of or encumber, or authorize, (A) any
shares of capital stock, or any options, warrants, convertible securities
or other rights of any kind to acquire any shares of capital stock, or any
other ownership interest, of the Company or any of its subsidiaries (except
for the issuance of up to 2,628,017 shares of Company Common Stock required
to be issued pursuant to the terms of Options outstanding as of the date of
this Agreement) or (B) any assets that are material to the Company or any
of its subsidiaries, taken as whole except for sales in the ordinary course
of business and in a manner consistent with past practice or as may be
necessary to pay claims arising under insurance policies written or
reinsured by the Company and its subsidiaries;
(c) Declare, set aside, make or pay any dividend or other distribution,
payable in cash, stock, property or otherwise, with respect to any of its
capital stock (other than regular quarterly cash dividends consistent with
past practice, in an amount not to exceed $.02 per share);
(d) Reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) Acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or
division thereof; or (ii) incur any indebtedness for borrowed money or
issue any debt securities or assume, guarantee or endorse, or otherwise as
an accommodation become responsible for, the obligations of any person, or
make any loans, advances or capital contributions to, or investments in,
any other person (other than in the ordinary course of business consistent
with past practice and pursuant to existing credit agreements or
arrangements);
(f) Except to the extent required under existing employee and director
benefit plans, agreements or arrangements as in effect on the date of this
Agreement, increase the compensation or fringe benefits of any of its
directors, officers or employees, except for increases in salary or wages
of officers or employees in the ordinary course of business in accordance
with past practice, or grant any severance or termination pay not currently
required to be paid under existing severance plans to or enter into any
employment, consulting or severance agreement or arrangement with any
present or former director, officer or other employee of the Company or any
of its subsidiaries, or establish, adopt, enter into or amend or terminate
any collective bargaining agreement or Company Plan, including, but not
limited to, bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any directors, officers or employees.
(Nothing in this Section 4.1(f) shall be construed to limit the Company's
ability to pay annual bonuses for services rendered in 1997 in a manner
consistent with past practices and in an amount not to exceed the amount
set forth in Section 4.1 of the Company Disclosure Schedule);
(g) Except as may be required as a result of a change in law or in GAAP
or New York Statutory Accounting Principles, change any of the accounting
practices or principles used by it;
(h) Make any material tax election, amend any Tax Return or settle or
compromise any material federal, state, local or foreign tax liability;
(i) Settle or compromise any pending or threatened suit, action or claim
which is material or which relates to the transactions contemplated hereby;
(j) Pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction, in the ordinary course of
business and consistent with past practice of liabilities reflected or
reserved against in the financial
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statements of the Company or incurred in the ordinary course of business
and consistent with past practice, of liabilities required to be paid,
discharged or satisfied pursuant to the terms of any contract in existence
on the date hereof (including, without limitation, outstanding insurance
policies);
(k) (i) Take any action that would reasonably be expected to result in
any of its representations or warranties set forth in this Agreement, being
or becoming untrue in any material respect, (ii) omit, or agree to omit, to
take any action that would reasonably be expected to prevent any such
representation or warranty from being or becoming untrue in any material
respect or (iii) take, or agree to take, any action that would reasonably
be expected to result in any of the conditions of the Merger set forth in
Article 6 not being satisfied; or
(l) Take, or offer or propose to take, or agree to take in writing or
otherwise, any of the actions described in Sections 4.1(a) through 4.1(k).
SECTION 4.2 Conduct of Business of Parent Pending the Merger. Parent
covenants and agrees that, during the period from the date hereof until the
Effective Time, unless the Company shall otherwise agree in writing, except as
contemplated by this Agreement, the businesses of Parent and its subsidiaries
shall be conducted only in, and Parent and its subsidiaries shall not take any
action except in, the ordinary course of business and in a manner consistent
with past practice; and Parent and its subsidiaries shall each use its
reasonable best efforts to preserve substantially intact the business
organization of Parent and its subsidiaries, to keep available the services of
the present key officers and employees of Parent and its subsidiaries and to
preserve the present relationships of Parent and its subsidiaries with those
persons with which Parent or any of its subsidiaries has significant business
relations. By way of amplification and not limitation, except as set forth on
Section 4.2 of the Parent Disclosure Schedule, neither Parent nor any of its
subsidiaries shall, during such period, directly or indirectly do, or commit
to do, any of the following without the prior written consent of the Company:
(a) Amend or otherwise change its certificate of incorporation or by-laws
or equivalent organizational documents;
(b) Issue, sell, pledge, dispose of or encumber, or authorize, any shares
of capital stock, or any options, warrants, convertible securities or other
rights of any kind to acquire any shares of capital stock, or any other
ownership interest, of Parent or any of its subsidiaries (except for the
issuance of up to 2,457,536 shares of Parent Common Stock required to be
issued pursuant to the terms of options outstanding as of the date of this
Agreement);
(c) Declare, set aside, make or pay any dividend or other distribution,
payable in cash, stock, property or otherwise, with respect to any of its
capital stock;
(d) Reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) Take any action that would reasonably be expected to result in
any of its representations or warranties set forth in this Agreement, being
or becoming untrue in any material respect, (ii) omit, or agree to omit, to
take any action that would reasonably be expected to prevent any such
representation or warranty from being or becoming untrue in any material
respect or (iii) take, or agree to take, any action that would reasonably
be expected to result in any of the conditions of the Merger set forth in
Article 6 not being satisfied; or
(f) Take, or offer or propose to take, or agree to take in writing or
otherwise, any of the actions described in Sections 4.2(a) through 4.2(e).
SECTION 4.3 Pooling and Tax-Free Reorganization Treatment. (a) Neither the
Company nor Parent shall, or shall permit any of their respective subsidiaries
to, take or cause to be taken any action that (without regard to any action
taken or agreed to be taken by Parent or its affiliates or the Company or its
affiliates, respectively) to its knowledge would reasonably be expected to
adversely affect the ability of Parent to treat the Merger as a "pooling of
interests" for accounting purposes.
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(b) Neither the Company nor Parent shall, or shall permit any of their
respective subsidiaries to, take or cause to be taken any action that (without
regard to any action taken or agreed to be taken by Parent or its affiliates
or the Company or its affiliates, respectively) to its knowledge would
reasonably be expected to adversely affect the ability of the Merger to
qualify as a "reorganization" within the meaning of Section 368(a) of the
Code.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1 Preparation of Form S-4 and the Proxy Statement; Stockholder
Meetings. (a) Promptly following the date of this Agreement, the Company shall
prepare and file with the SEC the Proxy Statement, and Parent shall prepare
and file with the SEC the Form S-4, in which the Proxy Statement will be
included as a prospectus. Each of the Company and Parent shall use its
reasonable best efforts to have the Form S-4 declared effective under the
Securities Act as promptly as practicable after such filing. The Company will
use its reasonable best efforts to cause the Proxy Statement to be mailed to
the Company's stockholders as promptly as practicable after the Form S-4 is
declared effective under the Securities Act. Parent shall also take any action
(other than qualifying to do business in any jurisdiction in which it is not
now so qualified) required to be taken under any applicable state securities
law in connection with the issuance of Parent Common Stock in the Merger, and
the Company shall furnish all information concerning the Company and the
holders of the Company Common Stock and rights to acquire Company Common Stock
pursuant to the Company Plans as may be reasonably required in connection with
any such action. Each of Parent and the Company shall furnish all information
concerning itself to the other as may be reasonably requested in connection
with any such action and the preparation, filing and distribution of the Form
S-4 and the preparation, filing and distribution of the Proxy Statement. The
Company, Parent and Sub each agree to correct any information provided by it
for use in the Form S-4 or the Proxy Statement which shall have become false
or misleading.
(b) The Company, acting through its Board of Directors, shall, subject to
and in accordance with applicable law and its Certificate of Incorporation and
By-Laws, promptly and duly call, give notice of, convene and hold as soon as
practicable following the date upon which the Form S-4 becomes effective a
meeting of the holders of Company Common Stock for the purpose of voting to
approve and adopt this Agreement and the transactions contemplated hereby (the
"Company Stockholders Meeting''). The Board of Directors of the Company shall,
(i) recommend approval and adoption of this Agreement and the transactions
contemplated hereby, by the stockholders of the Company and include in the
Proxy Statement such recommendation and (ii) take all reasonable and lawful
action to solicit and obtain such approval, except, in the case of each of
clauses (i) and (ii), to the extent the Board of Directors of the Company
shall have withdrawn or modified its approval or recommendation of this
Agreement or the Merger in a manner adverse to Parent or Sub as permitted by
Section 5.4.
SECTION 5.2 Accountants' Letters. (a) The Company shall use its reasonable
best efforts to cause to be delivered to Parent a "comfort" letter of KPMG
Peat Marwick LLP, the Company's independent public accountants, dated a date
within two business days before the date on which the Form S-4 shall become
effective and addressed to Parent, in form and substance reasonably
satisfactory to Parent and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the Form S-4. In connection with the Company's efforts
to obtain such letter, if requested by KPMG Peat Marwick LLP, Parent shall
provide a representation letter to KPMG Peat Marwick LLP, complying with the
Statement on Auditing Standards No. 72 ("SAS 72''), if then required.
(b) Parent shall use its reasonable best efforts to cause to be delivered to
the Company a "comfort" letter of Coopers & Lybrand LLP, Parent's independent
public accountants, dated a date within two business days before the date on
which the Form S-4 shall become effective and addressed to the Company, in
form and substance reasonably satisfactory to the Company and customary in
scope and substance for letters delivered by
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independent public accountants in connection with registration statements
similar to the Form S-4. In connection with Parent's efforts to obtain such
letter, if requested by Coopers & Lybrand LLP, the Company shall provide a
representation letter to Coopers & Lybrand LLP complying with SAS 72, if then
required.
SECTION 5.3 Access to Information; Confidentiality. From the date hereof to
the Effective Time, the Company shall, and shall cause its subsidiaries,
officers, directors, employees, auditors and other agents to, upon reasonable
notice, afford the officers, employees, auditors and other agents of Parent,
reasonable access, consistent with applicable law, at all reasonable times to
its officers, employees, agents, properties, and offices, and to all books and
records, and shall furnish Parent with all financial, operating and other data
and information as Parent, through its officers, employees or agents, may from
time to time reasonably request. All information obtained by or on behalf of
Parent pursuant to this Section 5.3 shall be kept confidential in accordance
with the Confidentiality Agreement dated September 24, 1997 between Parent and
the Company (the "Confidentiality Agreement").
SECTION 5.4 No Solicitation of Transactions. (a) The Company shall, shall
cause its subsidiaries to, and shall direct and use its best efforts to cause
any officers, directors, employees, representatives and agents of the Company
and its subsidiaries to immediately cease any existing discussions or
negotiations with any parties conducted heretofore with respect to any
Acquisition Proposal. The term "Acquisition Proposal" shall mean any inquiry,
proposal or offer from or to any person relating to (i) any merger,
consolidation, share exchange, business combination or other similar
transaction involving the Company or any of its subsidiaries; (ii) any sale,
lease, exchange, mortgage, pledge, transfer or other disposition of 15% or
more of the assets of the Company and its subsidiaries, taken as a whole, in a
single transaction or in a series of transactions; (iii) any tender offer or
exchange offer for 15% or more of the outstanding shares of capital stock of
the Company or any of its subsidiaries, or the filing of a registration
statement under the Securities Act in connection therewith; (iv) any person or
group having acquired beneficial ownership of 15% or more of the outstanding
shares of capital stock of the Company or any of its subsidiaries; or (v) any
proposal, plan, or intention to do any of the foregoing, either publicly
announced or otherwise communicated to the Company, or any agreement to engage
in any of the foregoing.
(b) Except as set forth in this Section 5.4, the Company shall not and shall
not permit any of its subsidiaries to, and shall direct and cause the
officers, directors, employees, representatives or agents of the Company or
its subsidiaries not to, directly or indirectly, encourage, solicit,
participate in or initiate discussions or negotiations with, or furnish any
information or access to, any corporation, partnership, person or other entity
or group (other than Parent and Sub, any affiliate or associate of Parent or
Sub or any designees of Parent or Sub) concerning, or agree to or endorse any
Acquisition Proposal. Notwithstanding the foregoing, the Company may, directly
or indirectly, furnish information and access, in each case only in response
to a written request for such information or access made after the date hereof
by any person which was not encouraged, solicited or initiated by the Company
or any of its officers, directors, employees, representatives or agents after
the date hereof, and participate in discussions and negotiate with such person
concerning any Acquisition Proposal, if, and only to the extent that (i) such
person has submitted a bona fide definitive written Acquisition Proposal to
the Board of Directors of the Company, (ii) the Board, after consultation with
its independent financial advisors, determines that (x) the person making such
Acquisition Proposal is reasonably capable of completing such Acquisition
Proposal, taking into account the legal, financial, regulatory and other
aspects of such Acquisition Proposal and the person making such Acquisition
Proposal and (y) such Acquisition Proposal involves consideration to the
Company's stockholders and other terms and conditions that, taken as a whole,
are superior to the Merger (a proposal described in this clause (ii), a
"Superior Proposal''), and (iii) the Board determines in good faith, based
upon the advice of outside counsel to the Company, that taking any such action
is necessary for the Board to comply with its fiduciary duty to stockholders
under applicable law.
(c) The Board of Directors of the Company shall not (i) withdraw or modify,
or propose publicly to withdraw or modify, in a manner adverse to Parent or
Sub, the approval or recommendation by such Board of Directors of this
Agreement or the Merger, (ii) approve or recommend, or propose publicly to
approve or
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recommend, any Acquisition Proposal or (iii) enter into any definitive
agreement with respect to any Acquisition Proposal, unless, in the case of
each of the foregoing clauses (i), (ii) and (iii), (A) the Company receives a
bona fide definitive written Acquisition Proposal which is a Superior Proposal
and was not solicited after the date hereof, (B) the Company's Board of
Directors determines in good faith, based upon the advice of outside counsel
to the Company, that it is necessary to comply with its fiduciary duties to
stockholders under applicable law for the Board of Directors to approve or
recommend such Acquisition Proposal and (C) Parent does not make within 5
business days of receipt of the Company's written notification of its
intention to enter into a definitive agreement with respect to a Superior
Proposal an offer that the Board of Directors of the Company determines in
good faith, after consultation with its independent financial advisors,
involves consideration to the Company's stockholders and other terms and
conditions that, taken as a whole, are at least as favorable, from a financial
point of view, to the stockholders of the Company as the Superior Proposal. If
the Board has withdrawn or modified its approval or recommendation of this
Agreement or the Merger and/or approved or recommended an Acquisition
Proposal, in each case in conformity with the provisions of the preceding
sentence, then the Company may terminate this Agreement pursuant to Section
7.1(d) and Parent may terminate this Agreement pursuant to Section 7.1(c).
(d) Nothing contained in this Section 5.4 shall prevent the Board from
taking, and disclosing to the Company's stockholders, a position contemplated
by Rules 14d-9 and 14e-2 promulgated under the Exchange Act with regard to any
tender offer or from making any disclosure to the Company's stockholders if,
in the good faith judgment of the Board of Directors, based upon the advice of
outside counsel to the Company, such disclosure is required under applicable
law; provided that, except as otherwise permitted in this Section 5.4, the
Company does not approve or recommend, or propose to approve or recommend, an
Acquisition Proposal.
(e) Nothing contained in this Agreement or the Confidentiality Agreement
shall be construed to prohibit Parent from making a competing proposal in
response to any Acquisition Proposal.
(f) The Company agrees not to release any third party from, or waive any
provisions of, any confidentiality or standstill agreement to which the
Company is a party, unless the Board shall have determined in good faith,
based upon the advice of outside counsel, that releasing such third party or
waiving such provisions is necessary to comply with the Board's fiduciary
duties to the stockholders of the Company under applicable law.
Notwithstanding anything contained in this Agreement to the contrary, any
action by the Board of Directors permitted by this Section 5.4 shall not
constitute a breach of this Agreement by the Company.
SECTION 5.5 Employee Benefits Matters. (a) During the period from the
Effective Time until the end of the twelfth month following the Effective
Time, Parent shall maintain or cause to be maintained base salaries, bonus
opportunities, employee pension and welfare plans for the benefit of employees
and former employees of the Company or its subsidiaries, which are equal to or
greater than those base salaries, bonus opportunities and other benefits
provided under the Company Plans that are in effect on the date hereof. Prior
to the Effective Time, Parent and the Company shall cooperate to facilitate a
smooth transition with respect to the continued employment of Company
employees and the Company shall permit Parent reasonable access to its
employees to enable Parent to effect such transition.
(b) Parent will, or will cause the Surviving Corporation to, (i) waive all
limitations as to preexisting conditions, exclusions and waiting periods with
respect to participation and coverage requirements applicable to the employees
of the Company under any welfare plan that such employees may be eligible to
participate in after the Effective Time, (ii) provide each employee of the
Company with credit for any co-payments and deductibles paid prior to the
Effective Time in satisfying any applicable deductible or out-of-pocket
requirements under any welfare plans that such employees are eligible to
participate in after the Effective Time, and (iii) provide each employee of
the Company with credit for all service with the Company and its affiliates
under each employee benefit plan, program, or arrangement of the Sub or its
affiliates in which such employees are eligible to participate; provided,
however, that in no event shall the employees be entitled to any credit to the
extent that it would result in a duplication of benefits with respect to the
same period of service.
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SECTION 5.6 Directors' and Officers' Indemnification and Insurance. (a) The
By-Laws of the Surviving Corporation shall contain provisions no less
favorable with respect to indemnification than are set forth in the By-laws of
the Company, which provisions shall not be amended, repealed or otherwise
modified for a period of six years from the Effective Time in any manner that
would adversely affect the rights thereunder of individuals who at the
Effective Time were directors, officers or employees of the Company.
(b) Parent shall cause to be maintained in effect for six years from the
Effective Time the current policies of the directors' and officers' liability
insurance maintained by the Company (provided that Parent may substitute
therefor policies of at least the same coverage containing terms and
conditions which are not materially less advantageous) with respect to matters
occurring prior to the Effective Time to the extent available or, if such
coverage is not available, the best available coverage; provided, however,
that in no event shall Parent or the Company be required to expend more than
an amount per year equal to 200% of current annual premiums paid by the
Company to maintain or procure insurance coverage pursuant hereto, but in such
case shall purchase as much coverage as possible for such amount.
(c) For six years after the Effective Time, Parent agrees that it will and
it will cause the Surviving Corporation to indemnify and hold harmless each
present and former director and officer of the Company, determined as of the
Effective Time, against any costs or expenses (including reasonable attorneys'
fees), judgments, fines, losses, claims, damages or liabilities (collectively,
"Costs'') (but only to the extent such Costs are not otherwise covered by
insurance and paid) incurred in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to matters existing or occurring
at or prior to the Effective Time, whether asserted or claimed prior to, at or
after the Effective Time, to which such person was or is a party or is
threatened to be made a party by reason of the fact that he was or is a
director or officer of the Company, to the fullest extent permitted under
applicable law (and Parent shall, or shall cause the Surviving Corporation to,
also advance expenses as incurred to the fullest extent permitted under
applicable law provided the person to whom expenses are advanced provides an
undertaking to repay such advances if it is ultimately determined that such
person is not entitled to indemnification).
SECTION 5.7 Further Action; Reasonable Best Efforts. (a) Upon the terms and
subject to the conditions hereof, each of the parties hereto shall use its
reasonable best efforts to take, or cause to be taken, all reasonably
appropriate action, and to do or cause to be done, all things reasonably
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement
as soon as practicable, including but not limited to (i) cooperation in the
preparation and filing of the Proxy Statement, any required filings under the
HSR Act, filings with the New York Superintendent or other state or foreign
insurance commissions or regulations and any amendments to any thereof, (ii)
using its reasonable best efforts to promptly make all required regulatory
filings and applications including, without limitation, responding promptly to
requests for further information and to obtain all licenses, permits,
consents, approvals, authorizations, qualifications and orders of governmental
authorities and parties to contracts with the Company and its subsidiaries as
are necessary for the consummation of the transactions contemplated by this
Agreement and to fulfill the conditions to the Merger, (iii) taking all
actions which may be reasonably necessary to prevent any Governmental Entity
from taking steps to obtain, or from issuing, any order, injunction, decree,
judgment or ruling or the taking of any other action restraining, enjoining or
otherwise prohibiting the Merger, including, without limitation, agreeing to
effect such divestitures of assets or businesses of the Company or Parent, or
agreeing to such limitations on the Company's or Parent's future operations,
as may be necessary to forestall such order, decree, ruling or action, (iv)
the Company and Parent each agreeing to take all actions which may be
reasonably necessary to contest and resist any action seeking to have imposed
any order, decree, judgment, injunction, ruling or other order (whether
temporary, preliminary or permanent) (an "Order'') that would delay, restrain,
enjoin or otherwise prohibit consummation of the Merger and in the event that
any such temporary or preliminary Order is entered in any proceeding that
would make consummation of the Merger in accordance with the terms of this
Agreement unlawful or that would prevent or delay consummation of the Merger
or the other transactions contemplated by this Agreement, to use its
reasonable best efforts to take promptly any and all steps (including the
appeal thereof, the posting of a bond or the taking of the steps
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contemplated by clause (i) of this paragraph) reasonably necessary to vacate,
modify or suspend such Order so as to permit such consummation as promptly as
practicable after the date hereof and (v) cooperation in connection with
obtaining the opinions of special counsel described in Sections 6.2(c) and
6.3(c) including, without limitation, providing to special counsel, and, if
required by counsel as necessary for purposes of such opinions, using
reasonable efforts to cause each person who beneficially owns five percent or
more of the outstanding shares of the Company Common Stock to provide to
special counsel, such representation letters as are reasonably required by
special counsel to enable them to render such opinions. Notwithstanding the
foregoing, neither party shall be obligated to take any action pursuant to the
foregoing if the taking of such action or such compliance or the obtaining of
such consent, authorization, order, approval or exemption is likely, in such
party's reasonable opinion, (x) to have a Material Adverse Effect on such
party and its subsidiaries, taken as a whole, or to impact in a materially
adverse manner the economic or business benefits of the transactions
contemplated by this Agreement so as to render inadvisable the consummation of
the Merger or (y) to impose on Parent or its subsidiaries or on the Company or
its subsidiaries a requirement to dispose of any assets which individually or
in the aggregate would be deemed to constitute a significant amount of assets,
as the case may be, to Parent and its subsidiaries, taken as a whole, or to
the Company and its subsidiaries, taken as a whole, under Instruction 4 of
Item 2 of Form 8-K (any condition referred to in subsections (x) and (y)
above, a "Material Condition''). In case at any time after the Effective Time
any further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and directors of each party to this Agreement
shall use their reasonable best efforts to take all such necessary action.
(b) The Company and Parent each shall keep the other apprised of the status
of matters relating to completion of the transactions contemplated hereby,
including promptly furnishing the other with copies of notices or other
communications received by Parent or the Company, as the case may be, or any
of their subsidiaries, from any Governmental Entity with respect to the Merger
or any of the other transactions contemplated by this Agreement. The parties
hereto will consult and cooperate with one another, and consider in good faith
the views of one another in connection with any analyses, appearances,
presentations, memoranda, briefs, arguments, opinions and proposals made or
submitted by or on behalf of any party hereto in connection with proceedings
under or relating to the HSR Act or any other antitrust law.
SECTION 5.8 Public Announcements. Parent and the Company shall consult with
each other before issuing any press release or otherwise making any public
statements with respect to the Merger and shall not issue any such press
release or make any such public statement prior to such consultation, except
as may be required by law or any listing agreement with its securities
exchange.
SECTION 5.9 Stock Exchange Listing. Parent shall use its best efforts to
have approved for listing on the NYSE prior to the Effective Time, subject to
official notice of issuance, the Parent Common Stock to be issued pursuant to
the Merger and under the Company Plans.
SECTION 5.10 Affiliates. (a) Prior to the Closing Date, the Company shall
deliver to Parent a letter identifying all persons who are, at the time this
Agreement is submitted for approval to the stockholders of the Company,
"affiliates" of the Company for purposes of Rule 145 under the Securities Act
or for purposes of qualifying the Merger for "pooling of interests" accounting
treatment under Opinion 16 of the Accounting Principles Board and applicable
SEC rules and regulations. The Company shall use its reasonable best efforts
to cause each such person to deliver to Parent on or prior to the Closing Date
a written agreement substantially in the form attached as Exhibit A hereto.
(b) Prior to the Closing Date, Parent shall deliver to the Company a letter
identifying all persons who are, at the time this Agreement is submitted for
approval to the stockholders of the Company, "affiliates" for purposes of
qualifying the Merger for "pooling of interests" accounting treatment under
Opinion 16 of the Accounting Principles Board and applicable SEC rules and
regulations. Parent shall use its reasonable best efforts to cause all persons
who are "affiliates" of Parent for purposes of qualifying the Merger for
pooling of interests accounting treatment under Opinion 16 of the Accounting
Principles Board and applicable SEC rules and regulations to comply with
paragraph number 1, as applicable, of Exhibit A hereto.
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ARTICLE VI
CONDITIONS OF MERGER
SECTION 6.1 Conditions to Obligation of Each Party to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the satisfaction at or prior to the Effective Time of the following
conditions:
(a) The Company Stockholder Approval shall have been obtained.
(b) No statute, injunction or other order (whether temporary, preliminary
or permanent) shall have been promulgated or issued by any Governmental
Entity of competent jurisdiction which prohibits, restrains, enjoins or
restricts the consummation of the Merger; provided, however, that each of
the parties shall have used its reasonable best efforts to prevent the
entry of any such order and to appeal as promptly as possible any
injunction or other order that may be entered.
(c) Any waiting period applicable to the Merger under the HSR Act shall
have terminated or expired.
(d) All orders, approvals and consents of (i) the New York Insurance
Department and (ii) all other Material Insurance Regulatory Approvals which
are required in connection with the Merger shall have been obtained;
provided, however, that such orders, approvals and consents may be subject
to conditions other than Material Conditions. As used herein, the term
"Material Insurance Regulatory Approvals'' shall mean the approvals of the
state insurance regulatory department or authority of each state or country
other than those states that the failure to obtain would not be reasonably
expected to have a Material Adverse Effect on the Company and its
subsidiaries, taken as a whole, or Parent and its subsidiaries, taken as a
whole.
(e) The Form S-4 shall have become effective under the Securities Act and
shall not be the subject of any stop order or proceedings seeking a stop
order, and any material "blue sky" and other state securities laws
applicable to the registration and qualification of the Parent Common Stock
issuable or required to be reserved for issuance pursuant to this Agreement
shall have been complied with.
(f) The shares of Parent Common Stock issuable to Company stockholders
pursuant to this Agreement and such other shares of Parent Common Stock
required to be reserved for issuance in connection with the Merger shall
have been authorized for listing on the NYSE subject to official notice of
issuance.
(g) Parent shall have received a letter from Coopers & Lybrand LLP to the
effect that the Merger qualifies for "pooling of interests" accounting
treatment if consummated in accordance with this Agreement and such letter
shall not have been withdrawn. The Company shall have received a letter
from KPMG Peat Marwick LLP to the effect that the Company is eligible to be
acquired in a transaction to be accounted for using "pooling of interests"
accounting treatment and such letter shall not have been withdrawn.
(h) There shall not be any action taken, nor any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
Merger which imposes a Material Condition on any party.
SECTION 6.2 Conditions to Obligations of the Company to Effect the
Merger. The obligation of the Company to effect the Merger shall be subject to
the satisfaction at or prior to the Closing Date of the following additional
conditions:
(a) Parent and Sub shall have performed or complied with in all material
respects their agreements and covenants contained in this Agreement
required to be performed or complied with at or prior to the Closing Date
and the representations and warranties of Parent and Sub contained in this
Agreement shall be true and correct in all respects on and as of the
Closing Date with the same force and effect as if made on and as of such
date (except to the extent such representations and warranties speak as of
an earlier date), except where the failure to be true and correct shall not
constitute a Material Adverse Effect on Parent and its subsidiaries, taken
as a whole. The Company shall have received a certificate signed on behalf
of Parent by the chief executive officer and chief financial officer of
Parent and Sub to such effect.
(b) On the date of the Proxy Statement, the Company shall have received
from Salomon Brothers Inc a letter, dated such date, confirming the opinion
referred to in Section 2.16.
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(c) The Company shall have received an opinion of Simpson Thacher &
Bartlett, special counsel to the Company, dated as of the Effective Time,
to the effect that the Merger will constitute a reorganization for Federal
income tax purposes within the meaning of section 368(a) of the Code. In
rendering such opinion, Simpson Thacher & Bartlett may require and rely
upon representations contained in the certificates of officers of Parent,
Sub, the Company and others, as well as certificates of shareholders who
beneficially own five percent or more of the outstanding shares of the
Company Common Stock if Simpson Thacher & Bartlett determines that such
certificates are necessary for purposes of rendering such opinion.
SECTION 6.3 Conditions to Obligations of Parent and Sub to Effect the
Merger. The obligations of Parent and Sub to effect the Merger shall be
subject to the satisfaction at or prior to the Closing Date of the following
additional conditions:
(a) The Company shall have performed or complied with in all material
respects its agreements and covenants contained in this Agreement required
to be performed or complied with at or prior to the Closing Date and the
representations and warranties of the Company contained in this Agreement
shall be true and correct in all respects on and as of the Closing Date
with the same force and effect as if made on and as of such date (except to
the extent such representations and warranties speak as of an earlier
date), except where the failure to be true and correct shall not constitute
a Material Adverse Effect on the Company and its subsidiaries, taken as a
whole. Parent shall have received a certificate signed on behalf of the
Company by the chief executive officer and chief financial officer of the
Company to such effect.
(b) Parent shall have received the agreements referred to in Section 5.10
of each person identified as an "affiliate" of the Company.
(c) Parent and Sub shall have received an opinion of Debevoise &
Plimpton, special counsel to Parent and Sub, dated as of the Effective
Time, to the effect that the Merger will constitute a reorganization for
Federal income tax purposes within the meaning of section 368(a) of the
Code. In rendering such opinion, Debevoise & Plimpton may require and rely
upon representations contained in the certificates of officers of Parent,
Sub, the Company and others, as well as certificates of shareholders who
beneficially own five percent or more of the outstanding shares of the
Company Common Stock if Debevoise & Plimpton determines that such
certificates are necessary for purposes of rendering such opinion.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1 Termination. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time prior to the Effective Time,
whether before or after the Company Stockholder Approval:
(a) By mutual written consent of Parent, Sub and the Company;
(b) By Parent or the Company:
(i) if any Governmental Entity located or having jurisdiction within
the United States shall have issued a final order, injunction, decree,
judgment or ruling or taken any other final action restraining,
enjoining or otherwise prohibiting the Merger and such order,
injunction, decree, judgment, ruling or other action is or shall have
become final and nonappealable; provided, however, that the right to
terminate this Agreement pursuant to this Section 7.1(b)(i) shall not
be available to any party who has not used its reasonable best efforts
to cause such order to be lifted;
(ii) if the Merger shall not have been consummated on or before May
31, 1998 (other than due to the failure of the party seeking to
terminate this Agreement to perform its obligations under this
Agreement required to be performed at or prior to the Effective Time);
or
(iii) if upon a vote at a duly held Company Stockholders Meeting or
any adjournment thereof at which the Company Stockholder Approval shall
have been voted upon, the Company Stockholder Approval shall not have
been obtained.
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(c) By Parent if prior to the Closing Date the Board of Directors of the
Company shall have withdrawn, or modified in a manner adverse to Parent,
its approval or recommendation of this Agreement or the Merger or shall
have recommended an Acquisition Proposal, or shall have resolved to effect
any of the foregoing.
(d) By the Company in accordance with Section 5.4; provided that such
termination under this clause (d) shall not be effective until the Company
has made payment of the Termination Fee required by Section 7.3.
(e) By Parent if (a) there has been a breach by the Company of any
representation or warranty contained in this Agreement which has a Material
Adverse Effect on the Company and its subsidiaries, taken as a whole, or
(b) there has been a material breach of any of the covenants or agreements
set forth in this Agreement on the part of the Company, which breach in the
case of either clause (a) or clause (b) is not curable or, if curable, is
not cured within thirty days after written notice of such breach has been
given by the Parent to the Company.
(f) By the Company if (a) there has been a breach by Parent or Sub of any
representation or warranty contained in this Agreement which has a Material
Adverse Effect on Parent and its subsidiaries, taken as a whole, or (b)
there has been a material breach of any of the covenants or agreements set
forth in this Agreement on the part of Parent, which breach in the case of
either clause (a) or clause (b) is not curable or, if curable is not cured
within thirty days after written notice of such breach has been given by
the Company to Parent.
SECTION 7.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 7.1, this Agreement shall forthwith become void
and there shall be no liability on the part of any party hereto except as set
forth in Section 7.3 and Section 8.1; provided, however, that nothing herein
shall relieve any party from liability for any wilful breach hereof.
SECTION 7.3 Fees and Expenses.
(a) The Company shall pay, or cause to be paid, in same day funds to Parent
$19.4 million (the "Termination Fee'') under the circumstances and at the
times set forth as follows:
(i) if Parent terminates this Agreement pursuant to Section 7.1(c)
hereof, the Company shall pay the Termination Fee upon demand;
(ii) if the Company terminates this Agreement pursuant to Section 7.1(d)
hereof, the Company shall pay the Termination Fee concurrently therewith;
(iii) if (1) Parent terminates this Agreement pursuant to Section
7.1(b)(iii) or 7.1(e) and (2) prior to such termination an Acquisition
Proposal shall have been publicly announced (other than an Acquisition
Proposal made prior to the date hereof) and (3) within six months
thereafter, (A) the Company enters into a definitive agreement with respect
to an Acquisition Proposal or an Acquisition Proposal is consummated
involving any party (x) with whom the Company had any discussions with
respect to an Acquisition Proposal, (y) to whom the Company furnished
information with respect to or with a view to an Acquisition Proposal or
(z) who had submitted a proposal or expressed any interest publicly in an
Acquisition Proposal, in the case of each of clauses (x), (y) and (z),
prior to such termination, or (B) the Company enters into a definitive
agreement with respect to a Superior Proposal, or a Superior Proposal is
consummated, then, in the case of either (A) or (B) above, the Company
shall pay the Termination Fee upon the earlier of the execution of such
agreement or upon consummation of such Acquisition Proposal or Superior
Proposal.
(b) Except as otherwise specifically provided herein, each party shall bear
its own expenses in connection with this Agreement and the transactions
contemplated hereby.
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SECTION 7.4 Amendment. This Agreement may be amended by the parties hereto
by action taken by or on behalf of their respective Boards of Directors at any
time prior to the Effective Time; provided, however, that, after approval of
the Merger by the stockholders of the Company, no amendment may be made which
would reduce the amount or change the type of consideration into which each
share of Company Common Stock shall be converted upon consummation of the
Merger. This Agreement may not be amended except by an instrument in writing
signed by the parties hereto.
SECTION 7.5 Waiver. At any time prior to the Effective Time, any party
hereto may (a) extend the time for the performance of any of the obligations
or other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid if
set forth in an instrument in writing signed by the party or parties to be
bound thereby.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1 Non-Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement shall terminate
at the Effective Time or upon the termination of this Agreement pursuant to
Section 7.1, as the case may be, except that the agreements set forth in
Article I, Section 5.5, Section 5.6 and Article VIII shall survive the
Effective Time and those set forth in Section 5.3, Section 5.8, Section 7.3
and Article VIII shall survive termination of this Agreement.
SECTION 8.2 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by
telecopy, or by registered or certified mail (postage prepaid, return receipt
requested) to the respective parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
if to Parent or Sub:
MBIA Inc.
113 King Street
Armonk, NY 10504
Attention: David Elliott
with an additional copy to:
Debevoise & Plimpton
875 Third Avenue
New York, NY 10022
Telecopy No.: (212) 909-6836
Attention: Andrew L. Sommer
if to the Company:
CapMAC Holdings Inc.
885 Third Avenue
14th Floor
New York, NY 10022
Attention: John B. Caouette
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Attention: Robert L. Friedman, Esq.
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SECTION 8.3 Certain Definitions. For purposes of this Agreement, the term:
(a) "affiliate'' of a person means a person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, the first mentioned person;
(b) "beneficial owner'' with respect to any Shares means a person who
shall be deemed to be the beneficial owner of such Shares (i) which such
person or any of its affiliates or associates beneficially owns, directly
or indirectly, (ii) which such person or any of its affiliates or
associates (as such term is defined in Rule 12b-2 of the Exchange Act) has,
directly or indirectly, (A) the right to acquire (whether such right is
exercisable immediately or subject only to the passage of time), pursuant
to any agreement, arrangement or understanding or upon the exercise of
consideration rights, exchange rights, warrants or options, or otherwise,
or (B) the right to vote pursuant to any agreement, arrangement or
understanding or (iii) which are beneficially owned, directly or
indirectly, by any other persons with whom such person or any of its
affiliates or person with whom such person or any of its affiliates or
associates has any agreement, arrangement or understanding for the purpose
of acquiring, holding, voting or disposing of any shares;
(c) "control'' (including the terms "controlled by'' and "under common
control with'') means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the
management policies of a person, whether through the ownership of stock, as
trustee or executor, by contract or credit arrangement or otherwise;
(d) "knowledge'' means, with respect to the Company, the actual knowledge
of those persons listed in Section 8.3 of the Company Disclosure Schedule,
and with respect to Parent, the actual knowledge of those persons listed in
Section 8.3 of the Parent Disclosure Schedule;
(e) "person'' means an individual, corporation, partnership, association,
trust, unincorporated organization, other entity or group (as defined in
Section 13(d)(3) of the Exchange Act);
(f) "Significant Subsidiary'' of the Company, the Surviving Corporation,
Parent or any other person means a subsidiary of such person that would
constitute a "significant subsidiary" of such person within the meaning of
Rule 1.02(v) of Regulation S-X as promulgated by the SEC; and
(g) "subsidiary'' or "subsidiaries'' of the Company, the Surviving
Corporation, Parent or any other person means any corporation, partnership,
joint venture or other legal entity of which the Company, the Surviving
Corporation, Parent or such other person, as the case may be (either alone
or through or together with any other subsidiary), owns, directly or
indirectly, 50% or more of the stock or other equity interests the holder
of which is generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other legal
entity.
SECTION 8.4 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or
public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any
manner adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable
manner to the end that the transactions contemplated hereby are fulfilled to
the fullest extent possible.
SECTION 8.5 Entire Agreement; Assignment. This Agreement constitutes the
entire agreement among the parties with respect to the subject matter hereof
and supersedes all prior agreements and undertakings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof.
Without limiting the generality of the foregoing, this Agreement supersedes
and replaces the letter agreement between Parent and the Company dated October
22, 1997, which letter agreement is hereby terminated and shall be of no
further force or effect from and after the date of this Agreement. This
Agreement shall not be assigned by operation of law or otherwise, except that
Parent and Sub may assign all or any of their respective rights and
obligations
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hereunder to any direct or indirect wholly owned subsidiary or subsidiaries of
Parent, provided that no such assignment shall relieve the assigning party of
its obligations hereunder if such assignee does not perform such obligations.
SECTION 8.6 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, except for the provisions of Section 5.6, is
intended to or shall confer upon any other person any rights, benefits or
remedies of any nature whatsoever under or by reason of this Agreement.
SECTION 8.7 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts
of laws thereof.
SECTION 8.8 Headings. The descriptive headings contained in this Agreement
are included for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
SECTION 8.9 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
to be executed as of the date first written above by their respective officers
thereunto duly authorized.
MBIA INC.
/s/ David H. Elliott
By: ______________________________
Title: Chairman
CMA ACQUISITION CORPORATION
/s/ David H. Elliott
By: ______________________________
Title: President
CAPMAC HOLDINGS INC.
/s/ John B. Caouette
By: ______________________________
Title: Chairman of the
Board,President and
ChiefExecutive Officer
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EXHIBIT A
, 1997
MBIA Inc.
113 King Street
Armonk, New York 10504
Re: Merger Agreement
Ladies and Gentlemen:
MBIA Inc., a Connecticut corporation ("Parent"), CMA Acquisition
Corporation, a Delaware corporation ("Sub"), and CapMAC Holdings Inc., a
Delaware corporation (the "Company"), have entered into an Agreement and Plan
of Merger dated November 13, 1997 (the "Merger Agreement"), pursuant to which
Sub would be merged with and into the Company (the "Merger"), and each
outstanding share of Company Common Stock would be converted into the right to
receive shares of Parent Common Stock. Capitalized terms used herein and not
defined have the meanings assigned to them in the Merger Agreement.
The undersigned has been advised that as of the date the Merger is submitted
to stockholders of the Company for approval, the undersigned may be an
"affiliate" of the Company, as the term is defined for purposes of paragraph
(c) of Rule 145 of the Securities and Exchange Commission (the "SEC") under
the Securities Act of 1933, as amended (the "Securities Act") and may be
deemed an "affiliate" of the Company for purposes of qualifying the Merger for
pooling of interests accounting treatment under Opinion 16 of the Accounting
Principles Board and applicable SEC rules and regulations, although nothing
contained herein shall be construed as an admission of either such fact.
Parent has requested the undersigned to represent and agree, and the
undersigned represents and agrees, with Parent as follows:
1. Pooling.
From and after 30 days prior to the Effective Time, the undersigned will not
sell, transfer, exchange or otherwise, directly or indirectly, dispose of, or
reduce the risk of loss (by short sale or otherwise) or enter into any
contract or other arrangement with respect to, or consent to the sale or
exchange of or other disposition of any interest in, any securities of the
Company or Parent until after such time as Parent has published financial
results covering at least 30 days of combined operations of Parent and the
Company after the Effective Time in the form of a quarterly earnings report,
an effective registration statement filed with the SEC, a report to the SEC on
Form 10-K, 10-Q or 8-K, or any other public filing or announcement which
includes such combined results of operations. The undersigned understands that
certificates representing the shares of Parent Common Stock, if any, received
by the undersigned in the Merger will be placed on the "stock-transfer list"
maintained by Parent's transfer agent and will remain so listed until the
publication of such financial results and that there will be placed on the
certificate(s) representing such stock, or any certificates delivered in
substitution therefor, a legend stating in substance:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN
COMPLIANCE WITH THE CONDITIONS SPECIFIED IN A LETTER AGREEMENT DATED AS OF
, 1997 RELATING THERETO, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF MBIA INC."
Parent agrees and covenants that (i) Parent will use its reasonable best
efforts to publish financial results covering at least 30 days of combined
operations of Parent and the Company after the Effective Time of the Merger,
as soon as practicable and in no event later than 45 days after the end of the
first fiscal quarter which includes at least 30 days of such combined
operations after the Effective Time if such 30 days is included in any
<PAGE>
of the first three fiscal quarters of Parent, and in no event later than 60
days after the end of the first fiscal quarter which includes at least 30 days
of combined operations of Parent and the Company if such 30 days is included
in the fourth fiscal quarter of Parent; and (ii) promptly after such
publication the stop transfer instructions and legends referred to above shall
be terminated or removed.
2. Rule 145.
The undersigned has been advised that the issuance of shares of Parent
Common Stock pursuant to the Merger will be registered under the Securities
Act pursuant to a registration statement on Form S-4. The undersigned has also
been advised that, if the undersigned is in fact an "affiliate" of the Company
at the time the Merger is submitted to a vote of the stockholders of the
Company, Rule 145 under the Securities Act will restrict the undersigned's
sales of shares of Parent Common Stock, if any, received in the Merger. The
undersigned has been advised that if the undersigned is to subject to Rule
145, the undersigned may not sell or otherwise dispose of any shares of Parent
Common Stock except in accordance with Rule 145(d) under the Securities Act or
pursuant to an effective registration statement under the Securities Act or an
exemption from the registration requirements of the Securities Act.
The undersigned understands and agrees that:
(i) Parent is under no obligation to register the sale, transfer or other
disposition of the shares of Parent Common Stock to be received by the
undersigned in the Merger except as set forth in written agreements, if
any, with the undersigned which have been entered into by Parent or which
have been specifically assumed by Parent.
(ii) Stop transfer instructions will be given to the transfer agent of
Parent with respect to the shares of Parent Common Stock to be received by
the undersigned in the Merger, and there will be placed on the certificate
representing such stock, or any certificates delivered in substitution
therefor, a legend stating in substance:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 UNDER THE SECURITIES ACT OF 1933 (THE "ACT")
APPLIES. THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED
ONLY IN ACCORDANCE WITH RULE 145(D) OR PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT OR EXEMPTION FROM REGISTRATION UNDER THE ACT."
(iii) Unless the transfer by the undersigned of the shares of Parent
Common Stock is a sale made in conformity with the provisions of Rule
145(d), or is made pursuant to a registration statement under the
Securities Act, Parent reserves the right to put an appropriate legend on
the certificate issued to a transferee.
In connection with the foregoing, Parent agrees as follows:
(i) For so long as and to the extent necessary to permit the undersigned
to sell the shares of Parent Common Stock pursuant to Rule 145 and, to the
extent applicable, Rule 144 under the Securities Act, Parent shall use
reasonable best efforts to file, on a timely basis, all reports required to
be filed with the Securities and Exchange Commission ("SEC") by it pursuant
to Section 13 of the Exchange Act, so long as it is subject to such
requirement, furnish to the undersigned upon request a written statement as
to whether Parent has complied with such reporting requirements during the
12 months preceding any proposed sale under Rule 145 and otherwise use its
reasonable best efforts to permit such sales pursuant to Rule 145 and Rule
144. Parent has filed, on a timely basis, all reports required to be filed
with the SEC under Section 13 of the Securities Exchange Act of 1934, as
amended, during the preceding 12 months.
(ii) Parent agrees that the stock transfer instructions and legends
referred to above shall be terminated or removed if the undersigned shall
have delivered to Parent a copy of a letter from the staff of the SEC or an
opinion of counsel with recognized expertise in securities law matters, in
form and substance satisfactory to Parent, to the effect that such
instructions and legends are not required for the purposes of the
Securities Act.
A-2
<PAGE>
This letter agreement shall be governed by and construed in accordance with
the laws of the State of Delaware.
This letter agreement shall terminate if and when the Merger Agreement is
terminated according to its terms.
Please indicate your agreement with the foregoing by signing the
acknowledgement below on the enclosed copies of this letter, and returning the
same to the undersigned, whereupon this letter agreement shall become an
effect agreement between Parent and the undersigned.
Very truly yours,
_____________________________________
By:
___________________________________
Name:
Title:
Acknowledged and agreed as of the date hereof.
MBIA INC.
By:
_____________________________________
Name:
Title:
A-3
<PAGE>
SALOMON BROTHERS INC ANNEX B
Seven World Trade Center
New York, New York 10048
212-783-7000
-----------------
SALOMON BROTHERS
---------------------
- --------------------------------------------------------------------------------
SALOMON BROTHERS INC & WORLDWIDE AFFILIATES
- --------------------------------------------------------------------------------
Atlanta . Bangkok . Beijing . Boston . Chicago . Frankfurt . Hong Kong . London
. Los Angeles . Madrid . Melbourne . Mexico . Milan . Moscow . New Delhi . New
York . Osaka . Paris . San Francisco . Seoul . Singapore . Sydney . Taipei .
Tokyo . Toronto . Zug . Zurich
December 29, 1997
Board of Directors
CapMAC Holdings Inc.
885 Third Avenue
New York, New York 10022
Members of the Board:
You have requested our opinion as investment bankers as to the fairness, from
a financial point of view, to the holders of shares of common stock, par value
$.01 per share (the "Company Common Stock"), of CapMAC Holdings Inc. (the
"Company") of the consideration to be received by such stockholders in the
proposed merger (the "Proposed Merger") of the Company with MBIA Inc. ("MBIA")
pursuant to an Agreement and Plan of Merger (the "Agreement") entered into
among MBIA, CMA Acquisition Corporation ("Acquisition Sub") and the Company.
As more specifically set forth in the Agreement, in the Proposed Merger
Acquisition Sub will be merged into the Company and each issued and outstanding
share of the Company Common Stock will be converted into the right to receive
shares of common stock, $1 par value, of MBIA ("MBIA Common Stock") valued at
$35.00, based on the Average Closing Price (as defined below) of the MBIA
Common Stock, subject to adjustment. If the Average Closing Price is below
$53.00 per share, each issued and outstanding share of Company Common Stock
will be converted into the right to receive 0.6604 of one share of MBIA Common
Stock; if the Average Closing Price is above $70.00 per share, each issued and
outstanding share of Company Common Stock will be converted into the right to
receive 0.5000 of one share of MBIA Common Stock. As used herein, the Average
Closing Price shall mean the average of the closing sale prices of MBIA Common
Stock on the New York Stock Exchange Composite Transactions Tape as reported by
The Wall Street Journal on each of the 15 consecutive trading days immediately
preceding the third trading day prior to the effective time of the Merger.
As you are aware, Salomon Brothers Inc has acted as financial advisor to the
Company in connection with the Proposed Merger and will receive a fee for our
services, a substantial portion of which is contingent upon
<PAGE>
SALOMON BROTHERS INC
2
------------------
SALOMON BROTHERS
-------------------
consummation of the Proposed Merger. Additionally, Salomon Brothers Inc has
previously rendered certain investment banking and financial services to the
Company and MBIA, for which we received customary compensation. In addition, in
the ordinary course of our business, we actively trade the debt and equity
securities of both the Company and MBIA for our own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
In connection with rendering our opinion, we have reviewed and analyzed,
among other things, the following: (i) the Agreement, including the Exhibits
and Schedules thereto; (ii) certain publicly available information concerning
the Company, including the Annual Reports on Form 10-K of the Company for each
of the years in the two year period ended December 31, 1996, the Quarterly
Reports on Form 10-Q of the Company for each of the quarters from March 31,
1996 through September 30, 1997; (iii) certain other internal information,
primarily financial in nature, including projections, concerning the business
and operations of the Company furnished to us by the Company for purposes of
our analysis; (iv) statutory financial information of the Company's insurance
subsidiaries for the years ended December 31, 1995 and December 31, 1996 and
for the three month periods ended March 31, 1997, June 30, 1997 and September
30, 1997; (v) certain publicly available information concerning the trading of,
and the trading market for, the Company Common Stock, (vi) certain publicly
available information concerning MBIA, including the Annual Reports on Form 10-
K of MBIA for each of the years in the three year period ended December 31,
1996, the Quarterly Reports on Form 10-Q of MBIA for each of the quarters in
the two year period ended September 30, 1997; (vii) certain other internal
information, primarily financial in nature, including projections, concerning
the business and operations of MBIA furnished to us by MBIA for purposes of our
analysis; (viii) certain publicly available information concerning the trading
of, and the trading market for, the MBIA Common Stock; (ix) statutory
information of MBIA's insurance subsidiaries for the years ended December 31,
1995 and 1996 and for the three month periods ended March 31, 1997, June 30,
1997, and September 30, 1997; (x) certain publicly available information with
respect to certain other companies that we believe to be comparable to the
Company and to MBIA, and the trading markets for certain of such other
companies' securities; and (xi) certain publicly available information
concerning the nature and terms of certain other transactions that we consider
relevant to our inquiry. We have also considered such other information,
financial studies, analyses, investigations and financial, economic and market
criteria that we deemed relevant. We have also met with certain officers and
employees of the Company and MBIA to discuss the foregoing as well as other
matters we believe relevant to our inquiry.
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of all the financial and other
information provided us or publicly available and have neither attempted
independently to verify nor assumed responsibility for verifying any of such
information and have further relied upon the assurances of management of the
Company that they are not aware of any facts that would make any of such
information inaccurate or misleading. We have not conducted a physical
inspection of any of the properties or facilities of the Company or MBIA, nor
have we made or obtained or assumed any responsibility for making or obtaining
any independent evaluations or appraisals of any of such properties or
facilities. With respect to projections, we have assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the managements of the Company and MBIA and we express no view
with respect to such projections or the assumptions on which they were based.
We further have assumed that the conditions precedent to the Proposed Merger
contained in the Agreement will be satisfied and the Proposed Merger will be
consummated in accordance with the terms of the Agreement.
<PAGE>
SALOMON BROTHERS INC
3
------------------
SALOMON BROTHERS
-------------------
In conducting our analysis and arriving at our opinion as expressed herein,
we have considered such financial and other factors as we have deemed
appropriate under the circumstances including, among others, the following: (i)
the historical and current financial position and results of operations of the
Company and MBIA; (ii) the business prospects of the Company and MBIA; (iii)
the historical and current market for the Company Common Stock, the MBIA Common
Stock and the equity securities of certain other companies that we believe to
be comparable to the Company or MBIA; and (iv) the nature and terms of certain
other acquisition transactions that we believe to be relevant. We have also
taken into account our assessment of general economic, market and financial
conditions as well as our experience in connection with similar transactions
and securities valuation generally. Our opinion necessarily is based upon
conditions as they exist and can be evaluated on the date hereof and we assume
no responsibility to update or revise our opinion based upon circumstances or
events occurring after the date hereof. Our opinion as expressed below does not
constitute an opinion or imply any conclusions as to the likely trading range
for the MBIA Common Stock following consummation of the Proposed Merger. Our
opinion is, in any event, limited to the fairness, from a financial point of
view, of the consideration to be received by the holders of Company Common
Stock in the Proposed Merger and does not address the Company's underlying
business decision to effect the Proposed Merger or constitute a recommendation
to any holder of Company Common Stock as to how such holder should vote with
respect to the Proposed Merger.
The opinion is intended solely for the benefit of the Board of Directors of
the Company in considering the transaction to which it relates and may not be
used for any other purpose or reproduced, disseminated, quoted or referred to
at any time, in any manner or for any purpose, without the prior written
consent of Salomon Brothers Inc, except that this opinion may be reproduced in
full in, and references to the opinion and to Salomon Brothers Inc and its
relationship with the Company (in each case in such form as Salomon Brothers
Inc shall approve) may be included in, the proxy statement the Company
distributes to holders of Company Common Stock in connection with the Proposed
Merger and in the registration statement on Form S-4 filed by MBIA of which
such proxy statement forms a part.
Based upon and subject to the foregoing, we are of the opinion as investment
bankers that, as of the date hereof, the consideration to be received by the
holders of Company Common Stock in the Proposed Merger is fair, from a
financial point of view, to such holders.
Very truly yours,
Salomon Brothers Inc
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
MBIA was incorporated under the laws of the State of Connecticut in 1986.
Section 33-771 of the Connecticut Business Corporation Act (the "CBCA") states
that, unless its certificate of incorporation otherwise provides, a
Corporation formed under Connecticut law prior to January 1, 1997 shall
indemnify under Sections 33-770 to 33-778, inclusive, as amended, a director
to the same extent the corporation is permitted to provide the same to a
director pursuant to Section 33-771(a)(1), (b), (c) and (d). The obligation to
indemnify is subject to certain limitations set forth in Section 33-775 of the
CBCA, which require a determination in each case, in the manner set forth in
Section 33-775, that indemnification of the director is permissible and
authorized. Under Section 33-774 of the CBCA, a director may also apply to a
court of competent jurisdiction for indemnification. Section 33-776(d) of the
CBCA provides that a corporation incorporated under Connecticut law prior to
January 1, 1997 shall also indemnify each of its officers who is not a
director to the same extent as the corporation is permitted to provide the
same to a director under Section 33-771(a)(1), (b), (c) and (d), as limited by
Section 33-775. The general counsel or other officers specified by the Board
of Directors may make the determination required by Section 33-775, in
addition to the persons specified in that Section.
In general, Section 33-771 provides that a corporation may indemnify an
individual made a party to a proceeding because he is a director against
liability incurred in the proceeding if: (1) (A) he conducted himself in good
faith; (B) he reasonably believed (i) in the case of conduct in his official
capacity, that his conduct was in the best interests of the corporation and
(ii) in all other cases, that his conduct was at least not opposed to the best
interests of the corporation; and (C) in the case of any criminal proceeding,
he had no reasonable cause to believe his conduct was unlawful; or (2) he
engaged in conduct for which broader indemnification has been made permissible
or obligatory under a provision of the certificate of incorporation as
authorized by Section 33-636(b)(5) of the CBCA. Sections 33-772 and 33-773 of
the CBCA require or permit a corporation, in certain circumstances and subject
to certain limitations set forth therein, to also indemnify a director against
reasonable expenses incurred in such a proceeding.
Section 33-771(d) provides that, unless ordered by a court, a corporation
may not indemnify a director (1) in connection with a proceeding by or in the
right of the corporation except for reasonable expenses incurred in connection
with the proceeding if it is determined that the director has met the relevant
standard of conduct under 33-771(a); or (2) in connection with any proceeding
with respect to conduct for which he was adjudged liable on the basis that he
received a financial benefit to which he was not entitled whether or not
involving action in his official capacity.
MBIA has purchased insurance providing officers and directors of MBIA (and
their heirs and other legal representatives) coverage against certain
liabilities arising from any negligent act, error, omission or breach of duty
claimed against them solely by reason of their being such officers and
directors, and providing coverage for MBIA against its obligation to provide
indemnification as required by the above-described statutes and the Amended
and Restated Certificate of Incorporation. The insurance policy has a $50
million aggregate policy limit for any loss or losses during the policy year.
The Amended and Restated Shareholders' Agreement among MBIA and its Founding
Shareholders provides for indemnification of the shareholders that are parties
thereto under certain circumstances (filed as Exhibit 10.30 to MBIA's
Registration Statement on Form S-1 (Registration No. 33-14474)).
II-1
<PAGE>
ITEM 21. EXHIBITS
2.01 Agreement and Plan of Merger, dated as of November 13, 1997, among
CapMAC Holdings Inc., MBIA Inc. and CMA Acquisition Corporation
(included as Annex A to the Proxy Statement/Prospectus).
4.01 Specimen stock certificates representing shares of Common Stock,
incorporated by reference to Exhibit 4.1 to the Registration Statement
on Form S-1, filed with the Commission on May 21, 1987 (Registration No.
33-14474).
4.02 Rights Agreement, dated as of December 12, 1991, between MBIA Inc. and
Mellon Bank, N.A., as Rights Agent, incorporated by reference to Exhibit
1 to the Form 8-A and the Current Report on Form 8-K, filed with the
Commission December 31, 1991, as amended by Amendment No. 1 to the
Rights Agreement, incorporated by reference to Exhibit 1 to the Form 8-A
and the Current Report on Form 8-K, filed with the Commission on October
27, 1994.
5.01 Opinion of Day, Berry & Howard.
8.01 Opinion of Debevoise & Plimpton as to tax matters.
8.02 Opinion of Simpson Thacher & Bartlett as to tax matters.
23.01 Consent of Coopers & Lybrand L.L.P.
23.02 Consent of KPMG Peat Marwick LLP.
23.03 Consent of Day, Berry & Howard (contained in Exhibit 5.01).
23.04 Consent of Debevoise & Plimpton (contained in Exhibit 8.01).
23.05 Consent of Simpson Thacher & Bartlett (contained in Exhibit 8.02).
23.06 Consent of Salomon Brothers Inc (contained in Exhibit 99.01).
24.01 Powers of Attorney.
99.01 Opinion of Salomon Brothers Inc (included as Annex B to the Proxy
Statement/Prospectus).
99.02 Form of proxy card for Special Meeting.
99.03 Chairman's letter to stockholders of CapMAC.
99.04 Notice of Special Meeting of stockholders of CapMAC.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement: (i) to include any
prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii)
to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; (iii) to include any material information
with respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-2
<PAGE>
(4) That, for the purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement related to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(5) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form.
(6) That every prospectus (i) that is filed pursuant to paragraph (5)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415 will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offering therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(7) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, and controlling
persons of the Registrants pursuant to the foregoing provisions or
otherwise, the Registrants have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrants of expenses incurred or paid by
a director, officer or controlling person of the Registrants in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrants will, unless in the opinion of their
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Securities Act and will
be governed by the final adjudication of such issue.
(8) To respond to requests for information that is incorporated by
reference into the Prospectus pursuant to Items 4, 10(b), 11 or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first-class mail or equally prompt means. This
includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(9) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF ARMONK,
STATE OF NEW YORK, ON DECEMBER 29, 1997.
MBIA INC.
(Registrant)
/s/ David H. Elliott
By: _________________________________
DAVID H. ELLIOTT CHAIRMAN, CHIEF
EXECUTIVE OFFICER AND DIRECTOR
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE TITLE DATE
/s/ David H. Elliott Chairman, Chief
- ------------------------------------- Executive Officer December 29,
DAVID H. ELLIOTT and Director 1997
(principal
executive officer)
/s/ Richard L. Weill President and
- ------------------------------------- Director December 29,
RICHARD L. WEILL 1997
/s/ Julliette S. Tehrani Executive Vice
- ------------------------------------- President, Chief December 29,
JULLIETTE S. TEHRANI Financial Officer 1997
and Treasurer
(principal
financial officer)
/s/ Elizabeth B. Sullivan Vice President and
- ------------------------------------- Controller December 29,
ELIZABETH B. SULLIVAN (principal 1997
accounting officer)
* Director
- ------------------------------------- December 29,
JOSEPH W. BROWN, JR. 1997
* Director
- ------------------------------------- December 29,
DAVID C. CLAPP 1997
II-4
<PAGE>
SIGNATURE TITLE DATE
* Director
- ------------------------------------- December 29,
GARY C. DUNTON 1997
* Director
- ------------------------------------- December 29,
CLAIRE L. GAUDIANI 1997
* Director
- ------------------------------------- December 29,
WILLIAM H. GRAY, III 1997
* Director
- ------------------------------------- December 29,
FREDA S. JOHNSON 1997
* Director
- ------------------------------------- December 29,
DANIEL P. KEARNEY 1997
* Director
- ------------------------------------- December 29,
JAMES A. LEBENTHAL 1997
* Director
- ------------------------------------- December 29,
PIERRE-HENRI RICHARD 1997
* Director
- ------------------------------------- December 29,
JOHN A. ROLLS 1997
/s/ Louis G. Lenzi
*By: ________________________________
LOUIS G. LENZI ATTORNEY-IN-FACT
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
*2.01 Agreement and Plan of Merger, dated as of November 13, 1997, among
CapMAC Holdings Inc., MBIA Inc. and CMA Acquisition Corporation
(included as Annex A to the Proxy Statement/
Prospectus).
*4.01 Specimen stock certificates representing shares of Common Stock,
incorporated by reference to Exhibit 4.1 to the Registration Statement
on Form S-1, filed with the Commission on May 21, 1987 (Registration
No. 33-14474).
*4.02 Rights Agreement, dated as of December 12, 1991, between MBIA Inc. and
Mellon Bank, N.A., as Rights Agent, incorporated by reference to
Exhibit 1 to the Form 8-A and the Current Report on Form 8-K, filed
with the Commission December 31, 1991, as amended by Amendment No. 1
to the Rights Agreement, incorporated by reference to Exhibit 1 to the
Form 8-A and the Current Report on Form 8-K, filed with the Commission
on October 27, 1994.
**5.01 Opinion of Day, Berry & Howard.
**8.01 Opinion of Debevoise & Plimpton as to tax matters.
**8.02 Opinion of Simpson Thacher & Bartlett as to tax matters.
**23.01 Consent of Coopers & Lybrand L.L.P.
**23.02 Consent of KPMG Peat Marwick LLP.
**23.03 Consent of Day, Berry & Howard (contained in Exhibit 5.01).
**23.04 Consent of Debevoise & Plimpton (contained in Exhibit 8.01).
**23.05 Consent of Simpson Thacher & Bartlett (contained in Exhibit 8.02).
*23.06 Consent of Salomon Brothers Inc (contained in Exhibit 99.01).
*24.01 Powers of Attorney.
**99.01 Opinion of Salomon Brothers Inc (included as Annex B to the Proxy
Statement/Prospectus).
**99.02 Form of proxy card for Special Meeting.
**99.03 Chairman's letter to stockholders of CapMAC.
**99.04 Notice of Special Meeting of stockholders of CapMAC.
</TABLE>
- --------
*Previously filed
**Filed herewith
II-6
<PAGE>
EXHIBIT 5.01
[LETTERHEAD OF DAY, BERRY & HOWARD]
December 29, 1997
MBIA Inc.
113 King Street
Armonk, NY 10504
Dear Ladies and Gentlemen:
We have acted as counsel to MBIA Inc., a Connecticut corporation (the
"Company"), in connection with the filing by the Company of a Registration
Statement on Form S-4, (the "Registration Statement"), relating to shares of
the Company's common stock, par value $1.00 per share (the "Common Stock"), to
be issued pursuant to the Agreement and Plan of Merger, dated as of November
13, 1997, among the Company, CMA Acquisition Corporation, a wholly owned
subsidiary of the Company, and CapMAC Holdings Inc. (the "Merger Agreement").
In the merger, each issued and outstanding share of CapMAC Holdings Inc.
common stock, par value $.01 per share, will be converted into the right to
receive that number of shares of Common Stock at an exchange ratio obtained by
dividing $35 by the average of the closing sales prices of Common Stock as
reported on the New York Stock Exchange Composite Transactions Tape on each of
the fifteen consecutive trading days immediately preceding the third trading
day prior to the effective time of the merger (the "MBIA Common Stock Price"),
rounded to the nearest 1/10,000th, provided that such exchange ratio will be
.6604 if the MBIA Common Stock Price is less than $53.00 and .5 if the MBIA
Common Stock Price is more than $70.00. CapMAC Holdings Inc. stockholders will
receive cash in lieu of any fractional shares which would otherwise be issued
in the merger.
We have examined the originals, or copies certified or otherwise identified
to our satisfaction, of the Merger Agreement and such other corporate records,
documents, certificates or other instruments as in our judgment are necessary
or appropriate to enable us to render the opinion set forth below.
Based on the foregoing, we are of the opinion that the authorized but not
previously issued shares of Common Stock which may be issued under the Merger
Agreement have been duly authorized and when issued in accordance with the
terms of the Merger Agreement will be validly issued, fully paid and non-
assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Company's Registration Statement. In giving such consent, we do not thereby
admit that we are within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933 or the rules and regulations of
the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Day, Berry & Howard
Day, Berry & Howard
<PAGE>
Exhibit 8.01
Opinion of Debevoise & Plimpton
as to Tax Matters
December 29, 1997
MBIA Inc.
113 King Street
Armonk, New York 10504
Agreement and Plan of Merger Among
MBIA Inc., CMA Acquisition Corporation
and CapMAC Holdings Inc
Dated as of November 13 1997
----------------------------
Ladies and Gentlemen:
We have acted as counsel to MBIA Inc., a Connecticut corporation
("MBIA"), in connection with the proposed merger (the "Merger") of CMA
Acquisition Corporation, a Delaware corporation ("Merger Sub"), a wholly owned
subsidiary of MBIA with and into CapMAC Holdings Inc., a Delaware corporation
("CapMAC"), pursuant to the Agreement and Plan of Merger among MBIA, Merger Sub
and CapMAC, dated as of November 13, 1997 (the "Merger Agreement")
In so acting, we have participated in the preparation of the Merger
Agreement and the preparation and filing with the Securities and Exchange
Commission of a Proxy Statement/Prospectus of MBIA and CapMAC relating to the
proposed Merger and to the shares of common stock, par value $1.00 per
share, of MBIA to be issued to CapMAC shareholders in the Merger pursuant to
the Merger Agreement (the "Proxy Statement"). We have also examined and
<PAGE>
2
MBIA Inc. December 29, l997
relied upon the representations and warranties as to factual matters set forth
in the documents referred to above, and the originals, or copies certified or
otherwise identified to our satisfaction, of such records, documents,
certificates or other instruments as in our judgment are necessary or
appropriate to enable us to render the opinion set forth below. We have not,
however, undertaken any independent investigation of any factual matter set
forth in any of the foregoing.
Subject to the foregoing and to the qualifications and limitations set
forth herein, and assuming that the Merger is consummated in accordance with the
Merger Agreement and as described in the Proxy Statement, we hereby confirm our
opinion set forth in the Proxy Statement under the heading "THE PROPOSED
MERGER --Certain Federal Income Tax Consequences of the Merger".
This opinion is limited solely to the federal law of the Utited States
as in effect on the date hereof and the relevant facts that exist as of the date
hereof. No assurance can be given that the law or facts will not change, and we
have not undertaken to advise you or any other person with respect to any event
subsequent to the date hereof.
We are delivering this opinion to you and, without our prior written
consent, no other persons are entitled to rely on this opinion. We hereby
consent to the filing of this opinion as an exhibit to the Proxy Statement and
to the use of our name under the captions "THE PROPOSED MERGER -- Certain
Federal Income Tax Consequences of the Merger' and "LEGAL MATTERS" in the
Proxy Statement. In giving such consent, we do not thereby concede that we are
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933 or the Rules and Regulations of the Securities and
Exchange Commission thereunder.
Very truly yours,
/s/ Debevoise & Plimpton
<PAGE>
Exhibit 8.02
Opinion of Simpson Thacher & Bartlett
as to Tax Matters
December 29, 1997
CapMAC Holdings Inc.
885 Third Avenue
New York, New York 10022
Agreement and Plan of Merger Among
MBIA Inc., CMA Acquisition Corporation
and CapMAC Holdings Inc.
Dated as of November 13, 1997
-----------------------------
Ladies and Gentlemen:
We have acted as counsel to CapMAC Holdings Inc., a Delaware
corporation ("CapMAC"), in connection with the proposed merger (the "Merger") of
CMA Acquisition Corporation, a Delaware corporation ("Merger Sub"), a wholly
owned subsidiary of MBIA Inc., a Connecticut corporation ("MBIA"), with and into
CapMAC, pursuant to the Agreement and Plan of Merger among MBIA, Merger Sub and
CapMAC dated as of November 13, 1997 (the "Merger Agreement").
In so acting, we have participated in the preparation of the Merger
Agreement and the preparation and filing with the Securities and Exchange
Commission of a Proxy Statement/Prospectus of MBIA and CapMAC relating to the
proposed Merger and to the shares of common stock, par value $1.00 per share, of
MBIA to be issued to CapMAC shareholders in the Merger pursuant to the Merger
Agreement (the "Proxy Statement"). We have also examined and
<PAGE>
2
CapMAC Holdings Inc December 29, 1997
relied upon the representations and warranties as to factual matters set forth
in the documents referred to above, and the originals, or copies certified or
otherwise identified to our satisfaction, of such records, documents,
certificates or other instruments as in our judgnent are necessary or
appropriate to enable us to render the opinion set forth below. We have not,
however, undertaken any independent investigation of any factual matter set
forth in any of the foregoing.
Subject to the foregoing and to the qualifications and limitations set
forth herein, and assuming that the Merger is consummated in accordance with the
Merger Agreement and as described in the Proxy Statement, we hereby
confirm our opinion set forth in the Proxy Statement under the heading
"THE PROPOSED MERGER -- Certain Federal Income Tax Consequences of the Merger".
This opinion is limited solely to the federal law of the United States
as in effect on the date hereof and the relevant facts that exist as of the date
hereof. No assurance can be given that the law or facts will not change, and we
have not undertaken to advise you or any other person with respect to any event
subsequent to the date hereof.
We are delivering this opinion to you and, without our prior written
consent, no other persons are entitled to rely on this opinion. We hereby
consent to the filing of this opinion as an exhibit to the Proxy Statement and
to the use of our name under the captions "THE PROPOSED MERGER -- Certain
Federal Income Tax Consequences of the Merger" and "LEGAL MATTERS" in the Proxy
Statement.
Very truly yours,
/s/ Simpson Thacher & Bartlett
<PAGE>
EXHIBIT 23.01
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of MBIA, Inc. (the "Company") on Form S-4 of:
1. Our report dated February 3, 1997, on our audits of the consolidated
financial statements of MBIA, Inc. and Subsidiaries as of December 31,
1996 and 1995, and for the years ended December 31, 1996, 1995, and
1994, which report is incorporated by reference in the Company's Annual
Report on Form 10-K;
2. Our report dated February 3, 1997 on our audits of the financial
statement schedules of MBIA, Inc. and Subsidiaries which report is
included in the Company's Annual Report on Form 10-K.
We also consent to the reference to our firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
New York, New York
December 29, 1997
<PAGE>
EXHIBIT 23.02
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
CapMAC Holdings Inc.:
We consent to the use of our reports on the consolidated financial statements
and related financial statement schedules of CapMAC Holdings Inc. as of
December 31, 1996 and 1995 and for each of the years in the three-year period
ended December 31, 1996, which appear in the CapMAC Holdings Inc. Annual
Report on Form 10-K which has been incorporated by reference in the Proxy
Statement of CapMAC Holdings Inc. which is referred to and made a part of the
MBIA Inc. Prospectus and Registration Statement on Form S-4 and to the
reference to our firm under the heading "Experts" therein.
/s/ KPMG Peat Marwick LLP
New York, New York
December 29, 1997
<PAGE>
EXHIBIT 99.02
CAPMAC HOLDINGS INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
SPECIAL MEETING OF STOCKHOLDERS ON FEBRUARY 3, 1998
The undersigned hereby revokes all prior proxies and appoints Ram D.
Wertheim and Paul V. Palmer, and each of any of them, as attorneys and agents
of the undersigned with full power of substitution, to represent the
undersigned and to vote as Proxy all shares of the Common Stock of CapMAC
Holdings Inc. ("CapMAC"), which the undersigned is entitled to vote, at the
Special Meeting of the Stockholders of CapMAC to be held on February 3, 1998,
at 10:00 a.m., local time, at the offices of Simpson Thacher & Bartlett, 425
Lexington Avenue, New York, New York and at any adjournments thereof, upon the
proposal listed on the reverse side hereof and in their discretion, upon other
matters incident to the conduct of the meeting.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICE BY MARKING THE APPROPRIATE BOX,
SEE REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN
ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATION. THE PROXIES CANNOT
VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD.
SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
(Continued and to be signed on other side)
<PAGE>
This proxy will be voted and will be voted as specified by the stockholder.
If no choice is specified, it will be voted FOR the proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL
1. Proposal to approve and adopt the Agreement and Plan of Merger dated as of
November 13, 1997 (the "Merger Agreement") among MBIA Inc., CMA Acquisition
Corporation and CapMAC. A copy of the Merger Agreement is attached as Annex
A to the Proxy Statement/Prospectus relating to the Special Meeting.
[_] FOR [_] AGAINST [_] ABSTAIN
2. In accordance with their discretion on any matters incident to the conduct
of the meeting.
SIGN, DATE AND RETURN THIS PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
Signature should conform exactly to name
shown on this proxy. Joint owners must
each sign. When signing as attorney,
executor, administrator, trustee or
guardian, please give your full title as
it appears on this proxy. If a
corporation, please sign in full
corporate name by President or other
authorized officer. If a partnership,
please sign in partnership name by
authorized person.
Date ______________________________ ------------------------------------------
Signature
Date ______________________________ ------------------------------------------
Signature
<PAGE>
EXHIBIT 99.03
CAPMAC HOLDINGS INC.
885 THIRD AVENUE
NEW YORK, NEW YORK 10022
December 29, 1997
Dear Stockholder:
We are pleased to invite you to attend a Special Meeting of the Stockholders
of CapMAC Holdings Inc., which will be held at the offices of Simpson Thacher
& Bartlett, 425 Lexington Avenue, New York, New York, at 10:00 a.m., local
time, on February 3, 1998.
At the Special Meeting, CapMAC stockholders will be asked to consider and
vote upon a proposal to approve and adopt an Agreement and Plan of Merger,
dated as of November 13, 1997, among MBIA Inc. ("MBIA"), CMA Acquisition
Corporation, a wholly owned subsidiary of MBIA and CapMAC (the "Merger
Agreement"). Pursuant to the Merger Agreement, CapMAC will be acquired by MBIA
in a merger, and CapMAC will become a wholly owned subsidiary of MBIA (the
"Merger"). In the Merger, each issued and outstanding share of CapMAC common
stock, par value $.01 per share, will be converted into the right to receive
that number of shares of MBIA common stock, par value $1.00 per share, at an
exchange ratio obtained by dividing $35 by the average of the closing sales
prices of MBIA common stock as reported on the New York Stock Exchange
Composite Transactions Tape on each of the fifteen consecutive trading days
immediately preceding the third trading day prior to the effective time of the
Merger (the "MBIA Common Stock Price"), rounded to the nearest 1/10,000th,
provided that such exchange ratio will be .6604 if the MBIA Common Stock Price
is less than $53.00 and .5 if the MBIA Common Stock Price is more than $70.00.
CapMAC stockholders will receive cash in lieu of any fractional shares which
would otherwise be issued in the Merger.
Your Board of Directors has carefully reviewed and considered the terms and
conditions of the Merger and has received the opinion of Salomon Brothers Inc,
CapMAC's financial advisor, that, as of December 29, 1997 and based on and
subject to certain matters stated therein, the consideration to be received by
CapMAC stockholders in the proposed Merger was fair, from a financial point of
view, to such holders. A copy of that opinion is attached as Annex B to the
accompanying Proxy Statement/Prospectus. THE BOARD OF DIRECTORS OF CAPMAC HAS
DETERMINED THAT THE MERGER IS FAIR TO AND IN THE BEST INTERESTS OF CAPMAC
STOCKHOLDERS. ACCORDINGLY, THE BOARD OF DIRECTORS HAS APPROVED THE MERGER
AGREEMENT AND RECOMMENDS THAT YOU VOTE IN FAVOR OF THE APPROVAL AND ADOPTION
OF THE MERGER AGREEMENT.
You should read carefully the accompanying Notice of Special Meeting of
Stockholders and the Proxy Statement/Prospectus for details of the Merger and
additional related information.
We hope that you will be able to attend the Special Meeting, but if you
cannot do so, it is important that your shares be represented. ACCORDINGLY, WE
URGE YOU TO MARK, SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY CARD IN
THE ENVELOPE PROVIDED. If you attend the Special Meeting, you may vote in
person if you wish, even though you previously have returned your proxy card.
Thank you and I look forward to seeing you at the Special Meeting.
Very truly yours,
/s/ John B. Caouette
--------------------
John B. Caouette
Chairman of the Board,
President and Chief Executive
Officer
<PAGE>
EXHIBIT 99.04
CAPMAC HOLDINGS INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To the Stockholders of CapMAC Holdings Inc.:
A special meeting of the stockholders (the "Special Meeting") of CapMAC
Holdings Inc. ("CapMAC") will be held at the offices of Simpson Thacher &
Bartlett, 425 Lexington Avenue, New York, New York at 10:00 a.m., local time,
on February 3, 1998, for the purpose of considering and voting upon:
1. A proposal to approve and adopt the Agreement and Plan of Merger,
dated as of November 13, 1997 (the "Merger Agreement"), among MBIA Inc.,
CMA Acquisition Corporation, a wholly owned subsidiary of MBIA Inc., and
CapMAC. A copy of the Merger Agreement is attached as Annex A to the Proxy
Statement/Prospectus accompanying this Notice.
2. The transaction of such other business as may properly be brought
before the Special Meeting or any adjournments or postponements thereof.
The proposed merger and other related matters are more fully described in
the attached Proxy Statement/Prospectus and the Annexes thereto.
The record date for determining stockholders entitled to notice of, and to
vote at, the Special Meeting and any adjournments or postponements thereof is
the close of business on December 19, 1997. Only holders of record of CapMAC
Common Stock on the record date are entitled to vote at the Special Meeting. A
list of such stockholders will be available at the time and place of the
meeting and, during the ten days prior to the meeting, at CapMAC's offices at
885 Third Avenue, New York, New York 10022.
The affirmative vote of the holders of a majority of the outstanding shares
of CapMAC Common Stock entitled to vote at the Special Meeting is necessary to
approve and adopt the Merger Agreement.
You can ensure that your shares are voted at the Special Meeting by marking,
signing, dating and returning the enclosed proxy card in the envelope
provided. You may revoke your proxy at any time prior to its exercise by
attending and voting in person at the Special Meeting, giving notice of
revocation of the proxy at the Special Meeting or delivering to the Secretary
of CapMAC either a written notice of revocation or a duly executed proxy
relating to the same shares and matters to be considered at the Special
Meeting, bearing a later date than the proxy previously executed.
Whether or not you expect to attend the Special Meeting, WE URGE YOU TO
MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE ENVELOPE PROVIDED.
By Order of the Board of Directors,
/s/ Ram D. Wertheim
-------------------
Ram D. Wertheim
Secretary
